Politicians and pundits quickly found an easy target to pin the nation’s economic crisis on — homeowners who bought more house than they could afford. I, for one, think we should stop blaming homeowners for bad public policy, poor government oversight, and greedy lenders.
“But,” the critics argue, “it’s the irresponsible homeowners who caused this crisis because now they can’t repay their mortgages. This creates bad debt at banks, further reducing the banks’ ability to lend.”
That argument is flawed and here’s why:
- Homeowners didn’t package and slice up mortgages into untraceable, unmeasurable and risky economic instruments.
- Homeowners didn’t relax the rules allowing banks to increase their debt-to-deposits ratio.
- Homeowners didn’t run the SEC, Fannie Mae or Freddie Mac whose lax oversight and loose policies allowed the Bernie Madoffs to steal billions, and predatory lenders to defraud millions.
- Homeowners didn’t create the shellgame called credit default swaps, a house of cards created by the lenders to provide the illusion that real “insurance” covered their loan portfolios.
- Homeowners didn’t create the housing bubble, or inflate the market price of property, or assure others that “your house value will always go up.”
- Homeowners didn’t rate the riskiest of financial instruments as sound and solid, like the rating agencies did. Those same agencies are supported by the companies they rate.
No, homeowners didn’t do any of those things. I personally know of instances where bankers encouraged borrowers to borrow more, to take out 100% loans, to apply for no-money-down loans, and to accept variable rate loans with ridiculously low initial teaser rates.
I also know families who have lost their homes during this crisis. Families for whom the American dream came within reach while both were working, but when the husband lost his job that dream evaporated quickly. I do not blame hardworking families for trying to better their lives by buying their own home, or by moving to a newer home in a newer neighborhood with better schools and services.
Were there abuses? Absolutely. Two houses down from us is a house bought under a government program by a family who never paid a penny on its mortgage, and rented the house to any and all comers. When the bank foreclosed, it wasn’t a bank here in Chatham, or Danville, or even in Virginia. The bank that held the mortgage on that little house in Chatham, Virginia is headquartered in Texas. How did that happen? Bad policy, poor financial oversight, lax government regulation, and, in that case, unscrupulous borrowers. But let’s stop blaming all families who dreamed of a better life for the misdeeds of the few.
What does this have to do with churches? Just this — the people who live in your communities and mine may have made mistakes, may have taken on too much debt, and may be in trouble financially. Churches can minister to these families with solid financial training, personal support, financial help, and spiritual encouragement.
In the past few months our church has helped one family stay in the home they were going to lose, helped another family pay their rent during an illness, and found a better house with lower rent for a third. These are real problems faced by real people who only wanted to live a better life. Now we in churches in these communities have the opportunity to stand with them. And when we do, we must not be tempted to explain this complex economic crisis by blaming our neighbors. That’s my opinion, what’s yours?
ChuckWarnock.com 
Could not agree more Chuck.
The only thing left out was the politicians who wanted to be able to brag about home ownership rates going up, who ordered the banks to give out money like it was candy.
“An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.” The Wall Street Journal
Let’s draw this one down to the basic issue: greed. It’s pure and simple. Did homeowners make mistakes? Absolutely. But we all know that the loan the bank offers is the loan many people think they qualify for. It’s plain and simple. And these loans were toxic from the get-go and the intention of many of them was for the borrowers to default and the bank take the house and sell it for an appreciated value.
Banks have decided that enough is never enough. Credit card interest rates don’t earn enough income? That’s easy, vary the payment schedules so people wind up paying late one month and hit them with a $39 fee. Let them go over their limit by a few dollars and hit them with another fee. And, when all of this happens, have the computer program assign a higher interest rate to them. And, when they charge up near their limit, raise the interest rate even if they are still making payments on time.
No, blaming the homeowners is the easy answer for politicians, financial leaders and bankers who were asleep at the switch (to give them the benefit of the doubt) or had their heads stuck way in the trough like the greedy little piggies they are. And my No. 1 person to blame for all of it? Phil Gramm.
A little more from the December 2007 WSJ article quoted above:
“During the housing boom, the lower introductory rate on adjustable-rate mortgages made them feel closer in cost to regular loans to many subprime borrowers, but those rates can jump after two or three years. Brokers had extra incentives to sell those loans, which have terms that often are confusing to borrowers.
For instance, according to a March 2007 “rate sheet” distributed by New Century Financial Corp., now in bankruptcy-court protection and no longer making subprime loans, brokers could earn a “yield spread premium” equal to 2% of the loan amount — or $8,000 on a $400,000 loan — if a borrower’s interest rate was an extra 1.25 percentage points higher than the Irvine, Calif., lender’s listed rates.
Borrowers weren’t supposed to see the information. Tiny print at the bottom of the document warned: ‘For wholesale use only. Not for distribution to the general public.'”
Churches should continue to take the lead by offering help in the form of educating people on the biblical principles of money. Some people in our community have started a group called Super Savers. They meet once a month at the library. They have approached us (the ministerial association) about partnering with them on some ambitious projects to help people during this time. We are eager to work with them as we have been reviewing our policies and are wanting to be more proactive in helping families. Our unemployment is over 11% and much of our industry here in Williams county is tied to the auto industry. For many of our people, they are literally week to week on work. Some weeks are short hours some are none at all.
I have to respectfully disagree.
There is not a monolithic category out there called homeowners. Any that were misled or defrauded ought to be bailed out. But certainly there are people who made poor financial decisions. It seems perfectly acceptable to me for them to restructure, regroup, rent and perhaps buy a new home in a few years.
I think we need to be careful not to assume that the people in trouble did not necessarily know what they were getting themselves into.
I am concerned that by ignoring the culpability of homeowners we fall into the trap of being patronizing while being compassionate.
Good comments all, and thanks. This is a difficult issue, but churches have a role to play here. Or at least we should. Thanks for your comments.
Can we really blame the government when the preverbal carrot is dangled in front of us and we go after it. Am I to blame when I rack up 30k in credit card debt and can’t pay it back or is it the company’s fault because they kept sending me the new cards? Even if the bank did encourage some to borrow more than they needed, were they forced to sign the paperwork? Let’s take some responsibility for ourselves and think. If it looks to good to be true, you guessed it.
Since the post is two parts I should comment on part 2 also.
Sure the church needs to come-along-side and help the families that are hurting. We should love, support and share good solid Biblical counseling during this time. And remember this is not our home.
I agree that personal responsibility is important. But I remember when banks told customers what they could afford, and did not entice them to sign up for loans and credit cards they could not afford. It is a difficult problem, but if we can find $700+billion dollars to bail out the banks, Wall St investment firms, and financiers who created this mess, then we can show some compassion to those who were victims, willing perhaps, to this subprime scheme.
I agree– and would add my story to the defense against homeowners.
We we were buying– just before all of the current crisis began– we qualified for over $300 grand in mortgage lending, despite the fact that we carry a fair amount of student loan debt and had a projected income of substantially less than six figures. Had we bought a home at such a price, our monthly payments would have been almost triple what we pay now. Yet, we’re doing really well to scrape by with our current payment.
We recognized this and chose to buy much less than they said we could “afford”– but many people probably actually trust banks to tell them how much they could really sustain in payments! Oddly enough, one would think that banks would want to make loans they believe they will be paid back…
No, we can’t blame the government. But why should the government be the solution when the banks gave loans to people they knew wouldn’t pay them back and immediately started the shell came of securitization. As churches we need to educate folks more and also help them when they are down. Our mission isn’t to help those who we deem need it–that’s not in the instruction book. Our mission is to help those who need.
I do not blame the “homebuyer” for creating the current national economic crisis. But I do blame most homebuyers for creating their own economic crisis. Many, if not most recent buyers and second mortage leveragers, in trouble bought more house than was needed during the past few years. The banks, in their greedy quest, enabled homebuyers, in their greedy quest, to do so. Auto makers and credit card companies have been doing this for years. The public, with blinders on, have been assuming it was the thing to do for years. What makes a homebuyer think they can afford or are entitiled to a home with a payment of $1000.00/ month, when they are unable to save a dime with a $800.00/ month rent payment? I have never understood the concept.
Clearly lenders should not have made loans to many individuals during the past decade. Clearly lung cancer would decrease if tobacco products were banned. Clearly our collective health would improve if fast food would disappear. And clearly more people would have eternal life in heaven if they would repent and follow Christ, but each individual must be responsible for their own actions. I blame no one for the drop in my retirement accounts. I gambled in the stock market, and recetnly I lost. Assumptions can not be made about the future.
Am I sympathetic to individual impacted during these times? Yes, in all categories of misery whether self inflicted or not and I try to do my part to help those in need in a loving manner, but loving someone does not always include enabling them to continue careless financial stewardship without consequence.