Since the housing bust of 2008, a new reality has set in when it comes to the dream of home ownership. For the first time this century, we have a younger generation that may not do as well as its parents did. A generation that questions if the financial stability and peace of mind that home ownership brings can be theirs, as it was for generations prior.
The beginning of 2012 has brought some hope to the situation, but we are still a ways off from recovery. In January, U.S. housing prices -- on average -- dropped to their lowest in more than a decade. That's bad for sellers, but it's good for buyers. In addition, sales of existing homes jumped 4.3 percent as buyers took advantage of low borrowing rates and a glut of inventory. Sales have now risen nearly 13 percent over the past six months.
Even with this progress, however, sales figures are still below what economists would equate with a healthy market. The market is still saturated with homes at risk of foreclosure, which lower broader home prices. Also, at last month's sales pace, it would take more than six months to clear the backlog of homes for sale.
For true recovery, we need radical change in government housing policy. Here are the five action items I propose that would create real and instant change -- ones that can help borrowers and sellers alike achieve equilibrium, restore the market and help the economy recover.
• Move housing inventory. Housing is at a stalemate. Homeowners don't want to sell their homes at a loss, and homebuyers are finding it difficult to qualify for a loan.
One solution: Create tax incentives to move inventory. Give buyers a break from capital gains taxes on any home they purchase. At the same time, allow sellers to deduct a capital loss in the value of their home.
• Loosen Appraisal Guidelines: In this market, getting an appraisal is difficult at best. Homeowners with high interest rates can't refinance because appraisals give borrowers an unacceptable loan-to-value ratio. Additionally, there are few good comparables to make accurate appraisals. We see many homeowners suffering dire consequences because the house next door was sold as a short sale. Any of the following would help borrowers:
• Exclude real estate-owned (or bank-owned) properties from comparables in a market.
• Allow appraisals within a certain tolerance; for example, 10 percent of the home's value.
• Enable all borrowers who are current on their mortgage to refinance without an appraisal.
• Direct GSEs (Government Sponsored Agencies, i.e., Fannie and Freddie) to use automated underwriting as an actual insurance policy. Today, when a loan defaults, everyone -- GSEs, the lender, and the servicer -- all look for reasons not to make good on the insurance underlying the loan. Lenders should be able to depend on Automated Underwriting systems, which automates the underwriting process, as an actual guarantee -- unless the lender committed material fraud or made a material underwriting defect, insurance from the GSEs should be exactly that: insurance. Lenders are being overly strict when it comes to underwriting. In order to qualify, borrowers often have to meet higher standards than is actually required by the GSE guidelines. This has to change.
• Bring clarity to industry regulation. This includes federal preemption of state laws. Right now there is an overlapping patchwork of regulation -- 50 states and six federal agencies. The new Consumer Federal Protection Bureau needs to bring one standard to the industry -- and quickly. The sooner all the participants know the rules of the road, the sooner companies will start lending again. With the current system, there's too much uncertainty for companies to move.
• Level the playing field for banks and non-banks. Mortgage companies have long been a critical component of the housing market. But in the last few years, they've have moved out of the space, forced to play by a different set of rules than banks. Because licensing varies by state, the result is 50 different state regulation guidelines, plus federal regulation. This makes it impossible for nationwide agencies to compete with one another. For consumers to get the best deal and qualify for loans, a lack of competition is deadly. All players, banks and non-banks, must be on the same playing field to get things moving again.
It is up to those of us with knowledge of the markets, and those of us in positions to change them, to transform these ideas from words into action. We should not delay.
Doug Lebda is the founder and chairman of LendingTree.
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