A Conservative Viewpoint - An American Nightmare

Article by Bob Steinburg
- Edenton, North Carolina: Cradle of the Colony

Americans love home ownership. Almost 70 percent of us are homeowners, a figure that has remained steady since 1960. Our homes provide more than shelter and security. They are a reflection of who we are and from where we’ve come. Family antiques, photos and other memorabilia adorn the rooms, creating an atmosphere that allows each of us to find a familiar respite from trials and tribulations.

According to the Central Intelligence Agency’s World Fact Book, married couples represent 84 percent of homeowners in America; with single families less than 25 years of age accounting for the fewest. Seventy-five percent of whites own their own homes, 60 percent of Asians and 48 percent of blacks. Black, Asian and Hispanic ownership has been steadily increasing.

Home ownership represents an average Americans biggest investment. But in the last 20 years, owner equity in those homes has fallen steadily. It is now at 50 percent. As a means of comparison: homeowners in Spain have 85 percent in equity, Ireland and Norway, 77 percent and the United Kingdom near 70 percent.

During the recent stimulus “negotiations” Republicans were exploring other measures to jump start the economy than some of those finally adopted by the Democrats. Some argue Republicans have no credibility on deficit spending after the Bush years. While criticism is justified, bi-partisanship should not be rendered impotent. With the exception of Republican Sens. Susan Collins and Olympia Snowe of Maine and Arlen Specter of Pennsylvania, little consideration was ever given to ideas from Republicans in Congress on how to stimulate our flailing economy.

The stimulus bill that passed includes mortgage help for troubled homeowners. President Obama announced last Wednesday a $275 billion taxpayer- backed plan that would help an estimated nine million Americans refinance their mortgage payments or otherwise avoid foreclosure.

Many Republicans in Congress felt that if mortgage relief had to be given it should be given to all homeowners with mortgages. They proposed lowering all mortgage rates to four percent. According to a telephone survey conducted last week by Rasmussen, 51 percent of Americans agree with this approach, while 45 percent oppose any federal mortgage subsidy.

If Congress had adopted the Republican plan, the additional money that would have been saved in monthly mortgage payments by reducing existing mortgage rates from an average of six percent to four percent would have been significant. On a $200,000 mortgage, discretionary spendable income would increase by $3000 per year, or $250 per month. On a $100,000 mortgage, the savings would be $1340 per year. In addition, the National Association of Realtors state that for every percentage rate drop in interest, between 350 and 400,000 additional home sales are generated.

NAR estimates there are 75.1 million owner occupied homes in the U. S. Forty nine million of those homes have mortgages. Imagine the immediate impact to America’s economy if all home mortgages had been reduced to four percent? Almost 50 million homeowners would have had additional money to spend every month ongoing, as opposed to the Obama plan that will bring relief to nine million homeowners.

But the Obama plan can still have some positive effect on the troubled housing market. It should help to stem foreclosures that would have further increased an already hefty national housing inventory, thus helping to stabilize housing prices.

With all the money being doled out of Washington these days, some folks are angry. I received a call from a reader last week upset about the housing segment of Obama’s stimulus package. She said that she had acted financially responsible over the years and now “selfishly” feels that others are being rewarded for their lack of fiscal discipline, and worse- she and other responsible taxpayers are furnishing the reward money.

She went on to say that when she purchases stock and loses money, it’s her loss and she alone must bear it. She sold her condominium in Florida last year when she chose to relocate to North Carolina. “I took a terrific loss,” she said. “But it was my decision. I don’t expect anyone else to pay for my mistakes or lack of good judgment. I probably shouldn’t have bought in Florida in the first place.”

Shouldn’t have bought it in the first place? How many of us can say that about a recent first or second home purchase or even taking on and then using a significant equity line of credit? Fannie Mae, Freddie Mac and Federal Home Loan Banks have funded or guaranteed $6.5 trillion in home loans. While home ownership and building up equity is admirable and a fundamental component to a thriving economy, bad loans aren’t. And these folks made plenty of them.

When little or no money is required for down payments; when allowing unemployment and welfare benefits to count as income to qualify for a loan; and when providing “teaser” adjustable rate mortgages to make borrowers believe they can afford more home than they actually can, sooner or later, bad things are going to happen. The relaxed borrowing standards “encouraged” by Washington, coupled with greedy and opportunistic bankers and investors preying on uninformed, naïve or equally opportunistic buyers, has our fiscal ship of state floundering.

In the past, Americans wanting to own a home worked hard and saved their money to make that down payment. They “earned” the right to qualify for their part of the American dream. But in America today, hard work and savings has taken a back seat to instant gratification, greed and government handouts. This mindset is economically unsustainable and is part and parcel why the American dream of home ownership is turning into an American nightmare.

The problem I have with either the Obama scam or the Republican counter proposal described by Bob, is that the crisis is an artificial crisis. Each time there is another delay in resolving the backlog of homes in the heavily damaged foreclosure states (which only include five states – see here) the entire banking industry continues to wait for the bailout and delays making any loan decisions. As a result, no loans are being made because no one has the ability to predict what the outcome will be.

It is interesting how libertarians are more hostile to Wall Street than conservatives, yet more willing to trust the free enterprise system than those supposedly capitalistic denizens of our investment banking centers. The bailout was a mistake for more serious reasons than Bob describes. America has lost confidence in free enterprise and personal initiative.