In the popular imagination, the American foreclosure crisis is a morality play in which comeuppance has landed on greedy people who had it coming. Homeowners gorged on the wealth they took out of their properties like gluttons at a Vegas buffet, using exotic mortgages to fill living rooms with home theaters and garages with new cars.
Such judgments form the crux of the argument against using taxpayer money to help homeowners who can no longer make their mortgage payments: People chose to live in brazen disregard of their limited means. Why should responsible neighbors be forced to bail them out?
This view has always been hard to square with the facts, given that millions of Americans used home equity loans to start businesses, pay for health care and send children to college. Now, a new study adds a powerful insight into the reality that scarce incomes and rising costs for middle class life played a decisive role in putting homeowners in deep financial trouble.
The study -- the work of the Metropolitan Policy Program at the Brookings Institution -- focuses on the yawning gap between the price of housing in communities whose public schools boast high test scores, and those in places where the local schools are behind the curve. Mining housing and school testing data from metro areas across the country, the study adds the imprimatur of authority to something most people already knew without looking at a spreadsheet: It costs a lot more to live in a place that has good schools.
Indeed, the study takes a stab at quantifying just how much more, calculating that in the nation's 100 largest metropolitan areas, housing costs in communities with public schools whose students test well above the state average run 2.4 times higher than those in areas with lower-achieving schools. Homes in areas with top schools are worth on average $205,000 more than those located in places with lower-achieving schools.
The value of real estate is crucial, because home ownership tends to be the price of admission to top-quality public education: Communities with high-scoring schools have a much smaller percentage of rental homes than those with lower-scoring schools.
What does all this have to do with troubled homeowners and relief from unaffordable mortgages? A great deal. Though the study is principally concerned with the impact of restrictive zoning policies (which tend to exclude lower-income and minority households), it serves as a potent antidote to the phony notion that people threatened with foreclosure are largely undeserving of help because they squandered their dollars on unnecessary pleasures. It brings home the fact that many people now behind on their mortgages got there not because of stupidity or gluttony, but because of the high cost of satisfying a societal imperative: They wanted to put their children in good schools.
"There's a lot of pressure on low- and even moderate-income families, really up and down the income ladder, to spend as much money as they can to buy access to high-scoring schools," says Brookings senior research analyst Jonathan Rothwell, the study's author.
Many people now in trouble knew perfectly well that they were paying absurd, bubble-inflated prices for their homes while relying on mortgages with dangerous terms, but they also grasped that the only alternative was to compromise the quality of their children's education. In an era when the reach for Harvard begins at conception, economizing and accepting mediocre schooling is a choice that could seemingly subject a parent to risk of child abuse accusations.
For lower-income and minority households in particular, aiming for better schools amounts to the cornerstone of a rational strategy for upward mobility. Academic literature has found that low-income and minority students who attend schools boasting higher test scores tend to succeed far beyond their counterparts in lower-achieving schools.
Consider the choices confronting a family with school-age children in a major American metro area such as New York, Los Angeles, Philadelphia or Baltimore, where the study finds that housing costs in areas with high-quality schools reach roughly triple those with low-achieving schools. Unless that family is fortunate enough to boast an income at the top of the pyramid, they must either accept lower quality education for their children or take on potentially alarming debt to buy something in a better neighborhood.
The study relies upon data from 2010 and 2011, well after housing prices fell back to earth in many markets. But consider the same family during the height of the real estate bubble in late 2006 in a place like Los Angeles, where the median home price had roughly doubled over the previous four years, according to the S&P/Case-Shiller Home Price Index.
That family confronted home prices that had been pumped into the stratosphere by other people's willingness to sign off on mortgages with exotically lenient terms. They either had to do likewise, accepting the attendant risks, or settle in a more affordable area -- which is to say, consign their children to substandard educations and, by extension, lean college and career prospects.
A major reason for the real estate bubble that drove prices far beyond American incomes was that seemingly anyone with a signature could qualify for a loan. This was in part the result of lax lending standards employed by Fannie Mae and Freddie Mac, the two mortgage behemoths whose reckless pursuit of market share and profits led to a bailout whose cost to taxpayers is now estimated at about $150 billion.
Fannie and Freddie today are wards of the government. Their regulator, Ed DeMarco, refuses to allow them to cut mortgage balances as a means of enabling troubled borrowers to avoid foreclosure, a step that many experts maintain would do much to stabilize the housing market and the broader recovery.
DeMarco's intransigence is costing the taxpayer money, according to Fannie and Freddie's internal studies, which have concluded that writing down principal balances would limit future losses. As I have argued here before, he is doing this for patently ideological reasons. In a speech earlier this month in Washington, DeMarco made clear that he is catering to those he views as the responsible borrowers who avoided getting carried away.
"Many households got overextended financially," DeMarco said. "Some accumulated debts they couldn't afford when hours or wages were cut or jobs were lost. Others withdrew equity from their homes as house prices soared. Others bought houses at the peak of the market, often with little money down, perhaps in the belief that house prices would continue to climb. Yet, there are other Americans that did not do these things. There are families that did not move up to that larger house because they weren't comfortable taking the risk. Perhaps they had to save for college or retirement and did not want to invest that much in housing."
But in practice, distinguishing the responsible borrowers from the supposed deadbeats is not so simple. The guy who bought a house in Los Angeles in 2002 in a neighborhood with affordable schools is a solid citizen worthy of praise. The guy whose kids happened to be born four years later and who had to pay twice as much to get them into the same schools -- this, thanks to Fannie and Freddie's indiscriminate lending -- if that guy happened to have lost hours at work and can no longer pay, he is a degenerate who took on more house than he could afford.
Yes, of course, some people did tap their home equity to fly themselves to Tahiti. The nation is littered with examples of unbridled consumption leading to ruin. That is certainly part of how we got here. But as the Brookings study underscores, plenty of Americans landed in trouble by trying to do what they were supposed to do -- secure decent housing and education for their families.
The ultimate argument against rescuing distressed homeowners is the oft-heard assertion that no one ever forced a borrower to sign off on a lousy mortgage. But the new study implicitly suggests otherwise. Ordinary life forced people to sign. It was either that, or condemn their children to compromised futures.
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Jared Bernstein: Principal Reduction: But One Tool for Home Repair
Besides, educating kids in grades K-12 is far from rocket science, despite what the Kool Aid makers claim. Any parent with a BA or BS degree can do the job (a Masters is overkill).
An affordable home in a moderately competent public school system is far more reasonable -- but parents have to shell out extra time & money for tutors and additional prep classes. Such sacrifices pale in comparison to being knee-deep in an underwater mortgage and near bankruptcy. And the results are comparable to the illusion(s) produced in so-called "higher performing" districts.
Oh, well...
CALL
Now, he didn't lose his job and he earns a good salary. He wanted us to move with him and get rich, but we stayed where we are. In SPITE of all of the troubles with the economy, we've not lost our home, we've not lost our assets, we have not needed a taxpayer or bank bailout, we still pay our debt obligations.
He's not the only one I know...in fact he is more the rule than the exception among folks I know. That was self inflicted pain. The economy is going to have tough periods. People have a responsibility to prepare for them. Some people can't...but MANY, MANY can, but won't.
Should we outlaw the practice?
You seem so happy that Capitalism may be dying but have no idea what will replace it. Well, perhaps history can provide a modicum of information to you. You have Fascism, communism, socialism, Feudal Kings and Queens (i.e. Monarchy), Dictatorships, Tribal groups, Theology based societies (i.e. Muslim), and hunter/gatherers. Any of the latter marvels strike your fancy???? Can any of them be as successful as the free market place and the invisible hand??? Yet, you are blithely prepared to accept any old thing coming down the pipe.!!!
New approaches are doing amazing things. Hopefully they'll start reaching more of the populace soon.
Conservatives have controlled the masses by limiting education for millennia. Time to brush them aside.
I don't think so. Selfishness and disregard for others is not a virtue. It is corruption.
No human is a throwaway. Ever.
Standardized tests are NOT THE PROBLEM Teaching the test and taking class time for such an endeavor is grotesquely abhorrent. Standardized tests only work if a school maintains standards and teaches RELEVANT MATERIAL as reflected by Standardized tests. The argument that such tests cause an ignorant collective of students has merit but the corollary being no tests produce a lost generation.
We were sold on the vision of an economy that could not fail.... the economy was going gangbusters they all said on all the shows..
too many of us failed to remember the saying caveat emptor...
"Credit card companies will be increasing minimum payments right after the holiday as a result of new credit card lending guidelines set by the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision. This new guideline, which potentially double minimum credit card payments"
Ya think?
; )
Government - "Ok, here's a multi-billion dollar package."
Main Street - "Our mortgage went too high and now we can't afford it, we're going to lose our homes. Help us, or the whole economy will suffer!"
Government - "Nope. Sorry. It's your problem. Good luck."
And they took our homes, family by family, dividing and conquering. The people did not stand together in protest or outrage against this, and it was allowed to happen. The government could have stepped in, reduced mortgage payments to reasonable amounts, kept families in their homes. They refused, and offered up false narratives about recklessness, and offered a pittance of help to "responsible" home owners. Meanwhile bailing out reckless Banks and wall street crooks.
Republican or Democrat, hold their feet to the fire for this, it's not over, it's still happening. Why bail out wall street but not help main street? Why why why why why why??????
http://the99spring.com/