Why Housing Is Too Important To Do Nothing II (continued)

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Mortgage and Lending with Bank of England (NMLS#418481) NMLS# 1046286

This is a continuation of my post, Why Housing Is Too Important To Do Nothing II.  Please click on the link to read it first, if you haven't already done so. 

So, as you would if your doctor told you that you have an infection in your heart, we as a country have a choice to make.  We can treat it or not.  It's that simple.

If we don't treat it, housing values will continue to drop.  Billions, if not trillions of dollars in home equityThe largest single source of wealth in the US is home equity (the largest single source of wealth in the country, by the way) will evaporate.  Builders will stop building (which is the first stage in the market "correcting" itself).  This in turn will lead to layoffs which will lead to lower consumer confidence which will lead to people spending less which will lead to additional layoffs, so forth and so on.  The eventual outcome will be recession and possibly even a depression. 

The worst case scenario here is that the US economy falls into a depression and all of the foreign investors that are now propping up our economy pull their money out. 

Suffice it to say, if we leave it up to the markets to fix the problems on their own, it can and probably will get ugly!

Doctor Bob's PrescriptionDr. Bob's Prescription 

The other option that we have is to accept reality as it is and not as we would want it to be.  That is, we can examine what caused the mortgage market to get out of alignment in the first place which in turn is what has led to the housing market falling out of balance. 

As I've talked about before, my opinion is that it isn't the housing market itself that was out of balance.  If the credit markets hadn't collapsed we would all still be happy buying and selling our homes.  The economic reality is that our population is continuing to grow and as long as this is true, these additional people will need roofs over their heads. Coastal Population To Continue to Rise

Even in the markets that probably did get out of hand, there was a reason that these markets got carried away; these markets are where people want to live!  According to the National Oceanographic And Atmospheric Administration coastal areas of our country which account for only 17% of our contiguous land mass contain over 50% of our population.  They have also experienced population gains of 28% in the period between 1980 and 2003 and there is no reason to suspect that these trends aren't going to continue.

So how do we fix the problem?

There are a number of steps that I feel that we can take in order to cure this infection;

1)  Regulate how mortgage backed securities (MBS) are packaged, sold and rated. 

        Specifically we need to regulate the ratings agencies such as Moody's and Standard and Poors so that they aren't influenced by the big Wall Street investment houses when rating MBS's.

2)  We need to give each and every home owner who is now in distress an opportunity to work their loan problems out.

        This will probably mean that the government needs to step in and purchase these mortgages from the institutions that currently own them.  These non-performing loans should be able to be bought at a steeply discounted rate and once the government owns them, it can then renegotiate the terms of these mortgages to a point where the borrowers are able to perform.

        The loans that will then be performing can be seasoned and in turn sold back to the secondary mortgage market, most likely at a profit!

3 )  Foreclosed properties need to be liquidated in an organized and systematic manner.

       The properties who's borrowers aren't able or willing to work their loans out and that end up being foreclosed upon need to be secured and released upon the market at a pace that doesn't depress real estate values in their particular market area. 

Once these steps are taken the markets will heal and everybody will feel better!  Home values will stabilize, builders will start building again, consumer confidence will rise and we can all go back to living our lives knowing that homeownership is still the single best way of creating a wealthy and stable country.

 

R. B. Mitchell

ValueList Real Estate Services, Inc. 

 

R. B. Mitchell is the president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company.  To read more of Bob's writings or to find out more about ValueList and our flat-fee listing program, please feel free to visit our web site, valuelistre.com

 

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Rainmaker
717,706
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY
Excellent post. Not a lot of people will be agreeing with you, but that's OK.  Eventually, maybe some of these "free market cowboys" will come down to earth and get REAL.  A wonderful example of how free markets can create a mess are with health care.  Gee - is the for-profit "free market" solution that is leaving millions uninsured working for you?  What about those who are critically ill? Nope. it's a mess (I know, my father has stage 4 cancer - and it practically took an act of Congress to get him chemo.)  Point is a free market - with NO CHECKS and BALANCES written by the industry that stands to benefit is simple anarchy. if you want socialism - start with a totally free market - watch as 98% of the population sinks into poverty - and WAIT until the hungry masses have had enough and are ready to start  arevolution - and you will find that the solution demanded is a complete redistribution of wealth. Regulation is the FRIEND of capitalism.  It prevents it from spinning out of control like it has over the past 20 years. 
Nov 27, 2007 05:43 AM #1
Rainer
155,621
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

Ruthmarie:  What's funny is that my educational background is in economics and for the most part I favor free markets and am pretty libertarian with my political views.  That said, government does have legitimate roles in our lives.  In general government should be there to provide the things that the so called "free markets" either don't provide or don't provide in sufficient quantities.

The classic examples of this is roads and defense.  If it were left up to each person to build and maintain the roads in front of your property our road system would be worse than it is now.  Each person arming themselves to the teeth in order to provide for our national defense might be fun to watch, but it wouldn't be very effective.

These are legitimate roles of government under the Declaration of Independence, The Constitution and the Bill of Rights.  I don't see any reason that health care is any different than defense in that we all need it, but obviously the markets don't provide in an adequate amount.

In regards to the government stepping in on the housing mess, well, to me, that falls under the "promote the general welfare clause in the Preamble to the Constitution.

If the government tries to sidestep this issue, we're all going to get hurt by it.  The fix, while large and difficult, is better for us than letting all of these folks crash and burn along with those of us who live next door to them!

 

Bob Mitchell

ValueList Real Estate Services, Inc.

 

 

Nov 27, 2007 06:13 AM #2
Rainmaker
717,706
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

It's all a matter of degree. We are talking here potentially of about millions of households.  

1. This can bring our economy to its knees - just blithely saying "the market" will fix things when you are facing massive dislocation like this is lunacy.   And if anyone thinks that this will "normalize" the market quickly so they can get back to business as usual - has rocks in their heads.

 

2. If you want to create a socialist revolution - go ahead - do nothing. When the masses start pounding on the door of the Capital complete with fire arms - I'm sure the anti-regulation types in Congress will "see the light" and over react.

My late mother had a career as a radio interviewer back in the 1950's to the 1960's - She interviewed a famous Asian diplomat and she asked him "Why aren't the Chinese people concerned with freedom." His response was "You can not discuss freedom with  a starving man with an empty rice bowl. First, you have to fill the rice bowl."

We created a lot of this in our industry.  It is a COLLECTIVE responsibility.  Individuals may have done nothing wrong, but collectively, we failed miserably at policing ourselves.  If we can't or WON'T - take responsibility and clean up our own house - solutions will be imposed on us from other sources.  It's really not that complicated.  The public feels duped and it is demanding change.  Pointing fingers back at the public for greed etc will accomplish nothing - if anything it will make matters worse.

 Btw, I come from a looooong line of republicans.  My grandfather was the president of his own company and although not publicly traded -   a company that was a household name in its day. He was a  MODERATE.  Not a robber baron type at all.  He prized integrity and honesty above all in all his dealings.  The type of stuff that I saw when I first entered this business in late 2005 - would have him whirling in his grave. 

Nov 28, 2007 05:49 AM #3
Rainer
155,621
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

Ruthmarie:  I agree with you big time regarding the fact that the government needs to step in and fix the credit markets in order to stop a major slide towards recession and possibly even depression. 

Going back to my analogy of having an infection in a heart valve, the worst case scenario is that the patient dies if nothing is done.  Even if they live, they might be permanently disabled.   Think about the potential down side if we leave the current credit and housing crises untreated.  Your image of armed people marching on the capital could be prophetic.

If nothing else, removing the hope of home ownership from the economic lower third of our population will only contribute to our decline into a has been world power.  Just think of how many families have been able to send their children to college because of the economic stability that homeownership has provided them.

I recently wrote a commentary in the St. Louis Post Dispatch on HR3915 and in doing the research I had the opportunity to speak with a legislative assistance to a US Congressman and he actually told me that part of the problem with the housing market is that we made homeownership available to too many people.  Can you imagine that coming from a US Congressman's office?  Pretty wild, huh?  Anyway, thanks for your imput!

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Nov 28, 2007 06:34 AM #4
Rainmaker
717,706
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY
YOW!!! I take it that he doesn't wish his name to be attached to that???? :-o
Nov 28, 2007 11:25 AM #5
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Rainer
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R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham

Bob Mitchell (NMLS#1046286)
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