There are a number of fundamental reasons why the housing market bubble burst a few years back. To me, it all starts with one basic truth- owning a home should not be a God given right for all Americans.
Thank you, President Obama. Late last week, his administration’s much anticipated report on redesigning the government’s role in housing finance was published. While the report largely takes aim at replacing dysfunctional lenders Fannie Mae and Freddie Mac, it also goes further into pushing homeownership beyond the reach of many American families. In my estimation, that is a very good thing. Our economic system should always have realistic checks and balances, or it breaks down. Mortgages are nothing more than loans. And loans should only be given to those who can show that there is an extremely good chance that they can be paid back.
Unlike his recent predecessors, this president just made a big statement through this report. He’s concluded that our country can no longer afford to sustain its commitment to minting homeowners, regardless of their financial status. The exact quote is, “the government must help to ensure that all Americans have access to quality housing that they can afford. This does not mean our goal is for all Americans to be homeowners.”
The report doesn’t offer any final measures. Instead, it provides three options that the administration could take. But, the bottom line is that this reform takes a bold step in reversing the policies over the last two decades which have allowed Americans with little to no income, very few assets and/or even bad credit, to purchase homes. This will happen because many federal programs that guarantee mortgages for lower-income families will be eliminated and even the Federal Housing Association (the largest government sponsor) will not be allowed to guarantee more than 15 percent of mortgages moving forward.
Of course, many dissenters exist. Some are angry and have actively spoken out against this bill. Representative Dennis Cardoza, a Democrat from Central Valley, CA says, “How is Joe Six Pack ever going to be able to afford a home now?” And, John Taylor, president of the National Community Reinvestment Coalition said, “For those who are working their way up the economic ladder, there is going to be a narrower opportunity for them to enter homeownership.”
To me, this debate is pretty simple. But, like most politicized issues, creative minds have designed a multi-decade old fictitious storyline to make consumers believe that they can only be living the American Dream if they indeed own a home. This fantasy looks like a beautiful Norman Rockwell painting that they’ve carefully air brushed for us- three kids, a dog, two cars and the nice split family ranch with a patio. The problem is that Joe Six Pack (as Mr. Cardoza refers to) might actually be better off renting in the long run, than living this reality. But, he has been led to believe that anything less than owning a home is failure.
Ironically, we all now know that one’s house should not be viewed as a primary investment that always increases year after year. That combined with school and town taxes (which only continue to rise) and steady costs associated with keeping one’s house/ property in good shape, might weigh heavily on Joe’s wallet forcing him to make tough decisions. Instead, that same month to month investment could be saved to put his kids through college. Or maybe, Joe could just take more vacations, buy things he cares about and save a little more for retirement. All of those benefits would probably allow Joe to live life at a higher standard and experience the “American Dream” just as he had always hoped to. And of course, he’ll never have to worry about that nasty word ‘foreclosure,’ again.