A slightly different American dream…

In a press release concerning the Obama administration’s plans for the phasing out of quasi-governmental secondary lenders such as Fannie Mae and Freddie Mac, NAR tried to stake out a position supporting future government involvement, without sounding too much like they are defending a scared ox.

“NAR believes that we cannot have a restoration of the former secondary mortgage market with entities that took private profits while pushing losses onto the taxpayer. The new system must involve some government presence, outside of FHA, USDA, and the Department of Veterans Affairs, to ensure a continued flow of capital to housing markets during economic downturns when large lenders flee the housing market,” NAR President Ron Phipps said in response to the plan released by the Obama Administration for reforming the housing finance market. “Reducing the government’s involvement in the mortgage finance market is necessary for a healthy market, but should not be done at the expense of the economy or home buyers,” said Phipps.

I suppose one could ask Phillips at whose expense this involvement should be done, if not the home buyers? As I understand the free market system the fact that capital flees the market during downturns is exactly what is supposed to happen. That’s how it works. And in better times the market will find a way to create and price housing products that fit the needs and budgets of the people who want to buy. It will also find the capital to lend the necessary money to those who can truly afford to buy houses.

It is not necessarily wrong, in my mind, for the government to find ways to “encourage homeownership”, through vehicles like the MID; however, it also not wrong to require that would be homeowners be responsible borrowers with a reasonable ability to repay the mortgage loans. Some of that went out the window before the current crisis and we need to get back to basing borrowing and home ownership on sound financial judgments, both by the lenders and the borrowers. While it might be an American Dream; there is no “right to own a home” spelled out anywhere in the Bill of Rights.

At the same time that our politicos are making decisions on the aid that may or may not be there in the future for would be home buyers, they also need to be coming down hard on the unregulated financial practices that led the economy to the brink of ruin. We are now hearing admissions from some of the top people in those banks and wall street firms that we bailed out admitting that neither they nor the people who created the exotic debt packages of real estate backed bonds really understood the products or the risks. Yet, not a single senior level bank or Wall Street person, nor any of the junior level geniuses who came up with these debit bombs, nor any of the credit bureau people who rated them as investment grade products has yet to go to jail and probably never will.

So, will real estate transactions stop if Freddie and Fannie are blown up over time? No. Will the population of the U.S. be relegated back to row-house tenements and apartments by the toughening of down payment and lending rules? No. Will everyone in America be able to afford to buy a house? No. Will the world end because of higher mortgage rates? No. Will everyone be able to afford a McMansion? No!

Builders have already begun to react to the changes that are afoot by building smaller houses and they’ll need to build even smaller ones in the future. Not e eryone will get a granite kitchen. Lenders will figure out how to attract capital and create mortgage products that will make homes affordable to those who really can afford to buy. The economy will reset and adjust, as it has to every other change in the past.

Are our best days behind us? No. But the days in which we defined “best” in terms of huge debts and equally huge houses may well be behind us. Let’s hope so. Let’s also hope that the American people have learned enough from this recession not to be suckered in by the next Wall Street round of “too good to be true” financing and investment opportunities. Let’s also hope that, if there is a next time; there are no companies that are “to big to fail.” Let’s hope that next time the greedy fat cats who recently turned the American Dream of homeownership into a nightmare get their 10 minutes of fame on TV doing the “perp walk” on their way to jail. Now there’s an American Dream worth having.