It's "no money down" that got us into this mess

Professor Stan Liebowitz, a professor of economics and director of the Center for the Analysis of Property Rights and Innovation in the management school at the University of Texas, Dallas, looks at the root cause of the mortgage foreclosure crisis and comes away with a new take on the subject.

[T]he single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

Liebowitz believes the statistics puts the lie to the belief that it was sub-prime lending that got us into the foreclosure pickle we are in now. It's not resetting of interest rates, either.

The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home.

News reports over the past year of "jingle mail" where the homeowner mails the keys to the lender and walks away from his home and mortgage are on-line. These mortgages are usually of the 100% kind because the homeowner had no equity in the property, i.e., it's nothing more than a "rental" in the mind of the borrower. Let's face it--would you toss away something in which you had invested hard cash?

A person's home is supposed to be his castle, something we protect when the need arises, not a flop-house room we walk away from when the urge hits us.

Read the full article New Evidence on the Foreclosure Crisis.

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