How to Avoid Mortgage Madness

Below is the text of a Letter to the Editor I submitted to the Wall Street Journal

I wish to comment on the article entitles Mortgage Madness which was published on Friday, August 3, 2007 in the Wall Street Journal and can be found at http://aei.org/publications/pubID.26602,filter.all/pub_detail.asp.

I question the wisdom of Mr. Lindsey's contention that "the key to getting America out of its current housing and mortgage market mess is to do everything possible to maximize the availability of credit". Isn't that how we got to this situation in the first place. Does Mr. Lindsey really think that it is good for the economy to have unsophisticated buyers (like me) to purchase exotic mortgages with adjustable rates, only to have many of those mortgages end up in foreclosure?

The solution does not lie with more regulation as Senator Schumer might advocate or maintaining the status quo as Mr. Lindsey. The key is to return to a fundamental understanding of what home ownership is. Home ownership is the key to upward social mobility and key to that mobility is stability and establishing roots in a community. Consequently, a home must be looked upon as a long term investment and only secondarily as a store of wealth or value.

In addition, education is key for consumers to make correct choices. Individuals must take responsibility for their own financial futures and understand all the risks involved with a particular mortgage instrument. My wife and I are fairly risk averse, so when it came time to refinance our home, we chose a basic 30 mortgage. We were lucky enough to find a very low rate and have been able to keep our home and accelerate the amortization of the loan even during periods of prolonged unemployment.

The old conventional wisdom of putting 30% down on house and having a fixed rate mortgage may not be the most glamorous way to purchase a house, but it can bring considerable peace of mind.