Safe at Home By DALTON CONLEYPersonally, I suspect that the main reason that poor people are less likely to pay back their mortgages than rich people is because poor people tend to have less money than rich people, but, then, I'm not the Dean of Social Sciences at NYU like Dalton Conley, so what do I know?
THE financial crisis has given rise to all sorts of wrongheaded ideas, among which is the notion that we should not subsidize the â€?losersâ€? who canâ€™t make their mortgage payments. In fact, the solution to our troubles is not to restrict homeownership, but to expand it.The timing is right.
Now that prices have collapsed in many areas, low-income Americans might be able to afford to purchase homes for the first time in years. Sales of new homes in June were down 21 percent from last year. This would seem an ideal time to encourage low-income families to buy homes â€” if we werenâ€™t haunted by misconceptions about the roots of the subprime mortgage crisis.
This â€?blame the victimâ€? mentality is hardly new. It goes back to the 1960s, when the anthropologist Oscar Lewis wrote an article whose title took root in the American public consciousness: â€?The Culture of Poverty.â€? His basic argument was that poor people adopt certain practices that differ from those of â€?mainstreamâ€? society in order to survive. These might include illegal work, multifamily households or serial relationships in place of marriage. Once these survival strategies are in place, the argument goes, they take on a life of their own and lead to missed opportunities.
... But Lewisâ€™s theories seem to have gained new life in the notion that a certain stratum of Americans just arenâ€™t capable of homeownership, and that the increase in homeownership rates contributed to the real estate bust. The â€?naturalâ€? rate should be around 60 percent of American households, some analysts say, not the 70 percent it reached in 2004. Thatâ€™s an unfortunate argument, because owning a home can be one of the best ways for a poor family to save and accumulate assets: recent history aside, the value of a house does typically rise, and its owner avoids paying rent and gets a tax break.Decades of government programs to make homeownership "affordable" only succeeded by 2007 in making homeownership insanely unaffordable, so I guess the plan is to replace the word "affordable" with the word "attainable" and then just rerun the same old stuff.
We could improve the housing market as well as the security of poor families by making homeownership more attainable.
Currently, the biggest policy to support homeownership other than the mortgage interest deduction is the Federal Housing Administrationâ€™s mortgage program, which works by insuring loans made to buyers through traditional lenders (that is, it decreases risk to lending agencies by underwriting the loan). However, many of the most disadvantaged Americans, and minorities in particular, do not qualify for F.H.A. loans because of their low net worth and other factors.Hmmhmm, or maybe it just says that home prices went up in North Carolina from 1999 to 2004, so nobody got foreclosed upon because, if you couldn't make your payments, you could always sell your house for more than you owe. Of course, I'm not one of those "scholars of finance" who have been doing such a bang-up job lately, so don't take my word for it.
Into this breach stepped a North Carolina organization called Self-Help. In 1998, Self-Help received a $50 million grant from the Ford Foundation. The money was used to insure the mortgages of low-wealth families that aspired to homeownership, but had trouble getting loans in the private market. More than $2 billion in mortgages were guaranteed over five years, making homeownership possible for 27,000 families that might not have qualified for conventional loans.
This experiment of sorts provided evidence that there was a market failure in mainstream lending that was shutting out deserving borrowers. The foreclosure rate of lenders participating in the program was below the national average. This tells scholars of finance that something is not working in the traditional loan market.
... By expanding the Self-Help program â€?to scaleâ€? â€” by underwriting mortgages for people who are now excluded from F.H.A. â€” the government could not only support affordable refinancing of existing mortgages but could also extend the dream of homeownership to households now shut out of the market.The "dream of homeownership" ... whom have I heard that phrase from before? Angelo Mozilo? George W. Bush? Henry Cisneros? Bill Clinton?
Instead of critiquing low-income buyers who may have made reasonable calculations in an upbeat housing market, we should focus on building a more comprehensive system to aid low-income purchasers and repair the housing market in the process. Otherwise, we are squandering an opportunity to move past ill-formed moral discourse about poverty and its causes.The North Carolina angle is not insignificant: Self-Help is centered in North Carolina, which has had a Goldilocks housing market — not too hot, not too cold — for years. So, the foreclosure rate in North Carolina is below the national average.
Dalton Conley, the dean of social sciences at New York University, is the author of â€?Elsewhere, U.S.A.â€?
This article has been revised to reflect the following correction:
Correction: August 5, 2009 An Op-Ed article on Tuesday, about helping poor families buy houses, misstated the home state of Self-Help, a group that insures mortgages. It is based in North Carolina, not South Carolina.