Fixing the Housing Market, Lots of Ideas...Any Answers?

Almost a year into the dawning of the housing crisis (many chronologist are setting that around the January 2008 crumbling of Countrywide) ideas continue to flow, but few seem to be the answer. In fact, this seems to be the growing consensus--there is no silver bullet.

Early US Treasury actions were criticized for there piecemeal nature, but even pledges of $700 billion seem to do little to return confidence to the housing and financial markets. Some might even argue there is more uncertainty and confusion in the the market than ever.

So, we have done bank seizures, massive bailouts, Fed rate cuts, and now loan modifications...what's next?

As I said there is no shortage of ideas. Most have come to the conclusion that the only path out of the crisis is for housing prices to stop dropping. Unfortunately, that is a tough challenge. Feed by numerous economic factors, housing prices are being effected by every new disappointing economic indicator.

• Over abundance of subprime mortgages accelerated traditional mortgage default rates
• Foreclosures and bank sales increase housing inventories with discounted homes
• Increasing inventories and discounted prices lower home values
• Lower home values block home equity and refinancing out of ARM mortgages
• Defaults lower mortgage asset and MBS values
• Banks balance sheets rapidly contract
• Instability comes to financial markets as confidence wanes in out largest institutions
• Business pull back as consumers reduce consumption
• Unemployment rises and we return to the beginning--more people defaulting on mortgages

A vicious cycle that now has the Federal government fighting on multiple fronts. The question is, what front is the most productive? Stabilizing financial institutions, returning confidence to the markets, bailing out cornerstones of the US industrial base, or working directly with homeowners.

It appears it may be all of the above. Congress and President-elect Obama will have a whole host of ideas to consider. Here are some of the early entrants into the "I have another rescue plan":

• US government subsidize bargain mortgage rates to draw in buyer to soak up bulging housing inventories
• Massive loan modifications, a plan championed by FDIC Chairman Sheila since day one
• US government buys all the bad mortgage loans, as proposed by Presidential candidate John McCain
• Enhance FHA and Hope for Homeowners with a "shared appreciation" plan
• Buy cooperation from mortgage servicers that profit from the foreclosure process
• Modify bankruptcy laws to permit judges to modify loans in bankruptcy proceedings

Most believe it will take a combination of one or more of these actions and massive stimulus to get this unsteady economy moving again.