Are We Ready to Solve the Housing Crisis?

Reblogger Deanne Olivas
Real Estate Agent with eXp Realty Equal Housing Opportunity

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. 

 

Original content by John Mulkey

roadsign offering directionWith 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?

 

Graph of residential investment as percentage of GDP

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Rainer
88,546
Paul Lesieur
203kloanmn - North Oaks, MN

Hmm, an approach worth considering since what we've done so far doesn't seem to help much. Interesting.

So, do you think this has a chance?

Nov 01, 2010 12:53 AM #1
Rainmaker
820,488
Dan Edward Phillips
Dan Edward Phillips - Eureka, CA
Realtor and Broker/Owner

Good Morning Deanne, thank you for putting the post back up.  I enjoyed it!

Nov 01, 2010 01:57 AM #2
Rainmaker
526,160
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

There are so many variables and theories. Each experiment has anticipated consequences and unintended consequences. One school of thought is to let the market painfully correct itself with no intervention so the crisis will be over faster. The other extreme is to have the government and banks continue to experiment with artificial propping up of the market, hoping that the longer the crisis is prolonged the more likely an external solution will appear from out in left field.

Nov 01, 2010 03:06 AM #3
Ambassador
754,969
Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

Deanne,

Until this mess washes out of the economy, we're all stuck in the mire.  Great reblog!

Mike in Tucson

Nov 01, 2010 04:25 AM #4
Rainmaker
170,430
Deanne Olivas
eXp Realty - Gilbert, AZ
Your Home Matters

Thank you all for your comments. It is very complicated, isn't it. 

Nov 01, 2010 02:46 PM #5
Rainmaker
230,479
Dee Mayers
Covina, CA
San Gabriel Valley, CA

Can anyone solve the housing crisis despite political initiatives? What would it take for everyone to put aside their interests and work for a solution that will really solve the problem?  The answer is not so easy.

Nov 04, 2010 01:21 PM #6
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Rainmaker
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Deanne Olivas

Your Home Matters
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