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How To Solve The Housing Crisis?

How To Solve The Housing Crisis?

 

The economy continues to suffer, and one piece that no one seems to be able to agree on how to address is what to do with our continually failing housing market.  With no ability to sell homes due to underwater mortgages, people are trapped in areas they may no longer wish to live in, unable to leave to other cities that might have better job opportunities or purchase different homes that would better fit the size of their families, opening up smaller homes for singles and couples just starting out, or retirees who finally have an empty nest.

For those who purchased a home for the first time in 2005 and 2006, many have seen the housing value fall as much as 50%, leaving them through no fault of their own with desperately undervalued homes they will be stuck in until they eventually hit a point of positive equity — a point that for many of them still lies 20 years down the road, since the first few decades of a loan is just paying off interest.  As the largest section of their monthly budget flows to the banking industry, which not only already saw a government bailout, but on its own has very little ability to actually create jobs, home owners are forced to tighten their spending in other areas, causing a bad economy to slow down even further due to lack of money purchasing consumer goods.

The government has already tried a set of home loan modifications that have gone nowhere and had little effect other than to stagger out the timing of when homes finally fall into foreclosure.  Now, they seem to want to try again, this time with a potential new set of refinance options. The idea would be to let many homeowners refinance their loans at a lower interest, regardless of how underwater the homes themselves are, opening up the refinance process to a group of owners unable to take part previously because their home value was just too low to participate (previous rules made anyone who needed to refinance for a loan that was greater that 125% of their current home value ineligible).  For a large group of the potential takers, a refinance could free up hundreds of dollars a month, allowing them to loosen their belt buckles and bring other items back into their budget like eating out, buying more clothes or other spending that became “frivolous” during this time of austerity.

But is it enough? Bloomberg Businessweek contends that the answer is no, and that at some point we simply have to forgive housing debt.   They point to one economist who says, “an underwater home is a new version of a debtor’s prison,” remarking that the owner is just as trapped as someone thrown into jail for lack of repayment.  Although they also float the new “rental market” escape clause — the idea of either turning foreclosed homes into rental properties to bring down the number of vacancies, or letting home owners rent the homes themselves rather than continue owning them, one idea proposed, and the one that makes the most sense, is to simply rewrite all mortgages for the actual value of the house as it is currently, and let the owner start all over in a new mortgage.

Banks, of course, say no.  They are utterly unwilling to take the loss that would occur.  But how can it be a “loss” if the homes simply aren’t worth the money in the first place, and if the alternative is people walking away because eventually they simply can’t — or won’t — pay?

Banks, of course, are still hoping to ride out the storm, letting the homes fall to the wayside one by one and collecting as much money on them as they can until they do.  And for them, it makes sense.  After all, if worse comes to worse, we can continue to ignore the issue and in 20 to 30 years everyone will have either defaulted on their mortgages or finally paid them off.

Related Stories:

Home Prices Could Drop For “Another 20 Years” Warns One Economist

Jobs Report Offers No Hope For Middle Class

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Photo credit: Wikimedia commons

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8:51PM PDT on Sep 3, 2011

tks

8:48PM PDT on Sep 3, 2011

HAHAHAHAAHAHAHAAH some of the people here have no problem if the money gets recirculated UP. They jsut hate when it goes to people less well off. They dont mind if the money recirculates to the Military.

Instead of giving Billions to companies give every citizen around 100 to 150 grand.

Let us BUY our way out of this crap.Cuz nothing else is going to work.

Taxes are lower than ever and no Obama is even deregulating, Of course it wont be enough ti make the Rs move. Its NEVER enough,

4:25AM PDT on Sep 1, 2011

The homeless between the emergency room and jail and/or prison end up costing society even more because they are homeless than it would cost to put them in low-income housing. Boarded up foreclosed property costs the bank that foreclosed even more than the interest and principal it is failing to collect. I like Paul Diamond's idea to seize the abandoned property, get it rehabbed either by homesteading groups or as a government make work project followed by having local government use it as low income housing (rent=1/3 income). But in any event get the foreclosed property used as housing rather than going to waste. I don't understand why the $700 billion was in the form of a loan to the banks instead of a buyout of the bundled mortgages.

9:24PM PDT on Aug 30, 2011

One of the best things you can do during tough times is get to know your neighbors. When enough of us stand together, we don't have to play by rules set up by corrupt banks. As recently as the early 1980s, usury was a crime. But the banks lobbied every state to decriminalize it.

Talk to the police, prosecutors, and judges. Let them know your community is standing together against the banks and demand to know whose side they are on. If you need to use your electoral clout to improve the situation, do so. Then stick it to the banks.

What are they going to do if whole communities refuse to pay more money to criminal banks? How can they foreclose if the whole community refuses to let them? If enough of us stand up to them, they'll turn tail and run. Maybe then we can establish state banks (like ND has), and elect representatives who will regulate banking.

7:05PM PDT on Aug 30, 2011

So how much money do you want to spend playing warden instead of just making sure everybody has a liveing wage stipend to live on? Jobs would be the way to 'get ahead', when they're available, and there is always work that needs to be done.You just can't keep clinging to a system that has run it's course because you can't get your head around anything new.

6:57PM PDT on Aug 30, 2011

Well Don I, you just wasted a bunch of time . Do you really think We Low Income Folks don't know which party was in power everytime funding is cut to the programs we rely on?Do you think we care about your opinion and judgements of who's deserving?We need money immediately and it has nothing to do with the lies you tell yourself to justify your position.Further more, you don't have a clue as to what I'm talking about.You're assumming the only way to get money for social programs is taxes, and we certainly can have an economy based on something other than jobs. It was known probably 100 years ago by the people who could fallow these theories and capitalistic market systems thru to their logical end. We are there now and we have to invent something new."Too big to fail" only means 'too inter connected with other business' that would have come down with it. The money could have been put in at the bottom and worked it's way up.But that's not status quo thinking.So how can you pay your loans if you have no 'means'? And why can't you accept that providing the basic necesities to people is common sense if you want to preserve civilization? We aren't foragers in the woods any more. Turing it into a 'moral issue' to deside who is deserving enough is barbaric. There's a lot of creepy people out there I don't care for either but I sure don't want them roaming homeless and hungry, so how much money do you want to spend playing warden, instead of just making sure everybody has a liveing

1:31PM PDT on Aug 30, 2011

@Janet R,
Sent you a message last night. Please get in touch with me. May have info that just may help you with your home mortgage situation. NO SELLING OR OFFERS of anything but FREE information that may very well help you. I think we're opposites politically, but being able to help someone stay in their home trumps politics every time.
Don I

1:07PM PDT on Aug 30, 2011

Why should anyone do anything? These aren't the first people in the world to get stuck under water, they are the first to think that the rest of us should bail them out. I'm sorry they fell for all the hype and bought during a housing bubble, but it isn't my fault and it isn't my problem. I resent that anyone thinks we should all have to pay to get them out of the hole they put themselves in.

1:01PM PDT on Aug 30, 2011

@Paul D, - Continued -
lucrative contract to Diane Feinstein's husband's company to be the only company allowed to resell those foreclosed on homes bought by Fannie Mae and Freddie Mac. They're going to make hundreds of millions from that contract. It always comes down to someone getting screwed over because of the insider nature politicians have in situations like that facing our country today.

12:59PM PDT on Aug 30, 2011

@Paul D,
In a way, you're right about not really OWNING our property, in that the lending entity holding the contract, retains the title to the property until the mortgage is paid off. At that time, the property does become yours. The big bugaboo with the whole process is the local government and other entities that are given the ability to levy and collect taxes and levies against your property. As you say, miss a couple payments, and the govt can seize the property and sell it at auction to get the taxes owed on it. THAT'S where the citizens of the country should be up in arms and trying to force changes to the law. There needs to be a completely different way of collecting taxes and money needed to run local governments, schools, emergency services, etc. without the taxes being levied on a home owners property. Not sure how we could accomplish that, but it really needs to be done. NOBODY should ever be in fear of losing their home because they couldn't afford to pay taxes on it.

As for the government seizing abandoned, or foreclosed on properties, the government can't just seize foreclosed on properties at their whim. Besides, the government has already BOUGHT most of those properties (at least those homes that are in the worst condition and/or have the most outstanding debt against them) and paid the lending entities for them with our tax money. The government (Obama and Democrats in Congress) gave a VERY lucrative contract to Diane Feinstein's husband's co

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