Will Political Measures Fix an Economic Problem?

Posted by Jim DeBellis on July 14th, 2011

With election season getting into gear, the administration is getting serious, or perhaps desperate, about “solving” the housing crisis. New initiatives and ideas are being discussed, but it’s hard to say if they have what it takes to turn the tide before November of 2012, which could end up being a referendum on the economy as a whole.
The $8,000 home-buyer tax credit that ended in the spring of 2010 did jump-start sales while it lasted, but the battery wouldn’t hold a charge when the power cables were removed. Demand died when the perk expired; so it wasn’t a cure, but rather just a pain reliever that worked while it was in the system. Some of the new ideas seem like they might be more of the same:
Interest-free loans of $50,000 for home-owners that find themselves temporarily unemployed will toss a life-preserver to some, but it won’t help the housing market in general. FHA announced a week ago that its unemployed borrowers can miss up to twelve months of payments while they try to find work. But everybody in mortgage trouble isn’t unemployed.
It’s not likely that Congress, after the spanking it took from voters demanding fiscal responsibility in 2010, will fund expensive programs or bailouts, so the administration is looking at creative ways to use Fannie and Freddie that they can pull off without congressional consent. They’ve considered easing up on refinancing fees to lenders so that borrowers can more easily get a more affordable mortgage. Another idea, coming from outside the administration, would change Fannie and Freddie’s guidelines to allow investors to buy more foreclosed properties and soak up the glut that is holing down the whole market. If those of us without enough cash or credit can’t become buyers, then maybe it makes sense to entice those who do have the wherewithall to invest in real estate. And they’re also kicking around an idea that would have Fannie and Freddie renting out much of it’s foreclosed inventory. These things could make a difference perhaps, if they worked – although there is a lot of room for disaster when you start turning huge quasi-government agencies into landlords. What are they going to do when millions of their renters don’t pay the rent, depending on their government landlord to get them by? Cash-strapped taxpayers aren’t interested insubsidizing millions of renters. And talk about the road to serfdom…this could be a path that literally transforms the country into a nation lords and serfs, or landlords and tenants.
So, where do we go from here? Tax credits, loan modification programs, low interest rates, and low home prices can’t get the housing market to budge or the crisis to lighten up. Housing has always puylled us out of economic tailspins before; maybe it’s time to quit tinkering with the housing engine to try to get it to start on its own and revive the broader economy so that it can push-start housing this time.