02/16/2011 04:50 pm ET Updated Dec 06, 2017


The pillars of American middle classdom keep tumbling down. Supports have been giving out like trees in an empty forest. Few seem to hear the thud. The quiet crash of supports is lost in a din of partisan bickering, celebrity and sports news. America's sense of self baers less and less resemblance to reality. Fewer and fewer Americans can afford homes, higher education, retirements. Yet, we still see ourselves as a college educated, home owning society that can afford to retire. As things get harder many have turned on the mere notion of help as the problem. We cling to a fading image of ourselves as contradictory data piles up. Affordable university educations, secure retirements and home ownership rates are slipping. Younger Americans are less likely to own homes, regularly do without medical coverage, suffer mountains of educational debt and can't save. Home ownership among Americans 25-29 years old has fallen 10% since the present housing crisis began.

Another support of upward mobility and middle class life began to buckle just this week. The Federal Government and The Housing and Urban Development (HUD) Department released their proposals for the future of Fannie Mae and Freddie Mac. Fannie and Freddie are the agencies, often called GSE or Government Sponsored Enterprises, designed and operated to subsidize and broaden home ownership. Despite many and serious misadventures, these agencies have helped reduce the cost and increase access to home ownership for tens of millions of American families.

We are considering various proposals all of which will reduce the role of Fannie and Freddie in subsidizing mortgages and mortgage investors. There is little doubt that we will see lower rates of home ownership in the future. Younger people, single mothers, first generation immigrants and lower income Americans will be less likely to become home owners in the future. Wage and saving trends already strongly suggested this outcome. Mortgage debt and home price movements have created a situation where more than 1 in 4 American home owners owes more on her/his house than it is worth. It is also true that an expensive and unfair pattern of hap-hazard subsidy has developed over recent years. While this must end, present proposals suggest a private sector rebound will solve present problems. While a rebound from today's housing depths is likely, it will likely bypass fragile buyers. Inclusive recovery that assists marginal economic communities is an unlikely best case scenario and would take many years under the best possible conditions.

We are committing to a future with lower rates of home ownership. Yes, private markets are likely to be willing and able to return to providing more financing than they have over the past three years. No, that will not simply replace the roles of Fannie Mae and Freddie Mac. The massive failure of market based and regulated lending across 2007 and 2008 pushed Fannie and Freddie into conservatorship. Poor decisions and regulations helped mightily. Private lenders- often in the lightly regulated shadow banking sector- failed royally to prudently underwrite loans, price risk and disclose information to insurers, investors, borrowers and regulators.

Market directed lending will result in less available credit and less special provisioning of lower cost mortgages to economically disadvantaged groups. Riskier borrowers will get fewer loans, need larger down payments and pay higher rates. Leaders need to be honest with the public and explain this means lower rates of home ownership and the removal of inclusive home ownership as a national priority.

The graph above depicts home ownership rates in the US over the last 110 years. It is hard to not notice a decisive shift after 1940. Wages and savings are the keys to home ownership. Subsidies have been increasingly essential. Real wages have not risen in a consistent or meaningful way since the mid 1970s. Savings rates are historically and internationally low in the US. Subsidized and often reckless, lending provided the only path to home ownership. This reached terrifying excesses in 2006-2007 and has resulted in massive economic carnage ever since. When the dream of economically viability requires more and more debt it is slipping away. This is true of college, housing, medical care and retirement. Like medical care, advanced schooling and retirement savings, home ownership is a dream of receding viability for many in the middle class. Subsidized loans were never the best way to achieve this goal. People have to earn and save enough to afford their lives. However, replacing expensive and blunt assistance programs with none at all reduces stability, equality and upward mobility.
Fannie Mae, like so many social programs, grew out of the great depression and was created as a government agency in 1938. Freddie Mac came into being as a private enterprise in 1970, at the end of the book in Great Society programs. The hope was to spur competition and decrease the role of government in the mortgage markets. Fannie and Freddie were designed to reduce foreclosure and increase the funds available for mortgages while decreasing mortgage cost. Fannie contributed significantly to a 50% increase in home ownership rates over her first few decades. Mortgage debt issuance spun dangerously out of control from 2003-2007. Fannie Mae and Freddie Mac were taken into conservatorship in September of 2008. This was done to save the US housing and mortgage finance markets from exploding. Conservatorship was saved the housing market and mortgage debt markets from devastating collapse. This was also done to safeguard investors- foreign and domestic- who had purchased trillions of dollars in home mortgages as investments. The Federal Government has spent well over $200 billion shoring up these institutions between 2008 and 2009; there are more costs to come.

We are nearing a decision to place home ownership further out of reach. 80% of Americans would prefer to live in a neighborhood where most people own their homes. 81% of Americans think home ownership is important for the economy. 75% of African Americans and 59% of the entire population still believe that owning a home is a good way to build wealth. Why don't folks connect the dots? Will this be another silent tree falling in a forest of distraction and denial?