The Challenge in the Real Estate Market

As everyone is well aware there is a great challenge we face as a nation. No challenge or recovery is greater than the recovery of the financial markets. From the stock market to real estate the entire financial system has turned upside down. Right now one of the biggest challenges is finding sustainable regulations that allow an efficient market between conducts and markets. The solution would go beyond the traditional patchwork done by regulations as there is an underlying fundamental problem that must be solved. The problem solving becomes especially challenging as intuitions are constantly being forced to implement government regulations almost overnight with no clear picture as to why and for how long the law or regulation will be in place. You are seeing major players on the side line waiting for the dust to settle before they begin commerce again.

I guess the question that should be asked is, What should or mortgage market look like?

We at least know it shouldn't look like it currently does. The rate of bank failures is astonishing and still growing. In 2000 there was a total of 2 bank failures, 2002 -11, 2007 - 7, and as of 8/26/09 there have been 92. So a total of 20 over the past 8 years and we have already had almost 100 in less than a year.

The reason for up evil has been simple. Too much weight has been placed on housing and the warranties placed on risk. Essentially the matrix's that were used were wrong. This fault has come from a lack of education on housing, the markets and how they work. Underwriting the risk of real estate is more than just housing but what aspect of housing and the expectation and market shifts expected to take place. On top of the misunderstanding there was an array of fraud, inflated appraisals, predatory lending prices and lose underwriting practices.

Due to this the government has not choice but to get involved. With FHA, Fannie and Freddie in control the government is currently involved in over 90% of all mortgage transactions. The treasury has purchased over 100 billion in Mortgage backed Securities, the Fed 1.25 trillion. Simply put without the government there would be no mortgage market.

The market has gotten so bad banks face ruthless defaults where the homeowners makes regular payments and then justs walks away. This causes huge frustrations for hedging risk as you are stuck guessing what payment increase or LTV is the walk away number.

So the question is how do we fix this?
Is the HVCC going to help or hurt?
Is the new RESPA laws going to help or hurt?
How should the appraiser and broker relationship be structured?
What should our mortgage market look like long term?

To be honest I don't know, however we will shortly find out.