Home Ownership Scam
Paul Krugman writes:
This is a very good point from Dean Baker. We’re told that we mustn’t regulate subprime lending, despite the vast wave of foreclosures it has produced, because to do so would prevent minorities and other disadvantaged Americans from achieving the dream of homeownership. Yet homeownership is already back down to about what it was before the big wave of subprime lending began. All that the wonders of the financial market achieved, it seemed, was to give a lot of people a brief taste of homeownership, followed by a nasty foreclosure.
One point that is missing in what Paul and Dean are saying is that the idea was not really to promote home ownership for the poor, but yet one more way for the rich and powerful to fleece the poor for their own enrichment. There was lots of discussion of how the Ownership Society was supposed to help the disadvantaged build up wealth. Here's how the White House describes their goal.
Nearly 70 percent of Americans enjoy the satisfaction of owning their own home, and my Administration continues to promote an ownership society where the promise of America reaches all our citizens. The American Dream Downpayment Act of 2003 is helping thousands of low to moderate income and minority families with downpayment and closing costs, which represent the greatest barrier to homeownership. Since 2002, when I announced our goal to help 5.5 million minorities become homeowners by the end of this decade, the rate of minority homeownership has climbed above 50 percent, and more than 2.5 million minority families have become new homeowners. My Administration will continue to provide counseling and assistance for new homebuyers and expand homeownership opportunities for all Americans.
Yet, for all the fancy rhetoric, the federal government collaborated with the financial institutions to deregulate the lenders so they could extract the most money they could from the people they were supposed to be helping. As I wrote last May:
But, I think this argument underestimates how much of this con game was setup and enabled by this administration who relied on the housing market to cover how their policies were hollowing out the economy through tax policies and incentives and regulatory rules affecting corporations -- policies that helped corporations disinvest in the US in favor of other countries. The government's policies were to sell riskier and risker loans to the most vulnerable people as part of their Ownership Society push and belief that government regulation was always bad. And because the overwhelming focus is on the housing market and the individuals, how their policies have mortgaged our country's future away is not discussed.
The toxic loans were okay, because the mortgage brokers got all the money up front, while the people who "bought" their dream homes were given loans that assured they would be going into deeper debt month by month and owing more than the home was worth. Most of those first time home owners ended up with negative equity and a huge debt that will blacken their future for a long, long time. What a "wealth-generating" scam.
Back in the days when the government really did help increase home ownership, they did it by helping people get regular fix-rate mortgages that weren't designed to fleece the buyer for the sake of enriching the lender. But those sensible practices wouldn't help Bush's greedy friends, therefore we got toxic loans and a crippling mortgage crisis.
(Hopefully, Paul will forgive me for lifting his post.)