Promoting debt through advertising

Here’s a shocking statistic: Nearly a quarter of U.S. homeowners with first mortgages also have home equity loans. At the same time, the value of outstanding home equity loans in this country has grown from $1 billion in the 1980s to more than $1 trillion now.

How did this happen? An interesting story recently in the New York Times puts part of the blame — or credit, depending on how you look at it — on increasingly aggressive bank advertising designed to make homeowners feel that tapping into their residences’ equity was a perfectly normal thing to do. You can read the story here.

One of the bank ads the Times highlights had a tagline of “Live Richly.” Some say such a slogan tells people that they should be living the luxury life, no matter their yearly salary. Another ad promised to help homeowners find at least $25,000 hidden in their homes.

Problem is, second mortgages are risky things. If you don’t pay them back you could lose your house. In fact, when I was a kid, these mortgages were thought of as desperation moves, the financial bailout you turned to when there were no other choices. Now? It seems everyone is taking out a second mortgage to finance expensive trips, renovate their homes and, worst of all, pay off their credit card debt. (That last option is extremely foolish: You won’t lose your home if you start missing credit-card payments.)

Read the Times story if you have a chance. It’s a fascinating look at an industry that strove mightily to steer consumers toward what everyone knows is a risky decision.

As the housing market continues its struggles, this story is just one more reminder of how we got to this point: Everyone was greedy. Now it’s coming back to haunt us.