The Scars of Losing a Home

No doubt part of the American Dream is owning your own home. For many it has become part of the American Empire. It has always been a means of tying citizens to the system. People are encouraged to invest in their own homes through allowing income tax deductions for mortgage payments and through extending mortgages and lately through lending to people without paying much attention to credit worthiness.
It remains to be seen if the loss of homes is any sort of catalyst for producing change in the U.S. or as this article maintains will simply leave a scar on many. It probably will necessitate a much larger and wider dissilussionment to puncture the bubble of the American Dream. However, already the middle class hard-pressed by economic reality is encountering a bit of indigestion that makes sleep difficult.


The New York Times/May 18, 2008/Economic ViewThe Scars of Losing a HomeBy ROBERT J. SHILLERACROSS the United States, there were 243,353 foreclosure filings inApril alone, nearly three times the total in the same month just twoyears ago, according to RealtyTrac, a company that follows thenumbers. The trend is unmistakable, and suggests that, withoutgovernment intervention, many millions of American families will belosing their homes before long.What would this mean in human terms? Picture a line of moving trucksextending for hundreds of miles: they are taking the furniture ofcountless families to storage lockers. Picture schoolchildren sayinggoodbye to their classmates. They aren't going on vacation: they arebeing abruptly moved to the other side of town.It's easy to take a stern view of this spectacle. The arguments gosomething like this: Foreclosure is not the end of the world. Thereare valuable lessons to be learned from such a life experience. Afterall, we live in a capitalist economy that thrives on the sanctity ofcontracts. The founders of our nation put the contract clause into theConstitution to make it clear that people need to live up to thedocuments they sign.This stern view may, in fact, be winning the battle of public opinion. ...Now, let's take the other perspective — and examine some argumentsagainst the stern view. They have to do with the psychological effectsof strict enforcement of a mortgage contract, and economists andpeople in business may need to be reminded of them. After all, toomuch attention to abstract economic statistics just might make usoverlook what is really important.First, we have to consider that we cannot squarely place the blame forthe current mortgage mess on the homeowner. It seems to be sharedamong mortgage brokers, mortgage originators, appraisers, regulatoryagencies, securities ratings agencies, the chairman of the FederalReserve and the president of the United States (who did not issue anywarnings, but instead has consistently extolled the virtues ofhomeownership).Because homeowners facing foreclosure must bear the brunt of the pain,they naturally feel indignation when all of these other partiescontinue to lead comfortable, even affluent lives. Trying to enforcemortgage contracts may thus have a perverse effect: instead ofteaching homeowners that they should respect the contracts they sign,it may incline them to take a cynical [or anti-establishmentarian? --JD] view of the whole mess.But instead of having sympathy for these homeowners, many people blamethem for their predicaments. That isn't surprising. It's an example ofa general tendency that was documented by social psychologists decadesago.In his 1980 book, "The Belief in a Just World: A FundamentalDelusion," Melvin Lerner, a social psychologist, argued that peoplewant to believe in the inherent justice of the economic system inwhich they live, and want to believe that people who appear to besuffering are in fact responsible for their own situations. Heprovided empirical evidence, derived from experiments, that after aninitial pang of sympathy, people tend to develop negative views towardothers who are suffering. That negative tendency seems to be at worktoday.Second, it is important to consider the psychological trauma offoreclosure. No one is likely to starve or sleep on the streets as animmediate result of a foreclosure, and the authorities no longer [andso far?] dump a family's furniture on the sidewalk when it happens.Nonetheless, there is deep trauma.Homeownership is fundamental part of a sense of belonging to acountry. The psychologist William James wrote in 1890 that "a man'sSelf is the sum total of all that he CAN call his, not only his bodyand his psychic powers, but his clothes and his house, his wife andchildren, his ancestors and friends, his reputation and works, hislands and horses, and yacht and bank account."Homeownership is thus an extension of self; if one owns a part of acountry, one tends to feel at one with that country. Policy makersaround the world have long known that, and hence have supported thegrowth of homeownership.MAYBE that's why President Bush's "Ownership Society" theme had suchresonance in his 2004 re-election campaign. [did it?] Peopleinstinctively understand that homeownership conveys good feelingsabout belonging in our society, and that such feelings matterenormously, not only to our economic success but also to the pleasurewe can take in it.But we are now seeing the president's Ownership Society plan operatein reverse. Already, the homeownership rate has fallen — from 69.1percent in the first quarter of 2005 to 67.8 percent in the firstquarter of 2008. That's almost back to the 67.5 percent level where itstood when Mr. Bush took office in 2001. And it is likely to fallfurther.The pain of this reverse movement could leave a psychological scarthat will be with all of us for the rest of our lives.Robert J. Shiller is professor of economics and finance at Yale andchief economist of MacroMarkets LLC.Copyright 2008 The New York Times Company