What is a house or a home? One’s house is the biggest investment most people make in their lifetime. A home is a roof over your head, a sanctuary, the place where you feel the most safe in the world.
It is the American dream to own your own home. In fact, it is a dream of people all over the world.
But now homeownership is at the center of the economic problem that we are facing. Who is to blamed? Three groups that have been blamed for this situation are: people who bought homes they could not afford, banks, brokers and mortgage companies.
Each group shares some blame. But as a layperson and homeowner, I believe that a large part of the problem started when banks and other financial institutions began to see people’s homes and housing loans as a commodity to be traded on the open market.
It used to be that you obtained your housing loan or mortgage from a loan officer in the bank. You meet him in person, and build a relationship with him or with the bank in the years you live in the house. But in recent years, the bank treated housing loans as just another commodity, something to be bundled together, like tobacco leaves, and to freely sold and traded to investors.
I’ve heard stories from people who thought that a particular bank was their lender. Then one day, they received a call or a letter from another company that they have never heard of telling them that the company now owns their loan.
And then there is also the use of “no document loans” by brokers and mortgage companies. All the loan applicant need to do is to state or write his income, and the mortgage broker does not ask for any supporting evidence or document. I wonder how did the banks process and approve these loans without documentation. I thought banks have very strict procedures about this. In my experience at least, you have to produce copies of tax and income documents when you are dealing with the banks.
The words that people have historically associated with banks are `safe’, `solid’ and banks are supposed to be prudent institutions. But the above practices indicate that they have been cutting corners with prudence, and worse, they have treated people’s homes with a cavalier, reckless attitude. It is no surprise that people have lost a lot of trust in banks.
I agree with your distinction between “home” and “house”. However the housing bubble which has burst didn’t result from houses being regarded as a commodity. Houses have been regarded as commodities for as long as there have been mortgages. In fact real estate has traditionally been a relatively safe kind of investment. Southern California has been a case in point for decades.
Ironically the current foreclosure crisis is due largely to the recent practice of disregarding real estate as a commodity and instead, as you pointed out, converting real estate, a tangible commodity whose existence and value can be ascertained, into a non-commodity, a fiscal fiction, such as those bonds you rightly cited.
Thanks for your comment, Louis.