Archive for February, 2013

One of the results of the ultra low mortgage rates is that they can only go higher or stay the same for the very long time.  In fact, I think the US will do everything they possibly can to keep mortgage rates down for sometime.  However, the low cost of mortgage rates will be paid for the in the move up or trade up market in future year.  As a side note, the examples below are also relevant to show asset inflation due these ultra low rates. My wife and I will probably start looking to purchase a semi-starter house in 2013, however with the lack of supply I'm not too sure that we would find anything.  She asks me…[READ MORE]

Baby boomers came to look at housing as an investment that would provide for their retirement. Owning a primary residence is a solid part of a retirement financial plan, but when house prices took off during the bubble, baby boomers responded by spending more money, retiring early, and slowing their saving and investment in other areas. As a result, many baby boomers were completely unprepared for retirement when house prices crashed. In response, Ben Bernanke lowered interest rates to zero to attempt to reflate the asset bubbles in stocks, bonds and real estate to restore the illusory wealth of the baby boomers. I imagine the boomers are quite grateful for Uncle Ben's help, but as with any market manipulation, there…[READ MORE]

When lenders make loans, they far prefer borrowers to repay those loans; in fact, their entire business plan relies on it. As long as borrowers are current with their payments, lenders are happy and making money. When borrowers don't make their payments, the end result is a distressed sale. If there are enough of these, market prices are reduced dramatically which causes significant lender losses. Lenders know this too, so when distressed loans become an overwhelming problem, they devise can-kicking methods including loan modifications, mark-to-fantasy accounting, and when all else fails, they simply allow the delinquent borrowers to squat in shadow inventory. Below is the lender decision tree for delinquent borrowers. Today we will explore this diagram in some detail and discuss the…[READ MORE]

If you ask many middle-class loanowners in coastal California, and they will tell you that they are entitled to a 2,000+ SF detached single-family home pimped out with pergraniteel -- and they will really mean it. The sense of entitlement in coastal California is appalling to anyone viewing it from the outside (and even some of us viewing it from the inside). There are places on earth where there is no housing entitlement. Even the US has a problem with homelessness and people living in unsafe and unsanitary conditions. However, the homeless here have access to shelters and other forms of assistance. In some countries, there is little or no assistance either public or private to help out those in…[READ MORE]

REO-to-rental hedge funds are latest bogeymen touted by the political left. The evil Wall Street money grubbers are profiting from the disaster created by the Banksters. It's a narrative Matt Taibi popularized, and now others are jumping on the bandwagon. The latest diatribe from the left attempts to link their pet cause principal forgiveness to the activities of REO-to-rental hedge funds. As many political screeds are, this one is loaded with emotional pandering and is weak on good reasoning. The housing “recovery” is a myth Wall Street is running a new profit game by buying foreclosed homes and renting them back to their former owners [and this is a bad thing?] Thursday, Feb 7, 2013 08:40 AM PST -- By…[READ MORE]

HELOCs are making a comeback. Banks are offering those willing to become loanowners free money at very low rates, so borrowers are taking the money. Last time around, this was an open invitation to theft as borrowers extracted over a trillion dollars in mortgage equity withdrawal which they didn't pay back. For now, banks are being more conservative in their lending, but since lenders will become more aggressive as they become more confident in rising house prices, there is a risk that rampant HELOC abuse may return. If it does, it could easily reignite the same desires that inflated the housing bubble leading to a painful crash and more taxpayer bailouts. Everyone who doesn't want to subsidize their neighbors reckless…[READ MORE]

I was very hesitant posting a press release from a political office as this FHA problem was caused by banksters and politicians.  However, the press release had some very good descriptions on what happened to FHA in the past 6 years.   In a nutshell, some of the functions of the subprime private mortgage insurance industry were taken over by the FHA.  That's explains the reference to Countrywide Mortgage by Chairman Hensarling. Last week I posted discussing the affect of low mortgage rates and the increase in purchasing power.  Larry Roberts discussed the role of the US in subprime lending or even whether should there be a role.  FHA helps to facilitate credit to borrowers that normally shouldn't be qualified to…[READ MORE]

Despite the fact that house prices crashed, wiped out millions of loanowners, and wiped out the illusory equity of an entire generation, people persist in believing owner-occupied housing is a good investment. Most people believe house prices appreciate 5% to 10% or more each year and by simply owning real estate they can become wealthy. It doesn't work that way. Over the long term, house values increase with wage inflation as buyers bid up prices with their increasing incomes. An amortizing loan is a forced savings account -- assuming the owner doesn't refinance or HELOC this money out and piss it away -- so houses can serve as a retirement savings vehicle, but only if the owner is disciplined. The…[READ MORE]

Banks have been allowing delinquent mortgage holders to squat while prices rebound because rising prices allows them to recover more on their bad loans. In many cases, the delinquent borrower moves on with their lives and leaves the property vacant with the assumption that the bank will finally foreclose and resell the property. However, banks are under no obligation to foreclose; it's merely a contractual right. In cases where the house is in a bad neighborhood or in need of extensive repair, it is more cost effective for banks to write the loan down to zero and leave the property alone. When that happens, title remains with the delinquent owner, and even though they may have long since moved away,…[READ MORE]

The government needs to get out of housing finance. The losses at the GSEs apporach $150 billion, and the FHA needs its own bailout. These are losses all of us who didn't participate in the madness get to pay. And as long as the government continues to back 90% or more of loans for residential real estate, the very real possibility of another even larger bailout looms. Given these realities, government policy makers have been and should be focused on reducing the government's exposure and minimizing taxpayer bailout dollars. However, in a stunningly stupid proposal, some housing advocates idiots are proposing the government back a new type of subprime loan. Unbelievable! Housing advocates push for new type of subprime loan…[READ MORE]

In Memoriam: Tony Bliss 1966-2012