With the current system, renting can be a perfectly good (and sometimes preferable) option. If we look at "home ownership" as the end-all-be-all of the American existence, and then classify someone who puts no money down on a home as a "home owner" (instead of a "home debtor"), then things have gone backwards.
At the very least, if the government is going to back a loan, they should require a 20% down payment. If someone doesn't have it, then they should rent, which means someone else has bought the house as an investment and they are shouldering the risk, not the taxpayers (assuming the investor didn't use a government backed loan too).
None of this answers the question. You said increasing interest rates "where they should be" is the first step to a housing recovery. Well, can you explain how this would do that? Historically, housing markets boom during times of low interest rates. By increasing rates, people tend to wait for them to drop again before committing themselves to 15-30 year loans. As to your second point:
2. Require lenders, not tax payers, to assume the risk of the loan (and therefore set the terms).
But this is already the case and always has been. If you read the piece you linked us to, you'd read:
Administration officials say they are looking only to allay unnecessary hesitation among banks and encourage safe lending to borrowers who have the financial wherewithal to pay.
“There’s always a tension that you have to take seriously between providing clarity and rules of the road and not giving any opportunity to restart the kind of irresponsible lending that we saw in the mid-2000s,” said a senior administration official who was not authorized to speak on the record.
So where is this "giving bad loans" rhetoric coming from?
I get the sense that you're giving too much credence to the Right Wing myth that the housing crisis occurred because the government was "forcing banks" to give bad loans. That never happened. The bubble and its bursting happened because of the repeal of Glass-Steagall, which meant more unbridled capitalism and fewer regulations. It wasn't a case of too much government involvement, but a lack thereof. The GSE like Fannie and Freddie
simply purchased the mortgages (which is how you spin the issue as "90% nationalization," which is absurd), but they were purchased from private lenders who were responsible for setting the terms of the initial loans.
The fact is most people who pay rent will generally pay less on a mortgage if they don't get duped into signing an adjustable rate mortgage (ARM), so it is not reasonable to assume they "can't pay" just because their credit scores are low or because they have low incomes. What happened during the housing crisis was private lenders took advantage of too many borrowers, scamming them into signing contracts they didn't understand, urging them to do ARM loans that promised low rates in the beginning, but would eventually double and triple their mortgage payments through time. So millions of Americans got screwed, and had to default. But it wasn't because most of them were never able to make the payments agreed upon during the initial contract.
It was because there was virtually no accountability in the private lending market, so entrepreneurs started their own businesses proving loans. They started churning out newer loans by the millions, raking in those commissions and then defrauding the entity that purchased those loans. It was the new cultural mentality of "there is never enough mortgages to sign" that led to the bubble and it was their reckless/illegal behavior as lenders that led to millions of mortgage defaults. Because they didn't care. Why? Well thanks to the repeal of Glass-Steagall, they were getting paid upfront, and after selling off the mortgages to other banks (or Fannie), it was no longer the lender's problem.
They also dumped millions into advertising themselves, getting more and more Americans to buy mortgages (enough is never enough when we're talking about greed), assuring them that they'd be paying less than they already do for rent. Just
look at this commercial, and then ask yourself, is this commercial by a government or private company. It was that beautiful capitalistic "profit motive" that urged lenders to screw the borrowers, caring for nothing but profit, while pushing them to sign "subprime" or ARM loans because they paid higher commissions. Had there been some Federal oversight, this never would have happened.
