The dramatic increase in the home ownership rate began when welfare reform was passed in 1996. Was that really the cause?
Irvine Home Address … 65 OLIVEHURST Irvine, CA 92602
Resale Home Price …… $447,900
I can't compete with history
We'll film it live but dub our tale
The mystery must stay inside
Look at our homes, look at our lives
You are creating all the bubbles at night
I'm chasing round trying to pop them all the time
We don't need to trust a single word they say
You are creating all the bubbles at play
Biffy Clyro — Bubbles
Why did the home ownership rate go up?
Many people have speculated as to why the home ownership rate rose from a stable 64% to an unstable 69% beginning in 1996.
Many political operatives have tried to tie this to one piece of legislation or another, and the article I am featuring today does the same. I am going to add a crazy idea to that mix. To be honest, I don't believe political decisions and government policies had much to do with the growth in home ownership. Lax lending standards and lowered down payment requirements added buyers to the pool by converting good renters into bad loan owners.
If you want to blame any particular policy for this, I would look to Alan Greenspan's refusal to regulate credit default swaps as a good candidate. The reason lending standards got so lax is because lenders believed they had transferred the risk to someone else, most often AIG. Since this risk was grossly mispriced, lending standards continued to fall and the mispricing of risk was hidden by the rampant appreciation the influx of new, unqualified buyers created. When it all blew up, we had a major financial crisis.
The delivery mechanism that put unqualified buyers into homes was not the GSEs, so it was not government policy that increased the home ownership rate: it was private subprime lenders. The data on this point is difficult to refute (see below). Republicans have tried to blame Barney Frank which is a joke considering he had no power while all this was going on. Democrats try to blame the Republicans because they were in charge, but that isn't right either because it was caused by private companies — not the GSEs — and not by any government programs.
Notice how well the increase in home ownership rates tracks the increase in subprime lending. Correlation is not always causation, but in this case, how can you deny it. We know that many subprime borrowers were put into homes that previously could not get one. We also know these are the borrowers who have largely been foreclosed on to date as the alt-A and prime borrowers have been allowed to squat.
Subprime was private lending. I have no doubt that policy makers where happy to see this industry grow, but it was not a government policy that made this happen, and it certainly was not caused by the GSEs. Keep that in mind when you read these bogus political "explanations" of what went on. Most of them are factually challenged, and all of them miss the bigger picture connection between the activities in the private sector, credit default swaps, and the mispricing of risk that caused money to flow into the market and increase the home ownership rate and inflate a massive housing bubble.
Subprime 2.0 Is Coming Soon to a Suburb Near You
By Edward Pinto – Sep 7, 2010 6:00 PM PT
On the second anniversary of the bailouts of Fannie Mae and Freddie Mac, it’s now obvious that weak lending standards, serving the political interest of affordable housing for all, were the main reason for the nation’s mortgage meltdown.
Actually, no, that is not obvious. Serving political interests of affordable housing was not the culprit.
But the government just can’t permit lending to anyone and everyone; it must insist on prudent judgment about who will repay and who will default. Not only will borrowers who lack a down payment, steady income, employment and a good credit history probably get into trouble — surprise! — but too much irresponsible lending also creates artificial demand for houses, driving prices into the stratosphere and, as we have just experienced, puts all homeowners at risk.
The same mistake occurred in 1929, when any investor could buy stocks on margin with as little as 10 percent down. Small wonder that after the crash the U.S. government instituted a margin requirement of 50 percent down.
Congress should apply the same principle to housing purchases, increasing the amount a buyer must put down and other safeguards to assure prudent lending. Congress refuses to do this. Why? Giving citizens cheap, easy housing is a great way to win votes, no matter what horrific repercussions ensue.
That is certainly part of the problem, but the main reason is because any increase in the down payment requirements would cause the already diminished buyer pool to shrink further.
Who’s Following Whom?
Consider the prevailing narrative that holds a greed-driven private sector responsible for the 2008 financial crisis. A secondary narrative points to a greed-driven Fannie Mae and Freddie Mac abandoning their credit standards in an effort to follow the lead of Wall Street.
If these explanations fail to convince, a third blames a combination of deregulation and insufficient regulation, again driven by greed, as rulemakers were asleep at their posts.
Yes, the first two narratives are only partially true, and the third one hits the nail on the head as I outlined above.
What is missing is the central role played by an affordable housing policy built upon the misguided concept of loosened underwriting — a policy created by Congress and implemented for 15 years by the Department of Housing and Urban Development and banking regulators.
The reason that is missing from the narrative is because affordable housing policy did not create the problem. The affordable housing policies did not cause money to go into subprime. Now if we had seen a dramatic increase in the number of GSE loans and an increase in their market share, I might give some creedance to his supposition; however, that is not what happened. The GSEs were losing market share to subprime lenders, and it wasn't until 2005 that the GSEs became more aggressive about buying subprime loans.
From 1993 onward, regulators worked with weakened lending policies as mandated by Congress. These policies systematically dismantled a housing-finance system based on the common sense principles of adequate down payments, good credit, and an ability to handle the mortgage debt.
No Money Down
Substituted was a scam of liberalized lending standards that turned out to be no standards at all. In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.
Again, this problem was not driven by the public sector or the GSEs (which were not public sector at the time). This was a private sector problem that was not caused by government policy.
These policies led millions of Americans to buy homes with little or no money down, impaired credit and insufficient income. As a result, our economy has been brought down and the taxpayers have had to foot the bill for bailout after bailout.
The taxpayers didn't have to bailout anyone. Our leaders thought it was the proper course of action to give our money to the idiots that created this mess, and despite the common belief this was necessary, I remain unconvinced.
Congress and U.S. President Barack Obama’s administration refuse to learn the lesson that is painfully aware to American taxpayers, and they have made it clear that they have no intention of fixing broken underwriting.
That much is true. They need every available buyer to help clean up this mess.
Let’s start with the latest pieces of evidence. The Dodd- Frank Bill, signed in July 2010 by the president, omitted both an adequate down payment and a good credit history from the list of criteria indicating a lower risk of default as regulators sought to define a qualified residential mortgage.
‘Prudent Underwriting’
This was no oversight. Republican Senator Robert Corker and others proposed an amendment that would have added both a minimum down-payment requirement and consideration of credit history along with the establishment by regulators of a “prudent underwriting” standard. This amendment was defeated.
In early September 2010, Fannie and Freddie’s regulator, the Federal Housing Finance Agency, following requirements set out in 2008 by Congress, finalized affordable housing mandates that are likely to prove more risky than those that led to Fannie and Freddie’s taxpayer bailout. As required by Congress, these new goals almost exclusively relate to very low- and low- income borrowers. Meeting these goals will necessitate a return to dangerous minimal down-payment lending, along with other imprudent lending standards.
Of course, FHFA Director Edward DeMarco notes that Fannie and Freddie aren’t to undertake risky lending to meet these goals. As has already been noted, Congress doesn’t consider low down payments and poor credit as indicative of risky lending. How convenient.
It is troubling that our financial reform didn't reform much. That Republican amendment was a good one. Unfortunately, Democrats feel they need warm bodies to take on bad loans, so now the US government is replacing subprime.
Return to Subprime
The Federal Housing Administration, in its actuarial study released late last year, projected that it will return to an average FICO credit score of 635 by 2013. This signals the FHA’s intention to return to subprime lending. Once again, Dodd-Frank supports this policy change.
The FHA, the Veterans Affairs Department and the Agriculture Department’s grip on the home-purchase market increases month by month. They now guarantee more than half of all home-purchase loans. However, skin in the game isn’t a requirement. For example, the FHA’s average down payment is just 4 percent. Even this meager amount disappears after adjusting for seller concessions and financed insurance premiums.
On Christmas Eve in 2009, the Treasury Department announced new terms to the bailouts of Fannie and Freddie. Starting on Jan. 1, 2013, the terms of the bailout agreement provide for a continuing obligation to provide about $274 billion in capital to Fannie and Freddie. This amount is in addition to the unlimited sums that are available between now and Dec. 31, 2012. As a result, one or both of these entities can now continue indefinitely as zombie institutions under conservatorship.
As a society, we have to go back to at least 20 percent down, with limited exceptions. Credit histories need to be solid. Documentation has to be iron-clad. Lender capital levels need to be raised.
Yes, that is exactly what we must do. Can you imagine how prices would crater if we did? Perhaps we could phase it in, but it seems more likely that we will not move in that direction at all.
Here’s my proposal to bring Congress’s penchant for imprudent lending to a quick end: All congressional pension assets should be invested in funds backed solely by the high- risk loans mandated by federal housing legislation. I have a feeling that things would change fast.
That is hilarious!
(Edward Pinto, a mortgage-finance consultant, was executive vice president and chief credit officer at Fannie Mae from 1987 to 1989. The opinions expressed are his own.)
To contact the writer of this column: Edward Pinto at epinto@lendersres.com
Despite my disagreement with many of his contentions in the article, I support his conclusions that we need to return to sane underwriting standards even if that caused prices to fall further. Do we really want a housing market completely controlled and financed by the US government?
Did We Replace Welfare with Home Ownership and HELOC Abuse?
Here is my bogus correlation to politics for your amusement. Democrat Bill Clinton promised to "end welfare as we know it." Newt Gingerich as part of the Republican Contract With America agreed. Together they passed the Personal Responsibility and Work Opportunity Act of 1996. Since poor people could no longer count on the government for ongoing support payments, they needed a new source of spending money. The government eager to avoid civil disorder came up with an idea: make all these people home owners to make them feel vested in the community, and give them home equity they can convert to spending money to make up for the lost welfare money.
This legislation does correspond to the beginning of the housing bubble, and the cause and effect is plausible. Also, during the bubble rally, there were certainly many poor subprime borrowers who got to take a ride on the HELOC gravy train. I don't happen to think this correlation is causation, but it is something to think about. It is certainly more plausible than most of the nonsense coming out of the Right-wing narratives I have read.
571 Days on the Market. Is it really for sale? 
I first profiled today's featured property in Will HELOC Abuse Doom the Housing Market? After 571 days on the market it is still there. Do you sense any urgency in the banks to process short sales?
- This house was purchased on 3/29/2004 for $539,000. The owner used a $431,200 first mortgage, and a $107,800 down payment.
- On 12/10/2004 they opened a HELOC for $147,000.
- On 11/2/2006 they refinanced with a $520,000 Option ARM, and opened a new HELOC for $65,000.
- Total debt is $585,000.
- Total Mortgage Equity Withdrawal is $153,800 including their down payment.
There is no filing on this property, so it does not appear in any foreclosure list. Do any of you believe she is still making the payments? Does anyone attempting a short sale bother making payments? Why would they. This has been for sale for nearly two years, so we have to assume she has been squatting without making a payment for at least that long.
What the hell are the banks waiting for? 571 days? Do they really believe prices will go up in the face of all the visible and shadow inventory? Not a chance.
Irvine Home Address … 65 OLIVEHURST Irvine, CA 92602 
Resale Home Price … $447,900
Home Purchase Price … $539,000
Home Purchase Date …. 3/29/2004
Net Gain (Loss) ………. $(117,974)
Percent Change ………. -21.9%
Annual Appreciation … -2.6%
Cost of Ownership
————————————————-
$447,900 ………. Asking Price
$15,677 ………. 3.5% Down FHA Financing
4.36% …………… Mortgage Interest Rate
$432,224 ………. 30-Year Mortgage
$86,104 ………. Income Requirement
$2,154 ………. Monthly Mortgage Payment
$388 ………. Property Tax
$125 ………. Special Taxes and Levies (Mello Roos)
$37 ………. Homeowners Insurance
$242 ………. Homeowners Association Fees
============================================
$2,947 ………. Monthly Cash Outlays
-$343 ………. Tax Savings (% of Interest and Property Tax)
-$584 ………. Equity Hidden in Payment
$25 ………. Lost Income to Down Payment (net of taxes)
$56 ………. Maintenance and Replacement Reserves
============================================
$2,101 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,479 ………. Furnishing and Move In @1%
$4,479 ………. Closing Costs @1%
$4,322 ………… Interest Points @1% of Loan
$15,677 ………. Down Payment
============================================
$28,957 ………. Total Cash Costs
$32,200 ………… Emergency Cash Reserves
============================================
$61,157 ………. Total Savings Needed
Property Details for 65 OLIVEHURST Irvine, CA 92602
——————————————————————————
Beds: 2
Baths: 2 baths
Home size: 1,550 sq ft
($289 / sq ft)
Lot Size: n/a
Year Built: 2001
Days on Market: 568
Listing Updated: 40360
MLS Number: I09021936
Property Type: Townhouse, Residential
Community: Northpark
Tract: Aubr
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
This is a Short Sale.TRI-LEVEL HOME: FIRST LEVEL W/ (2) CAR GARAGE & STORAGE AREA. SECOND LEVEL: LIVING RM W/ CARPET, KITCHEN/DINING W/ WHITE TILES, BAMBOO HARD WOOD FLOOR, TILED BATHROOM FLOOR, WASHER/DRYER HOOKUP, BEDROOM W/ CARPET/MIRRORED CLOSET. COVERED BALCONY. OPEN FLOOR PLAN W/ MULTIPLE WINDOWS, HIGH VAULTED CEILINGS, RECESS LIGHTING THROUGH THE HOUSE. THIRD FLOOR: MASTER BR W/ WALK-IN MASTER BATH, EXTRA-LARGE TUB, STAND-UP SHOWER, HIS/HERS VANITY, MIRRORED CLOSET, STAIR CASE OVER LOOKING SECOND FLOOR AND MOUNTAIN VIEW.
No wrong again,
It was “OWNERS EQUIVALENT RENT” that caused the problem, It’s the same problem we had in 1989 and the first bank bail out in the early 1990’s .
And it’s the same problem we will have in the future.
OK Sure inflation would have been much higher, but this was better ???
There is truth to that contention. If we had used actual home prices rather than owner’s equivalent rent, we would have seen the inflation signals sooner, raised interest rates, and stopped the bubble from inflating so large. The bubble of the late 70s was curtailed because the OER was not used, but that was changed in the early 80s, and we have inflated two massive housing bubbles since then.
Most of the abuse began in the 2000’s. From the dawn of time through the very early 2000’s loan underwriting was prudent and responsible to a degree. Computers (FNMA’s DU, FHLMC’s Loan Prospector) using theoretical models and credit scoring allowed the underwriting “sniff test” to be removed from the approval stream. Add to it automated valuation models (AVM’s) and you could potentially remove the human element from loan review. This all began after the dot com implosion. As many loan agents working in that era will tell you, “If DU says it’s approved, it’s approved”. The problem of course is that a chimp could get death row inmates a loan using the software tools at the time.
The final dousing of kerosene on the bonfire was the roll out of HELOC’s and Option ARM’s. Cheap easy money funneled through richly compensated loan hacks (in retrospect…) was set for disaster.
When we surrender our decisioning rights as humans to our computer overlords, don’t expect good things to result. When you compensate poorly trained and ethically challenged money pimps to dole out 1% cost of funds by the firehose, it can’t be said that the poor caused this problem. Housings downfall was a self inflicted wound as people intentionally, not by accident, jumped off a high tower created with their own two hands.
My .02c
Soylent Green Is People.
The cause of the problem isn’t the extra 5 points of home ownership, that was just a symptom.
That represents less than an 8% increase in demand over a period of 9 years if I read the graph right. New homes, condos, and apartment to condo conversions could cover that increase in demand without breaking a sweat.
You’re talking about normal demand. How many people bought three or four “investment homes” which artificially boosted demand? I know of a few people who did this, and rented them out for negative cashflow (mortgage was too expensive) but they justified it by believing they could hold out and sell in a few years. It worked out for some people if their timing was right.
Speaking of excess demand, I was at Breckenridge CO during the peak of last season and I was astonished by the number of vacant condos. Were these ‘owners’ hoping to buy, hold for a little while, and then sell for a 100% return? It’s the same deal in Las Vegas; who wants to pay to rent someone’s condo when you can get a room right at the casino for less?
“It’s the same deal in Las Vegas; who wants to pay to rent someone’s condo when you can get a room right at the casino for less?”
The overnight rates are ridiculously low during the week. I am booking at the Sahara for $24 per night. Right now, frequent travelers are not saving by owning a second home there.
$24 a night hotel stays, that just screams
promising future for Las Vegas. You’d have a tough time getting that at a homeless hotel in Santa Ana.
What is says about the future is debatable, but is certainly underscores the desperation in the present. They are very motivated to fill hotel rooms right now.
Las Vegas’ present and future is tied to only one thing… And that’s hotel revenue.
In Detroit car prices at least went up.
Actually, it isn’t hotel room revenue that drives their economy; it is gambling revenue. The reason they give away so many free nights to high rollers and the reason they are willing to lower rates to $25 per night when business is slow is because they need to fill their casinos.
If you want to see the best measure of the Las Vegas economy, walk through a casino and look at the table minimums. When you start seeing $2 table minimums, you really know times are bad. When you can’t find a $5 table, gambling is bringing in good revenue.
Hotel revenue and casino revenue in Las Vegas are one in the same, and the future looks bad for the next 10 years of capital investment. What do you think that will do to the following 10 years?
It’s very simple. The people running the financial industry realized that if they could just free themselves from all sorts of govt regulations, they could lever up and produce huge profits and bonuses. So over a few decades, they gradually pwned the govt (political campaign funds, retired politicians and wives given lucrative board positions, etc) and the financial system ( ex. Encouaging execs to go into public service, getting Greenspan appointed, etc). Then they levered up, made huge profits, and paid themselves huge bonuses. Sure; it all crashed later, the banking corporations lost a ton of mine, but what do the former execs care? They either retired uberwealthy ling ago, or they just quit the bank and join a hedge fund or something, leaving the taxpayer to pay off the debts. No one had to give up his past bonus money.
As someone once said, if you give someone in Las Vegas $10,000 of a strangers money and tell him that if he gambles it and he keeps 100% of the profits on each hand and 0% of the losses- what do you think he is going to do? It’s that simple.
It’s all about incentives:
Subprime lenders are incentivized to create “computer models” that approve everyone for no money down and mediocre credit so that the loan officers can get their commissions.
They can bundle these crummy loans and sell them off to Wall Street as CDO’s (no longer Collateralized Mortgage Obligations…they are sprinkled with auto loans, etc.. to negatively correlate risk!) so that the Wall Street peeps can make THEIR commissions.
The subprime lenders get $104 for every $100 in loans and don’t keep any of the risk on their books!
The subprime lenders pay the rating agencies to give those bundles loads of crap AAA or other investment grade rating. If they don’t, no prob. There’s another rating agency who will!
This multiplier effect creates gobbs of money to loan to more and more customers, driving demand through the roof. Now everyone wants to buy these CDO’s. They’re a can’t miss!
Wait, now lets allow Credit Default Swaps to make unlimited bets on the viability of these CDO’s! Thank you, Mr. Greenspan.
I’m deciding on my Halloween costume. Should I go as a really scary subprime mtg…or an absolutely horrifying CDS?
I agree with most all of the comments above. What really gets to me is that our leaders still have not learned.
“This was no oversight. Republican Senator Robert Corker and others proposed an amendment that would have added both a minimum down-payment requirement and consideration of credit history along with the establishment by regulators of a “prudent underwriting” standard. This amendment was defeated.”
This is unbelievable to me. I would like to see the actual wording of this amendment and a list of those that opposed it. How many of these will get re-elected again?
“Here’s my proposal to bring Congress’s penchant for imprudent lending to a quick end: All congressional pension assets should be invested in funds backed solely by the high- risk loans mandated by federal housing legislation. I have a feeling that things would change fast.”
Not only funny, genius, this is the best idea I’ve heard yet.
Is this Corker going to plug all the holes in the banking system?
Irvine Renter, the problem with your argument, if I understand it correctly, is that this meltdown went way, way, way beyond subprime, so standards were but a small part.
Low rates and easy credit made everyone be able to “afford” more expensive houses, until they couldn’t, even those who were “prime” borrowers.
I think a better correlation is where 30-yr rates went in the 2000’s.
http://mortgage-x.com/images/graph/r_arm_frm.gif
Was HELOC abuse caused by CDOs, or the bubble creating fantasy wealth, upon which people borrowed even deeper upon? Yes, Greenspan was the problem, but because of his low rates, and as we are about to see, his ARM advocacy, which will be the next meltdown when these all resent. Reportedly, 89% of ARM owners are underwater.
True, Greenspan was clueless about CDOs – he recently said in a CNBC interview that despite his deep background in math, he doesn’t understand them – but if the mortgagees paid their bills, the CDOs wouldn’t have been an issue. It’s like a person with HIV getting AIDS and dying of pneumonia and blaming that darn pneumonia. We must regulate pneumonia!
I would also remind you where the securitization of mortgages began:
http://en.wikipedia.org/wiki/Mortgage-backed_security#History
And guess who held the most of these securities as the bubble burst:
http://www.econbrowser.com/archives/2007/08/green_fig.gif
If Fannie and Freddie pooling mortgages didn’t help pump up the bubble, why are they and the Fed so adamant that they do so now? To keep prices inflated, of course.
Lenders used to own mortgages for 30 years, and they were careful. But now loans are a product, so who the hell cares, dump it, and besides, the FDIC insures deposits, so let’s party.
I’d say securitization in general is a problem, yes, but when the government gets involved, it’s no longer a market.
JDSoCal,
I just saw your ongoing debate with Kirk in the comments on the other thread. I had not seen your back and forth prior to writing this post. You two were quite entertaining.
I don’t disagree with anything your wrote above (unfortunately, that makes a dull debate).
The key argument for me in this post is that the GSEs and government policy did not cause this problem. Access to capital was not the issue. Reducing the barrier of qualifications did not by itself create the housing bubble. Money still needed to flow to that potential buyer group for prices to go up and for ownership rates to rise. Low-income and low credit score borrowers are historically a higher risk portion of the market, for money to flow in there in the volumes it did required a mispricing of risk to ignite the flow of capital. In short, tell investors they can get AAA securities that yield 5% more than other AAA securities, and shiploads of money will go there. That was the distortion created by credit default swaps and rating’s agency capture by their bad incentive arrangements. These were private sector problems resulting from lax regulation.
I didn’t used to be someone who favors much regulation. I was one of those converted during the Reagan Era. Seeing this disaster has caused me to change my opinions about the workings of unregulated markets. These Ponzi viruses need to be stamped out before they grow dangerous enough to bring down our financial system.
IrvineRenter,
I am pleased our banter amused you, since your blog has definitely given me some deep laughs, especially your mad Photoshopping skills. Seriously LOL. You and the Long Beach RE Blog guy should do your own comedy tour like the redneck guys did, or at least get your own show on Bravo.
And I am not against all regulation, but definitely against any written by Dodd and Frank.
Cheers,
JD
IR –
On a serious note – what will happen in available monthly cash IF interest rates go back to mean or higher over the next 10 years?
I’m afraid that I pay $600K for a good deal property with a 4 3/8 30 year fixed, and then sell in 10 years with interest rates at 7 or 8 or more percent for a 30 year fixed. This tells me that I could only break even in 10 years!! And, really it is only break even b/c I have paid my property down to 450K!
I don’t see how values will go down indefinitely… we have been in a 20 to 30 year cycle of slowly declining rates. We could easily find ourselves in a 20 year cycle of slowly rising or god forbid rapidly rising rates due to commodity inflation and all of the money printing.
I so no escape for housing prices… 🙁
My .02
BD
My advice to today’s buyers is to pony up the premium for FHA loans in order to get the assumability provision. If interest rates go up while we are going through all the inventory, prices will fall again to match the new level of affordability.
Use FHA Financing: Loan Assumption is the Appreciation of the Twenty-Teens
IR and I have had some conversations about this. Although the assumability can be a pro, there are also a number of cons to FHA financing, some of which have been discussed.
the cons include; 1) Up front mortgage insurance
2) Monthly PMI
3) Most agents look at offers in the following order. a) Cash b) conventional with over 25% down c) conventional with 20% down d) Conventional with under 20% down and e) FHA
of course other factors are in the mix as well
In the sellers market that we had a few months back I had a number of FHA offers on properties that clients pretty much did not even want to look at. Even today, experienced sellers will require a premium price to go into escrow with a buyer using FHA financing versus conventional, and an even higher premium than a buyer paying cash.
4) People that are buying today in areas like Irvine should only be buying to live in the property and/or hold long term idealy the term of the loan. In Irvine and many areas of Orange County many properties cannot even transact, even when they are listed in the MLS because either because the sellers are unrealistic or the property is a short sale. I would estimate that only 10-20% of active listings in nice areas like Irvine at any given time can actually transact for market value. Moreover, to date, it has been highly unlikely that the top 10% of active listings in areas will sell to an FHA buyer. 5) Many banks and listing brokers will try to avoid FHA offers
6) Many communities have not been approved for FHA financing and will require spot approval or may not be able to be approved at all, a reason why many agents and banks try to avoid FHA buyers.
7) Many of the most motivated sellers with properties often priced right that also show well are trustee sale flips. Although the banks have essentially done away with the 90 day rule, they are making financing hard on these properties for conventional but particularely for FHA buyers.
As IR and I recently discussed, a number of the drawbacks to FHA financing are the result of a sellers market and that as the market shifts to a buyers market which it appears to be doing, these problems will go away and sellers will be happy to have an offer. Moreover, if this shift takes place and one wants or needs to sell in the next 5 years or so, it could be a great advantage.
IR- put more simply what happens to pricing in terms of value if rates double?
This is what will happen to current borrowers.
BD
I discussed some of those implications here:
The Bernanke Put: The Implied Protection of Mortgage Interest Rates
Timely article on this subject:
Correcting Krugman
It is a long argument as to why Paul Krugman (and me) are wrong
Money quote from HUD:
“Fannie Mae and Freddie Mac have been a substantial part of this ‘revolution in affordable lending’. During the mid-to-late 1990s, they added flexibility to their underwriting guidelines, introduced new low-down payment products, and worked to expand the use of automated underwriting in evaluating the creditworthiness of loan applicants.”
And as Rajan, says,
“If the government itself took credit for its then successes in expanding home ownership, why is Krugman not willing to accept its contribution to the subsequent bust as too many lower middle-class families ended up in homes they could not afford?…to argue that the government had no role in directing credit, or in the subsequent bust, is simply ideological myopia.”
Ha ha, Ideological myopia. Reminds me of a recent thread I was involved in…
32 Vienne 92606 is having a bidding war this Saturday, 9/18.
If you want to be a participant in the next housing price crash, go there and make an offer of $1 above the current $549k price.
Let’s see how **motivated** the seller really is.
WSJ has an interesting article on the GSEs and shadow inventory:
Reluctant Realtors: Fannie, Freddie
http://online.wsj.com/article/SB10001424052748704652104575494123756247944.html
NBR today used the term “unsold real estate” rather than “shadow inventory” in one of their segments.
“NBR today used the term “unsold real estate” rather than “shadow inventory” in one of their segments.”
Oh, that is definitely Photoshop-worthy.
I have to give the traditional media credit for the second half of 2010.
Between the WSJ, NY Times and other sites one can piece together the publicly available state of the financial and real estate meltdown.
We really need some bank and Fed insiders to expose what banksters are planning though. That’s still the missing piece of the puzzle.
I have to give Bloomberg some props for trying:
Court Orders Fed to Disclose Emergency Bank Loans
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7CC61ZsieV4
Thank you for that article, SanJose. I’ve been wondering about that. The Fed shouldn’t be a black hole. Absolute power corrupts absolutely.
Well, OC was effective little by welfare reform since most of the welfare program in the county was WIC or free and reduce lunch programs in places like Santa Ana and Anaheim. Some asian immirgants in Westminster or Garden Grove tended to be on welfare longer since they came here as middle age and older with little job skills that are useful even at the lower job market in OC but La had a lot more folks on tradional welfare progrmas, so I don’t see a pike of homeownership with welfare reform in the county, in fact the county homeownership since the early 1980’s is below the national average since housing tends to be more expensive here long before the bubble.