The housing financial crisis is in the news every day, with stories of foreclosures, community blight and loss of money by homeowners, financial institutions, and investors across the globe. As a result of these problems, lenders are tightening their standards and are foreclosing on homeowners in trouble. Investors are selling off their mortgage holdings, and buyers are staying away, waiting for prices to drop.
We are in a vicious downward spiral that threatens our neighborhoods and the foundations of our home lending system. The financial crisis could further damage our economy, taxation system, infrastructure and educational system. Our task at hand is to find a fair, cheap and easy way to restore consumer, lender and investor confidence. We need to create more jobs and build stronger neighborhoods and financially sound communities.
Our current national financial crisis has led to:
- Many vacant foreclosed homes.
- Many renters without credit or funds for the purchase of a home.
- Tenants who continue to have less disposable income because they cannot take advantage of the tax benefits of home ownership to accumulate savings.
- Rising rents because many buyers are unable or reluctant to purchase a home, and thus more tenants are competing for the same properties.
- Investors and institutions with actual cash losses as well as tax write-offs.
- A slowdown in building of new houses.
- Unemployment because of the closing of 150-plus lending institutions, less new building, reduction of house sales, and reduction of house loans or refinances.
- More stringent lending requirements for house purchases, refinances, home equity loans and personal loans.
Here are some possible solutions:
- Sellers and private investment funds could provide home financing since Wall Street and the lending institutions have reduced (or eliminated) the source of funds for housing loans.
- Buyers could be empowered to take over the payments on existing loans at the same rate negotiated for the current owners. In the event the buyer has less than desired credit or job qualifications, the seller and/or the lending institution would be required to be an equity participant for a period of time until the buyer could show improved credit. All tax savings could be required to be added to buyer’s equity fund.
- Public pension plans for teachers, police, firefighters and government workers could allocate a portion of their funds to finance houses for their members. These could have equity participation clauses, require owner occupancy, and could have long term structures like the bond programs offered in certain locales. These pension funds have long-term investment goals, thus would not be affected by the need to show quarterly profits as do corporate owned banks or builders. The members would have their homes and pension funds tied to each other, thus incentive to own, maintain their homes, stay in the community and employed. When the employee is able to refinance their loan with an outside institution, the equity participation would end.
- People in the housing industry could participate in funding housing loans through a required retirement fund. Most of the real estate agents, loan brokers, contractors are self-employed, thus would pay both the employee as well as the employers portion of the social security tax. A portion of the “employer” part of the tax, maybe as much as 5 percent of the person’s adjusted gross income should go into a private pension fund that would provide home loans, with the riskier loans being “equity participation.” These funds could be used for housing for members of this fund as in the government workers funds. Credit unions have been the vehicles for teachers, government workers, corporate employees to provide funds for loans from member’s savings. Their role has been very minor and could be expanded with more direct member involvement.
- Homeowners could buy with “sweat equity”
- Habitat for Humanity has succeeded in uniting communities to build new homes for deserving but financially challenged homeowners. The new homeowners are required to put in a certain number of work hours into building their home. Members of the community provide donations and additional labor. We could do the same for homeowners utilizing bank owned homes.
- In the past, there have been sweat equity programs to encourage home ownership and improvement of inner city or neighborhoods blighted by too many foreclosed homes. It is time to revive these programs.
- High school classes should include skills relating to home construction, repairs, for future homeowners and more extensive work/learn programs for the trades.
- Loss of jobs cause less funds to flow into the community for roads, healthcare, schools, etc., deteriorating the community further. Thus, job formation needs to be a part of the picture to maintain home ownership.
Communities benefit when more residents own their homes. While foreclosures are in process, local taxes are diminished. The property owner often is not current on property taxes, and when the property is vacant, no resident is paying sales tax, utilities, etc.
We need to help struggling homeowners now, yet create a long term system to prevent a future problems, and create a good environment for buyers. Currently in the works are interest rate freezes or loan forebearances. With the number of institutions that have gone out of business, using these tools becomes more difficult. The “equity participation” concept also works with hardships like loss of job, health crises and divorce. People with temporary financial problems will to have a method to regain their good credit maintenance and financial budgeting, and buyers will have the ability to buy their home.
