Wells Fargo has discovered some startling “facts” about public attitudes toward home ownership. In a press release issued yesterday that reads more like a tip sheet for the marketing department, the bank revealed its key finding in its headline: “Consumers’ Misconceptions Temper Desire for Homeownership.”
IFO is pretty sure other banks are issuing similar statements, she just happened to see this one and decided to comment on it.
Ah, yes, those pesky “misconceptions.” Here’s one, “a home is a key component of most people’s net worth.” The bank asserts that opinion. In actuality, a home that you live in has little to do with actual net worth.
If you have a mortgage on the house, it is not even yours. It belongs to the bank until you pay it off, or, as they used to say and do in the good old days, they “burned” it. A mortgage burning party used to be an exciting and fun event. Now, people are encouraged to use their homes “as an ATM machine,” as an astute observer said during the dark days of the mortgage crisis in 2008.
Furthermore, even after or if, the home is paid off, it is still a money sink. Repairs. Taxes. Upkeep. Insurance. OTOH, “wealth” or “assets” pay YOU. You get dividends or interest on investments. Increase in market value is NOT income, until and unless you sell the asset or house, and then you pay taxes on the increase! (IFO admits that you also pay taxes on most investments, but still… there is net and recurring income.)
The actual downfall of the housing market began in 2005, but did not become a full-blown crisis until late 2008, during the changing of the political guard from President Bush to President Obama.
The 2008 article is a clear view of how banks increased borrowing limits on credit cards even when the card holders hadn’t asked for that “benefit.” Later, the banks offered borrowers the “opportunity” to pay off that rising credit card debt with a home equity loan.
Suddenly, those loans became unpayable – required monthly payments, in addition to regular mortgage payments, exceeded monthly income. Either mortgage holders lost their jobs, or never even had jobs to start with. The latter were called Ninja loans – no income, no job, either with amusement or with outrage, depending on the speakers’ point of view.
And now? What do we learn from Wells Fargo?
A. Banks have not learned their lessons. From yesterday’s press release:
“The second annual “How America Views Homeownership” survey by Wells Fargo & Company (NYSE:WFC) and Ipsos Public Affairs found that 65 percent of respondents feel homeownership is a dream come true or an accomplishment to be proud of, and 72 percent think now is a good time to buy. But their perceptions about what it takes to buy a home, including perceived barriers, show opportunities for homebuyer education. [read: advertising campaign.]”
B. Federal regulators have not learned their lessons. Regulators are pushing this move back to nose-bleed territory for mortgage holders by people with shaky finances. Why? Must have been so much fun last time around, eh?
And don’t try to tell IFO that regulators aren’t pushing banks to lend. Credit scores and down payment requirements have been lowered. That can ONLY happen with regulators’ permission. We know this from our years of covering credit unions.
But, deep, deep down in the press release comes the real zinger. With a strong sense of deja vu, we publish this:
Higher proportions of African-Americans (37 percent) and Hispanics (31 percent) say they’re considering buying a home in the next two years compared to the general population (17 percent). In fact, the percentage of African-Americans considering buying within two years rose 15 points over last year (from 22 percent to 37 percent).
C. Politicians have not learned their lessons. Or, perhaps they DID learn a lesson, just not the right one. Tell your constituents you are doing this for THEM – making it easier to get a loan. Many people who get loans don’t seem to get that those loans have to be paid back.
And why should they? Last time around, banks refused to foreclose on homes and people got to live rent-free in them for YEARS in California. Same borrowers get told they got a bad deal and really shouldn’t have to live up to the agreement they signed because of those “greedy” bankers.
So, those borrowers got bailed out by new Congressional rules. Or did they? Nope, it was the banks getting bailed out. And now, payback time. Banks are doing it again. Pushing mortgage loans on people who have no business getting loans with no down payment and uncertain income.
It seems to be a never-ending cycle heading toward Greece. It’s ready-made for the usual villains and political rhetoric: greedy bankers, stupid borrowers, evil politicians/regulators. Don’t say IFO didn’t tell you.