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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jet.Screamer who wrote (161143)	10/30/2008 12:02:08 AM
From: Jim McMannis	Read Replies (1) \| Respond to of 306849

And who is backing the banks?

To: Jet.Screamer who wrote (161143)	10/30/2008 12:05:32 AM
From: Jim McMannis	Respond to of 306849

Changing the Nation's Mindset About Housing by: Markham Lee October 28, 2008 seekingalpha.com After the housing crisis subsides (or eases enough for people to start thinking seriously about the future) there will be some talk and thought given to policy changes with respect to housing, namely the nation's attitude towards subprime mortgages, assistance programs to low income borrowers, the role of FHA, the GSEs, etc. The obvious/easy/popular solution will be to reign in lending to low income folks, and change policy attitudes that are more focused on getting people into homes as opposed to putting them into a sustainable housing situation whether they're owning or renting. However while measures like these would be a good idea it's important to realize that this crisis goes way beyond subprime loans to low income people, and that it was actually a function of bad mortgage lending to borrowers at all levels, not to mention problems with consumer debt in general, syndicated loans for PE buyouts, etc, etc. In other words: we need to rethink our nation's entire attitude towards housing, home ownership, etc, whether we're talking about low income homebuyers or highly affluent ones; a couple of ideas: Education: we need a massive education program that teaches people the truth about how homeownership actually works, as opposed to the truth as presented by the NAR and/or people trying to sell you a mortgage or a house. People need to understand that a home is where you live not an investment, and that while they do offer some financial benefits they're still a major liability that needs to be managed properly. The goal shouldn't be to buy a home from the perspective of the potential returns, the goal should be to buy an affordable home that you can enjoy. Better yet we need to educate people so that they understand what true financial sustainability is, so that their decisions won't be based on expecting stability via a specific action in of itself (owning vs. renting), and will instead be based on the impact of a particular decision on their own personal balance sheet. Whether we're talking about affluent individuals who would be better off buying a $300k home than a $400k one, or middle class and low income ones who should spend a few years saving money and paying down debt instead of taking on a subprime mortgage, we need to get people to start thinking in terms of sustainability. Most importantly: the current crisis would be markedly smaller if borrowers (of all types) had made smarter decisions and elected to take out the typical mortgages of old, instead of risking their financial futures with the exotic mortgage products of the housing boom. At the end of the day nothing will do more to avert future housing crises than a massive dose of education. Government Programs: building on the above all government programs that are designed to enable more citizens to purchase homes should be more focused on putting people into sustainable housing situations, more than they should be on enabling people to buy homes in general. Instead of subsidizing the purchase of a home by someone who can't quite afford it, the goal should be to work with citizens to get them into a stronger financial position so that they're not in need of a Government subsidy in the first place. It's all a matter of approach, instead of working to get person "X" into a house, address the issue of why they're coming to the government for help in the first place. Mortgage GSEs: in addition to my prior ideas on scaling back the GSEs and breaking them into multiple smaller companies, the size of the mortgages that the GSEs purchase should be limited to the value of a median house in a particular region. The reason for this is simple: the government should only be helping average citizens purchase houses, as opposed to the current situation where they're indirectly subsidizing mortgages that only 5% of the population can afford. In the end these are only a couple of ideas and overhauling the nation's mindset around housing (at the political and average citizen levels) is a huge job, however if we don't start taking some critical steps towards changing how this nation views housing we're going to find ourselves back in this situation again sooner rather than later. Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.