Sunday, March 07, 2010

Further Thoughts On the Ongoing Housing Mess

Every time I hear about yet another proposal to prop up the housing market and enable people who should never have been in a position to buy real estate in the first place to refinance or otherwise stick around in the market, I hear the word Nehemiah, particularly for first-time homebuyers who can't necessarily afford home prices in the New York metro area.

We do not need a propped up housing market. We should not want further subsidization of real estate acquisitions for homeownership because it further distorts the marketplace and gets people who might otherwise be satisfied with renting at affordable prices to buy into the notion of homeownership when their financial situation does not indicate that it is a prudent step to take.

It's unsupportable and the moment that the price supports are eased, the market will again drop back and correct to more sustainable prices. It's what markets do.

Flushing the market of foreclosure risks is also what has to happen for the real estate market to become healthy once again. Keeping them in the marketplace might help some people who are trying to sell and move up to new housing, but it's a long term detriment to all people - including buyers because the prices remain artificially higher than they otherwise should be.

Nehemiah, as I've written previously, has a sterling track record on homeownership and exceedingly low foreclosure rates. They don't accept people into the housing program unless they have good credit and can repay the loans because no one want to get stuck with the costs - not the people running the program nor the homeowners, who also receive counseling on homeownership responsibilities.

That's the kind of program that we need - where people understand the costs and risks of loss - that if they cannot afford to repay the loans, they should not be buying in the first place. It's why the program is so competitive; so many people are trying to get into the program for affordable homeownership that the program can pick only the best risks - the ones best capable of repaying their loan obligations and maintain the properties.

We should not be demanding that further foreclosure remediation programs be instituted because it would only prolong the misery for all involved. Foreclosure is the proper course of action when the homeowner cannot afford to repay and the bank and the homeowner cannot agree on new terms. It means that all the parties to that transaction lose out - forcing the bank to take a loss and for the homeowner to do likewise. It is a chastening event that teaches all those involved not to overextend credit and assume obligations that are unaffordable.

Any program that denies such lessons will result in further misery down the road because no one will have learned the lessons of the real estate collapse and that homeownership and borrowing should go to those who can afford to repay those obligations. Throwing more money at the foreclosure mess will not fix it - it will only prolong the mess.

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