Currently, home ownership is under assault. Mind you its under assault from those who probably already own their homes and are not renters (unless they are New York media types). First, the right blame the government’s encouraging home ownership and pressuring lenders to lend to the unqualified thereby causing the great recession by fostering the subprime crisis. Second, the left is also critical of subprime because they assert it is predatory. Of course they are both wrong. As I have pointed out before, subprime is just a convenient whipping boy for those who have agendas. It was not large enough to cause the entire real estate market to crash. It was part of the overall mortgage bubble created by the Fed’s low interest rate policy which was a result of their supporting increased government spending. The right by attributing this to subprime think that they are attacking government social policies – when they just look like racists. The left attack subprime because it ultimately means financial independence for poor people – especially poor minorities. Americans traditionally build wealth through the growth in home equity. Now that we have entered a period in which equity is eroding everyone is piling on home ownership as being bad. In doing so they remind me of the commentators of the NBA finals. When Miami won the first game, they all said that Dallas was dead and the series was over. The Dallas won game two and they all foresaw the demise of Miami. The Miami won game three and they all flip flopped again. Now with Dallas winning game four, they are all piling on one Miami star and saying that Miami is in serious trouble. The conclusion is that they don’t have as clue. The same is true about the critics of home ownership. They are only critical when home values fall. We all know that home prices will eventually recover and wealth will again be built through home ownership. It is a shame that the Fed has written rules that essentially kill subprime. Sure, subprime’s risk assessment did not work in the face of an overall collapse in the market – but which one did? Still, 80 percent of all subprime loans are current and giving home ownership to a group that has been ill-served by traditional mortgage lenders. As the market recovers, they will build wealth much to the chagrin of the critics on the right and on the left. A pox on both of their houses.
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com