Author Archive: Irvine Renter

The GSEs will implement a targeted program of principal reduction to provide false hope and stave off further strategic defaults. The demand for free money is infinite. The demand for anything free is high, but since money can buy almost anything, the demand for free money knows no bounds. The lure of free money is very enticing. One of the most effective free-money advertising programs of all time emerged during the housing bubble. Lenders offered to give homeowners money and reduce their monthly payments to boot. Not just was this money free, lenders were actually paying borrowers to take it. Of course, if something seems too good to be true, it probably won't work out as hoped. The free money…[READ MORE]

Saving the banks required reflating the housing bubble, trapping a generation in their starter homes and slowing sales in the housing market. The reason fewer homeowners than usual list their homes for sale is due primarily to loss mitigation policies at lending institutions. Many homeowners face circumstances in their personal lives that would ordinarily compel them to sell, but due to the excessive amount of mortgage debt they carry relative to the value of their homes, these homeowners fail to list their homes for sale. Some homeowners don't list because they are underwater and can't sell for enough to pay off their loans. Some homeowners don't list because they are barely above water and if they were to sell, they…[READ MORE]

With memories of the housing bust fading, lenders embrace loan products proven to destabilize housing markets and cause foreclosures and lender losses. One of the main factors preventing further home price inflation is the lack of down payment savings among the buyer pool. With super low mortgage rates, even the meager incomes emerging from the Great Recession can finance amounts in excess of the conforming loan limits, which also inhibit higher home prices. Pressure will mount to raise the conforming loan limit, and pressure will also mount to find ways to accommodate potential homebuyers with less than 20% down. During the housing bubble, lenders gave out second mortgages to anyone who didn’t have a 20% down payment. A common product…[READ MORE]

Thanks to the housing bust, suburban renters now enjoy a much better selection of houses and neighborhoods to suit their family's needs. People often complain the media focuses too much on doom and gloom. Despite this perception, the financial media is almost entirely focused on providing good news when they have it and feel-good emotional spin when they don't. When it comes to their investments, people seek out confirming evidence that they made the right choices, so the emotional biases of investors becomes the reporting biases of the financial media. The housing bust was not good news for homeowners and real estate speculators. Despite the non-stop terrible news and data during the bust the financial media always found a way…[READ MORE]

Proponents of austerity predicted a number of dire consequences for fiscal stimulus, but so far, none of them have come to pass. Have you ever been completely certain about something only later to find out you were completely wrong? Most people won't admit it, and many people fail to acknowledge the truth even to themselves. I like to believe I have been more right than wrong over the last nine years of writing about these issues, but I have made some significant blunders. So far pretty much every prediction I've made about interest rates has been wrong. I was nearly right last year when I said interest rates would not rise in 2015, but in the late December meeting Janet…[READ MORE]

The worst social problem in the most heavily Progressive-dominated political districts is a lack of housing caused by selfishness and greed, two characteristics hypocritical Progressives like to criticize Conservatives for. California has a housing problem. Anyone who lives in California copes with higher housing costs than nearly everywhere else in the United States. This problem is a boon to landowners and high wage earners, but it’s a bust for lower middle class wage earners who often put 50% of their income toward housing. Why do we have this problem? First and foremost, the problem is one of supply. California has a chronic shortage of housing. The lack of supply is the primary reason prices are so high. When supply is…[READ MORE]

When the mortgage industry innovations fail, millions of people lose their homes, and taxpayers fork over billions in bailout aid to foolish lenders and foolish borrowers. Financial innovation: Designing a loan program that borrowers won't repay but lenders and investors will fund. Most industries advance and evolve through innovations, sometimes very disruptive ones. However, some industries -- like mortgage lending -- are prized for their stability. Mortgage lending doesn't innovate, and as a society, we don't want it to because whenever mortgage lenders start innovating, trouble is brewing. Most innovations in lending either cause major losses at banks, or in their worst forms these innovations destabilize our financial system. Consider the "innovation" of the option ARM. This loan allowed people…[READ MORE]

Mortgage rates will remain low because the banks and the economy can't accommodate the loss of sales and lower house prices bound to accompany higher rates. "Stock prices have reached what looks like a permanently high plateau." - Irving Fisher, Ph.D. in economics, Oct. 17, 1929 "We will not have any more crashes in our time." - John Maynard Keynes in 1927 When something goes on for a long time, particularly something the defies previously accepted truths, eventually people come to believe it will go on forever. Everyone thought the economic prosperity of the 1920s would go on forever. Few foresaw the stock market crash of 1929 and the Great Depression of the 1930s. Investors and economists are particularly prone…[READ MORE]

Politicians intentionally set up Fannie Mae and Freddie Mac to fail so they could reform mortgage finance without fear of voter backlash. You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before. Rahm Emanuel Everyone in Washington knows the GSEs must be eliminated because the GSEs can’t exist outside government conservatorship. The taxpayer liabilities from backing most mortgage loans are enormous, and taxpayer backing for the GSEs ensures the misallocation of credit. Ed DeMarco prepared for final shutdown of GSEs, but the final implementation was left to Mel Watt and Congress, but they failed to make any progress. Concerned citizens hoping for…[READ MORE]

Since high home prices can no longer be overcome by financial innovations in lending, state and local governments are trying their own market manipulations to sustain inflated home prices. The federal reserve’s zero interest rate policy is fraught with unintended financial consequences. The policy of inflating house prices is eagerly embraced by a federal reserve that wants to see collateral value backing restored for bad bubble-era loans. While this policy benefits bankers and existing homeowners; however, it harms everyone else. When I first started writing about real estate matters, some of the bulls accused me of talking down the market so I could profit from its demise. When I replied that I wanted prices to go down and stay down…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012