Jan. 24th, 2008

firesion: (Default)
I keep getting asked how to fix the housing market so I will just point people here for the explanation.

The Problem: Securitizing mortgages combined with very low interest rates. Add a monetary shift of wealth from an exodus of retires from CA and other high market value areas to low value areas. Add in a speculation market who does not understand economics mix with corrupt housing agents and appraisers and incompetent bank CEO ans you have the current problem.

To fix the Problem:
- Lower the Fed funds rate to 3.5 . This would allow the banks to refinance most loans at a fixed rate if they so chose to eliminate all their risky debt. Note: don't leave rates hear for more then 12 months.
- Increase the regulatory requirements for banks to make loans that are insurable. Banks should be allowed to lend money for any reason they chose. They just can't be guaranteed that if they do sub-prime loans that they can be sold as securities on the market and get a AAA rating.
- Have the government back up the insurance market on the bond insurers. We already do this just put it in writing so that the Money managers can be happy and go back to investing wisely.
- Require all vacant properties for greater then 3 months to pay 2x the property taxes. Up the cost to 6x after 6 months. This solves tax revenue problems for city that can not currently collect taxes on housing that is vacant. The Banks will be forced to sell the house at market price to get a family to live there. It also would make house flipping a risk reward more inline with the true impact.

The above changes would allow the problem to be fixed. Yes it means that you could lose your house if you can not afford it. Yes it means if you were investing in reality and did not know what you are doing you are going to take a big loss. The market needs to correct the problem by normalizing home prices. Banks need to understand that they can not keep a house on the books for ten years until it is fully deprecated. People/banks need to be encouraged to sell at market prices and realize loses. Bad investors who purchased homes with no intention to live in them need to realize the loss. This would make housing affordable at the same time keeping the equity most people enjoy from being smashed to small tiny bits.


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January 2009

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