A more balanced view on the housing mess

Yesterday I was asked to provide a guest post on the LA Times blog "LA Land" to offer an opposing view to a recent article by Daniel Gross in Slate magazine lambasting the proposed tax break for homebuilders. My point was that it didn't seem fair to punish an entire industry of nearly 5 million workers for the actions of a much more limited number of executives, sales people and lenders who contributed to the housing bubble and, ultimately, the bust.

That post was followed by over 30 comments, most of which blasted me for being naive, stupid, wrong, and all other sorts of things one would expect from a controversial subject (and many of which I've shared today in previous posts on this blog). With that said, however, my own personal view is a bit more balanced, and I submitted that opinion earlier today as a comment to my original post. I've re-printed that comment below:

Hey Peter:

Thanks again for the chance to offer an opposing view yesterday to that of Daniel Gross regarding the proposed tax break for builders (which passed in the Senate but looks unlikely to pass in the House).

You asked me to provide a view in opposition to that of Mr. Gross, and that's exactly what I did, using the same types of defenses I've heard and read from homebuilders and homebuilding association. Plus, I did think that by focusing exclusively on the largest public builders he wasn't necessarily including smaller builders as well as the army of suppliers and subcontractors that do most of the actual building.

I've been keeping a close tab on the comments, and have been re-posting some of the more impressive ones on my own Housing Chronicles blog -- if I'm going to be raked over the coals it's much better coming from those who know how do it!

You've definitely got a smart and well-educated audience (more so than on some other housing blogs I read), with the best comments coming from 'baruza,' 'JohnnyB,' '150 Multiple Choice Questions,' 'arroyo grande' and 'LA,' with the funniest by far coming from 'bottom line.' And whoever 'Brian' is, you sounded so much like my banker friend Brian that I thought it was his post (it wasn't), but what a great comment!

Ok, here's what I REALLY think from a more balanced perspective: from a PR standpoint, many builders have been their own worst enemies, and if they want to re-earn the trust of the general public it simply can't be 'business as usual' anymore.

Firstly, if they want taxpayers to help them through this cash crunch, there should be some strings attached, namely stop avoiding subcontractors and suppliers to whom you owe money and don't insult them with offers of 25 cents on the dollar (which is something I heard last night after my original post).

Secondly, you'll probably have to disband these in-house mortgage operations that in many instances forced buyers to assume loans that weren't competitive so they could grab the incentives being offered. That trust is now lost and unlikely to be regained anytime soon.

Incentives should be offered on their own and not tied to anything else. Beazer Homes, which got into a lot of trouble with their in-house mortgage arm, now refers loans to Countrywide and, according to a design consultant I met the other night, says they don't attach incentives to a Countrywide loan.

Thirdly, they're going to have to provide far greater transparency (and education) throughout the entire sales process, including firing lazy/greedy/uninformed sales agents who were simple order takers during the boom. I can't tell you how frustrated I'd be listening to a sales agent attempt to explain mortgage terms to potential buyers without telling the full story.

Fourthly, we really need to license mortgage agents and brokers, force them to act as fiduciary agents for their borrowers and provide more funds to regulators so they have the muscle to pursue those who deliberately steer clients into the wrong types of loans (such as Option ARMs) because they pay a higher commission.

Fifthly, we've got to recognize that one reason this boom got out of hand was the Bush Administration's 'hands-off' policy towards regulating the housing and mortgage markets; by blindly chasing higher ownership rates they lost sight of just HOW that was happening (i.e., speculators, sub-prime mortgages, fraud, etc.). The fact is we may need some more regulation for this industry and builders may have to accept that if they expect any special treatment by the taxpayers.

Finally, one commentator said that it doesn't matter what the Fed or federal government will do, since this problem is simply too large to contain, and that may be true. The best we can hope for is a somewhat orderly realignment of housing prices against incomes and associated rents, and strict penalties for those who perpetrated fraud on sales contracts and loan documents.

There is still a lot of pain ahead, but for those who keep informed and stay on top of trends, there will be good deals now only now, but certainly in the future. It just depends on your individual circumstances.