The media and internet are filled with all the causes of the mortgage crisis affecting real estate today.  Arguments are presented blaming subprime mortgages, greedy and unethical lenders, corporate greed, poor appraisals, borrowing with little or no equity, declining values, and the list goes on.  However, it occurs to me that the roots of the problem go back further in time so a somewhat unrelated event which, at the time, no one foresaw any dangerous consequences for the real estate and mortgage markets.

This event was the restructuring of the tax code which eliminated interest deductions for any purchase other than one's home.  An initial result was a change in mental attitude toward home mortgages.  Prior to that point, the payoff and burning of the mortgage was a goal when homes were purchased.  This was a much anticipated and celebrated event.  Now, with interest only deductable when based on your primary mortgage, payoff took a backseat to "how much can we roll into the equity of our homes?"  Mortgages, via refinances, paid for cars, boats, recreational vehicles, and even paid off credit cards covering multiple purchases.  Once the debt accumulated, so long as real estate values continued to rise, all was resolved, and deducted, over time.  This desire to use mortgages for more than home loans also led to less equity loans as more was spent and less brought to the closing table since the higher the mortgage amount, the more could be purchased, and not just in terms of real property.  The mindset of a mortgage being a means to purchase a home faded in the minds of many as did the burning of the mortgage ceremony.

 
Posted by Richard Glesser on 05/11/2008 08:01 PM   Comments (3)  
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3 Comments on Roots of the Mortgage Crisis

MAY
11
2008
361,159 Points 31 Featured Posts Outside Blog Hit Router

Richard -

Interesting angle!

A lot of it, too, had to do with the changing attitude about free-and-easy credit, no personal experience hard economic times like our Depression-era parents did, and the lost value one has in pride of paying down ones debts, and paying with cash, when you can afford it.

My father, raised in the 1930's and 1940's, rarely bought anything on time - and always drove old cars, we had economical clothes as a kid, rarely bought new furniture or a new TV.  Perhaps, resenting this - we younger Boomers, and the even-younger Gen X and Gen Y'ers made sure things were different, and we got everything we wanted, immediately!

Guess many are getting their come-uppance about now!   (Although I still won't drive a car with Duct Tape keeping the ceiling liner up, or an old piece of sheet metal for the passenger's side floor!)

Call or stop over anytime!

DEAN & DEAN'S TEAM CHICAGO
8:11pm • #1
153,669 Points

Dean,

We appear to be the same age bracket.  Say a post on the internet recently showing one of the many depression-era tent cities and remember well the stories of collecting coal which fell off railroad cars for heat and so on.  With so many experiences, one can understand why a bowl of ice cream with chocolate syrup and peanuts was considered living high.  My parents also paid cash for cars and all major purchases.  My dad was the scourge of the credit card companies since he always paid the bill in full upon receipt - no interest.  I wish I was more like him, but would prefer not to exchange the more comfortable lifestyle I've enjoyed as a result of their efforts.  Surely, The Greatest Generation extended far beyond WWII with their value structures and general determination to make life better for those who followed.
8:23pm • #2

Richard,  Very interesting view.  One thing I love about Active Rain is to see different ways of looking at an issue.  Thanks for your view.
8:28pm • #3


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Richard Glesser

Gaylord, MI

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North Country Appraisal Services

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