Florida’s New PIP Law
In Florida PIP (personal injury protection) law was implemented in 1972 and stated that the named insured and all resident relatives are to be covered under the PIP coverage of your policy. Resident relatives are not required to be listed drivers on the policy for coverage to apply. The required limits for each individual is $10,00 and is paid out for 80% of medical related costs, 60% for missed work, and $5,000 in case of a fatality.
However, in October of 2007 the PIP law expired, having a significant impact on Florida drivers that were involved in an auto accident as they no longer had medical coverage from injuries regardless of fault. In January 1, 2008 the PIP bill was reinstated due to battles between insurance companies, doctors and lawyers.
PIP has resulted in significant abuse and fraud and is estimated to have cost $1.4 billion since 2008. Florida ranks first nationally in staged accidents. The result has been continual increases in the PIP portion of car insurance over the years.
Governor Rick Scott’s goal for this year was to fight automobile insurance fraud and to lower rising automobile insurance costs in the hope of getting lower premiums for insureds. As of March 2012 a new PIP reform bill was passed. The legislation requires an accident victim to have treatment within 14 days of the accident and a certified physician, osteopathic physician chiropractic physician or a dentist has to determine that the insured has an “emergency medical condition” in order to receive the full $10,000 in PIP medical benefits. Otherwise, the PIP medical benefit is limited to only $2,500. In July 1, 2012 the bill will become a Florida law and in January 1, 2013 this law will become effective.
One might think that with this new law the auto premiums will be lower but there are many that question if this will really happen. They state that the PIP reform bill doesn’t guarantee a lower insurance premium given the fact that insurance companies can refuse the10% PIP insurance rate reduction if they give a written, detailed excuse. Also, it doesn’t eliminate accident clinics or dishonest referral services. The bill does not outlaw for profit referral services that direct victims to chiropractic and lawyers. If the physicians say that their patients have a medical emergency, they can use the entire $10,000 PIP benefit. The new PIP reform bill is an attempt to stop chiropractors and physicians from running up the bills. But, how to stop a doctor from deciding if patients have a medical emergency and need $10,000 worth of treatment?
So we ask you if you think that the new PIP reform bill failed to help Florida consumers. Please share your thoughts and insights with us.
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Prevent Christmas Tree Fires
The end of Thanksgiving often means the start of Christmas tree decorations in houses throughout the country. But with the common holiday tradition, tree decorations come with significant risks of property damage.
While more than 33 million U.S. households decorate a tree annually, Christmas trees account for 250 fires annually, resulting in 14 deaths, 26 injuries and more than $13.8 million in property damage, according to the U.S. Fire Administration (USFA).
USFA footage of a tree fire test shows that a tree can fully ignite within three seconds. Within in just five seconds, flames extend up the tree and streak across the ceiling. Meanwhile, only 40 seconds is needed before the entire test room goes up in flames, showing just a how quickly a tree fire can become highly dangerous.
Using information from USFA, the Insurance Institute for Business & Home Safety (IBHS) offers guidance to reduce your risk of a Christmas tree related fire.
Purchasing the Right Tree: Check for freshness of a live tree before purchasing. Buy a fresh tree that is green and needles are hard to pull from branches and do not break when bent between your fingers. In addition, the trunk butt of a fresh tree is sticky with resin, and when tapped on the ground, the tree should not lose many needles.
Tree Placement: Place your tree away from a fireplace, radiators, or any other heating sources. Also, place the tree out of the way of traffic and do not block doorways.
Tree Maintenance: Shorts in electrical lights or flames from candles, lighters or matches are typically the cause for tree fires. Provide plenty of water for your tree throughout the season to prevent a dry tree that is susceptible to these common causes of tree fires.
Artificial Tree: Purchase an artificial tree that includes the label “Fire Resistant.” Although this label does not mean the tree won’t catch fire, it does indicate the tree will resist burning and should extinguish quickly
Trying Turducken This Holiday?
Trying Turducken This Holiday? If you’re looking for something different to serve this Thanksgiving, perhaps a little turducken may be in order. Turducken was popularized by NFL analyst and announcer John Madden during a nationally televised football game. It is a variation of a dish that was served by wenches in 18th-century England. But now, the deboned chicken stuffed into a deboned duck stuffed into a deboned turkey with bread stuffing in between has achieved fame. It generated more than 700,000 results in a search on Google in September. With plans for Thanksgiving celebrations now under way, it might soon double that. For all the information flying around about turducken, not many people admit to liking it. But it is, many agree, a showy way to celebrate the holiday. Perhaps turducken should enjoy fame while it can. A goose-based variation, called gooducken, may not be far behind. Gooducken, of course, is a goose stuffed with a duck, which, in turn, is stuffed with a chicken.
New Report Reveals That 1 In 7 Drivers Are Uninsured
Summer is the time for road trips, long motorcycle rides and making those daily back-and-forth trips to run household errands. Chances are drivers will not be involved in a vehicle accident during these travels, but everyone likely will be involved in at least one motor vehicle accident in his or her lifetime. Across the United States, chances are roughly one in seven that a driver is uninsured, according to estimates released in April from the Insurance Research Council. The economic downturn is thought to be a major factor in the increase of uninsured motorists, with approximately 13.8% of U.S. drivers being uninsured in 2009 despite laws in most states requiring drivers to maintain minimum coverage. In a new study, “Uninsured Motorists, 2011 edition,” the IRC estimates the percentage of uninsured drivers countrywide and in individual states for 2008 and 2009 based on the number of uninsured motorist insurance claims versus the number of bodily injury claims. In 2009, the five states with the highest uninsured driver estimates were Mississippi, 28%; New Mexico, 26%; Tennessee, 24%; Oklahoma, 24%; and Florida, 24%. The five states with the lowest uninsured driver estimates were Massachusetts, 4.5%; Maine, 4.5%; New York, 5%; Pennsylvania, 7%; and Vermont, 7%. The moral? Protect yourself by making sure you’re fully covered, with Uninsured and Underinsured Motorist coverage included in your insurance policy.
Prepping for Irene – Important FloodSmart Tips
Hurricane Preparation Information
With Irene threatening a large portion of the coastal United States, people will be looking to you as trusted authorities on what to do before, during, and after the storm. The National Flood Insurance Program (NFIP) has developed a number of resources that can help you communicate with residents about preparing for and recovering from a hurricane.
• During a Flood: Tips to stay safe during a flood.
• After the Flood: Helpful information for residents as they return home.
• Understanding Your Flood Insurance: Talking points to help you explain what flood insurance is, as well as what is and is not covered by a flood insurance policy.
• Filing Your Flood Insurance Claim: A checklist for policyholders as they navigate the claims process.
• NFIP Summary of Coverage: An explanation to help policyholders understand their flood insurance policy.
• NFIP Flood Insurance Claims Handbook: A step-by-step guide to filing a claim.
• FloodSmart.gov Hurricane Widget: A widget you can post on your Website with an interactive quiz allowing residents to test their hurricane knowledge.
• Cost of Flooding Tool: A shareable digital resource that helps the public understand the likely costs of flooding.
FEMA’s National Flood Insurance Program and the FloodSmart Campaign also offer helpful tips on what to do to prepare before a flood. We encourage you to share this information with residents of your community.
1. Safeguard your possessions.
• Create a personal flood file containing information about all your valuable possessions and keep it in a secure place, such as a safe deposit box or waterproof container. This file should include:
o A copy of your insurance policies with your agents’ contact information.
o A household inventory: For insurance purposes, be sure to keep a written and visual (i.e., videotaped or photographed) record of all major household items and valuables, even those stored in basements, attics or garages. Create files that include serial numbers and store receipts for major appliances and electronics. Have jewelry and artwork appraised. These documents are critically important when filing insurance claims. For more information visit www.knowyourstuff.org.
o Copies of all other critical documents, including finance records or receipts of major purchases.
2. Prepare your house.
• Inspect your sump pump. If you have a sump pump, make sure it’s working and then install a battery-operated backup, in case of a power failure. Installing a water alarm will also let you know if water is accumulating in your basement.
• Clear debris from gutters and downspouts.
• Anchor fuel tanks.
• Raise your electrical components (switches, sockets, circuit breakers, and wiring) at least 12 inches above your home’s projected flood elevation.
• Place the furnace, water heater, washer, and dryer on cement blocks at least 12 inches above the projected flood elevation.
• Move furniture, valuables, and important documents to a safe place.
3. Develop a family emergency plan.
• Create a safety kit with drinking water, canned food, first aid, blankets, a radio, and a flashlight.
• Post emergency telephone numbers by the phone and teach your children how to dial 911.
• Plan and practice a flood evacuation route with your family. Know safe routes from home, work, and school that are on higher ground.
• Ask an out-of-state relative or friend to be your emergency family contact.
• Have a plan to protect your pets.
We also hope you are also taking this time to prepare your family and business from the potential impact of the storm.
Please email us at info@femafloodsmart.com with any questions about NFIP and FloodSmart.Stay safe,
Stay safe,
The FloodSmart Team
Hurricane Irene slams Puerto Rico; could hit U.S. projected path shifts farther east.
Hurricane Irene continued on a path that would take it east of Florida, heading toward the Bahamas where it is forecast to arrive as a major hurricane.
At 5 p.m. Tuesday the storm was about 65 miles north of Punta Cana in the Dominican Republic, with maximum sustained winds of 80 miles per hour.
The Bahamas issued a hurricane warning for the central Bahamas and a hurricane watch for the northwestern Bahamas.
The projected path remains to the east of Florida, keeping the core over the Bahamas and more than 150 miles off South Florida’s coast and more than 100 miles off the Central Florida coast.
That still could be close enough to bring some wind and rain to Florida during the day on Thursday and into Friday morning, the National Weather Service said.
“Despite the eastward shifting, the system has the potential be so strong and large that we could still see tropical storm conditions, along with squally weather,” said meteorologist Pablo Santos. “All it would take would be minor jog the west, and that could bring tropical storm winds right over us.”
The reason the hurricane is expected to bulk up: It is predicted to remain north of Hispaniola over open warm water, said senior hurricane special Lixion Avila of the National Hurricane Center. That island otherwise could have weakened or even disrupted it.
At 5 p.m. on Monday, Irene was in the Atlantic about 215 miles southeast of Grand Turk Island, moving northwest at 13 mph with sustained winds of 80 mph.
Irene intensified into the first hurricane of the season at 5 a.m. on Monday while it was over Puerto Rico. According to initial reports, the storm knocked down lines and trees and left about 800,000 people without power.
Under the latest forecast, the system would move north of Hispaniola on Monday and Tuesday and through the Bahamas on Wednesday, growing into a Category 3 hurricane along the way.
It is expected to arrive near South Florida by Thursday afternoon, although the region could start feeling the storm’s fringes on Thursday morning.
From there, it would churn north, paralleling the state’s east coast and aiming toward South Carolina. It is projected to be near Charleston, S.C., on Saturday morning.
More immediately, Irene is expected to produce up to 5 to 10 inches of rain along its path, including Puerto Rico, the Virigin Islands, northern Hispaniola and the Bahamas, the hurricane center said.
By Ken Kaye and David Fleshler
Sun Sentinel
4:53 p.m. EDT, August 22, 2011
Tools You Can Use for Flood Insurance
Visit FloodSmart.gov to find essential information and tools that will help remind yourself to prepare for the dangers of flooding all year long, and please share these interactive resources with your friends, Family, colleagues and partners as well.
• Cost-of-Flooding Tool: Gives consumers an estimate of how much they will have to pay to repair their properties based on various levels of flooding.
• One-Step Flood Risk Profile Assessment Tool: Enables consumers to enter their address and learn about their property’s flood risk.
• Hurricane Flooding Fact Sheets: Explains hurricane season risks.
• Hurricane Season Widget: A simple interactive application that you can post to your website that includes helpful flood risk/flood insurance information and tips for your customers.
• Levee Simulator: Demonstrates how levees work and the risks home and business owners face when they fail.
Hurricane Preparedness
History teaches that a lack of hurricane awareness and preparation are common threads among all major hurricane disasters. By knowing your vulnerability and what actions you should take, you can reduce the effects of a hurricane disaster. Hurricane Preparedness Week during 2011 runs from May 22nd through May 28th.
Hurricane season begins June 1st and lasts through November 30th. Hurricanes are dangerous and can result in devastating losses. The following are some helpful tips to help you through this year’s hurricane season.
If you live near the coast, know your evacuation zone and evacuation route.
If you plan to stay in a shelter, make provisions for your pets because many shelters cannot accommodate pets. Hurricane shutters that have been tested and certified offer the best protection for your home and property. While
Not as effective, affixing plywood over all of your home’s openings will provide some level of increased protection. Secure the plywood with nails or screws placed at least every 18 inches along the edges of the sheets of plywood.
Trim tree branches that appear to be weak or dead, particularly if they extend over the house. Your safety is important, it may be best to hire a professional tree trimmer or arborist.
Have a written, video or photographic inventory of your possessions stored in a safe place away from your home. If your home is damaged an inventory will be invaluable in settling the claim.
Flooding, including tidal or storm surge caused by a hurricane is not covered by your Homeowners or Wind- Only Policy. Flood insurance is available through the National Flood Insurance Program and is sold by your agent. You can assess your exposure to a flood loss at the FEMA web site: www.floodsmart.gov.
HURRICANE DISASTER SUPPLY KIT- Items to Protect your Family
•Canned goods and nonperishable foods that do not need cooking:
◦Canned meats and fish
◦Canned fruits and vegetables
◦Canned soups and puddings
◦Canned fruit juices
◦Dried fruit and nuts
◦Bread, cookies and crackers
◦Peanut butter and jelly
◦Coffee and tea
•Manual can opener
•Bottled water (1 gallon per person/per day)
•Prescription medication (2 week supply)
•Extra eyeglasses
•Pet food/supplies
•Water purification tablets (halazone)
•Disposable plates, cups, and utensils
•Infant care items:
◦Disposable diapers
◦Baby wipes
◦Baby food
◦Formula
•First aid supplies
•Masking and duct tape
•Flashlight or lantern, with extra batteries
•Battery operated radio, with extra batteries
•Watch or battery operated clock
•Ice chest
•Matches
•Canned heat (sterno)
•Portable outdoor camping stove or grill with fuel supply
•A certain amount of cash
•Important documents (Such as wills, deeds, prescriptions, passports, birth certificates, health record, proof of address, Social Security number)
•Plastic trash bags
•Plastic sheeting or tarp
•Chlorinated bleach
•Personal hygiene items
•Other useful items:
◦Work gloves
◦Sun lotion
◦Insect repellent
◦Hammer
◦Screwdriver
◦Pliers
◦Wrenches
◦Handsaw
◦Razor knife
◦Ax or chainsaw
◦Rope caulking
◦Nails and screws
◦Rope and wire
◦Broom, mop and bucket
◦All-purpose cleaner
◦Ladder
◦Sandbags
◦Portable generator
◦Tree pruner
◦Shovel, rake and wheelbarrow
◦Sheets of plywood
FAMILY EMERGENCY COMMUNICATIONS PLAN
Develop a Family Emergency Communications Plan in case family members are separated from one another during an emergency (a real possibility during the day when adults are at work and children are at school, camp or at a friend’s house). This plan should also address reunification after the immediate crisis passes.
•Ask an out-of-state relative or friend to serve as the Family Emergency Communications Plan contact person. During and immediately after a disaster occurs, it is often easier to access a long distance telephone number than a local one. Also, calling outside a disaster area is usually easier than calling into the same area.
•Make sure everyone knows the name, address and telephone number of the Family Emergency Communications Plan contact person.
•Designate two meeting areas for family members – one within your community (your primary location), and one outside of your community (your alternate location). Sometimes an emergency could impact your neighborhood or small section of the community, so a second location outside of your community would be more accessible to all family members.
A Family Emergency Communications Plan can help reassure everyone’s safety and minimize the stress associated with emergencies
STAY INFORMED
Educate yourself and family about emergency plans for your community, place of business, your child’s school and camp. Know what potential risks your community and neighborhoods are susceptible to in a hurricane, such as storm surge, flooding, etc. Carefully monitor the Media and follow instructions from Public Safety officials as hurricane approaches.
RESOURCES:
http://www.nhc.noaa.gov/HAW2/english/disaster_prevention.shtml- National Hurricane Center
http://en.wikipedia.org/wiki/Hurricane_preparedness-
http://www.ihrc.fiu.edu/index.htm – FIU’s Hurricane Research Center
http://www.chiff.com/a/hurricane-tips.htm – Great Hurricane Tips
Homeownership: Still the American Dream?
Homeownership: Still the American Dream?
Buying a house is likely to be a lot different — but could be a lot better — in the years ahead, says Gallup’s chief economist Page: 123 A GMJ Q&A with Dennis Jacobe, Ph.D., Gallup’s chief economistThe mortgage finance system is broken. Housing prices continue to decline. In 2010, nearly 26% of all home sales were foreclosed houses. What’s more, although the number of foreclosures was down in the first quarter of 2011 compared to the previous quarter, it is expected to increase in the months ahead. So does this foretell the end of the so-called American dream of homeownership? In my view, the housing finance system is on life support. Not by a long shot, you might be surprised to know. As Gallup’s Chief Economist Dennis Jacobe, Ph.D., explains in the following conversation, the roller coaster housing market of the past decade was an aberration, not the norm. But that doesn’t mean the U.S. can’t return to the days when homeownership was a public good — a symbol of the American middle class and a source of stability for communities across the country. What we need is a change in how houses are financed, Jacobe says. The recent way — with mortgage bankers throwing money at anyone with a pulse, then having Wall Street bundle the mortgage loans into securities before selling fragments of those securities to investors all over the world — isn’t such a hot idea, it turns out. It may have made a lot of people on Wall Street rich, but it devastated the U.S. banking system and economy and had ripple effects in economies around the world. The old way, according to Jacobe, is better: Local financial institutions make careful evaluations of local mortgage borrowers — thereby allowing average people to buy houses they can afford — while simultaneously allowing local banks to hold the mortgage loans they make in their portfolios. And Jacobe thinks the old way is coming back, welcomed by the pressures of the “new normal” in housing finance, the growth of “virtual companies,” and a chastened home buying public. Further, he argues that homeownership in the future is likely to be more enjoyable and more beneficial to American society than it has been at any time in the past. GMJ: How would you describe today’s housing market? Dennis Jacobe, Ph.D.: Not good. Today’s housing market is in the midst of a depression. The reason we don’t hear more about this disaster is that it is being masked by the many other major economic challenges facing the country. GMJ: What do you mean by disaster? Dr. Jacobe: In my view, the housing finance system is on life support. I started out as a housing economist. I’ve seen housing have its ups and downs. However, I’ve never seen anything like the current situation. During the financial crisis, the mortgage finance market basically collapsed. It has been maintained in what might be called a minimum mode by the government’s resuscitation of Fannie Mae and Freddie Mac, both of which are still being bailed out by the Treasury, and by FHA/VA, which is totally government backed. To get a home loan today, you must meet some very high, very standardized criteria: You must have a near-perfect credit record and a substantial down payment, and you must endure an onerous application process. If you don’t meet these high financial standards, it makes a mortgage tough to get. And in many markets, the “conforming” loan limit makes it even more difficult to get mortgage financing in high-cost markets like San Francisco or Washington, D.C. At the same time, so-called “non-conforming” loans are very difficult to get, so you’ll have trouble getting a loan if you are self-employed, for instance, or if you haven’t been employed for a certain length of time at the same employer. The pendulum has swung from “anything goes” to “very difficult to get a loan.” GMJ: So getting a loan is tough. How does that affect the housing market? Dr. Jacobe: There are many negative aspects to the current housing market, and some of them are masked by the difficulty of getting a loan. There were more than a million foreclosures last year, and observers think there will be more than that this year. That builds the inventory of houses that are for sale. When banks put those houses on the market, they generally list them at a discounted price, which tends to drive down prices. So — depending on the market — a third to half of the houses could be for sale at greatly depressed prices. If you’re selling your home, you may be competing with a pile of foreclosures that are reducing prices. There may be a lack of financing for potential buyers, and then there may also be a lack of financing for you if you need it to buy another house. Once upon a time, twenty or thirty years ago, the housing finance system was dominated by savings and loans or thrifts. The board of the local thrift would review your loan, and if the board voted to approve it, the thrift would keep the loan in its portfolio. Then came the savings and loan crisis of the 1980s and the booming of the secondary mortgage market. Wall Street got actively involved and began to package most mortgage loans into mortgage securities through so-called securitization. These mortgage securities were backed by Fannie Mae or Freddie Mac, which in turn were backed by the federal government. Wall Street was then able to sell pieces of these U.S.-government-backed mortgage securities all over the world. That whole system has now collapsed. GMJ: And the result was global financial devastation. If more people become unemployed, it could cause more foreclosures and keep driving down housing prices. Dr. Jacobe: That’s right. And something needs to replace the mostly failed U.S. mortgage finance system, whether that’s requiring banks to be more involved and accountable or some kind of alternative securitized system. Something needs to replace the current housing finance system to make credit more available not only to average Americans but also to people who don’t necessarily fit the strict profile required to get a government loan right now. If you’re self-employed, you need someone who can look at your balance sheet and determine if you’re a worthy credit risk. GMJ: Are houses themselves still worthy risks? Dr. Jacobe: It’s a riskier venture for buyers today because house prices are volatile and involve leverage. Leverage worked well for investors during the boom days when prices were rising, but it often works against home buyers today. You can buy a half-million-dollar house with a loan at a good interest rate, for example, but if house prices drop 10% in your market over the next year, you’ll lose $50,000 in the value of your investment. The unemployment situation makes this leverage issue especially troubling; if more people become unemployed or if they aren’t able to make their house payments for any reason, it could cause more foreclosures and keep driving down housing prices. GMJ: And if you lose your job, you can’t move to a better employment market if you can’t sell your house. Dr. Jacobe: Yes, but I don’t know if that’s the problem now that it has been in the past. I think the future of housing finance is a lot different than what traditional analysts might think. Traditional analysts would probably say that housing demand is driven by the creation of new households. So when the economy revives, people will need to move to their jobs. They’ll want new homes, and they’ll sell their existing homes. At the same time, new people are entering the job market; they’ll also want new homes. That creates demand. So the thinking is that there’s enormous pent-up demand for housing — there are all these potential buyers out there, and they will all spring on the market at some point in time. And there could even be a housing shortage in a couple of years. That’s been the thinking, but I don’t know if that’s still true. My theory — and it’s part of my view of the new normal — is that we’ve had a shock to the housing finance system, and I don’t think the system works the way it used to anymore. I don’t think people necessarily move out and form new households the way they did when the housing finance market was different. In part, that’s because of the current economic climate, but it’s also partly sociological. People are delaying marriage; they’re starting to save for a while before they get a house. If you have to save 20% for a down payment on a house, you’ll have to work for a while, and you’ll either live in an apartment or you’ll live with family. Most importantly, I don’t think companies move people like they used to. That’s in part because of the shock of the economic downturn, but it’s also because people are starting to work for “virtual companies.” GMJ: Virtual companies? Dr. Jacobe: Suppose you are a nationwide company and your headquarters is in Chicago. Once upon a time, you might have moved workers to your Chicago headquarters, paid their moving expenses, maybe bought the old house from them and then sold it, or done a bunch of different expensive things for those workers. Today, you might have an office near the new hire and instead of moving the person, you’ll have him or her work from that office. At one time, I thought the collapse of the housing finance system would create major economic mobility problems because if people can’t sell their houses, they can’t move. That would create a lack of workforce mobility and inhibit good employees from going to good companies. I don’t think that’s the situation now. I think companies, basically to cut costs, have learned how to work in a virtual mode with the technologies available. They don’t need to have everybody in the same office, and they’re getting more comfortable with people working from a local office or from home. So the idea that when you get a new job you immediately sell your home and get a new one has become a bit anachronistic. GMJ: What does that suggest for the future of home buying? Dr. Jacobe: In the short term, I think it means a lot fewer people will be moving when they change jobs or when they need more room in the house. Housing sales activity likely won’t be anywhere near what it has been in the past — home improvement will increase as people stay in their homes — there will be a new normal in housing. I don’t think the U.S. economy will fully recover until the housing market is stable and growing. In the medium and longer term, I think we may see a revolutionary change in the way people look at buying a home. If you work for a virtual company, you may be able to simply choose where you want to live regardless of where your company is located. In turn, this suggests that future home buyers may be looking for different things than they used to. People may decide they want to buy a home in a community where there are lots of outdoor activities available, that has a suitable climate, or that is close to friends and family. Things like the quality of schools, local transportation, and safety will still matter, but I think what a community offers a potential home buyer will be much more important. GMJ: People who do that will be buying with a much longer ownership time frame in mind, right? Dr. Jacobe: Right. They’ll see a home as someplace they plan to live for a long time, even into retirement. They may no longer see it as a financial investment or as a short-term place to live before they move to another city or simply move up. Companies might also change the way they locate their offices. Diseconomies of scale and virtual companies could change the strategy companies use to decide where they locate their headquarters, their other offices, and the relative size of each. Homeownership is likely to be an even better American dream. You not only get all the traditional benefits of being a homeowner — owning your own piece of America — but you also get a lot more freedom in choosing where you live and how you live. GMJ: So what does this mean for mortgage finance? Dr. Jacobe: We need something of a revolution in mortgage finance. Right now, the housing market is place specific — and I think changes in home buying patterns are likely to increase these local market differences — yet the housing finance system is the same all over the country. Lenders in every market are more cautious, whether or not that’s entirely warranted. So whatever we do to reform the housing finance system, we need something that provides local finance. Selling loans around the world created problems because nobody knew or cared about what the local market conditions were. One of the reasons that small businesses have major problems getting loans today is because of the decline in housing prices. Many small-business owners use their homes as collateral for business loans, so some of the economic numbers relating housing to the GDP greatly underestimated the impact of housing activity directly and indirectly on the U.S. economy. The economy is getting better now — manufacturing and exports have been recovering — but we really need the housing sector nationwide to improve to get the economy going. Housing affects the economy indirectly in ways that people don’t think about. For that reason, we must focus on what it will take to get financial institutions to invest locally in mortgage finance. Instead of removing the mortgage interest deduction — a so-called tax expenditure — which I think is a terrible idea, we need new incentives for lenders to make, underwrite, and keep home loans locally. Lenders generally do have a strong interest in their local communities; no matter how big a financial institution is, their interest is in the wellbeing of their local communities. The sooner we get back to financing homes locally and doing so on a solid but individualized basis, the better. An additional advantage of local mortgage finance is that it allows lenders to work with homeowners if they run into financial trouble — something that has proven very difficult when investors around the world own local mortgage loans packaged into securities. GMJ: Dr. Jacobe, for you this is wildly optimistic. Dr. Jacobe: Yes, but I think changing the home financing system will be a challenge. Still, I just can’t believe people are ready to abandon homeownership. I think too many people have forgotten how homeownership benefits individual freedom, local communities, and the U.S. economy as a whole. Most importantly, I don’t think the U.S. economy will fully recover until the housing market is stable and growing once again. The reality is that something must be done with Fannie Mae, Freddie Mac, and Ginnie Mae. These companies dominate housing finance in the U.S. and continue to need taxpayer support. I believe the restructuring of these trillion-dollar portfolio companies will put homeownership and housing finance in the spotlight in the months ahead. I’m hoping there will be overwhelming support for turning over mortgage finance to the private sector in local communities — a situation that served Americans well in the past. I’m optimistic that everyone will see the benefits associated with aggressively promoting homeownership. Think about it: There’s a reason the movie It’s a Wonderful Life still resonates. — Interviewed by Jennifer Robison Page: 123 Behavioral EconomicsPerformance Management Reader CommentsPosted On 5/10/2011 12:08:46 PMI have seen houses in the neighborhood I live in have dropped in price by as much as 63%. I am renting for $800 a month and the HOA fee is about $300 a month and another $300 for taxes. If I were to buy the appartment I live in, I would be paying at least $1200 plus I will be assuming the risk. Not worth it. 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