While I guess it made for interesting reading, there's not much that should be regarded as "news" in yesterday's New York Times article about how the Bush administration fueled the housing crisis through deregulation and the careless inflation of the housing bubble. The housing polices of the late nineties (yes, including those of the Clinton administration) and most of the two-thousands have been an excruciatingly long and drunken set up to a suicide dive, with countless people standing on the sidelines warning about the reckless cliff dance and the dangers below.
In fact the Bush administration, in response to the Times article, actually said that "the failure of financial institutions to perform normal and necessary due diligence in creating, buying and selling new financial products" was a "problem that almost no one saw as it was happening." Wrong! As someone who has been writing about the over-selling of homeownership, while simultaneously taking part in an advocacy movement that has for years been crusading against abusive lending practices and the securitization process, I'm well beyond "I told you so."
What I'm more concerned about is how policy makers and even advocates seem to be unwilling to have a frank conversation about what a new paradigm of homeownership should look like in the wake of the Bush's "Ownership Society" implosion. Here are some points that are missing from today's conversations about America's housing economy:
Ditch Risk-based pricing -- I reject the notion that subprime lending is necessary for "minorities" to receive loans. As someone who ran a lending institution, the notion of charging higher rates to people with lesser means never made sense to me. The business model used among high-cost lenders -- feed on consumer desperation while raking in an assortment of transactional fees -- is not just exploitative, it's simply too volatile for an industry involving a family's shelter and the nation's economic security.
Let's put aside for the moment that a high percentage of subprime loans were made to people who could have qualified for lower-priced "prime" loans. Risk is best addressed by increasing the borrower's equity stake or capacity to repay -- like a larger downpayment or a co-signer -- rather than an increase in the borrower's month-to-month financial burden.
Promote and Incentivize Bank-to-Borrower Lending -- The subprime crisis came about because lenders no longer had a compelling, over-riding, interest in making sure the borrower paid back the loan. The securitization assembly line, from mortgage broker to hedge fund investor, rewarded the passing along of risk and the grabbing of fees. Show me a lender who originates a loan and holds it for thirty years and I'll show you sound underwriting.
Recognize that Wages Matter -- Advocates, foundations, think tanks and elected officials of varying ideological stripes have for years been promoting homeownership and asset-building as the "new" way to build wealth among "minorities", arguing that policy makers have been too fixated on wage and income disparities. Well, wage and income stagnation helped lead families to rely too much on credit and home equity to make ends meet and live their version of the American dream. While asset-building opportunities are obviously important, it's time to focus public policy on lifting American wages.
Stop saying Homeowners are Better People -- We need to stop creating public policies that transmit the message that evolved stakeholderhood and more wholesome values come from owning a home. Not only is that not true, that narratives creates a dwelling hierarchy and takes our eye off the needs of renters.
Promote Affordable Housing, not Real Estate Speculation -- Housing bubbles generate a gold rush in which the dollar stakes, almost by definition, are in the hundreds of thousands or millions. As a result, family housing needs get conflated with investment goals. Our public policy needs to focus on creating opportunities for people to spend less on maintaining a roof over their head, regardless of whether that is achieved through renting or home-buying.
Keep the air out of the bubble -- The Bush administration is trying to jump start another housing bubble by driving down mortgage interest rates and driving up housing prices, thus preventing the housing market from correcting itself. Focusing attention on helping people avoid foreclosure would have the effect of normalizing and stabilizing the housing market, without over stimulating it.
This entry is crossposted on the DMI blog.