As real estate professionals, being knowledgeable about the market is a necessity. Below is information I found to be interesting and useful in understanding what needs to happen to get our market back to where it used to be.
Limited Government Intervention Needed Immediately
Here are our 5 suggested public policy solutions to solve the housing crisis:
1. Immediately Create Tax Incentives to Encourage Home Buying Activity: Allow for a tax deduction equal to 3% of the purchase price for anyone buying a home for their primary residence. This will bring buyers back to the market, which is what is needed to stabilize prices. Our data shows that home buying activity has corrected far more than the NAR data shows, which is one reason why policy makers have been so surprised by the unprecedented national price corrections that are going to continue unless something is done. This significant expense is likely to be less than the eventual expense of taking over the many regional banks that will not survive if prices continue to plummet.
2. Immediately Increase FDIC Insurance from $100,000 to $500,000: The $100,000 insurance amount was set in 1980. The Fed needs to let consumers (especially retirees) and the world know that deposits at federally insured institutions are safe, and that all federally insured deposits can be accessed within 2 business days. This will prevent a depositor run on local banks. The increased insurance expense should be charged to banks after this banking crisis is over.
3. Continue Encouraging Fannie, Freddie and FHA to Grow: Without these three agencies, the mortgage market would be virtually non-existent in many markets, especially California, Florida, Arizona, Nevada and Virginia. While this is a significant risk to their shareholders and probably taxpayers, we believe the risk is much greater if these institutions stop providing insurance or a second market for quality loans. Underwriting will need to be prudent.
4. Require the Mortgage Bankers Association to Adopt a Licensing Program for Mortgage Brokers and Underwriters: Similar to the CPA license, there should be individual and company civil and criminal liability that will allow regulators to fine and imprison brokers on loans that were later proven to be fraudulent, or pools of loans that exceed an acceptable default rate. Restrictions such as this should be phased in after the housing market has stabilized because mortgage lending needs to be made easier today – not more difficult.
5. Mandate Rating Agency Risk: Rating agencies should be required to absorb a small percentage of bond losses on future rated bond offerings. This will help ensure that risky debt is priced accordingly.
