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.
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