1.) After we patch the current holes in our housing market, the federal government should quit actively encouraging home-ownership through policy. Owning a home can be a stabilizing action for a person, family, and neighborhood, but when home-buying is artificially pumped, it leads to the destabilizing we have recently experienced. Stable community can be nurtured in neighborhoods where people own or rent. Investment in neighbor relationships always beats mortgaging property. Our federal government should quit trying to steer the natural functioning of markets. Rarely, it can lead new market development as an early participant – such as in my geriatric housing infrastructure plan for areas surrounding our rural and urban federal properties (filed under ‘jobs’)
2.) All governments should be wary of designing taxes and benefits that affect renters and homeowners differently. It discriminates against citizens on a fundamentally significant lifestyle choice. Doing so also creates potential bubbling of the markets in shelter assets. Until 2007 everyone was bidding up homes, now most want flexibility and don’t trust mortgages, so rents are climbing more than they might otherwise.
3.) A home is not so much a castle concept anymore. Many people are more mobile now. Many also are willingly sharing space to keep costs low, increase their freedom and flexibility, and decrease their loneliness. Shelter, for the meantime, is sometimes all we’re looking for. Not all “homeless” people want the same kind of shelter.
The solutions chapter in Bill Clinton’s new book Back to Work helped me come up with my own housing plan. We don’t hear enough ideas for that mess and I’m very glad I got motivated to reform government because this time last year I was hoping we had hit the bottom of the market and I started shopping for more rental properties.
We especially hear few constructive ideas from the current Republicans. The generic Republican thinks it’s OK to rely on a large number of convoluted supports and tricks as a means to avoid the risks of the free market through ‘financial engineering’, but simply defaults to ‘let the market run its course’ when situations get messier and no geek has showed them a fix that will also help fund a bigger, faster boat for themselves.
First, I’d be for Clinton’s idea to allow people to refinance at today’s current rates. I don’t think any homeowner rescue should create more moral hazard by focusing only on those who are behind in payments. If you think this out a few steps, even a lot of renters have damages they could claim due to the mess, maybe the next mortgage lender settlement should simply issue every person over 18 a check for $2000.
Government intrusion is a necessary patch on the homeowner side to increase general buyer confidence so we can speedboat outta the swamp. If we are lucky, we’ll be back up on our skis toward a free market equilibrium in residential real estate pricing. Once that happens, and likely only if that happens, current owners can feel more confident to plan their decisions regarding this most major investment in their lives. Remodeling, buying up, and buying down to restore their retirement, etc. New buyers will then feel more confident to buy the current stock.
As things currently stand the only side of the equation we have given assistance is the lenders and those who chopped, traded, and insured the loaned money. It could be argued that these people were as culpable as any party, but happened to be ‘too big to fail’. The stagnation in the current housing market is too big to prosper so we need a bolus of love on the buying side of the equation.
Today lenders are super risk averse. As well, their managers are motivated by the predictable and better-yielding future performance of those higher-interest outstanding loans, so they have little incentive to refinance at today’s rates. The refinancing process is always littered with hurdles to make the homeowner suffer during the transaction. I say we cut through most of those weeds, but the buyer should always beware.
The government should have negotiated smarter requirements for community lending when they handed the banks all this salvation, but it’s likely not too late to act. If lenders begin to understand that improving the entire housing market might help their long term returns we could do this without government intrusion. But, the banks don’t want to come groveling for more bailout if the bet doesn’t go well. And the average CEO pay has climbed ten fold since the days I was curious about the job while in college, so we have sportstar egos to keep in check. These CEOs will hang on to the gravy of higher interest loans even tighter while the Federal Reserve hurts their margins with low interest rates overall for the next year or so.
That’s why, in the meantime, we should take government action to help expedite refinancing options for those current on their mortgage so we can all more quickly find the true market value of housing stock.
I agree with Clinton that most homeowners are not currently speculating or treating their investments in their homes irresponsibly (before the mortgage was an ATM for travel and everything else if I remember), but we should limit facilitated refinancing to one home so as not to invite the return of that problem.
Clinton suggests most homeowners thought they could meet payments at the time of signing the contract. I think the lenders likely marketed the products heavily toward a belief in that direction. Owning a home is generally an exciting time. We’ve been told its the American Dream. It’s certainly the only time most of us will be able to leverage as much cash as the typical Private Equity firm deal. I remember I was so excited and trusting I didn’t understand that some terms in the document legally imply more than one concept. We could ask our lenders for simpler and more transparent mortgage documents to prevent future misunderstandings. Who thought things were complicated enough that many hire a lawyer to look over a mortgage contract. I didn’t know that my first time around. This cleatus is running for President and got an “O” in deportment once.
Many of these mortgage loan terms got even more scary in the most optimistic part of the market just after I bought. People were issued gimmicky interest rate balloon packages for example. Anyone who has heard even a few of these stories quickly imagines how many mortgage broker snakes were happy to add up the checks and marks on the docs signaling ‘yet another record sales year’. Hindsight is fighter pilot eyesight cliche.
I’m open to the federal government facilitating agreement between homeowners and the bank industry on schemes that allow debtors to become renters of their own homes with a right-to-buy-back under reasonable terms if the homeowner gets back on their feet.
Something similar could be arranged for the reverse scenario. Banks could profit-share with the owner on the later sale of a home if the bank agrees to give the owner a markdown on the current principal. Any other new contract that gives the owner much needed breathing room to maintain ownership could possibly use this tool, but banks are so fat with their cash they probably don’t want to track profit-sharing on individual deals. If it doesn’t compute interest or assign fees the software might be too complicated for them. However, the trading desks employ some smart mathematicians who have some karma to earn back by coming up with the necessary formulas.
The government should give the banks a deadline to offer their own ideas for packages and if most are terrible deals we standardize one after we penalize the banks for unreasonable solutions (such as charging a storage fee on the money they keep with the Federal Reserve).
I also like Clinton’s discussion in his book on ways banks might also be more creative to issue new debt to help bolder, less risk averse citizens generate new returns for our economy. That one about the storage fee for nightly deposits at the federal reserve is one I stole from his book. I think he got it from some Scandinavian country that uses it to success.
Clinton’s idea to encourage banks to flood the rental market with low cost rentals prove he’s never had to fight in the private market as a business owner himself. Landlords will hate that plan. I’ve been renting my St Paul, Minnesota house for the six years I have spent re-tooling my career skill set on the West Coast. Imagine if I had to compete with more below market rental rates. Insane.