It's hard to open a newspaper or watch TV without confronting the foreclosure crisis and its impact on the economy. The problem is that only part of the story is being told.
We know about the "bubble" in the housing market - the assumption that the market value of homes would just keep rising and rising.
We've learned about "subprime" lending - mortgages issued to borrowers whose shaky credit histories suggest that higher interest rates should be charged to offset higher risk of default.
We've heard about irresponsible subprime lenders who convinced homebuyers to borrow more than they could repay.
We've heard about investors who bet that ever-increasing home values would turn a high-risk loan into a profitable investment.
And we've been introduced to "predatory lending" - borrowers victimized through fraud and less than full disclosure, including the targeting of high-cost, risky loans to borrowers who actually could qualify for less expensive "prime" loans.
Those are important parts of the housing crisis. But so much more is going unreported.
Our country has a love affair with home ownership that can go haywire. Let me explain.
Federal policy elevates home ownership to a lofty pedestal. Many people write and talk about it as if owning a home is the manifest destiny of every American family. Renters are just people who don't own a home yet, and rental housing is an unfortunate necessity that we have to tolerate but don't have to like.
One uncomfortable truth is that the government and many housing advocates bear some blame for the subprime meltdown. They told lenders to figure out how to turn people with lower incomes and less-than-perfect credit into homeowners.
We asked for subprime lending, and we got it. We didn't pay a lot of attention to how the financial industry put it together, as long as the band played on. Now that the music has stopped, we're acting as though we can't understand how the dance got started in the first place.
Interestingly, it's seldom reported that two-thirds of homeowners live in subsidized housing. The cost to federal coffers of the income tax deductions for mortgage interest and property tax is four or five times the amount we spend directly on "affordable housing."
Because tax benefits are higher for more expensive homes, most of the tax benefits go to people with higher incomes. We even give homebuyers an incentive to spend more for their homes.
We have encouraged people to buy homes because they would earn a rate of return above inflation. How long did we think that would work? Who is supposed to pay for those homes when most of us don't have incomes rising faster than inflation?
Indeed, encouraging people to think about their homes as a mechanism to build wealth is a centerpiece of American popular culture. Only a couple of generations ago, families chose a home and neighborhood because they would be nice places to live.
When we started thinking about home ownership as a capital investment, "trading up" became more important than liking our homes or our neighbors. Indeed, we protect our investment by making sure that people who live in smaller homes or apartments don't live near us.
The median size of new homes grew from 1,560 square feet in 1974 to 2,248 square feet in 2006. Did the size of the average household grow that much? No, it shrank. Did incomes go up that much? No.
But as new homes got bigger and more expensive, we all wanted to sell our "used" home for more money so we could take the next step up.
There's nothing wrong with home ownership. What's wrong is persuading people they can buy homes they can't really afford. What's wrong is protecting that illusion by ignoring the basic rules of economics. What's wrong is trying to create value by creating debt.
That's what's really behind the foreclosure crisis.
Bill Perkins is Executive Director of the Wisconsin Partnership for Housing Development, a nonprofit group that works to expand housing options for low- and moderate-income people.
