In case you missed the story, I’ll recap. There was a big increase in the number of homes purchased last year with “sub-prime” or “near-prime” mortgages. These are the ones that people take out after they find it difficult, if not impossible, to secure housing loans at regular rates; or, as the New York Times put it, people “pushed out of the most favorable loan categories.” Amid the 2005 escalating of housing prices almost a quarter of the mortgages taken out were of this kind, more than double the percentages in 2005.
Over half of the home loans taken out by African American last year were sub-prime whereas the percentage in 2005 was less than a third. The rate for Latinos was 46.1 percent compared with 20.3 percent the previous year while white borrowers went for the higher priced and riskier mortgages at the rate of 17.2 percent in 2005, up from 8.7 percent in 2004. For Asians the 2005 figure was 16.6 percent in 2005 compared with 5.9 percent in 2004.
Over all, mortgages going for three percentage points over regular rates climbed to 24.6 percent of loans made for on owner-occupied homes. In 2004 it was 11.5 percent.
Last year, African Americans, Latinos and Asians were – by a large margin – most likely to be denied a standard loan to purchase a home and thus more likely to accept a sub-prime loan.
Constantly touted by the Bush Administration as an example of its accomplishment, the whole “home ownership” thing has always looked to me a bit ambiguous. I’ve never been quite sure the tradeoff in terms of galloping urban sprawl, transportation difficulties and resource consumption was worth it.
Besides, the argument that owning a home ties a working person to a locale, limiting mobility and dampening wage negotiating power carries some weight, even in the era of the passenger car and extended commuter time. But the desire for home ownership is strong, and after a few years of paying off the loan, there are no housing costs (except the roof and plumbing repairs and fixing the holes in the sidewalk out front).
However, the drive to vastly increase home ownership over the recent period has been largely driven by something else: investment. As housing prices rose, the chances increased of making money by buying selling your house. And accruing a home as an asset of constantly increasing value represents security against problems with retirement or health in later years.
Additionally, borrowing on the value of existing homes has contributed to maintaining the level of consumer spending and fueled the consolidation, but not the reduction – of household indebtedness. All of this borrowing activity has recently approached mania status, peaking in the third quarter of last year. It’s had a contradictory impact on the economy. For instance, it has created jobs; there are now 2.5 million real estate agents in the country; membership in the National Association of Realtors has jumped 25 percent over the past five years.
The biggest impact, however, has been on the nation’s economy – and the world’s. The booming housing market has become a major driving force in the economy.
Now, housing sales are slowing rapidly and construction firms are reducing their planned activity. As the Christian Science Monitor reports, “And millions of consumers face indirect effects: With interest rates rising even as home prices stall, fewer people can borrow on home equity as a source of free cash. Many others – those with adjustable-rate loans – are now being hit by a jump in their mortgage payments.”
And many are simply not able to afford the new rates.
As the Times reported recently, “As the boom thundered on, the pool of available credit grew larger than the pool of credit worthy borrowers, resulting in an explosion of risky mortgages with features like no money down, interest-only payments and super-low teaser rates.”
Seldom mentioned in reporting about the housing mortgage crisis is that most of those affected are working people and the most vulnerable to increased economic pain and insecurity are those who were the most vulnerable to begin with. For many what at first looked like a new rung on the ladder to the American Dream is becoming a slippery handhold.
Our society, through the government, should be doing something about all this. Measures should be taken now to rescue the workers and working families at risk of default or being propelled into poverty. This should be a demand of organized labor and other social and political movements. A lot of people are in danger of being left hanging out to dry.
Yea, I know the arguments against it. This is capitalism and capitalism involves risks. But even under this system people should have some reasonable expectation that they are getting what they think they are buying. Taking out a mortgage to buy a home or refinance your current one is not the same as using extra cash to invest in the stock market. Yes, people should read the fine print but much of what has been going on in the mortgage business is nothing short of flim flam. And government economists knew all along that the housing market was a “bubble” and that when it burst a lot of people would get hurt, some of them real bad. A sensible society with a sense of economic and social justice wouldn’t allow that to happen.
[Carl Bloice is a San Francisco labor journalist]