Andy Paine, one of Indianapolis’ top bankers until he retired a decade ago, traces the financial train wreck unfolding across the country to a perception hatched in the 1990s that home ownership was a right, not a privilege.
The financial system won’t recover until that notion is reversed, Paine says.
“We’re going to have to get back to some sanity and recognize that housing is not a right,” Paine said. “You’re going to have to restore everyone’s confidence in the financial markets.”
Paine sat atop one of Indiana’s largest banks, Indiana National Bank, as it was gobbled up in a series of mergers. When he retired in 1998, he was leading the Indiana operations of First Chicago NBD and was executive vice president of its Chicago-based parent.
The financial system was much tighter when Paine started his career in 1961. Even toward the end of his career, would-be homeowners had to muster a 20-percent down payment in order to buy a house. They had to have a job or otherwise prove they could make the mortgage payments. And borrowers had to prove they paid their bills.
Lenders were held to strict laws that forced disclosing to borrowers what they were getting into. Few borrowers backed away from a loan officer’s desk unclear that they were obligated to make the payments.
All of those rules went out the window as regulators made it easier and easier to own a home, laments Paine, now 71 years old.
Restoring those safeguards doesn’t necessarily require a return to 20-percent down payments, he says. But demanding 10 percent is reasonable.
Meanwhile, banks and other financial institutions need to be held accountable for loans they make, he said. No longer should the banks be able to bundle the loans into securities and unload them on unsuspecting buyers to make them “someone else’s problem,” he said.
And non-bank mortgage brokers, who were nearly non-existent when Paine started out but proliferated in the past decade, need to be held to the same high disclosure standards as banks.
The financial turmoil is so unnerving to both investors and the general public that house prices in the Indianapolis area will continue declining for a couple of years, Paine predicted. Five years will pass before prices recover to levels of early last year, before the subprime mortgage bust began.