The foreclosure crisis has crawled on for going on four years now with no end in sight. The S&P/Case-Shiller index for August fell 3.8 percent from a year ago. The index includes home prices for 20 US cities.
"Continued house price declines could lead to even more defaults, foreclosures and distress sales, undermining wealth, confidence and spending," William Dudley, president of the Federal Reserve Bank of New York said. "Breaking this vicious cycle is one of the most pressing issues facing policy makers."
Every one of the Republican presidential candidates is being asked how they would handle the slow-motion housing wreck. Long shot Newt Gingrich says he would rewrite the rules to make it profitable for banks to renegotiate loan principal amounts.
"He disagrees with his Republican colleagues that the free market will find a fair way to let the banks and homeowners work things out," writes Karoun Demirjian for the Las Vegas Sun.
President Obama has jumped in to adjust Fannie Mae and Freddie Mac rules to allow refinances for loans exceeding 125 percent loan to value(!).
The president says this will save underwater homeowners thousands of dollars a year.
Princeton professor Alan Blinder penned an op-ed for the Wall Street Journal proposing forced principal reductions with the cost to be shared by banks and taxpayers — with the proviso that government be given an equity kicker when housing prices go back up.
Blinder also thinks the Federal Reserve and Treasury should provide cheap financing to developers who will use the money to buy up properties with the intention of renting the properties out.[...]
More: How to Fix the Housing Crisis - Doug French - Mises Daily
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