There is something unique about the American home. In no other country or culture is the home—a mere structure—imbued with such meaning as in America. We project our hopes and dreams onto it; we depend on it for security; we leverage it to pursue our goals. We take for granted the ease with which anyone can own a home in this country; we forget that America, and America alone, has the perfect combination of ownership laws and free-market financing by which anyone can not only purchase a home but own the land beneath it. Especially in the last five years, the reputation of the American home has been tarnished. It was my hope this week to rehabilitate its reputation by speaking on its behalf.
In 2008, the American housing industry was a victim of its own success. It had promised the possibility of homeownership to virtually every American. Private banks were anxious to lend, and generous government programs ensured practically anyone, regardless or credit-worthiness, could qualify for almost any home they wanted. But, as I’ve said before: although everyone should be able to own a home, not everyone actually should. Too many people who lacked the discipline to own a home had bought one (or two or three), and eventually the entire system collapsed.
The 30 year fixed mortgage is essentially unique to America, as is the opportunity to actually own the land beneath your home. Throughout Europe and Asia, the most common mortgage products are 10-15 year adjustable rate mortgages. In many European countries, homes are purchased under leasehold agreements: the buyers owns the structure, but the land beneath the home is leased from its own, typically for 99 year terms. These facts explain why homeownership rates in the United States are far higher than in any other industrialized, modern nation. Our laws give you the opportunity to own your land, and our financial culture allows you to afford it.
In the years preceding the 2008 housing crisis, lending laws and practices were relaxed far beyond reason. Borrowers were placed into exceptionally risky products, or lent far more than they could afford. Today, people generally feel it’s homeownership itself that is risky! They have lost faith in the promise and potential of homeownership, and have instead chosen the less-risky, but less-rewarding, practice of renting.
I have taken thousands of mortgage applications throughout my career. I’ve met hundreds of past, present, and future homeowners who have shared their financial dreams, financial aspirations, and even their financial fears with me. I understand the deep distrust people have for the housing and mortgage industries. Most of that distrust is, unfortunately, well deserved. But I believe their distrust is misplaced. The financial institutions, real estate agents, and homebuilders who were responsible for the housing crisis merit most of this mistrust; and, fortunately, most of these institutions, agents, and builders are no longer in business.
I understand this mistrust and the reasons people have it. I also understand trust and the benefits people reap for placing it in the right people. I have sat through loan applications with clients in which people display the whole gamut of human emotion: worry, fear, joy, excitement. They worry about the present—about the late mortgage payments and dwindling financial reserves. They fear the future—the imminent foreclosure and the prospect of losing their home. They feel joy at the possibility of refinancing their mortgage and restructuring their debt to free up money and save their home. And, in the best cases—which also happen to be most cases—they’re excited about their new future and their brightened prospects.
These emotions only appear when dealing with a home. Few apartments can invoke such emotion. Homes can because they are significant enough to warrant such emotion. People truly put their hopes in their homes. They project their wishes for the future onto their home: of marriage, children, and all the memories that happen inside a home. But because their home cannot speak, it cannot remind them of the innumerable ways, both conscious and unconscious, that they tie their lives and their futures into the fate of their home.
This is why I spent this week assuming the personality of a home on the show. I wanted to speak as a home to homeowners everywhere. My hope is that people will consider what I said—what their own home would say, if it could speak—and appreciate the blessings made possible by homeownership.
2-22-14 The American Economy