Proposals for the lingering housing crisis
Posted by WARREN MOSLER on October 13th, 2011
1. US Regulators can make it illegal for their banks, housing agencies, and other publicly supported entities to refuse to refi on the basis of appraisals and income. Those loans were made, and priced, with the understanding that when long rates fall they get refinanced at the lower rates.
2. A rent to own option where a homeowner has the option to sell his home to the govt. at the lower of his mtg balance or current appraisal before a foreclosure sale, and then rent the home at fair market rent for two years. At the end of two years the home gets offered for sale at fair market prices, and the homeowner has right of first refusal to buy it and finance it at current market interest rates if he has paid his rent as agreed.
The housing crisis is still with us only because these proposals were not implemented when first proposed in 2008.
October 13th, 2011 at 9:04 am
“US Regulators can make it illegal for their banks, housing agencies, and other publicly supported entities to refuse to refi on the basis of appraisals and income.”
That is a ludicrous notion, appraisals and income are two of the most important factors for underwriting a loan, you may as well book a loss up front. Banks are publicly traded companies that should be allowed to make a profit…otherwise there will be no private capital available to them. Do you really want the government underwriting loans…
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WARREN MOSLER Reply:
October 13th, 2011 at 9:48 am
not for underwriting, for refinancing loans already on their books.
the risk is already there
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Unforgiven Reply:
October 13th, 2011 at 12:17 pm
@WARREN MOSLER,
As a bank can make any loan that it sees fit to, what use would they have for private capital?
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WARREN MOSLER Reply:
October 13th, 2011 at 3:47 pm
it’s about the ‘they’
‘they’ are the holders of the private risk capital when there is any
‘they’ are govt employees when there isn’t
see: http://www.moslereconomics.com/?p=8968
October 13th, 2011 at 9:20 am
Warren.
1) I do not understand the legality or rationale for this proposal. Maybe someone could elaborate.
2) OK – so at some point, when the house is sold to whomever, the credit writedown will finally — FINALLY — have to be taken by the bank, MBS holder, et al?
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WARREN MOSLER Reply:
October 13th, 2011 at 9:52 am
yes, just like today. the bank sells the house and adjusts it’s books accordingly.
but in my proposal the buyer is the govt. if the owner wants to stay and rent.
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Arthur Reply:
October 13th, 2011 at 2:10 pm
@WARREN MOSLER, Couldn’t the Fed just set up an SPV and do all the refis itself under 13(3) of the Federal Reserve Act? If you can refiannce AIG, you should be able to refinance everyone in America. We don’t even need the banks to be part of the deal. Just saying.
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Tom Hickey Reply:
October 13th, 2011 at 3:04 pm
@Arthur,
Something not lost on most Americans. That’s what the outrage is about. Socialism for the 1% and capitalism for the 99%.
WARREN MOSLER Reply:
October 13th, 2011 at 3:53 pm
makes sense, but hardly the type of policy initiative generally left for the Fed. more like something Congress authorizes and directs
October 13th, 2011 at 12:38 pm
I like these ideas. Always thinking you are!!! ;)
the homeowner has right of first refusal to buy it and finance it at current market interest rates if he has paid his rent as agreed.
but of course he would need to have the down payment though. I am assuming so and I think that may be the kicker for people today (depending on the fair market value of the home today however). Most of the people that would participate in such a scheme probably are maxed out on savings, etc. already. So they likely won’t be able to take them up on the offer even if they wanted to. However I’m not saying that’s a bad thing or that the idea is not good.
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Unforgiven Reply:
October 13th, 2011 at 1:18 pm
@Mario,
With rent-to-own, the rent paid is often credited against the purchase price and could serve as the down payment (as long as you keep your rental payments 100% on time).
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Mario Reply:
October 13th, 2011 at 2:06 pm
@Unforgiven,
ahh great point. Thanks I forgot about that. yes it makes these points even better!! haha
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October 13th, 2011 at 12:42 pm
What do you guys think of this!!!
In Argentina, apparently they are using a barter system with a “creditos” currency. Check it out (6 min video). Note though I am not sure how old this video is though.
http://www.realecontv.com/videos/post-collapse/after-the-it-hits-the-fan-.html
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October 13th, 2011 at 1:16 pm
May happen….
Ireland: “mortgage to rent” scheme proposed
These would mean approved housing agencies taking ownership of homes in specific circumstances or the leasing of houses by banks to local authorities, which would in turn rent them to former owners.
…
The report … stressed that there would be no blanket debt or negative equity forgiveness.
http://www.calculatedriskblog.com/2011/10/ireland-mortgage-to-rent-scheme.html
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WARREN MOSLER Reply:
October 13th, 2011 at 3:50 pm
must be reading my blog
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October 13th, 2011 at 2:24 pm
My preference would be to just fix the economy and suddenly prices will go up when gainfully employed people want to buy a house. Your 3 point plan of tax cuts, revenue sharing, and JG should do it.
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November 5th, 2011 at 8:14 am
[...] 9. Enact my housing proposals on this website (http://moslereconomics.com/2011/10/13/proposals-for-the-lingering-housing-crisis/) [...]