Tackling Distress with More Flimflam Policy

While the housing market is continues to weigh on the broader economy, the Obama administration is contemplating its next move in its ongoing attempt to mitigate the economic pain and suffering so duly deserved by the generation of speculative “homeowners” who got caught holding the bag at the top of the market.

Given the sheer enormity of the financial abyss dug by the federal government over the many decades of policy blunders and big government flimflam and in light of the escalating battle between the parties over spending cuts, revenue increases and the debt ceiling, it would seem now would be the most unlikely of times to spin up a new policy designed for saving bankrupt homedebtors from themselves.

But in typical fashion the policy junkies in Washington can’t pass up a “problem” that they think can be “solved” with another helping of federal largess despite the fact that they are simply proposing solutions the problems big-government policy created to begin with.

In the latest round of sham government dealings, the administration is pondering how the federal government can help to clear the nation’s overhang of distressed properties held primarily in the portfolios of the two government sponsored rejects Fannie Mae and Freddie Mac.

There’s speculation that the feds may implement measures designed to encourage investment in distressed properties bringing everyone from “mom and pop” to institutional investors into the fray in hopes that they will be able to mop up the distress.

Others suggest that Fannie and Freddie should convert their massive holdings of foreclosed properties into the largest rental portfolio the country has ever seen.

Imagine it now… the housing market being righted by investors picking up distressed properties using government assistance and then renting them to the very same communities that lost the homes in the first place… what could go wrong?

Who knows but considering the utter failure of past policy such as Fannie-Freddie, the homebuyer tax credit, HAMP, etc. it would seem that another blunder is in the making.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings April 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing a slight decline for most measures with the "buyer traffic" index remaining near record lows as home builders continue to plod through the weakest activity seen in generations.

It's important to recognize that currently all measures are showing either notable year-over-year declines or, for the buyer traffic index, zero change in the level of activity seen since last year.

Clearly the new home market has seen another no-show start to the buying season with the typically strongest selling months (remember Bob Toll's analysis of the seasons) fully behind it.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.