Moment of Truth

2008-10-15
By Eric Easter

I've identified the single moment during the home-buying process that lies at the heart of this current economic crisis. Maybe it will sound familiar to you.

Here's the picture:

You've submitted your financial information to the banker/broker/realtor and you're sitting across the desk waiting for that person to break the news about how much house you can afford.   Despite all the mortgage calculators you've seen on websites and all the friends you've asked, you're more
confused than ever about how credit agencies really look at information.

Truthfully, you were planning to get turned down and told to keep saving, but then, miraculously, Mr. Broker/Banker/Realtor tells you that not only can you afford to buy, you can get $100,000 more house than you thought.

Ding! You'e a winner! At that moment, everything you ever wanted to think about yourself had been validated. You had better credit than you thought, you were  richer than you thought, you were on your way to being the millionaire next door.

Forget Fannie Mae. Forget Freddie Mac. It's that moment that killed our economy.

And according to the people on Wall Street deflecting the blame, it’s all your fault. Yes, you.  Joe and Susie Middle Class. But is it really? Well, perhaps at some level, yes.

 You saw it and you wanted it – now. You believed the hype. But who can blame you? You didn't jump, you were pushed, not just by realtors trying to make a sale and bankers trying to sell a loan, but also by the  "House Porn Industry" --– HGTV Dream Home, MTV Cribs, Divine Design, Flip This!, My House is Worth What?, Extreme Makeover – Home Edition, Designed to Sell.

The same media that was selling you the American Dream for the last 50 years started selling an addendum to that dream that was unhealthy and unrealistic. Suddenly it wasn't enough to own a home and pass it to your kids, but you had to own a home, knock down a wall in it, build an addition to it, put a Viking range in the kitchen, build a media room and then sell it for a hefty profit and borrow against that profit– generally to buy another home. "Mo'money, mo' money."

It was a lottery ticket you could live in, what could be better?

George Bush's "ownership society" that fueled this fire  was not a terrible idea. Most American families, if they have any wealth at all, have it in their homes. Home ownership and the pride that comes along with it stabilizes neighborhoods, provides taxes to local schools, reduces crime. Ownership is good.

But home-buying and the credit system are hugely complicated businesses with little to no transparency. Even the smartest, most financially savvy homebuyer needs a realtor and good attorney to make sense of the morass that is the closing process. Indeed, if Henry Paulson and Warren Buffett can't figure this credit thing out, what chance did you have?

Fine, go ahead and bailout the banks. Go ahead and regulate Wall Street. But regulate the real estate agents too, and the credit bureaus while you're at it. Standardize the credit system and open it up to scrutiny. Let everyone know what they're really working with. Then make it 20% minimum down on a mortgage or get back to putting loose change in the piggybank.

Building wealth is an honorable exercise, and all the famous wealthy people we admire have been telling us one thing, "Ask for what you want and all the other guy can do is say no."

So you asked for too much money to buy too much house. So what? Nothing' wrong with asking.  All the banks could do is say no, right?  But they didn't. Now whose fault is that?

Eric Easter is Chief of Digital Strategy for Johnson Publishing, Co. Inc. He writes about politics, culture and technology for Ebonyjet.com