There are both Donkey Clan and Elephant Clan partisans who try to make every problem that citizens face into something that is the fault of the other Clan. Most despicable are those who fain intellectual and academic objectivity in determining blame.
Blaming the Donkey Clan for causing the mortgage crisis and triggering the financial meltdown because they connived to loan mortgage money to unqualified home buyers is a prime example.
The rhetoric makes for superficially alarming partisan arm waving but has no substance. The core reasons for the financial meltdown are the responsibility of those in both Clans. The basic rules to achieve a sustainable economic trajectory are spelled out in IT IS ELEMENTARY.
First to clear the air:
Yes, lowering the loan standards for home buyers to qualify was done for political purposes. It was done by both parties and has grown worse in recent years with no Agency oversight
Yes, governance practitioners were trying to beef up home ownership on the assumption it was good for those at the bottom of the Ziggurat and was good politics.
Yes, ACORN and others may have undertaken illegal activities (See note on this topic in IT IS ELEMENTARY)
But get real:
If a prospective buyer got a loan that they could not afford and the dwelling is sound when it is foreclosed is a personal / Household tragedy.
But what happens? The bank / Fannie / Freddie resells the dwelling to someone else. If the dwelling and its Dooryard, Cluster, Neighborhood, Village and Community have real value the financial system takes a hit for administrative costs and moves on. This happens all the time.
If there are a lot of those foreclosures in any one component of a Community it can pose a significant problem because there is a problem with the Dooryard, Cluster, Neighborhood or Village.
What is a nation-state tragedy is that from the start Fannie and Freddie did not set standards — as FHA (and later VA) have done since the 30s — for the quality of the dwelling and its location, design, context and services.
There has been much that was not good about the cumulative, Regional impact of those old FHA standards but there were standards. By the time Fannie and Freddie came along there should have been real standards that supported functional human settlement patterns at the Unit, Dooryard, Cluster, Neighborhood, Village and Community scales.
Standards were imperative because of the amount of money pumped into the housing market. Without standards, those billions of dollars leveraged dysfunctional settlement patterns. The lack of standards and intelligent regulation resulted in massive “Wrong Size House in the Wrong Location” problems.
Call it subsidy, call it bad investment, call it what you please, this vast oversupply of money distorted the market and resulted in dysfunction at the Community, Subregional and Regional scales.
Now add bundling, derivatives, no oversight, greed, and global trading – the result is an InterNational disaster.
Since 1973 Agency and Enterprise leadership in the US of A – aided and abetted by both political parities – has been moving toward an economy based on burning up natural capital, importing energy and cheap labor and borrowing from foreign lenders.
In “IT IS ELEMENTARY,” we noted that if a nation-state wants to expand dwelling ownership then:
1) The Houses need to be near Jobs and Services and sized for those who need shelter rather than encouraging the Wrong Size House in the Wrong Location.
2) Agencies, Enterprises and Institutions must discourage speculation on home value.
Both 1) and 2) are directly related to that fact that there is too much land held for urban land uses and that which has been developed is dysfunctional.
Over the last 60 years owner occupied dwellings have increased in value at about the rate of inflation. When the current wave a write downs is complete the values will be below inflation.
It is worth repeating that the internal rates of return on many investment strategies are much higher than on real estate, especially owner occupied dwellings. Depending on ones Household circumstance it may be wise to buy a dwelling for living.
From a financial perspective, it is almost never wise to buy an owner occupied dwelling as a speculative investment. Speculating on ones dwelling degrades the living experience, encourages Abandonment (See Wild Abandonment” 8 Sept 2003) and most speculators end up losing money. One hears about the bonanzas in house speculation hyped by real estate agents not from careful analysis of regional data.
It is important to note that the excuse that impudent loans were created as a way to break “red lining” is a red herring. Almost every upscale component of urban fabric was at one time a place that could be “red lined” — Georgetown, College Hill, Society Hill, Old Town, Vieux Carrie, the list is endless.
What is needed to enhance residential settings is a Regional strategy to improve settlement patterns Region-wide.
Implementation of this strategy may entail making loans to some who would not normally qualify for a mortgage but the loan decision must be made within the context of a strategy to ensure that the Unit, Dooryard, Cluster, Village, Community is a good investment.
The mortgage crisis did not arise because of loans made to prospective home owners with a high risk of defaulting. A foreclosure of someone who had poor credit may be a risk worth taking and if they default it can be a Household tragedy, it is not a banking Enterprise tragedy. If the dwelling is in a functional location, is well built and not too big there are many of potential buyers who desire shelter.
We have pointed out for years that the real problem with Fannie and Freddie is not the bad accounting or insane compensation but rather that they pumped billions into dwellings that were held to no settlement pattern standards beyond municipal controls.
The first stage of the mortgage problem is tens of thousands of bad loans on dwellings that cannot be resold for anywhere near the loan amount. This is compounded by fraud induced by front line lenders who do not have to worry about the loan going bad because Fannie and Freddie would buy it and roll it into a package to sell to gamblers. Add to that the fabrication of definitives to ‘spread the risk’ and you have the first leg of the financial ‘meltdown.’
EMR
Note to Jim Bacon: Swift Boating the Mortgage Crisis is a Commonwealth of Virginia issue because:
1) This is a prime example of a case where the logical Community and Regional responsibility has been overwhelmed by federal action
2) Part of the Commonwealth is in the National Capital Subregion where these policies are made
3) A lot of the Swift Boating is coming from partisan Institutions with addresses in the Commonwealth.
4) The governance of the Commonwealth has done nothing to help citizens address reality.
