Here is an excerpt from an article in the NYT of 8/12/2010. I am sharing it here for several reasons:
- It demonstrates how ignorant most of us are about land economics;
- It demonstrates how important this ignorance has been, and how expensive it has been to ordinary people.
Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”
Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.
“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.”
But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.
“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”
Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”
Apparently neither did one of his lenders, the Desert Schools Federal Credit Union, which gave him a home equity loan secured by, the contract states, the “security interest in your dwelling or other real property.”
How soon will we forget the learning experience we've just undergone as a nation, as an economy, as a society? When will we start to make sure that ordinary people understand the importance of land, and the workings of the market in land, and, most important, how this force can be turned to public good?
Those who are familiar with the ideas of Henry George know this, and most others are operating in ignorance. I do not say this as an accusation; I say it in sadness. Fortunately, ignorance can be remedied.
And if enough of us studied the topic, perhaps we would reach the conclusion that this is a fine time to enact Henry George's wise remedy, so that this will never happen again.
Where might one study this? If you're in NYC or Chicago or Philadelphia, classes are available at the Henry George School of Social Science. Otherwise, you might explore the online course offerings at the Henry George Institute or start reading on your own. Start with Progress and Poverty, in a modern abridgment or one of the essays in George's book Social Problems.
A few more lifts from the same article:
“No one had ever seen a national real estate bubble,” said Keith Leggett, a senior economist with the American Bankers Association. “We would love to change history so more conservative underwriting practices were put in place.”
Since the lender made a bad loan, Mr. Hairston argues, a 10 percent settlement would be reasonable. “It’s not the homeowner’s fault that the value of the collateral drops,” he said.
It might be relevant to note that it isn't the homeowner's fault when the value of the collateral rises, either. He didn't create that value; it is due to the increase in the value of the land, which is a result of the activity of the community, not of the landholder or his tenant.
A lot of people have grown wealthy on our ignorance. The FIRE sector loved it, and there are those who are ready for a repeat of the upside of the bubble. Like Aleve, it works for them!