The grim tale of America’s “subprime mortgage crisis” delivers one of those stinging moral slaps that Americans seem to favor in their histories. Poor people were reckless and stupid, banks got greedy. Layer in some Wall Street dark arts, and there you have it: a global financial crisis.
Dark arts notwithstanding, that’s not what really happened, though.
Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.
Analyzing a huge dataset of anonymous credit scores from Equifax, a credit reporting bureau, the economists—Stefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College—found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distribution—and that these borrowers accounted for a disproportionate share of defaults.
As for those with low credit scores—the “subprime” borrowers who supposedly caused the crisis—their borrowing stayed virtually constant throughout the boom. And while it’s true that these types of borrowers usually default at relatively higher rates, they didn’t after the 2007 housing collapse. The lowest quartile in the credit score distribution accounted for 70% of foreclosures during the boom years, falling to just 35% during the crisis.
So why were relatively wealthier folks borrowing so much?
Recall that back then the mantra was that housing prices would keep rising forever. Since owning a home is one of the best ways to build wealth in America, most of those with sterling credit already did. Low rates encouraged some of them to parlay their credit pedigree and growing existing home value into mortgages for additional homes. Some of these were long-term purchases (e.g. vacation homes, homes held for rental income). But as a Federal Reserve Bank of New York report from 2011 reveals (pdf, p.26), an increasing share bought with the aim to “flip” the home a few months or years later for a tidy profit.
and there's another link
The proposal that house-flipping catalyzed the housing crash rather than subprime lending to those who otherwise should not have gotten housing loans reminds me of a fad among the early Mars Hill scene. People were encouraged to invest in real estate. The idea was that a couple would buy a home, maybe a home they couldn't technically afford if it was all up to them and their credit, but to ameliorate this by community living and "life together". What that meant in practice was people would rent out rooms and space to other people within the church so that a community living set up was in place. Eventually the home owners might have a baby or two or the tenant might get married and the community living set up might change. Maybe somebody would have to move out or a new couple would emerge and the housing situation would adjust.
The Driscoll house that was on Montlake, for instance, ended up being a rental space taken up by anywhere between six to eight people at a time in the latter part of the last decade.
For those who can dig up the old fundraising film God's Work, Our Witness (audio and SD video (we hope))and cross reference it to the history of real estate acquisitions and Mark Driscoll's own narrative it as a Mars Hill & Mark Driscoll's Real Estate story. The real estate situation Mark Driscoll had at the start of this century is inextricably bound up in the social and economic context within which he decided to take up the pen name William Wallace II and write "Pussified Nation".
Confessions of a Reformission RevMark Driscoll, Zondervan 2006
CHAPTER FIVE, 350-1,000 PEOPLE
[this season begins in early 1999]
I had worked myself to near burnout and was still the only paid pastor on staff although there was enough work for ten people.
[remember that at this point Mike Gunn and Lief Moi still had full-time jobs, Driscoll's work was apparently part-time and he had a stipend from the advisory board and supplemented his income in other ways]
A friend in the church kindly allowed me to move into a large home he owned on a lease-to-own deal because I was too broke to qualify for anything but an outhouse. The seventy-year-old house had over three thousand square feet, seven bedrooms on three floors, and needed a ton of work because it had been neglected for many years as a rental home for college students. Grace and I and our daughter Ashley, three male renters who helped cover the mortgage, my study, and the church office all moved into the home. [emphasis added] This put me on the job, literally, twenty-four hours a day, seven days a week, as the boundary between home and church was erased.
We ran the church out of my house for nearly two years, including leadership meetings and Bible studies for various groups on almost every night of the week. It was not uncommon to have over seventy people a week in our home. Grace got sucked right back into the church mess. She was a great host to our guests. But I started growing bitter toward her because I was again feeling neglected.
I began working seven days a week, trying to save the church from imminent death. I had decided to go for broke and accepted that I would either save the church and provide for my family or probably die of a heart attack. I lived on caffeine and adrenaline for the better part of two years, ate terribly ,and put on nearly forty pounds.
Then from God's Work, Our Witness, linked to above:
The Driscolls’ Basement
Once we got kicked out of that building, literally everything moved back into our house. So offices in our house across from our bedroom, interns in the basement.
Pastor Matt: Poor Grace. Like, it was so ghetto down there because, I mean, you know bachelors. There’s like three guys living down there, and the dishes would just stack up, stack up. I remember they’d start stinking real bad. And every couple of weeks, like, we’d see the dishes done. I’d come home from work, and I’d say, “Hey, man, did you do the dishes? Thanks.” He was like, “Nah, I think Grace did them again.”
Grace: We shared laundry facilities and so, yeah, I just ended up cleaning half the time, because it was—I couldn’t even stay down there to do laundry. It was so disgusting.
Pastor Matt: Sorry, sorry, Grace. [emphasis added]
We had just picked up Pastor Tim in Albuquerque, New Mexico, around that time and he had never played an electric guitar. He’d never sung in a band. He’d never written a song, and he couldn’t sing, man. When he sang, it actually sounded like he got captured by Al-Qaeda. So we had to pay for vocal lessons and go buy him an electric guitar.
Pastor Tim: [The kind of worshipers that he is seeking are those that will worship in spirit and truth, and that is a thought that has changed every aspect of how I think.] When I came to Mars Hill, I had never really been in a band. I played a lot of acoustic guitar with hand drums, but I hadn’t really been in a band. I hadn’t ever really written a song, and I’d never owned an electric guitar—a lot of acoustic, a lot of flannel, a lot of sandals.
Tim and his wife moved out from Missouri to live in my basement and go work Joe jobs and give it a shot because we met him for twenty minutes at a conference in Albuquerque, New Mexico.
Pastor Tim: Because you weren’t at that conference.
Beth: No, no, it was just him.
Pastor Tim: You hadn’t met these people. You hadn’t read these things. I just came home from New Mexico from this conference and said, “Hey, what if we moved to Seattle now?”
Beth: That was a little harder sell for me. We had to pray about that for a while.
Pastor Tim: Yeah, because we didn’t know anybody here.
Beth: No, no.
Pastor Tim: So in August of 1999, we rolled into the Driscoll family’s driveway. It was the second time I’d ever seen Pastor Mark. We talked on the phone a time or two and exchanged a couple of e-mails. I think we both met Grace here in this basement while she was doing the laundry.
Beth: We had a dining table right here and some chairs, and there was a futon right here. It was a little nicer.
Pastor Tim: The bathroom was nice, right?
Beth: Oh, yeah. I’m not going to—I’m not sharing that part.
Jeff: Matt lived in the basement, and I was over there a lot, and I did silk screening. I cleaned off my screens in his shower downstairs and totally stained it. I think that was permanent. And so I wrecked his basement.
Beth: That’s the first thing I cleaned. I’ll just say that. It was okay for a period of time. We knew it wasn’t forever, so—
Pastor Tim: Years later, I would ask Mark, I asked him, “Why in the world did you do that? Because I’m pretty sure you haven’t just taken anybody else in, and I’m not sure I would exactly the same way, either.” And he said that he had a dream that God told him that I was moving here, and we were supposed to work together. I had no idea what was in store, but apparently God did.
Driscoll's history of telling guys he dreamed about them in connection to recruiting them into leadership roles at Mars Hill has been examined at moderate length elsewhere.
Eventually the Driscolls moved out of that house and into another house, while returning the Montlake property as a rental which would house renters until the Driscolls put the house on the market some time around roughly 2009, maybe? The house didn't ultimately sell until later.
It would require people who invested in the real estate scene in the Puget Sound area coming forward to share their stories to share more detail but it was relatively commonplace within Mars Hill for people to try a hand at the landlord thing. Not everyone was cut out for it and even those who were cut out for it could find it was a hassle at times. But the price of housing in Seattle has long been a point of vexation for those of us who live here.
The gist of the housing scene as applicable to what was once Mars Hill, from my admittedly limited perspective, was that people were encouraged to invest in real estate and rent out to as many fellow church attenders and members as they could to consolidate a presence in the city. This happened with the acquisition of church campus sites but it also happened in residential areas, though the extent to which this happened isn't something I'm in a position to really investigate. Former MH real estate people could address that, perhaps.
Driscoll's own account was that he was able to get real estate in the city because someone was willing to give him a lease to own deal that was not a reflection of what his credit history would have warranted. If the received narrative of the subprime borrower were applicable then Driscoll would have been one of those sorts of not-so-safe bets. But if the counter-narrative were applied, the one that says that speculative house-flipping from the middle class did more to catalyze the housing bubble then that might be an angle for potential historians of the Mars Hill scene to explore. Not that this seems practical at the moment since a roster of Mars Hill members over its whole life that could be cross-referenced to real estate transactions within King County and outlying counties would be ... hard to assemble.
What was presented as creating a counter-culture within Mars Hill by leaders like Mark Driscoll or Jamie Munson--this acquiring real estate and renting to others and perhaps also flipping the real estate to turn a profit now and then--was handed down as a way to not be like the surrounding city. Well, "maybe" that was the case in King County but it's hard not to have doubts about that. The real estate practices of people who bought homes in the King County area during the Mars Hill era on the part of Mars Hill attenders, members and leaders may not only not have been counter-cultural, it might have turned out to be the embodiment of the zeitgeist of the time.