Archive for 2012

Bad financial management decisions at California public agencies is nothing new. Orange County declared bankruptcy in the 1990s due to gross financial mismanagement, and the California state budget continues to be a mess. Sweetheart deals for public officials is nothing new here either. Public employees in the City of Bell paid themselves salaries approaching a million dollars a year, and California public worker's unions negotiate compensation packages far in excess of the value they provide. With the culture of corruption rampant in California, it isn't surprising that minor agencies are also doling out the largess. AC Transit stuck with ex-manager's home Phillip Matier and Andrew Ross, Chronicle Columnists Updated 11:06 p.m., Tuesday, December 4, 2012 AC Transit directors sank more…[READ MORE]

I am constantly amazed by the ignorance of the mainstream media when it comes to housing issues. They consistently cheer-lead, take the NAr's statements at face value, and fail to question their rosy assumptions. This behavior provides people bad information and may cause someone to buy who might otherwise chose to rent if they knew the truth. There are many good reasons to buy today as values are well below historic norms, but people should be given accurate information in order to make an informed decision. That's not what people get from the mainstream media these days. Today's featured article was particularly galling. Not just was it full of shoddy analysis and poor reasoning, it gloated about the correctness of…[READ MORE]

First-time homebuyers are the foundation of the housing market. Move-up buyers need first-time homebuyers to purchase their property to provide the equity to make the move up possible. With the collapse of toxic loan products from the bubble, first-time homebuyers suddenly needed to have qualifying income, and that income would only be applied to conventionally amortizing mortgages. As a result, loan balances cratered, and house prices went down with them. To prevent further declines in mortgage balances, the federal reserve lowered interest rates to near zero and embarked on "operation twist" to bring down mortgage rates. In the process they have caused the cost of ownership to decline precipitously, at least for buyers putting twenty percent down. My reports show…[READ MORE]

My point of view on home ownership and debt is very different than most financial reporters, and apparently it's different than most Americans. In my view traditional views of home ownership, like those extolled in Mike's weekend piece Why our less educated parents and grandparents were more intelligent on homeownership, have been replaced by a twisted concept of money rentership as a proxy for home ownership. I described the slow deterioration of our concepts of home ownership in the post Money rentership: housing and the new American dream: One of the most common encumbrances on property is the mortgage lien, and it is among the most restrictive. For instance, if you own a property not encumbered with a mortgage lien,…[READ MORE]

Many of the Generation X (me) and most of the Baby Boomers where sons or daughters of parents that their highest level of eduction was high school. In fact none of my grandparents completed high school.  In contrast, the baby boomers attended college in record numbers leading to explosion in the number of higher education institutions and this trend continued in sequent generations.   Just look at how many colleges were founded after 1945 and huge increase of enrollment at existing institutions.  However, something happened with the knowledge transfer between generations.   The more educated generations have a worse financial track record when it comes to homeownership.  Didn't college make people more educated and wise concerning their future financial decisions? The Greatest…[READ MORE]

Yesterday I described How to game the system with FHA loans for maximum advantage. Today, I want to look at the cost of that financing. It's up to you to determine whether you believe the benefits are worth the costs. Many have quipped that FHA has become the replacement for subprime. They have very low standards for qualification (a 580 FICO score), a very low down payment requirement (currently 3.5%), and as a result, they have become the loan-of-necessity for anyone who doesn't have the credit requirements or the down payment necessary to obtain other financing. In other words, they have stepped into the void left by the collapse of subprime lending. The FHA insurance premium is a direct measure of…[READ MORE]

Our current housing finance system is a mess. It's laden with moral hazard, and likely to implode with enormous losses to be absorbed at taxpayer expense. All our current policies are geared toward saving our banking system from financial ruin and making loan owners comfortable with their fate. As with any policy initiatives that distort the natural market, the current system is loaded with unintended incentives that permit people to game the system for their personal advantage. Today we look at how using an FHA loan to game the system provides advantages that offset the high cost of the FHA insurance. In Monday's post, Loan modification defaults soar 24%, can-kicking fails, I found a very astute observation from an industry…[READ MORE]

When people are victims of theft, they usually work to remedy the situation so the theft doesn't happen again. If a thief breaks into someone's house, the homeowner installs better locks or alarm systems to avoid a future loss of property or worse. However, when the crime is more complex than breaking-and-entering, or when the government is the facilitator of the crime, it can be much more difficult for the victims to protect themselves, but it's just as necessary. The Big Steal I have written that Moral hazard is the central issue in the housing bust. My reasoning is simple. If we let bankers and borrowers get away with stealing from taxpayers, both of those groups will work hard to…[READ MORE]

One of my earliest posts in May of 2007 was about the impact future loan terms have on future home prices. Most people just assume house prices always go up. Their faith was shaken by a precipitous decline over the last six years, but once the bottom is securely in the rear-view mirror, kool aid intoxication in faith-based appreciation will undoubtedly return. I want to revisit the idea of future house prices depending on future loan terms because it makes a strong case for weak home price appreciation going forward. The how and why matters, and before kool aid takes hold again, it pays to understand what it would take for house prices to go up from here. Over the…[READ MORE]

Whenever I make a prediction that goes against the conventional wisdom, I take the risk of looking the fool. On those occasions when I am right, it's very satisfying. Even though I know I shouldn't, internally, I enjoy a silent I-told-you-so. Almost four years ago now, lenders embarked on their plan to modify loans to get people over the "rough patch" caused by the recession. From the beginning I said these programs would fail largely because the people being helped simply couldn't afford their homes. They were Ponzis. When a borrower has gone Ponzi, the "rough patch" is when they are cut off from more Ponzi borrowing. Their diminished income has nothing to do with lower wages they earn due…[READ MORE]

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