Myths kill American dream

Opinion: October 21, 2011 at 12:00a.m.

By Preeti Vissa

McClatchy-Tribune

A big part of the American dream is in serious danger — danger fueled by misinformation campaigns that may well lead to terrible policies.

For a long time, owning your own home has been a key part of that dream: One little corner of the world that’s yours, a shelter that not only protects your family from the wind and rain, but also from financial storms. That little bundle of equity can make emergencies manageable and a graceful retirement feasible. And there is plenty of evidence that homeownership helps build stable communities.

But that dream is under attack. More and more media voices have joined a chorus saying that “homeownership isn’t for everyone,” not-too-subtly implying that it’s time to keep the riffraff out. They’ve falsely blamed the subprime mortgage meltdown and resulting recession on efforts to help ordinary, hard-working Americans become homeowners. That chorus grew louder in September 2008, when Fox News host Neil Cavuto infamously blamed the housing collapse on “lending to minorities and risky folks,” and has continued ever since.

Toxic mortgages

In fact, research has shown that the problem is not and never was responsible efforts to expand homeownership, such as the federal Community Reinvestment Act. The problem was toxic, trick mortgages peddled by firms that preyed on the unsophisticated. These loans were filled with booby-traps like low teaser rates with payments that skyrocketed a few years later, negative amortization (meaning that the low early payments actually caused the loan principal and total debt to increase), high upfront fees and prepayment penalties.

Many of these bad loans were refinances, sold to longtime homeowners with equity in their homes who simply needed to make repairs or fix a leaky roof. And millions of borrowers got into trouble simply because of recession-induced job losses.

That’s what happened to Arlene (who asked me not to use her real name), a Los Angeles homeowner whose husband lost the job he’d had for 38 years. She and her husband struggled to get her loan modified for three and a half nightmarish years. Finally, after coming right to the edge of losing their home, they’re in a trial modification and just may pull through, but the experience has been devastating.

Misinformation about the housing crisis has become so widespread that doors to homeownership are closing. Mortgage lending is down, even for trustworthy borrowers. Banks have cut back, and a proposed federal rule could require securitized loans to have a 20 percent down payment — far more than is truly necessary to ensure responsible borrowing. The housing agencies Fannie Mae and Freddie Mac — imperfect but nevertheless playing a critical role in making homeownership possible for millions — could be closed and replaced with nothing.

In a report released in July, Morgan Stanley argued that we are heading toward a “rentership society,” in part because the drastic cutback in mortgage availability “is severely hindering homebuying.”

Overreaction

Attacks on lending to low and moderate income buyers have gone far beyond what’s needed to avoid the excesses of a few years ago. This overreaction threatens to close the door to homeownership for millions of hard-working, responsible families.

This is both unfair and unwise. It’s unfair because the people who suffered most during the foreclosure crisis never got bailed out, even as the banks got hundreds of billions of dollars in federal guarantees. Now, millions of hardworking families — who often had no connection with the meltdown, except perhaps for losing their jobs in its aftermath — are finding it impossible to become homeowners.

And it’s unwise because it will only increase the schisms in a society already profoundly polarized between haves and have-nots. It will close off whole communities from the tangible benefits of homeownership.

If this dream dies, a big piece of America will die with it.

Preeti Vissa is community reinvestment director at The Greenlining Institute, Berkeley, Calif. Distributed by McClatchy-Tribune Information Services.