Economics: How to Solve Housing Market Chaos
& Help Relieve Unemployment

It is easy to become depressed when you follow the news these days.Unemployment seems to be stuck at a rate near 10%, millions of people are about to lose their homes by foreclosure, and the American dream of owning a home has turned into a nightmare for many Americans.

I keep hoping that I will hear that President Obama and the Congress are taking steps to solve the problem but so far not much is happening.

Many of us lived through the market crash and accompanying collapse of the housing market in the middle 1980s. If they think like I do, these folks feel that history is repeating itself. Back then, about 1,000 Savings and Loans went out of business and the press predicted that bailout would cost taxpayers $500 billion dollars.

What actually happened was that Congress passed the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) enacted in 1989. Appraisers remember FIRREA because it required that real estate appraisers be licensed or certified. Prior to the Act, this was not the case. Each state had its own rules. FIRREA legislation was also responsible for the creation of the Appraisal Foundation and the Appraisal Subcommittee.

Far more importantly, it established the Resolution Trust Corporation which was given the responsibility to solve the housing mess. The RTC did so at far less than the predicted $500 billion dollar figure.

The glut of foreclosed houses is depressing the housing market and at the same time, there are legions of unemployed contraction workers who lost their jobs when the construction of new houses basically ground to a halt in 2008 and 2009.
Using history as a teacher, here is how I propose President Obama and the Congress proceed to deal with the current housing woes and resultant economic mess.

The Government should establish a new government agency similar to the original Resolution Trust Corporation (RTC) that was established to liquidate the assets of the financial institutions that were put out of business during the 1985 financial crisis. The purpose and functions of this new agency would be to:

1) Purchase foreclosed property from lending institutions at fair market value in their “as is condition” as determined by appraisers;

2) Rehabilitate foreclosed houses into livable and marketable condition, thereby putting back to work unemployed construction workers who already have the needed skills.

3) Sell the rehabilitated properties to qualified buyers, and provide them with the needed financing, working in conjunction with Fannie Mae, Freddie Mac, FHA and VA.

4) Rent some of the homes to former homeowners and others who do not want or are unqualified to own a home at this point, for a variety of reasons. Some of the tenants will be short term renters, while others may choose to rent for the foreseeable future. For example, many older citizens do not want the expense or aggravation of owning a home, and would be happy to rent instead.

It is highly unlikely that this type of program will be anywhere near as expensive as the recent bailouts of the big banks and financial institutions, which did nothing to help anyone except their executives — who are once again acting like pigs at the trough, taking huge salaries and bonuses of staggering amounts. An RTC type program will help the people who need help most, put thousands of construction workers back on payrolls, and help stabilize the housing market. Everyone will benefit.