What if 30-year, fixed-rate mortgages were a luxury rather than a foundation of our housing market?
What if mortgage interest was no longer deductible on federal income taxes?
What if Fannie Mae and Freddie Mac — federal creations gone wild (costing taxpayers $150 billion and counting) that offered "U.S." guarantees and backed the mortgage-backed securities market — slowly disappeared?
What if home buyers had to put down a "substantial" down payment when buying a house, perhaps as much as 20 percent of the home's value?
In the angry wake of the burst housing bubble and amid the hysteria over the federal deficit, these are just some of the possible changes that could sharply alter the housing market and shrink the percentage of Americans who own their homes.
Is this a good thing? Depends on your point of view. Certainly for Florida's still skidding housing market, such changes would hamper the already tepid recovery. But for the growing chorus that wants to shrink the role of the federal government and make the U.S. housing market more self-reliant, it is overdue.
Policy leaders in recent decades grew infatuated with delivering "the dream of home ownership" to anyone with a pulse standing in front of a For Sale sign. Rules relaxed (later growing more perverted) to make getting mortgages easy with no money down, no proof of a steady income and with no need to make regular monthly payments. How? Banks offered interest-only mortgages and tacked on any principal to the back end of the loan.
Who didn't drink housing's Kool-Aid? Home prices were only going higher. Buying a home was smart and padded your financial nest egg.
Then it was over. Home prices plummeted instead.
Home ownership fans long praised the social benefits of more people "owning" (better described as "in hock up to their eyeballs") houses as prices rose. Home ownership, they argued, fostered better educational achievement and civic participation, improved household health, lowered crime rates, and made more stable communities.
That's misleading. Remember "subprime" lending? People who could least afford to buy a home, being high-risk borrowers in the eyes of lenders, got mortgages with the most perilous of terms.
Consider how much less nasty the U.S. economic crisis and home foreclosure fiasco might have been if so many marginal mortgage borrowers had not been approved to buy a home beyond their means?
Yet backers of Fannie and Freddie argue the recession would have been far worse had the current housing subsidies and backstops not been in place to soften the blow.
In 2009, the U.S. median sales price of a single-family home was $172,100. The Center for Responsible Lending argues that "even with a substantial savings commitment" of $3,000 per year, it would take a family 14 years to accumulate the cash needed for a 20 percent down payment.
Okay. But the same family saving $3,500 annually for eight years could put 20 percent down on a lesser home of $140,000.
Qualifying to buy a home used to take time and disciplined saving. Changing the gotta-have-a-home-now mind-set and avoiding the overleveraged home loan may be good public policy after all.
Contact Robert Trigaux at [email protected]