Only a bit late, but there is actually something good here – from the Wall Street Journal:
The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter.
While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels…
It was on July 27th, 2010 that I provided a revised plan for fixing housing. Here is the central part:
…Essentially, increasing demand is not something we can do in any time frame that will work. And, meanwhile, the longer we go on, the worse it gets.
If you can’t do much with demand, then it is to supply we must turn. How do we lower the supply of houses actually or potentially on the market for sale?
You turn them in to leased houses.
Millions of potential home owners cannot buy homes because they are out of work, have reduced income or have wrecked credit. With all that, they still have to live somewhere, and while some of them are in desperate straights, most of them have some sort of income (and, in a lot of cases, just as much income as they had before they lost their homes). Can’t buy? Rent.
The trouble is that banks don’t want to be land lords. This is understandable, and I wouldn’t ask them to be. But they can put the houses in to corporate structures which do manage rental properties and which can use at least part of the rental income to provide a revenue stream for the banks. We can put a big incentive on this by making the revenue from rental housing tax free for five years. The key is that time frame – though we can go as low as two years: but we want these houses off the market until we have at least a chance of reviving the economy and thus providing a solid base for home demand.
The idea here is to take the massive number of foreclosed homes and lock them away for two to five years – to get out of the housing market the houses which simply don’t have a buyer, and won’t have a buyer for some years to come. But we can’t just let them sit there unoccupied and deteriorating, nor can we expect banks to just sit on things which don’t produce any revenue. We also don’t want to increasingly force the banks in to fire sale prices for the homes they hold as that will just accelerate and make worse the problem we have…
I don’t have hundreds of taxpayer-funded staffers. I’m not some sort of brilliant economist. I’m just this guy who thinks about things and then writes down what he thinks about – I figured this out a year ago (and, actually, longer ago than that – this is a revised plan, some months earlier I had put it out in a slightly different form). It just amazes me how completely incompetent government is. The fact that it is July of 2011 and the housing market has entered a double dip recession before someone in Obamaland starts thinking about this is a sad commentary on the people running the show…they haven’t a clue. But 2012 is coming and that is starting to concentrate some minds over there.
The one thing we can’t afford to do, however, is have Obama actually in charge of the effort. All he’ll wind up doing is ensuring that his cronies get a big payday. We need to really move on this – my plan or something like it. And to do it right it will have to be genuinely transparent, will have to benefit actual people, and should probably be handled by local banks rather than Obama and Bernanke’s buddies in the “too big to fail” entities. And given Reid’s background in corrupt land deals, it would probably be better if he was kept away from it, too. The House should take up the idea, craft it in to legislation and then hand it to Obama – doing it in such a manner that it is such a well-done bill that Obama and Reid daren’t try to modify it.
One thing is certain – if we don’t do something, then housing prices could collapse entirely. And I mean that – like a house worth $125,000.00 today being worth $50,000.00 a couple years from now…and with hundreds of thousands of homes essentially abandoned and deteriorating like Detroit housing. We’re in a housing death spiral – we have to try and stop it; my plan is to take the houses off the market and leave them for the use of the regular, American people. If someone has a better plan, I’m all ears…but we have to do something, and do it quickly.
Blogs For Victory 
“One thing is certain – if we don’t do something, then housing prices could collapse entirely. And I mean that – like a house worth $125,000.00 today being worth $50,000.00 a couple years from now…and with hundreds of thousands of homes essentially abandoned and deteriorating like Detroit housing. ” Mark
Detroit has abandoned houses that are located in, drum roll please, …. Detroit. Without any industry and jobs the type of working class people who take care of their homes leave. The already abandoned houses in the US don’t have occupants because they are in the ‘shadow inventory’ SO that the rest of the real estate market doesn’t have to admit that housing is still overpriced 20 percent by historical standards. I don’t have any rental properties but it seems anti-free market to limit the profits of landlords by government intervention —-“they are under serious consideration by senior administration officials because rents are rising even as home prices fall”.
My Idea– Make the banks sell the houses at auction, take the losses as tax write offs and go bankrupt if you have too much debt. The people buying the houses at auction would be landlords and the increase in available rental properties would drive down the price of rent and bring home prices to historical reality. In Vegas if a person has big losses on credit there comes a time the Casino asks them to square the debt.
You’re exactly right barstool. The last thing that should happen is turning the government into a property manager, that’s a recipe for disaster in my opinion. Lowering principles to reflect current market values for those home owners still capable of making mortgage payments, or selling the homes at auction, are the two best remedies.
You’re exactly right barstool
Wow! What’s next, dogs laying down with cats?
Actually, I also agree with both of you.
I would agree with the three of you. Auctioning the houses, will give them new owners. ownership means someone would be responsible for them. Much better than having the government rent them out.
holy crap I agree with all of you…..I must be dreaming 🙂
Bardolf, There is only one problem with your solution. It would make sense. Therefore your solution is doomed.
GMB
LOL
I am giddy—actual ideas being discussed as actual solutions to real problems!
It’s a dream come true.
Or is this just a parallel universe where things make more sense than in ours?
Just to add my two cents—I agree with all of you.
We’ve been talking about this out here in my unstylish zip code for a couple of years now.
There was a devastating tornado in Windsor, Colorado a couple of years ago, destroying hundreds of homes, and my brother, who has a farm near there (that is to say, not very far away, ALMOST in Windsor) went to local banks and suggested that they cut down on their inventory of foreclosures by making these houses available to people who were suddenly homeless. Employed, insured, able to make payments. But regulations prevented them from renting these houses or making quick sales possible.
Banks and government regulations prohibit any common sense to prevail, but in the private market, solutions are found. I have a couple of investors, including myself, that are doing seller carry back loans to those that have been adversely affected over the last couple of years. There are a lot of buyers that have good employment, and a little money in the bank, but due to negative equity, and their lenders reluctance to work with them, they decided to walk away from their previous home’s negative equity, hurting their credit to be sure but are still great candidates for seller carry backs.
Well, yeah, no one wants the government to be landlord…my idea is that the owners of the houses would be the landlord; in this case, the banks as they are foreclosing on the houses. The problem with just putting them at auction is that you have to realize there are millions of houses in the “shadow inventory” – foreclosed on but not placed on the market. You dump those houses on the market and home values will drop 50% in a week…which would push even more people in to “underwater” status thus encouraging even more defaults, adding more houses to the market, thus driving prices down even more. This is a viable option but it would also be very painful – my solution allows the foreclosures to happen, but doesn’t put the houses immediately in to the sale market, thus sustaining home values and allowing people – banks and regular folks – a breather in housing presumptively until the economy improves.
Housing will never go back to 2007 levels – not, at least, in our life times; but we’re in a gigantic crisis here and if we don’t carefully think about what we want, you’re going to have a really bad situation where the primary wealth of the American middle class – housing – wiped out…and perhaps for good.
Mark,
The problem with having banks as landlords is that many of the houses they own would require some work before they could be rented out. A bank isn’t going to want to pout any money into a foreclosed house. Second, auctioning off foreclosed houses wouldn’t have to happen all at once. It could be done over a period of time. People buying foreclosed homes are going to be more apt to put money into improving those homes which would help the economy.
Casper,
In the best case scenario, the bank would foreclose on a house and immediately rent it to the former homeowner…who would have a vested interest in keeping it up because (a) he lives there and (b) the underlying concept for the homeowner is to rebuild credit over a two to five year period and then buy the house back from the bank.
The houses, as I stated, would have to be placed in to some sort of corporate entity which actually manages the property – with part of the revenue stream going to the bank on a tax-free basis for the life of the lease. The rest of the revenue stream pays the property management company and maintains the property (as in all rental properties, if things break, it is the landlord’s responsibility to fix them except in cases of gross negligence by the lease-holder).
I really do think I’ve found the best solution. You have to consider the following:
1. We already have millions of foreclosed homes and a large portion of these are already deteriorating due to being kept empty for months or years: a lot of home purchases are falling through because upon home inspection, the long-empty foreclosed home is discovered to have major problems requiring tens of thousands to repair…houses sitting empty are essentially houses left to rot. My plan would prevent this from continuing and worsening.
2. Millions of people who are responsible and hard working are out of work – this has killed their finances and destroyed their credit. It will be a year or two – at the minimum – before they will credit qualify for a home loan. Even if the economy improves next week, we’ll still have reduced housing demand for at least two to five more years. Better to have a huge number of foreclosed homes off the market until there are buyers qualified to buy.
3. It is a gut-wrenching disaster for a family to lose its home. On a human scale, it would just be nicer – easier to take – if you at least got to stay in the place you’ve poured your heart in to. Wouldn’t have to uproot the kids; lose friends and connections. There would be hope for the future.
The ultimate fix for this – the reforms we should do – are a separate issue. This is just a stop-gap to get us past a really lousy situation which is getting worse and threatens economic catastrophe. In the future, we should forbid a bank from selling a loan – you write it, you keep it until its paid. We should also allow a genuine “deed in lieu of trust” in order to equalize the power between lenders and debtors in home loans. Lots of things we can do – but right now we’ve got a bomb half exploded…I want to cut it short.
Mark,
Just a couple of questions.
How is someone who just lost his house to foreclosure going to be able to pay rent on the same house? Would anybody want to pay rent to a bank that foreclosed on them?
Casper,
Some absolutely won’t be able to – but other will. Its like this … home has a $400,000.00 note on it and goes in to foreclosure because Mr. Jones lost his $100,000.00 a year job. But given the way things are, that 400k home would only sell for 125k on the market…and while Mr. Jones had a $2,200.00 mortgage payment, the rental value of his home will actually be in the neighborhood of $1,200.00…and now that Mr. Jones has got himself a replacement job at $40,000.00 a year, he can afford that. Its not a great situation for Mr. Jones or the bank…but it is better than having it be sold at auction because there are so many millions of houses in that condition that it would drive the 400K house down to 100K, or 90k…or even lower. Meanwhile, Mr. Jones has to move and that is its own bunch of problems.
It is true that in normal times, landlords don’t like renting to people who just went in to foreclosure…but the fact of the matter is that millions of people are in this condition. We have to deal with things as they are.
The problem with your senario is you are assuming that Mr. Jones gets another job. What if he doesn’t? In fact the way things are going right now it’s doubtful he will. So now Mr. Jones is moving in with his 60 year old parents and the bank doesn’t have a renter.
The problem with your senario is you are assuming that Mr. Jones gets another job. What if he doesn’t? In fact the way things are going right now it’s doubtful he will. So now Mr. Jones is moving in with his 60 year old parents and the bank doesn’t have a renter.
Casper,
We just went through this. Our 37-year-old daughter lost her job last August while in the middle of a divorce, and she moved in with her “60-year-old” (plus a few) parents. Her husband got the house which was under water, but only by around $10 thousand. He ended up selling it in a short sale a couple months ago, triggered by the fact that he was 6 months in arrears on the mortgage payment. Our daughter lived with us until two weeks ago when she finally, after 11 months and and a couple thousand job applications, got a decent job about 3 hours from us. Her and her ex-husband’s house payment had been $1,600/month. Her apartment that she just moved into is $775/month.
And life goes on.
Spook,
Sorry about what your daughter went through. I’ve been lucky. The only time I’ve had any of my children move back in with me and the wife was several years ago when my son and his wife moved back here and that only lasted for 6 months. All of my kids now have stable jobs, stable relationships and their own houses. Hope it stays that way.
I have also noticed another disturbing trend. I have a couple of friends in their 50’s who are raising their grandchildren. I’m hoping that isn’t something we ever have to do.
Casper,
As I said, some just won’t be able to – some people who have really lost everything will have to lose their home entirely…but most people don’t fall down quite that far, at least not for long. Things can be adjusted….and anything is better than dropping three or four million houses on to the market over the next year or two.
So far this thread epitomizes the famous statement by William F. Buckley:
Taking a risk here by adding another idea/question to discuss. Maybe a stupid idea, a liberal idea who knows.
QUESTION: Is it healthy going forward for “the primary wealth of the American middle class – to be in their house”?
Let me explain. I like a nice house as much as the next guy, but the mortgage payment nowadays takes too large a portion of our economic vitality. I know people who make 100K and have a 350K mortgage. They spend 50+ hours per week at jobs they don’t much like in order to afford the house so that a couple times per year they can have a party, during the summer their kids can use the pool instead of going to one of area public pools and eventually when they have paid it off so they can remortgage it to send their children to university. One of the couple wanted to quit and start a small business but she is trapped by the mortgage. I don’t know how typical that kind of story is in the rest of the US. If it is typical it seems to be sapping a motor of growth.
@Mark, I know one couldn’t simply dump all the shadow inventory on the market at the same time. Nevertheless there isn’t a painless way to deal with the reality that many banks and people made risky decisions in the dark.
When the government encourages people to buy ‘the dream house’ which is barely affordable (via the housing write off on 10W40 or bad loan write offs for banks or the Obama plan) vs. small houses or renting it messes up the market. It discourage responsible people from paying off their house sooner and then using their money to start other enterprises, it is unfair to landlords (okay I’m liberal so that doesn’t really chafe my hide), it drives up the cost of education and allows LA to build half billion dollar high schools.
bardolf,
Part of the problem is that we, the people, ceased looking at our houses as homes and started thinking of them as investments…tens of millions of Americans (yes, I plead guilty) started using their house as a piggy bank. But home ownership – small-holder property ownership – is a requirement for a democratically governed republic. It is this which provides social stability and those social and economic roots which tend towards the conservative outlook – the absence of which causes the death of any democracy or republic (sorry, liberals, you are the froth of the republic…permitted to exist, but it is the boring, conservative middle class which actually makes things work).
So, yes, we must continue to encourage home ownership…but as I hinted above to Casper, with some big changes in how its done. To expand a bit.
1. No selling of mortgages. This does two things – makes banks more careful in their underwriting practices because they won’t be able to palm off bad loans a month after writing them and it also prevents the massive, speculative bubble we saw just before the crash.
2. Genuine “deed in lieu of trust” – a person buys a house with a mortgage will be permitted to voluntarily surrender the house to the bank with no hit on his credit and no deficiency judgement. You take a home mortgage and you’re either going to pay the note, or surrender the house…but if you, Mr. Bank, are going to lend money then you are either going to get your money, or you’re going to get the house…so let’s be careful in how we rate the value of the home and, you know, not come up with all sorts of funky financial tricks to loan more money than the house is worth or ever likely to be worth.
3. No property taxes on a person or family’s primary residence where the land is 2 acres or less in size. Yes, this essentially excludes almost all American homes from property taxes…but land you can be taxed off of is never owned, it is just rented from the government. I want to end that – once a home is paid for, it s paid for. Alternately, you can make it so that land is never alienated from its owner for taxes…you can fine and jail the property owner for failure to pay, but you can’t take his property. Property is the basis of all democratic and republican government…think of it as at least semi-sacred as long as it is the property of a person or a family (sorry, but zillionaire mansions and yachts don’t quality as “property” in this definition…neither does corporate property).
Mark,
Let me respond to the points you made to bardolf.
1. No selling of mortgages.
I agree 100%. The first mortgage on our house was sold 3 or 4 times before we refinanced with a different bank. It was hard keeping up with who to make the payments too.
2. Genuine “deed in lieu of trust” – a person buys a house with a mortgage will be permitted to voluntarily surrender the house to the bank with no hit on his credit and no deficiency judgement.
I agree.
3. “No property taxes on a person or family’s primary residence where the land is 2 acres or less in size.”
That would never work. You would destroy most of the state and local governments in this country. Maybe that’s what you want, but I kind of like having police and firemen around.
Casper,
First off, thanks for shooting your own liberalism right in the foot – you just admitted that most of the wealth of the United States is held by the middle class….which is why we tax all property rather than just zillionaire property.
But, aside from that, I realize it would be a big shift, but it can and must be done – the family home must be impervious to everything except family idiocy. This is crucial to the maintenance of a free republic. Jefferson was right, you know? We can replace it with a mix of income and sales taxes, as well as continue to tax larger and corporate property. Additionally, parents of school children should pay more for their own children’s education…though, of course, they should also have the authority to direct their aliquot portion of school funding as they wish.
Big changes are necessary to revive America. My view is that we will have to become Distributist if we wish to remain free and prosperous.
Mark Noonan
July 23, 2011 at 4:26 pm #
Casper,
“First off, thanks for shooting your own liberalism right in the foot – you just admitted that most of the wealth of the United States is held by the middle class….which is why we tax all property rather than just zillionaire property.”
First, I admitted nothing of the sort and second it’s simply not the truth. The top 10% has over 70% of the wealth. Unless yo consider the top 10% middle class.
“We can replace it with a mix of income and sales taxes, as well as continue to tax larger and corporate property. ”
Never going to happen. Your side won’t raise any taxes, especially on income.
catspuke
Never going to happen. Your side won’t raise any taxes, especially on income.
Id settle for a tax increase on the 48% who pay NONE.
say 30%?
then ALL would pay “their fair share”
never happen they are all donkRAT LOOTERS.
It’s mostly middle class people whose homes are on lots of 2 acres or less. Ever look at the homes of the “rich”? Most of them are on large lots.
Who has most of the WEALTH in the nation has nothing at all to do with Mark’s idea, which I think is well thought-out.
catspuke
Maybe that’s what you want, but I kind of like having police and firemen around.
WHY?
the cops prevent nothing only investigate afterwards cut them by 90%
VOLUNTEER fire depts have worked in this country since the beginning.
and schools? with Morons like you “teaching” the tripe they do today spare me. Ill keep the money and pay my own way.
Amazona,
In case you didn’t notice I agree with most of what Mark suggested. Do you think Republicans would raise other taxes to replace property taxes?
Casper,
We GOPers are, I think, ok with an increase in one area provided it is compensated for by a reduction elsewhere…and, of course, as long as the tax change does not destroy wealth creation. The reason we won’t agree to a tax hike right now is because we know it will be wasted – cut spending massively, first, and once that is done if there is still a deficit to deal with, then we’ll talk taxes…so, get back to us in January of 2013 on the tax hike issue. To put it to you bluntly, Casper, we don’t think that Obama and his Democrats are lying about their willingness to cut spending, we are sure of it…the only way to convince us otherwise is to show us. Pass and sign massive spending cuts before a dollar of tax hikes…prove to us that Democrats are lying.
And it doesn’t matter if you admit it or not, the fact that you know a removal of taxation on middle class property would be a gigantic reduction in government revenue shows that, in spite of what you admit, you know where the money is.
And just wait until we Distributists finally sell the whole GOP on the idea of a Differential Tax to replace the Progessive Tax. We’ll build up a body of independent freeholders faster than you can say “knife” and then your servile welfare State is well and truly cooked.
Mark,
What Obama is offering right now is both cutting spending and adding taxes. You can do both at the same time. Since revenue bills have to start from the house new taxes can’t be added without the approval of the Republicans.
And the problem lies in the raising of taxes.
Please take the time to look at how the taxes (so coyly referred to now as “revenue”) are to used, and then explain to us how these uses are consistent with the Constitution.
As Barry Goldwater said: I will not attempt to discover whether legislation is ‘needed’ before I have first determined whether it is constitutionally permissible.
This sounds like an excellent foundation for an approach to our financial problems.
Mark, not quite sure how a system described so lovingly as “……the one really useful end it may serve, which is the better distribution of property….” is going to end up “…build(ing) up a body of independent freeholders…”
Sorry, but any governmental system with the goal of “…… the better distribution of (other people’s) property…. ” is repellent to me..