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Grabbing at Straws: More Non-Core Housing Fixes Proposed

Alan Blinder has a series of suggestions for how to fix the housing market. He notes that he called for a modern-day Home Owner’s Loan Corporation to buy up and refinance troubled mortgages back in 2007 and 2008, but that advice wasn’t taken. He still seems spooked by the ghost of Rick Santelli, as if the Tea Party wouldn’t have formed for any reason at all and not specifically over an unrealized suggestion that the government would be helping pay off mortgages. But his ideas are basically the warmed-over ones the government is already pushing: mass refis through Fannie and Freddie, converting vacant properties to rental units (and encouraging developer purchases for this purpose through a Treasury loan program), and a hybrid solution on principal reductions which uses taxpayer funds but gives the government some of the upside when housing prices bounce back.

These are not horrible, but they are also somewhat irrelevant. There’s $700 billion in negative equity out there. If you don’t touch that bubble, you’re not going to get anywhere with housing. And the people who broke the market should have to shoulder that cost, to make it up for, well, breaking the market. Of course, we’re nowhere near that on any foreclosure fraud settlement, new details of which were revealed by Shahien Nasiripour today. They’re going to do a lot of pretend work and release the banks from most of their liability for a pittance. Hopefully as few states as possible will sign onto it.

If we’re going to do a somewhat irrelevant housing fix, you might as well do Chuck Schumer and Mike Lee’s bill to allow resident visas for foreigners who purchase homes in America:

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.

The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S. […]

To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out.

There doesn’t appear to be any grant of a work visa here – foreigners would have to go through the normal process for that – so this is a measure to turn the US into a large retirement community. And given that US retirement security is pretty weak, I don’t know how successful that will be. Furthermore, foreign investors are already buying up a lot of homes, and it’s unclear whether they need another incentive for demand. Not to mention that there are existing programs that grant visas to foreigners in exchange for investment. Plus, the $500,000 figure should probably be a bit lower.

But heck, it doesn’t cost anything, and increasing a high-skill population actually should be a goal of US policy. So why not? It’ll do very little but some realtors will stay in business!

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David Dayen

David Dayen