Sub Prime Mortgages Viewed Philosophically

In spite of all of the criticism about sub-prime mortgages, one must be philosophical when they look at the bigger picture. There is no doubt that hundreds and thousands of homeowners were negatively impacted by sub-prime mortgages, but the fact remains that many people had a positive experience with this mortgage structure.

More people were able to afford homes

Fortunately due to lending restrictions being loosened, more people were able to afford to purchase a home. Ironically enough, this led to higher employment since more homes were being built, appraisers were busy and real estate agents were busy showing properties. Although subsequently many of these jobs are now on hold, some are still employed in the same field. Not every person who accepted a sub-prime loan lost their homes either.

Home values cannot go down forever

Home values are likely to recover over time, but in the meantime, it does not hurt to remember that housing is currently more affordable. This bonus of the sub-prime mortgage mess means that more people will be able to buy a home.  Banks of course have severely tightened their lending criteria but this is not likely to last forever. After all, once the dust settles on this mess, more people will have been out of work for 12 months or more making it nearly impossible for the vast majority of people to have perfect credit.

Because homeowners are likely to see the value in their homes increase over time (even if not to the same levels they were at previously) they will be building equity. Home equity by and large has been proven to be one of the best forms of creating wealth for the majority of the middle class.  As home values recover, wealth disparity may begin to shrink again.

Property taxes are lower

Lower property taxes is one of those good news/bad news occurrences. For property owners, it means less money out of pocket. For municipalities it means lower revenues which means either tightening their belts (meaning cutting workers or services) or it means increasing fees another way. Either way, ultimately this may not have a long-lasting positive impact on the homeowner.

Like it or not, this was a wake-up call

Many of our parents and grandparents lived their entire lives without credit cards and without using the equity in their homes unless it was a dire emergency. Unfortunately, many of us were not as smart as they were and we borrowed against our homes, ran up high credit card bills and when all else failed, we refinanced. For many, this resulted in our homes being mortgaged to the highest possible levels. Ironically enough, most of the sub-prime mortgage holders may not be in this predicament since the loan to value ratios may be different.

There is much to be learned from the sub-prime mortgage crisis: Consumers, government agencies and lenders will hopefully learn much from the missteps of this era. However, out of everything bad, some good does emerge.  If no other lesson was learned from the mortgage crisis let it be that we learn to live within our means and keep our expectations in line with our earning capacity.