No easy fix

Posted at 9:18 AM on April 6, 2008 by Bob Collins (3 Comments)

Harvard's Philip Greenspun asks an intriguing question today. Why do we want to maintain the world's highest housing prices?

We spent most of our investment capital over the last ten years building huge and luxurious houses. Americans were by far the best-housed people in the world before, but now many of us are truly living like kings. Does this help our international competitiveness? Does an employer care that we can go home to a 6,000 square foot McMansion and watch a 60″ TV in our media room? I don't see why the employer would care. In fact, an employer would probably prefer that his workers be housed in sufficiently squalid conditions that employees were encouraged to linger in the office. Certainly the employer doesn't want to have to pay a worker extra just so that he or she can afford to pay rent or mortgage in an artificially inflated housing market.

In Minnesota, as in many places, the pols are trying to come up with a fix for the foreclosure mess. Several bills are making their way through the Legislature, which has a little over a month left in its session.

The problem is figuring out an answer is like playing whack-a-mole. Fix a problem here, and two crop up over there.

Alex Steinbeck, who writes the blog Behind the Mortgage, says a mortgage foreclosure bill may make it more difficult in the long-term for people looking to buy homes. Because the lenders lose their right to foreclose, they may demand a higher premium in exchange (higher interest rates, bigger downpayments etc.).

To be fair, the moratorium targets owner occupant, sub-prime borrowers, so it remains to be seen whether a bill like this will meaningfully impact the pricing and/or costs for the "other 98%" of borrowers, but it is a real risk.

Also, the proposed moratorium may have costs beyond "higher future rates." That's because interest, penalties, and tax bills continue to accrue, and are not forgiven (only deferred) under this bill. The borrowers are still on the hook after the moratorium expires - and precious few will be able to pay then what they can't pay now.

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Comments (3)

I spent six years in the mortgage industry, bookended by time in the non-profit sector. I currently work in north Minneapolis around the housing crisis. I understand the financial arguments but also know firsthand what communities and individuals need.

Minnesota had a chance in 2001 to ban certain types of predatory lending, with a bill that didn't go nearly as far as the legislation enacted last year. Minneapolis had a chance to pass an anti-predatory lending ordinance in 2005. Every step of the way so-called experts from the mortgage industry lobbied our elected officials with this same argument of higher rates or reduced credit.

We had the chance to take a stand against predatory lending and such a stance would have created a bulwark against the housing crisis. Had we acted in the best interests of our communities sooner, Minnesota would have seen fewer gains in the housing market, but would now be the only state not in a crisis of historic proportions.

This deferment bill will keep 12,000 families from foreclosure while federal actions catch up with local need. Furthermore, it will show lenders that when rates and payments are reasonable, Minnesotans will stay in their homes, leading to more loan modifications. And 12,000 fewer foreclosures will mean less vacant homes on an already declining real estate market.

It's high time we stand up against the tired fear-mongering arguments of the very industry that has thrust this crisis upon us. Governor Pawlenty, tear down this foreclosure wall!

Posted by Jeff Skrenes | April 6, 2008 4:02 PM

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Philip Greenspun
"Why do we want to maintain the world's highest housing prices?"

Because we have the world's highest standard of living.

I wouldn't argue that we should 'want' the world's highest housing prices, but given the laws of supply and demand, its basically unavoidable.

Posted by bsimon | April 7, 2008 9:40 AM

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Sorry bsimon but the figures I have been finding on prosperity puts the United States at 24 out of 50 of the most stable and prosperous countries in the world.

http://www.timesonline.co.uk/tol/news/world/article3617160.ece

Posted by Mark S. Jungmann | April 7, 2008 1:46 PM

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