I’ve mulled this over for a while now – yes, I’m in the personal finance realm and am supposed to tout the benefits of owning a home, but if you really step back and look holistically at the entire process, is it in your best interest?

I’m going to play the Devil’s Advocate on this one and say that it is quite possible that we’ve been brainwashed into thinking that owning a house with a white picket fence is the “American Dream”. I will argue that it isn’t; that it is the Dream of the government and corporate America for all of us to propagate that dream.

No, I’m not out to get America and its systems. They work. I’m speaking from a business perspective though. Government whether you like it or not, is a business. It needs Money in (taxes,etc), and money out ($700BIL bailouts, etc). They have run it pretty well for the past 220 years (well, 219 anyway).

Break It Down To The Simplest Form

Somewhere near the beginning of EVERY country’s establishment, banks are introduced. They worked and made perfect sense. You let them house your money in their big safe, feeling comfortable that you won’t get robbed of everything in a train robbery.  True, putting it in the bank is much better than the “coffee can in the backyard” and “under the mattress” ideas people are returning to these days.

Banks were good at that. They’d charge you a small fee to house it there and everyone was happy. Well, like any good business, you then need to have new ways of making money. They’ve got all that money just sitting there in their banks, there’s got to be a better way to put that money to use – in comes the loan and mortgage structure.

TheHistoryOf says that the beginnings of a mortgage system have been found, as mentioned, as early as 1190. English common law included a law that would protect a creditor by giving him an interest in his debtor’s property. According to this law, the mortgage was a conditional sale. Although the creditor held title to the property, the debtor could, in the event the debt wasn’t paid, sell the property to recover his money.

As pioneers moved from Europe to settle in America, they brought their systems with them. As land ownership increased, so did the need for mortgages; so much so that by the early 1900s, they were already widespread and readily attainable.

However, not everybody could get a mortgage. In those days, those seeking to buy property were often required to pay a 50% down payment on a 5-year mortgage.

So, to buy a $10,000 house (wouldn’t that be nice today), the borrower had to have a $5,000 down payment and pay interest for 5 years.

At the end of that 5 years, the unpaid (and unchanged) balance of $5,000 would have to be either paid or refinanced. This system continued through to the Great Depression, when lenders had no money to lend, and borrowers had no money to pay. The whole system collapsed with thousands of foreclosures. Mortgages were just not available.

As It Relates To The Subprime Crisis

So yes, the statement really does have some weight when our current government says the markets, mortgages, and government are tied to the subprime crisis; how can this obvious apparent contradiction be reconciled?  Get more money in the banks by the people that are taking it out.

How do you do that when people are just getting over the Great Depression and convince them that banks are safe investments again?  Maybe a little reverse-psychology?  Plaster throughout the media outlets that owning your own home is the ‘American Dream’.  Don’t tell them that in reality it is the bank owners ‘American Dream’.  Let the people think that because of the Depression people were homeless and what better way to have a failsafe against that and OWN your home!

That was the first step, and I’m sure there were several people that could afford to get into houses for cheap, but for many, mortgages were their way into buying that ‘Dream’.  Now where in the world would we get a mortgage?  You guessed it.

After All, It Is “Just Business”

As Killing Sacred Cows author Garrett Gunderson puts it:

1.  Financial institutions want our money.
2.  They want it on a regular, systematic basis (preferably through automatic withdrawl).
3.  Once they have our money, they wan tot hold on to it as long as possible (hence early withdrawl penalties).
4.  If they have to give it back, they want to give back as little as possible.

There’s nothing wrong with that method.  It’s just a business model, and it works.  They’ve got money, you want money, easy case.  Offer you a little carrot that will increase your money by letting them have it, and then they shop your money out to the next highest bidder.  Can’t lose if they strap 75MILLION people into 30 year mortgages.

Tack on an ARM loan, and get as much out of them as you would in 30 years in a much shorter time!  When they can’t pay, make a few more bucks off it.  From a business standpoint, they’ve certainly figured out the “art of the upsell”, and has worked well for many years.

Is The Government Involved?

The Government has an interest in it as well as you’ve seen this past year.  They don’t want the economy to fall either and having the ultimate choke hold of taxes in their back pocket, they can spend 700 billion fairly easily and squeeze the little guy for a few more drops during tax season.  I’m not against taxation, I think it’s a necessary evil and I am very thankful to live in these United States, but I’ve got to hand it to the government for helping in the propagation of the American Dream mindset.

They preach it from on high just like bankers; the White House even has some good bits of information to share, “President Bush has declared June as “National Homeownership Month,” and HUD will be celebrating by visiting communities across America. At homeownership fairs and other events, we’ll meet with families and provide them with information that will help them decide if homeownership is right for them.

Homeownership is called “the American Dream,” and we want more families to realize the transforming power of homeownership. Homeownership leads to financial independence and the accumulation of wealth, and has a positive impact on a child’s development. That’s why I’m so pleased that more American families own their homes today than at any time in our nation’s history. Nearly 75 million Americans are homeowners, and minority homeownership is at an all-time high.”

American Dream Downpayment Initiative

The American Dream Downpayment Initiative (ADDI) was signed into law on December 16, 2003. The American Dream Downpayment Assistance Act authorizes up to $200 million annually for fiscal years 2004 – 2007. ADDI will provide funds to all fifty states and to local participating jurisdictions that have a population of at least 150,000 or will receive an allocation of at least $50,000 under the ADDI formula. ADDI will be administered as a part of the HOME Investment Partnerships Program, a formula grant program.

ADDI aims to increase the homeownership rate, especially among lower income and minority households, and to revitalize and stabilize communities. ADDI will help first-time homebuyers with the biggest hurdle to homeownership: downpayment and closing costs. The program was created to assist low-income first-time homebuyers in purchasing single-family homes by providing funds for downpayment, closing costs, and rehabilitation carried out in conjunction with the assisted home purchase.

Conclusion

SatireWire provides a similar thought of how it has become dispersed through our mindsets over time, with a bit from their humorous post:

“Ever since I was a little girl, I’ve wanted to (deceive myself into believing I could) be a homeowner,” said Doogan, 35. “Well, look at me now! Me, little Stephanie Doogan, I actually have a place I can call 100 percent (minus 80 percent) my own!”

Nobody wants the economy to fail (well, mostly nobody) so it is in our best interests to keep “The Dream” alive in everyone’s mind.  I don’t want everyone to start hiding their money again and keeping it out of our government.  It greases the wheels and keeps trade and business moving.  I just wish there was a better way to disseminate the information than to tell everyone that we NEED to own a house, when in actuality, we don’t OWN the house until well into our retirements when the final loan paperwork is sent.

The bank loves your money, business loves the bank’s money, and the government loves the business’s money.  Just like a well oiled machine that has been churning since 1776.

I like the first version (before it was slung to include home ownership) of “The Dream” coined by historian and writer James Truslow Adams  in his 1931 book Epic of America:

“The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”