The Natural Rate of Home Ownership and Solving the Foreclosure Crisis

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The subprime mortgage crisis was triggered by several factors. There is a “natural” rate of home ownership which has held up statistically for many decades, it hovers around 63%. Both political parties, for widely differing reasons, over the period of almost two decades, pushed for relaxation of qualifying standards to try and elevate the percentage of Americans who qualified, which pushed the percentage of owners up to over 68%. Lenders for both risk and liquidity management, insured and repackaged loans for sale to third parties. This gave them back most of their capital to make additional loans. The lenders weren’t pushed to hold a portion of the risk and over an extended period the standards became more and more relaxed. This was …show more content…
Once mortgage insurance, values, and credit began to contract the feedback loop carried backwards into larger lender which held the mortgages, but currently being felt in the smaller community banks which were giving the builders and developers funds for construction of new homes. In fact the contagion spread to destabilize smaller sovereign countries such as Iceland.
The Home-Buyer Tax Credit, low mortgage interest rates, cessation of most of the new home construction, time to heal and wide scale reduction in prices have allowed many housing units to be absorbed naturally in the market. The low-hanging fruit has been done at this stage.
The issue remaining is what about the rest of the crisis and inventory. The shortest answer is keeping the first time buyer credit intact a while longer (perhaps one more year) and more time at these low rates, as long as inflation isn’t being touched off. The crisis took many years to build and will take more years to pass. Individuals need time to reset their expectations, for the market to normalize and natural family formation and population growth to assist in the absorption. At these low interest rates and prices, those that have capacity to buy will do so, either for occupancy or rental to those who can’t buy. Personal credit needs to be rebuilt and those that damaged themselves financially a chance to recover. The federal government’s near

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