The US's Missing Housing Policy - Credit Slips
From Adam Levitin:
Once upon a time, the US had a housing policy. It was focused on increasing homeownership. It might have been a misguided policy or at least a policy taken too far, but it was a policy and everyone understood that. It meant that programs were designed to work toward that goal.
Today, 4 years into a housing crisis, we still have no housing policy. There's no plan to clean up the legacy of the housing bubble and no plan to build the future of housing finance. This sad state reflects a singular failure of political leadership. It also reflects a deeply fragmented housing finance world in which no one is in a position to call the shots.
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This is true. And there seems to be no inclination to develop one. But I would say this is because the policy of expanding home ownership (starting in 1935) was not really developed by legislators or bureaucrats. It was invented by the real estate industry. That is, it was never really a public policy to begin with. It was a massive subsidy program aimed at the financial and real estate development industries. It was premised on having all of us go deeply into debt to benefit those industries. And now there is so much debt, private and public, that the economy is strangling on it. So...where do we go from here?
My vote: forgive massive amounts of debt. Write down mortgages, credit card debt, and student loan debt by about 25%.
4 comments:
The real estate bubble of the 2000's wasn't limited to the U.S. It also inflated (and deflated) in Europe.
Re debt forgiveness, the real estate industry has already been effectively forced by the market to "forgive" excessive mortgage debt since much of it will never be serviced or collected.
Being foreclosed on when your house is underwater isn't debt forgiveness just because the bank lost money on the loan they made. It is debt forgiveness if the bank is bashed over the head by a judge and forced to write down the loan to what the house is worth so you can stay in the house.
You seem to be asserting that the lenders should bear most if not all of the burden of the deleveraging of the residential real estate market. Such a position might be reasonable supportable if the lenders are regarded as the more sophisticated party in the lender-borrower transaction -- which they clearly are -- thereby making it inequitable to have much risk borne by comparatively less sophisticated borrowers. I wonder if the courts are framing their deliberations in this manner. If they do and conclude accordingly, it would send a message to mortgage lenders that if they skip diligent underwriting before extending loans, there will be a transactional cost for doing so when the courts force them to forgo recourse to imprudently extended delinquent credit.
That's one aspect of it. And you could add to it the rampant fraud and manipulation that has been taking place from one end of the mortgage business to the other. The crooked originators, like Countrywide, that wrote oceans of mortgages they knew were bad; the investment banks like Goldman Sachs that unloaded billions of mortgage backed securities that they knew were bad onto their own clients, while simultaneously shorting the very same securities; the mortgage servicers that are committing perjury day in and day out in courtrooms all across the country in order to run people out of their homes and charge them illegal a fees; the lying, bought-and-paid-for appraisers who over-appraised properties for people to flip; the lying, bought-and-paid-for ratings agencies that rated toxic waste RMBS as AAA; and now the mortgage rescue fraud artists who promise to save your home and either disappear with your up-front money or trick you into deeding your home to them; and I could go on. We talk about the crooked and/or incompetent property management firms that steal people's money and the condo and hoa lawyers who milk them for fees and costs under threat of taking their homes. The point is that the real estate industry has turned into a crooked casino. A whole lot of people aren't much interested in going inside to play the roulette wheel or have no money to buy chips. Add to that the crushing burden of debt, which is what I was really talking about. I see no way that the economy can get going again until the debt burden is reduced--mortgages, credit cards, and student loans are the big 3. People are slaves to the banks right now and they see no way out of it. I see no economic recovery until this situation is addressed, and to me some form of debt forgiveness is the logical approach. That is in addition to the blame game/moral hazard argument.
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