For decades, home ownership was part of the American dream. We all wanted it, even those of us who rented apartments or homes wanted it. It was the way of life to which we all aspired.
The federal government thought it was a pretty good idea, too, so it promoted home ownership with the deductibility of mortgage insurance, by exempting the capital gain on personal residences, by attacking banks for redlining practices, by passing and aggressively enforcing the Community Reinvestment Act and by forcing Fannie Mae and Freddie Mac into funding more and more sub-prime mortgages. All of these--especially the latter two--helped to build the false economic prosperity of the decade 1995-2005.
For as long as I can remember, another part of the American dream was being able to obtain credit when we wanted and needed it. We bought cars and refrigerators and washing machines on conditional sales contracts. No self-respecting American could be happy without a wallet or purse full of credit cards. The use and growth of consumer credit in part helped the American economy grow to become the biggest and strongest on the planet.
Along with mortgages and revolving credit lines came the responsibility to honor our obligations. For generations, we Americans felt that obligation deeply and the overwhelming majority of borrowers honored those obligations. If times got hard, we'd do without something else in order to make the mortgage or car payment. We did so because of a sense of duty but also because we feared the stigma of default. Bankruptcy was bad. Foreclosure was terrible. With them came dishonor and disgrace. Didn't it?
In today's troubled times we have a long way to go before we recover. Far too many homeowners have fallen behind on mortgage payments, far too many have suffered through default and far too many still are on the brink of foreclosure.
Some of these problems have been the fault of the homeowner, as many bit off more than they could chew, but most of them have been caused by lost jobs and reduced incomes. There have been so many credit defaults and foreclosures that existing home values have been pushed to a nine-year low with an unsold inventory of almost nine months on the market. It's a great time to buy if you're in the market but the market may not normalize for several more years.
A by-product of the current real estate mess is a troubling trend of people walking away from their obligations without concern or remorse. I'm not referring to the people who simply can't pay the mortgage. I'm talking about an increasing number who choose not to pay the mortgage.
I don't have statistics but the anecdotal evidence is that an alarmingly high number of people are continuing to spend money as if they had it. They spend for vacations and electronics and cars while choosing not to make mortgage and credit card payments. They continue to "run up" their credit card debt as high as they can to pay for their children's dance lessons and travel soccer teams, knowing they'll never be able to pay. When the credit runs out, they walk out leaving the keys on the floor. At least for them, bankruptcy and foreclosure have become acceptable solutions.
Why is this happening? I won't offer any defense of this phenomenon but I will offer a partial explanation. The stigma once associated with a credit default, bankruptcy or foreclosure has been lost. So many good people have lost their homes through no fault of their own that some not-so-good people are taking advantage of the opportunity. Shame on them.
I wish every reader well and hope that none of you ever face this dilemma personally. I also hope that if you witness this sort of irresponsible behavior by others that you'll take a stand and tell the offenders how wrong their actions are.
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