Wednesday, August 27, 2008


The economy is strained because of a rise in energy costs. The majority of the consumers do notice higher energy prices and now that the price hikes are hitting the food supply, the majority of the people are not insulated from daily economic concerns. In plain language, there is now less money being spent on retail than before because people have to pay more for fuel instead. This hits the whole economy, not just the housing market.

So what is going on in the housing market? Why is credit suddenly so ‘difficult’ to get? Who should get credit? Rather than a line of falling dominos, the housing policy is a boomerang.

October 2008 signals the end of a policy loophole in FHA allowing home sellers to pay a charity to pay down payments for people buying homes, which resulted in a 40% foreclosure rate in that group. On October 1, 08 the down payment rate will rise from 3% to 3.5%, payable by the borrower. (Arizona Daily Star, Aug. 27,08) It should be investigated whether these ‘charities’ that did this activity were crooked or just misled.

Since an easy credit policy resulted in a housing glut suddenly declared after a tightening of credit standards, then developers are left with unsold units. Now these investors who have been reaping high profits from the housing market want a bailout? Who wants the bailout? Who will benefit? Who are the investors? Who will lose money if there is a bailout? Who pays for the bailout? I need answers from our politicians.

Building beyond the ability to borrow and pay back home loans, plus the easy credit policy created an inflationary bubble where the stated dollar value exceeded the utility of the item. Some owe money for a unit worth much less than when they purchased it. With little equity possible in the future, why pay? Dump it and rent. There’s plenty of rentals.

Unsold units demonstrate the scope of the problem, which as of 2008 appears to be escalating. Foreclosures dump more on the market, which should lower the price for real estate, if the government does not prop it up to the point where the inflationary bubble is maintained.

If the Feds prop it up, money for the future is tied up and debt loads are too high, tying up money that should be circulating. Let the smallholders have the homes for $x on the dollar, payments due to the Fed while investors and lienholders stand in line. The foreclosures would refinance at foreclosure market value.

I have a few suggestions as remedies for the current financial crunch. Deflation heads the list.

The housing prices need to reflect the price of the foreclosures sold on the open market. The price per unit (bulk price divided by the number sold) will determine the low end of the appraisal pricing. If the banks loan money to inflated appraisals rather than the true selling price, then the foreclosure cycle begins again if the debt value exceeds the actual selling value of other similar units. If ‘hedge’ funds plan on bulk purchase of foreclosures, then I believe the lender should be obligated to offer the homes on the open market on an individual basis so that the populace could buy these homes at the same rate as these predatory ‘hedge’ funds. Enough has been bilked out of the real estate market. Somebody needs to inform the appraisers that the lowest price for a similar home is where the appraisal begins, not the predetermined value according to a lender offering no down deals structured to fall into foreclosure. Truth in lending should be truth in value as well. Someone buying a home for their family should not be bilked into borrowing more than the home is worth.

These ‘hedge’ predators need to find a new way to make a living along with the poor schmuck who was fired from his retail job because of a dropoff in business.

As of now, government expenditures designed to encourage the building of more residential units plus the costs of new infrastructure should be halted in favor of maintenance programs.

The encouragement of more development is not going to lead to market recovery and clamoring for more lax loaning standards will only continue the problem scam. Demanding inflated appraisals is not a moral way to do business. Expose to the light of day the identity of these principal investors and let us determine if they are worthy of a bailout. Who are they?

The business entities that perpetuated this subprime lending and adjustable rate mortgage ripoff should be disbanded, the honchos down the line be fired and investigated for fraud, truth in lending misrepresentation and misuse of public funds.