Promoting home ownership through the years
Thursday, July 21st, 2011
Since 1995, the federal government has spent nearly $40 billion and provided trillions of dollars worth of insurance guarantees to lenders to promote homeownership, with many initiatives focused specifically on communities of color.
“In the Clinton years and the Bush years, “There was almost an obsession with getting the homeownership rate up,” said Sheila Crowley, president of the National Low Income Housing Coalition.
That’s not necessarily a bad thing.
“We’ve seen people’s lives dramatically improve after becoming homeowners,” said Bruce Dorpalen, director of public affairs at the Affordable Housing Centers of America. But as home mortgages became a source of massive profits for banks and investors, Dorpalen says, homeownership “was hijacked by sales people who were really looking to take equity out of the community.”
Home ownership was, and remains, a cornerstone of the American dream. But the promises of a better life have not always kept pace with reality.
Back before anyone knew the words “subprime” or “securitization,” President Bill Clinton set out to expand the American dream. Clinton’s National Homeownership Strategy aimed to create 8 million new homeowners by 2000 through an “unprecedented collaboration of private and public housing industry organizations.” The program was going to “help moderate-income families who pay high rents but haven't been able to save enough for a down payment, to help lower-income, working families who are ready to assume the responsibilities of homeownership but held back by mortgage costs that are just out of reach, (and) to help families who have historically been excluded from homeownership.”
At the 1995 ceremony announcing the plan, Clinton’s rhetoric was almost metaphysical: Homes were more than bricks and mortar. They were part of the intangible promise of America.
“This is a big deal,” the president said. “This is about more than money and sticks and boards and windows. This is about the way we live as a people and what kind of society we're going to have.”
Not everyone was as sanguine about housing as the president. The Department of Housing and Urban Development produced an urban policy brief the same year that took a hard look at the pros and cons of homeownership.
“The ideal of homeownership is so integral a part of the American Dream that its value for individuals, for families, for communities and for society is scarcely questioned,” the brief read. “However, many external factors can affect whether and at what rate a home's value increases or decreases.”
Homeownership could be a key builder of wealth, but-low income and minority families were particularly “vulnerable to economic downturns that can result in job loss and, eventually, foreclosure,” the brief continued.
Ameriquest, a subprime lender who’s slogan was “proud sponsor of the American Dream,” became the first subprime lender to have its loans financed by Fannie Mae (the Federal National Mortgage Association). The lender that pioneered “no-document” loans eventually settled for $325 million with several attorneys general over charges of predatory lending, in 2006. Ameriquest closed in 2008.
Five years after announcing his strategy, Clinton could boast a home-ownership rate of 67 percent. African-American and Latino homeowners still lagged behind whites, but they were making clear gains.
By 2002, the administration had changed hands, but the American-dream language was still going strong.
“We must begin to close this homeownership gap by dismantling the barriers that prevent minorities from owning a piece of the American dream,” President George W. Bush said in a June 2002 radio address. The Bush administration’s “ownership society” framed homeownership as an engine to help eliminate persistent racial inequalities. Building on Clinton’s goal seven years earlier, Bush set out to create 5.5 million new minority homeowners by the end of decade.
President Bush put cash behind the ownership society goals. From 2003 to 2006, the administration spent $412 million on its American Dream Downpayment Initiative to help first-time home buyers with costs associated with down payments. His administration also ramped up spending on housing counseling, the thinking being that education led to responsible homeowners. Grants for counseling totaled $176 million over the same four-year period. And more than $440 billion was committed by Fannie Mae, Freddie Mac (the Federal Home Loan Mortgage Corp.) and the other government-backed mortgage players, targeted toward making loans available to minority homeowners.
Mortgage lenders jumped on the bandwagon, ramping up lending to communities of color — never mind that the loans were often high cost and packed with provisions like balloon payments and adjustable rates that turned them into ticking time bombs.
Angelo Mozilo, head of mortgage lender Countrywide Financial, delivered a lecture in 2003 entitled “The American Dream of Homeownership: From Cliché to Mission.” He explained his company’s purpose:
“We wanted to make the American Dream of homeownership something tangible — something to which people could do much more than just aspire. We wanted to make it something they could access, afford and achieve. We wanted to prove that our company could and would succeed by offering home loans to hard-working families — of all races and of all ethnic backgrounds,” Mozilo said. “In other words, it has always been our intention to be more than a corporation that makes mortgage loans; we wanted to be a force in making positive differences in people’s lives. Our goal was — and still is — to demonstrate that there is a unique role for the private sector in public service.”
Mozilo also played a unique role in the financial crisis: His company made nearly $100 billion in subprime loans between 2005 and 2007, more than any other lender. Mozilo paid $67.5 to the Securities and Exchange Commission in 2010, to settle charges of insider trading, misleading investors and disclosure violation.
Although no one knew it at the time, 2005 marked the high-water mark of American homeownership. The national rate of home ownership was 69 percent. Some 76 percent of white Americans owned a home, compared to 48 percent of black Americans and 49.5 percent of Hispanic Americans.
Barack Obama referenced the American dream in his first speech as president, in Chicago’s Grant Park, on Nov. 6, 2008.
“This is our moment. This is our time, to put our people back to work and open doors of opportunity for our kids; to restore prosperity and promote the cause of peace; to reclaim the American dream and reaffirm that fundamental truth, that out of many, we are one; that while we breathe, we hope.”
Bonus dream reference: The subhead of his 2006 book, “The Audacity of Hope,” is “Thoughts on Reclaiming the American Dream.”
A year later, Obama invoked the dream again — three times in one speech — this time, in the context of exploding foreclosures. As he announced the creation of a $75 billion plan to address the housing crisis, he noted that “the American dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods. It is a crisis that strikes at the heart of the middle class: The homes in which we invest our savings, build our lives, raise our families, and plant roots in our communities.”
Speaking in Mesa, Ariz., an area full of delinquent loans, he continued:
“In the end, all of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to deepen — a crisis which is unraveling homeownership, the middle class and the American dream itself. But if we act boldly and swiftly to arrest this downward spiral, every American will benefit.”
But all was not lost, Obama said.
“It will not be easy. But if we move forward with purpose and resolve — with a deepened appreciation for how fundamental the American dream is and how fragile it can be when we fail in our collective responsibilities — then I am confident we will overcome this crisis and once again secure that dream for ourselves and for generations to come.”
Despite more than 15 years of commitments to the American dream, almost all the gains in home ownership made since Clinton launched his plan have been erased. Nearly a quarter of Americans owed more on their homes than they were worth in the first quarter of 2011. For underwater borrowers, their homes are not building household wealth, but draining it. Fewer Americans own homes now than in 1998. The gap between African-American and white home ownership has actually grown by 2 percent since 1995.