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A Housing Plan to Get Behind

Written By Brian Hicks

Posted February 19, 2009

Santelli is one of my favorite CNBC reporters. Here’s why:

‘The government is promoting bad behavior… do we really want to subsidize the losers’ mortgages… This is America! How many of you people want to pay for your neighbor’s mortgage? President Obama are you listening? How about we all stop paying our mortgage! It’s a moral hazard,” according to this video:


And I agree with him. Why should we pay for homeowner mortgages that shouldn’t have been taken out in the first place on homes they couldn’t afford?

It’s people like this that make life so difficult.

“Here’s video of a bus driver, admitting that her family bought more house than they could afford. But it’s not their fault. “The lender made the purchase all too easy.” And now the home she bought for $800,000 is only worth $675,000, and she wants Obama to “stop the foreclosures.”

But here’s a housing plan that most of us can probably get behind. From Time Magazine, here’s a part of “What the market needs is to speed up the foreclosure process, not slow it down“:

The federal government is most likely to create a safety net for the falling housing market with a plan that will allow people to stay in their homes by reducing their monthly payments. The FDIC and some members of Congress assume that residential real estate prices will decline slower this way and eventually begin to increase in value if houses are kept out of foreclosure. That may be true, but the plan could be quickly flanked by rising unemployment and the realization by people who can stay in their homes with federal help that they will never have the equity to pay down their principle. The government will have pushed them into the equivalent of “interest only” loans.

The first economic reality which makes propping up the housing market untenable is that unemployment is likely to rise sharply between now and the end of the year. By some estimates it will go over 9% in early 2010. While the government helps some people stay in their homes, the overall housing market could be overrun by foreclosures driven by job losses. Under these circumstances the value of homes will continue to fall. And as prices decline, the current homeowner rescue plan will keep people in their houses using mortgage assistance programs without helping them pay down the principle on their loans. These balances will get further out of touch with the overall market each day as the economy goes through a natural cycle. At least allowing them to go into foreclosure would permit the housing market to fall based on the fundamentals of supply and demand.

Although it is counterintuitive, the best approach to reversing the falling prices of homes may be to push the housing market to a deep trough as quickly as possible. This would mean that the government would not provide any assistance for current homeowners and give no financial aid to people who might buy a residence using tax credits. The idea of a benefit of up to $15,000 for those purchasing a home has already been floated in the debates over the stimulus package. Bringing housing back to a period of “affordable” prices means the government needs to stay out the business of keeping homes from being sold or foreclosed and helping buyers buy homes.”