Sometimes academics get an unfair rap for being too high up in their ivory towers, and being too divorced from “reality.”
Sometimes, though, that’s just totally fair.
And while we don’t like to make criticisms too personal, this recent op-ed in the NYT times, written by NYU dean Dalton Conley, called “Safe at Home”, is simply one of the most bizarre things we’ve seen in a long, long, long time.
We had to check the date twice to see if a piece arguing that we need to expand homeownership among the poor by guaranteeing more mortgages could actually have been written in August, 2009. Indeed, it was.
Immediately Conley gets off on the wrong foot.
THE financial crisis has given rise to all sorts of wrongheaded ideas, among which is the notion that we should not subsidise the “losers” who can’t make their mortgage payments. In fact, the solution to our troubles is not to restrict homeownership, but to expand it.
It only gets more ludicrous from there. He talks about how we’ve adopted a “blame the victim” mentality, which he doesn’t back up at all, and that there’s no reason the poor can’t be successful homeowners:
The “natural” rate should [of homeownership] be around 60 per cent of American households, some analysts say, not the 70 per cent it reached in 2004. That’s an unfortunate argument, because owning a home can be one of the best ways for a poor family to save and accumulate assets: recent history aside, the value of a house does typically rise, and its owner avoids paying rent and gets a tax break.
Did he really say “recent history aside”? Does that even need a counter-point?
Then he gets to the meat of his argument — what we need is more government guarantees of homeownership
Currently, the biggest policy to support homeownership other than the mortgage interest deduction is the Federal Housing Administration’s mortgage program, which works by insuring loans made to buyers through traditional lenders (that is, it decreases risk to lending agencies by underwriting the loan). However, many of the most disadvantaged Americans, and minorities in particular, do not qualify for F.H.A. loans because of their low net worth and other factors.
In other words, since many poor people aren’t creditworthy, the government needs to backstop them. What could go wrong?
In his defence, he goes onto cite a specific, and tiny 1998 program called Safe-Help in North Carolina that helped backstop mortgages for non-conventional borrowers, but which has had below-average default rates for the 27,000 families it helped get loans. Conley says the goal should be to “scale” programs like this one.
Admittedly we don’t know the details of this, but our guess is that the low default rates probably had something to do with the fact that the program was decidedly not scaled up (i.e., with only 27,000 families over several years, you can actually ensure loan quality), and because it was North Carolina, which never had much of a housing boom at all. Had this program been tried in Florida, California and other heavy-population states like that, we’d bet on some different outcomes.
The bottom line here is that in order for Conley to successfully make his argument, he needs to overturn every piece of wisdom we’ve learned since the crisis relating to expanding lending, backing up mortgages, the eternal benefits of homeownership, etc. That’s an ambitious, but worthy feat. Simply repeating old wisdom like (homeownership is a way to save money if you’re poor), and citing one program started in 1998 isn’t nearly enough.
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