Aug222013
Another appalling example of bail-out mentality ruining America
Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.
Have you ever wondered why we tell out children such ghastly stories? I remember how I felt when I first heard and comprehended that nursery rhyme. It scared the hell out of me. It made me realize that actions have consequences, and some mistakes can’t be undone.
Americans are losing this basic understanding of behavior having consequences. The elders in charge of our society are telling the next generation that consequences can be avoided. If you behave in ways that cause you problems, someone, probably the government, will be there to bail you out. I discussed this issue at length in the post Moral hazard is central issue in housing bust.
The purpose of a bailout is to prevent an individual or family from enduring the consequences of their bad decisions. It simply is not possible to have a bailout without moral hazard, it’s only a matter of degree. …
The people who sacrificed and saved get rather upset when their money is given to those who were irresponsible. Ask the Germans how good they feel giving billions of dollars to the Greeks. The Germans work hard, take very little time off, and save prodigiously. The Greeks party hard, have some of the longest vacations in Europe, and spend prodigiously. The Germans don’t mind lending the Greeks money to earn a return, but giving it away is a different story. And it should be.
The same is true of the tension between savers and spenders in the US economy. Savers sacrifice current consumption to earn a return and enjoy greater consumption in the future or to acquire wealth. Spenders maximize current consumption and hope future austerity never comes. When producers and savers are punished with onerous taxes and low returns on safe investments, they lose their incentive to produce and save. Without producers and savers, what would spenders consume?
When policy makers worship spenders as the backbone of our economy, they completely miss the point. Economic growth comes from production and savings, not consumption. Our policies now encourage spending and discourage saving. While this may maintain some illusion of growth in the short term, it hurts our economy in the long haul. Here we are five years after the housing bust, and although we are officially out of recession, does the economy feel robust to you? I don’t feel it, and neither do most Americans.
The latest bailout proposal concerns student loans. Excessive student loan debt is another long-term drag on housing, and the current default rates on student loans is very high. Some kind of bailout is brewing despite the problems it entails.
Here’s a Way to Flood the US Housing Market with One Trillion Dollars
I’m offended by the headline. First, it tries to provide justification for an egregious bailout by linking it with another egregious bailout. Haven’t we done enough for housing already? Second, it assumes this trillion dollars is free money. The government will just print it, right?
by Morley Winograd and Michael D. Hais 08/20/2013
Members of the millennial generation – born between 1982 and 2003 – carry a student debt burden of close to one trillion dollars. This is the group that includes many just entering the stage in life when people tend to settle down and start families. Even though Millennials are marrying later than previous generations, they would still be the prime market for sales of single family starter homes, if only they could afford them.
If we were really worried about housing affordability, we wouldn’t be working so hard to reflate the housing bubble, would we?
As interest rates rise along with home prices, the only way this key consumer segment will be able to afford to buy a house is if the nation, out of its own self-interest, finds a way to relieve Millennials of their crushing student loan obligations.
Out of it’s own self-interest? How is it in my best interest to bail out someone else’s debt so they can help inflate house prices beyond my reach? The way I see, I lose twice.
Millennials are the first generation in American history that has been asked to self-finance the cost of the education needed for America to be economically successful.
Bullshit. I had to get student loans, and so did my parents. My parents generation and my generation had lower school costs because such large loans were not available to help inflate tuitions. Further, we had to work in order to get through school in addition to getting student loans. Would I have had more fun partying? Sure. But would I be a better person for it today? I rather doubt it.
Shortly after the ratification of the Constitution, Congress passed legislation setting aside land in the new territories for the establishment of the iconic one room school houses to assure its newest citizens had the skills required to be good farmers and domestic servants. Even as the country was engaged in a devastating Civil War, a state-by-state movement to mandate universal and free primary education for every child swept the nation and became a permanent part of American society. Then, when the Industrial Revolution generated a demand for factory and office workers with a high school education, the nation expanded the concept to make such an education available equally to young men and women without any requirement to pay tuition.
The situation has changed, but the need for an educated young generation has not. The difference is that at least two years of post-secondary education has become a must-have ticket for a young generation seeking to make its way in the world. Yet we have suddenly yanked the universal, free education rug out from under them and asked them to pay for it by not only going into debt, but assuming a debt that is not even dischargeable in bankruptcy court.
The real injustice has been caused by the widespread availability of debt without regard to the potential return on the investment. Does it really make sense for a history major who might make $35,000 a year to borrow $120,000 to get a degree from Harvard? Further, once this debt became available, institutions of higher learning responded by raising tuition costs, expanding their bloated administrative bureaucracies, and absorbing the huge influx of borrowed money. We now have a higher education tuition bubble to deflate.
The result is a rising tide of student debt that threatens to undermine the economic vitality of the nation. According to the Federal Reserve, student debt rose by a factor of more than eight between 2001 and 2012, twice as fast as home loans and far in excess of the modest increases in other forms of indebtedness during the same time period. A recently released report by the Consumer Financial Protection Bureau indicates that about one in four student loans is now either in default or in programs designed to help borrowers in distress. This analysis looked only at loans made through the direct student loan program totaling about $570 million, not older ones that may have been offered by banks and other private sector lenders. If borrowers are unable to repay their loans in the long run, the federal government and taxpayers will have to absorb the losses.
This is truly shocking. Something obviously went wrong. Back when I borrowed money for school, you were limited in how much you could borrow, and many like me were limited in how much they wanted to borrow. For student loan debt to go up 800% in a 10 year period, both borrowers and lenders must not have exercised any restraint whatsoever. Since these are government-backed loans, regulators should have been monitoring this and doing something to prevent it from getting out of control. Either there are no pertinent regulations in place governing the amount of student loan debt young people are given, or regulators did not enforce the rules. With financial industry lobbying, it may have been that regulators were told to back off and look the other way.
Why, then, not recognize the problem now and bail out the borrowers so that they can put the windfall to good use in an economy desperately needing a new boost in consumer spending? …
Why not bail out the borrowers? Perhaps one reason might be because it will encourage them to borrow irresponsibly in the future. Or perhaps it’s because it will cost a trillion dollars, and I will obtain no benefit from that expenditure. I’m sure there are many more reasons as well.
Imagine you were a college student in the 2002 to 2012 period. If you were prudent, if you limited your student loan debt and worked to put yourself through school, you should be rewarded. Many prudent students watched as their imprudent peers partied every night, didn’t work, and borrowed their way through college without sacrificing anything. The only reason any student has to be prudent is to get out of college with minimal debt so they can have a head start in life after school. If that advantage is erased by giving the imprudent party animals a free pass, who would be the slightest bit prudent in the future? Wouldn’t everyone party like mad and wait for their after-school bailout? Does anyone want to fund that? And does anyone want to support that entitled generation when they expect future bailouts for reckless borrowing?
Over the next five years, a quarter of Millennials will enter their peak spending years, making them the best hope for reviving the housing market.
Millennials have expressed a strong preference for living in the type of suburban communities in which they grew up, especially when it’s time, as it is for many of them now, to raise a family.
Most people have a preference for the suburbs when it time to raise a family. Are the millennials entitled to it any more than we are?
Their first home needn’t be “move in ready;” about a third of them say they would prefer a “fixer upper.” And more than 80% of the generation believe they would find a way to pay for the cost of any repairs themselves rather than borrow the money from their parents.
Yeah, they saw their parents get HELOCs and pimp out their pads to the max, so the millennials expect to do the same.
A wave of new home buying would not only give a sharp boost to the durable goods industry that depends on new household formation for its growth, but would also provide a ready-made army to fix up some of the country’s declining, inner ring suburban housing stock.
We should forgive a trillion dollars in debt for that? Give me a break.
There are legitimate public policy issues about how to fix the problem of financing American higher education. Some might argue that we should tackle that problem before dealing with student loan debtors.
Yes, we should.
But with the economic recovery still proceeding at too slow a pace for most middle class Americans, an equally good case can be made that the country should deal with student loan debt either first or as part of a comprehensive reform of financing higher education. The economy could use the boost, as could the morale of America’s largest and most diverse generation.
I couldn’t care less if the millennials spend the rest of their adult lives living in their parent’s basements eating Ramen noodles. If they borrowed too much money and didn’t work hard enough in college to keep their debt levels down, or if they didn’t weigh out the potential for future income versus the cost of the education, too bad. Perhaps they should face the consequences for their decisions.
There is no equitable way to bail out student loan debtors or anyone else for that matter. Any bailout is laden with moral hazard issues and impossible to administer fairly. Should regulators have prevented this disaster in the first place? Probably, but now that it’s here, massive and expensive bailouts are not the answer.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”OC13163178″ showpricehistory=”true”]
23 TRANQUILITY Pl Ladera Ranch, CA 92694
$1,270,000 …….. Asking Price
$1,362,500 ………. Purchase Price
8/15/2006 ………. Purchase Date
($92,500) ………. Gross Gain (Loss)
($101,600) ………… Commissions and Costs at 8%
============================================
($194,100) ………. Net Gain (Loss)
============================================
-6.8% ………. Gross Percent Change
-14.2% ………. Net Percent Change
-1.0% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$1,270,000 …….. Asking Price
$254,000 ………… 20% Down Conventional
5.02% …………. Mortgage Interest Rate
30 ……………… Number of Years
$1,016,000 …….. Mortgage
$301,875 ………. Income Requirement
$5,467 ………… Monthly Mortgage Payment
$1,101 ………… Property Tax at 1.04%
$567 ………… Mello Roos & Special Taxes
$265 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$400 ………… Homeowners Association Fees
============================================
$7,798 ………. Monthly Cash Outlays
($1,840) ………. Tax Savings
($1,216) ………. Principal Amortization
$497 ………….. Opportunity Cost of Down Payment
$179 ………….. Maintenance and Replacement Reserves
============================================
$5,418 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$14,200 ………… Furnishing and Move-In Costs at 1% + $1,500
$14,200 ………… Closing Costs at 1% + $1,500
$10,160 ………… Interest Points at 1%
$254,000 ………… Down Payment
============================================
$292,560 ………. Total Cash Costs
$83,000 ………. Emergency Cash Reserves
============================================
$375,560 ………. Total Savings Needed
[raw_html_snippet id=”property”]
The total worth of the top 25 college and university endowments is $11 billion greater than the combined assets of the 25 largest private foundations — including the Gates Foundation, Ford, and Rockefeller.
http://collegeaffordability.blogspot.com/2007/09/senators-discuss-endowment-hoarding.html
Duke University in Durham, N.C., spends over $20,000 a year per varsity golf player. There are 629 college football teams, and only 14 make money.
The number of administrators per student at colleges has about doubled over 30 years, according to Hacker and Dreifus. Their titles point to such questionable duties as “director for learning communities” and “assistant dean of students for substance education.”
http://www.realclearpolitics.com/articles/2010/09/21/why_corvettes_cost_less_than_college_107241.html
The most shocking part of the book. Describes how numerous personnel of the Dept. of Education are actually former Sallie Mae officers, and instances where university financial aid officials hold stock in student loan companies such as Student Loan Xpress. Also describes kickbacks, donations, luncheons, and gifts paid by student lenders to universities in return for steering their incoming freshmen to those lenders (such as putting them on “preferred lender lists”).
http://www.amazon.com/Student-Loan-Scam-Oppressive-History/dp/0807042293
“once this debt became available, institutions of higher learning responded by raising tuition costs, expanding their bloated administrative bureaucracies, and absorbing the huge influx of borrowed money.”
Thanks for providing the documentation to my observation in the post.
I second that … thank you.
It’s funny, ALL Democrats & most Republicans think that providing more cheap money for student loans & subsidies is a good thing. Ha … stupid.
This is great information. Thank you for posting.
A reader sent me this one:
The Expensive Romance of NYU
John Sexton, president of New York University, announced last Wednesday he would step down at the end of his term in 2016. Although the Board of Trustees “unanimously and strongly supports President John Sexton,” as written in a March memo from Chairman Martin Lipton, many students and members of faculty have been calling for his resignation for months. In March, faculty at the College of Arts and Science, NYU’s largest undergraduate school, passed a motion of no confidence against Sexton. In the following months, three other undergraduate schools would pass similar motions.*
Sexton’s critics have a range of grievances against him, but they all boil down to one thing: money. Sexton oversaw the Campaign for NYU, which ended in 2008 and raised $3 billion–the most lucrative fundraising campaign in the history of higher education. One would think such a flush of cash might encourage administrators to lower, if not at least stagnate tuition.* Yet over the course of Sexton’s presidency (2002 to the present) tuition has increased by more than $18,000. For the upcoming school year, the cost of tuition plus room and board is more than $64,000.
According to a Village Voice cover story, NYU created more student debt than any other American university in 2011, excluding for-profit institutions. As tuition has been increased in the two consecutive years since, the NYU degree has become one of the most expensive in the world–an immense cost only compounded by the school’s location in America’s most expensive city. And while 90 percent of the class of 2010 reported being either employed full-time or enrolled in a professional certification or graduate study program within a year of graduating, they were also saddled with a collective debt of $659 million –the largest sum owed by a single class in the history of non-profit academia.
2.91 10 year yield before market opens…up up up…
It hit 2.94% last night. Just wow.
I’m offended by the headline. First, it tries to provide justification for an egregious bailout by linking it with another egregious bailout.
I like this statement! Think about how alarming it actually is.
What has been the cost? Trillions of dollars and moral hazard everywhere. And who has paid the cost? Millions of savers and prudent investors and prudent consumers!
I’m sick and tired of saying the same thing … I want America to go back to a free-er economy where economic forces compete for what we call price discovery.
Sometimes I feel like I’m shouting in the wilderness. We’ve become so accustomed to these bailouts that nobody feels any outrage. We’ve lost sight of how damaging these actions really are. Everyone believes behavior has no consequences, including the people behind the bailouts.
Hehe this morning a guy in an aloha shirt on his bicycle was riding on the sidewalk and shouting “f**k you” to every motorist stuck in traffic as he passed them by. I think he had enough.
As long as people keep voting for Democrats or Republicans while thinking that there are any significant differences between the two, the status quo will be maintained.
Jobless claims fall to five-year low
The fewest workers in more than five years applied for U.S. unemployment benefits over the past month, indicating the labor market continues to improve.
Enlarge image Jobless
The number of claims in the month ended Aug. 17 declined to 330,500 a week on average, the least since November 2007, a Labor Department report showed today in Washington. Compared with a week earlier, claims rose by 13,000 to 336,000, in line with the median forecast of 48 economists surveyed by Bloomberg.
Firings are waning as employers hold on to workers to meet sales, which may be a precursor to bigger gains in payrolls once the effects of federal budget cuts and higher payroll taxes fade in the second half of 2013. Growth in employment, together with rising incomes, will help buoy consumer confidence and spending, which accounts for about 70 percent of the economy.
There is “legitimate improvement in the labor market,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “It’s more important to put the emphasis on the trend in claims, which remains favorable.”
Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.4 percent to 1,643.6 at 8:38 a.m. in New York.
For part time, low wage jobs. Summer is over and you will see a small dip in this report mex quarter. Then it will “unexpectadly ” increase again during the christmas holliday. Duh. Low wage part time jobs. What a recovery!
77% of the jobs created within the last year have been part time.
GSEs Announce Updates to Implement Ability to Repay Rule
Fannie Mae and Freddie Mac have both updated their seller guides to incorporate the Consumer Financial Protection Bureau’s “Ability to Repay” rule under the Truth in Lending Act.
The rule will go into effect January 10, 2014.
The Federal Housing Finance Agency (FHFA) worked with the GSEs to update their respective seller guides in alignment with one another.
The basic goal of the “Ability to Repay” rule is to ensure lenders act in good faith that a borrower can repay his or her loan before offering the loan.
After January 10, 2014, Fannie Mae and Freddie Mac will only purchase loans that are fully amortizing, have terms of 30 or fewer years, and have points and fees that equal no more than 3 percent of the total loan amount.
The GSEs will not accept loans with prepayment penalties. Freddie Mac explains that it will continue to accept them until January 10, 2014 if they have settlement dates are on or before July 31, 2014.
The GSEs are also revising their rules regarding relief refinances for “higher-priced mortgage loans.” These loans must have a maximum debt-to-income ratio of 45 percent, and lenders must verify the borrower’s income source and amount.
The GSEs note that it will be the seller’s responsibility to ensure compliance with the CFPB’s rules before selling loans to the GSEs.
One of our astute observers who is a lender emailed me recently about implementing these rules. Many originators have gone through their previous book of business to analyze the impact. Some originators have 50% or more of their business from 2011 and 2012 that fall outside of these guidelines. In particular, they are worried about the 43% cap on total DTI. This provision alone wipes out more than a third of their business. In short, there will be tremendous lobbying pressure to relax these measures or delay their implementation.
a 43f% cap on DTI wipes out a third of their business? That is hilarious.
We have ways in making you sell your house.
New Role for German Buyers in U.S. Housing Market: Investors
German investors have not only been crucial in lifting the euro zone out of recession in the second quarter, they are also continuing to make their presence felt across the Atlantic in the U.S. housing market. No longer just looking for holiday homes, Germans are increasingly buying U.S. properties as investments—driven both by yields in the U.S. and fears over the euro-zone’s economic future.
Germans accounted for 3% of foreign purchases of U.S. homes in the year ending March 2013, which amounts to a volume of about $2 billion, according to a survey by the National Association of Realtors. The real-estate website Trulia saTRLA +2.69%ys Germany has the third-highest share of foreign searches on its site, behind Canada and the U.K.
To be sure, home buying in the U.S. by Germans is not a huge share overall and is even down slightly from a highpoint of 5% in 2009, according to NAR. Trulia also reports a drop in the German share of its searches since 2012.
Nevertheless, Germany has avoided the fate of other big buyers of U.S. real estate such as the U.K. or Mexico, whose importance has decreased since 2007 in the face of rising demand from China, according to NAR. Moreover, the NAR figures don’t account for the number of properties Germans buy specifically as investments.
Usually the sign of a top is foreign money entering a market. They are always late, and usually end up the bagholders.
I remember when the Japanese were buying up LA a few re cycles ago and people were adamant that it signified the market would increase.
I suppose we’ll be hearing the German word “Zwangsversteigerung” both early and often over the coming 2 or 3 years? German for “foreclosure”.
Recession’s pain reaching deep into the economic recovery
The buying power of Americans continues to be weaker than it was when the recession ended four years ago, underscoring the lasting damage wrought by the downturn, according to a report released Wednesday.
Inflation-adjusted median household income has declined 4.4 percent, to $52,098, since June 2009, the official end of the recession, said the report by Sentier Research, an Annapolis data-analysis firm headed by two former Census Bureau officials.
Although Americans’ average income has been recovering from its recent low point in August 2011, it remains 6.1 percent below where it stood when the country toppled into recession in December 2007.
Overall, median income has declined by 7.2 percent since January 2000, the report said, offering fresh evidence of the deep economic stagnation the nation has suffered for more than a decade.
Median income, which economists view as a key marker for the well-being of the nation’s middle class, is lagging across education levels and racial groups, the report said. Analysts said the report also reflects the increasing economic polarization apparent in other data.
“Median income is affected by trends in inequality, and you are seeing that to the extent there has been income growth in the past decade, it has disproportionately gone to those at the top and very top,” said Gregory Acs, director of the Income and Benefits Policy Center at the Urban Institute, a research organization.
Was Shevy having an open house in San Juan Hills yesterday?
I think it was Sunday.
I thought that might be the case. He left a sign in the median at the Antonio / Ortega intersection.
That’s my house.
So what’s the smart advice to potential buyers right now?
It looks like we’re going from buyer’s market to seller’s market and back to buyer’s market in a than 12 month period! Q4 2013 and Q1 2014 do not look good for sellers or house prices.
This fall and winter probably represent the best buying opportunity since 2011. Although prices are higher, they are still relatively affordable by historic standards. With more inventory available, buyers might actually be able to get a property.
The math said that from 2011 to now that affordability made it a good time to buy, but with the restricted inventory, it was nearly impossible to do so. This is the first time since prices bottomed that there may be some opportunity to actually get a deal.
Sorry Larry, but there is too much contradiction in your prediction.
1. You say there will be more inventory
2. You also say interest rates will rise
– yet you dont see prices going down from here?
Not to speak for IR, but if the Fed is losing influence on the long side of the bond yield curve, and mortgage rates continue to climb, Orange County home prices are going to decline. Even if there is low inventory, prices will decline because life events (death, divorce, employment, etc), create transactions. If the lack of affordability means less qualified buyers at artificial hoisted levels, forced sales will indeed mean lower home prices.
The inventory coming to market will be cloud inventory with higher asking prices. Those who can afford the higher asking prices will get houses. Those that can’t, won’t. I think there were a number of potential buyers who put their plans on hold when the spring was too crazy. I believe those buyers will come back out to buy the available inventory despite the higher interest rates.
This will carry us through the winter, but it can’t last forever. If interest rates keep rising steadily, and affordability crumbles, something will have to change, or the sales volume will completely dry up.
I am one of those last spring buyers. I had 40% downpayment and could not compete. But I refuse to buy this winter with higher interest rates if those bid up, overly inflated, peak buyer prices dont go down. Your an idiot if you buy at these inflated prices at todays (and going higher) rates.
If you are buying for potential appreciation, wait until interest rates are in the teens. If you are buying for lifestyle, buy whenever you want and what you can afford and enjoy the darn home without worrying about prices.
What is going to happen when Fannie and Freddie need to raise their rates again?
FHA Loan Applications Plummet 49% in June
Applications for FHA single-family loans dropped off a cliff in June as a regressive mortgage insurance policy kicked in early in the month and potential borrowers were dealing with rising mortgage rates.
In a monthly loan production report issued Friday, the Federal Housing Administration reported that loan applications fell nearly 50% in June from the prior month.
The new report shows that FHA applications fell to 93,700 in June from 182,400 in May. Applications for FHA purchase mortgage loans fell to 57,650 in June, down 43.5% from the prior month.
The drop was accentuated by a spike in May applications as borrowers rushed to avoid the June 3 implementation date of a new policy that makes FHA loans more expensive longer-term. Going forward, the annual premium on new FHA loans can no longer be canceled when the LTV ratio hits 78%. FHA borrowers must pay a 1.35% annual premium over the life of the loan. (With private MI, the annual premium is cancelable.)
FHA application volume has been very volatile this year.
On April 1, FHA raised the annual premium 10 bps to 1.35%. And loan applications filed in April fell to 118,200 from 221,600 in March.
I honestly didn’t see this coming – maybe buyers are slightly more intelligent than I give them credit for.
If buyers are unable to qualify for conventional and balk at the FHA terms, where is housing demand headed? (rhetorical question of course)
People are clueless sheeple when it comes to projecting long-term trends, but they are pretty good at basic math when it comes to immediate cost impacts. The FHA terms were obviously going to cost more, so people either took the plunge or decided to give up trying.
I wonder how much of the decline in demand is caused by rising interest rates and how much is caused by changes in FHA policy increasing borrowing costs?
Just look at the clouds in the 6 to 9 monhts year:
There the Taper
There stricter underwriting standards
Possible mortgage interest deductions changes
The herd is … well, it is the herd. Forget about what other buyers or anybody else is doing or has done.
I’m shocked that the FHA application rate isn’t lower. Who are these 50% that are taking on lifetime mortgage insurance? I would love read a few interviews chronicling FHA borrower thought processes as they sign their lives away.
I remember about a year ago when they discussed raising these fees. It was deemed necessary to prevent a bailout by the US. However, if no one is getting these loans, then FHA is not getting enough revenue to prevent a bailout.
Also, you are right who are these borrowers? What will be their future default rate.
You can shear a sheep many times, but skin him only once. It appears the FHA has overestimated their market power to indiscriminately raise prices.
From the end of the article:
“FHA has increased premiums five times over the past two years and “we are clearly at a tipping point here,” Galante testified. “If we increase them more, we would actually shut out additional homebuyers,” she testified.”
Consumers are turning to other mortgage products they deem to be reasonable substitutions. After all, Fannie Mae is still funding 97% LTV loans. And what effect do increasing credit costs have on home prices? Just a guess, but they probably don’t cause them to rise.
I keep seeing this same inverse Ponzi scheme pattern over and over lately. Where the base of the pyramid gets narrower and narrower, but is somehow expected to support more and more weight. For example, corporate benefits are grandfathered for existing employees, but new employees are given a lesser benefit package; social security has increased retirement ages for new workers; and, Proposition 13, where new homeowners have to pay their own tax bill plus a large portion of their two next-door neighbors’ tax bills as well.
If 99 men rob 1 man of his belongings it’s called a crime, but if 99 legislators do the same thing it’s called a public service. We live in strange times… in a strange land… full of alien creatures… How the hell did I get here? Can I go back to my own universe, please?
Have you noticed that whenever the financial press says someone is “cautiously optimistic” that everyone should be really worried about impending doom?
FOMC participants remain cautiously optimistic on QE3 tapering
Nearly all Federal Open Market Committee members confirmed they are ‘broadly comfortable’ with the timeline Federal Reserve chairman Ben Bernanke put into action for tapering its bond-buying program later this year if the economy continues to improve, according to minutes of the latest meeting.
Nonetheless, there was still division on when the appropriate time to begin winding down the central bank’s open-ended third round of quantitative easing would be – with a few urging patience in the economic recovery and others favoring tapering its asset purchases.
“While a range of views were expressed regarding the cumulative improvement in the labor market since last fall, almost all committee members agreed that a change in the purchase program was not yet appropriate,” the minutes revealed.
Federal Reserve Bank of Kansas City president Esther George was the only dissenting member of the FOMC’s action, explaining that she favored including in the policy statement a more explicit signal that the pace of the current asset purchases would be reduced in the near term. …
However, Amherst Securities Group senior managing director Laurie Goodman said if the Fed fails to taper by the fourth quarter of 2013, the central bank will be absorbing 75% of gross deliverable agency supply. If the Fed wants to hold purchases at the same percent of supply as it current does, it must cut new purchases by 40%.
Fannie Mae: Fed Tapering Poses Risk
“The biggest risk to this forecast is the expected reduction in the Federal Reserve’s asset purchases, which would likely put additional upward pressure on interest rates and lead to some volatility in capital markets,” Duncan explained. “Although the nature and timing of the tapering are still to be determined, we continue to expect the Fed will scale back its asset purchases and end the program by spring.”
Duncan also noted the country “may see some fiscal tightening this fall as the debate over federal spending and the debt ceiling takes place.”
However, while the financial picture isn’t completely clear, sustainable growth in consumer spending and the employment sector are expected to help offset downside risks from the Fed’s tapering of purchases.
At the same time, the group remarked that “[t]he housing recovery appears to have weathered some of the uncertainty, although additional growth is expected to be modest rather than robust while the market awaits an easing of credit conditions in the presence of rising interest rates.”
For now, the team is sticking to its forecast of continued improvements in home prices, though the pace of growth is expected to slow significantly from the last year.
Originations are expected to drop off from an estimated $2.03 trillion in 2012 to $1.75 trillion in 2013 and $1.09 trillion next year. In that time, refinance volume is projected to drop off to $345 billion by the end of 2014—less than half of expected purchase origination volume.
Housing braces for looming QE3 tapering consequences
there is one risk that could turn the housing upswing on its side, the reduction in the Federal Reserve’s asset purchases, argued Fannie Mae chief economist Doug Duncan.
The uncertainty and eventual tapering of the central bank’s bond-buying program is likely to put additional upward pressure on interest rates and lead to some volatility in capital markets.
“Although the nature and timing of the tapering are still to be determined, we continue to expect the Fed will scale back its asset purchases and end the program by spring,” Duncan stated.
The Fed has been signaling their intention to alter its open-ended third round of quantitative easing by slowing purchases later this year. And while the market awaits details — such as timing — investors remain on edge. …
On a similar note, Capital Economics property economist Paul Diggle believes higher mortgage interest rates are one threat to the housing recovery.
“However, we think that mortgage rates are unlikely to increase sharply from here. In fact, our end-year forecast for 30-year rates is 4.5%, rising to 5% at the end of 2014,” Diggle noted.
He added, “In that scenario, rates are not going to take much of a toll on affordability. Rates will still be fairly low in an historical context.”
The property economist believes bigger threats to the housing recovery are the very sharp rise in home prices, which is doing more to reduce affordability than higher mortgage prices.
Additionally, higher prices are undermining investment incentives, which is causing investors to exit the market. …
Another risk to the housing recovery is the continued tightening of mortgage credit.
“Credit needs to loosen before more conventional, mortgage-dependent sources of demand can return in greater numbers,” Diggle said. …
“We expect that historically tight supply conditions will continue to support further home price gains. While the number of new and existing homes available for sale has risen over the past year, it has remained lean by historical standards,” Duncan concluded.
““We expect that historically tight supply conditions will continue to support further home price gains. While the number of new and existing homes available for sale has risen over the past year, it has remained lean by historical standards,” Duncan concluded.”
Historical standards… Why do I keep seeing this noun-adjective combination lately? Why would historical inventory standards be at all relevant, much less important, in determining current home price direction? If supply is lean by historical standards, does that mean that housing demand is rich as compared to the same historical metric? How do purchase applications compare to historical standards?
I am personally seeing inventory rise by 18%/month for the last 5 months in my area. Inventory is now the same as it was a year ago. If inventory just levels out, there will be a YOY gain in inventory every month for the next 11 months. At the same time, I am seeing pending sales drop by 40% over the last six weeks. Not only that, but the pending contracts are taking longer to close (38 vs. 29 days). So the throughput has dropped and the current pending numbers are overstated.
How do historical standards intelligently speak on any of the current market dynamics? Short answer: they don’t because they can’t. They only serve to obfuscate, not elucidate. Which is the whole reason for their inclusion in the above article.
So just like everything – Past performance is not an indicator of future performance…
I sick and tired of the mainstream media, in particular, the business media colluding with the Fed, the Govt, and these awful TBTF banks!
Instead of asking Jay Carney about “the war on women”, or “the fight in congress”, why not press that SOB with questions about the American economy, and if Obama plans to appoint another money printing lap dog to be Fed Chair. After all, money printing lap dogs have widened the gap between the haves and have not’s!
I hold the media responsible for a lot of this mess! They have NO BALLS anymore!
Consumer Mortgage Relief Totals $51 Billion ($80k Per Borrower), Holder Demands Blood
On the heels of the news that Wells Fargo is cutting 2,300 workers from the mortgage production operations, we have learned from the Office of Mortgage Settlement Oversight that consumer mortgage relief has totaled $51 billion, averaging $80,000 per borrower.
Now THAT’s a Big Twinkie!
Here are the consumer relief highlights from the National Mortgage Settlement (NMS):
Program to Date: March 1, 2012 – June 30, 2013
• 643,726 borrowers benefited from some type of Consumer Relief totaling $51.332 billion, which, on average, represents about $79,742 per borrower. This figure includes both completed Consumer Relief and active first lien trial modifications as of June 30, 2013.
• 393,742 borrowers received some type of Consumer Relief (a permanent or trial modification, an extinguishment, or refinancing assistance) to help them retain their homes, which amounts to $28.801 billion, averaging approximately $73,148 per borrower.
• 95,582 borrowers successfully completed a first lien modification and received $10.399 billion in loan principal forgiveness, averaging approximately $108,795 per borrower.
• 1,595 borrowers are in active first lien trial modifications as of June 30, 2013, the total principal value of which is $151.69 million. This represents potential relief of about $95,104 per borrower if the trials are completed.
• Second lien modifications and extinguishments were provided to 223,168 borrowers, representing approximately $15.312 billion in total relief. The average amount of relief for borrowers whose second liens were modified or extinguished was approximately $68,611.
• Banks refinanced 73,397 home loans with an average unpaid principal balance of $226,285, reducing the average annual interest rate by approximately 2.25 percent. The total estimated benefit to borrowers from refinancing over the average life of the loan is approximately $2.939 billion. On average, each borrower will save approximately $425 in interest payments each month.
• 184,397 borrowers had either a short sale completed during this period or the lender accepted a deed in lieu of foreclosure, waiving any unpaid principal balance in either case. The total amount of this type of relief was approximately $20.902 billion, or about $113,354 per borrower.
• Through the various other Consumer Relief programs outlined in the Settlement documents, the banks provided $1.628 billion in relief to 65,587 borrowers. The average relief of these other programs amounts to approximately $24,828 per borrower.
Someone could do a chart showing how as the Govt. (State and Federal) has given more money to make college more affordable the cost of college education has increased. It’s a classic case of feeding the beast to tame his appetite.
It is appalling.
I was reading another totally unrelated article about some of the horrific crimes going on in America, and parenting. This paragraph resonated with me:
“We don’t teach accountability, we don’t expect accountability and I’m not even sure we even know what accountability looks like anymore. Some of us have become so addicted to pointing fingers at others for all the wrong that happens in our lives that self-assessment has become synonymous with blaming the victim. Yes, there are cultural factors that make parenting difficult. And sometimes a bad seed is just that. But none of this excuses us from taking personal responsibility where we can.
I am tired of seeing “sorry” being used to cloak negligent parents. Sorry won’t bring back Christopher Lane or James Craig Anderson. And they, too, were each somebody’s “angel.” ”
So I’m thinking the issue is not only the millenials themselves, but the parents who “raised” them. There are thousands of parents who apparently went along with the insane idea that an $85K to $100k sociology degree from UC Irvine was a “good investment”. And now America, you gotta bail those kids out so they can progress to the next huge, embarrassing failure in decision making.
It’s time for us to re-discover the power of “no”.
BTW, this was the article about parenting I was referring to: http://www.cnn.com/2013/08/22/opinion/granderson-criminal-kids-responsibility/index.html?hpt=hp_t1
That article is a great read. Thanks.
That’s funny. My three year old has already figured out that when she does something wrong, the first thing to do is say “sorry.” My response is “sorry doesn’t cut it. Go do your time. Maybe then you will think twice next time before you spit your food out on the floor.” I then point to the corner. Sometimes she goes willingly, sometimes she doesn’t. Either way, she is learning that she is choosing through her own actions to put herself in the corner.
All these spoiled Millenials want is to act without consequence. The young, largely, lack the foresight to see the ramifications of their own actions. Older generations need to be guiding them. Unfortunately, many of those of the older generations are also sorely lacking in the same said foresight.
It’s pretty simple: If you reward misbehavior you encourage it. If you punish misbehavior you deter it. Is that such a hard concept to master? Where are these kids parents?
Reality is, the lying veneer has begun to peel away.
As a result, a trend-shift is underway where ‘return OF capital’ supercedes return ON capital.
Too bad.
More cost of living increases. Lower those DTI qualification standards.
Why Your Boss Is Dumping Your Wife
Companies have a new solution to rising health-insurance costs: Break up their employees’ marriages.
The United Parcel Service (UPS) will no longer cover employees’ spouses on the company health plan. And while it’s not the only company to have adopted the policy, it’s among the largest. Some 15,000 UPS spouses who can obtain health coverage through their own jobs will be dropped from the plan. In a memo to employees, the company explained that the change was intended to offset the effects of the Affordable Care Act, which were expected to increase its health care costs by 4%.
See: New Obamacare effect: working spouses taken off UPS health plans
By denying coverage to spouses, employers not only save the annual premiums, but also the new fees that went into effect as part of the Affordable Care Act. This year, companies have to pay $1 or $2 “per life” covered on their plans, a sum that jumps to $65 in 2014. And health law guidelines proposed recently mandate coverage of employees’ dependent children (up to age 26), but husbands and wives are optional. “The question about whether it’s obligatory to cover the family of the employee is being thought through more than ever before,” says Helen Darling, president of the National Business Group on Health.
While surcharges for spousal coverage are more common, next year, 12% of employers plan to exclude spouses, up from 4% this year, according to a recent Towers Watson survey. These “spousal carve-outs,” or “working spouse provisions,” generally prohibit only people who could get coverage through their own job from enrolling in their spouse’s plan.
This trend is very annoying. Not only would we pay less in taxes if my wife and I changed nothing, but divorced; but we also potentially could maintain our medical insurance options.
August 7: Congress and government unions can opt out of Obamacare:
http://www.reuters.com/article/2013/08/07/usa-health-congress-idUSL1N0G820F20130807
“The amendment’s author, Republican Senator Charles Grassley, argued that if Obamacare plans were good enough for the American public, they were good enough for Congress. Democrats, eager to pass the reforms, went along with it. But it soon became apparent the provision contained no language that allowed federal contributions toward their health plans that cover about 75 percent of the premium costs. This caused fears that staff would suddenly face sharply higher healthcare costs and leave federal service, causing a “brain drain” on Capitol Hill. But Wednesday’s proposed rule from the OPM, the federal government’s human resources agency, means that Congress will escape the most onerous impact of law as it was written.”
WTF do they mean by “Brain drain”?
Gee, do they mean the “brains” that drafted the legislation with unintended consequences in the first place? Unfortunately they are staying in DC and not getting eaten alive by zombies.
I am a sample size of one, but now 50% of the houses on my watch list have had a price cut.
I think we may be watching the beginning of the investors stampeding toward the doors…
Jay
Ditto for me too.
Multiple price cuts in a few cases.
I am focused on Turtle Rock.
What area are you watching?
Western Inland empire – North end of Corona, Chino, Chino Hills, Ontario. We’re looking for a 30 year house and have been patient.
But we want LAND, 1/2 acre lot minimum, an acre or more preferred. I want the space to do whatever I want or can dream up over time – home condition and/or size is much less of a concern.
Chino Hills pricing is now almost the same as Orange County. It’s no longer the cheaper alternative.
Quotable Quotes:
A government that is big enough to give you all you want is big enough to take it all away.
Barry Goldwater (1909 – 1998)
You can tell a lot about a fellow’s character by his way of eating jellybeans.
Ronald Reagan (1911 – 2004)
Never spend your money before you have it.
Thomas Jefferson (1743 – 1826)
That government is best which governs the least, because its people discipline themselves.
Thomas Jefferson (1743 – 1826)
If it were not for injustice, men would not know justice.
Heraclitus (540 BC – 480 BC)
Injustice anywhere is a threat to justice everywhere.
Martin Luther King Jr. (1929 – 1968), Letter from Birmingham Jail, April 16, 1963
Justice consists not in being neutral between right and wrong, but in finding out the right and upholding it, wherever found, against the wrong.
Theodore Roosevelt (1858 – 1919)
I know of no more encouraging fact than the unquestioned ability of a man to elevate his life by conscious endeavor.
Henry David Thoreau (1817 – 1862)
Strong feelings do not necessarily make a strong character. The strength of a man is to be measured by the power of the feelings he subdues not by the power of those which subdue him.
William Carleton
A wise man can see more from the bottom of a well than a fool can from a mountain top.
Unknown
Whether we bring our enemies to justice or bring justice to our enemies, justice will be done.
George W. Bush, September 20, 2001
“In a sea of weak data, home sales will remain an anchor, not a life boat.”
Stuart Hoffman, chief economist at PNC Financial Services. June, 2008
“Millennials are the first generation in American history that has been asked to self-finance the cost of the education needed for America to be economically successful.”
Morley Winograd and Michael D. Hais 08/20/2013
I love the ending…
Further proof that the mania is out of control:
http://rexhomebuyer.com/
I’m hearing radio advertisements for this joint – downpayment assistance in exchange for equity stake in your home – because home values only go up.
From the FAQ, it looks like this is effectively a 30yr balloon loan with the initial principal plus the appreciation due at the end of the term. They don’t spell out what happens when the at condition is triggered, but it seems like you must come up with the pro rata amount by either writing a check or selling and then writing a check.
Does FirstREX have any say in how or what I do to my home during the time I own it?
The REX HomeBuyer Agreement puts you in control regarding the management of your home. FirstREX does not become a co-owner of your home and does not “co-manage” it. You are required to maintain your home in good repair (subject to normal wear-and-tear), keep current on your mortgage, tax and insurance payments, and occupy your home as provided in your specific REX HomeBuyer Agreement. You can remodel or otherwise improve your home during the term of the REX HomeBuyer Agreement as you wish. And, importantly, you decide when to sell your home or otherwise end your REX HomeBuyer Agreement, subject to the 30-year maximum term.
Is it possible to buy FirstREX out without selling my home?
Yes. The REX HomeBuyer Agreement is intended to remain in place until the property is sold, the term ends (maximum 30 years), or the last homeowner passes away, but you can end the Agreement before one of these events by requesting a Special Termination. To do this, an independent third-party appraisal is obtained to determine the value of your home, and you pay FirstREX an amount equal to the REX Down Payment plus any profit that FirstREX would have made if you were to sell your home for the appraised value.
I think our society is being groomed to accept the premise you posit in this post. I truly believe with all my heart that Government is purposely creating a dumbed down, somewhat illiterate, God adverse, entitlement philosophy, victim mentality, mob.
If you read, “Ominous Parallels” by Leonard Peikoff, which was suggested by Ayn Rand during her last public speaking event in 1985 (video on YouTube), you can see how our culture has rejected the individualism of Aristotle and accepted the Platonic theory of society where the individual is subservient to the whole. A theory that was politicized for Government use by Kant and Hegel (which ultimately led to the rise of the Nazi party).
Then if you read some of the books by Theodore Dalrymple like, “Life at the Bottom” or “Spoilt Rotten” you can see where this Government grooming of our society will lead. His books are terrifying because they are true stories of his tenure as a doctor for the prison system in the U.K. By using the real statements and accounts of his patients, he explains how the dumbed down, illiterate, victim-hood, entitlement already completed in the U.K. has created the largest mob of degenerates the nation has ever seen that live off of the Government (taxpayer), blame everyone else for their problems, (“I don’t know Doc…the knife just went in, like”) and are becoming more violent and more dependent by the day and most importantly…are breeding like rabbits, all single mothers with multiple fathers.
There are already nations that are at, where we are going to be. There are books about it. There are charts and graphs. Nobody is listening. Nobody is watching. Nobody is learning. We are doomed to join them.
FYI – I am an Atheist, and I also join Ayn Rand in believing that religion is not a substitute for rational thought. BUT, at least for now, religion provides more support and structure on what a “good” society should look like versus anarchy, especially for those incapable of rational thought.
And I forgot to add the national ACT achievement numbers were just reported:
“Just a quarter of this year’s high school graduates who took the ACT tests have the reading, math, English and science skills they need to succeed in college or a career, according to data the testing company released Wednesday.” ~AP
And it said only 5% of blacks.
So…I think our future is clear, and Dalrymple’s books are a crystal ball. We should be terrified.
I am a millennial, worked all the way through undergrad and law school, and was HOMELESS in undergrad because I didn’t have enough money to pay for both tuition and housing (when I say homeless I mean I kept my clothes, books and toiletries in my car and slept in my car or on friends’ couches). I still graduated with almost 200k in debt even though I got a merit based scholarship to law school. I worked my a** off in law school, was top of my class, and head of law review. I got a job in big law and my starting salary was 160k. I now make 200k per year. I still can’t get approved to buy a single family home in Irvine because my debt to income ratio. There’s something broken in the system.
Education is becoming too expensive. It will ultimately pay off for you because your income potential can overcome the high cost of your education. Your student loan debt is only about a year of early income. My first job out of college only paid me about what I owed on student loans, but within 10 years, I was making four times my initial salary, and I quickly paid off the debt. Your experience may be similar.
The people who are really in deep are the ones who have three to five times their potential salary in student loan debt, and they’re in occupations where salary increases are not significant. They will be student debt serfs for life. There is really something wrong with a system that allows that to happen.
“There is really something wrong with a system that allows that to happen.”
What ‘system’? Don’t people have the choice to incur educational expenses and/or debt, and their majors?
No, there is nothing wrong with the system because there is no system. There are choices. Choices made by individuals. And there are good choices and bad choices. And there are financially positive choices and financially positive choices. I pray that there is never a ‘system’ that decides who will be educated in what and what occupation everyone has. The freedom to succeed necessitates the freedom to fail. Personally I will choose freedom over security.
Kate – There is no system, therefore it is not broken. There is risk vs reward. The bank has decided that loaning you money is too much of a risk. Lower that risk, by paying down debt, increasing the down payment, applying for a smaller loan amount, etc., and buy a house.
I don’t know, I won’t buy a house unless you are married and want children. Labor mobility is great advantage single people have that married people with kids usually don’t have. Buying a house right now and only to be upside down 2 years from now limits your options. If prices do fall.
Carefully watch the housing market in the 12 months, especially the mortgage rates. You will probably see it change a little to your advantage.
On a side note: Isn’t it amazing that education is so expense that it’s a disadvantage in some cases. My cousin teaches Pharmacy and he sees the same thing. New Dentists graduating can start businesses but can’t purchase housing. My Dentist is new and he is in this situation, he rents a house.
Ahhh, it is like it is 2007 all over again…except only pockets of homes are bubblicious.
omg guys, no one had copied no one. Our singer Milan was always the same, but GD after solo album looked like him.