Wednesday, July 27, 2011

What Do We Want? Houses We Can't Pay For! When Do We Want Them? Now!

Yesterday's contribution to the Bad Ideas list came to us from the San Francisco Chronicle, which reported on a growing movement called Take Back the Land. The group's cause? Protesting home foreclosures, in order to get banks to allow broke homeowners to stay in their houses. While not currently active in California, these folks are building on what they've seen in countries like Spain to organize several protests on the East Coast. In one of the group's protests in Rochester, NY, the group blockaded a home for two weeks to prevent the residents from being evicted. The Chronicle reports that the group may hold its first national conference in California.

We concede we're probably being pedantic in our quaint insistence on property rights, but something just doesn't add up here. Isn't a mortgage an agreement to borrow money to buy property? If it is, then does it really make sense to call it your home when the bank puts up almost all the money to buy it? It's more accurate to call it the bank's home, and to say that the bank lets you live there while you pay back your loan. While foreclosure obviously isn't a good state of affairs, we don't think there's anything particularly unjust about it. If you stop making your payments to the bank, and your finances are so shaky that renegotiating your loan's terms isn't possible, the bank would seem to be within its rights to ask you to leave. Because, after all, they bought you the house.

If Take Back the Land picks up steam, the consequences are predictable: the use of force to take away the foreclosure option will make banks even less inclined to make mortgage loans. And we'd hardly blame them: long-term loans in a shaky economy are risky enough as it is. Of course, if you're one of those who believes that a recovery in the housing market is essential to ending the broader recession, you probably won't welcome this news.


  1. If bank lending gets scarce, people will do what they usually did before universal bank financing with non-assumable loans. Buying and selling real property for cash (and nothing but) is a relatively new thing. Vendor financing aka owner financing was the normal way houses were bought and sold. You didn't "qualify" for a new loan every time a property changed hands. That was silly, and enriched only the lender. Rather, you took title and kept paying on the previous financing. That state of affairs could pertain again.

  2. Oh, absolutely, and though I don't have a reference handy, I believe we're already starting to see more cash sales in the market recently. But I completely agree that the old model of bank-financed loans needs to go: whether it's housing, healthcare, or education, third-party payment is a recipe for rising costs (and disaster).