It is good to see that the latest version of the government’s bailout plan is aiming more squarely at the consumer side of the problem. We now know that the road to economic ruin beats up our cars (automobile industry), but it travels right through our homes (housing industry). We got into this crisis because a plethora of gamers—from the world’s biggest banks all the way down to the now proverbial Joe six-pack—converged on the American home in the hope that it would take them directly to fast and easy money. When it led them instead to a massive financial sinkhole, a whole lot of people got a rough reminder that the highest and best purpose of a home hasn’t changed since the dawn of civilization. As cars are for driving, homes are for living. They might also be a good investment, but their underlying value is in enhancing the quality of life, not creating wealth.
The investment banks created the confusion of a home as an investment commodity by developing loans that misled or lied. The virtue of home ownership was the excuse used by the bankers to explain the ruse by which they were convincing one and all to accept the pernicious vice of living far beyond their means. I’m sure those closely involved would say their intentions were well considered and well meaning, but for many of us it always looked stupid and avaricious.
And it is also how that-which-ought-to-be-sacred became instead profane.
I am in homebuilding because I like the direct and good effect we can have on the quality of peoples’ lives. That big ideal was triggered in me in the 1970s, during a lunchtime conversation, while on a remodeling project. I heard this from a fellow carpenter: “Ours is a sacred profession. We build the places where people live.” He then went on to explain his point, and, unfortunately, I can’t remember it verbatim, but here’s the gist in my own words:
We make the places where people usually experience the most intimate and formative experiences of their lives. A home is the place people go for comfort and renewal; for joy and celebration; it is nearly synonymous with words like security, loyalty and love. Home is the chapel of all that is personal and familiar, and it is the center of our closest human relationships. It is where love is found and made, where children grow up and develop a sense of who they are and grow into their unique perspective about the world around them. Our earliest memories are often embedded with the smallest details of the place where we lived in our early years. Nooks and crannies, shapes, colors and all the odd eccentricities of buildings are stuck to our psyche and revealed again and again in thoughts and dreams. To paraphrase Winston Churchill, we build our homes, thereafter they build us.
Well, we’re pretty far from all that, but I still stand with all those people whose lives are now decimated by the bills they can’t pay. They perhaps got foolish and greedy and are now imperiled by that choice, but they didn’t mix the Kool-Aid; they just drank it.
Since the government is still looking for a way out of this mess, I have a proposal. It is modest and simple. It punishes everyone, but keeps people in their homes. It separates those who mixed the toxic Kool-Aid from those who drank it. It allows the economy to recover, but slowly. Mostly, it parallels the idea that a home is a long-term value, not a get-rich scheme.
1. Reduce the mortgage payments for all the subprime loans to 1/3 of the family income. Drop the interest rate to a very low level (3%?) and stretch the payment period out as long as is necessary, even 50 to 75 years, whatever it takes to make the formula work.
2. Reappraise the house in five years and adjust the interest rate up or down as necessary. From there on, it would be fixed. The difference would come from the bailout money.
This would achieve several things:
1. If people wanted to stay in their homes, they could. If not, the home would foreclose and they would have a stain on their credit rating. For those who stay, they have a place to live that is affordable, but full ownership may not be possible in their lifetime. It’s a punishment, but it isn’t oppressive because equity is still accrued and they get a place to live.
2. Money would flow again, but slowly. And incomes won’t be eaten up with mortgage payments, allowing other sectors of the economy to recover.
3. The banking community would get money, but their desire for fast profits would be severely punished.
4. The bailout amounts would be reduced by the difference between current bubble-inflated values and the values determined by the market in the next five years, which will be enough time to sort out real values.
If you’re planning to shoot holes in my plan, forget it. I’m putting my head back in the sand. I just want homes to mean what they should again.