Posted by Jonathan J. Miller -Monday, January 9, 2012, 6:00 AM
Ok, so I thought my son shooting a basket would be better than a boring graphic of the Fed – indulge me. I’ll say “the Fed took the ball drove and took a well executed shot.” Ok, back to the Fed’s sort of full court press…
From the FT: Finally, a regulatory body offers tangible realistic advice on housing to Washington policy makers:
Among the ideas is forming a national strategy to facilitate the conversion of foreclosed properties into rentals; allowing banks to rent their repossessed homes rather than forcing lenders to sell them; changing the compensation structure for mortgage servicers, companies that collect payments from borrowers and pursue foreclosures in the event of a default; creating a national online registry of liens to track ownership interests; and altering existing Obama administration policies to allow for more refinancings and mortgage restructurings.
The insight was provided to the Financial Services committees (who brought us Dodd-Frank) and while much of this has already been considered or is in the works, it’s presentation by the Fed all in one message helps bring clarity.
I like these ideas since they are foreclosure-centric and US housing doesn’t recover until we clear the market of excess foreclosure volume.
Here’s the Fed’s white paper - what jumped out at me came in the beginning with the fed identifying housing as a key economic problem:
- a persistent excess supply of vacant homes on the market, many of which stem from foreclosures
- a marked and potentially long-term downshift in the supply of mortgage credit
- the costs that an often unwieldy and inefficient foreclosure process imposes on homeowners, lenders, and communities.
I really like the rental idea for REO houses stuck in lender inventory. In many cases, lenders are forced to sell so they don’t fall below their capitalization requirements by the regulators. Now they would be able to rent the property out to get the cash flow going plus having an occupant helps protect the asset.
Here’s a crazy and too simplistic but-it-sounds-like-a-reasonable-foreclosure-failure-spiral:
- Home sales are weak because credit is so tight
- The rental market is strong because credit is tight – rents are rising.
- Consumers have less disposable income to help the economy because rents are high.
- As more rental supply becomes available from Fed recommendation, renting becomes more affordable.
- More affordable rents delay increase of home sales.
- Rinse. Lather. Repeat.