Mortgages: Selling Our Birthright for a Mess of Porridge

In case you missed it, a rather scary statistic was released early this week: 9.2% of all Americans are either in default on their mortgages, or more than a month behind on their payments.

Before I go too far down the road with a lot of hand-wringing and political opinion about whose fault this is or how to solve the problem, let me back up a few centuries and ask a much more basic question: why are mortgages even necessary? Whose brilliant idea was it to accept the terms of a bank, or even the idea of a bank itself, as a necessary evil in the day-to-day conduct of civilization?

I don’t know exactly how old I was when I first started thinking this way. But I recall that it seemed to me from a pre-teen perspective like the whole idea of overvaluing a house, and therefore having to borrow money in order to buy that house, was some crazy systemic scam, or a form of mass hypnosis, somehow legitimized by the fact that everybody in Western civilization was doing it. Wouldn’t it be smarter to do it the way we buy and sell most other things: with no middle man, where a real price is based on real value for a real product, and we pay it up-front?

If I want to buy a guitar, or a pizza, I ask what the price is. My hope is that that price is based on labor and materials in a real world, real cost, real man-hours, supply-and-demand, understandable relationship. They tell me the price, and I buy the guitar. Or not. And yeah, I know  there’s a genuine difference in sound and quality between a $100 Alvarez guitar and a $1000 Guild guitar. But not $900 worth of difference! So why do we let the market rule us like this? Especially when we’re only gonna get pizza sauce all over the guitar, anyway.

In the case of houses, the situation got out of our control long ago. In fact, the whole system of credit, of paying or earning interest, used to be considered a sin. They called it usury in the Old Testament. But then maybe I’m just ridiculously old-fashioned and impractical.