Lenders of any stripe, have known they were well served to have borrowers believe they were borrowing money, and that the lenders were lending them money; and the deception should remain. Lenders knew this was a transaction like any other; they understood it had buyers and sellers. Lenders knew they were selling money, and they knew the poor borrower didn’t know he or she was actually buying money from them.
When purchasing a home the buyer buys from two sources: the seller of the house, and the seller of the money. In other words, he or she buys the home, and buys the money used to buy the home.
Home buyers, meaning borrowers (now understood to be money buyers), real estate brokers, home sellers, and almost anyone else who has ever thought about buying a home, know it will be a difficult, involved, occasionally deceptive, sometimes fraudulent, usually long, and always expensive transaction. The general public – meaning anyone not considered a real estate professional who intends to profit when some one other than themselves buys or sells a home – again, the general public, because they think they are borrowing money instead of buying it, have unfortunately, readily accepted another myth served to them on the proverbial silver platter by the folks called real estate professionals. (Now, now, calm down any of you real estate pros out there who might happen to be reading this, I promise I’ll exonerate you and be nice in a little while.)
This myth is so pervasive, even Bob Herbert, one of the op-ed columnists for the New York Times used it in one of his recent columns entitled, “Chutzpah on Steroids”. He said, “The family home is the largest purchase most Americans ever make”.
Boy, do people believe that one, even though it’s a real howler and a knee-slapper. The lenders love it! After all, they are laughing all the way to the bank. Oh, I forgot, they’re already there, they own the bank. Hmm, or have they already sold their bank to the government, in which case they’re laughing even harder.
The myth works because we have all been taught to believe we borrow money rather than buy it. But then, if we follow the money, certainty returns, because we know we are buying the money just as assuredly as we are buying our new home.
Thus the old saw saying the family home is the single largest purchase most Americans will ever make, is just not the way it is – no matter what the meaning of the word “is” is, or how often somebody claims to smoke a little weed without ever inhaling. (By the way, I believe the President simply misspoke when he claimed he never inhaled; I think he meant to say he never exhaled.)
Anyhow, back to the myths at hand: After all this dancin’ around on my part, the truth is, the family home is not the largest purchase most Americans will ever make; it’s the money. Meaning – the money used to buy the family home, is the largest purchase most Americans will ever make! Lenders know this, or as least some of them know this. In either case, the lenders are once again, laughing all the way to their bank.
Under normal market conditions, some of the lenders are having a much better chuckle than others. But now, perhaps it is more correct to use the past tense on the poor lenders, since it is almost two years after the mortgage bubble burst, and many of those lenders have long since gone, or (because we can’t allow the home builders to go unrecognized) faded into a sunset of their own construction.
When the mortgage markets collapsed a year and a half ago, I wondered why anyone could possibly have been surprised. I called several old friends who were in the mortgage business with me in the 70s and 80s when these fancy financial vehicles then call collateralized mortgage obligations (later called collateralized debt obligations) were created, any of us could easily have told the new regime of financial experts the collapse was bound to happen. Underwriting had become non-existent. Too many people, legally or illegally, were making too much money. At least to some of us, nothing could have been clearer than this pending collapse of the mortgage markets. The world seemed to squirm, while some of us old codgers laughed, but unfortunately, not all the way to the bank.
Unfortunately and once again, I must stop holding forth for the time being. As I continue, this disquisition of mine should fill in some of the holes regarding the causes of our mortgage crisis. I, and many others my age worked our way through the last mortgage crisis when interest rates for home mortgages hit 22%. First came Volcker, then came Greenspan. Folks still bought homes, the country survived.
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