Ending the Real Estate Driven Recession

Two weeks ago I started to write my first blog article. I started to write a summary of all the stupid things we’ve done to start the recession and the even more stupid actions we’ve taken that were intended to help but only made it worse. My outline of the issues was nearly two full pages of one liners. Not only was I overwhelmed and depressed by the scope of the problems, I was concerned a publication would result in mass suicides (ala Heaven’s Gate) or maybe worse immigration to better problem-solving nations like China or …………France.

Let’s ignore the political agendas of the Republicans and Democrats. I believe Americans still have common sense and know deficits are bad and we don’t like taxes. That’s why JOBS COME FIRST.

Over 13 million people are unemployed and maybe double that for the underemployed. These folks aren’t being allowed to contribute to the health of the economy, many have lost their homes and worse yet have lost their spirit and faith in America. Put them back to work and we get the benefit of higher revenues (through the existing tax rates) and lower expenditures (unemployment payments, foodstamps, etc.). Oh my, smacks of deficit reduction.

And it all started with real estate.

Nationally, real estate prices have fallen back to 2002 levels. At this writing, 30 year mortgages are down to 3.94% yet there is very little demand. As a realtor and owner of a few rental properties, I can state it’s a great time to be a landlord. At these interest rates my tenants would save $150-300 a month if they bought the homes they are renting. Most of these folks have steady jobs, plant flowers and gardens, and take care of the property almost as if they own them. They are good neighbors and would be good home owners if they could qualify for a mortgage.

The real estate boom and bust was caused by the extremely permissive lending policies of government run Fannie Mae and Freddie Mac. They made no-down loans and had programs that didn’t require verification of income or assets. (In the real estate industry these are affectionately referred to as “liar loans.”)

After the crash the reckless lending programs were eliminated, but, they didn’t stop there. They slammed the lending barn door shut by jacking up down payments and required credit scores so high as to kill the recovery.

If a starter home, owner occupant wants or needs to buy a larger house, the purchase is usually contingent upon selling the existing home. The owner of the larger home will most likely buy another home (this may continue for several iterations). If there are no starter home buyers the chain of buy/sell transactions never begins. It’s unreasonable to expect starter home buyers to have much more than a 5% down payment and, worse yet, credit scores approaching 750. The focus should be the prevention of fraud, not the killing of the recovery. We should reinstitute the pre-crazy underwriting standards of 2002 when unemployment was under 6%.

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