Experts differ on who should own a home

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The Philadelphia Inquirer
By: Alan J. Heavens
May 16, 2010

Is owning property a mark of success? And who should be entitled?

With record numbers of foreclosures littering the landscape and even more likely to come, the housing industry has been doing a lot of soul-searching on the question of who should be a homeowner.

More than one million foreclosed residential properties likely will be repossessed this year, and almost one-quarter of U.S. mortgages are greater than the value of the homes they finance. This frightening scenario is likely to worsen as unemployment remains at nearly 10 percent.

Those numbers argue for a reconsideration of who should own a home, as well as the widely held belief that not owning property is a mark of failure.

One view of ownership, articulated by James H. Carr of the National Community Reinvestment Coalition, is that there should be "no lending without ensuring that the borrower is able to repay."

"Even to say that shows how out of control the financial system is," Carr told a seminar sponsored by the Philadelphia Federal Reserve Bank here last week.

For Farah Jiminez, it is less a matter of money than of temperament.

"Not everyone is prepared for the responsibility," said Jiminez, executive director of the Mt. Airy USA community-development corporation in Philadelphia.

"As housing counselors, we see this all the time," she said. "We have clients who want to know when they can get in a house. Then we have clients who want to know what they can do to ensure they can stay in the house."

Even the worst housing downturn since the Great Depression doesn't dampen the enthusiasm of Americans eager for a piece of the American dream of homeownership.

A recent and extensive Fannie Mae consumer survey shows that the vast majority prefer owning to renting - even people who are delinquent on their mortgages or whose houses are worth less than their loans on them.

"The nonfinancial issues eclipse the financial ones," Fannie Mae chief economist Doug Duncan told the Fed seminar. "They say owning a house makes more sense than renting one, even if they are in trouble."

Yet as a result of the comprehensive public awareness of mortgage issues, "most believe that it will be harder to buy a house in the future, especially for their children," he said.

Efforts to increase homeownership generally and among minority groups long kept out of the market were not wrong and did not lead to the housing crisis, Carr said.

Excesses in the mortgage industry that led to the debacle "were not designed to increase sustainable homeownership," he said. "If innovation in financing is simply designed only to create billions of dollars in profits, that is not innovation."

"There are many high-net-worth individuals who managed to buy above their means," Jiminez said.

Carr said he believed government regulation embedded in a coherent national policy would help set things right, but there was a difference on how much rule-making was needed.

Economist Mark Zandi said he believed that federal regulators simply needed to set minimum standards for residential mortgage loans "to establish what is affordable - most importantly, the cumulative loan-to-value ratio should not exceed 90 percent."

"If these minimum standards were set, then all the various complicated - and ultimately unworkable - attempts to require risk retention in securitization would not be necessary," said Zandi, of Moody's Economy.com, of West Chester.

Zandi was referring to a Securities and Exchange Commission proposal to require those who issue securities to retain some of the risk.

Some experts, including Carr, say they believe that financing alternatives such as lease-purchase are not being explored.

Stefanie Selden of Philadelphia VIP, which provides legal counseling to low-income people, said that "a lot of our clients are victims of lease-purchase scams and are often left with nothing."

Being able to pay the mortgage on time is just one of several measures of successful homeownership.

Colmar bankruptcy lawyer William D. Schroeder Jr. said that "owning and sustaining a house in a quality condition is expensive and time-consuming, and that quality ownership must be sustained over the long haul."

He said that "lending standards must be such as to make sure the borrower places a significant percentage of his own money into the equity of the house and has the continued ability to be employed at an income to make the payments."

Patricia Hasson, president of the Consumer Credit Counseling Service of Delaware Valley, said she saw many high-income people struggling to pay their mortgages.

"Income alone is not a factor to sustainable homeownership," she said. "The amount of debt outside the mortgage is a key factor, and the credit report and score will play an even greater role in the future."

Contact real estate writer Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

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