Reinvigorating housing

The key steps to take include
(1) Expanding demand
(A) Allow more homeowners to assume partial equity
(B) Allow homeowners to find homes that might work for them
(C) Find foriegn buyers for US homes
(D) Expand the sale of market risk products for home owners
(E) Develop new mortgage products that allow foreclosed homeowners
to reenter the market
(F) Fed Govt. can buy a lot of homes in some neighborhoods and keep them
off the market till the market reinvigorates
(G) acquire MBS - "fix" them by working with homeowners and resell them
(H) create a guest worker program that works


(2) Enable the deleveraging - this is already partly being addressed as of now with
the Treasury starting to take equity
- allow American companies to pursue FDRs(ala ADRs) in cash rich economies(let the mountain
go to Mohammed), notably in the Gulf, China and Japan
- reduce rules that allow companies to have some foreign ownership
- it might be easier for a GE or a Disney to raise capital abroad, but harder for lesser known
companies

(3) expand jobs in depressed neighborhoods
(A) Scarcity Theory says that public works projects in depressed neighborhoods
offers an antidote - with homes available, works programs can help -
tax credits are one way out of this problem
(B) Across the rust belt and the sun belt, there is a need to make more jobs
(C) Agriculture, energy, biotech and industrial parks need to emerge
- enable job creation through tax credits and tax holidays - it is the supply side answer to depressed
demand in housing in some areas and can work
(D) establish university outlets in depressed neighborhoods - thus a Berkeley extension
in Modesto or a Wharton extension in Bethlehem PA, can help these neighborhoods as
more student populations rent these homes
(E) US is the home of the Internet and the IT revolution - incentivize re-insourcing

How Congress should amend it

As Republicans and Democrats return to fix the plan, I was heartened by the comments
by Rep. DeFazio, Edwards, Kaptur, Doggett and Cummings.
Buying a few securities and repackaging can only be a small cosmetic paper answer to the
crisis. What would be best would be to require that say 25 cents on every dollar be used
to work with the foreclosures and the impending foreclosures underlying these securities.
The rest be used to buy the MBSs. Currently no money is allocated for Credit Card, Commercial
etc., mainly the residential issue.

The procedure to follow is along these lines.
(1) The govt buys MBSs and mostly allows the CMO side of the bailout to take care of itself
or has a separate plan for this. It pays close to market rate on these MBSs targeting low distress
first (40 cents).

(2) In most cases, the Govt. should attempt to become the new servicer of the underlying MBS
or work closely with the agency that does the same. The agency or the Govt. should then
attempt to locate the foreclosed property, its owner and find a different owner for the property
if under foreclosure or a fair exchange if a current homeowner is in trouble.

(3) The foreclosed or soon to be foreclosed homeowner is found an appropriate property through a
downsizing process if one can be found and a appropriate and equitable loan with the Fed. The key is that the loan and the property found is appropriate for the homeowner.
The regrouped and repackaged MBSs is then sold for a profit.

(4) The Govt continues to provide a one to two year guarrantee on this paper and continues to work
with the servicer.


(5) Credit Enhancement of borrowers - Borrowers are given a chance to enhance their credit and offered
counsel. Subprime/Alt-A borrowers for whom the Govt. finds a home are kept out of MBS paper and directly
passed on to a lower rated MBS which is repackaged and CMO'd by FNMA or Freddie Mac with the
Govt. becoming the large equity tranche

Without foot soldiers on the ground, workign with actual mortgage holders this plan will not work. It will
probably take several thousand hired contractors to make this plan work.However, because it works at
the local level, it will feed financing into the local area as well as help reinvigorate the housing market as
some of the homes are fixed up also. This would also provide a stimulus in the local areas.