What to do about the housing crisis??

I found the housing crisis or credit crisis or sub prime mortgage crisis or whatever the heck you want to call it crisis was a heavy topic while I was making the rounds at the various holiday party's I attended this year. I heard plenty of opinions on why there exists a crisis, what is going to be done about the crisis, and beyond.

I do my best to listen when these conversations take place even though I'm often involved in said conversations. The truth is I'm not wrapped up in the complications and not into placing blame for things I have no business placing blame on. This is my first go around in what appears to be a deflating real estate market.

My simple explanation as to why prices are going down is simple... there are way more sellers competing with each other trying to appeal to a lesser population (in numbers) of buyers. It is the old supply and demand lesson I learned in my first week of a business course I took back in my college days.

"What is going to happen from here on out," seemed to be where the conversations at these holiday party's ended up going. I simply leave most of that to the experts... normally in the name of economists... and their opinions vary greatly.

I found this post from a team of economists weblog today and thought it was worth sharing.

Particularly...

Many economists and members of Congress have claimed that the housing crisis was greatly magnified because unqualified home buyers with limited incomes and assets were not fully aware of the terms of their mortgage loans, such as that the low initial (teaser) interest rates were only temporary. This belief in the beneficial effects of greater knowledge about mortgage terms is inconsistent with the evidence that the most sophisticated banks and investment companies, including Merrill Lynch, Citibank, and Morgan Stanley, have written down their housing investments by billions of dollars. No one can reasonably claim that these banks lacked the skills and knowledge to evaluate all the terms of, or the likelihood of repayment, on the subprime and other mortgages that they originated or held as assets.

and...

Although there was some fraud by mortgage lenders and by borrowers, fraud was not the main reason why so many subprime mortgages were issued. Otherwise savvy investors greatly undervalued the risks associated with many of the mortgage-backed securities that they held. They and borrowers alike did not fully appreciate that interest rates were likely to increase from their unusually low levels, and that many borrowers lacked the financial means to meet their mortgage repayment obligations at higher rates, and sometimes even at the low initial rates they had received.

more...

Some have proposed that families should not be allowed to get mortgages if they do not meet minimum standards of income and assets, even if lenders would be willing to provide mortgages, and would-be borrowers still want a mortgage after being informed of the risks. This proposal is a dangerous form of paternalism that denies the rights of both borrowers and lenders to make their own decisions. Moreover, it is ironic that only a few years ago, banks were being investigated for "redlining"; that is, for avoiding lending to blacks and other residents of poor neighborhoods. The Fair Housing Act of 1968 prohibits discrimination in lending, and The Community Reinvestment Act of 1977 requires banks to use the same lending criteria in all communities, regardless of the living standards of residents. As a result of the present crisis, however, banks and other lenders are being criticized for equal opportunity lenient lending to all, including black residents of depressed neighborhoods.

and finally...

The United States housing market is riddled with subsidies and regulations, including among many others, insurance by the Federal Housing authority of mortgages to first time and low income homeowners, tax deductibility of interest payments on mortgages –to families that itemize their deductions- and the quasi-governmental Fannie Mae and Fannie Mac Corporations that channel billions of dollars to the mortgage market. Nevertheless, both the White House and leading Congressional Democrats have proposed additional rules to help borrowers who may have difficulty avoiding foreclosure under present conditions. Treasury Secretary Paulson has been negotiating "voluntary" agreements with mortgage lenders to freeze the low introductory rates for five years on some subprime home loans, and to offer borrowers the right to refinance their loans into more affordable mortgages. The Democrats want to go much further than the administration, and have proposed, for example, to help homeowners renegotiate terms of their mortgages if forced into bankruptcy.

I am skeptical of additional government interventions into a housing market that already has too much.

Yeah... me too. Read the whole post at the link above.

I needed this before the holiday party season... I would have made for a better contributor in the discussions perhaps. But... it never hurts to simply listen to what others are saying... in order to inform yourself.