Housing market could be holding back the economy

Lewis Ranieri, a pioneer in developing the mortgage-backed security, recently spoke with professionals in the financial industry on the current state of the economy and the housing market. To the members of the North Carolina Bankers Association of Raleigh, Renieri said that lawmakers are spending too much time participating in political debates and not enough time addressing the needs of the rotting housing marketing.

The Wall Street Journal reported Renieri warned the audience that the millions of bank-owned foreclosures and defaulted loans will drag the nation's economy underwater. According to Renieri, political leaders seem afraid to act, and have no grasp on the social implications the increasing number of foreclosures will have on the economy.

Renieri's proposed solution would enable homeowners who could not afford to modify their monthly payments to rent their homes back from investors who bought the properties at low prices, the news source reported. In addition, investors should receive conservative financing so they will absorb the foreclosed properties and rent them out to evicted Americans. This will decrease the foreclosure inventory and work to stabilize home prices.

With the weak economy and persistently high unemployment rate, it is unlikely that foreclosures will significantly decrease soon. A recent survey from Country Financial found that Americans are much more likely to default on their home loans if they become unemployed. The survey showed 68 percent of Americans said they would not be able to pay their monthly mortgage payment after nine months. In addition, 31 percent said they would only be able to maintain their payments for six months, and 27 percent said they could afford their payments for less than three months after losing their job.

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