The goal seemed simple enough. Provide more opportunities for people to own a home. After all, home ownership helps stabilize neighborhood values and contributes to the growth of the overall economy. Home ownership is the cornerstone of the American capitalistic system; it symbolizes freedom and our right to vote. Its foundation can be traced to our Constitution and Bill of Rights. The freedom of speech, religion, and assembly, the protection against quartering of troops, protection from unreasonable search and seizure, all of these can be associated with the privilege of acquiring property.

If home ownership provides such a tremendous benefit, then wouldn’t it be advantageous if more people could buy houses? Increasing home ownership was a win / win for all concerned. Offering incentives to prospective home buyers became commonplace. Our financial institutions developed new products to meet the needs, (or create the needs) of almost anyone who wanted to apply for a mortgage. Buy now, pay later. Don’t worry about meeting the monthly payment, home prices are going up. Refinance later and defer, allowing your equity to grow. As Bud Fox said in the movie Wall Street, “Everybody is doing it now”….”Nobody gets hurt”.

It became more advantageous to own versus rent. It was easier to obtain a mortgage than it was a department store credit card.. If you cannot qualify based upon your current annual income, then use our special application and state what you think your income is (hint, it needs to be “x” amount). When the money supply is readily available and credit is easy, people didn’t seem to worry about the price they paid for a house. The market spawned many new real estate investors (actually speculators). Buy a house today, add new carpet and repaint, sell it 4-5 months later for a quick 20% gross profit. Fast money and the guaranteed key to riches. Little did we know the American Dream would soon morph into a financial catastrophe of unseen proportions, toppling the most respected institutions including Bear Stearns, Lehman Brothers, and Countrywide along with Fannie Mae and Freddie Mac. Not to mention the thousands of people who will become unemployed as a result.

Many years from now human behaviorists will study the causes of the housing crisis. It will become case studies in our universities. Did government become overzealous in its commitment to increase and encourage home ownership? Did financial institutions turn a blind eye to the realities of mortgage defaults simply because the housing market reached historic highs for several years and the constant wave of refinancing was able to postpone the inevitable wave of foreclosures? And to what degree were prospective home buyers willing to commit mortgage fraud so that they could obtain their piece of Americana.

It seems strange to me that good old fashioned GREED could be the foundation of our financial demise. Bankers after all are some of the most conservative and risk averse people I know. It’s part of the job description. Pricing risk with the appropriate return on investment is how they make decisions and money. How did they make these career ending, company liquidating decisions, based upon not appropriately assessing the degree of risk they were assuming? I have a hard time believing these decisions were soley based upon the fact that everyone was doing it and nobody gets hurt.

Tags: housing crisis, real estate housing crisis, real estate market