Meltdown

There is no single answer to the question of who is to blame for the current wave of home foreclosures -- but the biggest factor may have been the growing discrepancy between income and housing prices.

As Sunday's article by Staff Writer Michael Coit and News Researcher Teresa Meikle points out, there was no shortage of culprits in the housing meltdown: Lenders encouraged potential borrowers to exaggerate income levels; borrowers were willing to lie in order to qualify for loans; financial institutions made it ridiculously easy to obtain stated-income loans (in which no verification of incomes is required of borrowers.

Rachel Dollar, a Santa Rosa attorney notes, "The entire real estate debacle is the fault of everybody that was involved. And it was all about greed and speed."

Greed was clearly a big motivating factor -- especially for lenders eager to make quick commissions and investors wanting to make a fast buck by "flipping" homes.

But not everyone was in the market to make money. Many people, especially first-time homeowners, simply wanted their piece of the American Dream. If that's greed, it's something that current homeowners should understand.

A fourth culprit is identified by developer Michael Hill in a column on today's Forum page (opposite): The growing discrepancy between income and home prices. Nationally, Hill points out, the median home price is now four times the median income. Locally, as Sunday's article reveals, the median home price in 2005 was $619,000, or 7.6 times the $80,700 income of home buyers.

Hill argues that in high-demand markets like Sonoma County, relying on a 30-year fixed rate mortgage means a growing portion of the population will never become homewners. Either that, or out of desperation, they will turn to shaky financial instruments, like subprime loans.

Policymakers reacting to the current crisis have focused on banning abusive lending practices. This is important -- but preventing future meltdowns and the further bifurcation of society into haves and have-nots will require a broader, more creative response.