5 Policies To Aid Housing

The housing market still is a drag on economic recovery.  As inventory continues to exceed demand, prices are still under pressure, and asset values must continually be revalued lower. As these assets are reduced in value, banks and other lending institutions must reign in lending to maintain capital ratios.  Natural recovery still is projected to be a couple years away unless government and lending policies can be changed to aid the situation.  Here are five policies that could be implemented or changed to aid housing:

  1. Fast track the foreclosure process.  There is a huge backlog of homes in various stages of foreclosure.  As these homes stay out there in limbo, prices on normal sales cannot recover.  Policies vary by state but Florida’s process is especially onerous.  These processes need to be streamlined to process the backlog.
  2. Aid financing for investor purchases.  We can let the housing market heal one unit at a time, or we can encourage bulk purchases by investors to clear the backlog.  Local private and public incentives can be deployed to encourage local investors to buy up excess inventory for redeployment in the rental market.
  3. Add tax incentives.  Federal tax breaks could be offered to encourage investment by professionals in homes.  The short term and capital gains rate could be adjusted to 5% or 0% for gains on bulk purchases of homes.
  4. Borrowing rates could be restructured.  Underwater mortgages are holding back consumer spending and threaten even more defaults.  Lenders should get more aggressive with restructuring these loans and rewarding borrowers who stay current.  One idea is to alter loan terms so that payments go to pay down principal with interest deferred until later in the loan term.
  5. Temporarily suspend payments.  Homeowners with underwater mortgages could be given a two-year hiatus on paying down their mortgages.  Of course this would mean some restructuring essentially to extend the term of the mortgage.  But with a two-year easing, owners could stay in the homes and maintain them.  Meanwhile they could benefit from some housing recovery so that perhaps they would be no longer under water after the end of the period.

For sure, homeowners who borrowed more than they could afford and lenders who loaned too aggressively are all accountable for the current situation.  But we need some intelligent policy changes to get the housing market out of decline and therefore move the economic recovery out of neutral.

— Steve Odland

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