A Follow Up to Important Stuff Happening in Real Estate
Never thought I would have a post featured on ActiveRain, as this post was, or the number of hits it got on any of my blogs or imagine the number of responses to it. I am using quite a few different blog platforms and want to maximize my exposure so many of my posts can be found in multiple places. Anyway, some responses were wanting to get stuck in the same old political bickering and finger pointing that has hurt America. And some could see that the panel chosen for the Obama Conference on Housing Finance Reform seemed a bit slanted towards hearing from the banks point of view. I did find that Vince Malta did get to represent NAR at the Conference.
But are we to believe what Geithner said about some sort of continued but limited government support for mortgages during his remarks at the conference? Do not think I do not want to see changes to Freddie and Fannie!
I want positive changes that will benefit the average American looking to buy or sell a home. I am just extremely jaded about anything the government does, and this is not some anti-Democrat or Republican rant. And if you decide to comment on this blog and try to turn it into one, I will delete your comments. It is understandable that opinions are strong about how much the U.S. government should subsidize homeownership. But there is no Freedom of the Press here regarding politically laced comments, unless you are nominating me for El Presidente, Grande Poohbah & Emperor of All I See.
I think America is the greatest country in the world. And while America is the greatest country in the world, we have serious problems with all politicians and lobbyists mucking up things. And it seems big business, whether it is a bank or whatever, gets more say so in Washington than the people struggling to survive, the people punching a time clock, the people that get grease under their finger nails or have aching feet from busting their butts all day. And that is wrong in my book. I was blue collar for many years before I entered the real estate profession. Blue collar people are the heart and soul of America in my opinion. I may have lost the blue collar & the redneck, but it is still inside me. And a part of me. Never think because of my blue collar & redneck back ground, that you are better or smarter than me:
Underestimating your opponent is the first step to defeat. Sun Tzu
I feel, and have even blogged about the benefits of owning a home, not because I am in the real estate industry. I imagine many eyes are rolling, but if you know me, really know me, then you will know that I am being honest.The people that really know me will tell you I am proud of my past, love my wife, despise people that are cruel to animals and will tell you what I think and frankly don't give a darn if you don't like it.
There are studies that prove the benefits to society about home ownership, and many feel that building wealth is achieved via real estate. Interesting subject, but we can talk about those subjects another day. Let's just agree for this article that a healthy real estate market and home ownership IS good for America, from a social and economic viewpoint.
Long long ago, Congress passed laws/rules/policies that essentially forced Fannie Mae and Freddie Mac to make housing affordable & available to many more people than ever before when the politicians decided that home ownership was a right, in what many might say was a political maneuver.(You will resist the urge to make snide political comments)
So many Americans started buying homes that had never been able to enjoy the American Dream. Owning a home is a privilege in my opinion. IF you can pay for it and have the credit to get the loan, and all the many other factors involved make it the right decision for you, then and only then should you buy. Owning a home is not a right. But sadly some people bought that were not really qualified or were tricked into predatory loans. So here we are today.....
It seems that the conversation at the Obama Conference on Housing Finance did seem to imply that whatever changes occur, the GSEs needs to be around to make sure that everyone, regardless of their income level, will be able to get a mortgage. Time will only tell if that will be true. I am sure as I am writing this, many brilliant minds are behind closed doors brainstorming how the banks will want to use this to their advantage. And like I said in the previous paragraph, owning a home is not a right, but a privilege in my opinion. Just because you do not drive a German car or only buy designer clothes does not mean you should be subjected to being a renter for your entire life. If you have the good credit because you pay your bills on time, and you can easily afford the payment, then it should be an option for you.
To quote Geithner in his opening remarks "It is not tenable to leave in place the system we have today." And I feel we must work to ensure some of the problems of the past are resolved but without throwing the real estate market into another tailspin.
I must also quote Mike Pence, R-Ind “It is past time to rid the American taxpayer of the liabilities of these financial institutions once and for all.” But sadly the remainder of his remarks also fall into the typical finger pointing and political grand standing stuff.
However, consider just that one sentence.
It is apparent to many that something must be done. I am now, just as in my other post, saying we must be careful with making too many changes all at once, and we also must ensure that PORK is not hidden in it. No matter what your political leanings, you must admit that Washington loves the PORK. So why not turn them into something like the Tennessee Valley Authority?
If you are not familiar, TVA was started as part of the New Deal. Now before you start getting all political, you have to know about some of the history that meant we needed TVA for flood control as well as what people associate it with today. President Franklin Roosevelt asked Congress to create “a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise.” You see even though I am now blessed with living in South Carolina, where my parents grew up, I was born and raised in Tennessee. So I am familiar with TVA. And unlike some federal agency that will just eat up our tax dollars and be a source of PORK, TVA is politically independent and self-sustaining. So it can be done, it just is going to require thought and input from a broad range of concerned individuals that are all working for the best interests of America. And we have absolutely got to ensure that the new & improved Freddie & Fannie are totally insulated from the politicians!
Will making changes to Freddie & Fannie mean the end of the low-cost, 30-year, fixed-rate mortgages that so many home buyers love? Maybe. And I have no problems with 30 or even 40 year loans, heck if someone wants a 50 year loan and they are young then why not? I do think one of the problems in the past was 100% or above financing. Just as I have a strong opinion of Rent to Own or Lease Options as a way to prey upon uneducated home buyers, I also feel that financing with not much skin in the game is a mistake.
Whatever changes occur, more than likely it will have to include some sort of government guarantee to make investors willing to buy mortgage-backed securities. So one of the important questions is how can we change Fannie and Freddie into something that will prevent a total meltdown of the financial system? How can we change things so that the investors take their lumps instead of the American taxpayer? After all, part of investing is taking a risk, and why did we set up a system with the taxpayer paying for any loss while the investors got all the rewards?
I also feel we must make sure that affordable mortgage rates are available for all qualified borrowers. Sure the investors need to make money, and accept the risks if they want to reap the rewards. But the important thing is that any one that is qualified should be able to get a mortgage! Even in tough economic times, for a strong and healthy housing market we need to somehow ensure that capital still flows so that people can buy or sell a home. Because if the credit market dries up, then the economy will come to a screeching halt. It just almost happened, and the banks made it pretty apparent that we cannot depend on them to keep the economy going during tough times. They do not care about America, or you or me. They care about their investors, stock price, growth rates etc etc.
Getting the government out of the mortgage market will be difficult, but considering that Fannie Mae & Freddie Mac had have lost so much money..... We cannot continue this madness. I have heard we are looking at losses of over $150 billion already. Something must be done. But we cannot let just the banks and big financial institutions make these decisions. I was so relieved to see someone from NAR was at this conference. I am not sure why some members of the panel were advertised and others were not.
Anthony Sanders, a professor of real-estate finance at George Mason University was quoted in the WSJ as saying "The government was complicit in easy lending standards and lack of regulation in driving up a huge housing bubble." Duh!
That statement is almost like saying that JOBS are the key to the economy recovering...
However, we must have government oversight in my opinion. How to do this and not keep bleeding money is a complex question. Without the government involved, I am not sure we will see tight regulations that will prevent some of the problems of the past. Without someone watching the hen house, the fox is going to slip in! We must work to make sure that sound underwriting is in place, but also not go overboard. These are complex situations and require much thought to ensure that the public is protected without making the investors put their money elsewhere!
Believe it or not I think we should also make sure that the investors are protected! I know as much as I write about hating big business, that this may seem surprising. Investors are important and need to be able to not have some of the tricks pulled with mortgage backed securities that some very very big name companies just paid HUGE settlements over. You will understand if I do not mention them by name since they have more money and lawyers than I do. But lets just say the mortgage related securities investment business had it's fair share of problems and that needs to be resolved. Investors need to be able to invest and have every thing disclosed to them about the risks and rewards with complete transparency! If you watch some of the investigative shows on PBS or maybe something such as 60 Minutes, I am sure you have seen some of the stuff these people were doing. It must stop!
Have you ever heard the old saying "Don't put all your eggs in one basket"? I think that is also something we must look at when thinking about changing Freddie & Fannie. If we combine them, then it could be a bad thing if (heaven forbid) another housing or financial disaster occurs. Also by having at least 2 or maybe even more Freddie and Fannies, we can make them compete against each other and hopefully also against the banks, which in turn should make mortgages cheaper and better for the people buying homes. Competition will make them stronger & better and probably more importantly, lower prices for the home buying consumer in my opinion.
One thing that bothers me about the current housing market is that I have people call me about super cheap homes and it seems that lending for all types of housing does not exist. Of course there are condition issues to contend with many times, but we need to make sure that there are ways to get a mortgage for all types of housing. Even for the investors wanting to buy multi family or rental homes. People must understand that investors serve a very important part of the housing market and they must be able to get credit to operate.
Well there you have just a sliver of my opinions on this complex issue. I do not have the answer, only opinions. I am not an expert, and frankly, with something as complex as reforming the GSEs, it is going to take a team effort without political BS getting in the way.
