‘Fiscal Cliff’ deal favors reflation of housing bubble

  16 Responses to “‘Fiscal Cliff’ deal favors reflation of housing bubble”

1. Mike says:

   January 7, 2013 at 7:05 am

   “The “fiscal cliff” deal also allows borrowers to deduct the amount they pay for private mortgage insurance, which has become increasingly prevalent in today’s tighter mortgage market.”

   Wow, this law keeps changing. Do you think this is headfake? Get more buyers to use very high insurance premium FHA loans, because those fees will increase in 2013 for loans above $400,00. Then in late 2013 or early 2014 there will a cap of deductions, so it will basically take away deduct ability of PMI.

   • Irvine Renter says:

     January 7, 2013 at 7:20 am

     The cynic in me says Congress added the PMI deduction to get cheers and kudos knowing full well they planned to remove the advantage of this deduction with the cap coming later on.
   • Perspective says:

     January 7, 2013 at 8:59 am

     The MI deduction created in 2006 and extended a couple times, starts phasing-out at $100k joint AGI and is fully-phased-out at $109k. I don’t know if this latest round of tax increases for the Evil Rich simply extends the prior law or modifies it.

     • newbie says:

       January 7, 2013 at 10:15 am

       Perspective,
       Where is the $109k AGI phase out in the tax code? If the tax code for MI has complete phase out at $109K is will hit over 30% of the household in Irivne (my guessitiate) With 2 incomes or just one good income, that will be a large tax increase for the middle to upper middle class in costal California.

       IR, Was the gross loan on the house $650k or $1.3 million. The mistake the “loan owner” did was to have equility in the house. If he were $2 million below water (did an equility withdraw or 125% loan), he would likely be still enjoying the house. US motto: Punish the responsible, reward the ill responsible. .

       .

       • Perspective says:

         January 7, 2013 at 10:37 am

         Here’s something from the LA Times on the topic: http://articles.latimes.com/2012/jan/15/business/la-fi-harney-20120115
2. Irvine Renter says:

   January 7, 2013 at 7:13 am

   Commentary: From Fiscal Cliff to Fiscal Mudslide

   It may not have been a fiscal cliff, but how about a fiscal mudslide?

   The deal reached by Vice President Joe Biden and Senate Minority Leader Mitch McConnell and forced down the throats of House Republicans (without involving their leader, Speaker John Boehner) wound up to be a glorified version of kicking the can down the road—a short road, as the next “crisis” comes in just two months, when the nation runs up against the debt ceiling. Too many words have already been written about the crises manufactured by setting arbitrary deadlines.

   That was certainly the case with the December 31 sequestration/tax rate debacle, coupled with the expiration of the payroll tax cut and emergency and extended unemployment insurance benefits as well as the annual sunset of the Alternative Minimum Tax waiver. There were also two provisions of particular interest to the mortgage market: the Mortgage Debt Forgiveness Relief Act of 2007 and the Mortgage Interest Deduction, both of which were set to expire December 31 but were extended one year.

   The resulting agreement actually increased the long term deficit as calculated by the Congressional Budget Office (CBO). CBO deals with what’s in the law and not with speculation. Prior to the deal being cut, the Bush tax cuts were set to expire December 31, 2012, and CBO had made deficit projections based on the expiration of those lower tax rates. With the agreement, lower tax rates were continued for all but the highest earners, which means CBO’s earlier computations of higher tax revenues had to be re-done to project lower revenues, thus a higher deficit.

   That will be the case as well when Congress tries to skirt the automatic spending cuts which had been scheduled to be phased in January 1. That phase-in has been delayed.

   You will hear chest-pounding members of Congress balking at increasing the federal debt limit which would merely allow the government to pay for what Congress has already authorized. Deficit hawks will show their ignorance by insisting the government is spending too much money. Try telling that to your credit card company: “I’m spending too much money. I’m too much in debt, so I’m not paying my credit card bill.” Good luck with that.

   Congress, indeed, doesn’t really have to do anything. The 14th Amendment to the Constitution is pretty clear on the subject in section 4: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

   Under that provision, the Treasury has no option but to pay the nation’s bills. The notion of a debt ceiling itself may be unconstitutional. The administration could ignore the debt ceiling and wait for a constitutional challenge, which would bring the Supreme Court into the mix while at the same time undermining any remnants of confidence in the nation’s finances.

   Could it be the extremists in Congress—threatening to withhold approval of an (unnecessary) increase in the debt ceiling without matching spending cuts—care less about patriotism than they do about pandering?
3. Irvine Renter says:

   January 7, 2013 at 7:15 am

   Fitch: Price Growth Not Driven by Fundamentals

   Despite the steady increase in home prices in 2012, Fitch Ratings says it “remains cautious” in its outlook on home values.

   According to a report from the ratings agency, home prices have risen “at their greatest pace since 2005,” but in certain markets, technical factors rather than “fundamentals” acted as the driving force behind the price gains over the past few quarters.

   Fitch explained technical factors such as low mortgage rates, the tight supply of existing homes for sale, and weak levels of new home construction are leading to affordability and driving demand while “offsetting weak fundamentals.” Weak fundamentals include issues such as unemployment and unimpressive wage growth.

   In addition, Fitch stated it believes price movement is “highly dependent on the pace of distressed sales and liquidations.”

   For example, states such as Michigan, Arizona, and Georgia have been able to dispose of their distressed inventory quickly and have also seen “both steeper drops and quicker stabilization,” according to Fitch.

   On the other hand, states with long foreclosure timelines—New York, New Jersey, and Connecticut—may see price declines.

   According to the report, Arizona currently liquidates nearly twice as many mortgages per month compared to New York and New Jersey combined.

   In order to determine sustainability, Fitch conducted an analysis using its Sustainable Home Price (SHP) model. The ratings agency found 22 metros out of 41 are currently “undervalued” or “sustainable,” while five were categorized as “overvalued” by 5 to 10 percent. In 2010, 23 metro areas were overvalued by 10 to 25 percent.

   The report highlighted hardest hit metros such as Phoenix, Atlanta, and Riverside, noting they are now beginning to recover and are currently considered “undervalued.”

   New York and New Jersey, though, were categorized as overvalued by 10 percent to 15 percent, hindered by their large inventory of distressed properties and long foreclosure timelines, according to Fitch. And, high unemployment could hurt Los Angeles and Union, New Jersey and lead to a roughly 10 percent decline.

   On a national level, Fitch admitted it holds a more somber view of prices and says price growth “is likely to be muted or even modestly negative in the near-term as liquidation volumes increase and expand supply, particularly in the lengthy judicial states where inventory has been off the market.”

   Fitch warned “short-term price movements can be misleading when the impact of distressed properties has been withheld from the market.”

   If liquidations continue at their current pace, Fitch estimated it would take 34 months to clear out the inventory of serious delinquencies, down from 44 months a year ago.

   “While positive, the improvement masks those markets with disproportionately large inventories that have yet to be cleared and where double-digit price declines are projected,” the report noted.
4. Irvine Renter says:

   January 7, 2013 at 7:18 am

   Barclays Keeps Positive Builder Outlook as Optimism Bias Blinds Economists

   With the fiscal cliff negotiation out of the way—at least, the first phase of it—analysts at Barclays assert in a new release that “housing policy is transitioning from being a source of negative headline risk to a potential positive factor for the housing stocks.”

   As the haze surrounding the state of the mortgage interest tax deduction (MID) lifts and the Federal Housing Administration (FHA) prepares to make reforms to its business model, analysts Stephen Kim and John Coyle note that “anticipated policy changes have been less severe than feared.”

   While part of the fiscal cliff tax bill limits itemized deductions in some cases (due to a provision known as the Pease Restriction), Barclays does not believe the scaling back will affect higher-end home purchasing behavior, thus leaving homebuilders relatively unscathed.

   “To begin with, the limitation also applies to deductions like charitable donations, so it is unclear how much any impact from the deduction limitation will affect home buying activity versus giving to charities,” the analysts write. “Moreover, mortgage rates are exceptionally low now, approximately 48 percent below their 20-year average of 6.46 percent. This means that the MID is theoretically less important now than in prior periods, since the benefit from locking in a lower mortgage rate will help offset the loss of the mortgage interest deduction.”

   The bigger threat to homebuilders—FHA’s commitment to reform its lending standards, fees, and scope in an effort to repair its financial situation—also appears to be less of a worry than first thought.

   So far, newly confirmed commissioner Carol Galante has committed to several major steps to be taken by the end of January: the cessation of reverse mortgage origination, an increase for down payments on loans above $625,000, and the tightening of standards for borrowers with FICO scores below 620.

   Those reforms are merely “cosmetic” and shouldn’t affect purchases very greatly, Barclays asserts.

   “For instance, reverse mortgages do not relate to home purchases; borrowers of loans over $625,500 should easily manage a 5% down payment; and only 3.4% of FHA’s recent loan volume went to borrowers with FICO scores below 620. Overall, we expect these changes to be incremental rather than transformative, and thus to have only a modest dampening effect on housing demand,” Kim and Coyle write.

   However, should the agency take further steps to tighten standards—such as increasing down payments on entry-level buyers—builders will likely start feeling the effects.

   Another concern for housing and mortgage industry professionals is the nebulous “qualified mortgage” (QM) rule, which establishes the type of loan for which a lender is legally protected from future lawsuits. The ambiguity of the term has remained a point of debate for analysts, industry experts, and politicians, but Barclays believes a clarification is on the way very soon.

   While the firm originally expected the Consumer Financial Protection Bureau to issue a final standard as soon as January 21, Kim and Coyle now believe the QM definition standards may be released as early as January 9. This is critical, they say, as the current environment has many banks (particularly smaller institutions) erring on the side of caution, creating a restrictive credit market.
5. Irvine Renter says:

   January 7, 2013 at 7:21 am

   Apartment Rents Continue to Rise, Albeit Slightly Slower

   Rents continue to rise but at a slightly less accelerated pace, according to Carrolton, Texas-based RealPage, a software provider for rental communities. After rents for new leases rose 4.8 percent in 2011, rents rose 3 percent in 2012.

   While lower than the previous year’s rate, the increase in 2012 remained above the average of 2.5 percent seen over the past 20 years.

   “Property owners and operators generally aren’t pushing rents quite as hard as they were a year or so ago,” said Greg Willett, VP of research at MPF, which conducted the RealPage study.

   Instead, apartment owners and landlords “have focused on sustaining their very tight occupancy levels during a period when job growth and new household formation have been fairly sluggish.”

   Apartment rents did experience some decline during the recession, falling 4 percent, but they have now been on the rise for three years, according to RealPage.

   As many housing markets begin to improve, a few renters are leaving their leases in pursuit of homeownership. However, “[w]hile the number of apartment renters opting to buy is rising a little, it remains far below the levels apartment operators were accustomed to prior to the recession,” Willet said.

   Of those renters transitioning into homeownership, many were renting single-family homes rather than apartments.

   Apartment renters are often “young singles living alone or young-couple households,” according to Willet, who says, “Single-family homes just aren’t the right housing option for many of them, regardless of shifts in the pricing relationship.”

   Regardless of the small transition of renters hoping to take advantage of affordable home prices, apartment occupancy remains high—94.9 percent as of the end of 2012. This is up slightly from the 94.7 percent observed at the end of 2011.
6. el O says:

   January 7, 2013 at 7:35 am

   Six Month + Delinquent Mortgages Amount To More Than Half Of Bank of America’s Market Cap

   ”In other words, by keeping tens of billions of mortgages off the market, Bank of America is hoping to limit the supply of houses in the market, creating an artificial shortage, in the process pushing up the prices of all other house higher, and only then to start dumping its pre-foreclosure inventory to a witless housing market”.

   http://www.zerohedge.com/news/2012-12-19/six-month-delinquent-mortgages-amount-more-half-bank-americas-market-cap

   • Mike says:

     January 7, 2013 at 7:41 am

     Have you been keeping an eye on the mortgage and interest rates?

     • el O says:

       January 7, 2013 at 10:48 am

       Nothing better than a rising rates ‘scare’ (see last weeks PIMCO, GS et al ”inflation is coming” media-blitz). This set-up will surely lure the millions(LOL) of fence-sitter ”muppets” .. off the fence. And just prior to entering peak season no less. Brilliant!
   • Irvine Renter says:

     January 7, 2013 at 7:47 am

     Bank of America to Pay $10 Billion in Settlement With Fannie Mae

     Bank of America agreed on Monday to pay more than $10 billion to Fannie Mae to settle claims over troubled mortgages that soured during the housing crash, mostly loans issued by the bank’s Countrywide Financial subsidiary.

     Under the terms of the pact, Bank of America will pay Fannie Mae $3.6 billion, and will also spend $6.75 billion to buy back mortgages from the housing finance giant at a discount to their original value.

     The settlement will resolve all of the lender’s disputes with Fannie Mae, removing a major impediment to Bank of America’s rehabilitation. The bank had settled its fight with Freddie Mac, the other government-owned mortgage giant, in 2011.

     Both Fannie and Freddie, which have posted billions of dollars in losses in recent years, have argued that Countrywide misrepresented the quality of home loans that it sold to the two entities at the height of the mortgage bubble. Bank of America assumed those troubles when it bought Countrywide in 2008.

     Before the latest settlement announced on Monday, the Countrywide acquisition has cost Bank of America more than $40 billion in losses on real estate, legal costs and settlements, according to several people close to the bank.
7. Irvine Renter says:

   January 7, 2013 at 7:44 am

   Senator Barney Frank? Say it isn’t so…

   Former Massachusetts Democratic congressman Barney Frank said Friday that he would like Gov. Deval L. Patrick (D) to appoint him to the U.S. Senate on an interim basis if Sen. John F. Kerry (D) is confirmed as secretary of state.

   “I’ve told the governor that I would now like, frankly, to do that,” Frank said on MSNBC’s “Morning Joe.”

   The recently retired congressman said legislators’ “fiscal cliff” deal makes the next few months a crucial economic period in which he wants to be involved.

   Patrick will appoint a replacement for Kerry if he is confirmed, and a special election will decide who will serve the rest of his term. Frank said he’s not interested in running in the special election.

   Patrick responded by saying Frank would “be a great senator,” according to the Boston Globe but added that he hasn’t made up his mind. “I have a lot of factors I’m considering, and he’s definitely on the list,” Patrick said.
8. Mike says:

   January 7, 2013 at 12:41 pm

   Foreclosure settlement a win for big banks?

   January 07, 2013

   Ten major U.S. banks have reached a $8.5 billion deal with regulators to settle charges of foreclosure abuses, putting an end to case-by-case reviews of foreclosure-abuse claims stemming from a 2011 deal with regulators. But consumer advocates and some financial journalists are wary of the agreement.

   The Wall Street Journal reports that the banks are “eager to complete the settlement because they are due to report fourth-quarter earnings in the coming weeks and want to put the matter behind them. The talks almost collapsed over the weekend after bankers threatened to walk away from the deal if the Fed’s demand for an additional $300 million was included, a person briefed on the talks said.”

   The banks that signed onto the agreement include Bank of America Corp., J.P. Morgan Chase, Wells Fargo & Co. and Citigroup Inc. Four smaller banks — Ally Financial, HSBC PLC, OneWest Bank and Everbank — did not.

   The New York Times’ Gretchen Morgenson noted this weekend that the penalties are “a far cry from the possible penalties outlined last year by the federal regulators requiring these reviews.”

   “Some back-of-the-envelope arithmetic on this deal is your first clue that it is another gift to the banks,” Ms. Morgenson writes. “It’s not clear which borrowers will receive what money, but divvying up $3.75 billion among millions of people doesn’t amount to much per person. If, say, half of the 4.4 million borrowers were subject to foreclosure abuses, they would each receive less than $2,000, on average. If 10 percent of the 4.4 million were harmed, each would get roughly $8,500.”

   Compare this to the penalties outlined last year by regulators, she notes. “Regulators said that if a bank had foreclosed while a borrower was making payments under a loan modification, it might have to pay $15,000 and rescind the foreclosure. And if it couldn’t be rescinded because the house had been sold, the bank could have had to pay the borrower $125,000 and any accrued equity.”

   The Washington Post’s coverage of the deal quotes Comptroller of the Currency Thomas Curry, who said in a statement that the deal “represents a significant change in direction” from the original, 2011 agreements.

   “Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time consuming and costly without reaching many homeowners,” the Post writes. “Banks were paying large sums to consultants who were reviewing the files. Some questioned the independence of those consultants, who often ruled against homeowners.”

   Curry said in his statement that ensures that “consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner.” But the Post quotes consumer advocates who echo many of Ms. Morgenson’s concerns, saying the deal “lets banks off the hook for payments that could have ended up being much higher.”

   “It’s another get out of jail free card for the banks,” lawyer Diane Thompson, who’s with the National Consumer Law Center, told the Post. “It caps their liability at a total number that’s less than they thought they were going to pay going in.”
9. Mike says:

   January 7, 2013 at 1:53 pm

   Sort of related to the fiscal cliff. Isn’t just another type of money creation that is occurring in QE?

   Be Ready To Mint That Coin

   January 7, 2013, 9:05 am Paul Krugman

   Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious.

   For those new to this, here’s the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit — tax and spending bills the president is legally required to implement — and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.

   And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can’t pass through normal constitutional processes.

   Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all.

   So why not?

   It’s easy to make sententious remarks to the effect that we shouldn’t look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable — if you’ve been living in a cave for the past four years.Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin.

   So if the 14th amendment solution — simply declaring that the debt ceiling is unconstitutional — isn’t workable, go with the coin.

   This still leaves the question of whose face goes on the coin — but that’s easy: John Boehner. Because without him and his colleagues, this wouldn’t be necessary.

   .

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