The Center for Responsible Lending has published a report “Dreams Deferred: Impacts and Characteristics of the California Foreclosure Crises”. I focus my comments on two of the points made in their report. According to their data and analysis, houses purchased in California from October 2006 to November 2009 were relatively small homes, median size of 1,494 square feet and average size of 1,704 square feet, with a value less than the area median. They also find that about half of all the loans were used to refinance rather than purchase properties.

They write that their findings “challenge the notion that foreclosures are simply the result of people purchasing properties they could not afford”.

However, the data appears to indicate that the household sector took on too much mortgage debt. United States data shows that the ratio of mortgage debt to income climbed from about 55 percent at the end of 2000 to 88 percent in early 2009. While it is subsiding, it is still too high, the early 2010 level was 84 percent. If such data were available for California, it would likely show a more dramatic change from 2000 to 2009, given California’s worse housing market conditions.

The report’s findings do not disprove that some of the households who took on the task of paying a mortgage should not have because of a lack of requisite savings and income. If there was a large share of households who were renters that moved into ownership housing, then I would expect the average home size would be modest.

What do we do now that they are there? We have three options: use government funds to give those households the money they need to stay in those homes, require the mortgage companies to forgive substantial portions of principle, or encourage those households to move back into rental housing. The policy debate should focus on the merits and demerits of these three choices.