Tuesday, January 10, 2012

2012 Federal Housing Program: Renting Foreclosures

This site has become a continuous tirade against the endless, ridiculously stupid, decisions made by our politicians and central bankers who run this country.  So how do I feel about the Fed's new foreclosure program?

I love it.

The program is designed to sell Fannie and Freddie inventory in bulk to investors who could then rent out the properties. 

I couldn't believe it when I heard the details.  This is the first notion of intelligence to enter the housing market discussion since the crisis began.

We had our last housing downturn in 1990 during the savings and loan (S&L) crisis.  The government stepped in, bundled the bank owned properties together, and sold them off in a program called the Resolution Trust Corporation (RTC).

Prices for homes fell and real investors with real capital entered the market to purchase the homes.  The housing market cleared, found a bottom, and began to recover.  This is how a free market system is designed to function.

The housing market will bottom when the shadow inventory on the banks and GSE's balance sheets are allowed to enter the market for sale.  Then the government needs to back away from the financing market.

What will happen?  Interest rates and borrowing costs will rise, and the price of housing will plunge. 

Investors will enter the market and begin purchasing the surge in inventory.  The surge in supply hitting the market will cause the price of rental properties to fall significantly, lowering the cost of Americans to live every month.

As prices fall, more Americans will walk away from their homes and rent.  The banks will sell these homes to investors who will then rent them out.  Monthly rental and living costs will continue to fall lower and lower as the inventory continues to hit the market.  This lower cost of living would be like a massive tax cut or stimulus program to the economy.

Then home prices will find a bottom and our government will be removed from the market.  Banks will take massive losses.  Fannie and Freddie will take massive losses.  Those losses are already in place now whether they take them now or we take them in 2018.  The only difference is that Americans will have a drastically lower cost of living right away instead of waiting for the supply held in the shadows to hit the market.

While I continuously state my opinion against the stupidity of our leaders I need to make sure I commend them when they come up with something intelligent.  I stand and cheer the idea of selling properties in bulk to investors to rent them out.  Bring on the RTC 2.  Bravo.

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