Foreclosing on the American Dream of home ownership

The original Galloway homestead in metro Atlanta was built in 1962 on the blue-collar frontiers of suburbia, in the midst of a housing-led recession.

The modest split-level was the work of Scott Hudgens, a relative newcomer to the business. The builder had bet that a resulting glut in housing stock didn’t apply to lower-income homes.

Mechanics and baggage handlers at the expanding Hartsfield International Airport needed a place to park their families, so Hudgens won that particular gamble. He would go on to bigger and better things, including the Mall of Georgia in Gwinnett County.

The old homestead did not. The Galloways moved out in the late 1970s. A few years ago, the house was declared the headquarters of a flamboyantly named church — a convenient and not uncommon tax dodge.

Which didn’t work, apparently. Not too long ago, the house showed up on the long list of foreclosed properties in south Fulton County.

That the American Dream of home ownership is struggling is no secret to anyone who looks up and down the curb — and requires more than one hand to count the foreclosures and forced exits.

To be sure, gated communities and high-end condos have been swept into the maelstrom. But it is the people on the lower rungs of the economy who have become the subject of a renewed debate over whether America should be a nation of homeowners or renters.

We have been here before. In fact, the current housing crisis has déjà vu written all over it, said A. Scott Henderson, an academic at Furman University whose specialty is the history of U.S. housing policy.

Most people forget, Henderson pointed out in an interview, that the American Dream — the prospect of home ownership for the average working family — was a 1930s creation of the federal government.

At the time of Franklin Roosevelt’s inauguration, the country was on the verge of both collapse and revolution. A housing boom made sense for two reasons. One was economic stimulation — something we’re all familiar with today.

“In times of economic collapse, deflated wages are trying to buy inflated housing prices,” Henderson said. Then as now, bubbly housing prices were on the decline — but weren’t shrinking as fast as jobs were disappearing.

The other reason for a federalized American Dream was political. It was necessary to stave off a revolt from the left. “Property ownership was the strongest thing we had for preserving free-market capitalism,” Henderson said — which was indeed at risk. Put people in homes, and you keep pitchforks off the streets.

And so the Federal Housing Administration invented the 30-year, low-interest mortgage. Until then, Henderson said, home purchases were by cash or balloon note — a five-year, interest-only loan followed by repayment of the principal.

It has been U.S. policy ever since. The last major endorsement came during the Reagan administration in 1986, Henderson said, when income tax deductions for interest on automobile loans and credit cards were eliminated. But the interest deduction for home mortgages was preserved.

“That was a clear attempt by lawmakers to single out home ownership as a social good to be preferred among all others — above say, until recently, health care,” Henderson said.

The problem is that the American Dream has become disconnected from the American economy. What is good for one is no longer good for the other.

We ourselves are responsible for the disconnect. Somewhere in the late ’80s, we shifted from a nation of homeowners to a nation of home speculators, Henderson said. Homeowners treated their equity as piggy banks. Banks, driven by lower interest rates to make up the loss with more customers, dropped their guard.

“That’s not morally good or bad. I don’t think it’s even partisan,” Henderson said.

Even so, the debate has begun to play out in the U.S. Senate race.
Republican incumbent Johnny Isakson, a former Cobb County real estate executive, drafted the legislation last year that extended the $8,000 first-time homebuyer credit and added a $6,500 repeat-buyer credit for purchasers who signed a contract by the end of April.

He will not do so again. “The tax credits provided an impetus needed at the time,” Isakson said, but something directed at jobs is what’s needed now.

Democratic challenger Michael Thurmond isn’t even sure the tax credits worked. “Before I could support any return to that, we’d have to know what led to a 27 percent drop in new home sales this last quarter,” he said.

Libertarian Chuck Donovan considers home-purchase tax credits just another form of federal spending — and thus off-limits. Donovan’s no fan of interest deductions for home mortgages, either. But there’s a limit, he acknowledged.

“That’s set into the fabric of the American mindset. I think that’s going to be one of the last ones tackled,” he said.

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32 comments Add your comment

pn

September 1st, 2010
7:32 pm

Wish there was an FDR-type visionary running things nowadays. I had hopes for Pres. Obama. He may still come through. I hope. Someone needs to steamroll right over these crazy wingnut nihilistic Republicans or this country is going to be another failed state.

Jeff Pruett

September 1st, 2010
7:53 pm

WE have lost our way

September 1st, 2010
8:14 pm

20 years from now our country will not look or govern as it does today. We are headed to a two class system– the ultra rich and the poor. It will look like the countries of South America.I pray that this will not happen to our great country,but I see no bright future in the horizon.

Dub Cee

September 1st, 2010
8:49 pm

@WE I hope you are wrong but it looks like the direction we are headed.

Eric

September 1st, 2010
10:32 pm

That’s right . . . tell who can buy a house on $10/hr. part-time, because the company I work for won’t make me full-time with benefits. Yup, two-class system in the making. AND we need to revolt against the entanglements of greedy, mean-spirited homeowner associations. I will never buy a townhouse again until they are outlawed (probably not).

WAW

September 1st, 2010
10:56 pm

When I hear wealthy Congressmen saying, “The American People does not want healthcare” of “The American People wants limited government” I can’t help but wonder exactly what American People they are talking about. Most people I know want a job and to have roof over their heads and be able to feed their families. Most people I know dial 911 when there is an emergency and want their folks cared for and don’t think about who’s paying for it. The American People I know have not changed much in the last 50 years and neither has Congress, they still work for the folks who pay the bills for their high lifestyle.

pn

September 1st, 2010
11:13 pm

We must quit sending all our jobs, money and technology overseas. Multi-national corporations don’t care if Americans don’t have jobs. Apparently they also don’t care if Americans don’t have money (because they don’t have jobs.) They are now selling their products worldwide and have no loyalty to the U.S. consumer or concern about their plight. Multi-nationals just want cheap labor. Eventually Americans will be so destitute they will be cheap labor again, and the captains of industry and finance will send back our jobs. Goodbye middle class. Hello third world status.

Kapoonka

September 1st, 2010
11:15 pm

Simply look at the what some of our lawmakers are worth, and then tell me they understand what it is to live a “normal” American life. They have no clue. I own a home that will appraise for 81K, and I have 2 mortgages totaling 173K. Is this my fault? Is this my problem or the banks? I am basically renting, and this is not what I had in mind. I am stuck, and there really is not any help for anyone in this situation other than to walk away. To make it worse I have been unemployed since January 28th. First time without a job since I was 16 years old. I’ll be 50 in 2 weeks, and my finances are in shambles. Unemployment is $1300 per month…i am living in virtual poverty. Lenders don’t care. The harrassing phone calls start at 8am, and I am about to lose it!

Steve B.

September 1st, 2010
11:25 pm

According to this US comes in the middle of the pack when it comes to homeownership so most of the world effectively are renters. While it was noble to allow people of lesser means to be homeowners, it really is prudent policy as we have witnessed. Yes other factors played into the bubble. I think there is a stigma against renters (outside of NY) and if that changes I think more people would likely to be renters and many not have a real choice. Not the security that homeownership brings. Maybe expanding the housing co-ops is an idea especially with our increasingly aging population.

http://www.nationmaster.com/graph/peo_hom_own-people-home-ownership

RCT

September 2nd, 2010
2:58 am

Having witnessed fraud in the real estate market that continues unabated today, same as it was the previous 9 years, I don’t have many expectations of change. This country has become a nation of dishonest corporate criminals, big and small. The troops should be brought back and given an education and training in forensic fields necessary for prosecution. Too many industries do not have oversite because of lack of qualified investigators and attorneys. Make laws that are easier to enforce. Get rid of this disingenious religious argument. I don’t care what your religion is and I don’t need to defend mine. Stop the corruption and we’ll all do better.

Dave the man

September 2nd, 2010
7:34 am

pn

September 1st, 2010
11:13 pm
We must quit sending all our jobs, money and technology overseas.

Do you think our current tax system for businesses might have something to do with that??

Lee

September 2nd, 2010
7:36 am

The ability for me to sell my house and get out of declining metro Atlanta area has been ruined by slobering Barney Frank, Chris Dodd, democrats, socialists, the moocher-class, HUD, and mortgage companies who bought into the socialist nonsense that everyone should own a home.

Dave the man

September 2nd, 2010
7:38 am

Road Scholar

September 2nd, 2010
7:53 am

Dave: All I here is that our tax code doesn’t help businesses. What has changed from the 80’s and 90’s? All I hear about is additional tax breaks for businesses. Yes manufacturing jobs have gone out of this country, but what has happened (besides the incessant whining) to cause these businesses harm?

I have to admit it appears that many employees ar ripping off their employers.

Road Scholar

September 2nd, 2010
7:54 am

Lee and Dave: so where are the Repubs?legislation? Not in power? or no good ideas?

WAW

September 2nd, 2010
8:32 am

Let’s not get into the Repub/Demo “bad guys” exchange because the economy is the only, truly bi-partisan effort from Congress in two decades. I’m old enough to remember when my house payment was $50 a month. I can tell you that to qualify for FHA, I practically had to prove that I was not constipated and regularly flossed my teeth. The laws put in place to end the Great Depression have slowly been removed until breathing was the only requirement for a mortgage. Let’s face it folks, we (what was once called the middle class) can match the “New Aristocrats” dollar for dollar for the attention of Congress so we are basically SOL.

pn

September 2nd, 2010
8:36 am

Our only real products are war, fossil fuel extraction, Power Point presentations–and ever-improving methods of ripping off the peasants (us) and fleecing the sheep (us). I agree whole-heartedly with RCT that this country has become a nation of dishonest corporate criminals. The ethic is to extract as much as possible from the consumer while giving them as little as possible of real value. (See Fox Network/Rupert Murdoch; see gladiator shows/decline of Roman Empire.) Keep them “entertained”– while you rape and pillage.

jconservative

September 2nd, 2010
8:43 am

Lee and Dave. Well said as far as you went. But you failed to add Republicans, conservatives, Reagan, Bush 43 & Dick Armey to the list. And until you realize this, nothing will be done to improve the problem we now have. You will continue to live in a land of fiction.

Can you say Greece?

An American Patriot

September 2nd, 2010
8:43 am

Folks, we’ve got a chance on November 2, 2010 to start the ball rolling to take America back to something we lost along the way……Pride In America, Jobs, School Systems that actually Teach, Recall of that horrible health care debacle, control over our tax money, reviving businesses, taking care of our fighting men and women who have fought valiantly for our freedom, deporting illegal aliens, shoring up our southern border and voting out those whose only purpose is to “Socialize America”. Get out and vote and let’s do it in a big way.

Dave the man

September 2nd, 2010
8:51 am

pn

September 2nd, 2010
8:36 am

Do you only see “dishonest corporate criminals”? You say “The ethic is to extract as much as possible from the consumer while giving them as little as possible of real value.” You have a choice in purchasing from Corporations, i.e. Fox Network.
As for the Imperial Federal Government, they are able to “rape and pillage” from you, basically, at the point of a gun, i.e Taxes.

Not Blind

September 2nd, 2010
8:58 am

There would be no foreclosure mess if not for successive administrations doing everything in their power to encourage and legitimize illegal aliens. In the past the domestic American construction labor pool placed a natural and proper limit on the numbers of new houses that could be built every year. Beginning in the 80’s illegal aliens were encouraged to come to America to swell the ranks of construction labor. Today we are reaping what was sowed then. Many people were made wealthy but the average American has seen his standard of living continuously eroded due to this massive and uncontrolled invasion.

WE have lost our way

September 2nd, 2010
9:04 am

One of the above comments was about renters and how it may become the standard for households in America.I remember in the 60’s and 70’s, the news stations should Russia and people leaving in apartments all over Moscow.One family to a one bedroom apartment.Is this where we are going?

WE have lost our way

September 2nd, 2010
9:10 am

Sorry- should be LIVING in apartments

Former Teacher

September 2nd, 2010
9:31 am

Maybe it is time to take a hard look at housing. Do we really need mansions? Should young people buy a house right away? The population is getting older and most want to downsize. Who is going to buy all these big houses? Maybe the people at Habitat should take a break, because there will be lots of housing available before long. Or maybe they should gear up, because the only thing most of the unemployed will be able to afford is a sweat equity house with a no interest “mortgage.”

WAW

September 2nd, 2010
9:36 am

WE… check out the extended stay motels, we are already there. People are so caught up in the sound/photo bites that we don’t realize that there are homeless children in America. We know what the Dow did today but don’t know where the foreclosed family down the street are staying tonight.

WE have lost our way

September 2nd, 2010
9:40 am

WAW—You got that right!!!!

lmno

September 2nd, 2010
9:47 am

30 years of deregulation caused this nightmare. Specifically the unregulated derivative market. With the repeal of Glass Steagle, we gave banks the opportunity to become rich from selling bad mortgages.

A bank would give you a mortgage, and then bundle that mortgage with others like it and sell it on a public exchange so that in your retirement account, you owned a piece of your own debt. Now, at the same time, in order to “hedge” their loans, they would buy puts on the derivative. In other words, they would make money if the mortgage failed. Eventually, it got to a point where the more the mortgages foreclosed, the more money they made. But ultimately, their greed caught up too, cauuse the prices of the homes dropped so dramatically that the properties they were foreclosing upon were wiping out any profits on the puts. It got so bad that they either closed up shop or took money from teh government to stay afloat. And NOW these same banks don’t wannt the government to regulate again. In other words, they don’t want to be stopped from betting against their own loans.

Clark Howard owes the public an apology. It was bad advice when he told everyone to buy a home. Just like it was bad advice when he told people to never buy an annuity. Those people who put their money in an annuity 5 years ago and did not buy a home are MUCH better off that those who kept their money in the market and bought a house by borrowinng money.

songbird

September 2nd, 2010
9:54 am

We have created our own mess in this country. Everyone wants everything cheap, Walmart prices, so having stuff made in this country costs too much. To keep prices low, companies have to ship manufacturing jobs overseas for cheap labor. So now you have fewer and fewer high paying blue collar jobs in manufacturing and you have illegal immigrants taking construction jobs and remaining manufacturing jobs in this country because they work for less money. Again, this is to keep prices cheap because that’s what people want.

The high paying jobs in this country require more education either college or technical school. We have too many uneducated people in this country today. Ten to 20 years ago a person could drop out of high school and get a manufacturing job and make a decent living. Those days are gone and they are not coming back. We have to tackle the education decline in this country and get more people graduating high school, etc. if we are going to keep up with other countries like China and India. If we don’t do this, more and more high paying jobs will be shipped off shore to the detriment of the workforce in this country.

logos

September 2nd, 2010
2:46 pm

Home ownership may be out of reach for all but the above average American citizen. Due to our economic near-collapse and possible foreboding future, the American dream may have been priced just out of reach for millions in America. I found an interesting article about the failing American dream: http://www.christianretirement.com/newsblog.asp?action=ind&pub_id=19840 I know a homebuilder who is having a very difficult time getting homebuyers qualified for loans. Stand by; as the future unfolds, we may be in for some very interesting days ahead.

SadLanlordClown

September 2nd, 2010
6:38 pm

Home ownership has been a crucial part of retirement for most Americans. The house gets paid off in thirty years, monthly out of pocket cost drastically goes down and allows a period to save money further for retirement when one is at peak or on the decline in income. All one has to deal with then is property taxes, insurance and maintenace. The house can be sold to fund retirement or be necessary to sell to deal with serious life issues. If people aren’t pouring money into such an asset, especially younger generations will choose not to save money and live it up more in the here and now. How is somebody going to pay rent for their whole lives? Unless they save, invest and set up retirement plans which again, my generation, Generation-X doesn’t understand that concept: to save. They are too busy destroying their disposable income on running up their cell phones, i-pod, balckberry, cable television, internet, subscriptions for this and that, paying five bucks for coffee drinks at Starbucks and in addition to whatever else people do in entertaining themselves. When these people bottom out in the late 40’s, 50’s and 60’s they will have nothing because they choose to save nothing and invest in nothing; Retirement crissis in the making for Generation X. Maybe it’s a good idea to buy stock from a mobile home manufacturer since Generation-X maybe redubbed Generation Section 8.

Ole Guy

September 3rd, 2010
2:28 pm

Let’s face the hard unadorned truth in it’s reality. WE…that’s YOU and ME…are responsible for mess in which we languish. The Gov, Wall Street, the nasty ole banks, they all play a role…albiet a MINOR role…in this business of personal finance. In the end, however, it YOU and ME who’s COMPLETELY responsible for making wise financial choices.

WE have allowed ourselves to become entranced in what we feel are normal modes of life in these here United States:

* ANYONE whose ANYONE has to own a home. To consider otherwise is completely UNAMERICAN.

* ANYONE driving a car thats older than yesterday’s cold cuts has got to be poor, and, for JC’s sakes, we can’t have people thinking that.

* We simply cannot be satisfied with that simple cup of coffee…it’s got to be the over-priced mocha mint swiss nuts n’ berries derivative hawked at the neighborhood java shop.

WE have simply convinced ourselves that we are deserving of only the best of everything. This crap has been the National Pastime for the last 30 years; to adapt the biological activities to economic life, we have INJESTED the GOOD LIFE, DIGESTED and ABSORBED same, and now we are obliged to EXCRET…to poop out our waste.

People, it was only a matter of time…those of us who now whine, complain, and point fingers of blame in 360 directions have, in reality, NO ONE to blame but YOU! I’VE got my shux together…I’VE been driving old cars, I’VE been living in houses built many presidents ago, I’VE been drinking coffee from Mc Ds, BK, or even…horrors…brewed on my kitchen counter. So don’t bother me, or anyone else for that matter, with your GD problems. Chances are (although you will be the very last to admit it) YOU are the architect of YOUR problems. Leave us alone with your self-induced muck and mire of a life!

Empowered

September 6th, 2010
11:04 pm

Ole Guy, I agree with everything you said. Sure some of the banks, mortgage companies, real estate agents,home builders, appraisals, FANNIE MAE and FREDDIE MAC contributed to this mortgage mess. However, too few people want to take responsibility for their behavior that contributed to this mess. They make up excuses by saying…”They talked me into buying a house I could not afford…”. Who better than you should know how much house you can afford or how you plan to manage or mismanage your finances once you get in the house? “I didn’t know what I was signing or didn’t understand what I was getting”. This is a weak excuse. You have a responsibility to educate yourself when it comes to making financial decisions. Information is readily available and most of it is free. No one is hiding information from anyone. Or they will say “They talked me into over stating my income”. Hello! you are not a victim but a criminal complicit in this scam. How about the one’s who tried to time the market and buy houses by putting little or no money down and financed the property with unsound loans then took advantage of living in the house at an artificially low cost for several years and then walked away from the house with losing little if any money? Then they blame the mortgage company because they owe more on the house than it is worth. I wonder if these same people had put no money down, received an artificially low short term rate and saw their property sky rocket would they fight the mortgage company if the mortgage company decided to increase the original cost of the house because of the windfall in property value since they had very little invested in the property? And who’s hurt the worst by all this? The people who managed their finances responsibly, educated themselves on the best loan and who put 20% or more down, made improvements out of pocket as they could afford to do so only to see their property values drop by 20% to more than 100%. The real victims in this housing debacle are the responsible people.