U.S. "Betting the Farm" on Mortgage and Housing Recovery

20091129 Update: On further review of the markets and the coming depression era...I now feel The report below is wishful thinking...I would sell everything now while it has a higher value. Expect a 40-60% decrease in the value of your real estate in mid-late 2010.


Let's start with some facts by people who know... http://www.mortgagebankers.org/files/Bulletin/InternalResource/70941_.pdf
Fast, easy to read, summary of the Mortgage Market and economic assessment of housing markets.

I took away these messages from the report:

Nothing is coming back to mortgage normalcy (or real estate values climbing again) anytime soon. New intensive regulations and projected rising interest rates (to save the Dollar 2010), will ultimately drive already overworked Mortgage Brokers and Bankers ...literally insane.

Mortgage originators and processors are currently struggling to learn the new regulations while trying to refinance 1/7 of the home mortgages in existence. Not to mention processing all those foreclosures left in the wake of Sub-prime meltdown caused by excessive greed (easy money) and Government "strong arm" policies on banks forcing home ownership lending.

Now the ARM foreclosures are really "ramping up" and what isn't being refinanced, is being foreclosed upon after endless mandated delays to that process directed solely by this Government trying to keep families from wandering the streets with their belongings looking for a place to stay. Don't get me wrong, I am all for people staying in their homes for as long as they can...what I am acknowledging is that...a) the shape of the economy and job market is not really their fault, and b), someone, (the tax payer, or next person filing for a mortgage) will ultimately pay for that freebie....likely both. I would have rather asked someone in need to stay at my house, than finance the months of notes over 10 years. I think we will be doing a lot of that soon.

"Betting the Farm": In my opinion, (and in the opinion of others more experienced than me), we are "betting our proverbial farm" on sustaining the long standing policies of "everyone should own a home" and "every property can be financed". This was a good times 1950's Policy based on inexpensive homes and low rates. It was refined through the 1960's to include new mortgage products. It hit a bump in the road in the 1970's with high interest rates and accelerated into the roaring 90's where it lives on today. (Read that as one Big Bubble).

These policies are not only wrong, but unsustainable. They are unsustainable because the conditions to sustain such policies and credit capacity to achieve it doesn't exist. Restated, "employed" wage earners who can afford new mortgages are lacking and will be for some years, and the remaining debt capacity to absorb new construction in the wake of new more strict guidelines and massive home inventory is not the safe bet it once was. Case in point.

We just experienced a very small piece of this market fail, (sub-prime), with the end result of collapsing national banks, trillion dollar bailouts on the backs of taxpayers, bankrupt brokerage houses who played heavily with Mortgage Backed Securities (MBS), and a deep and lasting shutter in world economics which is still resonating around the globe now a year past the event.

The silver lining, if you could call it that, is that sub-prime and MBS meltdown exposed the "systemic nature of the economic beast".

Let's look back again. In 1930's less than 30% of families owned their own home. Most rented. Take my parents who rented for years until in about 1956 home ownership was put within their reach through FHA policy and their meager two income salaries. Today the numbers look more like 66%. That's a big shift in the economic paradigm.

There is a large threat of devaluation of all real estate should the dollar move down much further or inventories increase. If the dollar collapses outright to 30-40% of current value, massive personal wealth will be walked away from....just like in the 1930's....just like Argentina

What we need is to help the housing and mortgage pendulum swing back towards center. The correction will mean that people will need new skills to cope with the slowing of the growth in that market. Likely, these new skills and training resources will not come from the universities. It will come as a byproduct of cutting edge R&D and trade school expansion.

America can lead again. The will surely exists, but the processes to get past the real estate bubble are not yet there. We need to refocus on building tomorrows technologies and saving the few we need to survive....like farming. I only hope there is time to make the shift.

Not everyone can sell insurance.