The New American Dream…..Renting?

      Okay Peachtree City before things become as hostile as a town hall meeting on health care, let me explain the topic.  Recently, I read this article in the Wall Street Journal entitled “(Marxism) The New American Dream: Renting.”  The article stated that Americans might as well get used to the fact that home ownership is no longer a realistic goal for folks and further suggested that we curtail the enormous government subsidies that are fueling this endeavor. The Marxism connotation as identified in the article’s caption views Capitalism as a society in which a small minority of the population dominates and exploits the vast majority considered the working class.

At first glance it looked to be just another article by another self-proclaimed expert on their soapbox pontificating about the economy and forecasting more gloom and doom on the horizon.  Later, I realized that the author, Thomas J. Sugrue a noted historian and professor at the University of Pennsylvania had profoundly chronicled the history of home ownership in modern America.  What was even more intriguing was that his perspective was not only poignant but he seemed to have personalized it for me by using Atlanta as the microcosm for his analysis. 

If you watched the news on or about August 12, 2009, there was several days of coverage from the Georgia World Congress Center.  The images the television cameras broadcasted was tens of thousands of emotional homeowners packed into the World Congress Center like they were attending Michael Jackson’s memorial service.  Thousands were standing in line braving the mid-summer temperatures desperately seeking assistance in the face of losing their homes.  The organization known as “The Neighborhood  Assistance Corporation of America” (NACA)has been successfully touring across the South.  Their goal is to paring struggling homeowners with the likes of mortgage giants such as Bank of America and CitiCorp.  Evoking tears of joy and relief, some of the lucky ones were able to hold onto their ‘Dream” (at least for now) as they received loan modifications right on the spot.  

So what may have brought us to this point you say?  The article eluded to the real possibility that the lights could be going dim on the American Dream?  You gotta be kidding me?  The death of the American Dream?  That had to be just a bunch or rhetoric!  But other revelations was still to come.  As I continued to read the article it was becoming more and more apparent that the sheer existence of the Home-Ownership Dream had everything to do with free markets, financial regulation, government intervention, and taxation. 

Think about it folks….The birth of the American Dream didn’t occur until Uncle Sam intervened way back during the Great Depression.  In 1913 Uncle Sam added a little known provision to the federal tax code that allowed for the deduction of home mortgage interest payments.  Just so you know, it was Herbert Hoover that signed the Federal Home Loan Bank Act in 1932, which laid the groundwork for federal intervention.  In 1933, Frankin Roosevelt created the Home Owners’ Loan Corporation to provide low interest loans for foreclosed home owners.  In 1934, FDR created the Federal Housing Administration which cut rates and created the 25 and 30 year mortgages.  Before that time mortgages were typically 10 year loans with 50% down payments. 

Then in 1938, FDR created the Federal National Mortgage Association (Fannie Mae) and thus was the birth of the secondary mortgage market.  Later in 1944, the federal government extended mortgage assistance to returning veterans, most of whom could not have otherwise afforded a house.  For me, this allowed my dad an army veteran as well as 90% of other families of veterans in the neighborhood I grew up in Chicago to purchase homes.      

The data in the article is pretty darn accurate.  Credit was easy to get as the Feds started underwritting  housing programs.  By 1950, 55% of Americans had attained their piece of the American Dream.  By 1970, that figure reached 63%. Yes, It was now cheaper to buy than to rent!   Subsequently renting carried a new stigma.  Federal intervention unleashed enormous sums of capital that turned new home construction and real estate into economic sectors.  In 1959 the census bureau began collecting data on new housing starts.  This became a leading indicator of American economic vitality.

So it seemed too that these same federal policies carried another storied face….racism!  Of all new housing built today, the article stated that 80% was reported to be reserved for suburbia a direct reflection of federal policies favoring the outlying areas instead of rebuilding deteriorating inner cities. This trend continued until civil rights legislation was passed back in 1968.  The author questions seemed to indicate that the government sanctioned programs favored segregation although it was cloaked to look like the work of the free markets - the result of countless folks choice of where to live.

By the 1960’s & 70’s the Dept. of Housing & Urban Development (HUD) took hold and expanded the opportunity for housing which previously excluded minorities.  Later in 1976, the Community Reinvestment Act forced banks to make loans to certain areas that had been previously “red lined”by banks. Soon Fannie Mae & Freddie Mac were even pushed to underwrite loan for minorities and others who were previously considered to be an “adverse risk.” 

As the turn of the 21st century approached, the euphoric Dream of home-ownership suddenly went delusional! The financing industry aided and supported by the Clinton and Bush administrations found new ways and implemented new tools to make it possible for more folks to obtain a piece of the Dream.  We witnessed the birth of sub-prime lending, the securitizing of mortgages, and a cast of Financiers emerged that made it possible to gamble with other folks money.  Of course, this opportunity to “get rich quick”enabled and lured investors to come out of the wood-works.   Cha-Ching!

So here we are folks…waiting for devine intervention or someone to lead us out of this mess as the article referenced back to the scene at the Georgia World Congress Center.  Here are the stats: Housing values across the United States have fallen by one third; Over a million homes were foreclosed on nationally in 2008; Foreclosures were up 7% in July 09; and our beautiful peach state ranks #7 of all states with the highest rate of foreclosures.  The collapse in confidence in securitized, high-risk mortgages has also devastated some of the nation’s largest banks and lenders. Look at Georgia’s banking problems!  Fannie Mae alone held an estimated $230 billion in toxic assets.  By the way, banks have only extended 400,000 offers to an estimated 2.7 million folks who are more than 2 payments behind!  So who’s really benefiting from the stimulus?

Economists like Wharton School’s Joseph Gyourko, are beginning to make the case that public policies should encourage renting, or at least put it on a level playing field with home ownership.  The article reports that a June 2009 survey commissioned by the National Foundation for Credit Counseling, found a deep-seated pessimism about home ownership, further suggesting that even if renting doesn’t yet have that mark of distinction, it is the only choice available for folks who have been victimized by the housing market.  Further, One third of respondents did not believe that they would ever be able to own a home.   A whopping 42% of those who once purchased a home and lost it, now believe that they’ll never own one again.

So there it is folks….everyone has their own story, struggles and opinions.  Even me.  Should we encourage folks to try and save their homes or is there a point to be made by this whole analysis.  Further can it be deduced that government may have played a major role in the development of this crisis and now plans to portray the hero?  Who can you trust?  Additionally, with the currently rise in foreclosures….can we even consider renting an option without worrying about the owners possibly facing foreclosure and renters being put out in the streets.  What do you think?