Housing is Local, and Lending Should Be, Too

[marmar]

from The American Prospect:



Housing is Local, and Lending Should Be, Too

We're just now learning how dangerous it is that the sources of finance for homeowners and their neighborhoods have no real connection to those people and places.

Alyssa Katz | May 7, 2009



History will recall 2005 as the year the credit bubble grew fattest--when in much of Florida and California, real-estate prices doubled in a matter of months. But in Cuyahoga County, Ohio, it was the year that nearly 12,000 homes were abandoned to foreclosure, leaving streets littered with boarded-up houses. Many of the home sales turned out to have been between speculators selling property to one another at rigged prices, using phony paperwork. Other borrowers fell prey to sub-prime refinancing that put cash in their hands but lost them their home.

At the time, Cleveland's calamity was a nonevent outside of Ohio, because the projected losses fit within the margins of investment bankers' risk models. Securities analysts wrote off the Ohio foreclosure wave as the byproduct of a declining Rust Belt economy, notwithstanding that the unemployment rate in Cleveland had been twice as high in the early 1980s. Nationwide, the foreclosure rate still stood at less than 1 percent, about as low as it had ever been.

Of course, Ohio was a harbinger of the dismal fate of the rest of the nation. So why were Wall Street analysts so blind? Perhaps it's that they literally could not see the destruction their funds had wrought--they were, after all, hundreds of miles away and dependent on a few points of outdated, deeply unreliable data. And even if those who packaged, repackaged, sold, or rated mortgage-backed securities had witnessed the men carting off aluminum siding or the teenagers using windows of abandoned homes for target practice, they could still avoid the consequences of the risk. <>In a world in which capital can instantaneously leap just about anywhere, we're now learning the hard way just how dangerous it is that the sources of finance that sustain home-owners and their neighborhoods have no meaningful connection to those people and places. This is a hazard that now looms much larger than the mortgage market. The supplanting of local economies with global ones, no matter the product, amplifies whatever risks already exist.

This challenge has already been painfully clear in the business of growing and processing food, in which a rogue peanut-processing plant in Georgia infects supermarket shelves nationwide and effluvia from factory farms poisons communities far from where the pork or poultry will be consumed. The sustainable-food movement has a word for its response: "locavore," a person who consumes food that is grown or processed nearby. Locavores do much more than limit the fuel consumption and climate impacts that ensue when tons of food get hauled all over the planet. They also seek to create a sustainable and safe system that ties producers and consumers together in a mutually beneficial ecological and economic pact. ..........(more)

The complete piece is at: http://www.prospect.org/cs/articles?article=housing_is_local_and_lending_should_be_too