The Politically Correct Cause of the Subprime Mortgage Crisis

Some people mistake cause for effect, and therefore think they can force society — people — to change to fit their agenda.

How did this help cause the subprime mortgage crisis?

See, it’s common knowledge that — in general — people who own their own homes make more money, are worth more money, have better overall credit records, have more stable job histories, are less likely to be criminals, and are just basically are better citizens than people who don’t own their own homes.

Some people think these benefits are caused by home ownership. But maybe it’s just that better citizens are more likely to own their own homes.

Or even that the effort traditionally required to own a home (prior to the housing bubble) forced people to become better citizens. People knew they had to stay at their jobs, make more money, pay their bills on time and save up a down payment.

People are more likely to own homes if they get well-educated, whether through college, certification classes, vocational training or self-training. If they work hard at a job or business. Keep making more money. Keep their other debts low and (almost) always make their loan/credit card payments on time. And keep saving money for a down payment.

People who do this are obviously “prime” mortgage borrowers. They obviously meet the “traditional” underwriting standards for evaluating home mortgage applications.

They’re the kind of people mortgage lenders love. They’re the kind of people politicians consider good citizens. They make money and are stable (meaning that of course, they also pay lots of taxes!)

The more of such people our society has, the better.

But the houses they own do not, in and of themselves, make these people solid income earners, dependable and good savers. They own those houses because they’re solid income earners, dependable and good savers. The houses didn’t give them those qualities. The houses they own are a result of financial responsibility, not the cause of it.

That’s the politically correct error.

Some politicians believe that if you just take high school dropouts, people with poor work habits and job earnings histories, people who take out credit cards and use them without making monthly payments… and put them into a house, they’ll suddenly be transformed from “impoverished” to “successful.”

That’s why some politicians forced commercial banks, and Fannie Mae and Freddie Mac, to lower their lending standards. They mistakenly believe that people with a poverty mindset and lifestyle habits can be transformed into affluent people simply by owning a house.

Approving mortgages for people not financially prepared for home ownership did them no favors. Instead, losing their homes probably reinforces their poor self-esteem and the attitude that they can’t make it, that the system is against them.

When every home buyer is qualified, mortgage backed securities will be the safe and secure investments the originators claimed.

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