FRAMESHOP:FRAMESHOP: THE FORECLOSURE SOCIETY

In a week dominated by more grim news from Iraq and another Republican sex scandal, Americans have not spent enough time talking about the horrific impact of one of George W. Bush's most cynical political PR stunts: his so-called 'ownership society' concept which, supposedly, encouraged Americans to 'buy' and 'own' their own houses.

Talk to people in any Midwestern state of late (e.g., Michigan) and you will hear that Bush's snake-oil lie of a policy  has not only backfired in a huge way, but has wreaked unfathomable havoc on the American family.  People who thought they 'owned' their homes are suddenly waking up to the reality that they do not own anything short of the worst loan in history--loans with payments that double again and again in a short period of time, forcing families with children to default and foreclose.  And of late, rather than taking on the immoral lenders who oversold first time buyers on far more debt than they could possibly handle, Bush is still talking about the ownership society, only now he's pushing programs that suggest the problem is 'market stress' rather than straight up, Presidentially promoted criminal lending practices.

As a result, the rose-colored 'ownership society' has turned into a blood-drenched 'foreclosure society' that is dragging down the economies of dozens and dozens of states.  And still Bush is pushing his corrupt concept.  And still major news outlets are not taking him to task about it.

Bush Hawked 'Homeownership' As Much As 'War on Terror'
From the start of his two term reign of error, Bush has hawked the word 'homeownership' almost as much as the phrase 'war on terror,' convincing vast numbers of American families to dress up in their Sunday best, comb their hair and walk into a bank hoping they would be approved for a mortgage.   Little did these new home 'buyers' realize, the mortgage lending industry had already undergone a huge change that Bush's 'ownership society' concealed to the benefit of the banking industry and the ruin of working Americans. 

This is what happened:  Once upon a time, a mortgage was a long-term relationship between a bank and a home buyer where the bank made their money through decades of on-time payments.  This meant that banks would encourage buyers to borrow only as much as they could afford.  By the time Bush was in office, mortgages were no-longer seen as 15- or 30-year relationships between bank and buyer, but had become hot products where the banker made money at the point of sale.  In a few years, the mortgage 'approval' process turned into an aggressive sales session.  The end result was that consumers, walking into a bank hoping they would be approved for enough loan to buy the house they could afford, would encounter a mortgage seller looking to put them in as much debt as they were willing too take.  So, if you thought you could only afford a $250,000 loan, the new kind of mortgage broker would try to put you into a loan for $350,000 on an adjustable rate, interest only for two  years, throwing in a piggy back loan to get you past the down payment and making the whole thing possible with a little mortgage 'insurance.'   Agents who sold a buyer too much debt did not care one bit because he or she made the commission at 9am, then dumped the the loan lock-stock-and-buyer into a secondary debt market the same day.  The lender gets their check; the home buyer gets a letter saying their loan is now with a different company--somebody they've never met with only a P.O. Box somewhere in rural Iowa, and voila!  Your mortgage is suddenly little more than credit card debt on steroids. 

Suddenly, after two years  of thinking that you had it made by paying only the interest payments on a loan you could never afford in the first place, the interest-only term of your loan expired and your $500/month payment suddenly kicked up to $1,500.  Things get tight for a few months, there is additional stress in the family as you can no longer afford vacations or dining out.  After a few months of that, the floodgates open.  With the Fed threatening to raise rates, your lender decides to adjust your mortgage rate up by 3.5%--completely within their right to do.  Unfortunately, this means your payments skyrocket up to $2,800 per month.  Unprepared for this change and in disbelief, you cover some short term expenses by maxing out two credit cards.  You make the first mortgage payment and the second, but now you are short cash and start to miss one credit card payment, then another.  Life at home becomes unbearably stressful and you start talking about a second job.

But while Bush's terrorism fetish filled the country with fear, his 'homeownership' mantra had the opposite effect: duping vast sections of the country into the thinking they owned homes, when in reality all they had done is sign themselves up for mortgages so rigged in the banks favor that they make credit card contracts look like birthday cards.  Any honest financial planner would have looked at 99% of these 'sub-prime' and adjustable mortgages against the financial realities of the new home buyers and given vastly different advice about loan amounts.  Somehow the simple questions never got asked--questions like, 'Are you sure you can handle this much debt over the next five years?' or 'Are you aware that these radical increases in your payments will likely happen in the next three years?'  or 'Is it clear to you that housing prices at these levels cannot sustain themselves for more than 24 months, after which it is likely that prices will drop?'  Nobody pushing the 'ownership society' on America's first-time home buyers seemed able to ask those questions at the time they needed to be asked--when the new buyer was poised to sign onto a loan that would inevitably set them on a course for total  financial ruin in 3-5 years.

Nobody asked the right questions that would have resulted in a slow expanse of responsible home buying boom and lessened the number of wildly foolish mortgages that Americans took.  And nobody asked those questions because the President of the United States was busy giving mortgage sellers plenty of cover by convincing the American public that they were becoming 'homeowners' rather than 'debt buyers.'

Connecting the Dots
So where are we now in the history of American homeownership?  We are in deep trouble.

Talking about mortgage debt has become even more embarrassing than talking about debt--certainly for American journalists who do not seem interested in connecting the dots between George W. Bush's 'ownership society' campaign and the festering loan products now dragging down hundreds of thousands of American families by their financial necks.  Journalists are also not asking how many divorces, suicides, and abused children have resulted from America's mortgage debt crisis,  or how much substance abuse has resulted from George W. Bush's helping the mortgage industry profit from the idealism of the American family.

Nobody is connecting the dots.   But the dots are getting so big that we can now stand on them.

George W. Bush began his presidency promising all the benefits of a new 'ownership society.'  Everyone needed to find a way to buy a home, he promised, because that would make everyone prosper.  Crime would go down, children would be safer, America would be more free.

And what did we get?  Instead of freedom, Americans who bought into the 'ownership society' ended up with more fear--the fear that comes from trusting the financial advice of dishonest people  people and making bad decisions for your family as a result.

What we got was a dishonest President who encouraged Americans to ignore common sense, to ignore financial literacy, and put all their eggs in the basket of irrational exuberance and the timeless ruse that at some point in the future we can all enjoy unlimited wealth at the same time.

All lies. Bush's 'ownership society' was the sales pitch for what we have now:  a hurricane of foreclosures and the last gasp of hope for once thriving communities across America. 

What we will see in the wake of this new foreclosure society is what we always see when people struggling to get ahead lose the game because the rules are rigged against them.  Prices will plummet, speculators with vast amounts of capital will swoop in, and vast amounts of property America's families once held will become the holdings of the 10,000  dynastic families in his country that benefit from George W. Bush's policies.

A whole generation of Americans who followed President Bush's advice to throw caution to the wind and chase the American dream of unlimited wealth without responsibility will suddenly wake up in 2008 to find themselves ten steps behind where they started out in 2000.

And in that moment, Republicans who got elected and benefited the most from Bush's 'ownership society' pitch over the past eight years will turn around and blame it all on the Democrats.

©  2007 Jeffrey Feldman, Frameshop