By Matt Bisanz

Since World War II, it has been the policy of presidents from both parties that promoting home ownership is a good thing.

Therefore, we have tax deductions for mortgage interest, tax-free gains on home sales, tax-free transfers of property and federally guaranteed home lenders like Fannie Mae, Freddie Mac and Federal Home Loan Banks.

While in theory it’s a good idea for people to own homes, as it creates lasting wealth that they can pass on to their children and use to improve their position in the world, in practice it is fraught with problems and pitfalls. These problems have shown themselves in all forms in the current mortgage crisis.

One problem has been that home ownership has been made to be the be-all, end-all of a person’s financial well-being. It is actually only a part of the means to their well-being. Until a person has paid off a good portion of their mortgage, they don’t even own a noticeable portion of their home’s value. Until a person pays off their mortgage, their home is an asset that the bank can claim if they don’t pay.

Think of it this way, when was the last time a bookseller told you that you owned a book you were reading in the store’s Starbucks? Probably never. Just as you don’t own a book until you pay for it, you don’t own a house until you pay off the mortgage.

In this current crisis, the problem is that many individuals were encouraged and freely decided to take out mortgages to buy houses, even though their financial situation would not improve from owning a home.

A second problem with the policy of people buying homes is that people are bad at math. Now, I’m not saying that the entire population can’t balance their checkbooks- just that people have trouble evaluating an amortized, variable-rate loan with points and private mortgage insurance.

In some cases, the stated interest rate and stated monthly payments may not actually reflect the true cost of the loan. Even from an honest lender, the volumes of paperwork and calculations are beyond many non-quantitative college graduates.

A third issue is that people have a naturally positive outlook when it comes to their own ability to do something they want to do. So, if I believe I can jump that gorge, and I’ve seen a couple other people jump it, I’ll give it a try, even if it’s risky. In that same way, a person will take out a mortgage even if their ability to pay it relies on a growing economy, stable job future, good health and no major international incidents.

If these individuals who took out loans that have reset to a higher rate based their decision on all factors involved, rather than the highlights of home ownership, lower income taxes and a great teaser rate, they probably wouldn’t have taken out the loans.

The final problem that has led to the current crisis is, surprisingly, capitalism. Capitalism assumes that if everyone works towards the goal that is most profitable for themselves, everyone will benefit. It works great for most situations where all individuals are on an equal footing.

For instance, when 20 people apply for a job, the process of making them prove why they are best qualified for the job, results in an employee who is well suited for the job.

But home loans aren’t given by people on equal footing. On one side you have large banks who hire relatively unmonitored loan officers who make a career of finding out what things they must say to convince a person to take out a mortgage.

On the other side, you have an individual who probably doesn’t work in the financial industry who maybe buys a house once a decade. Their knowledge of the process is limited by both a lack of experience and a lack of knowledge of the process.

So, why then is the government promoting a process by which a party with an extreme disadvantage is encouraged to enter into negotiations with a party they have no hope of ever besting? It would be unfair even without government support, but why should the government, which was formed by individuals for the benefit of citizens, go out of its way to encourage more people to participate in this process?

This is a question that must be asked of policy makers when they say they never saw this crisis coming.

Matt Bisanz is a graduate student. You may e-mail him at [email protected].