In early August 2011, the White House proposed selling the Federal Housing Finance Agency’s (FHFA) real estate owned properties (REOs) in bulk (read: cheap) to investors on the condition they rent out the properties for an agreed time period.
In the run-up to the expiration of the public opinion period, a Senate subcommittee met to debate the proposal and gather the opinions of power players in the nation’s housing market. [For more information on the Administration’s proposal to bolster home prices, see the September 2011 first tuesday article, REOs for rent.]
Although there were some idiosyncrasies to each response, the majority voice was clear: don’t do it! Between real estate trade association presidents, Home Builders Association CEOs and chief economists from trendy real estate companies, the Administration’s REO rental proposal was more or less dragged through the mud.
Sounding more like a Tea Party jamboree than a conference of real estate experts, the univocal criticism of the Administration’s proposal was that Big Government should not interfere. The so-called fire-sale of REOs would purportedly concentrate too many properties in too few hands and at too steep a discount.
According to the dissenting voices, since the properties would then be rented for a number of years, this would effectively take them off the market and out of reach for the thousands of real estate professionals who need to trade in them to earn their fees. This amounts to a distortion of the marketplace, not an encouragement arrangement.
So, while renting the REOs may be a creative method for stimulating still-slumping prices, the country’s real estate professionals just don’t see how the proposal puts money back in their pockets.
first tuesday take: The ills of the housing market are a macro problem. The real estate industry is a massive complex constituting the very foundations of public/private, business/personal and fiscal/monetary life in the U.S. Thus, no matter how promising the proposed strategies, no matter which method is decided upon to “solve” the housing crisis, someone will have to make a sacrifice.
How about a roll call of those who have already made dire sacrifices during this Lesser Depression: homeowners (painfully high loan-to-value ratios (LTVs) and paralyzing illiquidity), construction workers (a glut in the housing supply equals no jobs), real estate brokers and agents (stagnant home sales volume equals few fees) and finally, every taxpayer in the U.S. who has funded bank bailouts and numerous failed stimulus programs (read: the Home Affordable Modification Program (HAMP) and Home Affordable Foreclosure Alternatives (HAFA), to name two). [For more information on the dismal failure of HAMP, see the July 2011 first tuesday article, More bad news for HAMP.]
And who is conspicuously absent from this list? Lenders. When will the Big Banks be asked to make a sacrifice? Or better yet, when will they be forced to make a sacrifice? first tuesday has been agitating for cramdowns of principal balances on negative equity homes since the housing crisis began.
So, rather than another analysis of why cramdowns make political, financial and moral sense (pick your flavor), we will leave you, dear reader, with a question: Who will have the courage to force lenders to grant principal reductions and restore the housing market to its proper equilibrium? [For a review of the need for bankruptcy-ordered cramdowns to right California’s flagging housing market, see the January 2010 first tuesday article, Cramdowns, cramdowns, cramdowns!]
Perhaps someone should ask the real estate trade union if they are willing to take up the negative equity fight. The least and easiest done is for them to be another union that backs the Occupy Wall Street (OWS) engagement. We are the 99%! [For more information on the OWS movement and how it relates to the real estate industry, see the October 2011 first tuesday article, Unions occupy Wall Street — where are the Realtors?]
Re: “Can the foreclosure crisis be solved?” from Wall Street Journal