Naming Housing Insecurity

It's important to think in categories when we think about the American housing crisis. There are different kinds of problems facing different homeowners.

Let's start with the long term homeowner, the family who purchased a home years ago, and as the value of the home escalated, something one has come to expect if the house was purchased in a majority white suburb, the family refinanced to get cash out of the house to pay for other things. These refinancing ventures, whether by mortgage or home equity loans, paid for children's educations, vacations, second homes, and perhaps business investments. These folks did everything legally. They might have over-extended, taken too much equity out of their homes, but they were doing what many other white families have been doing since the suburban boom after World War II: using their homes as investments. The generation before was able to sell these primary residences to finance their retirements in Florida or Arizona. With home values decreasing in some areas as much as 33% in Phoenix, overall housing wealth is losing $380 billion a month. Yes, I said a month! These folks are stuck with big houses they no longer need and cannot afford. On Long Island, the first post-World War II suburb, housing sales were down 21.5% in Nassau County since 2006 and 32.1% in Suffolk. Housing values fell 10.5% in Nassau in just one year and 11.2% in Suffolk in just twelve months.

Next we have the first time homeowner who purchased a house during the upswing of the housing bubble, filled out the mortgage papers truthfully, and now is stuck with a home that is worth less than the mortgage. These are called upside down mortgages. 20% of mortgages are now upside down, according to CBS News. However, people don't lose their homes because their mortgages are upside down. They lose their homes because they can't afford the monthly mortgage payments. The danger for these people is losing their jobs or medical expenses, or anything that throws their budgets off. Then they are in trouble and the value of the home can't cover their debt.

Of course, the news likes to focus on the homeowner who could never afford to own a home, especially not during the housing bubble when prices were so inflated. According to HUD, there are specific steps to discerning whether a home is affordable. "What you can afford depends on your income, credit rating, current monthly expenses, downpayment and the interest rate."

Although the HUD website offers the potential homeowner an interactive calculator, horrifyingly, the website states: "The calculators below can help, but it is best to visit a lender to find out for sure."

And those lenders were predatory! The brokers were enticed into signing homeowners up with inflated income statements that weren't verified. These people were often sold sub-prime mortgages with variable rates. These mortgages were as bad as the balloon loans that brought down the savings and loan industry in the 1980s.

The buyers were often poor, people of color, and purchased homes in areas that had once been red-lined. Greed on behalf of the brokers, ignorance of the buyers, and the incredible complexity of the mortgage agreements made disaster inevitable. These mortgages were bundled and converted from risky loans into a new form of security. Bought and sold, these are the toxic mortgages at the center of the current crisis, not because of poor people but because of clever lawyers and greedy bankers.

Then there are the renters. People who have paid their rent, however, their landlords are defaulting on their mortgages and are being evicted when the banks foreclose.

What we know is that it is important to keep homes occupied and neighborhoods stable. Instead of foreclosing and evicting, banks should be allowing homeowners to become renters. Instead of foreclosing and evicting, banks should allow renters to remain in their apartments. This would do a lot to stabilize neighborhoods and stop the slide of home values.