Obama's Housing Plan .. Some things to think about ..

http://prospect.org/cs/articles?article=rescuing_americas_homeowners

The Homeowner Affordability and Stability Plan represents a solid step or two in the right direction, but it stops short of providing a majority solution in the short term and produces no real solution for the long term. Additionally I think the objective of the plan is too narrow. It is necessary, essential even, to stop the bleeding and stabilize the current chaotic atmosphere, but the financial instruments and aid, need to be administered around a new "declined" base line of real estate values. There is no mention of this in the HASP. Home values and interest rates need to be addressed in this correction. If we merely adjust interest rates to bring monthly payments down, that helps the homeowner more than it does the bank, which is a good thing, but unless the inflated principal is adjusted downward, it does potentially nothing as a long term solution that will enable home owners to regain equity or pay off their mortgage over time. Unless a mortgage can be retired at some point that is reasonable for the homeowner, and profitable for the bank, we will have a circular, recurring problem.

It is reasonable to regulate % of income devoted to mortgage payment. This should be a no brainer and nonnegotiable. Deregulation disjointed these two factors. This contributed significantly to the current housing crisis. Obama's plan to force the banks to restructure loans to represent 38% of income, and then subsidize to 31% of income is a solid idea. An additional incentive to the banks on loans that do not require that subsidy would go along way to stabilizing loan risk ratios. It will be difficult and expensive to do this in the current climate due to the large number of loans that exceed these payment to income perimeters. Three factors are going to bog this down: overexposed original loans, increased loss of income and decreased home valuations. Nonetheless this should be done, across the board. It is a good use of taxpayer moneys. This correction has long term benefits and will facilitate stable mortgages in the long run.

Also...and this could be really positive, if banks were regulated to write mortgages at no more than 31% of annual income, there would be a host of home builders who would find a way to build affordable housing for low, middle and high income HH's. In the current system, home builders can inflate the value of all the homes they build and be successful in selling them, because banks could and would approve the sale of expensive homes with high mortgages to low and middle income HH's. Builders will only build product they can sell. If this income to loan ratio is enforced, home builders will find a way to build homes to accommodate a wide range of income levels.

I like the concept of refining bankruptcy law to allow judges to adjust mortgages. I would imagine that the largest debt an individual carries is a mortgage..and if they are facing bankruptcy, the ability to refine that debt should in many cases mitigate the need for a bankruptcy filing...all very positive. Banks will want to keep this power out of the courts, so the mere adjustment in the law should make the banking system, relative to mortgages, work much more efficiently while making the bank/customer partnership more consumer friendly. The down side to this, in our current climate, is that this adjustment, may cause a run on bankruptcy filings...which is obviously not good.

Dean Baker's idea on "renting" over a 10 year period does not solve the problem in my opinion. Yes, it keeps people in their homes, but it postpones the inevitability of a default....potentially. Several blogs back I floated a concept of "rent to own"...which would allow an "at risk" homeowner to stay in their home after the mortgage and principal had been modified to accommodate current home value and income. This would be negotiated with the mortgage holder. Monthly payment would include both interest and principal, so at no time is the homeowner forced into an interest only payment scenario. In exchange for these modifications, the consumer would accumulate a small secondary debt on the mortgage that if paid at specific points throughout the life of the loan, would move them into a pure home ownership status, Vs a rent to own status. Perhaps a requirement to make 13 payments per year Vs 12, for 5 years, to regain pure ownership status. This solution, I think, is a way to keep a person in their home, gives them an avenue to actually "own" their home as they eventually retire the loan, and repays the bank some of their loss through the additional payment plan.

Generally speaking....although long winded, my humble opinion on this mortgage problem is that the solution should be heavily but responsibly weighted to the consumer while mitigating the loss to the bank. This is accomplished by enforcing responsible lending regulation, with an income to payment ceiling, and reducing the profit margins banks make on mortgages today. This will bring interest rates down and keep them reasonable. It will also go a long way in balancing risk ratios for mortgage holders. Principal home values must be corrected, so people can eventually pay off their homes. For a long while, banks enjoyed huge profit margins and revenue gains on the inflated home market, they will now need to adjust to lower principal home values, and act just like every other responsible business as it adjusts to cost of goods and market shifts. If they act constructively, and are appropriately, but not over regulated, banks will continue to make solid and consistent margins on mortgages. It is significantly less expensive to adjust a mortgage payment, and maintain it, than it is to loose a mortgage entirely, and carry the loss.

Obama's plan protects the banks first while suggesting solid and pragmatic aid to the consumer. But neither Dean Baker nor the HASP puts forth a foundation to help current homeowners pay off a mortgage. The ideas merely suggest ways to avoid neglect and/or abandonment of a mortgage. We have absolutely no solution at all if the solution does not facilitate a 60 year old person, who carries a mortgage to retire it. Without that, taxpayers will be paying for senior living facilities, which will drain our tax base further. Not to mention the drain on dignity and increase of stress a 60 year old is forced to deal with, as he/she struggles to make a house payment after 35-40 years of tirelessly working to care for his/her family and keep a roof over their heads. Government programs need to specifically address the needs of citizens, regardless of age, before they pander to the private institutions who are supposed to serve us, but often rob us...

Finally, the HASP still does nothing for the "Responsible, never missed a mortgage payment no matter how hard the struggle" citizen. It seems more than obvious to me that if meaningful, monetary incentives were created to reward the consumer with the "excellent credit rating" we would have less default and a lot less resentment. More importantly we would feel less like a "chump". Something feels dangerously wrong to me as I sit here month after month, paying my bills, on time, wondering if in the long run I would be better off defaulting on my mortgage. Personally I would struggle with that decision, and ultimately not be able to ignore my responsibilities, but I am fairly convinced, given the tone of the stimulus, and bail out philosophies, that I will, once again, be in the group that missed the wave of wealth creation, because I didn't participate in or understand the fictitious principles of debt swapping....

DoNotLetBoundariesBindUs

Recently at the "Energy and Resources Institute climate conference in New Delhi, Tom Friedman heard ..“Hey, Mr. Friedman,” “would you like to take a little spin around New Delhi in our car?”

Oh, I say, I’ve heard that line before. Ah, they say, but you haven’t seen this car before. It’s a plug-in electric car that is also powered by rooftop solar panels — and the two young women, recent Yale grads, had just driven it all over India in a “climate caravan” to highlight the solutions to global warming being developed by Indian companies, communities, campuses and innovators, as well as to inspire others to take action._____________________________________________________________________________________

Regardless of how you feel about Friedman, be keenly aware of protectionism. We will gravitate to it in times like these, but it is the last thing we need to do. Consider this ... per the above situation.. we have educated these "non-Americans" and anxiously sent them back to their homeland to develop technologies in emerging markets that we will someday be forced to buy. We need to understand inclusion...from a business perspective. If a valuable market emerges, regardless of who uncovers it, we need to harness it. America needs to once again create a business environment that supports innovation. If a Dubai born scholar discovers the path to a scalable solar automobile business, then we need to create and open the conditions in America to produce those automobiles. The "invented here" bias needs to be universal and inclusive. In times like these, even if it feels counter intuitive, we must protect capitalism. America must be the "go to" place to develop new markets, new technologies, new - scalable businesses...we need to found them and we need to grow them...It is dangerous and narrow to dwarf or stagnate competition. Especially if we do it to protect the American worker. this in the long run will make us weaker, not stronger. We cannot lead if we do not innovate. And when I say innovate, I mean anyone who innovates on American soil regardless of their place of origin. The only requirement is that peace prevail.

Radio Head

I am listening to banjo music now, on Sirius/XM, The "70's on 7" Channel....I like this channel...very much. But the combined business entity of Sirius/XM announced today, that bankruptcy will be unavoidable...Sirius VS XM ...After a time of brutal but capitalistic market rivalry, they recently bought each other in some kind of complex, fictitious value "deal thing". It did not work out so well. Too many $ spent for too few 'buyers". Not unlike the GM, Chrysler predicament. I think XM bought Sirius, after the FTC effectively said "go ahead" we are tired of the monopoly fight" :)

XM has OPRAH and Sirius has STERN. So all audience segments are covered...EXCEPT ... well ... NOT. I will listen to both ends of the spectrum for free, but not for $12/month. They are seeking a bankruptcy filing...typical, right? I guess there is solace in the fact that they are not waiting online, asking for TARP funds ... Yet. Perhaps that is to come.. I mean really, what would we do? How could we survive ... without paid "Muzac" in our elevators?

What is perplexing to me, is that they fought, hard, to combine. Now they have found that the combination will economically fail...Did they not run business model scenarios prior to their run for air waves domination?

A little bit sour tonight ... I am, I am. Should I allow myself to go through these phases ?

I love that the free market prospers .. due to consumer demand? I would hope that both Sirius and XM could profitably survive. They each have the appropriate and scalable cornerstone when it comes to marketing, programming and audience segments. Problem is, they overpaid for their talent. Does Howard Stern really need a $509M/ ten year contract to luxuriously survive? That is 5% of what we are paying to feed, shelter and protect our US troops in Iraq each month. I know that this sum of money is paid out over 10 years...but in the event of bankruptcy, Sirius owes Stern this with or without 10 years of service. Many people around the world, (approximately 12 million) listen to Howard Stern ... which is fine, but is that price tag reasonable to distribute his voice - globally? There is real value for MANY consumer in "boob" chatter. I begrudge no one. But $509,000,000 ? Oprah's deal is significantly larger. Both sums of money are unconscionable. ESPECIALLY on a subscriber base minus advertising base revenue model. Stern is funny ... occasionally ... and Oprah is inspirational ...
but neither are they funny enough or inspirational enough to balance that P & L ...

I think that the CEO's and the CFO's are smart ... of course, right? But then you have to ask yourself, how can this happen. I hate to say it, but my guess is that TMZ is the 24/7 loop in their office, as opposed to the 24/7 loop from MSNBC, CNN, FOX, APR/NPR Public Radio, FNN, CSPAN ... Conservative, Centrist, Liberal. I don't care. But at least try to inform yourself on things that matter, VS entertain yourself on things that don't. They are smart because they understand the system which will offer bankruptcy, as a way to resolve and organize losses, with little consequence to management, talent or the general public...the only people it hurts, potentially are the shareholders. That is the risk upon which capitalism is built. It is appropriate. Only recently have you been able to be bailed out by taxpayers when your business fails.

I get it. We all have a business to run. Perspectives from almost every vantage point seem to be somewhat out of whack these days... For now, I will consider it creativity ...

The America I Miss

America:
Is the Entire Bailout Strategy Flawed? Let's Rethink This Before It's Too Late

By Joseph Stiglitz, CNN. Posted February 2, 2009.

"The financial sector is supposed to allocate capital and manage risk, and it did neither well. Our economy is paying the price for these failures -- to the tune of hundreds of billions of dollars.

Many of the problems that afflict the financial sector are more pervasive. General Motors and GE both got into the finance business, and both showed that banks had no monopoly on bad risk management

Eventually, America's economy will recover. Eventually, our financial sector will be functioning -- and profitable -- once again, though hopefully, it will focus its attention more on doing what it is supposed to do. When things turn around, we can once again privatize the now-failed banks, and the returns we get can help write down the massive increase in the national debt that has been brought upon us by our financial markets.

We are moving in unchartered waters. No one can be sure what will work. But long-standing economic principles can help guide us. Incentives matter. The long-run fiscal position of the U.S. matters. And it is important to restart prudent lending as fast as possible."
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So what do we do? I am not an economist, so I really don't know, but my instincts lead toward this ...

There is value in stepping back to reflect on how things should be. There is value in resurrecting a basic level of character, honesty and inclusion. Economic principles should find their way into, and perhaps be the cornerstone of our solutions. We can think creatively to augment these principles, to make them relevant to modern market conditions, but it is time to stop ignoring them, as the Bush administration did to accommodate the loop holes necessary to create gratuitous and harmful wealth.

What can we accomplish if we start over? Forgive the manipulation. Forgive the hypocrisy. Forgive the greed. Start over. Assess what we have, determine what we need. Think creatively and succeed globally.

This is rhetoric, I know .. we need sound strategies and practical tactics.

A personal situation may shed light on what is wrong, and perhaps an even brighter light on how far we need to go to fix the financial mess ... or at least "repair the track" to solvency.

3.6 million people have lost their jobs in the last 6 months. I am one of them. Aside from the initial feelings of panic and anger, a sense of uselessness sets in. Worse than feeling betrayed, you start to wonder if the betrayal was justified. No quantitative reason is given for your dismissal .. in my case I was quantifiably a top performer .. so you come to the conclusion that your dismissal is subjective. You show up, you do your job, you go above and beyond, you produce ... but somehow you fail. Then you begin to wonder, how it can be so easy for a corporation to suddenly pull your livelihood out from under you. The "At Will Employment" clause in your contract is "how" it is done at a legal level but that doesn't address the more critical, personal level. So now we have 3.6 million people who are suffering from artificially low self esteem, wondering how they will dig out of the hole, how they will remain in their homes, how they will continue to provide for their children, and we as a government are focused on keeping failed businesses afloat, rewarding that failure, and asking our citizens why they are not spending more or applying for credit.

Why is this not obviously wrong? Why is this not obviously ignorant? Why is this not obviously complicit? People (republicans, mostly) are running scared and causing panic over the concept of nationalization. To them, smarter governance and appropriate oversight is dangerous? Corporations should be left to self regulate, because, as we all know, they have proven their ability to do so. Not only do corporations lack this skill, they lack the desire. There is no financial incentive to regulate. It has become difficult, if not impossible to gain a competitive advantage, without stealing it..and stealing is what we have been doing. The working theories of capitalism have been abandoned. Greed has taken over. Capitalism is not broken, the American dream is. Double standards exist, in fact they prevail. Shouldn't all forms of stealing be illegal? I'd rather see Bernard Madoff be forced to use his genius to create broad scale, monetarily based wealth for underprivileged families, as his sentence, rather than throwing him in a white collar detention facility to play cards until he dies. To be frank you can't deny the financial genius of these "bad" people, so rather than tar and feather them, while they continue to live among the riches they have stolen, lets use them, like they have used us. Force them to live in an average middle class American neighborhood, and create wealth for their neighbors, while they sit on their porch as a mere spectator.

This of course will never happen, but it gives me a reason to smile to think about what might be, if we could think out of the box, and focus strictly on moving forward.

The stimulus package, should be massive and focus on Jobs, Housing, GDP stability and Credit. All of the money, and I mean ALL OF IT should be allocated to these four market movers . Incentives should be paid to employers who hire from the unemployment insurance pool. Convergence on jobs, job seekers and skill sets should be optimized so that finding an appropriate job is not impossible. Employers who fire should be required to fund outplacement services for everyone they let go. The cycle of job transition needs to be shortened and less humiliating. There are ways to do this, now, through technology. It is just not getting done. The answer is not Monster.com or "the Ladders" these are repositories for resumes. They give the job seeker a false sense of security that they are actively connecting with employers, but in fact the odds of consummating that connection are very low. If the government would pay incentives to these Internet job boards for actually placing people in new jobs, I guarantee you they would match employers with job seekers much more effectively.

In addition to aggressively supporting the worker, Unions need to work harder to acknowledge corporate grievances and put to rest the misplaced fear of unionization. If they could intelligently move as a group beyond the conflict and realign with both sides of the business environment, Unions could have a profoundly positive impact on our financial recovery. I wish I had a union to protect me from being wrongfully fired, but my employer is effective in banning unions, and the union has been ineffective in reaching a compromise to enable access to a majority of workers in America. This can be changed, too. Unions provide a very valuable service to both employers and employees. Their current approach is flawed, but it is fixable.

Home mortgages need to be reassessed to current market value. To avoid foreclosure, banks should be forced to renegotiate loans to share the risk and keep people in their homes. Interest rates should come down universally. Banks should be forced to balance their risk ratios. Profit margins on loans should be regulated, to stay within ranges. Banks like every other business should grow based on the size and stability of their profitable customer base. Credit swapping and bad debt packaging should not lead to success and leadership in the banking industry. This has nothing to do with consumer demand, in fact it critically detracts from it. Lets get back to basic and transparent business principles in the financial industry...they work.

GDP will be constricted as we move forward. We have been producing more than we need. Worse, we have been producing more than we want. Business models,whether they are basic or complex, revolve in some way around supply and demand. For awhile, we have over produced to an inflated demand. The bubble has burst. We need to go back to the baseline and produce to accommodate real demand, not an inflated forecast of it.

Finally with regard to the remaining TARP funds. I better see that the words "oversight", "accountability" and "taxpayer relief" have replaced the words, "avoid failure", "encourage lending" and "protect shareholders". If we don't see these policies written into the conditions for funding, I would hope to see public protesting, but I fear we will see public rioting...

Government is supposed to function as a facilitator. To protect its citizen base and preserve freedom. We are ready to stand with our new administration. We want to be actively involved in the solution. It is time to abandon the old sinking ship, jump overboard and swim. We will find life boats along the way. We will not arrive at the shore unscathed, but we will arrive. We will bring with us the knowledge of how to navigate through rough waters and we will regain our leadership by sharing that knowledge with the world. That is the America I know. That is the America, I miss.