Mortgage crisis calls American Dream into question
CINCINNATI (Reuters) - For years, political leaders touted rising homeownership rates as a sign the "American Dream" was being fulfilled but more than a million looming foreclosures have called the dream into question.
"We no longer have a problem with loan availability ... but a lot of our homeowners are one crisis away from losing their home," said Hope Wilson, a housing counselor at Working in Neighborhoods, a nonprofit trying to boost homeownership in inner-city Cincinnati.
There is no shortage these days of tragic stories of homeowners caught in America's subprime mortgage meltdown, as risky borrowing, reckless lending and a slump in the housing market drives millions into foreclosure.
But while statistics show poor and minority homeowners are bearing the brunt of the crisis, the belief that every American can or should own their own home remains so pervasive few politicians admit that it just might not be true.
"The more people who own their home, the better off America is," President George W. Bush said in a 2004 speech. "See, we want more people owning something because when somebody owns something, they have a vital stake in the future of the country."
After stagnating at about 65 percent for much of the 1960s, '70s and '80s, the U.S. homeownership rate has risen slowly in the past 15 years to nearly 69 percent -- a point of pride for Democrats and Republicans alike.
But with an estimated 1.5 million homeowners facing foreclosure this year, Congress is now looking at tighter lending standards to protect unwary Americans from taking on loans they cannot afford.
Despite the crisis, Massachusetts Democratic Rep. Barney Frank, who heads the House Financial Services Committee that likely will set new lending rules, is one of the few politicians willing to admit that homeownership is not for everyone.
"Not everyone is ready ever. A lot are not economically ready now," Frank said in an interview with Reuters.
"This administration is acting as if the only important program to help people with housing issues is to get them into homeownership. I think that overemphasis has contributed to the subprime crisis. People were put into homeownership who just economically should not have been there."
It's a tricky thing to say. Key to the American Dream is the belief that everyone can make it to the top. Restricting lending is expected to disproportionately hurt blacks and Hispanics -- voters coveted by both Republicans and Democrats.
Across the United States, racial minorities are more likely to get a high-cost, subprime mortgage when buying a home than whites, according to a study released last month by fair housing agencies. In six major U.S. cities, black borrowers were 3.8 times more likely than whites to receive a higher-cost home loan, it said.
But it is not just poor and minority Americans who are losing their homes -- many debt-ridden consumers simply were unwise in their loan choices. The suggestion that more regulation is needed to protect Americans from willing but risky lenders is controversial.
"Should we really interfere in a contract between two mature adults over something that involves no deceit?" asked Ron Utt, a research fellow at the right-leaning Heritage Foundation think-tank in Washington.
Utt believes tighter regulation by the Democrat-controlled Congress will cut off loans to the same minorities both parties want to help into higher homeownership.
"Subprime mortgages and 100 percent financing opened up homeownership to people who otherwise financially would not be eligible," Utt said.
Housing advocates do not want to see a return of the days when many low-income or minority Americans were shunned by lenders. But credit counselors facing a tidal wave of panicked homeowners say many should not have taken out -- or qualified for -- a home loan in the first place.
"Everyone wants immediate gratification. All they think is 'I want this house now,'" said Joann Brady, director of the nonprofit Home Ownership Center of Greater Cincinnati. "The lender was looking only at the bottom line. The client was not reading the documents. It's both of their fault."
In any case, John Taylor, president of the National Community Reinvestment Coalition, said politicians should not pretend that growth in minority homeownership is anything more than a fleeting increase.
"We shouldn't make believe we're helping people into homeownership by giving them a predatory product that creates a temporary homeownership," he said. "Two years down the road they are on the street and ... in a much worse position.
"Is it paternalistic? Call it what you want. I don't care, I'm not running for office. I just want to keep people in homes they can really afford."
(With additional reporting by Patrick Rucker in Washington)
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