Government and lenders have succeeded in keeping people in their homes

The housing market is comprised primarily first time home buyers and investors.  Move up buyers and relocation buyers make up a shrinking portion of the pool of buyers, and the trend will continue unless there are some changes in lending practices and products.

Mobility among potential move-up buyers is almost non-existent.  About a quarter of homeowners owe more than the current value of their homes.  Some are facing economic challenges that will cause them to cease being homeowners.  Some have decent incomes and a desire to change to another home.  They can't move because the cost of selling added to the down payment requirements is more than they can handle.  They are the housing dropouts who will continue to pay their current mortgage debt and their other bills, but they won't be going anywhere soon.  By soon, I mean not in the next ten to twelve years unless something changes.

OK, so who cares?  We aren't social workers, and nobody is entitled to a handout.  That's right, but the move-up buyers are the key to a housing industry rebound.  We need them a lot more than they need us.  Until there is a large part of the housing market made up of owner-occupants buying homes from owner-occupants, there will not be enough transaction volume to get the industry out of its depression.

So far, the government's program to keep people in their homes has worked quite well, albeit for keeping the wrong ones in their homes.  The move-up wannabes are staying in their homes, and the distressed homeowners are going back to renting. 

Facilitate the move-up buyers who are willing and able to make higher payments, and everyone will be better off.  More arms length transactions will increase demand for housing, which will stop price declines.  Increased demand will eventually increase prices.  Some homeowners who have fallen on tough times may be able to sell their homes without bank approval of a short sale, exchanging a portion of their despair for a little dignity.

Why not allow loans with over 100% LTV?  We already do allow them for one of every four home loans.  Why not allow people with the demonstrated ability to make a higher monthly payment to port the part of the loan balance that a sale will not satisfy?  Why not do something that has a chance of rejuvenating our depressed housing industry?