Foreclosing of America

Helping people buy their own homes has always been a progressive goal. Progressives led the way through enlightened public policy: subsidizing mortgages at low rates with long repayment schedules; insuring the banks that provided them; creating tightly regulated secondary markets to make them safe and profitable; and letting middle-class Americans deduct the money they paid for them on their taxes. The virtuous circle stimulated and solidified the economy, and helped everyone.

Free Market Fundamentalism> Foreclosure

Starting in the mid-1990s, though, conservatives pushed a mortgage market that encouraged selling shoddy mortgages to buyers—whether they could make the payments or not. The resulting collapse is sending our financial markets into a tailspin—and throwing middle-class Americans into the street. That’s conservative power to a T: governing by gambling; leaving ordinary Americans to foot the bill when the bets don't pay off; bailing out the fat cats who set the scam in motion.

This reckless deregulation was sold as a way to goose up homeownership rates. Conservatives stood by as bottom-feeding banks created an incentive system that rewarded salesmen for writing mortgages they knew might not be paid back. The victims: ordinary, cash-strapped Americans who made the mistake of believing that the people selling them their NINJA—No Income, No Job, No Assets—mortgages were playing straight.

Disdain for Government> Foreclosure

Great Depression

America's last great foreclosure crisis was during the Great Depression. In 1932, 273,000 home mortgages were foreclosed—four times the normal rate—and the rate doubled again early in 1933. FDR immediately proposed and implemented legislation establishing the Home Owners' Loan Corporation. The HOLC provided federal money for repairs and refinanced mortgages, mandating historic low interest rates, and also unusually long repayment schedules. That set into motion a policy cascade that soon far transcended merely the needs of those in financial hardship and spread to the entire middle class—indeed, helped build the middle class.

The Federal Housing Administration was established in 1934 to insure mortgages, mandated at favorable terms; in 1938 the Federal National Mortgage Association (Fannie Mae) was established to create a secondary market for mortgage. Then, following World War II, the Veterans Administration offered even more favorable terms for the men who had just defeated fascism.

Before the WWII, the homeownership rate was 40 percent. By 1965, it was almost 65 percent. The housing policy environment helped boost consumer spending, and the result was the greatest sustained economic boom in the history of mankind, and the largest middle class the world has ever known.

But conservatives insisted that homeownership rates should be higher. In fact, homeownership rates have gone up, from 65 percent to 69 percent. But the results of these policies have ensured that the rich get richer while the poor get poorer.

How so? The cover story was that Bush helped subsidize his Ownership Society with new policies to help low-income citizens and minorities buy houses. In fact, the policies were laughably meager—an American Dream Down Payment Initiative Act, for example, that helped only 40,000 households, and a Self-Help Homeownership Opportunity Program to help nonprofits like Habitat for Humanity.

What was the Ownership Society all about? Certainly not about making life better for ordinary Americans. It was about discrediting government as a resource for making lives better for ordinary Americans.

Miscast Morality> Foreclosure

Foreclosure

Following incentives for corporate greed and meager homeownership assistance policies, a housing boom became a foreclosure boom: a vicious cycle, hurting everyone.

For instance, public schools are primarily funded by property taxes levied based on the assessed value of homes. When the value of the homes in a jurisdiction drop, so does the amount of funding toward schools.

By the spring of 2007, one in every 775 homeowners lost his or her home to foreclosure. In Colorado it was one per 292 households. California's numbers had tripled from the previous year, accounting for 21 percent of the national total. Las Vegas—once hailed by the neoconservative American Enterprise Institute as a model "New City of Aspiration"—is at one per 139 households. Figure that for every potential foreclosure, 10 families fear losing their homes.

FDR said protecting homeowners from "inequitable enforced liquidation at a time of general distress is a proper concern of the government." The situation, now as then, cried out for collective action coordinated by government, because it is a collective problem—protecting home values and protecting family homes. That’s a deeply moral vision—but one for which the conservatives' version of morality, which most cares about who you sleep with and which house of worship you attend—makes no room.

The subprime mortgage mess that threatens to bring down the entire American economy is a classic example of conservatives hijacking a progressive value and manipulating it to their own short-term ideological ends. The lenders who defrauded mortgage-holders have begun to whine that they were only trying to do what the liberals told them to do: make credit more easily available to minorities and those with lower incomes. That's a dodge. There are better and worse ways to democratize credit—and conservatives chose the worst, most dangerous ways imaginable.