Commentary: A sensible plan for housing

This editorial appeared in The Sacramento Bee.

In the last decade, California's largely unregulated nonbank mortgage lenders and brokers pioneered exotic loans that divorced incomes from housing prices. Have a modest $50,000 income? Sure, you can own a $500,000 home.

This Gold Rush mentality allowed home prices from the late 1990s to rise out of proportion to actual incomes.

Now the illusion has been exposed, and housing prices that peaked in 2006 have fallen to 2001 levels. But they haven't yet returned to pre-bubble 1998 prices. Mark Zandi of Moody's Economy.com expects home prices to bottom out by the third quarter of this year.

Prices today are close to returning to levels in line with income. The trick now is to avoid an over-correction. The circumstances make President Barack Obama's narrowly crafted Homeowner Affordability and Stability Plan timely.

Some worry that the president's plan is a bailout of irresponsible borrowers and lenders. It isn't. This package will not help speculators who gambled on home prices rising indefinitely. It will not help lenders who pushed mortgages structured to fail. It will not reward people who bought homes they knew they could not afford.

But it does address the problem of unnecessary foreclosures that, as Federal Deposit Insurance Chairwoman Sheila Bair observes, are putting "artificial downward pressure on home prices, which is hurting everybody." Just look around. Vacant homes, repo signs, vandalism and crime are hurting everybody in our neighborhoods.

To read the complete editorial, visit The Sacramento Bee.