The reason for the housing bubble in 2008 (which the economy still has not recovered) was due to subprime mortgages
extended to borrowers without the financial means to make the mortgage
payments. As these homeowners began to default on their loans, the derivatives
into which those loans had been packaged began to lose value and the financial
institutions that held those derivatives began to see their collective
financial futures spiral into bankruptcy.
Back in the days with some semblance of sanity, with a less intrusive federal monetary
apparatus, lenders required that borrowers make a down payment of 10%-20% of the
loan amount. The lenders wanted the borrower to have some skin in the game.
After all, how likely are you to stop making mortgage payments on a house in
which you have $20,000, $50,000, or $100,000 of equity? Those who make no or
low down payments have no financial incentive to stay in the house, therefore,
foreclosures are more likely.
Despite what leaders from both political parties have said
over the years, home ownership is NOT for everyone. The arguments for
higher home ownership rates tend to revolve around the American Dream and
fairness. These emotion-based arguments are null and void in the real world.
The American Dream does not include 0% down payment
on the house of your dreams. The more accurate depiction of the American Dream, when it relates to home ownership, is
you go to work for five years, save as much money as you can, and put down 20% on
the purchase of your first house.
The fairness argument goes something like this:
everyone should be able to buy a house regardless of income or ability to make
their loan payments. This is nothing more than an intellectually lazy,
politically correct way of avoiding having to participate in a debate on its
merits. Anyone opposed to participating and advocating for another housing
bubble is shouted down and called names. It’s like the global warming hoax.
After all “the science was settled” and “the debate was over.”
Let’s be honest, the relatively high rate of home ownership
in America is due largely to federal government’s intervention in the free
market via the mortgage interest deduction. If that tax break was repealed, we
just might become a nation of renters!
