Home ownership has dropped to a level that is below that of The Great Depression. The massive amount of debt and foreclosures this real estate "bubble" has created might just be the decisive factor in destabilizing the economy of this country. There is no doubt that this crisis was created by greedy developers and their "co conspirators", the bankers, lending institutions, and the Federal Government (Freddie Mac and Fannie Mae). But rather than dwell on the known reason for this disaster, I have a plan to not only solve this problem of surplus housing units, but create jobs in the nations building industry, that just may save this country from imminent financial disaster. Before reading my solution, please read: Market Crashes: The Tulip and Bulb Craze, by Andrew Beattie, http://www.investopedia.com/features/crashes/crashes2.asp#axzz1aHULUSWZ This will give you an idea of how "bubbles" are formed, how devastating they can be, and how long they can impact an economy. Now my "imperfect", but necessary solution to this housing disaster that plagues this nation:
A big part of the current financial crisis is the problem with millions of homes that are "underwater", meaning that the owed amount is more than the real value of the home. This dilemma is most troubling for several reasons. One reason being that in the majority of states, if a property is foreclosed on, the house is sold at auction, on the courthouse steps, and any deficiency is charged to the former owner (borrower). On the surface this seems a reasonable outcome, but not when you understand that the housing "bubble" was directly caused by greedy and unscrupulous lenders, and abetted by the Federal Government, under the control of Fannie Mae and Freddy Mac. Persons buying homes during the peak of the "bubble" had no option other than to purchase homes that had falsely inflated prices. They had no choice but to purchase over priced houses. What should be done?
The first thing that should be done is to amend the laws, of states, that allow deficiency suits, and to make the lender accept, as final settlement on any foreclosed house, whatever money (high bid), is offered by any purchaser. Now this change is not to "give away" houses at low prices, further lowering the price of nearby, similar, houses, but it is intended to prop up current values of nearby homes. All bids would be subject to a minimum price, the current value of "comped" houses in the area, minus 10%, to insure that nearby, "comp" houses, are not further reduced in price, and to reflect the lack of sales commissions that are typically added to most real estate prices, and with added verbiage that all sales are, "AS IS". Should the foreclosed house fail to receive a minimum bid, then the house would be immediately demolished, and the lender would take the loss. The reason for demolishing any house that does not meet the minimum price, as determined by comp houses in the area, is, one..... to insure that the government doesn't turn the house into some section 8 type of deal, or give it away to some supposed "needy" family. And two.....if the houses are not demolished and the current inventory of foreclosed houses reduced, the economy could linger for another 10 more years, and jobs might not fare any better. But by demolishing the houses, the vacant lot could be sold, and a new home built on the property without devaluing the surrounding properties. Sounds like a drastic exercise, but it is a needed one if this nation wants to restore the building trade, and create jobs, and ultimately get this nation moving in a positive direction. All this housing "bubble" was predictable, and the leaders of banks involved in losses should be banned from ever being involved in any bank or lending institution forever. At the same time, lending rates should increase to a reasonable amount. A 30 year home loan @ 3%, or 4%, is unreasonable, and can only lead to further long term losses for banks. Home ownership should be something earned, not something granted by the Federal Government to anyone who can "mark a ballot". Let people be responsible for their own housing. Our Constitution gives everyone the opportunity to succeed, and if some choose not to succeed, it is not the duty of the responsible citizens to "drag" these losers to prosperity. Freedom and Responsibility work together to make success an option for all.
Lord Howard Hurts