Is their a simple solution that would resolve the United States Real Estate Crisis?
Often the most complex problems have simple solutions. How would you stop foreclosures? What would you do to save home values. Many Senior Americans who have struggled to pay off their homes all of their lives, now find their net worth cut in half, and real estate taxes rising. How would you help them? What would you do for those whose homes are worth less than their mortgage amount?
The problem with simple solutions is that they often create new, more complex problems down the road. Much of the current problem we are in is a direct result of adjusted rate mortgages, which were created as a means by which lower income and credit challenged individuals could get a mortgage. However, if I had the means, I would cull the buying power of the wealthiest 1-percent in America, allocating 3 billion dollars to create a buy-out fund, established to buy out at-risk mortgages with50 to 150 thousand dollars owed. Those mortgages would be turned over to interest-free mortgages, with a flexible payment schedule, ensuring that the final monthly payment was actually within the budget of the homeowner. I would also lobby for tax increases on bank-held properties, forcing mortgage holders to be more willing to work with homeowners.
These are stop-gap measures, of course, but they would do a great deal to help, nonetheless. Full repair of the mortgage crisis will, unfortunately, take a great deal of time and effort, and will not truly begin until the overall economic situation begins a turnaround.
Often times in an effort to "solve" a problem, especially an economic problem there is a tendancy to initiate to over react because the problem is complex. As a result there are things in life and economics known as "unintended consequences" which I have written on extensively.
Unintended consequences are more problematic as the complexity of an issue increases. Therefore, interventionist policies tend to exascerbate a problem by magnifying the effects associated with unintended consequences.
Stated differently I once had reconstructive knee surgery and was in a full length leg cast. My girlfriend decided to cut my big toe-nail even though there was nothing wrong other than it was bothering her and therefore she would help me because obviously if it were bothering her it most certainly must be really troubling me. She ended up cutting the nail too short in which the nail became ingrown and infected, resulting in me going to the doctor to have the toe nail removed. This resulted in an unintended consequence due to intervening into something that would have worked itself out if left alone.
The current real estate market is no different fromt the big toe, because the real estate and construction business affects approximately 60 percent of the economy. solution to the problem is extremely simple, but the problem is that most people and most certainly the politicians cannot permit a perceived problem to correct itself.
The government needs to stop "helping" because they have done nothing but extend the length of time of the real estate down turn, created instability and uncertainty, exascerbated the valuation problems and generally increased the recovery time.
Prices can only improve with and increase in "demand". Demand can only increase if there are jobs and jobs can only be created by increasing the number of new business start-ups. Start-up companies account for 70 percent of new job creation. In order to have more start-ups there needs to be more "private" capital available with tax rates established for the next 25 years. In other words, for all of this to occur there needs to be "CERTAINTY" in the future.
Unfortunately, there is NONE of this occuring now. In fact, there is so much uncertainty that investors are not investing, businesses are not hiring or expanding and entrepreneurs are spending all their time and money trying to raise money, but to no avail. Some times the best help is the help you don't get!
JUST LET MARKET FORCES WORK. After all if you have a headache do you cut your head off?
The simple solution is the rise in prices of real estate. The market control prices, but the government can affect the balance of demand and supply through the following economic policy:
A) Increase demand
a. Reduce interest rate, which reduce mortgage payments, increases economic activity, and creates jobs.
b. Insure mortgage loans through FHA
B) Reduce supply
a. Sponsoring the foreclosure alternative programs – modification
b. Refinancing through FHA to reduce foreclosures.
C) Stabilize real estate prices by reducing the impact of the flood of foreclosure properties in the market through short sale programs.
D) Preventing the creation of a new bubble, by regulating the mortgage sector, which created accountability for loan officers, brokers, and lenders for irregularities in the process; like financing based on stated income, use of teasing low variable interest rates that increases after a year or so, and lack of disclosures to the buyer.
E) Preventing the instability by regulating the leverage of the lenders.
Refinance calculator: See how much you can save or reduce your payment with the refinance calculator http://www.housevirtualtour.com/mt+Shou … nance.html
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