Posted on Tuesday, December 14, 2010
DSNews By: Joy Leopold 12/10/2010
The Robert H. Smith School of Business at the University of Maryland released a report in November detailing the urgent need for measures to stabilize the housing market.
The 13 page report, titled, A Way Forward on the Housing Crisis, says that “to allow the housing market to languish without powerful policy prescriptions jeopardizes recovery not only for housing but for the larger economy as a whole.”
One prominent suggestion of the report is a Market Protection Mortgage (MPM) which would combine job loss and home price decline protection features into one arrangement between the borrower and lender.
The MPM would be established with a set of underwriting parameters that require verification of employment and income at the time of origination.
Creating products like MPM’s, says the report, provides unique risk-sharing between the borrower and lender, which ensures an alignment of incentives.
These suggestions and others, including outlines chronicling the way mortgage loans are handled in other countries such as Denmark and Australia, give examples of options the United States government has for promoting reform.
Because of weakness in consumer confidence and housing prices as well as employment, the report says, the government needs to focus on creating proactive rather than reactive policy in order to bring stability to the market.
Housing tax credits have been met with only temporary success and federal loan modifications have had a limited impact. Efforts to fix the housing crisis has to be on a larger scale.
“Understanding the drivers of weak housing market demand and oversupply leading to disequilibrium is critical to fashioning a successful policy response that will ultimately stimulate demand, reduce housing inventories and stabilize home prices long-term,” reads the report.
It continues, “A workable solution to market stabilization must ensure that incentives are aligned across market participants, and is designed such that borrowers, lenders, investors and the government share in the costs and benefits in an equitable manner.”