Robert Shiller, the Yale professor who called the stock market bubble of the 1990s and the real estate bubble of this decade, now says the government should aid struggling homeowners.
In a recent opinion piece in The New York Times, he notes that 243,353 homes were foreclosed in April, according to RealtyTrac — nearly triple the number from just two years earlier.
“Without government intervention, many millions of American families will be losing their homes before long,” Shiller writes.
He’s more worried about the emotional cost of foreclosure than the economic cost.
“No one is likely to starve or sleep on the streets as an immediate result of a foreclosure, and the authorities no longer dump a family’s furniture on the sidewalk when it happens,” Shiller acknowledges.
“Nonetheless, there is deep trauma,” he points out.
What does this trauma consist of? “Picture a line of moving trucks extending for hundreds of miles: they are taking the furniture of countless families to storage lockers,” Shiller says.
“Picture schoolchildren saying goodbye to their classmates. They aren’t going on vacation: they are being abruptly moved to the other side of town.”
Shiller scoffs at people who think that those suffering foreclosure deserve their plight for buying a home beyond their means.
“First, we have to consider that we cannot squarely place the blame for the current mortgage mess on the homeowner,” he argues.
“It seems to be shared among mortgage brokers, mortgage originators, appraisers, regulatory agencies, securities rating agencies, the Federal Reserve chairman and the president of the U.S., who didn’t issue any warnings, but instead has consistently extolled the virtues of homeownership.”
Turning homeowners out on the street invites social strife, Shiller maintains.
“Because homeowners facing foreclosure must bear the brunt of the pain, they naturally feel indignation when all of these other parties continue to lead comfortable, even affluent lives,” he says.
“Trying to enforce mortgage contracts may thus have a perverse effect: instead of teaching homeowners that they should respect the contracts they sign, it may incline them to take a cynical view of the whole mess.”
Homeownership represents an important manifestation for citizens that they are truly a valuable part of this country, Shiller posits.
“Homeownership is a fundamental part of a sense of belonging to a country,” he writes.
“Homeownership is thus an extension of self. If one owns a part of a country, one tends to feel at one with that country. Policymakers around the world have long known that, and hence have supported the growth of homeownership.”
In that sense, Shiller strongly supports President Bush’s drive for an “ownership society.”
But now that effort is headed backward, Shiller says, with the homeownership rate dropping to 67.8 percent in the first quarter of 2008 from 69.1 percent three years earlier.
“The pain of this reverse movement could leave a psychological scar that will be with all of us for the rest of our lives,” he warns.
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