With those words, I believe I shifted the debate at yesterday’s hearing.

I was referring to buying a home with a low down payment. The example I used was a $200,000 home with $5000 down.

I received a lot of pushback. Senator Merkley of Oregon said that in his working-class neighborhoods with $200,000 homes, hardly anyone could afford a 20 percent down payment of $40,000. Housing advocate Janneke Ratcliffe said that in 2010, fifty-seven percent of home purchases were made with down payments of less than 10 percent.

In citing those facts, they want me to react by being more tolerant of low-down-payment home purchases. Instead, my reaction is:


Where are all the affluent, financially prudent home buyers, who can afford a 20 percent down payment? If there are not many of them out there, what does that say about the financial health of the middle class these days? Or, if there are a lot of them out there but they are sitting out this housing market, presumably they are pessimistic about house prices….What if they know something?

Ms. Ratcliffe cited statistics for what she claimed were low-down-payment loans done “right” over the past decade that have only experienced a 5 percent default rate. In response, I argued that a 5 percent default rate is high, which is a strong point. However, an even stronger point would have been:

The 5 percent default rate is only the tip of the iceberg of the devastation those loans have called. Think of all the people who did not default, but who still owe more on their mortgages than their houses are worth. Their lenders may not be unhappy. But thanks to you, those households now have negative savings. And you are proud of that? You should be ashamed of that.

Now that might have been uncivil. But the point that leverage works both ways is worth emphasizing. If you buy a house with 2 percent down and the price goes up, you win. If the price goes down, you lose. You may have less down side than up side, because you can default on the loan and make the lender eat much of the loss. But it is still gambling.

Another way of making the point would have been to ask Ms. Ratcliffe and the Democratic Senators if any of them eats their own dog food. That is, if buying a home that costs 20 times your net worth is so good for the working class, is that what you yourself have done? Have you levered up in housing to 20 times your net worth?

Housing advocates who pose as friends of the middle class are instead perhaps its worst enemies.