In this sour economy, there's certainly enough blame to go around. We can blame unregulated markets and lack of oversight. We can blame Bush and Alan Greenspan for failing to heed the warning signs of an impending recession. We might also blame inflation, high unemployment, and rising fuel and food costs. However, when it comes to the foreclosure crisis, let's place the blame where it belongs--at the steps of banks and mortgage brokers who packaged risky mortgage products and pitched them to unsuspecting homebuyers eager to invest in the American Dream.
The introduction of President Obama's $75 billion plan to aid homeowners at risk of foreclosures has sparked an outcry from financial analysts, pundits, "responsible" homeowners, and others who argue that assisting homeowners at risk of default is unfair and rewards bad behavior.
This logic assumes, however, that many of the homeowners now at risk of default were speculators, lied on their mortgage application, or leveraged debt to buy McMansions they could not afford. This is only a small slice of the foreclosure pie.
Many Americans bought their homes because they believed in the age old value of homeownership and thought it would make a sound investment.
For many, the American Dream has turned into an American nightmare with over two million individuals falling victim to foreclosure, 10 million more having trouble making their payments, and depending on how long the recession lasts, an estimated 6 million homes are facing foreclosure by 2012.
At the peak of the housing market in 2006, the national median price for a home was $230,000, a price out of reach for most two-income families. Ten years prior, in 1996, the median cost for a home was $144,000, nearly 40% less. In order to make homes affordable, Banks created mortgage products such as the option arm, which allowed homeowners to "pick" their payment or allowed smaller payments in the first two to five years with escalating payments over time. Women and racial and ethnic minority communities were also hit disproportionately hard by predatory lending practices and sub-prime loans.
While consumers should shoulder some responsibility for failing to read the fine print, it is banks and the lending community that chose profit over regulation and oversight that caused the foreclosure crisis. Ironically, these institutions have received over $379 billion to help revive the economy and stave off bankruptcy. This amount represents less than 25% of what is being proposed to help owners avoid foreclosure and stay in their homes.
The support to homeowners proposed in the plan goes directly to banks and mortgage holders to modify loans and to help families struggling to survive these tough economic times. It is not a hand out, but a hand up.
Barack Obama's housing plan is a step in the right direction. It will go a long way to bolster faith in the economy, stabilize housing markets in vulnerable communities, provide assistance to individuals who are now homeless as a result of foreclosure, and help close to nine million families stay in their homes. I hope it also opens the door for much needed discussions about affordable housing in our country.