What enlightenment do the measures to deal with H1N1 influenza A after the subprime mortgage crisis in the United States give us?

background

In 2007, when the subprime mortgage crisis pierced the real estate bubble in the United States and the market did not recover, H1N1 influenza A appeared in the US in April 2009, and there were two outbreaks in the spring and autumn. Under the double attack of economic crisis and social epidemic crisis, the volume and price of real estate market declined rapidly, and the large-scale default of housing loans and house foreclosure intensified the market selling. Although the government has taken a variety of financial, financial and other measures to rescue, the real estate market has not yet recovered rapidly, and it has been in a downturn for five years before it began to recover.

1? The real estate market has deteriorated dramatically

  1. The market volume price continued to fall

The volume of real estate transactions and the number of new houses completed decreased significantly in 2007. Residential transactions peaked in 2008, down 36.8% from the peak. In 2009, the volume of real estate transactions stopped falling, with a slight increase of 5.3%, but remained at a low level until 2011. The number of new houses completed has declined from 2007 to 2011, 70.44% less than that in 2006. In particular, in 2009, the number of new houses completed dropped the most, 29% less than the previous year.

Figure 2006-2017 us real estate market volume price trend

Source: U.S. Bureau of statistics, OECD, shell Institute

House prices did not show a significant decline until 2008. From a high in 2007 to a low in 2011, house prices fell by 19.6%. Among them, the housing price in 2008 fell by 8.1% compared with the previous year; the decline rate of house price in 2009 began to shrink, falling by 5.9% compared with that in 2008.

  1. Large scale housing loan default

The sharp fall in house prices has led to a large number of real estate value insolvent, and the high default rate of housing mortgage loans continued until 2012. The 30 day overdue rate of housing mortgage loan increased until the second quarter of 2010, and the overdue rate reached 11.54% in the first quarter of 2010. The impact efficiency which is more than 6 months overdue has increased until the fourth quarter of 2009. However, the 30 day overdue rate and the impulse efficiency of more than 6 months are still hovering at a high level from 2010 to 2012, and it is only after 2012 that it really enters the downward channel.

Figure 1991-2019 overdue rate and write off efficiency of American housing mortgage loan

Source: Federal Reserve Bank, St. Louis Department of economic research

The number of homes foreclosed due to mortgage defaults has increased by 2010. After the subprime mortgage crisis occurred in 2007, the number of mortgage default foreclosed properties continued to grow. By 2010, the number of foreclosed properties in the United States reached a maximum of 2.87 million, accounting for 2.23% of the total number of existing houses. This means that 2.23 of every 100 apartments in the United States have been foreclosed.

Figure 2005-2018 foreclosures in the United States

Data source: attom data solution

  1. Leasing market is in short supply

Due to the decline in house prices, the willingness of American families to buy houses is reduced, and the loss of housing due to foreclosure, the demand for rental housing has increased, and the housing ownership rate has continued to decline. In contrast to the decline in house prices, rent growth was strong, with the rent index in 2008 increasing by 6.27% compared with 2006. In the situation of the real estate market downturn, REITs, real estate funds and other institutional investors play an important role in purchasing real estate for rent.

Figure 6 changes of rent index and home ownership rate in the United States from 2006 to 2017

Source: OECD, US Bureau of statistics

2? Policy response

Because the national economy is still in a difficult position, in order to prevent the further economic decline caused by non-medical isolation, the US government has taken moderate and conservative measures to strengthen medical investment and targeted support for small and medium-sized enterprises, and has not imposed large-scale isolation in society to prevent the spread of the epidemic. Even if schools are closed and closed, which is a measure to prevent students from gathering infection, experts estimate that the closure of schools in the United States for four weeks will lose 0.1% – 0.3% of the GDP of the United States, and it will continue to open after only five days. In the end, the gains outweighed the losses, with 60.8 million cases of H1N1 influenza A infection and 12500 deaths. The economy has not been saved. GDP fell by 2.5% year-on-year in that year, which is the biggest decline in the U.S. economy since 1950.

Because the real estate market and its closely related financial market are the source of the initial crisis and involve the interests of the majority of residents. The United States has not only cut interest rates substantially and purchased asset securities of housing mortgage loans in the open market through the Federal Reserve and the Treasury Department to prevent the further spread of financial product defaults. In order to solve the huge crisis of large number of real estate loan defaults, being sold off and owners losing their houses in the real estate market, the U.S. government began to issue emergency policies to solve the residents’ debt problem in 2009.

  1. Affordable housing refinancing program (HARP)

In order to enable the insolvent owners to enjoy the low interest rate policy at that time, the Federal Housing Finance Agency issued the affordable refinancing program (HARP) in March 2019. The plan allows loans issued before May 31, 2009, and the previous year is not overdue. Up to 125% of LTV can apply to loan institutions for refinancing; that is, apply for a new loan to repay the original loan, because the new loan enjoys the current low interest rate, which can reduce the repayment burden of owners.

In order to make up for the losses of loan institutions, the government provides support to exempt loan institutions from the obligation to buy back some non-performing loans from GSEs such as Freddie Mac, Fannie Mae and Geely Mac.

  1. Housing affordable loan modification program (HAMP)

In order to help homeowners keep their houses and avoid personal economic losses caused by foreclosure, the U.S. Department of Finance introduced the revised plan of affordable housing loans (HAMP) in March 2019. By reducing the principal and interest rate, the monthly payment of the borrower is reduced to 31% of the income, and part of the loss of the homeowner is distributed to the lenders, guarantors, investors and taxpayers. Temporarily unemployed borrowers can enjoy the unemployment grace period, and financial institutions provide 12 months of grace.

To this end, the government has provided financial institutions with us $45.6 billion in subsidies. Financial institutions have reduced the face value of loans per dollar to 18-63 cents, which has been given three times the government’s incentives. As of October 2013, private financial institutions have revised more than 3.9 million mortgage loans, 98% of which have reduced interest rates and 31% of their principal.

  1. Most affected fund projects (HHF)

In February 2010, the U.S. Department of finance established the hardest hit Fund Program (HHF), the most severely affected fund program, to provide targeted assistance to the hardest hit areas of the real estate market. The program expanded from $1.5 billion to $9.6 billion for the five states with the largest initial housing price declines to 18 states with unemployment rates above the national average and house prices falling by more than 20% and the District of Columbia. Subsidies are used to help homeowners with loans, or to tailor housing development projects locally to help homeowners who have lost their homes. The project helped more than 292000 homeowners.

  1. Re to rent

In order to reduce the oversupply caused by foreclosure selling and increase the risk of further decline in the real estate market, in February 2012, the Federal Housing Finance Agency announced that it and Fannie Mae would pilot the implementation of the re to rent program in the severely affected areas. In the second quarter of 2011, of the 2 million units on sale in the U.S. real estate market, foreclosures accounted for as much as a quarter. The foreclosed property leasing program allows eligible investors to bid for a batch of foreclosed single home properties from Fannie Mae, Freddie Mac and financial institutions for lease, but requires investors to lease the property for at least two years.

  1. US $25 billion penalty for financial institutions

In February 2012, the federal government and the state government signed an agreement with the five major financial institutions to punish the five major financial institutions, such as issuing high interest rate housing loans to residents who do not meet the credit conditions, and abusing foreclosures. Among them, 20 billion US dollars is the financial institutions committed to provide relief for borrowers’ loans within three years, reducing the economic burden of homeowners by reducing the principal balance and refinancing. Another $5 billion was to pay fines to federal and state governments, mainly to compensate residents for housing loans in the financial crisis.

3? Enlightenment to us

After the subprime mortgage crisis in the United States, the response to H1N1 influenza A epidemic has brought us some enlightenment

  1. Reducing the burden of enterprises through financial and tax support

The epidemic situation will cause losses to some enterprises and people in the short term. If the epidemic leads to the risk of capital chain fracture, bankruptcy, unemployment, house foreclosure and other risks, the government can encourage financial institutions to provide inclusive financial support for enterprises and the public, including interest rate reduction, loan extension, etc. If the epidemic situation causes business losses to the real estate tenants, the government encourages the landlords to reduce or reduce the rent by means of tax reduction, financial subsidies, awards and awards.

  1. Developing leasing to ease the downturn of real estate

When the U.S. real estate market is in a downturn, the rental market is growing against the trend. The main reason is that the downturn in the trading market has led to some homeowners turning into non homeowners, and those who want to buy houses continue to wait and see, increasing the demand for leasing. Therefore, the U.S. government encourages investors to invest in real estate for leasing, increasing the supply of leasing and reducing the supply of real estate sales, while balancing the supply and demand of rental market and real estate trading market. Therefore, after the end of the epidemic, in order to better balance the supply and demand of the market, we should continue to vigorously develop the rental market, promote the implementation of the same rights for rent and purchase, and better meet the demand for quality housing.

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