National Housing Policy

The following article from the NY Times January 1, 2010, U.S. Loan Effort Is Seen as Adding to Housing Woes , is one of several recently critical of the federal homeowner "bailout" program. The program provides $75 billion to rewrite and restructure home loans in danger of foreclosure. This amount, while quite substantial, is small when compared to the $700 billion bailout provided to banks, Oversight of Bank Bailouts Criticized, to address esentially the same mess.


The banks, essentially, were provided funds to cover bad debt from the mortgage meltdown. The homeowners, (in perhaps a simplistic vision) many whose debts were probably part of the ones banks were bailed out of, were provided the opportunity to re-write their loans. Little, if any, of the actual debt has been forgiven.


Now, we are seeing comments from banking and real estate interests condemning efforts to help these homeowners. The suggestions are that the government should allow them to fail, arrange short sales or allow people to surrender their deeds to the banks. Basically, they are suggesting we get to the end-game quickly so that the building banking community can get back to work.


What's wrong with this picture????

• As many community governments and residents can attest, banks are very poor property managers. Allowing vacant properties to become eyesores and neighborhood problems. (see Foreclosures spur neighborhood ghost towns)


• Foreclosures and short sales will further pull down property values, once again affecting the next round of properties.


• Where exactly will the builders find customers for new homes if an additional glut of housing is dumped on the market?


• Will we need yet another round of bank bailouts to recover from this idea?

Let's take a look at a few numbers, and draw a few conclusions. American Factfinder reports that there are 127,762,925 housing units in the United States. Of these, 75,363,085 are owner occupied. Of the owner occupied housing units 51,487,282 units carried a mortgage in 2008. Finally, the median value of all owner occupied housing was $192,400.

A HUD report, cited in Foreclosures in Rural America? Who Knows!!, reported that 5.3 million homes, or 10.8% of those carrying mortgages had been "in some state of foreclosure" in either 2007 or 2008.

Working off of the median value of homes nationwide, the total value for all foreclosures would have been a bit over $1 trillion. I have not been able to find any solid numbers but, if the total value of properties in arrears is in the $1 trillion range, and foreclosure starts within a few months of the first missed payment, the actual value people are behind on mortgages is considerably below the full value of the properties.

So, with $775 billion to bailout the housing market, a program to actually pay off the arrears on default properties, and restructuring mortgage balances may have been a better and cheaper long term strategy. Of course, strings would need to be attached to such a program, such as restrictions on re-sale without some level of government repayment, restrictions on refinancing to cash-out equity, and other credit management strategies. However, the strategies would be designed to keep people in their homes, not evict them.