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Author Archive: Irvine Renter

Only 10% of borrowers with a prior serious delinquency regain access to the mortgage market within 10 years of their default. Hope for a better tomorrow is a basic human need; people who give up hope often become deeply despondent and even suicidal. People look for hope wherever they can find it, and over the last eight years, people who work in real estate, homebuilding, sales, and so on, needed hope for a better tomorrow because the current situation consistently sucked. Anyone out of work over the last several years spent most of their time scouring job boards and résumé spamming job posting sites, and since they were already on the web, most would also check the news for any…[READ MORE]

Today’s 4% mortgage rates represent an artificial transfer of wealth from Generation X, Generation Y, and Millennials to Baby Boomers. Even before the housing bubble created a great deal of false wealth, baby boomers were the recipients of an artificial boost in home prices due to 25 years of falling mortgage interest rates. At least 40% of the value of their homes was created totally by increased borrowing power of subsequent buyers. Consider the following: the chart below shows the monthly cost of ownership from 1988 to 2015, and from 1989-1991 and again from 2011-2013, the monthly cost of ownership was approximately $1,850. Twenty-four years apart, the cost of ownership on a monthly basis was unchanged, yet house prices were…[READ MORE]

There is no evidence Millennials are becoming more active in the housing market, but hopeful anecdotes warm the hearts of realtors and homebuilders. Ever since the collapse of house prices and sales in 2007, homebuilders, realtors, and everyone else who depends on real estate sales finds a new Messiah each year that will save the housing market. Each year they are disappointed. For the last two years it was the boomerang buyer, those former homeowners who were supposed to return to the housing market in droves. Of course, they didn't, and the false hope and wishful thinking resulted in dashed hopes for 2014. For 2015 the false hope and wishful thinking is centered on Millennials, those born approximately between the…[READ MORE]

Peggy Tanous spent the last 6 years squatting in a million dollar Irvine home. When people quit paying their mortgage, banks used to foreclose on them get their money back at the sale, but not long after the proliferation of toxic mortgage products from 2004-2007, so many borrowers quit paying that banks couldn't process the millions of foreclosures, so they allowed delinquent borrowers to stay in their houses without paying; squatting was born. Of course, delinquent mortgage squatting doesn’t meet the technical definition of squatting, which is possession of real estate without the owner’s permission. In these circumstances the squatters are technically still the owners of property, so there is nothing illegal going on, but these owners are generally hopelessly…[READ MORE]

Conditions don't warrant raising interest rates, and the risks of doing so outweigh any perceived reward. From the beginning of the Great Recession, many concerned citizens, and particularly the wealthy, feared the government and federal reserve would institute policies that would devalue the currency, cause bond prices to collapse, and create hyperinflation. With near-zero inflation, a rallying dollar, and the 10-year bond yielding record lows, it's obvious none of the predictions of economic doom have come to pass. The only reasons the federal reserve would have to raise interest rates is a decline in currency value, crashing bond prices, or high inflation; since we have none of those, only the fear of this happening in the future would prompt a…[READ MORE]

Subprime borrowers endured more painful consequences, but all borrower classes participated in the housing bubble debt orgy. Yesterday I noted that most former subprime borrowers are no longer homeowners, but despite enduring most of the negative consequences, it wasn't subprime borrowers that inflated the housing bubble: prime borrowers did that. The common narrative is that subprime borrowers inflated house prices, then they quit making payments and caused a crash in house prices that dragged down everyone else. Unfortunately, this narrative lets off the middle and upper classes far too easily. The reality is all borrower classes participated in the housing bubble equally, but when it came time to clean up the mess, the various borrower classes were not treated equally:…[READ MORE]

Subprime lending temporarily increased the home ownership rate, but now with the rate hitting 20-year lows, all subprime gains are completely wiped out. Subprime lending as an industry barely existed prior to 1994 because few lenders loaned to people with poor credit, and no secondary mortgage market existed to purchase these loans even if they were originated. By 1995, the fledgling secondary mortgage market began buying subprime loans, so lenders could originate them and sell them off their balance sheets. Once lenders no longer had responsibility for holding the loans they originated, their incentive was to increase volume; quality meant nothing and quantity meant riches. The easiest way to increase volume was to lower standards, and since lenders didn’t have consequences…[READ MORE]

The move-up market will not get the hoped-for boost from the reflated housing bubble because the move-up equity flowed instead to the banks. In past real estate boom and bust cycles, lenders were forced to write down bad loans, foreclose on the houses, and liquidate their inventory for whatever they could get -- which is why the bust nearly always overshoots fundamentals to the downside. This time around, the problem was so severe that following the market-cleansing process of the past would have displaced another 10 million families and bankrupted the banking system, so another solution was implemented: lenders kicked the can with loan modifications. The short-term, visible effect of this solution was that millions of borrowers stayed in homes…[READ MORE]

The Republicans are correct and appropriate to point out that the policies of the GSEs have potential to put the American taxpayer at risk. Nobody wants to see a repeat of the previous housing bubble. Lenders, loanowners, and the politicians that pander to them all celebrate the reflation of the old bubble, but they hope it's done on stable terms this time around to prevent a major crash. In the aftermath of the housing bust, lawmakers correctly identified the causes of the housing bubble and crafted the Dodd-Frank law to restrict or ban the lending practices that lead to the housing bubble. Interest-only and negative amortization loans are restricted (effectively banned) because these loans don't qualify for the safe-harbor provisions…[READ MORE]

Rising mortgage rates will reduce sales volumes on new construction and prompt builders to offer more incentives and prevent them from raising prices. Homebuilding usually leads the economy out of recession. The Great Recession did not end with a building boom largely because of overbuilding during the housing bubble. A false price signal triggered excessive homebuilding, and it took five years to work off the inventories. The collapse of the housing bubble saw new home sales and construction fall to the lowest levels ever recorded — and those records go back to the 1960s. To make matters worse, rather than experiencing a sudden drop and a “V” bottom leading to a new boom, new home sales flat-lined at record lows…[READ MORE]

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