The federal government, burdened with the mammoth task of resolving the foreclosure crisis and restoring the stability of the depleted housing market, has turned to an unorthodox – and some say desperate – way of finding solutions: Turning to the people for their ideas.
Believe it or not, you have until the 15th of September to submit your ideas for how to solve the foreclosure crisis to the federal government through FHA, Fannie Mae, and Freddie Mac. This would be a bit humorous if it didn’t smell heavily of a government that is out of ideas itself and is, in a word, stuck.
Not to say good ideas can’t come from the public. It’s just that the federal government has enormous resources and yet cannot come up with a comprehensive, cohesive strategy to tackle a housing crisis that has lasted four years and is well on its way for more.
To be fair, the federal government didn’t directly cause this crisis itself. The main culprits ultimately are the banks and lenders behind subprime mortgage lending, mortgage-backed securities, and fraud and deception throughout the whole process over the last decade – at least according to a lawsuit from the federal government against the biggest names in finance filed today.
In the lawsuit, the feds allege that the banks were neglectful when they reviewed mortgages to use as mortgage-backed securities. Investors bought into these securities, only to suffer when the underlying mortgages collapsed. As a result of this entire mess, Fannie Mae and Freddie Mac lost over $30 billion in taxpayer dollars.
Private investors are also up in arms, demanding that the banks buy back these toxic mortgage-backed securities.
This all goes back to the big question: What do we do for the foreclosure crisis? Suing the lenders responsible for the past few years is a start, one could suppose, but at the end of the day, Uncle Sam still owns roughly 240,000 foreclosed properties out of a total of 800,000 in the United States.
As long as the federal government is listening, we’d suggest putting the homes on the market and letting them sell to investors and homebuyers who are looking for deals and have the money to spend.
Releasing these homes and unloading them will depress the market. It’s inevitable; not even the government’s rental scheme will prevent that from happening. It is better to depress the market quickly so that the market can recover faster than to hold on to a quarter of a million repossessed homes that could be bought and rehabbed and kept or sold again.
Ultimately there will have to be some buy-in from the financial sector, which only makes sense because it is the primary culprit behind the mess. This could take the form of what one could call a foreclosure tax, or a forced concession from the banks in order to help offset some of the costs incurred by the government and taxpayers for owning these foreclosures and selling them, and to help offset some of the burden experienced by homeowners when their home values drop.
In the end, foreclosures need to be sold. Every solution – even ones from the public – needs to end at that outcome for the crisis to be resolved.
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Written by Alex Rolim.
