Mosler housing proposal


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My housing proposal:

  1. The government does not interfere with the lawful foreclosure process.
  2. If the former owner wants to remain in the house, the government buys the house during the foreclosure sale period from the bank at the lower of fair market value or the remaining mortgage balance.
  3. The government rents the house to the former owner at a fair market rent.
  4. After 2 years the house is offered for sale and the former owner/renter has the right of first refusal to buy it.

While this requires a lot of direct government involvement and expense, and while there is room for dishonesty at many levels, it is far superior to any of the proposed plans regarding public purpose, including:

  1. Keeping people in their homes via affordable rents
  2. Not interfering with existing contract law for mortgage contracts
  3. Minimizing government disruption of outcomes for mortgage backed securities holders
  4. Minimizing the moral hazard issue
    • foreclosure was allowed to function normally
    • renting at fair market rent is not a subsidy
    • repurchasing option at market price is not a subsidy


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23 Responses to Mosler housing proposal

  1. How about no interference in the mortgage market and a strong tax shift towards Land Value Taxation.

    Having the government pay landlords is the height of absurdity.

    Reply

  2. Tom Hickey says:

    MIke Konczal, A Mortgage In the State of Nature?

    How much should government be involved, if at all, in the mortgage market?

    Reply

  3. warren mosler says:

    Don’t forget enhanced incomes due to the likes of a payroll tax holiday improve affordability

    and if higher prices are coming from higher demand vs available supply for particular locations and not from higher costs of production and widening profit margins, that means someone is buying the houses, so what’s the problem? Someone else should be buying them?

    Even today, rents are generally enough to make mortgage payments.

    market forces tend to work all that out.

    Reply

  4. beowulf says:

    Art Laffer has proposed as part of his flat tax plan reforming the house ownership bias by making residential rent tax-deductible (since the alternative– making mortgage interest taxable– is such a political land mine).

    Related to making housing affordable is the Universal Living Wage (ULW) campaigns idea– tie the minimum wage to each metro areas’s affordable rent level (HUD updates the list annually) and phase it in over 10 years. HUD guidelines state that no more than 30% of a family’s income should go to housing, so basically the ULW wage level would be the cost of an efficiency apartment X 3.3.

    The current minimum wage is probably adequate in rural areas, in say, metro DC, it’d be $22 an hour. The 10 year phase in period is to give cities time to adjust their wage scale and/or build more affordable housing.
    http://www.universallivingwage.org/

    Reply

  5. Tom Hickey says:

    The government now finances 98% of mortgages, Fannie and Freddie being wards of the state. The government should recognize reality formally and just take over residential mortgage lending and set the interest rate very low, writing 30 year mortgages. The monthly would be very affordable and free up a lot of income, as well as putting an end to a major factor in financial rent-seeking. Many americans are now paying up to 50% of their net monthly income for mortgage service. That is pinching demand and affecting production, hence jobs, thereby feeding back as increasing defaults. This would be good for society and good for the economy, too.

    Right, there are a lot of “what if’s.” But the market didn’t do so good with contingencies either, and the consequences almost spun the world into a depression. There are always ways to deal with contingencies.

    Reply

    zanon Reply:

    keeping housing unaffordable will permanently price out the renters who decided to not take out loans they could not afford and sit the bubble out.

    Reply

    Tom Hickey Reply:

    I don’t recommend keeping housing prices unaffordable, and I don’t see that government lending would necessarily lead to that if it properly managed. I don’t agree that the profit motive is the sine qua non of good management. Moreover, there are standards to distinguish good management from bad management.

    There would have to be some standard of prudence incorporated in lending, e.g., keeping median house price inline with median income and inflation. Housing is a significant portion of the economy, and moderating the boom-bust cycle in RE is essential in creating stability. Moreover, like jobs, housing is a necessity. The government has a role is ensuring that the country is adequately employed, housed, fed, educated and its health cared for. In a modern society, these are basic rights, and governance has rightly already recognized this. Yet, more can be done better.

    I can see some logic in supporting prices so that they don’t fall precipitously, although I would not recommend that course of action. However, many believe that the government has acted not to break the fall as much as to prop up asset values to protect creditors. That, I think, is true, and it is bad policy.

    My sense is that housing still has a good way to fall, and in the coming second leg down there will be some pretty steep drops on the down side in formerly “frothy” areas. Historically, prices fluctuate around a mean in relation to income, and in a correction there is typically some overshoot to the downside. So we have a way to go yet.

    Reply

    zanon Reply:

    Prices are at rent breakeven in the poor quality areas, but still are multiple times above rent breakeven in high quality areas. So I agree prices have room to fall, but not everywhere anymore.

    If Govt formally takes over mortgage lending and sets rates very low, this will raise house prices, keeping them unaffordable in areas where they have not yet reverted to mean.

  6. Uno says:

    How does this plan address the backwards idea of housing prices?

    Assumption: Americans believe home ownership is good and so governments should promote home ownership.

    Definition: Home ownership means you OWN the home. If a bank owns the home and you are in debt to the bank you are a homedebter.

    The problem with housing is this absurd idea that high home prices are good! Why do both GOP and Democrats promote high how prices?

    High home prices benefit lenders.

    Low home prices allow more Americans to OWN a home.

    Conclusion: Govenment policy should help LOWER home prices.

    1. Eliminate property tax on 1 home per US citizen over the age of 18. 0% property tax + no mortage = true home ownership.

    2. Tax investment properties and second properties and rentals.

    3. Eliminate mortgage tax deductions and make mortgage MORE expensive.

    4. Eliminate Fannie Mae and Freddie make making mortgages much more expensive.

    More EXPENSIVE mortgages = low house prices = more Americans can afford to become true homeOWNERS rather than homeDEBTORS.

    Reply

  7. Matt Franko says:

    Warren,
    Reuters reporting Obama floats a piece of your housing plan! This HAS to be your plan as I have never heard the rent-back proposal anywhere else! Hopefully more adoptions to come….you are getting through… (They are running scared for 2012!)
    Resp,

    Reply

    Jill K Reply:

    Hey Matt!
    I saw that too on a Reuters feed this morning and immediately I tweeted

    @mortgageangel MOSLER Housing Proposal http://mosler2012.com/?page_id=211 Warren is way ahead of our policy makers

    Reply

  8. manny valesco says:

    There is a whole industry built up around those kidney stones, medical imaging technicians, new cathether surgeries, ultrasound destruction of the stone, all the administrative people in between. If we just got people to pass the damn kidney stone all those people would be unemployed, then how would broke doctors buy a mosler supercar? See how it is all connected?

    Reply

  9. jcmccutcheon says:

    I think increasing aggregate demand via fiscal policy is enough because everyone is a winner. Most of the proposals create winners and losers because their are two sides of the housing trade: buyers and sellers. In this case the losers are buyers who are waiting for prices to bottom out so they can buy.

    If anything why not process foreclosures faster as is happening in florida by way of the “Rocket Docket” http://online.wsj.com/article_email/SB123491755140004565-lMyQjAxMDI5MzE0ODkxMTg3Wj.html

    and get banks to unload everything as fast as possible to the highest bidder.

    Lets just pass the dam kidney stone and get it over with.

    Reply

  10. Scott Fullwiler says:

    Knapp . . .thanks for the link. Wow . . Baum’s clueless in that piece. Repeats a lot of things we’re hearing now not relevant to flex fx, like the argument that govt spending requires borrowing or taxing, and no net increase in AD. And the argument that there’s never been a fiscal stimulus that worked . . . maybe none have been tried in such qty that they would “work”! Of course, it depends on how you define “work,” since it would seem difficult to rigorously demonstrate that a fiscal stimulus doesn’t result in more AD than would otherwise be the case in a flex fx setting and beginning below full capacity. The fact that the economy doesn’t race back to full employment doesn’t mean there was no stimulative effect, just not enough of it. That would seem to be true by definition, but I’m just using the actual real-world accounting identities, so what do I know?

    Reply

  11. knapp says:

    fyi…

    How Democracy Ruined the Bailout
    Holman Jenkkins

    Today’s WSJ:

    “Looking back, the biggest mistake was the original Troubled Asset Relief Program — not the idea itself, but because it required Congress’s participation. Giant appropriated sums were never necessary, except perhaps by the screwy reasoning that banks had to be made to lend again for antirecession purposes.

    The Fed and FDIC, formally or informally, had already guaranteed the deposits and other liabilities of the banks. Bank runs were off the table, so even if banks were technically insolvent, they could stay in business and have an opportunity to earn their way out of trouble. Withdrawal of investor support for the securitization of credit-card loans, auto loans and jumbo mortgages does present a big and somewhat related challenge (one the Fed is addressing), but otherwise the economy is not being starved for bank credit.”

    Reply

  12. Scott Fullwiler says:

    And with a payroll tax holiday, more would be able to afford the fair market rent or in some cases avoid foreclosure altogether.

    Reply

    knapp Reply:

    Scott,

    Would you mind commenting on current Fed operating procedures given that the FF rate is no longer an exact target rate but a range. Does the effective ffr become a residual of specific credit action as long as it stays below 25bp? Does this give the Fed some discretion over the size of its balance sheet? There is a debate going on in the blogosphere with some arguing that the recent contraction in the Fed’s balance sheet signals “Quantitative Tightening”.. you can read it all on macroblog from the Atlanta Fed’s David Altig.

    Reply

    Scott Fullwiler Reply:

    Good questions. I’ll do my best.

    Of course, the reduced RBs has been mostly due to the unwinding of currency swaps, if you look at the Fed’s balance sheet. And we already know that the qty of RBs has nothing to do with banks’ abilities to lend. Warren’s post “quantitative easing for dummies” in the mandatory readings is more clear and concise on that topic than I could ever be.

    I think that with excess reserves still in the hundreds of billions the target so close to zero, and the overnight rate moving between about 0% and 0.25%, the real question is does this movement in the overnight rate matter? First, the Fed COULD hit any rate in that range it wants to, but chooses not to. Second, how does a rate of, say, 0.2% differ from a rate of, say, 0.1% in terms of its effect on the financial system and the economy? That’s particularly so–again–when banks themselves are already flush with excess reserves (and the current swings in the rate are just a bit greater than they are typically, anyway).

    Until someone can explain why it even matters, there’s little point in arguing over and over again about precisely why the rate is 10bp higher or lower today than it was yesterday. And if someone CAN explain why it matters, then the question becomes why doesn’t the Fed just hit a precise number (since it obviously COULD)?

    Reply

    Scott Fullwiler Reply:

    Also, Fed’s target was effectively a range during 1979-1988, so we’ve been there before. The point is that movements within that range were related to the demand for balances to settle payments and meet rr vs. quantity provided by the Fed. It’s not some “market” setting the rate . . . it’s the monopoly supplier allowing the price to rise or fall within a range until it intervenes.

    knapp Reply:

    Thanks Scott!

    Mainstream is focused on Fed Balance Sheet as prima facie evidence of money “pumping” or draining and generally not making the right connections with regard to excess reserves (either that or they believe banks are undertaxed).

    btw, these same economists are trashing the stimulus package as Keynesian “santa claus” economics. Here’s Caroline Baum:

    http://wwwx.bloomberg.com/apps/news?pid=20601039&sid=a3_NEEk3tTNU&refer=columnist_baum

    (take the x out of www to activate link)

    knapp Reply:

    Fiscal Stimulus Is a Ruse Absent Fed Pixie Dust: Caroline Baum

    the link in prior post wasn’t very useful. this should work:

    http://www.bloomberg.com/apps/news?pid=20601039&sid=a3_NEEk3tTNU&refer=columnist_baum

    Jim Baird Reply:

    Where’s the “Quantitative easing for dummies” paper?

    Scott Fullwiler Reply:

    It’s not listed as one of the readings on the side, but if you click on mandatory readings at the top of the page, it’s in there.

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