Americans 'walk' from loans

This piece is a few days old, but that last comment, from Bank of America's Kenneth Lewis, caught my eye and spurred me to post this.

There is serious delusion here, or perhaps denial. The fact is, the attitude of Americans towards home "ownership" has not just now changed. It changed a few years ago when people became willing to occupy homes with no (or nearly no) money down, often times with the hopes of easy flipping gains; and when bankers became willing to underwrite such loans (again, often with a similar flipping intent, except in the secondary MBS market).

So this should be no surprise. This is "lending 101". When the borrower has no skin in the game, they have little to no interest in sticking around to see what happens as a result of their going delinquent. A banking czar like Lewis should be ashamed for feigning surprise.

This is why I put "ownership" in quotes above; it is nonsense to speak of "ownership" when the "owner" doesn't have a dime on the line. Beware of the term "home ownership" being used in demagoguery. Whether victimized or themselves the abusers, borrowers with no equity or no money down are not the same as "homeowners" in the traditional sense. In reality, they probably shouldn't be true homeowners until prices correct and they are better prepared financially. We worry about panicky policy being set in the amidst this crisis that ignores this underlying reality.

Indeed, it is silly to point to America's "high" home ownership rate when so much of that rate is due to a rapid increase in recent years precisely because of all the unsound lending. This was "fictitious" homeownership at best, and it says the exact opposite of what a naive read of the statistics would suggest. That is, it says the opposite of what politicians, bankers, and mega-lenders like Mozilo want people to believe: that America has some sort of manifest destiny to have unusually high levels of home ownership, fundamentals be damned.

America is less of an "ownership society" than it has been at perhaps any time---unless you count debt as an "asset" (amazingly, that is what politicians and mainstream economists have been doing). Hopefully one day we will be that ownership society---when we've actually earned it.