Love's Real Stories

The American Dream came under attack recently. “The Case against Homeownership”, appeared in Time magazine, and fired off comments like, “homeownership has let us down”, and “the dark side of homeownership is now all too apparent.”

The assault escalated: “The relentless promotion of homeownership as the embodiment of the American Dream has outlived its usefulness”, said Robert J. Samuelson of the Washington Post.

It gained momentum: “Homes…behave much more like liabilities than they do assets. The roof breaks…you’ve got to pay insurance, you’ve got to pay taxes. Homeownership is actually bad for the economy. It keeps people stuck in one place and what you need in an economy with high unemployment, is labor mobility”, says Reuters financial columnist Felix Salmon. Sound fishy? Some say it stinks.

“It just plain makes me mad”, says Moe Veissi, President-Elect of the National Association of Realtors. “I’ve read that some of these pundits believe the worth of the home purchase isn’t what it once was and may never be a valuable asset. These brainiacs think buying a house is too much of an anchor on an individual’s or a family’s mobility. Not a long-term valuable asset? Too much of an anchor? What in the heck are these folks smoking? Are they nuts?”

A counterattack is underway. Defenders of the Dream are organizing and gathering forces. They are proclaiming the virtues and rewards of owning a home, and they have plenty of ammunition.

“Homeownership is still part of the American Dream,” says columnist and political analyst Donna Brazile. “Despite the economic downturn, homeownership today still represents a family’s primary means of financial advancement. In addition to the tax benefits that owning a home provides, a home is also a protection against inflation, and most importantly, a form of forced savings.”

“We’re living in a cynical time,” Brazile says. “Americans are cynical about the economy, government, and about their children’s prospects for the future. The one thing Americans aren’t cynical about is the promise of the American Dream and of homeownership’s role in that dream.”

The fight is being taken to the streets with the “Homeownership Matters” national bus tour, sponsored primarily by the National Association of Realtors. They’re taking on all challengers, lashing out with declarations of fact: “Owning a home is one of the best ways to build long-term wealth. Homeowners have stable housing costs, are free to redecorate and renovate, and can typically deduct mortgage interest and property taxes on their income tax returns. 67 percent of American households are owner-occupied. Homeowners pay 80 to 90 percent of all individual federal income taxes. Every home purchased pumps $60,000 into the local economy for furniture, improvements, repairs, and related items. Nearly 80 percent of Americans believe that buying a house makes good financial sense.”

Columnists and editors across the nation have joined the cause. Newspapers, websites and magazines including USA Today, Trulia, the San Francisco Chronicle, the New York Times, and the Pittsburgh Post-Gazette, have launched campaigns heralding the long-term benefits of homeownership.

Look out, dreambusters. It looks like you may have awakened the sleeping giant.

Just who are Fannie Mae and Freddie Mac, and why are they getting so much attention in the news? Fannie and Freddie are the offspring of your Uncle Sam. That makes them your cousins. Uncle Sam is recently considering disowning them, and that’s making people nervous.

Fannie Mae, whose given name is Federal National Mortgage Association, came first in 1938, a child of the Great Depression. Fannie was put in charge of creating a program that made home ownership a possibility for people who up until then couldn’t qualify for a loan, and had been left on the outside looking in. In those days, no bank would make a loan on a house unless the buyer had 50 percent or more for a down payment. The loan term was 10 years or less and interest rates varied depending on the bank’s cash on hand, a banker’s mood that day, or how well they knew the buyer.

Fannie Mae went to the banks and said, “If you will use my standard method of qualifying buyers and making loans, Uncle Sam will let you use his cash reserves at a low interest rate, and he’ll guarantee the loans if they go bad. ” Fannie’s standard method included low down payments and low interest rates. With Uncle Sam’s deep pockets and good word behind them, banks could make loans without running out of money and regular people could start their home fires burning. Millions crawled out of hard times and moved into the American Dream.

Freddie Mac was born in 1970. His given name is Federal Home Loan Mortgage Corporation. It was Freddie’s job to bring more investors into the program, and nice profits were made by all.

The trouble began about 10 years ago. Copy cats of Fannie and Freddie’s business model began inventing all kinds of new and slick tricks, and shortcuts. They lowered standards to the point where the chief qualifier for a buyer to get a loan was the ability to show a recognizable pulse. Business heated into a fevered frenzy. Loans were handed out as fast as people could line up, and shiny new towers of financing sprung up across the land.

Fannie and Freddie were now looking old-fashioned, old-school, and fuddy-duddy. To change their image, and for fear of being left behind, Fannie and Freddie adopted the techniques of their slick competitors, abandoning years of stability for the quest of the untold riches of the promised land.

The towers of financing fell like houses of cards. They were built on foundations of lousy loans. Fanny and Freddie went broke along with the other shortcutters, and the business of making loans hit the skids. Uncle Sam came to Fanny and Freddie’s rescue, spending billions to put them front and center again, and keeping loans affordable and available in the process.

Uncle Sam is now saying it’s time for Fannie and Freddie to go it on their own. People are nervous about that. They say that without Uncle Sam’s backing, loans will become more expensive and harder to get.

Will Uncle Sam really disown Fannie Mae and Freddie Mac, or is he just using a scare tactic to teach them a lesson? Sure, he’s upset about the money he spent as a result of their irresponsibility, but what parent hasn’t spent a few billion keeping their kids on the right track?