Waikiki Sunset --- When it comes to the economy, sometimes it is good to focus on the enti...
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A Surfer's Take: Who the Mortgage Rescue Plan Won't Help and Why that Stinks for the Economy
How the Other Guy's Mortgage Problem Continues to Financially Lock Up Homeowners Who Can Pay Their Bills
Last week I meandered down to the beach and sought the counsel of a wise old longboarder on the housing mess. His ideas, as might be expected, were in the category of "Power to the People." They included various tax breaks to funnel money back to homeowners who, though struggling, remain current on their mortgages.Now I wondered what my longboarding friend thought about this week's events, such as President Obama's just-released mortgage rescue plan and the "cram down" bill. My friend was just zipping up the Dayrunner when I caught his eye. He sat down in the sand and waited. Here's my interview with him:
Q. When I talked to you last, you had some ideas about how to free up, financially, the homeowners who are credit-worthy and paying their mortgages.
A. Keep repeating it. There will be no fix in the housing market until you unlock the homeowners who are financially viable, but financially immobilized because of the other guy's problems.
Q. That's why you focused on the government taking steps to bring financial mobility---liquidity---back to those locked-up homeowners.
A. Yes.
Q. A brief review?
A. Increase the home mortgage deduction. Provide a tax credit based on the amount of the homeowner's down payment. Offer guaranteed second trusts so homeowners can meet loan-to-value ratios and lower their monthly payments by refinancing.
Q. Thanks. The government keeps saying it has to stop foreclosures because foreclosures hurt everybody.
A. If by "everybody," they mean the real economy, that's true. Foreclosures do hurt everybody. But that doesn't mean stopping foreclosures helps everybody.
Q. Interesting. Explain.
A. Foreclosures cause home values to go down. Stopping foreclosures, at least in theory, will help stop home values from going down further. Good. But that doesn't mean stopping foreclosures makes home values go up. Not even go up in two, four, five or six years. It just means, again, at least in theory, that home values will stop going down. If that happens, that's a relief to the homeowner whose home already has lost 20-40% of its value. But it's not a solution.
Q. What is a solution?
- Stopping foreclosures won't necessarily cause home prices to rise, at least in the near-term
- Declines in home values lock in declines in consumer and other spending in the real economy
- Homeowners won't return to consumer spending until housing costs are reduced or home values rise
Comments
Anonymous
(Guest)
(Guest)
03/20/2009
Sorry for the 3 by 30 thing below, but I get so outraged by the stupidity in this world that I can only hope the idiots go away. The man who wrote the article is apperently pretty enlightened. We should all be as smart as him if not 3 times smarter. Wake up America, embrace a revolution on lending practices, its worse than the mob for crying out loud. They have single handedly wiped out 90% of the 300 million people in this country.
Anonymous
(Guest)
(Guest)
03/20/2009
How about we continue to pay 3 and half times for our mortgages in 30 years. WOW,
If we had 15 year loans for a decent price we could pay off the home in just 15 years and save all that wasted money spent by the people who put us in this mess. 3 divide by 30 is 10 so we could have interest due for 5 years(5+10 is 15) and only pay 1.5 times th amount of our homes. Come on people the answer is so simple we need more money and currently we are giving it all to the lenders. We Need Change NOW>>>>>>
George Bekaert
(Guest)
(Guest)
03/20/2009
This is why we have to offer home loans to everyone at the great rate of 1.5% to all americans. 100% ltv with additional ltv @ around 3% with a cap of 75k or so on that second.This frees everyone up to save, put the kids in college, and spend. You said it yourself if we dont spend we lose our jobs. I dont want to rely on government for tiny little tax breaks. I want to revamp americans right to own a home. I think we all deserve a break from the diluted governmental hand cuffs. We borrow money at 1% now so why isnt .5% enough. That equivilates to around 82k in interest over 30 years on a 350k home, and makes it possible for almost all americans to buy something. Let the taxpayers reep some benefits for a change.
Tends to make me look at foreclosure in a whole new light! I love this man's perspective! These have been eye-opening articles! This household is having a time coming to grips with all the fallout from everyone not being able to pay these outrageous mortgages! Shame on the banks, too, for dishing out this disaster! Excellent account!
Good ideas that keep getting better.
very good discussion...
Surfers are smart too! If they weren't, I'd have some dumb kids...good write-up!
Wonderful analysis!
I agree - great perspective (and follow up).
Great article!
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