Author Archive: Irvine Renter

The FHA is lobbying the Justice Department on behalf of lenders who want to make bad loans with impunity. At the most basic level, lenders, realtors, and borrowers inflated a housing bubble because they got everything they asked for. From 2004 to 2006, there were no barriers whatsoever to complete real estate transactions as inventory was abundant, prices were financeable, and buyers were motivated. It was the best of all possible real estate markets. Right now everyone who wants to see more transactions at higher prices is complaining about stringent lending standards. In their minds if qualifications were looser, more people would qualify for home loans, and they would make more money. They would be quite content to enjoy the…[READ MORE]

As houses get more expensive, marginal buyers are priced out, and without toxic mortgage products to help, a depleted buyer pool causes low sales volumes. To make people feel good for the holidays and to fill the void in real estate news from November to February, reporters entreat us to optimistic news stories and wild projections of how great the coming year will be for home sales and prices. Each year the usual suspects predict rising sales and prices, even if the optimism is completely unwarranted by market conditions. In October 2014 I asked Will the CAr 2015 housing market sales forecast be way off? After completely missing sales forecasts for 2013 and 2014 the California Association of realtors actually…[READ MORE]

Money can flow out of a high-end real estate market for many reasons, most of which relate to government policy rather than natural market forces. Local residents who don't own real estate do not benefit from an influx of foreign investment because that investment drives up house prices and forces local residents to pay more. As a result, grass-roots political opposition grows to oppose foreigners buying local real estate -- wherever that locality may be. If legislators want to see less foreign investment in single-family residential real estate, they can tax it. Taxing a commodity or a behavior makes it more expensive, which thereby lowers demand, and if legislators selectively tax non-residents, the policy lowers the prices for local owner-occupants…[READ MORE]

A dramatic and unexpected decline in new home sales is either the sign of a market top or an opportunity to get a great deal this spring. Has the OC Housing market peaked for this cycle? Is the current slowdown the sign of a major change in the market, or is it merely a lull that represents a buying opportunity? There are good arguments for either case. The economy is improving, and although the new jobs aren't necessarily supportive of housing, increased economic activity generally supports house prices and sales. Further, mortgage interest rates are near record lows, so houses are more affordable on a monthly payment basis today than they were in mid 2013 when mortgage rates hit 4.5%.…[READ MORE]

When the economy creates low-paying and part-time jobs, the newly employed don't qualify for home mortgages, and they don't buy homes. The conventional wisdom is that increased job growth inevitably leads to increased household formation and increased home sales, and although the connection is real, increased home sales is not inevitable. For home sales to increase, the newly employed must have sufficient income (and sufficient desire) to move out of their current circumstances and buy a house. For that to occur, the new job needs to be a good paying one capable of supporting a mortgage payment large enough to finance today's house prices. Super low mortgage rates help, but it isn't necessarily enough. The lack of sales in 2014…[READ MORE]

Some form of stated-income loan will likely be offered by portfolio lenders in the future, but it will be limited to borrowers with large down payments. When lenders underwrite new loans, one of the fundamental tasks they perform is determining whether or not the borrower can repay; therefore, allowing borrowers to simply state their income with no verification is an abdication of an underwriter's responsibility. Stated-income loans (aka liar loans) were the worst financial innovation of the housing bubble because these loans undermined one of the pillars of lending: borrower capacity. Liar loans were the worst financial innovation of the housing bubble because these loans caused investors in mortgage-backed security pools to question the financial representations of all borrowers in all loan…[READ MORE]

Underwriting loans to unqualified borrowers with super-low FICO scores is a recipe for another crisis of loan delinquencies and foreclosures. Many have quipped that FHA has become the replacement for subprime because they have very low standards for qualification, 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. I recently reported that the FHA reduced it's insurance fees to spur first-time homebuying; this move came despite the fact the fund maintains reserves far below it's mandate. Many Congressional Republicans…[READ MORE]

When house prices are falling and it's cheaper to rent than to own, strategic default becomes widespread, and banks are powerless to prevent it. One of the great advances which has come from the Internet is the quick dissemination of useful information. In short, secrets don’t remain secret very long. Lenders didn’t want borrowers to know that their friends and neighbors stopped paying their mortgages, and their lives improved. Lenders want borrowers to remain in the dark and fall victim to old beliefs and habits which prompt them to keep paying even when it is not in their best interest to do so. Unfortunately, the quick spread of information on the Internet got out the word, and “mavens” like myself…[READ MORE]

Many people read financial news for emotional confirmation about decisions they already made, and the financial media panders to these readers. I've written a number of times about the tendency of financial media reporters to provide optimistic spin and emotional support to gain readers, and reporters hope to influence public behavior and stimulate the economy. Personally, I think providing emotional therapy is a task better left to family, friends, or paid therapists, and the idea of MOPE (Management of Perspective Economics) is pure lunacy. No matter how influential the reporter, they simply don't have the power to move financial markets or the overall economy. I had people condemn me back in 2007 and 2008 for "talking down the housing market."…[READ MORE]

Borrowing home equity to invest is generally a loser's game because the only road to success requires excessive risk. With mortgage rates below 4% and the stock market moving ever higher, many people are tempted to extract their home equity to play in the markets. It's hoped that investing over the long term will yield a rate of return in excess of the cost of borrowing that money. Personally, I think it's a foolish idea. Professional investors evaluated the risk and reward potential of a variety of investment alternatives and determined that providing the money for a home mortgage at 4% was the best risk and reward available. The only way an ordinary investor is going to beat the pros…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012