The American dream does not exist. Not in my community. Not in many communities around the United States. The American dream used to include the vision of working long term for a company in return for a fair wage and job security. The fair wage allowed you to buy a house, provide for your family, enjoy backyard barbecues and coaching your kids’ little league games. Those days have vanished.
In my community, we have 13.1% unemployment. The majority of the job losses stem from the construction industry. From 1999 through 2005, we experienced skyrocketing housing demand. The typical real estate market in the United States experiences a 3-4% increase. My community experienced a 30% increase during that time. Within just a couple of years Nevada became the most sought after state to move to and buy a house. In 2004, you could buy a 1200 square foot home for just over $100,000. New home builders had to put prospective buyers on waiting lists and had auctions to help meet the demand. Nevada had been a state for 140 years and all of a sudden, people were flocking to Nevada just like they did during the days of the silver rush. What was the attraction?
During this period almost every pension plan, money manager and holding company had at least part of their portfolio in real estate. They consistently chased a higher return on their investment and the banking institution found a way to provide it. Interest only loans, pay option loans, only 10% down payment for investment properties, no money down for a primary residence and lending money to borrowers with low credit scores created an incredible buzz in real estate. Whether you had a job or not, whether you were able to afford the payment or not, there was a loan program that would allow you to purchase the home. The dream of home ownership became a reality to anyone with a pulse. What happens when demand is high? Prices rise until they find equilibrium.
In an economy with double digit increases in home values, you can mask problems such as consumer debt, reduction of income, poor credit history and insufficient savings because you continue to earn equity in your home. When the housing market stabilizes or declines, these problems can no longer be ignored and serious hardship ensues. And this is what we have experienced in my community.
Families are struggling. They can not afford their obligations because of job loss. They are draining their savings and retirement plans to make ends meet. They are faced daily with the mental anguish of whether or not to let their house go because of the 50% drop in their home value since 2005. The federal government spent $787 billion in TARP funds to put in place programs to help struggling homeowners stay in their homes. Generally speaking, loan modifications do not benefit the homeowner. They may extend the term of the loan and reduce the interest rate to make it more affordable, but if your home has lost substantial value, this is not the answer. The banking industry set the guidelines for lending money to borrowers. They sold the average American on the reality of homeownership. Yet, when the market turned south, the banking industry received billions of dollars to take these bad loans off of their balance sheet. They also took out insurance policies on these loans to insure against default. Where is their incentive to work with you? It doesn’t exist. We, as taxpayers, are paying taxes to bail out these banks and give them the proper incentive NOT to work with the American homeowner.
This is the biggest fleecing of the American taxpayer in the history of our country. Homeowners who are grossly upside down in their house are financing the bank’s decision to ignore them. Financial institutions are making record profits. They continue to provide exorbitant bonuses. Their stock prices continue to climb. Yet, the individual homeowner is struggling every day to find a job, provide for the family and keep a roof over their head. The days of the American dream have vanished and the middle class has vanished with it.
