Great news: Sen. Segerblom a fan of housing bubbles
One of the most important lessons in public policy (and life) is that every action has both short- and long-term consequences — and often those consequences are contradictory.
Consider the housing bubble. We had Keynesians like Paul Krugman actually calling for a housing bubble to boost the economy in 2002. Then we had "the government's distortion of mortgage finance through the Community Reinvestment Act and the government-sponsored enterprises Fannie Mae and Freddie Mac." And, of course, we had the Federal Reserve's manipulation of interest rates.
Those factors (and many more) contributed to an unprecedented rise in home prices until 2007, when the bubble burst and housing prices came crashing down. The factors that helped create the bubble in the housing market in the short term were the same factors that created the crash and decline in housing prices in the long term.
One Nevada-specific factor that is creating a mini-bubble in housing is AB 284. As Nevada Journal's Steven Miller details, under AB 284, a paperwork error can now send lenders and mortgage servicers to prison.
[Lenders and mortgage servicers] are now liable to be charged with a category C felony if, in their filing of the numerous new documents the law (AB 284) requires, a document contains what some government prosecutor might choose to see as a “false representation concerning title.”
The mandatory sentence set by statute for such a felony is imprisonment in the state prison for least one year and fines of up to $10,000.
AB 284 also, in the view of critics, gave virtual hunting licenses to lawyers representing defaulting borrowers. It did this by placing the equivalent of bounties on any lender’s failure to disclose every prior known beneficiary of the deed of trust in a notarized affidavit. Any such mistake by a lender is, to a borrower’s lawyer, worth the greater of $5,000 or treble the amount of actual damages, plus “reasonable” attorneys’ fees and costs.
As a result of AB 284, Notice-of-Default filings, which are a necessary step in the foreclosure process, fell dramatically in 2011 when the law went into effect.
This has led to thousands of houses that are in default, but where the mortgage holder is unable to foreclose on those houses and sell them. This is sometimes called the shadow inventory, whichhousing experts predict will delay Nevada's housing recovery by two to three years.
But in the short term, the lack of inventory is creating another bubble and driving up housing prices in an unsustainable way.
Since we just lived through a massive real-estate bubble, you would hope lawmakers would do everything possible to avoid creating another one.
Not Sen. Tick Segerblom. Instead of trying to defuse this government-created housing bubble, he's defending it.
John Restrepo, principal of RCG Economics in Las Vegas, called [the housing bubble created by AB 284] “a bit of an artificial spike not likely to be sustained as it is today, depending on how the law is changed.”
The politics of easing restrictions for banks (by changing AB 284) are dicey and likely to face opposition.
Sen. Tick Segerblom, D-Las Vegas, chairman of the Senate Judiciary Committee, said he’d listen (on changes to AB 284) to Cortez Masto, a fellow Democrat.
But, he said, “I’m extremely reluctant to change anything that everyone agrees has raised property values in the state of Nevada.” (Emphasis added.)
We know how the government-creating-a-housing-bubble story turns out. Would someone let Sen. Segerblom know it doesn't end well, even if it appears attractive in the short term?
