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Everyone knows that the U.S. housing market caused the current economic funk.
But here's the irony: The American housing market - a principal actor and victim of a bubble that burst, causing the worst recession since the Great Depression - may now be in a position to save the U.S. economy.
In other words, if we fix the housing market, we stand an excellent chance of fixing the economy.
And my housing plan may be the dual fix we've been looking for .
Many people lauded my plan. But I was somewhat surprised at the number of people who trashed it. For those critics, the main issue was that they didn't feel the plan addressed the real root causes of the current housing crisis.
I got an earful about what the root problems are. Eventually, it struck me. It wasn't my plan that people didn't like, it was that I didn't explain how my housing plan would fix those root problems.
Those root problems are no small thing. They caused the housing crisis in the first place. They're keeping the housing market from recovering now. And they're a major drag on the U.S. recovery - and could end up as a proximate cause, or key catalyst, of the much-feared "double-dip recession."
But here's the irony: The American housing market - a principal actor and victim of a bubble that burst, causing the worst recession since the Great Depression - may now be in a position to save the U.S. economy.
In other words, if we fix the housing market, we stand an excellent chance of fixing the economy.
And my housing plan may be the dual fix we've been looking for .
Plan Generates Huge Response
In Money Morning exactly one week ago, I presented a plan to fix the broken U.S. housing market. And while I wanted feedback on the plan, I was stunned to receive hundreds of e-mails, phone calls and comments - underscoring just what an intensely emotional topic housing continues to be in this country.Many people lauded my plan. But I was somewhat surprised at the number of people who trashed it. For those critics, the main issue was that they didn't feel the plan addressed the real root causes of the current housing crisis.
I got an earful about what the root problems are. Eventually, it struck me. It wasn't my plan that people didn't like, it was that I didn't explain how my housing plan would fix those root problems.
Those root problems are no small thing. They caused the housing crisis in the first place. They're keeping the housing market from recovering now. And they're a major drag on the U.S. recovery - and could end up as a proximate cause, or key catalyst, of the much-feared "double-dip recession."
Key Problems With the U.S. Housing Market
According to the feedback I received, many of these "root causes" are very clear. The list includes:- Too much government manipulation and stimulation.
- A free market that's not permitted to operate as such.
- Banker (Wall Street) greed that causes - and then perpetuates - wrenching boom-and-bust cycles.
- Too much easy money, which paved the way for too many easy loans.
- Too many (ineffective) regulations.
- Too few (effective) regulations.
- Too many houses on the market.
- Banks that have no incentive to lend.
- And a generally unhealthy economy.
We have to address all of them - and in a comprehensive fashion.
My plan proposes to do just that.
Try it on again. Only this time, when you comment, help me identify unintended consequences that could result from the plan, and let's make it better together.
When Government Involvement is OK
Let me start by saying that my plan isn't another government-manipulation scheme. It does require temporary government action (legislation) that is specifically designed to address these issues in a manner that will turn the market around. But it also puts a strict time limit on these initiatives, meaning the government intervention will eventually expire and allow the free market take over once and for all.
If you're cynical, like me, you're saying: "Yeah, but self-serving legislators pander to special interests to perpetuate government-controlled programs." You're right, but that's another problem for another time - and involves throwing the bums out of office.
In the meantime, my housing plan recognizes that special interests profited egregiously from the de facto government backing of the aptly named government-sponsored enterprises (GSEs) Fannie Mae (OTC: FNMA) and Freddie Mac.
They have to be killed off.
T he plan calls for them to be unwound - and buried.
But in our advanced economy, there is a need for a "mechanism" that is able to transfer risk to investors who are willing to accept it.
That mechanism is called "securitization." That's what securitization does. And that's what Fannie and Freddie do.
GSEs such as Fannie and Freddie help increase the flow of mortgage money in the financial system. They amass a pool of money, which they can use to buy mortgages that they carry on their books as inventory, or that they repackage and sell. But there are a few things wrong with this model. And my plan fixes them all.
As I outlined last week, my plan creates a replacement pool of capital. But that money won't come from investors who believe that the government will backstop their Fannie and Freddie bonds; it will be free money "donated" by all the banks that "we the taxpayers" bailed out so that they could live to rip us off another day.
Under my plan, the new mortgage pool:
- Won't be government-backed.
- Will last for only 10 years.
- And will have to lend at prevailing rates based on its "cost of capital" (which will be zero).
And the pool will have risk-retention requirements - the same as banks. That should be 10%. This means the pool, and banks, will have to hold 10% of the value of their total loans as a reserve against possible future losses. After all, banks that overleveraged themselves without a substantial -enough cushion of capital reserves against crashing asset prices led to the credit crisis.
Because this is only a temporary liquidity pool - and because we aren't a communist dictatorship (even so, the banks owe us something for all the trouble they caused, and the trillions of dollars of economic damage they're responsible for) - banks should get a break on the taxes they pay on the profits they generate from the pool.
The public will be benefiting and banks need the profit motive to serve as an incentive. We want those banks to profit so that they can transparently rebuild their balance sheets and pay taxes again. (Another plan we need to talk about is breaking up all the too-big-to-fail banks).
The idea of "sunsetting" the pool is that it clears the way for other private-mortgage-money investors and syndicators to get into the business and compete profitably.
The ultimate objective here is clear: We want to get the U.S. government out of the mortgage-lending business, and let the free market take over after a transition period.
Save the Housing Market, Save the U.S. Economy
While we're getting mortgage financing back on track, we need to stabilize the sinking U.S. housing market itself. With my plan, tax credits will get prospective buyers off the fences they're currently seated on - and will spur them into action.U.S. housing prices have fallen precipitously. S hould we just let them continue to freefall? No one knows what the natural equilibrium level should be in any town, county, region, state, or nationally.
What we can assume is that a housing-price bottom will eventually form. And if that "bottom" is significantly below where we are now, this country is in for a lot more economic pain.
That statement - more than any other - highlights what I said at the outset of this column: If we're going to save the U.S. economy, we have to fix the U.S. housing market. It also attempts to speak to free -market advocates, of which I am one, by saying that sometimes an engineered soft landing is easier to bounce back from than a full-blown crash.
My plan to offer tax credits against depreciation and credits for appreciation doesn't inordinately manipulate prices. It simply incentivizes people to test the waters sooner rather than later by subsidizing (yes, that's what I'm suggesting) the very real risk that new homebuyers would be taking by making a purchase at this point in a soft-and-unsteady market.
Don't be too quick to dismiss this part of the proposal: After all, we subsidize banks that take risks that are backstopped by taxpayers. Why not offer a small subsidy directly to U.S. taxpayers?
If the small tax credits (they could and should be limited to some range of home prices, if for no other reason than to avoid giving additional tax breaks to the uber-wealthy in this country) are enough to incentivize people to "bottom fish" for homes - and enough people decide that prices have come down to a level that justifies this investment or speculation - then we will have created a "floor" for housing-market prices that could hold.
It's a relatively market-based solution to a market-based problem. And it recognizes that markets need risk-takers and sometimes risk-takers need an edge to play.
If you're thinking that this tax-credit scheme is another government handout that's going to come back to cost us, you're right. And that's another reason I like the plan.
Time to Act
By giving tax credits against future tax revenue, the federal government is trading revenue from tomorrow (which it wouldn't be getting if the economy keeps sinking) for a chance to stabilize the housing market today. It will hopefully achieve that point of stability sooner rather than later - and will energize the U.S. economy at the same time.What's wrong with forcing more fiscal discipline on profligate government spenders? Eventually, we are going to have to address spending in a meaningful way. If my plan is enacted, it will add to the question of what future revenue will be available to spend if we are giving taxpayers much-needed tax credits to stabilize the housing market and the economy now. I know it's fanciful, but part of my plan is designed to impose fiscal discipline on the federal government by repatriating taxpayer money back to taxpayers.
There are plenty of unintended consequences that will manifest themselves if my plan is enacted and implemented. I'm developing a list (it's short right now) and I would welcome your help. If we can work together to shape this plan so that it is better positioned to deliver the hoped-for impact on the U.S. housing market and the U.S. economy, we just might be able to present Congress and the Obama administration with a deal they can't refuse.
It's our country, our future and our obligation to our democracy to be part of the solution to our collective problems and not part of those problems. If you've got constructive comments and ideas for making our plan better, I will do my part to stitch them together so we can do what needs to be done for our country.
[Editor's Note: If you have comments or suggestions for Shah Gilani, please feel free to post them in the comments section below. Or you can send them to us directly at mailto:mailbag@moneymappress.com. We value your input.]
News and Related Story Links:
- Money Morning News Archive:
Columns by Shah Gilani. - Investopedia:
Government Sponsored Enterprise. - Wikipedia:
Subprime Mortgage Crisis. - Investopedia:
Securitization.
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Tags: US Economy, US Housing Market
I can't find anything in your plan that deals with the flood of foreclosed properties on the market. We probably need to find a way to write them off so that their drag on prices will stop, to say nothing of the discouraging influence on consumer sentiment.
I think there should be deficient judgement, in which if a homeowner defaults,he has to pay the difference between the mortgage and sales prices. The home owner can not just walk away from his obligations. Now anyone can gamble.If property prices go up,they reap the profits. But if values go down,they should be responsible too.Then they will think twice before they buy real estate that they can afford and have enough down payment for the purchase.The system has to be changed.
Dear Shah,
I agree that housing is the big, undigested lump sitting in the stomach of the anemic recovery.
But my biggest question concerns the heart of your plan: the tax credits.
Who has the money to buy a new home, regardless of credits?
Isn't that a bigger problem than no one knowing where the bottom is? People are either out of a job and/or their current home is under water. They can't find a buyer for THEIR home, except at a huge loss, if then. A vicious circle.
So where do they get the capital to buy, especially as underwriting has tightened up?
You assume a pool of buyers sitting on the sidelines, waiting for the market to bottom out. But one has to wonder if such a large pool of potential buyers exists. Look at the unemployment rates, the real ones.
As to the GSE's: I guess they're about to be done away with. But Fannie has been around since the 1930s or something and never caused any trouble before. Isn't it a bit unfair to blame the housing crisis on her?
Why not just reset every under water mortgage to a level commensurate with current home prices and let the banks take a haircut? Or maybe split the difference between culpable lenders and gullible buyers? Right now, the only ones hurting are the homeowners. Is that fair or just?
Not sure how the mechanics would work, but I like Forrest Phillips' idea of stepping down a home! Because most of us DO now have to to tighten our belts now wrt some if not all of our materialistic appetites. His is potentially a nifty solution to reduce some of the pain and cost of that downsizing and belt tightening.
What would be left at the top would be cheaply made McMansions that I, for one, would not be sorry to see disappear.
My 40 year experience in the Real Estate business tells me this time the market is reacting differently because:
The Government's policy of forgiving "Mortgage Debt Relief" by not taxing the debt relief when borrowers do a "short sale" or walk from ownership (REO) of their home is causing a continual downward spiral of residential Real Estate Values. This is because the borrower no longer has "skin in the game".
Also, the continued interference by our Government Agencies dose nothing but exasperate the situation, just look at their current ideas:
The Federal Government's proposal would toughen debt restrictions on mortgages:
1. Min down payment 20% (currently 3.5%)
The result would be a continual shrinking of number of buyers, removing their ability to purchase a home for at least 16 years.
2. Maximum Debt to Income Limits 28% Housing / 36% of Total Debt (currently 45% of Total Debt)
Again – shrinking even more the number of buyers and totally ignoring the more realistic approach of evaluating a person's "residual income" (i.e. A family that makes $10,000 a month would have $7,200 left to spend if a quarter of their income goes toward the mortgage. By contrast, a family that earns $4,000 a month has less than $2,900 left). This has been used by the Veterns Administration from the start of their "0" down program.
3. Requiring Banks to maintain a stake in every mortgage loan lent (currently 99% sold, retaining servicing payments)
BASEL III which the U.S. Bank's are now following will greatly increase their reserve requirements and dramatically reduce the Mortgage loans Banks will be able to do with this added reserve requirement!!
What "unintended consequences" do you think will happen if the Federal Government implements this plan??
The US needs to be restructured.
Reduce/stop funding on the war programme and apply the funds to much need US economic problems.
You have almost 50m people on food stamps, unemployment heading towards 20% (not 9-10% as reported), economy that is slowing very quickly and dragging down the rest of the world.
It is blantanly obvious to people around the world that the US is bringing the world to it's knees. At some point this must cease and the US make peace with everyone. The US has the world on a track towards misery and economic destruction. Politicians have to take charge. Kick Wall Street staffers out of their jobs, they are criminals. The list goes on.
Lower and middle class people have borne the brunt of this corruption. Some day they will cry enough.
There needs to be fundamental change.
As a Canadian living abroad, I find this discusion entertaining. "There's a sucker born every day" and a greedy sucker is the easiest to con. Your governments (Republican & Democrat) worked at promoting peoples' greed impulses to get votes; then their co-conspirators, the super big banks milked the public for every dime they could steal. But, at the end of the day, if you want to see who is responsable, you need only look in the mirror. Your political system does not encourage politicians to do the right thing, special interest groups and lobbyists control them. No matter how good a plan you propose, they will not act. At every election, vote in someone new; they will soon realize who pays the bills. Maybe you can get action before we all die of old age.
I am stunned that no one seems to be pinning any blame whatsoever on what is the main problem.
The main problem is all the export of jobs to countries offering the lowest possible combination of labor cost and business costs. Like it takes a Harvard MBA to figure that a company is more profitable if they box up a plant and plunk it down in the middle of a peasant or prison labor pool. Companies will keep doing this ad infinitum till something else that is cheaper comes along. The only thing I can think of is slave labor, but there might be something in between prison and slave that I don't know about – perhaps a starving workforce might do the trick. Hey maybe that's where we are headed.
Of course tariffs could stop this in it's tracks but these are viewed as some kind of boogeyman by modern economists. They seem to think it is fair to give free and easy access to the US market to production outfits that rape and pillage the environment, offer no healthcare to employees, offer them no retirement or social security and need not be concerned about job injuries or endangerment of the workforce or neighbors. This is the reality of the one world government utopia that is developing. And the fact that you don't see it indicates to me that you are part of the problem of greed that drives this inhumanity. Seeking to make a killing on stocks by simply trading at the right times is greed isn't it.
I speak as an observer from Australia.
One feature of the USA housing market which is a major cause of the present prioblems is the non-recourse mortgage. Lenders anywhere else would not lend on those terms. It is a major cause of the exteme volatility of the market. If prices are rising, there is no caution on the part of the borrowers because they hav eall the upside and do nto need to accept any of the downside if the market collapses. They simply default and walk away with all their assets intact.
When prices decline, the painless defaults cause a drop in prices and consequent more defaults any further drops in price. This causes extreme volatility.
I admit that any change to the system will be painful in the short term, but any other measures, without addressing the problems caused by non-recourse mortgages will only provide the platform for future collapses in the market.
One other issue. While USA policemen, and oters, can retire on full pension below fifty years of age, public finances are unsustainable. Unless this is addressed, the USA will continue in relative economic decline.
I think that your plan to fix the housing problem has merit if all people were honest instead self serving. It seems like that most of the time when the government tries to help the free market the consequences of their action has a reaction not always equal and opposite or as anticipated.
Probably the best solution is to undo all of the patches on a broken system(all the crud that the morons dreamed up)and let the free market work its' will.
The real problem is that all the people that were working building excess housing are out of work, and before the housing market can improve we need those people working in productive jobs, so they can afford to buy a house the old fashioned way. One solution is to encourage by a pro business atmosphere action by private enterprise such as:
Double tracking railroads
Electrifying the railroads
Building neuclear generating plants on railroad right of ways
Electrifying
Don’t save the economy. It’s just more of the same manipulations by the same people that caused the problem in the first place. The economy will save itself after it adjusts for the incompetency and greed. Then people will be more likely to learn from their failures and the future will have a better chance of being brighter. Houses are overpriced and their values should fall. The sooner they fall, the sooner the economy can rebuild. Subsidizing houses only reinforces the greed and irresponsible behavior of bubble makers and further punishes the responsible people who could have but did not buy in the bubble. With your plan they have to buy a house with an inflated value caused by the subsidy, and this is just more bubble making and injustice.
If you plan were implemented, it should be made retroactive to now or people would put off buying until its implementation.
require all banks to hold all debts made no selling loans revaluate all homes to 20% less thain present price , give home morgage holders new payments basid on new value of home gov, bail out home owners with 100,000, loan payments start when they get a job
Get the government out of our homes and lives. In the history of mankind, nothing but nothing has run better when government touches it.
The basis of the crises originated with a government minority view that causasions held ~70% of home ownership. To change the ownership percentage to approximate the population demographic, the government encouraged easy money (stupid loans) to be offered to everyone. Dumb government + dumb loans = economy crash.
One solution to help the plight of homes for everyone would be to encourage savings for mandatory 20%+ down payments. This could quickly and easily be done by dismissing taxation on savings. Potential homeowners could actually feel engaged in the great American way. The wealthy would not need to shelter cash off-shore. Banks would have new easy money to loan if Americans were actually saving.
Lets face it, if housing prices continue to fall it won't be long that a standing house will be worth less than the some if it parts. That means when a house is sold it will be stripped of anything of value i.e. copper wire, pipes etc & then bulldozed to make room for another highrise apartment complex which most of us will be living in by then. To all those who could make their mortage payments yet chose to walk away…..THANKS ALOT!! You're part of the problem. Yes, Wall Street is a cesspool, but to all those who walked away from their obligation please don't start throwing stones. The one thing this country does not need is any more hypocrits.
Mr. Gilani,
I applaud your attempts at coming up with a solution. I very often read articles from those complaining about housing and what is wrong with the economy but very few that actually come up with a solution. I am no financial expert so I'm not going to offer an advice on how to tweak your plan. I would, however, like to let you know I have forward a summary of your plan, along with the original article, to my congressman, senators and representatives.
Thank you.
Rick Bettencourt
Shah: overall a very sensible plan, thank you.
We need the government out of the picture because their arrogance and ignorance will never solve this country's problems – its ruination is their plan. They created the bubble by working with less than ethical realtors, mortgage brokers, rating agencies, and bankers to get those who would never otherwise qualify to be able to buy homes.
We first have to resolve the current issues of homes without owners (foreclosed on or walked away from), the significant number of unemployed who were homeowners but now cannot save up for a 20% deposit or afford the mortgage and property tax payments, and some form of absolution for those whose credit is not now adequate to qualify to buy a house.
Any sensible, not politically based or run plan at this point is worth a shot. But there is a problem underneath the housing problem. We literally gave US jobs away and then iced the cake by selling even the equipment we had to manufacture things to overseas companies at bargain basement prices and announced our "export business" was up. And to that stupidity, way too many people have failed to see that technology is advancing at a brisk rate and computers and robotics and artificial intelligence will keep pushing down the number of potentional job opportunities in this nation and ultimately the world. We may have to educate our children not only to do more highly skilled jobs but to most likely work a significantly fewer number of hours a week. That translates into lower and lower standards of living for those in first world nations. And ultimately the third world overworked and often abused folks will also be replaced by one form of automation or another. So while educatiing our children to cope with more science and math and maybe return to the idea of homework and a full length class day, they also need to be prepared to live with more free time but with fewer toys.
Technology is swift and has shortened attention spans accordingly so it's almost impossible today to find even college graduates willing to contemplate reading a 600 page book or taking a ten mile hike. The internal pressure we have inculcated in our young people has been intense and now if they are fortunate enough to get out of college without owing their first five years of pay for student loans, they find there are next to no decent jobs for them. And that problem is only going to get worse.
We are preparing them to live with chronic instability because along with their own generations' problems they are watching their parents and neighbors lose everything they worked in most cases very hard for. They are also being taught that the government has every right to ignore the Constitution at whim and even their bodies are no longer safe from unreasonable searches and seizure. Cameras all over the place and eletronic eavesdropping have taken the sense of private space away from our young people and as a result they for the most part are being led to believe that the government is the ultimate savior of this nation.
Now obviously that isn't true because at some point even those lofty Congressman may just have to join social security and some sort of national health scheme. People are getting fed up with how they manage to exclude themselves from the oppression they are doling out while cliaming to represent us. But our younger folks are accustomed to seeing the corruption and a sloppy approach to living replacing what were once referred to as "working class values."
So to me, I read so many of your good ideas and yet am not hearing anything about the huge shift in social values that is taking place as our current government is trying to level all boats while lowering those of its own citizens under the guise of helping others – most often via war and/or printing money to throw at nations who don't even have bootstraps to pull themselves up by.
Our intellectual plates will not be full and ready to be examined for your good ideas to work unless you folks come to terms with the fact that more and more of those low paying service jobs are going nowhere: they are being automated right here. Look at any Home Depot and see how even the cashier jobs have almost been completely eliminated. Bar code reading and do-it-yourself time is how they expect their customers to do those tasks in their businesses.
And for you to talk about building up the construction industry, I have to laugh. The notion of stick housing that is slowly and expensively built has outlived its usefulness really. Pre-fab anything can be done today and if more modern and stronger building techniques were used, the home building industry as we have known it will disappear as horses dragging carts did when Henry Ford came along.
The human element is what you folks seem to be missing here and unless you want an Orwellian sort of hum drum, close to poverty line living for most Americans, you must wake up and pay attention to what is happening out here to the little folks whose labor isn't needed very much and whose pay checks go down while their property taxes go up in spite of the fact that the value of those homes is slipping almost daily. As Yeats said, "things fall apart [if] the center cannot hold."
The social factors have to be addressed right now and directions and goals must be changed to match up more closely with what the future seems to hold or our boats in the US will just sink as are our homes and dreams right now.
More nonsense.
Your home is a place to live that you build up equity in if you live in a generally good economy that leads to scarcity issues causing prices to go up.
Your home should never be even a small part of your investment plan because unless the bottom falls out, the equity in your home will never become liquid wealth that will move around the economy and stimulate growth.
Quit worrying about home prices and let them stabilize at whatever price people will buy and start focusing on creating real wealth building that will stimulate the general economy.
When I look at a person's wealth, I do not look at their house. Their house will most likely go to another member of the family when they pass on and does not stimulate an economy. I look at a person's toys such as second cars, jewelry, boats, clothing, etc. Growing wealth in this nation will mean that discretionary spending goes up.
Stuff like housing, gas, food, basic clothing, energy, and heathcare are essential and necessary purchases and really should not ever be seen as indicators of wealth building in any of the economic classes around the world.
Actually we would be ok as a nation if housing declined in price by 90%. you know why? Virtually anyone could afford a house then and would buy one to get out of the odious situation of renting. Since mortgages would be very low at that point, discretionary income would rise drastically leading to an increase in employment and movement of wealth throughout the economy leading to a general increase in economic wealth.
Trying to increase housing values in such a market as we have now is the height of neoliberalism at it's worst. You continue to create wealth for yourself that will most likely never become liquid and spur economic growth, and you price other less fortunate people out of the market where they can obtain housing at living price and put them on the path of having more discretionary income to spend which will help the economy.
Quit being FOOLS over housing. All you have been taught is wrong and is what over heated the market to the point it is now and caused all this whining.
I was young back in the 90's when this farce started and I am saying the same thing then I was now. My opinion has not changed and I predicted the housing market crash that started in late 2007 and has continued.
I see housing prices continuing to decline by about 25% across the board and actually hope prices decline about 60% across the board so we can start to create a new middle class in this nation to replace the one that has been decimated by economic factors not connected to housing.
Shah; Thanks for taking the bull by the horns. AT LEAST A FEW PEOPLE ARE WILLING TO ACT AND NOT ALLOW THE U.S. TO GO DOWN THE TUBE !!! I am Canadian but if the U.S. goes down so does Canada. I personally own a home and a rental home in AZ. I took a mortgage as a second home so I have experience with the system. Consumer spending accounts for 70% of the econmy and spending will not continue or improve unless housing is fixed. I have ideas for the other 30% of the problem but will limit my effort to fixing 70% at this time. 1. Banks must be nationally regulated. This does not mean more regulation but workable regulation.Maybe throw away existing red tape and start over. 2.Do away with the 80% FDIC mortgage loss provision. This will give incetive for mortgage holders to refinance or modify rather than foreclose i n a deeply depresed market and further depress the market. 3. For the free market to function we need at least 3 to 5% more buyers than sellers. Other replys have suggested ways to accomplish this. We have choices and need more dialogue as to the most practical choices. 4.Leverage got us into the world financial meltdown but leverage used positively can get us out of the housing crisis. One government dollar should return one hundred or more dollars to home owners. It can be done. The U.S. is far and away the largest econmy and greatest country in the world. Lets make sure it stays that way. Ted
Let's address the homeowner in foreclosure (there are zillions of them) who sends a Qualified Request Letter to his Mortgage Processing Company (the bank no longer around having packaged his Mortgage Note into CDO's and probably re-sold again to some investors) requesting certified copies of his original Mortgage Note and all related legal documents and accounting records with respect to the current owner of the 100% beneficial interest in HIS Mortgage. If the homeowner is in a judicial state governing foreclosures and the mortgage processing company is unable to provide such documents after receipt of a certified mail return receipt requested QRL, how does the judicial process move forward? The actual 100% beneficial owner of most CDO packaged Mortgage Notes is probably a mystery and may remain a mystery! How many Mortgage Processing Companies will be able to factually respond to such QRL's? If the homeowner fails to pay his real estate taxes and after the stature time passes, it is conceivable the only way a title may be provided is through a Tax Lien Certificate purchase, which superceeds the lien of a First Mortgage Note and all other liens in most jurisdictions, while paying above market guaranteed interest payments to the Tax Lien Certificate purchaser. This may be one method to obtain clean title to a property in foreclosure when the actual 100% beneficial owner of the Mortgage Note can not be factually determined! It is a real mess out there!
High gas prices started the first collapse , people did not have the money for payments on all those creative mortgage created by all those greed wall street banker and all those big box builders. and those same factors are causing the second dip.
Builder ,developer for over 50 years
The idea that every family should have the home of their liking is erroneous. If you cannot afford the down payment and mortage payments on the home you would like to have then down size your home and level of mortgage your income and debt load dictate.
It does not matter what you do to get people in a home of their own some do not have the discipline to budget themselves and maintain payments. Those people should be required to complete a course of home owner education prior to closing on a home loan.
The pressure applied by our own government to lower lending standards to allow uncredit worthy people to buy homes they could not afford in the first place. Then the bankers took advantage of the situation.
I agree the housing industry will need assistance to kick start a rebirth of business but then the government should stay totally out of it and allow the free market to act. Obviously there will always need to be oversight of the bankers to prevent them exercising their natural greed.
Tqx incentives, yes. But only to a reasonable dollar value of the home and total om mortgage. I agree with the fellow who posted a comment from the UK. Americans need to learn to live within their means!!!!
I have been a builder and devaloper for many years and have tried to talk customers out of buying what they could not afford. Stupid? Maybe. But at least a few listened and most of those are still in their homes today. Because they signed a mortgage they could actually afford.
Consumer education is of utmost necessity. If you cannot afford it, don't sign the note!!!
Judging by all of the comments, I'd say 99% of people have no real clue what is wrong or what to do to fix it. While Shah proposes a solution or two for the moral hazards that brought about the crisis, he too is also naive about actual resolution. This is not an encouraging sign for expecting a resolution anytime soon at the federal level (**** floats to the top).
The #1 root problem right now is zombie banks. Exactly like Japan. The Fed is pushing on a string. Unless we want to spend the next 20+ years in a deflationary-prone economy, they have to be dealt with for any mortgage lending to resume. This requires all of the toxic garbage to be taken off the banks' balance sheets. Not marking-to-the-market the toxic garbage doesn't fool anyone other than naive stock or bond investors. The government has resolved a similar problem before via the Resolution Trust Corporation in the late 80's.
The #2 root problem is the need to preserve the credit rating, borrowing and selling ability of homeowners currently underwater and to prevent realized banks' balance sheet destruction (again, this is why banks have suspended marking-to-market their toxic garbage). This too is a simple solution by attaching a lien of the difference between the current value and the mortgage amount oweing to the taxpaying homeowner. The lien can be paid out of future home price apprecation or paid off as a loan.
In summary, these two simple solutions are a market-oriented solution to the real underlying problems without requiring anyone to suffer losses or requiring subsidies, bailouts or tax credits. Tax credits in particular are laughable and will not restore sustainable demand, restore bank's lending abilities or buyer's credit ratings. Stimulation is not needed, only coordination.
I like the plan. Good luck in getting it implimented.
The main problems are not the market, greed, corruption, politicians, Debt, supply and demand for these are just symptoms of the real problem which is Systemic inequality. Which the monetary system, control of the money supply, fiddling with banking regulation by politicians as a result of corporate lobbying as well as small buisness rules and regulations are the main tools of those that manipulate this system. We have a system where everyone is a seller & a consumer and it was fine until our industry became so autonomous. Now that so many things can be produced by so few laborors we have developed a problem with consumers with no means to purchuse because all of the wealth has been absorbed by the few producers that have worked so hard to strip manpower from production. Whether its outsourced to other countries where labor is cheaper, made by machines, calculated by computer programs or just eliminated by a lack of consumption makes no difference cause the end result is the same.
that end result is a drop in demand & Demand will continue to plummet as long as we continue on this path which poverty will become the norm of. The longer this goes on the more centralized the power with corporatism, political leaders and the energy world striding hand in hand until the people wise up and realize their no longer willing to stand by and watch their children starve. Our system has allways been a ponzi scheme where few at the top of the pyramid enjoy the profits of the masses but with more centalized power and
a lack of any empathy for fellow human beings we now have a country where 10 years ago the top .1% owned 2.7% of the wealth and today they own 12.7% of the wealth. We have
a prison system out of control with crime on the rise and politicians that are looking to cut
any entitelments. we are constantly at war we have one of the worst healthcare systems
and schools are not equiping our children nevermind rising tuition costs and the media seems to only focus on the irrelevant wedge issues that divide people. If you people
can't realize that all of these horrable symptoms are in place only for control and our only way out of this is to unite and demand a move away from monetary slavery. There is no real reason why we all should not have time for our families, shelter, food, warmth and all the necessities that should be provided for each and every person not just in the US but throughout the whole world. Every one of us should have a job. Are we really so greedy
that we think were better than any other? If you really believe this false ideal created by
capitalist dogma,Then you should do it for yourself and not expect someone to slave over you! We need to live not beyond our means to and that is what a budget is for. this is called
a resource based economy and has no money, no ownership in the individual sense, ownership is owned by all and when there are improvements we all prosper from them.
Most people believe there is an issue with incentive but i don't believe that when someone plays sports there is no incentive to win other then the feeling you get and working for the whole would be the same. People would not have to do jobs that they did not want to, right now people will chose a job by how much benifits it gives them in RBE we will chose by how
happy it makes us. We live in a world ruled by stress, compitition, greed, selfishness and i believe if we don't expedite change ASAP we will destroy each other through madness and insanity. Einstein once said "Insanity is doing the same thing over and over again but expecting different results." What do you expect of men? for we should only expect what we ourselves are willing to provide and if thats not you god help your soul !
I agree with the general principle of your proposal however I need to see more details specifically relating to 1) what you consider should be the new terms/conditions and rules/regulations of how the banks and the organizations controlling the "pool" financing will be governed/controlled to stop things like rebundling of loans and selling on of these securitizations, ie. having one or more paper liabilities the value of which exceeds the one hard asset. and 2) what you consider should be done to ensure that only people who can afford loans are actually given loans. A good way of doing this is that an applicant should only be given a loan if they make a deposit, whether that be 10 or 20% or whatever but it should never be given where no deposit is made.
May I add another idea for the improvement of the housing market? (1) How about the idea of shared appreciation as a consideration for a mortgage and also (2) how about a restriction as to the size of the homes built or financed based upon the number in the family, whether or not there are any physically challenged individuals in the family that will actually live there, and whether the home is Energy-Star or otherwise energy efficient? We really do not need to be building any more "McMansions" but rather more modest and energy efficient residential properties, up and including duplexes.
I mention one other feature really needed but not yet being fundamentally utilized in the American housing market: The use of the SIP-home (Structurally-Insullated Panels, built of orchestrated strand board laminated onto polystyrene foam insulation). If you look up the concept about SIPs, be sure to see the details about using SIPs not only for exterior walls but also "safe rooms", roofs, floors, interior walls (for strength and soundproofing), etc.
At least food for thought, is it not?
Repectfully submitted,
Thomas Avery Blair, EA
Here in Ireland we too have a housing market collapse so I was very interested in this solution. I'm a fan and I like the logic of this proposal. I wish I could be more supportive but I believe it is the dysfunction of urban land markets due to finite land supply, freeloading speculators and rent-seeking bankers which gives rise to boom and bust. Tax land value, even at a low rate, and share the revenue and we can make the land market transparent, stabilise land, property and housing markets and re-direct credit toward productive, as opposed to tax-incentivised, speculative ends.
Has Mr. Gilani discussed his plan for the rescue with any influential senators or congressmen? If he would get in touch with the likes of Jim DeMint of SC and other influential legislators to explain his proposition he might get a sympathetic ear.
your theory, all though good on statement, looks like swiss cheese. Still relling on gov and banks. You still miss the mark. What is the bottom, how do you get the housing market back with inventory so deep. If the banks take a hit on lower values how do they stay flush. They don't. So unless the gov comes in to paper the difference, not going to happen until they are forced. Employment will get worse. Domino's.
You need to start credit unions or funds that charge simple interest. Bonds pay simple interest. Not compounding. This would allow equity to gather at a much faster pace. Prices would fall from this point now, that is the hurdle you must jump. Who pays for it. ???
You plan needs to much political rangling to work. Like the looter and the moochers, they want their piece. You are never going to get the banks to give up their piece. Gold Sasks, you think they are going to give up their place at the table, fedural reserve chairman, as far back as the eye can see. I doubt it. Your plan as I stated, good on paper but there are large entrenched orginizations in your way. Politicians to. Remember, Henry Ford once said, If the American people knew how the banking system worked, there would be a revolution in the moriing. So until the American people truely wake up, same old. But, I believe there is a time for the fustration to reach a fevor pitch. Then you will and along with me see the change we need. But distruction is on the path, then after the leaches are removed, then we can fix it.
Nice try for a head line. Call me 603-651-3114 David. We are almost there, stock market will be in shambles. Then, the fear of GOD will be in the hearts of all Americans, as it shouild be.
Amen
Who's going to buy a house when they're living on the edge of unemployment constantly? If you want to turn around the housing market, you have to wipe the slate clean. I think the govt. should force the banks to foreclose and get out the dead weight, there are too many houses so the the price is going to have to drop. Auction them off, buyers will fix them up and rent them out, creating jobs–just don't let this become a stimulus program for illegal alien construction workers. Trusting the corrupt govt., banks and rating agencies to properly run this and securitize it is just asking for more waste of taxpayer money and more lining of the politician's and bankers pocket. I do agree with disbanding Freddie and Fannie, and while we are at it lets start an investigation on Barney Frank and friends.
Dear Shah Gilani,
Regarding your proposal to use our tax code to provide incentives for buying homes (your tax credit offer to subsidize potential declines in the buyer’s equity position), I would suggest that it’s the tax code that is one of the basic contributing factors to the problem.
Instead of subsidizing potential downturns, why not simply remove the “tax” factor from the entire equation.
Currently there are two presidential candidates that have endorsed a tax reform plan that would abolish the existing tax code and abolish the 16th Amendment. Doing so would abolish all income taxes on individuals, businesses and corporations. It would eliminate the estate (death) tax, capital gains tax, dividend tax, inheritance tax, AMT and every other tax on earnings, income, investments and wealth accrual. The proposal advocated by both Congresswoman Michele Bachmann and former K.C. Federal Reserve Chairman Herman Cain is the FairTax Act (HR-25/S-13) which currently has almost SIX DOZEN congressional cosponsors. The FairTax would eliminate all federal withholding taxes including employment, social security and Medicare taxes and replace them with one simple, flat national retail sales tax on new goods and services.
Under current tax law, a $1000 mortgage payment requires the taxpayer/homeowner to first earn approximately $1420 before taxes in order to make that $1000 payment. In order to pay 20% down on the purchase of a $200,000 home, the taxpayer must currently earn at least $60,000 before taxes so as to have that $40,000 down payment. With the FairTax, that $1000 monthly payment costs $1000 in untaxed earnings. Similarly that $40k down payment costs $40k in untaxed earnings.
Used goods, including existing and foreclosed homes, would not be subject to the new federal sales tax. New homes would be subject to the tax, but with the elimination of income taxes, the embedded taxes that currently inflate the cost of everything we buy today would be gone. That $200,000 home would suddenly cost around $156,000 if sold without any of its embedded taxes. Add the FairTax back to that figure and the price is back to around $203,000 with the difference being that the buyer is using untaxed earnings to make the purchase.
The macro-economic benefits to the housing industry would be an expanded universe of buyers that would be able to purchase homes by now using untaxed earnings for loan qualification and untaxed earnings for saving that down payment.
The macro-benefits of abolishing the existing tax code would be a windfall in business efficiency due to the elimination of the substantial documentation and compliance requirements that encumber everyone that owns and/or operates a ‘for profit’ enterprise in the U.S. Statistically, a dollar of actual tax revenue received by the Fed costs a small business around $1.60 in taxes, compliance and documentation costs. Another benefit to the economy would be the repatriation of trillions of dollars in off-shore capital that stays off-shore due to our draconian tax regs that requires after tax earnings generated overseas to pay taxes again when brought back home. Along with investment capital returning to our shores would be numerous businesses that would discover that their globally marketed products could have a dramatic advantage over their foreign competitors once their embedded taxes are no longer a component cost of creating their products. The U.S. would become the world’s manufacturing tax haven, bringing businesses and jobs back to our nation and expanding the demand for housing.
As noted earlier, HR-25/S-13 has almost six dozen congressional cosponsors in the current Congress. That’s far more than any other tax reform proposal on the Hill. By comparison, the most popular “Flat Tax” bill has just 9 cosponsors and has gone nowhere over the past ten years.
The FairTax would turn our nation into the world’s tax haven, allowing American goods to cost less and be far more attractive to foreign consumers since the tax component would be gone and the FairTax would not apply to exported items. This competitive edge would attract billions in foreign investment capital and would reverse the flight of American jobs going overseas. As the cost of home ownership would be reduced, our depressed housing industry could get back on its feet, putting our construction industry back in business. The same can be said for our auto and other manufacturing enterprises that would export untaxed products overseas.
The FairTax is fair because if Bill Gates, Warren Buffet, Oprah Winfrey, you, or me buy a Big Mac, Coke and fries, we will all pay the same amount of tax. No longer would someone in Washington need to know your personal business, your earnings, your marital status, whether you own or rent, or what you invest in or what you buy. Your privacy is yours again. No longer does a mortgage payment get preferential treatment over a rent payment. No longer is hard work and achievement punished as income increases. No longer would risk-taking and investment capital be penalized while failure is rewarded. Everyone pays the same sales tax and everyone gets the same prebate untaxing all purchases up to the poverty level.”
Bottom line: the FairTax is fair because it takes the politics out of revenue generation. With the FairTax, Washington would no longer be able to use the tax code to reward their cronies and punish their enemies. With an income tax, your taxes are SEIZED. With the FairTax, your taxes are PAID. There is a difference!
The FairTax gives people the freedom to choose when and how much they want to pay for the government they desire. And that’s what really scares the people inside the Beltway.
Mr. Gilani, if you want to revitalize our nation’s housing industry, get government out of the way. Support the candidates that will pass the FairTax Act into law.
we need to go back to making things here at home in the usa and help create new manufacturing jobs, like the old days. We were a country that work.
I write this simple, and. easy to understand. no longer are we the USA we have become the usa.
made in america, by american, for american should be our war cry. a man that works will by a home and toke care of him family. walfare of any kind should not become away of life. Other country has become a
country base on walfare, be it to individual, banks, or companies for trade to other countries.
we need to rise and stop depend of legislator, to think for us. I believe that we were their boss.
RISE PEOPLE AND LET'S TAKE BACK OUR COUNTRY
not by writing blog but by marching on washington
a war was never won by crying about it, people we are at WAR, right HERE at home. 9/11 pull the cover off of it all. we must start to fight or we will die