I agree with John's point that the answer to the housing crisis is Principle Write-Downs. Most of the families I see who are unable to keep their homes have not been irresponsible. They are victims of the economy because they have had a reduction in income or have lost their jobs. Those of us who have been able to keep our homes must stop being judgmental because doing nothing is costing us as well.
With three years of struggle under our belts, are we ready to solve the housing crisis? Are we ready to accept a strategy that could help stabilize housing and begin to get the economy rolling again? Now that housing has become mired in yet another calamity (the the foreclosure scandal), are politicians, economists, pundits, and homeowners ready to take the medicine necessary to get our country back on track? While I’d like to think so, I’ve yet to see any positive action being taken.
The U.S. has thrown billions into the failed mortgage modification program, HAMP, the results of which have been pathetic. By the government’s own estimates we’ve made little progress in slowing the number of homeowners losing their homes, and in fact, are now facing a potential onslaught of 5 million additional foreclosures. Add in Foreclosure-Gate and it becomes obvious that we’re not only failing to make progress; we’re falling deeper into a hole in which housing could remain mired for years to come.
To ignore this problem is short-sighted at best; and to continue with the same failed “fixes” could allow the crisis to fester into a wound so severe that our very recovery could be in question. And while some may brush off my analysis as unnecessarily alarming, none have yet to offer alternative or less-costly solutions. The choice of many has been to be to just allow housing to crash and to pick up the pieces later. However, it’s now been three years, and we’re still crashing. Foreclosures are increasing; personal bankruptcies are increasing; and the nation has borrowed and spent billions that have failed to stabilize the economy.
Housing is the key to a recovery; it has always been so. The graph below shows just how far housing has fallen. As a percentage of GDP, residential investment is now at a record low spanning the past 60 years. Home sales and construction drive the engine that can lift us from this quagmire; without a housing recovery we may not add enough jobs to absorb the millions of unemployed for another decade. I don’t think we’re prepared to deal with the consequences of such malaise.
In order to restore housing it will be necessary to have PRINCIPAL WRITE-DOWNS, a solution I described in, “Punishing Foreclosure Victims Only Increases the Pain for all of us,” written earlier this year. At that time many objected to the idea, but the worsening market and economy has begun to make it more palatable to some; and whether or not we find the concept appealing, the issue must be addressed. Of course it’s complicated, and might require one more act of assistance from taxpayers; but doing nothing has already consumed billions and will consume billions more. Let’s put our money where it can have an impact and where it has the potential to produce a result from which we will all benefit.
Such a plan will require that banks absorb losses, that government provide some underwriting, and that homeowners commit to sharing future gains with their lender. The development of a workable plan would require compromise from all sides and would probably be best accomplished without forced government intervention. Creating such a plan would require bi-partisan support (if that’s possible) and should include the participation of Treasury as well as representatives of both the real estate and mortgage industries.
I see only two options. We can complain about the inherent unfairness of such a move, continuing to disparage those “irresponsible” borrowers who should have known better, or we can implement a strategy from which we will all ultimately benefit. Business as usual hasn’t worked; housing remains on a downward slide. Do we want to risk calamity? Or are we willing to learn from our mistakes and move ahead? Politicians won’t take the initiative unless forced to do so. Are we ready to solve the housing crisis?
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