Continual Demonization of Homeowners and Sanctification of Banks

Discussions in the media and backyards continue to place blame of America's current recession and banking financial apocalypse onto the homeowners who agreed to ambitious mortgages that far exceeded traditional metrics of income to debt ratio and home affordability.

There are homeowners who are now faced with historically extraordinary circumstances of home equity 50% and below of their mortgages. The economic incentives have guided many to willfully withhold payments from their mortgage company or bank to increase bargaining position for renegotiation of their mortgage balance and terms, or to simply save money prior to an impending foreclosure.

Sure the banks would be better off if everyone paid their egregious mortgages because they are supposed to, but complex economic system is not simple enough to be structured by fairytale dreams of conservative pundits and banking lobbyists. It is guided by complex interplay of economic incentives, risk, legal guidelines and legal consequences.

Around 2003 home affordability in America was waning. Money was poured into real estate and development by those looking for stable investments having been rattled by the recent tech bubble of the late 1990s and early 2000s. Recent college graduates, budding families, and workers looking to purchase their first home were faced with mean home prices exceeding five times the mean gross wages of their region. Some locations such as Arizona, California, and Las Vegas saw mean home prices exceed ten times the mean wages of their area.

As mortgage applications began to dwindle unscrupulous mortgage lending businesses found methods to relax their home affordability guidelines to create mortgages for those, who could in fact, not afford a home. These mortgage companies enjoyed continued growth in their revenues and client base at the cost of allowing for higher than previously acceptable risk on their balance sheet. The viscous cycle began as home prices climbed and questionable mortgages were created. In at least one instance the new risk of these lending practices were fraudulently mis-represented to investors to keep the cycle going (S.E.C. Accuses Countrywide's Ex-Cheif of Fraud - NYT)

The poor stewardship of trusted banking and financial institutions finally reached a point of collapse taking investors, pensioners, 401Ks, stocks, and mutual funds down the toilet with them. A consequence of their unregulated greed, and poor leadership.

The consequences now facing the economy and individual financial institutions were systematically created by a misguided set of short term profit incentives and weak legal consequence. Tax payers have had come to the rescue to save these institutions and keep the economy afloat in the form of subsidies, loans, and cash handouts totaling the trillions. In turn these financial institutions see a diminished consequence for their excessive risk.

It is completely unfair to vilify struggling homeowners who are following the economic incentives to decisions that are best for them, and to instead impose sacrifices that solely benefit their unscrupulous mortgage companies. Struggling mortgage holders should not be held to standards of morality and legal consequence higher than their mortgage companies.