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Your mortgage: Home first, investment second

Where does housing fit in the American Dream?

Tess Vigeland: Owning your own home has always been an element of the American Dream. Few assets loom larger in our lives -- both financially and emotionally. Today, in collaboration with The New York Times, we'll break down the numbers and the feelings behind home ownership from the perspective of those who own them, those who want to, and some who've lost them over the last five years. Let's start with some thoughts from the streets of L.A.

Brearley Khan: My name is Brearley Khan. We got a loft unit that had previously gone bankrupt. And we were able to get a really good deal on it and a really good mortgage rate. But I do sometimes feel like you're taking advnatage of other people's misfortune.

Daniel Passage: Daniel Passage, Long Beach. We just bought our home in 2004 and we've just paid it off. Because of paranoia over what's going on in the economy. We wanted to get in a situation where we could never end up being homeless, no matter what happened with my job.

Belinda Roberson-Tunord: My name is Belinda Roberson-Tunord. I'm a native of Los Angeles. I would love to buy a home, I just can't afford it here. In 2008, I was glad I didn't buy one. We were looking at one, my husband and I. But we were very glad we didn't buy a home.

Eric Kowalski: Just bought my house two and a half years ago here in Highland Park. I know the home isutaiton's still tough. You know, I think it's gonna get better. I mean, home ownership is one of the American Dreams.

Jonathan Barker: Jonathan Barker, I live in Echo Park. This is with my wife, our first home. It's a big process, nerve-wracking. But we love our house. It's just nice to have a house as opposed to an apartment. You get a yard and now we have a dog.

A few voices from around Los Angeles. Ron Lieber joins us now. He's the Your Money columnist for The New York Times. Glad to have you on the program.

Ron Lieber: Good to be here.

Vigeland: So what we're taking a look at is the question of where housing now fits into the American Dream. Has it always been a part of that?

Lieber: I think you can safely say for -- at least roughly the last 30 or 40 years -- people felt like owning their own little, tiny piece of America is part of what it meant to be a successful American.

Vigeland: That has changed, perhaps, over the last three or four years with the collapse of the housing market. Let's talk a little bit about why we are addressing the housing question today.

Lieber: Well, the biggest reason to address it is because more often than not -- and just sort of forget the last five years for a minute -- the home and all of the equity in it is often your biggest asset by the time you're in your 50s or 60s. You've paid a lot of money towards it. Maybe you've paid it off entirely, maybe you own it free and clear. And it's an asset that you can use to borrow against or to live in rent-free. Or to sell and downsize to take some money off the table for your retirement and move in some place smaller.

Vigeland: And I think what we're going to hear a lot during this hour and that we read in the New York Times special is that part of the big problem that we saw over the last decade or two was that we started to think about it as an asset that was an investment more than anything else, more than being somewhere to live. And that's really what got us in trouble.

Lieber: Right. When people start to think about it in terms of an investment, they think of it as something that grows at a certain rate of appreciation each year, something that you can buy and sell and trade. And until four or five years ago, we never thought of homes as something that you could sort of flip over and trade to somebody else, that would go up by 10 percent a year the way that stocks might in a good year. But the moment that that started to happen for people, they began to treat their homes in different ways. It started to feel like it made sense to borrow more money to acquire that asset, because it was going to go up so quickly that you'd pay the loan back and keep going or sell it before the bill came due.

Vigeland: So what has all this meant to the home, particularly home ownership as part of the American Dream? I know we're going to hear about that in this hour, but what kind of conclusions can we draw from the reporting that we've done?

Lieber: Well, I think it's tempting to take a look at what's happened in the last five years and say, "The American Dream is dead and we've minted a nation of renters," and "People in their 20s and 30s who have seen the carnage who are thinking about buying" -- or people in their 40s and 50s who fell victim to it in some way shape or form -- "are never going to own homes again as long as they live." But I think it would be a mistake to draw that conclusion. Here's the problem we tend to have mentally when something extraordinary happens and it lasts for a long time. We tend to think that "Wow, this time is different. This changes everything. We're never going to back to the way we were before. We've achieved some kind of permanent alteration in the way the human condition" -- or at least in the way that humans analyze this particular condition.

But let's get real here, right? The home is a great form of forced savings. You have to make the mortgage payment each and every month. Some of it goes towards principal, although not very much at first, but that goes up over time. You're sort of forced to do it. So it's useful in that respect -- just as long as you're not buying at the tippy top of the market, which is what happened to people who bought in 2005 or 2006.

Vigeland: Ron Lieber writes the Your Money column for the New York Times, our collaborator on this program today. Thanks so much, Ron.

Lieber: Thank you.

About the author

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.
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If you're thinking of walking away, please take the first comment with a grain of salt. Sullivan's rant doesn't seem to take the role of the banks into consideration. After all the boom and bust was due to banks ever more predatory lending practices and policies (credit default swaps, subprime mortgages, banks betting against their own assets). If you're in a situation where you're significantly underwater you're not helping anyone by sucking it up and dealing with it. You will be paying the bank a significantly inflated value for many years. That, in most cases, is simply not worth it. Sullivan claims that this doesn't just punish banks, but that it punishes the community in which you've made your investment. This is simply untrue. It's an act that helps equalize the effects of the bubble burst. Additionally, I take issue with calling walking away "theft". What about the thefts perpetrated by the banks since 2007? Misinformation caused many people to take out loans they shouldn't have; Housing values were inflated, putting people in higher mortgage rates. When the bubble burst many people lost their jobs or had to take significant paycuts. They have to walk away. You can't simply blame the individual. The economy tanked and it must be equalized to continue. For those in walk away situations, do what you think is best, assuming you're not at risk legally.

It is unfortunate that Marketplace Money continues to have such a flippant attitude when it comes to the concept of walking away from a mortgage. First off, you fail to make a distinction between those who find themselves in an untenable financial position and those who simply think they should not have to pay off an obligation that currently has a negative net position. The former certainly are in a very difficult situation which can be seen with empathy. The latter are pure scum, and should be called out as that. Secondly, Marketplace Money continues to reflect a kind of moral relativism when it comes to those who walk. The “bank” is not the only victim of the conscious act of those who fail to honor their contractual obligation to pay their mortgage (especially if we are talking about people who can afford to pay their mortgage but just chose not to). Walking away is an act of theft. It is stealing from the bank. It is stealing from future borrowers who will have to pay higher rates to cover the cost of deadbeats who walk on their mortgages. It is stealing from their neighbors, whose homes will go down in value. And, walking away is a form of theft from their community, which will lose tax revenue. Third, there are real consequences to walking that Marketplace keeps papering over. Most of us do not live in California, in most states the owner of the mortgage debt can go after those who walk away from their mortgage to collect the balance due. Increasingly those debts are being resold and eventually coming into the hands of investors who will go to court to collect. This is a real economic threat that hangs in the future of many of those who have walked away. In 2013 the IRS will again be charging imputed income on the balance due on the mortgage. That means anyone who walks away in 2013 or later will be getting a tax bill at their marginal rate on the balance due on their mortgage. The walkers are also putting on the line their ability to rent, and paying higher costs on a range of things from the cost of insurance to purchases on credit. And, they may lose a job they apply for in the future because of the record of walking away. Walking away, especially for those who can afford to pay, should not be treated as such a “no brainer” financial call as Marketplace Money continues to do.

As a parting comment, throughout your story you kept saying that a home is not an investment, but throughout the show you kept treating home ownership as an investment. It would be refreshing some day to hear Marketplace Money actually start framing home ownership as a home, not an investment. As long as people see homes as investments we will see the types of problems we have seen in the last five years. Here’s hoping Marketplace Money finally sees the light.

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