“The reason they call it the American Dream is because you have to be asleep to believe it.”
Mortgage loans have been around for centuries. In the late 1700s, colonists used loans to encourage settlement and economic expansion on federal lands. The leaders of the new world parcelled out land, while encouraging lower classes to settle and build. Ironically, these lands were calculated, bought, and sold as if these new owners always laid claim to the land — denying Native Americans the right of ownership, executing them, and pushing them further and further West.
Nonetheless, the colonies and post-Revolutionary War period in America included basic mortgage loans. Eventually, in the 1900s, these loans grew in popularity and necessity. Homes, condos, and bare land was more expensive and unaffordable for the working classes. Increasingly, people needed financial support to invest in real estate — to find shelter.
Thankfully, banks were available to help everyone out. Without financial institutions and their mortgages, it’s unclear what would’ve happened. In today’s economy and real estate market, most people are unable to afford a house without credit. On the surface, it seems that many Americans would be homeless or forced to forever rent — unable to own. We’re forced to choose mortgages without a substantial alternative.
But let’s hypothesize for a moment. What would happen if mortgages suddenly disappeared? What if they weren’t an option for the impoverished, working classes, or even middle classes of America? What if banks were unable to write even one more loan?
For starters, it’s likely the entire real estate market would collapse. The decimation of domestic markets would domino throughout the world, and cause an economic meltdown. People would be unable to eat, shop, or pay for their continued existence. Landowners would quickly benefit from skyrocketing rental prices, but huge swaths of population would be forced to seek shelter elsewhere. The working classes would need to leave en masse from cities.
The end of mortgages would spell destruction and terror for the financial institutions that profit from their existence. Banks — big and small — would go belly up. Insurance companies would cease to exist. And a slew of related industries would (i.e., from appraisers to real estate agencies to utility companies) struggle to continue. The stock market would follow the steep declines elsewhere as the economic engine would slow to a halt. Money would be stuck. Over time, trillions of dollars would disappear — poof! — from the world markets. They wouldn’t return, either.
My, how powerful a few documents can be! Imagine how one contract prevents global catastrophe — end times. Moreover, that this agreement separates people behind walls — street and shelter.
Mortgage loans make little sense, though. The continued propping up of home prices through financial instruments ensures working classes spend the rest of their lives working. Renting isn’t much better either. With little incentive to build affordable housing for working classes, builders have increasingly constructed luxury condos for upper middle classes and beyond. A recent Yahoo Finance article highlights this shift:
“…a growing number of Americans must spend more than 30 percent of their income on rent — a level that the government considers financially burdensome. Over the past decade, that number has jumped from 14.8 million to 21.3 million, or 49 percent of all renters.
“A surge in apartment construction has done little to help address this problem because in many metro areas, a large proportion of new apartments are concentrated at higher-income levels. The median rent on a newly built apartment was $1,372 a month in 2014, about $500 more a month than what about half of renters could afford without being financially burdened.”
This story exemplifies the catch-22 for working classes: either fork over astronomical, burdensome amounts in rent or “purchase” a home through mortgage loans. Either way, banks and other financial institutions are complicit in the bubble. They own your future. Unless you’re independently wealthy, you lose.
Increased access to capital through mortgage loans encourages people to buy bigger homes than need at prices they can’t afford. Homebuilders respond by building bigger homes and charge more for new developments. Families and households buy more to fill bigger homes, as well. The cycle is vicious, expensive, motivated by consumption, and facilitated by an endless supply of cheap money via the Federal Reserve. It’s the antithesis of minimalism, frugality, and simple living, but we have little choice than to participate.
As the story continues, wholesale gentrification of vulnerable communities can occur. Those with poor credit and/or unable to make down or monthly payments must vacate. To refuse the paradigm means leaving good neighborhoods and schools. Home prices are propped and buoyed by the continued investments of the masses. Banks encourage people to spend more than they can afford on spaces larger than they need. And all I can think is, “Who were these mortgages meant to benefit?”
A mortgage is less a contract with your bank, and more a contract with your employer. To take out a 30-year mortgage loan is a financial conscription to work. It’s a benefit to your employer and guarantee for decades. You can’t stop working, as the consequence would be disastrous. Mortgage loans are the perfect economic engine for the wealthiest of our economy. They can make vast sums from borrowers and sit back to watch their money multiply.
Sadly, we’ve accepted these rules. We’ve cozied up to banks and pledged to pay them back for half our remaining lives.We’ve played the game by repeatedly checking FICO scores. We’ve shown them our good credit (when possible) as examples of personal responsibility, when it says nothing of systemic bias, racism, and uncontrolled job loss.
We are left with few choices. I dream of resisting the system and regularly think about living in a van or tiny home, but I’m afraid my partner and family wouldn’t care for this reality.
As a future psychologist, I’ll be lucky to make $65,000 to $75,000 to start out, which would necessitate participation in the mortgage loan game. And this says nothing of the student loan debt that would be necessary to pay off six years of doctoral education.
No house could be purchased outright unless I worked for decades and lived in a passenger van in the meantime. Yet, one of the most fundamental psychological needs is shelter. Without it, we cannot talk about saving money, cooking at home, or living well. People need the safety of shelter, but over the centuries, our homes have ballooned in price and size. Our inflated budgets have been decimated by a simple financial tool that we accept as a necessity for existence.
Nobody seems to bat an eye. Nobody says this is senseless. Nobody resists the status quo. Rent or “buy,” the same trap is set.
So, as preposterous and provocative as it might sound, what if we killed mortgage loans?