Dave Liniger, chairman and co-founder of RE/MAX recently asked the following question in his blog: How Would You Stimulate This Market? Below is John's response to Dave's question. We thought you may find it interesting.
It seems clear the government doesn't know how they got us in this mess, so it's not a stretch to realize they don't know how to get us out. Maybe that's because our system of government elects the electable rather than the qualified. I have a few suggestions to help us out of this and prevent us from getting in it again.
1. Give a one time subsidy of 3% of a home purchase price to every buyer that buys a home in the next year. A 2% subsidy the following year, and 1% the third year. Stop throwing money at the banks and mortgage companies and hoping they know what to do with it. If they were that bright, they wouldn't be in this mess.
2. Require honest disclosure in lending. Instead of the Reg Z form showing the APR (annual percentage rate) which only confuses people, how about a disclosure about the amount of money being paid by a seller or builder? This one item would have shown new home buyers they were paying up to 6% over the real value of their home for a low interest rate. Instead, a lot of people actually thought their house was worth what they paid!
3. Rescind all Federal taxes on domestic manufacturers of automobiles and auto parts for now. Eventually and gradually rescind all taxes on all manufacturing and businesses. Tax what you want less of... like they already have done with alcohol, tobacco, freon, etc. It's clear what taxation does. Get government off the back of industry. Help American manufacturers get the unions off their backs. If you level the playing field American companies can compete!
4. Pass legislation to keep banks out of the real estate business forever. They don't do well what they do best. I'd hate to see what they would have done to our industry if they were allowed in a couple years ago.
5. Enforce antitrust legislation or pass new legislation preventing companies from getting so large that the United States can't allow them to go belly up.
6. Undo NAFTA and actually try to attract business (jobs) back to our shores. We won World War II by having manufacturing companies convert to manufacturing war materials. If we allow all manufacturing and service industry to go overseas, it makes us vulnerable to hostile countries.
7. Be very vocal to NAR (National Association of Realtors), your senators and congressional representatives. We (the Realtors in the trenches) saw this coming but didn't raise enough...you know what to stop the insanity.
8. Down payments should be a minimum of 10%. Since it costs about 8% to sell a house and several thousand to foreclose, why would anyone loan more than 90% of the value of a home? There is something to be said about having a little skin in the game.
9. Appoint a COMMON SENSE CZAR. See my blog about it at www.johnjacobus.com/blog.asp
Be aware, the present situation was not caused by lack of regulation. It was caused by over regulation. Namely, congress practically forcing Fannie Mae and Freddie Mac to make bad loans. Even paid millions ($90 million) in bonuses for doing a stellar job making bad loans!
If government okays it, protects you, and insures the loss, why would any lender not make bad loans? Integrity, you say? Well, okay... but there wasn't much of that!