Mark Zandi, Chief Economist for Moody's Analytics, recently called for more government support of housing. His recommendations include the government helping to facilitate HARP refinances that allow homeowners to refinance at low rates up to 125% value of their home as well as supporting principal-reducing loan modifications. His ideas stem from reducing the volume of future foreclosures which I can certainly appreciate.

It's great that that Mark Zandi is looking out for the housing market, but there are some realms where industry professionals feel we need less "support" from the government. Particularly, the government is playing a role in defining a "qualified residential mortgage," and one of the requirements of the current proposal is a minimum 20% down payment. Studies show an extremely thin correlation between down payments and default rates (more on this here), so this current proposal reduces a buyer's ability to purchase by forcing good borrowers who can only afford a 5 or 10% down payment into higher rate loan programs, effectively reducing the amount of home they can purchase. This looks an awful lot like bank lobbyists working to put more money in bank pockets.

Altogether it's "support" like this that homeowners, buyers, and industry professionals should be opposed to. There are better ways to clean up financial guidelines, and primarily they involve debt to income ratios and not lending to borrowers who do not have a solid history of making payments.

The one recommendation that Zandi did get right, in my opinion, is to hold off on the scheduling reduction in conforming loan limits from $729,750 to $625,000 in areas with higher home values… the Seattle and Bellevue area being one of those locales. Reducing the conforming loan limit equates to higher financing costs for borrowers looking to buy above the limit.

But really, many believe that the bigger problem the housing industry faces is how seemingly cozy the big banks have gotten with the white house. It's scary really, and most people simply aren't aware of it. Good homeowners and ethical real estate professionals unfortunately took the fall for the banks' practice of making bad loans and then betting that these bad loans would sour. It's unwittingly been called the real estate bubble, but the simple truth is it was a financial bubble created and supported by the banks.