The Housing Crisis

March 19, 2009
The Housing Crisis
By T.S. Khanna

During the past three years, January 2006- December 2008, there have been 4.7 million foreclosures. During the next four years, January 2009- December 2012, 6.4 million additional foreclosures are projected, if the job market remains steady.

$ 275 billion stimulus plan to stop the foreclosures seems flawed:
1. It requires Fannie Mae and Freddie Mac to renegotiate loans for lower mortgages or lower monthly payments. The process will be cumbersome, judgmental, and frictional;
2. The newly laid off may not be able to pay even the lowered payments and may set off a new wave of foreclosures;
3. It would not permit easy relocation for new jobs;
4. It runs counter to the democratic philosophy of personal responsibility for one’s decisions and actions;
5. It is morally wrong to reward the irresponsible, who did not earn those homes in the first place, at the expense of the responsible who pay their taxes and manage their means.

In spite of the hard times, 90% of the homeowners stretch to honor their mortgages. Shifted burden of saving the 10% will cause many of the 90% to set off a new wave of foreclosures.

I suggest:
1. Eliminate tax on all residential properties to make them more affordable;
2. Federal Government may buy or invite investors to buy the foreclosing homes and rent to the occupants at 31% of their gross income;
3. Immediately stop bailing out the financial institutions; and,
4. Restructure the economy on economic principles, not on political idiosyncrasies.