How the U.S. Housing Market Can Save the U.S. Economy

the government should have no intervention, the housing market must be free like in a real free economy

I agree with the theory 100%. Fix the housing market and you fix the economy. But if part of the plan is to have big-banks start offering loans again and people still dont have the money to pay on those loans, what difference will it really make?

I write this from England, so thankfully the US housing bust does not affect me directly. I visit America and I am aware of the type of ohusing bulit there recently. UK house prices have also dropped slightly recently but there the similarity ends.

Shah's plan is probably the best plan to date but here are my key concerns.

1/ Too many houses have been built in the US generally and in some states significantly so as to exceed the number of buyers who have the income to sustain the mortgage cost – even at todays record low interest rates. I would consider scrapping several of these houses. For the 2 reasons below.

2/ We have a deliberately created shortage of housing in UK, which forces some young couples and singles to stay with Mum & Dad, while they save up. It creates a pool of first time buyers who can afford the mortgage and gives then a general confidence that if they do go underwater on the loan it will not be long before house prices catch up. This in turn creats a floor under house values for all houses except the multi million top end.

3/ Because of the importance of a house as part of a family's expenditure the houses built in UK have to be to a standard which will last 100 years. Otherwise they do not sell and will not get a mortgage from the lenders. That is not true in US where houses of flimsy contruction are tolerated because the owners can set off depreciation against tax (unheard of here) and typically wil knock down and build again on the same plot.

So part of the solution has to be the building of better houses in US and the destruction of the macMansions now in oversupply. Perhaps (and handy since the government is skint) ending the tax reliefs for depreciation of the value of a house would also ensure buyers insisted on better built houses.

To encourage RE investment both for primary homes and all others, eliminate the capital gains tax on all RE investments.

The best way to fix the housing market is to stop building such gigantic homes with so much square footage. Build homes half that size that people can actually afford. Do not let someone who makes only $50,000 a year buy a home that costs $200,000 or $250,000 with a mortgage payment of $1000 to $1500 a month. Heck if you make $50,000 a year buy a home that costs $50,000 or maybe no more than about $100,000 a year.

What do you think we should do with the rating companies. They did a lousy job then and I am
sure they will do it again. If securitization is going to work the bonds have to reflect the risk of default correctly. Would updating mortgagee financial bi-yearly or quarterly work?

Banks and corporations are the people you have to convince if you want legislation. Taxpayers have little clout in Washington. Taxpayers should be marching in the streets as they did in Cairo. Maybe when we get hungry.

The Real Challenge; how do you get Congress et al to accept and implement your suggestions which ring "very reasonable and effective" to me.?

That's all well and good. The bottom line is this. People who's lives have been devastated by this economy (loss of job, etc.) still will not be able to get their lives back because of poor FICA scores. In other words, No one will lend you money (for a home,etc.) because of a poor credit report. So we can talk all we want on how to fix the economy. For the people who's lives have been destroyed. They just try to survive day to day.

Though Reagan often touted his many tax reforms as cuts, in reality they often raised revenue by eliminating shelters; I call that increasing taxes. If you really want to get serious about fixing the housing market then reverse section 26 U.S.C. 469 of the Tax Reform Act of 1986 to restore many of the tax shelters, especially for real estate investments, it significantly decreased. This legislation significantly reduced the value of many such investments which had been held more for their tax-advantaged status than for their inherent profitability. This legislation contributed to the end of the real estate boom of the early to mid '80s and facilitated the Savings and Loan crisis. Restoring it would go a long way to restore value to the housing and commercial property market today.

Return regulation of the securitization market to pre-Reagan levels and restore the 1932 Glass-Steagal Act, repealed in 1999. Banks should never have been allowed to package loans and offer them as securities. It only served to allow them to make tons of money offering loans and then wash their hands of any risk involved by dumping them on dumb investors, once again making another ton of money in the process. Gee, with banks able to profit without any of the risk and responsibly involved; Who'd a thunk this would ever have happened?

Government's deregulation policy has defanged departments meant to protect the public's interest, but hasn't made any effort to reduce or eliminate them. In fact every one of these ineffective departments have only continued to be expanded just so friends and family of government officials can get tax-payer subsidized jobs. We continue to staff them; providing pay, health and retirement benefit packages to these federal employees. While they sit idle watching porn on government issued computers; all paid for by American tax payers. All that deregulation has accomplished has been to privatize profits, while socializing losses.

The promise that deregulation would eliminate the bureaucratic nightmares plaguing small businesses and help Mom & Pops realize profits hasn't materialized. The only area that government deregulation seems to have had any success, has been eliminating consumer and investor protections; which tax payers have since been asked to bail out, time and time again. Mom and Pop is dead and it only took 25 years!

Mr. Gilani,

Once again, I laud your attempt at coming up with a solution. And I'm giving it another whirl. But first, I'd like to make a few more comments.

You state that "sometimes an engineered soft landing is easier to bounce back from that a full-blown crash." Regrettably, I completely disagree with this statement. Time and time again in history, an economic slap on the wrist is simply not enough to trigger behavioral change. A crisis must happen in order to clear out the garbage. Otherwise, the rot remains and resurfaces another day.

Arguably, a lot of the economic problems we have now are directly attributable to actions taken over seventy years ago. Because of complicated systems established after the Great Depression that created innumerable perverse incentives and moral hazard, we're only now suffering the consequences of those actions.

Our continued meddling in the markets has sown the seeds of a much greater economic collapse. If only Hoover and Roosevelt hadn't intervened so much to begin with, maybe we wouldn't have had laws to repeal in the late nineties that would once again open the floodgates to disaster. Yet still today we continue to insist on concocting further elixirs. Maybe it's time to quit.

I've argued over and over with Keynesians that they're simply a philosophical school not willing to take their medicine; that they prefer to go on taking antibiotics, creating a fertile breeding ground for the evolution of a super-bug immune to any remedy. Maybe we've finally met our economic Ebola in housing due to all of our interference over the years.

In all likelihood, because of our good intentions and regardless what we do, home ownership rates will decline below what they were before we started interfering. And that's probably the price one pays for over-borrowing from the future to have something today.

For at least a hundred years banks made mortgages to qualified lenders who produced a 20% deposit on a home. The bank held the note until the debt was paid, or sold the note to another bank if that was beneficial in some way. Under that system, the US achieved a 60% home ownership rate. What’s wrong with going back to the basics? There would be some initial pain to suffer, but the foundation over the long-term would be much more solid.

You, Mr. Gilani, are clearly a very optimistic man who believes he can develop a solution to solve an extremely complex problem. But what if what we try to do today simply makes things worse or kicks the can down the road and ends up bankrupting or great-great-grandchildren?

Humans are famous for trying to come up with explanations for the unexplainable; solutions for the insoluble; and possibilities for the impossible. Is there a chance, however small, that doing nothing might be the best answer to the problem?

It is neither housing bubble, wars, nor national entitlement programs or even over spending by the public, that creates all the debt. It is the nature of how the Federal Reserve System creates our currency. All of our currency is debt. The bank bail out for example was simply replacing debt owed with more debt. The failure of several European national economies like Greece is debt-replacing debt. The Euro happens to based on the same design that gave us the Bank of England, which is the model for the modern Federal Reserve. Everything we purchase is debt-replacing debt. Consider the sale of your own home. When someone buys it someone takes out a bigger mortgage (more debt), debt-replacing debt. The new debt extinguishes the debt from the original mortgage. As the cycle goes eventually the public does not earn enough to cover the collective debt created by the banks. When we add interest to the collective debt, mathematically anyone can see that eventually the system must fail. We are trapped in the design of our own money supply to repeated booms and busts. The notion of progressives, moderates, conservative’s et al politically is meaningless to the money supply it chugs on no matter what the politics and tax policies. So long as we have, a debt based money supply we will repeat the bust cycle repeatedly.

Spending cuts are meaningless given the way U.S. currency is created. By its nature, taxes are required to feed a system of money that must fail and so follows the nation. Manipulating a broken money system serves no part of the economy, not even housing.

There is some merit in the overall plan.

BUT:

Yes Fannie and Freddy need to be eliminated or changed. If they went back to what they did a long time ago, package mortgages into bonds and then the bonds were sold on the open market. The bonds would be covered by the mortgages only. Period. Fannie and Freddy have no assets. they can't go bankrupt since they don't have stockholders, they have no real assets per se, and operating costs are covered by servicing fees. The Bonds are still on the books, and covered, by the mortgages and nothing else regardless of what happens to F&F they are just the packagers. But that would be too much to ask most likely.

Before Fannie and Freddy became so dominant, banks either used their own money, or mortgage companies sold the mortgages to insurance companies, who held onto them. A Tobin Tax would help eliminate the "churn" in mortgage trading.

Then there is:

'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.'

Good luck with that. Washington is all for Keynesian economics during "troubled times", but completely forget that during times of "boom", the government is supposed to pay back the debt according to Keynesian economics. If they can't even follow that basic prescription, I wouldn't count on them keeping something temporary actually temporary. (the Temporary Rent control in New York City instituted during/for WW2, extended into the late 1960 and then even beyond that in a modified form). Past history indicates you can count on them forgetting those basic principles, and reneging on previous promises.

But 2 big problems. One: as big as the housing market was, it was driven by other forces than strictly market forces. Specifically the home interest income tax deduction. It skewed the market to larger more expensive houses. In doing this =housing was a larger portion of the US investment account than it should have been. It therefore soaked up capital that should have been used for investments in plant and equipment, R&D and Infrastructure. As a economic multiplier, housing is the least efficient of those. In short, the housing market under normal times was larger than it should have been. For best use of capital, you don't want an over blown housing market.

The second is demographics. New housing demand is a function of new family formation. 1) currently there are fewer people than in some prior years in those ages that form family units. 1a) those people aren't forming family units; many aren't even leaving home! 2) soon to be higher levels of family unit "unforming" as the baby boomer continue to age (either by death or moving into specialized retirement arrangements) 3) the huge oversupply of the past few years. The only "rosy" part of the housing market it seems is that specialized portion that will cater to the baby boomers going into retirement, either into retirement communities or smaller houses with only one floor. Of course that also depends on the baby boomers actually being able to afford to do that.

If the market were to truly work, housing would become a smaller portion of the economy. It's been pumped up by Washington policies for some time now.

Also, as long as all the borrowing (or most of it) was internal to the US, there may have been a some justification to pumping up housing as a way to pump up the economy. But now, so much of our borrowing, federal and individual, is financed from overseas; pumping up housing on money borrowed from overseas (either directly or fungible/indirectly), does not seem to be a good bargain. If fact it's probably a bad bargain given the consequences of over spending in housing.

For the economy to get back up to speed (really working on its own without temporary distortions) , I believe we need to get our manufacturing base back up. Housing in the "near/intermediate" term, cannot replace the manufacturing sector's decline.

Your premise is based on the assumption that the obama administration and congress want a workable plan that would give control back to us over the country, our future and our obligation to democracy. I question that premise but I hope you succeed because there aren't too many options left. The "change" I see on the horizon is very bleak regardless of which administration is giving it to us!

More layers of government intervention will only add fuel to the burning house. The problem is that government regulations created the housing boom (which the Wall Street bankers happily collateralized). This pushed prices ever upward. Now they need to return to a sustainable level. This is being delayed by (of course) more government regulations. Consequently banks hold non-paying assets instead of selling them. Buyers aren't stupid and therefore sit on the sidelines watching prices decline to levels supported by income rather than speculation (In Southern California this would be 2001 prices). And all the government bailout programs just waste more of our children's future. The result; we prolong the pain and spend the future now.

You have a plan that finally makes sense to me. I am in the rental business as a hobby and I would suggest that some instruction on the buyer's side would be of benifit to potential home buyers. Home owner ship is done out of passion, the right home with the right rooms, kitchen, neighborhood and large enough to impress the friends. If somehow home owners would consider the actual cost of ownership such as unility bills, maintenance and resale at the time of purchase they would reconsider the 4000 sq ft home on the golf course for a family of three. Home sales agents are past masters at marketing based on the credit limit of the purchaser.

This largest problem of all is the housing industry itself. We are still building homes the same way for the last 200 years. With the rapidly increasing utility costs homes can eat up the average home owner. More effecient types of construction with more energy effecient designs will pay out in major dollars as energy input costs increase dramatically in the future.

Yes but wouldn´t Fannie and Freddie go bust trying to compete with lower interest rate loans.
That would leave an even bigger hole in the federal budget.

Shah Gilani: "Why not offer a small subsidy directly to U.S. taxpayers?"

Because it's too late:
http://tinyurl.com/USD-bancor

D. Chakalov

Have you read "Triumph of the City" by E, Glazier?

He laments North Americam tax bias towards (single family) owneer occupied hmes.

German experience (very low urban owner occupation) would appear to bear him out?

Lets start with a one time mortgage reset to current appraised property value and then begin your plan.

i read your article with much interest. As a non US citizen I wish you every success in getting your proposals implemented. I believe you are on the right track. The housing situation needs some tough decisions and some tough political backing. Arguments need to be won. You will probably be stonewalled at every turn and you will need to stay focused. Your plans need to be implemented as quickly as possible, otherwise it will be too late (in my opinion).

I am presuming you have found like minded individuals to share your 'Board' and using your money morning site is one excellent way of broadcasting your message. Taking that just a bit further I presume your contacts are in touch with TV broadcasters etc. (Have you thought of putting your message to video and sending through Facebook and other social media, Linkedin and other professional media).

Best wishes

Ronald

The root cause of this mess is NAFTA. We have to have jobs that add wealth to get things turned around. Owning a home is desire of most everyone for privacy in your castle, but they can't afford to do that working at McDonalds. Service jobs don't add enough value.

How to solve the housing crises.
I am a Realtor and have been licensed as a broker in New York, New Jersey and Florida. I have been selling real estate for over 35 years and there is no question that this is the worst market we have ever been in since the great depression. I think your idea of a pool that the banks can draw from is a good one and I think the best idea is a tax credit like the one that ended about a year ago. That tax credit seemed to work well and helped to clear up a lot of inventory while stabilizing prices. I think some form of, government and/or privet entity needs to be formed that will look over the whole picture of the foreclosure properties. That entity should have the power and authority to form a plan that systematically releases for sale a controlled and limited number of properties at a time with tax credits, tax incentives and low interest rates. That would entice qualified buyers and investors to buy. By doing it in a systematic way it wouldn’t flood the market at any one time, would bring confidence to buyers and investors that the bottom of the real-estate market is near and is being stabilized.
Anthony L Balestrino GRI CREA

A bank sells $100,000,000 in mortgages currently @ average of 4.25%. Mixture of all types. Keeps $10,000,000. 2 questions
ONE :what can it invest the $10,000,000
TWO:Who is going to buy a long term bond from a bank $90,000,000 @3.25% without government backing ( 10 year ) A bank isn't going to stay in business if they aren't able to make money on their loans

I think a simple plan would be to have all mortage holders reduce rates to 2%, espically from banks that use government free money to borrow and then loan out. This would instantly free up the extra 3 to 5% that banks charge people and then indididuals could use that extra money to buy things thus stimulting the economy with all the money the banks and gotten.

ELIMINATE APPRAISALS. IF A BUYER WANTS TO PAY A PRICE AND IS QUALIFIED BY TIGHT UNDERWRITNG, MAKE THE LOAN. FOR COMMERCIAL PROPERTIES, IF THE PROPERTY IS PERFORMING, MAKE THE LOAN.

ON REFI'S, BOTH RESIDENTIAL AND COMMERCIAL, DO THE REFI AS LONG AS THE LOANS ARE PERFORMING.

I like this plan a lot, except for the one glaring omission: people without jobs can't be buying houses, and in so many cases are still losing their houses to foreclosure. That said, I agree that a fix to the housing market will be a great catalyst to fixing the entire economy. Two minor adjustments need to be included in this plan: The tax breaks need to be tied not to the overall value of the home, but to the relative value – the price per square foot. Someone who buys a 2500 square foot home for $350,000 doesn't deserve the same tax break as someone who buys a 1600 square foot home for the same $350,000. Second, the tax credit needs to be indexed to some level of local home prices, more granular than just the state. A$1.5 million dollar home in Boulder, Colorado or San Bruno, California is only a $75,000 home in rural Mississippi.

hopefully someone in close proximity to the congress or the white house is a subscriber ,or shah gets this article to them. so they can read it.

The tax credit idea is in use in Australia (it encourages negative gearing) and distorts the market as it pushes up prices (contributing to bubbles) when people buy simply to get tax rebates. This pushes lower income potential home owners out of the the market. The tax credit idea is therefore, from this point of view, initially effective but must be discontinued (a sunset clause) for all future buyers after the market is stabilised. Great care must be taken to ensure that the credits do not continue into the future as they have in Australia.

As you have acknowledged, your plan requires that the government intervention be temporary. That is a most unreasonable expectation in today's USA.

The author of this article is just another big govt person.He believes that his plan,forced on others, can fix all these problems. Why not just let the markets decide?Of course,the only way you get to a free market, healthy housing sector, is for the people in the country getting wealthier.That would take major changes in our economic system,including a much smaller govt,that isn't likely to happen.

hyip, You are dreamimg in color, the government are involved and there's no way you or I can change that, however, in Shah's plan all they would do is give Tax breaks to stimulate house sales.

I think this has tremendous potential and only one disadvantage, which incidentally is a selfish one, it would probably stop prices from going down. Why is that bad for me? because I am looking to buy at the bottom but in all seriousness Shah's plan looks very plausable and has sound economic basis. Shah if I can offer any meaningful input I will, after giving it more thought.

I'm not an economist or a financial whiz, but this seems very much like a solution I've been thinking about for a long time but have never heard proposed. In addition to the reasons Mr. Gilani suggests, I believe that people's inability sell their homes has greatly contributed to the stagnation of the economy. When you can't sell your home, or rent your home, you have little freedom to take advantage of employment or business opportunity that would help get things going again. People are stuck – they remain where they are, which damages the economic recovery, or they walk away from their home, which does the same. The most critical cog in the wheel is now, and has been, the housing market.

Congrats to Shah Gilani.
Let's be part of the solution, not the problem.
Hand wringing and blaming others has never ever solved a problem.
I applaud his positive approach.
Once the plan is worked out, including knowing some of the major unintended consequences,
Let's all ask our Congressmen to co-sponsor a bill to implement the "Gilani Plan".

Although against government intervention and specifically subsidies, there is merit in the plan. After all, the winding up to this problem is so complex and integrated into the decision mechanisms that determine price, that it appears reasonable to unwind the governmental intervention events to create a stable landing. However, the home owner tax incentive for new mortgages may not stem the foreclosure bomb of 880,000 homes plus about 40% of homes with mortgages being underwater causing concern for more future foreclosures. To help in price bottoming, the underwater home owners need an incentive to "stick" it out. Perhaps the underwater delta could be a tax deduction amortized over 4 years to keep the house out of foreclosure. That reduces the supply of homes. The local property tax assessment subtracted from the purchase price of any home since 2004 is the delta to be amortized. This way, the confirmed transaction is for each local market specifically. In 4 years, the bottom will have been reached and recovery begin. The delta would change with each tax submit ion over the four years. Therefore, as home prices recover, the tax incentive is reduced. Thus, flowing more tax revenues as the program moves to sunset. This could be for all mortgages since 2004 including ones during the the incentive period. This would afford "NEW" home buyers a level of confidence to purchase without delay because there is a measure of protection for their home investment.

Why not include a trillion dollar citizenship plan in your proposal, as follows:

1. Give US Citzenship to a million people who invest $1,000,000 each in residential real estate in the U.S.

2. This can be any number of single family homes and condos to equal the $1,000,000 investment.

3. You do not recieve your final green card until you hold the investment in good standing for a total of five years.

I believe adding this to your plan will help stabilize the housing market quickly.

Thank You
Ron Kaufman

Agree 100% about stabilizing the economy by putting a floor under real estate. Also could incorporate a "PAR" as outlined by investment fund manager John Hussman. He suggests we reduce the principal of problem loans today for a future "price appreciation return" on the property back to the loan originators. Get mortgage payments back to true ability to pay via earned income now — i.e. 28%.

Mr. Galani,

I commend you with offering us a very workable solution, but unfortunately your critics are reacting the same way as critics of Rep. Paul's budget proposal. They cannot think of a solution of their own, but find it easier to be critical of a plan that can actually stop the ship from sinking!!! The problems that we need to correct took decades to create and the solution will be more then an overnight effort. As with my reponses to your article last week, we need "statesmen" in DC to offset the "politicians" to adopt this or a variation of it or for many months we will still hear about the negative prospects for U.S. Housing.

I did not read your original proposal, but even though you have tried to explain it further, I have difficulty with it. I don't think any solution will work if it does not begin with drastic cuts in Fed.Gvt. spending. Furthermore, the primary reason why few are biting at the fire sale prices and low interest rates is that they have lost confidence in the US economy. And for very good reasons. Even with tax incentives, which I don't like, I don't see people taking the risk on a major investment that will likely decline. This is especially true when they fear their continued employment. The housing market will not come back until the underlying economy improves (not the other way around). That means job growth. Job growth will not come back until our govt. allows the private sector to create jobs. Banks will not lend money unless unless they have an incentive to do so. Right now they can borrow (printed) money from the Govt. for nothing and invest it. There is no incentive to take any risk, so they don't. They should not have that option. If they take the money, they should be required to lend it. Investment capital, (free from Gov't competition) plus an environment that supports business growth equals US economic growth. It's not rocket science.

I believe Anthony Balistreno is on the right path. The quicker the foreclosed properties can get back in the market and stabilize prices, the quicker the housing recovery can take place, notwithstanding the fact that you have to have incentivized and qualified buyers to purchase the homes. To stimulate jobs, you have to have new construction. New homes won't sell as long as there is a ready supply of exisiting homes at lower prices. Create tax credits and let investors buy these homes to rent to families that have been ruined with this problem caused by banks and Wall Street to begin with. To get this Country moving and create jobs, there has to be incentives to reinvest and now! This country can only get healthy by putting people to work and creating opportunities. We don't want government regulators controlling free enterprise. We have to get things rolling, or there will be bigger problems with more people waiting for their food stamps from the Government.

I agree with Paul, Again no one not even you address the HUGH problem of people who are "Under Water" with their Home Mortgage. A great deal of people have simply "Walked away" and let their property be foreclosed. BUT, there are a great number of people in the country who continue to pay their monthly payments. But, they cannot sell and pay the difference in the mortgage amount and the reduced value of their home. They are not sellers or BUYERS. As values decrease this pool of people continue to grow. I have heard stats that 25% to 35% of the mortgages are in this state. If this is not addressed then we are all through. Eventually they will walk like everyone else. And you will have an increasing drop in values. I wish someone would wake up to this problem before it is too late.

In order to get the foreclosures and forfeitures and bankruptcies under control I would offer a housing buy down program.
And it is simply just that, if a homeowner is late on payments and is in risk of foreclosure, and their current income would not qualify them for their current home,
they would be able to turn over their home to the lending institutions, if they would purchase a previously forclosed home that they could afford.
Their would be no penalty, only closing, title and minimal real estate costs.
And if possible I would offer this to previously forclosed owners.

I am a architect, builder and realtor and I have dealt heavily with banks in the past.
And their old way of thinking just doesn't work now, and it is time they take action.
They used to think holding homes was the best solution, but now the homes are weighing them down and sinking them.

Only 10%-30% of a mortgage payment can put somebody behind in their bills.
And then the bank is left with a 100% liability, and the homeowner lost their home, equity and credit. And that homeowner is no longer able to own a home, that is ridiculous we need more people owning homes not less.
We need to put our trust back with the American people.

It would make so much more sense to let everyone move down a home, it would help home values, the homeowner, the banks, the people doing the work and the entire market.
It would create a whole new market while saving housing and real estate.
And NOW is the time before interest rates go up!
The banks would be left with maybe 20% of all the foreclosures, which would be much easier to manage, even 50% would be easier.
It may be a different way of looking at it, but it is a different time, it is not a time for profits.
It is time to stop the bleeding!

I believe this would make the entire housing market more manageable where your plan in tandem could then cure the rest and help get the higher end homes sold.

Also, we need to get our housing professionals and contractors working.
I have developed a website to help homeowners, professionals and contractors.
It is http://www.housebluebook.com
The driving reason for consumers to do anything is cost, yet no homeowners know the cost of construction or real estate and do not feel comfortable to proceed.
House Blue Book is a compilation of 85 calculators and estimators to help homeowners know the cost of home construction or home projects specifically for them.
This will help the owners to decide to buy or proceed.
Inturn creating work for our contractors and professionals.
And it is a excellent tool for realtors and other professionals to use in the field.

Our Shah Gilani for Treasury Secretary. Then, he can implement the "Gilani Plan" and help correct a broken financial system.

Timothy Geithner, may be highly intelligent with a world of practical experience, but he is not the man for our current times. He is just a "hackey" for big banks on Wall Street.

Anyone out there, strongly connected to the White House?

Or maybe, Money Map Report should start its own grass roots campaign to help Mr. Gilani fill this highly esteemed and influential position.

Shah Gilani is the man for the times to help make it possible! He is bright, fully equipped, listens and answers to the American public. In other words, his heart is in the right place!

America needs new leaders like Shah Gilani to make radical shifts to chart our country to a new course for the next 50 years.

From Canada I look at what has occurred in the US and I am amazed at how the US system works. I agree the Government should not be in the mortgage business. However, in Canada we have a government organization called Canadian Mortgage and Housing Corporation(CMHC) who provides "insurance coverage" to the banks for higher risk mortgages. However, the premiums for that insurance is paid for by the buyer as part of their mortgage payments. This helps protects the banks but as well allows the buyer to buy a home with only 5% down.

The other difference is the money borrowed is full recourse which means that the buyer is completely responsible for the money borrowed and they just can't walk away. If they don't make their payments, the bank reprocesses the house, sells it and any money received above the outstanding mortgage amount goes back to the owner. If the amount of money from the sale does not cover the amount owing, the owner is on the hook for the outstanding amount. If they cannot pay they could declare bankruptcy but in Canada the consequences are very bad to getting any future credit and they basically make sure you only have the shirt on your back before they approve it. This also prevents people from "trashing the place" because if they do that the resale value will be less and in the end are only hurting themselves.

To control the banks from jsut throwing money out there, there are also rules in place that the banks need to follow in which a mortgage cannot exceed a certain % of a person's income and total debt (home, credit cards, car loan,etc) cannot exceed a threshold. If they break these rules they pay a substantial price which may include removal of them lending money.

I hate to say this but the Canadian system works – forces "PEOPLE" to be accountable for their money and decisions while at the same time providing a stable economic environment which control mechanisms. Looks to me that the solutions are their to fix this with a win, win , win for everyone – banks, individuals and government. I suspect that is the real root of the problem – have a "win" for everyone. Remember, accountability for one's livelyhood and financials rests with the individual in a free society and the responsibility needs to be put exactly there.

I agree that the housing problem needs to be fixed to have a healthy economy again.

I am a retired banker, a commercial banker that is (not a wall street investment banker) and I've made hundreds of home loans and several thousand commercial real estate loans.

The roots of the collapse of banking and the banking crisis started when Glass-Stegal was repealed in the Clinton administration with his then treasury secretary Mr. Rubin playing a heavy hand, in the1990's.

This was followed by investment banks and commercial banks merging and the credit standards of borrowers (especially home buyers) being allowed to excessively deteriorate with lots of help and encouragement from congress (think Barney Frank and Chris Dodd).

Good quality home loans have been made by our many banking institutions for many many years with few problems when important and understood standards were followed, like a good credit report, a real down payment, an accurate home appraisal and a real job and the proven ability to make the required loan payment.

It all went wrong and was distorted when the liberal Government became more involved and the FED and the FDIC backed away from long proven credit standards and overseeing the health of the banking industry.

The home lending market is not difficult to reconstruct, just go back to many of the lending
standards of the 1960's or the early 1970's which worked and update the secondary markets (possibly with limited government guarantees, again). Changes are necessary and there are many thousands of lenders, loan officers and credit officers out there who know very well what is needed to put a good loan together, and of course a few that don't.

From my expierence the most important item needed is a good credit report showing a good credit history. A credit report has long been a reflection of a borrowers character, and willingness to pay.

The plan from Mr. Gilani is a good start and the country has done it before and certainly could do it again but we need to keep the likes of Dood and Frank out of the picture as they do not know what they are doing.

Excellent article! I know the rules are some what different in Canada, but it also comes down to simple math. I suggest a minimum 10% D.P. across the board locked in for a minimum of 10 years. Monthly mortgage and tax payments cannot exceed 35% of ones after tax income. Canadians are about to enter some very rough times. Over 5 million first time buyers across Canada in the past 11 years purchased their first homes with little or no D.P. When the cost of borrowing begins to increase later this year, these people are in big trouble! History repeats itself. Currently, 72% of families in Canada own homes….a 22% increase in the past 11 years. Historically, only 50% of families own homes. After every crash, it drops back to the 50% mark.
This means over 5 million families over the next 5-7 years will return to being tenants again.

There are many areas across the country with stable housing markets. I know of three personally: Littleton, CO, Casper, WY and Springfiled, IL. Any plan to incentivise folks to buy in unstable areas (bottom fish) will almost certainly hurt the folks who have to buy in stable areas in some way which would not be fair. Also, banks will always find a way to add to their bottom line not matter who it hurts, so I applaud your effort but would not support any incentives or govt handouts to get the job done.

Definitely on the wrong track. Because the banks can easily sell off loans, they have no responsibility for consequences, and only take the commissions. I would have made any bailout require new lending. As it is the banks borrow from the Fed, buy Treasuries with little risk, and the taxpayers provide them even more wealth. In Canada the bank that makes the loan holds the loan and is thus responsible for profit or loss. Changes the whole market attitude.

At one time we had 13 loans on income property in the US, and not a single one in the end was held by the entity making the loan.

I recently spoke to a RE agent in the US who has had numerous buyer/seller agreements, but no bank to make a sale work.

I agree with others here that one solution is smaller houses that do not make slaves (must have work) of the owners. Do everything you can to disengage from the system. Leave it behind. It is not designed to help the lower 99 percent. Those who hate the government say "starve the beast." I say the same, but the real beast is the financial industry that literally owns the "big" government and has highjacked it to transfer wealth to the wealthy. Want evidence? Geitner, Summers. And the privately owned "Fed."

Dear Mr. Gilani,

US Housing Solution

I have been in the real estate business for almost thirty years. I’m knowledgeable about the housing market (locally) but my main involvement is commercial development. I am generally sure of one thing in commercial development, commercial development follows roof tops and we have not seen any new roof tops attracting commercial expansion. Quite the opposite; poor housing market feeds a poor commercial market. Commercial vacancies are substantial and not improving. I can’t recall a locally financed commercial startup in the last four years either. You cannot count the shadow vacancy of the downsized workforce either. All these commercial real estate issues are a DIRECT EFFECT of the depressed housing/financial market. These trends will continue until the housing market revives.

We indeed have a “boat load” of problems to solve in this country and they need to be addressed and dealt with. Not by political ploys that get you reelected but by sound fiscal programs (that might not help some ones election status). I have always been a believer in “doing something about something, pick one a get going”. We can’t solve every problem all at once but we can take a good hard economic stance on a particular issue. You and I might say “let’s pick a solution to the US housing problem and get after it.” Your plan has many merits and does outline goals for improving the US housing market. Given the size of the issue a solution cannot come from local legislation it must be national as you propose.

As for your plan, I have read it several times and would agree that the principals will work and results will be achieved. I believe that your plan would create a road map to getting started and that would be an accomplishment beyond measure if indeed it were enacted. Sadly, the “accomplish nothing” legislative process we have in power today, I believe could not take an appropriate action to get out of a wet paper bag. Reasons: this lobbyist won’t like this or the other lobbyist wouldn’t support that, this minority political group will be “disenfranchised” by the plan, this part favors this group over that group and more Washington yada, yada, yada the quagmire of our political system could not get your plan enacted, unless………….

We appoint you as the US HOUSING CZAR (10 year term limit). I’m in! Analyze your responses, tweak your plan set your time table and do it. Get it done, go, and achieve results they may be different that what you expect but WOW steps were taken, effort and progress was made. Oh I’m sorry refer to the previous paragraph, that’s what we would be faced with to enact any plan to help the housing market.

I applaud your ideas and I would love for you to create the ground swell of political activism that would enable your plan of action, and if you tell each of us, how all the interested parties in this plan could get that done, then the real plan of action begins. Truly, the longest journey begins with the first step. What would you like for me or (all of us) to do next?

Sincerely,
J Paul Henry,

Houses should not be investments. They should be for common people. Soon as all these investors lose thier asses. The price of a home will be affordable to common poeple again. That's what will fix the housing market. At this point, investors might put their money into businesses that actually produce exportable products. Hence offsetting all the imports that keep the deficet high and the economy low. instead of worring about incentives to buy over priced realestate the government should make incentives to business large and small. That would help with the unemployment numbers. lMore people productivly employed equals better economy. Over regulation and taxation is what has wiped out capital investment in the U.S..