AgentMarkets & Economy

Let the market correct itself

'Skin' in the game is key to recovery
Published on Feb 25, 2010

Everybody is charting job growth and foreclosures. While many analysts say job creation is the primary driver of home sales, the hole that's been dug by bad loans is too deep to be offset by a modest rise in future employment. The reality is more foreclosures than ever are scheduled for 2010. What can be done about it? A decade of cheap money and incredibly flexible loan programs offered by many lenders sparked overbuilding by developers, a flip-and-run mindset for speculators and unrealistic expectations for first-time homebuyers blinded by the low payments of a short-term loan. According to Edward Pinto, a consultant to the mortgage-finance industry and former chief credit officer at Fannie Mae, the over-stimulus provided by Fannie, Freddie, the Federal Housing Administration and the Community Reinvestment Act created the housing boom that went bust. The response to the bust has been to provide yet more stimuli that are serving to delay the market-clearing process. The...

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