Bernanke pledges to do what he can to reflate the housing bubble

  29 Responses to “Bernanke pledges to do what he can to reflate the housing bubble”

1. Monday Morning Links | Iacono Research says:

   November 19, 2012 at 5:39 am

   [...] – Telegraph China Home Prices Gain in Half the Cities as Market Steadies – Bloomberg Bernanke pledges to do what he can to reflate the housing bubble – O.C. Housing News JPMorgan And Credit Suisse Put Mortgage Problems Behind Them For All Time [...]
2. el O says:

   November 19, 2012 at 6:28 am

   Considering today’s economic landscape, the old-way ‘reflation’ model becomes fatally flawed simply because its construct requires a middle class that is being enabled, not disabled.

   • Irvine Renter says:

     November 19, 2012 at 7:28 am

     The unending cries for looser credit underwriting will eventually be heard. Some government bureaucrat will come up with an “innovative” program which ends up costing taxpayers a trillion dollars, but they will find a way to get Ponzis and deadbeats back into homes.

     It’s very rare that a bubble can be reflated. The money tends to find other asset classes to inflate when stimulus is applied. Perhaps this time is different. I’ve never seen so much stimulus aimed specifically at one asset class before. They might succeed at the cost of a lot of future inflation. So they reflate the values of one asset class by stealing from the others through devalued currency. Nice.

     • Perspective says:

       November 19, 2012 at 8:48 am

       Our government’s insatiable desire for cash is countering this trend though. Every deduction evil higher-earners use to avoid paying 100% of all federal income tax (rather than just 80%) is on the table right now. A few reasonable changes to the mortgage interest deduction could slow-down this re-inflating bubble.

       • Perspective says:

         November 19, 2012 at 9:00 am

         For the record, before some Left Nut Job accuses me of being a Right Nut Job, here’s what my Grand Bargain would look like:

         1) Tax all income the same – dividend and cap gain income is no “better” than wage/labor income;
         2) Limit all deductions and credits to $25k;
         3) Limit the mortgage interest deduction to just $500k of purchase money indebtedness on personal residences (If you later cash-out refi, you cannot deduct interest on the new money); and
         4) Keep rates where they are, but add a new bracket at $500k, $1m, and $2m.

         There. Done. Problem solved.
       • Irvine Renter says:

         November 19, 2012 at 10:08 am

         Your analysis of the great compromise is very good. That’s likely were we are headed.

         This wouldn’t hurt the housing market nationwide, but it would put a damper on things in the hottest housing markets like Orange County were high wage earners would bear the brunt of these increases.

         By far the most devastating effect on OC home prices will come from the changes in the HMID. My reports show a low relative cost of ownership largely due to the impact of tax savings. If you cap that or take it out of the equation, owning a house becomes much more expensive and less desirable. However, since this hits only the strongest real estate markets, I don’t think it will impact national house prices negatively.
     • Mike says:

       November 19, 2012 at 9:32 am

       “Some government bureaucrat will come up with an “innovative” program which ends up costing taxpayers a trillion dollars:

       Maybe not a program but countries are getting disparate…

       Spain: Residency for foreigners who buy houses

       MADRID (AP) — Looking for a new place to call home? Spain is hoping to give you a little bit more than a welcome basket of baked goods if you decide to move there. In an attempt to reduce the country’s bloated stock of unsold homes, the government is set to offer permanent residency to any foreigner provided they buy a house or apartment worth more than €160,000 ($200,000).

       The plan, unveiled by Trade Ministry secretary Jaime Garcia-Legaz Monday and expected to be approved in the coming weeks, would be aimed principally at Chinese and Russian buyers. Spain has more than 700,000 unsold houses following the collapse of its real estate market in 2008 and demand from the recession-hit domestic market is stagnant.

       Prime Minister Mariano Rajoy stressed Monday that the plan has not yet been finalized, but added that Spain “needs to sell these homes” and that getting them off the market could help revive the nation’s devastated construction industry.

       The plan to unload the unsold homes comes as thousands of houses have been repossessed by banks and their owners evicted because they cannot pay their mortgages. The government last week approved a decree under which evictions would be suspended for two years in specific cases of extreme need.

       The country’s residency offer would beat others in bailed-out countries such as Ireland and Portugal, where residency papers are offered to foreigners buying houses worth more than €400,000 and €500,000, respectively. However, Latvia on the Baltic coast offers a cheaper deal, with property buyers eligible to receive residency permits if they purchase real estate in the capital Riga worth €140,000 or €70,000 in the countryside.

       Spain is in the midst of a double-dip recession with 25 percent unemployment, though Rajoy said he believes Spain has managed to avoid a financial implosion and will start growing again in late 2013 and in 2014.

       “I’m convinced that the worst is over,” Rajoy told reporters after meeting with Brazilian President Dilma Rousseff.

       The stricken state of the country’s real estate market was highlighted Monday by figures from the Bank of Spain which showed that the level of bad debt in the country’s banks had risen to a record 10.7 percent of their loan total in September.

       • Irvine Renter says:

         November 19, 2012 at 10:10 am

         Wow! And I thought we were desperate for the Chinese to come here and support our housing market.

         Basically, they are selling citizenship to anyone willing to pay double or triple what a house is worth. Foreigners will look at this as a fee to buy citizenship. It may work to sell a few more homes, but I rather doubt this solves the housing problem in Spain.
   • newbie008 says:

     November 19, 2012 at 1:32 pm

     The USSA finanical news and politicians keep drumming how the PRC is manuliping its currency. That’s the pot calling the kettle black. Trillions on the bailout of US banks, infusion of billion per day to purchase MBS, destabilization of foreign governments to make the US a “safe haven” for their assets. PRC is amateur hour when compared to the USSA.

     “Innovation in finance” is the reward of 65 cents the the bankers, 5 cents to admistrative expense and 30 cents on the little guy for every dollar invested by the government or general public. I will be satified with the old investment stradegy of every investor get a small win or part of the profit.
3. Irvine Renter says:

   November 19, 2012 at 7:19 am

   If demand is up so much, why are the GSEs increasing their realtor incentives to sell REOs?

   GSE Announces Winter Bonus for Agents Who Sell HomeSteps Homes

   Agents who sell HomeSteps homes, or Freddie Mac-owned residences, are eligible for winter bonuses.

   Freddie Mac announced it will pay a $1,000 bonus to a selling agent and $500 to listing agents as part of a winter promotion.

   The promotion lasts until February 28, 2013 and is applicable in 20 states.

   To be eligible for a bonus, buyers must purchase either a primary or secondary residence. The offer excludes investor purchases, auction sales, sealed-bid sales or bulk sales, but Freddie Mac stated two-thirds of HomeSteps homes are sold to owner-occupants.

   Offers must also be approved by the end of February and close on or before April 15, 2013.

   The promotion applies to homes sold in Alabama, Colorado, Iowa, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Virginia, Washington, and Wisconsin.

   As of September 30, 2012, HomeSteps held 50,919 homes in its inventory and about two-thirds of the homes were in the 20 eligible states. On average, Freddie Mac says the properties sell for 95 percent of their current market value.

   For more details and conditions, agents can visit HomeSteps.com.

   • Dina says:

     November 19, 2012 at 8:37 am

     What is you opinion on buying in thousand oaks area?

     • Irvine Renter says:

       November 19, 2012 at 10:12 am

       Right now the cost of ownership is near historic lows in nearly every market due to record-low interest rates. If you plan to hold the property for a while, this is a good time to buy. If you are hoping for rapid appreciation to make you millions, there is far too much uncertainty about future home prices to overextend yourself in hopes the market will bail you out.
4. Irvine Renter says:

   November 19, 2012 at 7:22 am

   Wells Fargo of using Hurricane Sandy to evade obligations under the national mortgage settlement

   In a letter, New York Attorney General Eric T Schneiderman accused Wells Fargo of using Hurricane Sandy to evade obligations under the national mortgage settlement.

   According to the AG’s letter, a law firm representing Wells Fargo released a letter stating the bank will suspend “all Home Preservation reviews and decisions” as a result of Hurricane Sandy. The AG says the letter from Wells Fargo further states the bank “will not respond to requests for mortgage relief until you receive further information from FEMA.” The letter applied to decisions in the Northeast.

   “Wells Fargo is not excused from any of its obligations under the National Mortgage Settlement or under New York law as a result of Hurricane Sandy,” Schneiderman wrote. “My office will aggressively pursue any loan servicing company that uses this tragic event as an excuse to violate loss mitigation decision timelines.”

   The $25 billion mortgage settlement was reached in February between state and federal officials and the five largest servicers—Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial.

   As part of the settlement agreement, “Wells Fargo is required to make a decision about a homeowner’s loan modification request within 30 days of receiving a completed application package. Wells Fargo’s decision to delay review will likely result in multiple violations of the National Mortgage Settlement,” the AG’s letter stated.

   In an email, a Wells Fargo spokesperson said, “It is extremely unfortunate that Wells Fargo’s actions would be interpreted in any way other than our sincere interest and concern for customers impacted by the storm and our effort to be certain that they get the full relief available to them.”

   The spokesperson further explained, stating, “Just as we paused modification decisions, Wells Fargo began suspending all foreclosure sales in FEMA declared disaster areas immediately after Sandy made landfall, over two weeks ago. We also stopped new foreclosure referrals and suspended evictions immediately.”

   The suspensions and any foreclosure activity will last a minimum of 90 days for Wells Fargo loans, according to the spokesperson.

   The letter from the AG was addressed to the CEO of Wells Fargo and demands that the bank “immediately rescind” the policy and “comply with its obligations without interruption.”
5. Irvine Renter says:

   November 19, 2012 at 7:25 am

   The lower cost of ownership is boosting demand somewhat, but the credit habits formed during the housing bubble has reduced the size of the pool of borrowers capable of maintaining home ownership. Each Ponzi a lender creates reduces the supply of future homeowners.

   Homeownership Remains Low Despite Decreasing Burden of Owning

   The landscape of homeownership has undergone significant changes in recent years: The homeownership rate has declined, but so has the cost burden of owning a home. Both of these trends are most prevalent among young homeowners, according to a recent report from Fannie Mae.

   The national homeownership rate has declined in each of the past four years, according to the most recent Census data, which extends through 2011. The 2011 homeownership rate of 64.6 is 2.6 percentage points lower than the 2007 rate.

   The decline among those 25 to 44 years of age is more than twice the overall decline.

   This shift, which Fannie Mae attributes to the Great Recession, comes after a decade of steady homeownership increases in which young households played a major role.

   Despite the recent declines in homeownership, the cost burden of owning a home decreased in 2011 and has “fallen substantially for young owners during the last four years,” according to Fannie Mae.

   When measuring housing cost burden, analysts often look for households paying more than 30 percent of their gross income in housing costs, which analysts define as rental or mortgage payments combined with utility spending.

   In 2011, the percentage of homeowners who fell into this category decreased by about one percentage point. In contrast, the number of renters in this category grew.

   The percentage of 25 to 44 year-old renters who paid more than 30 percent of their gross incomes on housing costs rose 4 percentage points between 2007 and 2011.

   In the same timespan, the percentage of homeowners of the same age who paid more than 30 percent of their incomes on housing costs declined by 5.8 percentage points.

   Rising affordability among younger homeowners can be attributed to low mortgage rates and perhaps “exits from homeownership by households who had high and unsustainable housing cost burdens,” Fannie Mae stated in its report.

   Another factor is tightening mortgage standards, which “may have also helped to create a cohort of young homeowners who have housing costs that are better aligned with incomes,” according to Fannie Mae.

   The report also noted growth for the single-family rental industry, which has attracted former homeowners who may be locked out of the market due to a foreclosure.

   • Mike says:

     November 19, 2012 at 8:06 am

     This is why the Fed is disparate to keep FHA going. It’s the only facility that allows people three chances to purchase a home.

     You are going to see different FHA programs to collect more fees. There will be a high dollar value property FHA program, probably with 7 or 8 years of fees that will decrease after 5 years. There will a 10% FHA program, or something else to compete with Lender Paid PMI, but it will easier credit that current private programs. Without FHA there is no ponzi scheme. It’s like 0% loan rates and high GSE conforming rates, it’s 100% critical to ponzi scheme.
   • Me says:

     November 19, 2012 at 9:37 am

     This is bs! The lower rates and restricted inventory are only increasing the price of the homes and Rents! How is this making them “more affordable”?
     They are bending american families over and telling them get screwed up the A-hole will not only feel good, but is the path to “recovery”.
     Welcome to the USSA.

     • Irvine Renter says:

       November 19, 2012 at 10:14 am

       My reports on the monthly cost of ownership shows that houses are becoming more affordable despite rising prices. The cost of renting money is declining faster than house prices are going up — for now.

       • Me says:

         November 19, 2012 at 10:45 am

         Maybe in OC…not in the bay area.
         “For now” is the key phrase. When retiring baby boomers discover this get ready for housing inflation/”recovery” in OC.
     • newbie008 says:

       November 19, 2012 at 5:53 pm

       That makes it “more affordable” during the leading period for the loan owners, but not the renters. The unaffordablablity for the loan owner may come if they need to sell the house by lower sale price (especially if interest rates goes up). But “buying using a loan” may be super affordable, if the 3.5% down is looked at the price of rents while squatting. $24,500 for the 3.5% down on a $700k property and then squatting for 3 years would be the equalivent of $680 per month in rent. Well it looks like the low interest does help some renters.
6. Irvine Renter says:

   November 19, 2012 at 7:32 am

   Have you noticed a pattern with financial reporters on real estate?

   Bad News for Housing, But Spin and Excuses Keep Mood Positive

   Why do they feel the need to do that?

   FNC: Prices Stay Flat in September but Improve Quarterly

   Despite a relatively flat September, FNC’s latest Residential Price Index (RPI) showed home prices were up in the third quarter.

   Based on recorded sales of non-distressed properties (both new and existing homes) in the 100 largest metropolitan statistical areas (MSAs), September home prices were mostly unchanged from August. However, prices were up 2.3 percent from September 2011, the largest yearly increased since February 2007. September also marked the third straight month of year-over-year price improvement.

   On a quarterly basis, home prices rose 1.8 percent from the second to the third quarter. Year-to-date, prices were up 4.5 percent.

   All three FNC RPI composites (the national, 30-MSA, and 10-MSA indices) showed “similar moderating trends in September” when compared to August or July. While the national index showed no change from August to September, the smaller composites picked up slight price

   increases: The 30-MSA index showed a 0.2 percent bump from August, while the 10-MSA index rose by 0.4 percent.

   On a year-over-year basis, the 30-MSA and 10-MSA composites also posted their biggest price increases since February 2007—2.4 percent and 2.2 percent, respectively.

   According to FNC, “[d]eclining foreclosure sales continue to play out favorably on current price trends.” Foreclosures as a percentage of total home sales fell to 17.2 percent in September, compared to 26.7 percent at the start of the year and 23 percent in September 2011. The company’s RPI data excludes sales of foreclosed homes, which are frequently sold with large price discounts.

   Markets tracked in the 30-MSA composite index showed a divide in month-to-month price changes, with a small majority reporting positive changes. Phoenix showed the most improvement from August, posting a 2.7 percent increase in home prices. Based on a three-month moving average (tracking July, August, and September), Phoenix, Detroit, San Francisco, Sacramento, and New York showed the largest price improvement in Q3.

   While housing has shown demonstrable improvement in the last year, FNC expects the recovery will slow down as the market heads into its slump season.

   “Despite recent encouraging developments, the pace of the housing recovery is likely to be constrained during the housing low season (fall and winter) amid the modest outlook for an overall economic recovery. Regionally, a number of northeastern housing markets affected by Hurricane Sandy will likely show a marked slowdown in recovery due to expected delays in mortgage financing, appraisals, foreclosures, and new constructions,” FNC said in a release.
7. octal77 says:

   November 19, 2012 at 8:28 am

   “..The last vestiges of a free market are quickly fading from memory. We are embarking on a new era of government-controlled housing…”

   Can we be far from government paid mortgages?

   In other words, buy a home at an inflated price with little down payment, and the government will pay the mortgage for you..

   If such a scenario were ever to come to pass, wave goodby to private property and hello to serfdom. As a practical matter, only the government and very wealthy individuals will be able to hold real property.

   • Perspective says:

     November 19, 2012 at 8:54 am

     “Affordable Housing” programs already to this. In my neighborhood, 10% of the condos and townhomes were set-aside for affordable housing. The units include no upgrades (just white cabinets, white tile counters, etc.) and were sold for ~30% below market initially to families whose income was below a certain point on a scale (the larger the family, the larger income allowed to qualify). Their subsequent sale is limited to similarly qualified families.
   • Irvine Renter says:

     November 19, 2012 at 10:17 am

     The next “innovation” in housing finance will appear during the upcoming bubble. Call it the “pay you” loan. If you buy a house, the loan will automatically credit home appreciation toward your payment. If house prices go up each month fast enough to cover the payment, no payment is required. Also, if the house value goes up significantly more than the payment, a credit for future payments accumulates. Consider it an Option ARM on steroids. There is no minimum payment as long as house prices go up, and with unlimited government stimulus, we know house prices will go up.

     Mark my words, someone will propose this idea.
8. el O says:

   November 19, 2012 at 9:05 am

   Is the sector’s 2012 speculator and flipper bounce about to be whacked?

   US Capital Spending Plummets To Recession Levels

   http://www.zerohedge.com/news/2012-11-19/us-corporate-capital-spending-plummets-recession-levels

   • Irvine Renter says:

     November 19, 2012 at 10:19 am

     This will certainly put pressure on legislators to deal with the fiscal cliff. Uncertainty among business leaders will push us over the cliff, or into recession, if legislators don’t act quickly.

     • Will says:

       November 19, 2012 at 2:02 pm

       One idea going around is to cap all tax deductions at a fixed amount…ask $25 or$30K. That will really hurt high income tax payers in high housing cost/high tax rate states like CA.

       • Irvine Renter says:

         November 19, 2012 at 2:32 pm

         Yes. When your mortgage interest alone is more than $50,000 per year, a $25,000 cap hits pretty hard.
9. Mike says:

   November 19, 2012 at 1:39 pm

   WSJ prediction on the FHA failure.

   How FHA’s Weak Finances Could Shape Housing Policy

   By Nick Timiraos * November 19, 2012, 1:14 PM

   The prospect that the Federal Housing Administration may finally require taxpayer assistance threatens to complicate efforts by the agency to provide additional housing market stimulus.

   On Friday, the agency reported that its current reserves aren’t enough to cover potential losses, leaving a net worth deficit of $16.3 billion. Already, Obama administration officials have said they will increase insurance premiums that future borrowers will have to pay, and they’ll require borrowers to pay those premiums for a lot longer than in the past.

   But Friday’s report could have other ramifications. Here are three:

   1) The FHA’s shaky finances should torpedo any hopes of launching a new refinancing program through the FHA.

   Such a proposal, admittedly, already had a weak chance of passing Congress. President Barack Obama proposed earlier this year allowing homeowners who owe more than their homes are worth to refinance into FHA-backed mortgages if they weren’t eligible for an existing program that is open to those with loans backed by Fannie or Freddie. Sen. Dianne Feinstein (D., Calif.) introduced such a bill in May, dubbed “HARP 3.0,” as it was similar in form to the revamped Home Affordable Refinance Program for Fannie and Freddie loans.

   2) Higher loan limits are likely to fall—the question is how far.

   Congress expanded the FHA’s maximum loan limits in 2008, to as high as $729,750 in certain markets, from a previous ceiling of $362,900. California’s share of the FHA’s loan business grew to 17% by last year, from just 2% in 2007.

   After the loan caps declined modestly last year, lawmakers voted to return them to the higher levels through 2013, even as Congress allowed loan limits to fall for Fannie Mae and Freddie Mac .

   The change allowed the FHA to grow its footprint in a handful of markets and marked the first time ever that the agency was able to guarantee larger loans than Fannie or Freddie. “Congress passed the worst of all deals,” said Rep. Scott Garrett (R., N.J.), by allowing the government to back larger loans than Fannie and Freddie, where private mortgage insurance covers a first-loss piece of low-down-payment mortgages.

   3) Allowing down payments of just 3.5% on government-backed mortgages will face more scrutiny, though across-the-board increases in minimum down payments are unlikely.

   Rep. Garrett said Friday that the FHA’s audit should make lawmakers more receptive to the idea of raising FHA down payments to 5%, a move he has unsuccessfully pushed in the past.

   For their part, Obama administration officials said Friday that allowing borrowers to make down payments of 3.5% aren’t necessarily a problem, provided that loans are fully underwritten, fully amortizing 15- or 30-year loans. The FHA, they added, has a long established track record making such loans. The bigger problem facing the FHA is that the agency was left holding the bag after the private market imploded and the housing market fell 33%, dragging the economy into a recession.

   A big reason Congress is unlikely to pull a lever raising down payments is that many households don’t have enough equity to buy homes, given the losses many homeowners sustained when the housing bubble burst or when stocks plunged in value three years ago.

   “The only way for many Americans to come up with a down payment is to save it dollar for dollar,” said Lou Barnes, a mortgage banker in Boulder, Colo. “If you thought stocks and interest would enhance your down payment, you’re out of luck, and the great loss of household equity means your parents don’t have anything to help you out.”

   Follow Nick @NickTimiraos
10. Atlanta-NY-Chicago, Unpunished, Price to Rent, Miami Booms. Settlement and Short Sales, Buy mREITs, Aging in Suburbs, Repurchase Demands, Bernanke Reflates, Non-Agency Mod Defaults, FICOs Rise, Housing Boosts GDP, FHA Dilemma | Mortgage News Clips says:

    November 25, 2012 at 7:39 am

    [...] ————(gives 8 reasons Why A Repurchase Or Indemnification Demand May Be Unjustified) – Loan Originators Be Warned: Not All Errors Justify Buyback Demands – BY PHILIP R. STEIN – Mortgage Crisis Watch Blog  ————Bernanke pledges to do what he can to reflate the housing bubble – OC Housing News [...]

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