Are government policies toward real estate “normal”? Well, that depends on how you define NORMAL.
One definition from the dictionary is “Conforming with, adhering to, or constituting a norm, standard, pattern, level, or type.” That definition is useless for our purposes, so let’s try another, shorter one. How about “free from emotional disorder”? Ah, now we’re getting somewhere.
Government real estate programs and policies – including the GSE’s of Fannie Mae and Freddie Mac, home loan modification programs, various tax credits, and the standard mortgage interest deduction – may have originally been well meaning, but now have demonstrated repeatedly that there are way more negatives than positives to continuing with these programs. The GSE’s have cost the country hundreds of billions of dollars, loan modification programs and extra tax credits have been utter failures, and the mortgage interest deduction has value mainly to special interest groups. The programs are definitely in a state of disorder and not normal or rational to an independent thinker.
Even after the real estate fiasco of the last few years, new regulations don’t begin to address the main causes of the meltdown. For the most part, the same players make or influence the rules, from government bureaucrats to Wall Street bankers. With very few exceptions (e.g. Bernie Madoff, though his actions should have been cut off long before), the crooks who got us into this mess have received no punishment or received only a slap on the wrist.
The real estate market needs a return to stability and decency. The best way to do that is to force the players to be responsible for their actions. One simple example is to make banks hold a large percentage of the loans that they originated, with no government guarantees of any sort. Bankers who cost the taxpayers more than a nickel would be kicked out of the financial arena for a long period of time.
My own industry is the buying of real estate notes (also called mortgage notes and deed of trust notes) from individuals who originally sold a property using owner financing. Selling a property and creating a real estate note is a much more pure and honest way to do a real estate transaction. After all, the person selling the property and collecting the payments is keeping most of the risk, so has a large incentive to make sure that the transaction has substance and is genuine.
Although carrying a note is not appropriate for all situations, most note holders have the option to keep the note, sell the whole note to a mortgage note buyer, or just sell part of the note. There are a variety of mortgage buyers who can help nearly anyone who wants to sell a note.
Regardless of whether a property is sold using a mortgage note, a loan is created, or even sold on a cash basis, it is critical that the transaction be legitimate and would make sense to a reasonable person. Otherwise, we are setting ourselves for part 2 of the meltdown of the past few years.
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A RETURN TO NORMALCY