Local Government should create an alternative home finance system

For decades the housing market has been at the mercy of big banks. Currently much of the country is languishing in the mess created by big banks. Many people can't afford the house they own, but can't sell it because the far away financial institutions that created the problems in the housing market still control the mortgage markets. The only people that can afford to buy a house are speculators with cash, because few people can qualify for a mortgage. Big chunks of our cities are slipping into a future of transitory populations and cheap rental housing.

The conventional mortgage market is not going to help solve this problem. Buried deep in the heart of the complex mortgage markets the Wall Street smart guys created are a bunch of entities that own mortgages that are paying 6 to 8% interest. They have no interest in refinancing a mortgage that pays 6 to 8% and replacing it with a mortgage that pays 4 to 5%. So they make qualifying for a mortgage impossible.

Local agencies in the hardest hit areas need to make the conventional mortgage market irrelevant by creating an alternative refinancing mechanism. The Cal-Vet home loan program provides a model. For over half a century the Cal-Vet home loan program has been selling bonds, using the money from the bonds to make home loans to veterans, then using the interest payments on the mortgages to pay the costs of the program and pay off the bondholders.

In that 60 years or so that the Cal-Vet program has been quietly chugging along putting people in homes it has never cost taxpayers a dime, to my knowledge, nor has it ever caused a financial bubble or burst in the housing market.

The private mortgage market, on the other hand, left US taxpayers with a $700 to $800 billion dollar bill following the Savings and Loan meltdown in the 1980's, not to mention imposing a lot of financial pain on millions of homeowners.  Then 20 years later we find ourselves in the current housing collapse where the ultimate bill to homeowners and taxpayers will be in the many trillions of dollars, and millions of people have been financially devastated.

Every city should have the power to take whatever steps are necessary to set up a city refinance agency that can sell bonds then use the bond funds to make loans to people who want to own their own home. Set up strict underwriting criteria, insulate the administration of the program from political meddling, insulate the salary structure from efforts to bump up administrative salaries to match the private sector. Making home loans doesn't require innovation, or out of the box thinking, or any of those other corporate buzz words. It should be a color by the numbers, follow the instructions process. You don't need to pay anyone hundreds of thousands of dollars a year, you just need to hire people who take pride in their work, want to make a decent living, and are rewarded by doing a public service.

A city that set up such a program could become a magnet for young, ambitious, bright people who want the opportunity to own a home and build a life. Local business that invested in housing bonds would be building their future at the same time they are guaranteeing a tax-free return on investment funds. It could revitalize the city.