Pols to Blame in Growing Mortgage Crisis?
Is home ownership not for everyone? As the subprime market continues its unraveling, that’s the conclusion some are drawing. We wouldn’t encourage people to buy risky stocks, so why do we encourage low-income families to invest in this risky asset, especially in tight markets? asks Stuart S. Rosenthal, an econ prof at Syracuse University. Clearly…
Is home ownership not for everyone? As the subprime market continues its unraveling, that’s the conclusion some are drawing. We wouldn’t encourage people to buy risky stocks, so why do we encourage low-income families to invest in this risky asset, especially in tight markets? asks Stuart S. Rosenthal, an econ prof at Syracuse University. Clearly we went too far, said Joseph E. Gyourko, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. It’s not the case that high homeownership is always good. Of course, the idea of home ownership is about as American as apple pie, with even such lefties as FDR pronouncing that A nation of homeowners is unconquerable. So while much of the blame for the growing crisis among lower-income homeowners can be placed on the lax standards of mortgage companies, critics are increasingly pointing a finger at government policy that is, many say, too biased towards home ownership. In addition to getting poorer people in over their heads, the unintended consequences include encouraging better-off people to buy bigger houses than they need and even restricting mobility of the workforce. Do you think the government should adopt a housing-neutral policy?
Mortgage Trouble Clouds Homeownership Dream [NY Times]
Thank you, Brenda. All of your remark s on this thread have been very thoughtful, considerate and spot on. Far too often on this site, people make high handed, sniffy remarks about the intelligence and business savvy of those who were not blessed with MBA’s and financial sector job experience, or even American, suburban, upper middle class upbringing, with all of its inherent givens. The vast majority of people who end up buying over their heads are neither stupid, greedy or lazy. The promise of home ownership is a powerful, even iconic, American dream. For every person who was able to swing a subprime loan, or interest only mortgage into a regular fixed rate mortgage at a decent interest rate, and achieve that dream in the only way possible for them, there are an equal amount that don’t. More education is definitely needed, and the predators in the industry definitely need to be weeded out, and fast. Unfortunately with housing going up and up, even in “bad” neighborhoods, any kind of home ownership is unreachable to most. The dream that many much wealthier people on this blog, who want to buy, is no less strong that that of those who make much less money. We are all vulnerable to a good sales pitch that appeals to our deepest wants and desires. Not all of the forclosures in this city are in poor neighborhoods. Poorer people just have fewer options to get out from under the crush.
brenda, well-said. i have a suspicion that the large majority of buyers in recent years are in over their heads. when an ad lists a “starter home” as over 600k and the average household salary in that neighborhood is 60k there is something terribly wrong.
there was a reason that a 20% down payment was required before the deregulation of the mortgage industry.
this whole mess reminds me of the enron debacle. they were betting on future profits and they were screwing consumers by manipulating electric power.
what is the real estate market doing but betting that house values will increase 15% per year without fail and that factors like “limited space” will determine inventory.
enron came crashing down in weeks. everybody’s been saying that real estate is more substantial because everyone needs a place to live. what’s coming to light now is that the way that people were sold their houses was less than sustainable.
look out below!
Anon 1 pm, it is needlessly cruel and unfair to presume that all subprime borrowers in trouble were ‘greedy’ or ‘lazy.’ These home buyers are often the first in their families to attempt home ownership or other major investments, and didn’t have the background to sniff out weasels or feel the thin ice cracking beneath their feet. In Brooklyn, the ads in those ‘Homefinder’ throwaways or the tabloid RE listings pitch zero-down deals to the unwary, often with the huge bond of trust that someone ‘from home’ (your own immigrant community) will be guiding you through the deal. The message that filters down is “Buy! You can’t lose, it can only appreciate, while your income will rise to match your higher rate later on!” It’s a persuasive message, and has even been true for many. The educational push to reach these folks and give them the tools to identify predatory lenders should have been much greater. It took all my college-educated, investigative-journalism-trained self to figure out how much we could afford to borrow “safely,” even 20 years ago, and there was a siren song in my ear from agents etc that we ‘couldn’t lose’ if we borrowed way, way more. If I’d had fewer educational resources to draw on, I could’ve been just as snookered, and I am neither greedy nor lazy. With every investment scam, comes the belated wave of protective legislation, and this phenom will probably spawn its own out of the wreckage; but many of the victims, the saddest cases, are those who got took in “good faith.”
Wow that was a terribly written article. I like the nytimes for everything but business and real estate. The articles on these topics seem to be written by people that don’t even have the most basic understanding of the topics at hand. Plus to make matters worse they don’t seem to try to find out anything about them either. They come up with some theories and use garbled anecdotes to back them up. Its very shoddy reporting for such a prestigious newspaper.
It’s everybody’s fault. All players – borrowers, lenders, appraisers, banks, Wall St., Feds, state and local gov’t. – should be held accountable.
I think only some of the borrowers were ill-informed but that’s because they were too greedy/lazy to read the fine print.
This is never going to effect the market for brooklyn browstones. These buildings will always be unique and in high demand. the values are just going to keep climbing, while this might affect certain border areas slightly. the quality browstones are going to continue to climb, hold on an enjoy the ride. Brooklyn is bullet proof.
NYPD recruits make $25,100 for 6mo (then it goes up to 32,000)…and NYC cant just pay them more b/c the salary was part of a collecting barginning agreement – essentially the union sold out its recruits to get more money for the veterans. If the city were to ‘just pay the recruits more’ it would be unfair barginning.
Cause, you know, credit cards are EXACTLY the same as cash. Just like having a 30-year ARM mortgage is EXACTLY the same as owning your house free and clear.
This country is screwed.
Sylvia:
Of course you’ve probably heard that police recruits start at $25,000 and NYC feels so bad that its decided to extend them each credit cards to live on :/
Umm, why not pay them more?