What It's Going to Take
By Rob Minton & John Mazzara
There's probably little argument against the notion that the United States is in a housing slump. There does, however, seem to be some different views on what it will take to "fix" it.
In talking to other real estate professionals, investors and clients, it seems the different ideas are wide-ranging. Some seem to think lending has to become more available. Some believe that home prices still have room to drop, and that's causing buyers to be nervous. Others have conflicting views on what must be done - or not done, in fact - about the massive amounts of foreclosed homes.
So what's it going to take for the U.S. to reach the point of a real, sustainable and widespread housing recovery? More and more, it looks as though it's going to take some compromise.
The argument that financing for housing is too tight is a pretty solid one. Just looking at the requirements to get a home loan now compared to a few years ago, it's impossible to say that standards haven't gotten stricter. The reasons for this are many, and maybe not as simple as some seem to think, and the financing problem is a good example of why compromise is needed.
There seems to be standoff of sorts among those involved in the mortgage industry. In fact, it's what they call in the movies a "Mexican standoff," with multiple parties all pointing guns at each other and waiting for someone else to make a move.
The players in the mortgage standoff right now are financial institutions, policy-makers and mortgage-market investors. Wall Street has its guns pointed at Washington, and vice versa, and both parties have their guns also trained on mortgage borrowers and the secondary mortgage market.
The government wants to keep people in their homes, while at the same time recognizing that the foreclosure mess has to play all the way out before there is a return to "normal." The financial institutions say they are willing to lend money, but they are also concerned about writing down loan losses on outstanding loans they already have. Investors want to know who's going to compensate them for the bad mortgages they are holding.
So everyone's pointing their guns and standing kind of motionless. Who makes the next move?
Depending how you feel about the role of government in the housing market, you may or may not be buoyed by the language that came out of Washington last week. Phyllis Caldwell of the Treasury Department's Homeownership Preservation Office said to a congressional panel that "an important part of ensuring longer-term stability in the market is to enable properties to be resold to families who can afford to purchase them."
That sounds like a vote for letting the foreclosure process play out, which is a complete about-face from the rhetoric that has come out of the capital for the past two years, when the emphasis seemed to be stopping foreclosures and keeping people in their homes, all else be damned.
The fact is, though, that President Obama's plans for loan modifications that were originally targeted to help over 4 million homeowners have largely failed, with only about 10 percent of that figure receiving permanent modifications. Maybe all the modifications have done is stall the process that needs to work itself out before there is a recovery.
The change in tune might be a sign that the government is willing to cooperate, maybe let the housing market deal with foreclosures in its own way.
That might be good news, but banks and investors will have to cooperate, too. Banks are probably going to have to acknowledge that they're going to take more losses on bad loans - sort of a step back before going forward. Investors are going to have to be willing to share the loss, too. If bad loans are going to cost the banks, spread the cost to the buyers in the secondary market, too.
Simply put, it seems as though before progress is made with foreclosures, there are more lumps to be taken. If the banks, the mortgage securities market and the government - which DOES NOT want another bailout - share that loss, maybe it's more palatable.
That, of course, will take compromise and cooperation. In case you haven't noticed, those have been in short supply of late.
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