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Originally Posted by sheena12
Home ownership provides stability, both financial and personal.
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I agree. One can argue financial stability leads to home ownership, or that home ownership leads to financial stability, but at the end of the day, those who own homes frequently are more stable.
Quote:
Originally Posted by sheena12
I think the focus should be on a pathway to home ownership for more Americans.
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The devil is in the details, as they say. At the Federal level, their numerous incentives, including tax-deductibility of mortgage interest payments and the exclusion of 250K/500K of capital gains upon sale. They have worked well to encourage homeownership.
But not all interventions work out well.
Take the actions 30 years ago by out government -- specifically the actions of Henry Cisneros, then Secretary of HUD, and the now-disgraced Roberta Achtenberg, then Assistant Secretary of the U.S. Department of Housing and Urban Development for Fair Housing and Equal Opportunity.
Roberta Achtenberg saw home ownership through the lens of social class. After all - that was her job title. She was supposed to root out and destroy violations of Fair Housing and Equal Opportunity.
Achtenberg observed that for the bulk of the 20th century, Dad had a job, and his compensation put food on the table, clothes on the backs of the family, and most importantly, a roof over their head.
By the latter part of the 1980s, the model seemed to have been flipped on its head. A house became the major source of a family's wealth, and Dad's job (and Mom's too) was a source to pay the mortgage -- and the magic of leverage-based housing price appreciation did its job. After all, housing prices only go up, right? Achtenberg's observation was that low-income people, and specifically low-income protected minorities, were turning into a permanent underclass because they didn't own homes at the same rate as others farther up the economic ladder.
https://www.hud.gov/program_offices/...g_act_overview
The train of home-ownership was leaving the station without protected classes, and as the Fair Housing and Equal Opportunity czar, she wanted to do something about it.
So she did -- she rewrote regulations to twist the arm of mortgage originators to write more mortgages to increase home ownership in the poor and minority communities protected by the Fair Housing Act and by lobbying congress for what ultimately became the Financial Services Modernization Act Of 1999 which repealed many of the last vestiges of the Glass-Steagall Act so that mortgage originators could more easily securitize and sell off the alphabet soup of CDOs, MBSs, ABSs, etc. She did this because mortgage originators needed a more effective way to offload the loans they made to those poor and minority communities. After all, the banks already were originating mortgages to everyone who could reasonably be expected to repay the loan, and under the new Achtenberg Rules they needed to increase mortgage origination to even more, and those incremental mortgages were to people who necessarily were less likely to repay.
Of course, it wasn't just HUD.
Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities, giving a leg-up to the poor and more specifically poor people-of-color (HUD's protected class). The original quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.
It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were
required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.
Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.
27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.
Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.
The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history. This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.
As housing bubbles grow, rising prices suppress delinquencies and defaults. People who could not meet their mortgage obligations could refinance or sell, because their houses were now worth more.
Accordingly, by the mid-2000s, investors had begun to notice that securities based on subprime mortgages were producing the high yields, but not showing the large number of defaults, that are usually associated with subprime loans. This triggered strong investor demand for these securities, causing the growth of the first significant private market for MBS based on subprime and other risky mortgages.
By 2008 this market consisted of about 7.8 million subprime loans, nearly one-third of the 27 million that were then outstanding.
Then the government-caused bubble popped. And the rest, as they say, is history. You may be too young to remember the Great Recession, but I trust you can read the many stories of real pain & suffering documented in numerous sources.
There is a special place in Hell reserved for Achtenberg -- she caused massive misery across the world, all in the name of actions to increase home ownership among HUD protected populations.
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