In the lead up to our presidential election, I noted that the housing bubble creates no-win political situation for either presidential candidate. As a result, both Obama and Romney have been largely silent on this important issue. It was absent from the debates, and with the exception of a sketchy housing plan that lacks fresh ideas from Romney, housing has been ignored by both candidates. In a final effort to bring pressure on the candidates to acquiesce to his wishes, a prominent realtor (if there is such a thing) has released a scathing attach on both candidates for failing to embrace his self-serving agenda.
Special Series: RE/MAX’s Dave Liniger Makes a House Call(ing) Out
Andy Beth Miller – 10-/31/2012
Recently, Dave Liniger, co-founder and chairman of RE/MAX, LLC, had some choice words for the presidential candidates regarding their stances—or lack thereof—on the nation’s housing crisis.
In an open letter addressing both President Obama and Governor Romney, Liniger calls out the two candidates for avoiding the issue when it comes to the current state of affairs in American housing. Liniger points out that the two nominees are focusing all their energy and resources on the economy at large and chides them because “as leaders, you ignore housing at our peril,” he says.
By “our” he means realtors. The candidates benefit by ignoring this issue because any substantive policy proposals would be unpopular and counter-productive.
Liniger writes, “Although the economy is recognized as the single most important issue in the campaign, and housing is commonly blamed for the recession and sluggish recovery, it is unimaginable that relevant solutions to housing issues have not been front and center.”
Liniger says housing has the ability to promote a stronger overall economic recovery “if it is allowed to do so.” He says “it will take real political leadership in the White House and Congress to acknowledge this fact.”
Why? Washington has already done too much. They have allowed banking regulators to look the other way with mark-to-fantasy accounting which prevented a flood of foreclosures. They instituted widespread government bailouts of both banks and borrowers at the expense of those who didn’t participate in their private transactions. They took control of the GSEs to ensure financing would be readily available rather than subject to market forces. What more does he want them to do in order to “acknowledge” the role real estate plays in the economy?
He goes on to point out that while there have been positive shifts in market movement recently, the housing industry is still far from being out of danger.
Really? Did a realtor just point out the housing market is not out of the woods yet? Or did he intentionally cloak his true meaning by talking about the “industry” rather than the market?
Liniger backs up his statement by breaking down four basic, yet significant, obstacles he sees as blocking the road to recovery for housing, and ultimately the economy.
First, Liniger believes the Mortgage Forgiveness Debt Relief Act must be extended. Initially approved in 2007, this act is set to expire on December 31, barring any action to preserve it. Without an extension, Liniger projects a possible reduction in the nation’s home sales by an immediate 20 percent.
“The CB0 [Congressional Budget Office] says a two-year extension will save distressed families about $2 billion,” Liniger notes, adding that troubled homeowners who qualify for a loan modification or short sale are not likely to pursue either of these options if the act expires, making their remaining mortgage balance taxable income.
A month ago I reported that The debt forgiveness tax break may not be extended. If it isn’t extended, it will force many people into bankruptcy. Also, anyone who signed up for a loan modification rather than a short sale or strategic default had better keep paying. The consequences of short selling or defaulting later will be much more severe. A great many loanowners signed up for loan modifications under HAMP 2.0. Most of those modifications will at least make it into 2013 before they implode or otherwise need to sell. With no tax forgiveness on a short sale, even fewer people will be able to sell their homes which will exacerbate the inventory shortage we have today.
The bigger question here is why we should be subsidizing loanowners losses with tax dollars. If the debt relief were limited only to first-time homebuyers seeking relief on purchase-money mortgages, I could support it that far, but as written, it applies to Ponzis and others who borrowed irresponsibly. Their woes should not be a taxpayer problem.
Second, Liniger lobbies for reasonable lending standards to be established. In response to the crisis, lenders have enforced strict lending requirements in order to cover their own interests,
Shouldn’t lenders restrict lending to only those who can repay? Isn’t what’s in their best interest also in the best interest of the US taxpayer and the housing market as a whole? Putting people in homes who don’t have the ability to sustain ownership was one of the big problems of the housing bubble. What Mr. Liniger wants to see is a reflation of the housing bubble at taxpayer expense.
but Liniger argues the pendulum has swung too far in the direction of conservatism, to the point that even those individuals with good credit face difficulty obtaining a loan. This schism only further halts the movement of real estate.
Financing appears to be getting more difficult to secure, not less, according to Liniger. “In August, the average FICO score of a rejected mortgage application at Fannie and Freddie was 734, two points higher than one year ago,” he writes.
Some creditworthy families will always be denied mortgages. In any group of potential borrowers, there are some that will default, and there are some that won’t. Despite default rates north of 50%, there are still some subprime borrowers dutifully paying their mortgages. Should we bring back subprime lending because the 40% who would make it are currently being denied access to a mortgage? The job of credit underwriters and actuaries is to properly classify people into the appropriate groups, then draw a line across the shades of gray. For the sake of bank solvency, this line will always be drawn conservatively.
Related to these financing difficulties is Liniger’s third point—housing-specific provisions of the Dodd-Frank Consumer Protection Act, more specifically, defining a “qualified mortgage” as directed by the act. Liniger says if regulators craft an unreasonable definition, it will become even harder to obtain a mortgage and potentially add to financing costs. “Even the authors of this legislation have said this was not their intent,” he writes.
This is a convenient straw man for realtors and lenders to attack. The intent of the legislation was to stabilize the housing market and reduce the government’s risk exposure by making sure originating lenders kept some. As I pointed out yesterday in Tighter mortgage standards for GSEs will encourage private lending, Lenders have morphed from companies with large portfolios of loans to an origination model where they underwrite the loan to government standards then sell them in the secondary market. It’s primarily these groups who operate on the origination-to-sell model that are lobbying to relax the Dodd-Frank standards. And of course realtors who perceive this as an impediment to completing a few more transactions.
Liniger describes the fourth obstacle as one that “really shocks most of us in real estate,” and that’s reducing or eliminating the mortgage interest deduction. Regarded by some as merely a loophole for the wealthy, Liniger urgently ushers in the opinion that “this is the wrong approach at the wrong time,” and “even a gradual elimination gives pause to many potential homeowners.”
It’s shocking to me as well, not because it shouldn’t be eliminated or curtailed — it should — but because politicians are actually considering it. Is the home mortgage interest deduction really at risk? Do we really need to give high wage earners a huge tax break as an encouragement to take on excessive debts? That’s what the home mortgage interest deduction really does. If the deduction were eliminated, home values in areas like Orange County populated by high wage earners would drop to establish a new equilibrium, but nobody would go without. In fact, the home mortgage interest deduction does little or nothing to increase home ownership rates because the low wage earners at the fringe of affordability don’t use the deduction anyway. Studies have show home ownership rates are just as high in countries like Canada that do not have the deduction. So why do we keep it?
While Liniger gives the readers of his letter much to think about and discuss, perhaps his most telling statement is a bold order that leaves little room for interpretation. Simply stated, he commands the candidates to “first, do no harm.” His message is clear and concise, calling for a “less is more” mentality in regards to correction and forced action.
Imploring the candidates to consider the repercussions of their policy choices, Liniger asks of whomever is elected, “Do not disrupt the ability of a fragile housing market to positively impact a stalled economic recovery at this critical time.” He goes on to assure Obama and Romney that “[h]ousing is a powerful economic engine that can easily add a large number of jobs and cash to the overall economy if not prevented from doing so.” …
He makes his bad proposals sound noble by wrapping them in the Hippocratic Oath. Or is that the Hypocritical Oath, you can never be sure with a realtor.
Fewer sales at lower price points
The problems Mr. Liniger identifies are all items which will serve to either lower sales volumes or lower prices which ultimately hurt realtors bottom lines. realtors have convinced themselves whatever’s good for them is good for America. It’s not. realtors care far less about stabilizing the market than they do about maximizing commission revenues. American homeowners need a stable housing market not prone to bouts of irrational exuberance and painful crashes. None of Mr. Liniger’s proposals will give us that. However, they will help realtors make a few bucks.
What we really need is a stable housing market free from government interventions and manipulations. The government’s role should be to provide sensible regulations that respect contracts, encourage lending only to those who have capacity to repay the loans, and prevent Ponzi loans programs from destabilizing the market (the bubble wouldn’t have inflated without interest-only loans and Option ARMs). Dodd-Frank fell far short of achieving those lofty goals, and lenders are decrying even those sensible reforms.
$10,000,000 REO
Unfortunately, today’s featured REO doesn’t appear in my data source. I don’t know about you, but I am curious what bank was stupid enough to to loan these people $10,000,000. I hope they lose enough to think twice about making loans that large again in the future. Properties at these price points should be paid for in cash. Applying $10,000,000 in debt simply inflates prices, and when the loans disappear, prices crash. Banks still have a lot of high-end bad loans to write down. We will see many more of these over the next several years.
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We're sorry, but we couldn't find MLS # U12004052 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
Proprietary OC Housing News home purchase analysis
28 BOULDER Vw Irvine, CA 92603
$9,499,000 …….. Asking Price
$9,031,827 ………. Purchase Price
9/19/2012 ………. Purchase Date
$467,173 ………. Gross Gain (Loss)
($722,546) ………… Commissions and Costs at 8%
============================================
($255,373) ………. Net Gain (Loss)
============================================
5.2% ………. Gross Percent Change
-2.8% ………. Net Percent Change
30.6% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$9,499,000 …….. Asking Price
$1,899,800 ………… 20% Down Conventional
3.97% …………. Mortgage Interest Rate
30 ……………… Number of Years
$7,599,200 …….. Mortgage
$1,860,864 ………. Income Requirement
$36,148 ………… Monthly Mortgage Payment
$8,232 ………… Property Tax at 1.04%
$767 ………… Mello Roos & Special Taxes
$2,375 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$550 ………… Homeowners Association Fees
============================================
$48,072 ………. Monthly Cash Outlays
($3,231) ………. Tax Savings
($11,008) ………. Equity Hidden in Payment
$2,607 ………….. Lost Income to Down Payment
$1,207 ………….. Maintenance and Replacement Reserves
============================================
$37,647 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$96,490 ………… Furnishing and Move In at 1% + $1,500
$96,490 ………… Closing Costs at 1% + $1,500
$75,992 ………… Interest Points
$1,899,800 ………… Down Payment
============================================
$2,168,772 ………. Total Cash Costs
$577,000 ………. Emergency Cash Reserves
============================================
$2,745,772 ………. Total Savings Needed
The property above is available for sale on the MLS.
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52 Responses to “realtor to presidential candidates: do no harm… to our commissions”
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It would take unbounded naivety to think housing has turned the corner.
The largest tax hikes in American history will hit families and small businesses in three great waves on January 1, 2013:
First Wave: Expiration of 2001 and 2003 Tax Relief
In 2001 and 2003, the GOP Congress enacted several tax cuts for small business owners, families, and investors (later re-upped by President Obama and Democrat Congress in 2010). The following tax hikes will occur on January 1, 2013:
Personal income tax rates will rise on January 1, 2013. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which the majority of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:
-The 10% bracket rises to a new and expanded 15%
-The 25% bracket rises to 28%
-The 28% bracket rises to 31%
-The 33% bracket rises to 36%
-The 35% bracket rises to 39.6%
Higher taxes on marriage and family coming on January 1, 2013. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of taxable income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level.
Middle Class Death Tax returns on January 1, 2013. The death tax is currently 35% with an exemption of $5 million ($10 million for married couples). For those dying on or after January 1 2013, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.
Higher tax rates on savers and investors on January 1, 2013. The capital gains tax will rise from 15 percent this year to 23.8 percent in 2013. The top dividends tax will rise from 15 percent this year to 43.4 percent in 2013. This is because of scheduled rate hikes plus Obamacare’s investment surtax.
Second Wave: Obamacare Tax Hikes
There are twenty new or higher taxes in Obamacare. Some have already gone into effect (the tanning tax, the medicine cabinet tax, the HSA withdrawal tax, W-2 health insurance reporting, and the “economic substance doctrine”). Several more will go into effect on January 1, 2013. They include:
The Obamacare Medical Device Tax begins to be assessed on January 1, 2013. Medical device manufacturers employ 409,000 people in 12,000 plants across the country. This law imposes a new 2.3% excise tax on gross sales – even if the company does not earn a profit in a given year. Exempts items retailing for <$100.
The Obamacare Medicare Payroll Tax Hike takes effect on January 1, 2013. The Medicare payroll tax is currently 2.9 percent on all wages and self-employment profits. Starting in 2013, wages and profits exceeding $200,000 ($250,000 in the case of married couples) will face a 3.8 percent rate.
The Obamacare “Special Needs Kids Tax” comes online on January 1, 2013. Imposes a cap on FSAs of $2500 (now unlimited). Indexed to inflation after 2013. There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare cap harms these families.
The Obamacare “Haircut” for Medical Itemized Deductions goes into force on January 1, 2013. Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). The new provision imposes a threshold of 10 percent of AGI. Waived for 65+ taxpayers in 2013-2016 only.
Third Wave: The Alternative Minimum Tax and Employer Tax Hikes
When Americans prepare to file their tax returns in January of 2013, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired. These tax increases will be in force for BOTH 2012 and 2013. The major items include:
The AMT will ensnare over 31 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 31 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.
Full business expensing will disappear. In 2011, businesses can expense half of their purchases of equipment. Starting on 2013 tax returns, all of it will have to be “depreciated” (slowly deducted over many years).
Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.
Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.
Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.
http://s3.amazonaws.com/atrfiles/files/files/092112pr-100%20Days%20Until%20Taxmageddon%20%283%29.pdf
darn, how will the people afford their mercedes if their taxes go up 3%?
The scale of these tax hikes is always exaggerated for effect. Paying 3% more in taxes, particularly for higher income households with more disposable income, is hardly onerous. Of course, any decrease in disposable income is going to adversely impact the economy. It would be better to raise taxes during a time of prosperity rather than a time of crisis.
” would be better to raise taxes during a time of prosperity rather than a time of crisis.”
But my friend, the moment we hit a patch of prosperity and there is extra revenue, the party of a certain ideology starts screaming how the govt. is stealing American’s money and is hoarding it and should give it back
I remember when Bush was running for the president first time and there was a budget surplus. I remember one of his arguments that went something like “The money is from Americans and we should give it back. What’s so hard to understand about that [sic]?”. I was dumbfounded at the argument but when I looked around the dinner table and noted all my *grownups* nodding their heads. I think it was the exact moment that I realized how screwed we are and how shallow our electorate has become
“Shallow” or “dependent victims”?
For decades, the political left realized they could win elections by doling out the government largess to special interest groups. George Bush pandered to all Americans when he offered to give them tax breaks, and they fell for it. People will generally vote for whatever party panders to them best. Democracies have always been that way. Plato even talked about this 2,500 years ago.
How about some GOD DAMN SPENDING BREAKS?
You damn collectivists are TAXING all the capital out of the country. Your snide remarks of, “3%, how can i pay for my mercedes?” shows your complete lack of understanding of capitalism. A rich guy can still afford the mercedes, but he definitely looks to other countries to bring his business and capital to avoid the taxation, regulation, meddling, and economic rot. The capital is headed to greener pastures because you collectivists allow the gov to smother capitalism here.
The total increases are going to cost much more than 3% to small business folks in OC.
Why should anyone pay more in taxes? The issue is this country isn’t the lack of tax dollars coming in. Even with all the tax increases, the federal budget will still see a huge deficit. Bottom line, no Americans should pay more in taxes. We need to stop letting politicians create divide. The “poor” love hearing about the “rich” paying more in taxes. The problem is, most of us fall somewhere between poor and rich. We are the ones that will ultimately see tax increases. It’s easy to say “the rich” should pay more. What happens when “the rich” is expanded to include you and I? As long as spending is out of control, it is only a matter of time until every single one of us pays more in taxes. I am tired of the divide. I don’t care how much you earn, you should be against tax increases for anyone.
“The Obamacare “Special Needs Kids Tax” comes online on January 1, 2013. Imposes a cap on FSAs of $2500 (now unlimited). Indexed to inflation after 2013. There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare cap harms these families.”
Living in Irvine, I don’t use FSAs to pay for the eduction of my special needs child, but I can see where this change could adversely effect families in other areas.
Nice post el O! And I would say the 4th wave will be higher state income and/or sales taxes if one of the two ballot measures gets approved on Tuesday.
“Middle Class Death Tax returns on January 1, 2013.”
Hmm… so, those of you not feeling so well… better hurry up and die before the end of the year.
“Do it for the CHILDREN!”
“I bought you early xmas presents mom and dad, senior skydiving tickets. They expire before the new year.”
LOL!
“oh Mom, Dad… Next of all I got a huge deal! You get 10 trips, & they will teach you to jump so you don’t e even need to bother with the chute!”
I recently reported that delinquency rates are rising again due mostly to the failure of banks to process their foreclosures. Well, the financial press is already seizing upon Hurricane Sandy as the reason delinquency rates will rise again next month. The industry deludes itself as shadow inventory grows.
Fitch: Impact of Sandy on RMBS
If Hurricane Sandy has any impact on the performance of residential mortgage-backed securities (RMBS), it will probably be one that is short-term, according to Fitch Ratings.
The global rating agency says a “modest and temporary increase in mortgage delinquency could occur” after assessing the potential impact of the storm that has devastated areas in the Mid-Atlantic and Northeast coast.
While the damage from Sandy “will likely prove to be significantly less than that caused by Katrina,” Fitch drew a comparison between the two to predict the potential outcome of Sandy on RMBS.
Early estimates for damage from Sandy say the costs could reach $20 billion for insured losses and up to $50 billion for economic damage; for Katrina, the losses were about $100 billion.
After Katrina, the percentage of mortgage delinquencies nearly tripled, rising from 17 percent to 45 percent, but within a year, delinquencies quickly subsided to 25 percent, about 1.4 times higher than the level seen prior to Katrina.
Should the areas affected by Sandy also see the delinquency level become 1.4 times higher, the overall impact on RMBS pools would be modest since New York, New Jersey, and Pennsylvania account for about 12 percent of all outstanding RMBS mortgage loans, Fitch explained.
Fitch also says it believes servicers are better able to handle short-term hardships now than they were in 2005 when Katrina struck.
“Consequently, long-term payment problems due to a short-term disruption are less likely with Sandy than with Katrina,” the agency stated.
The nonsense in the financial press is getting silly
How Hurricane Sandy’s Aftermath Will Affect The Housing Market’s Recovery
Hurricane Sandy’s immediate impact on real estate in the hardest hit Northeastern neighborhoods is already painfully evident, from New Jersey shore houses completely swept away by the sea to entire neighborhoods like Queens’ Breezy Point tragically leveled to the ground. But this latest natural disaster won’t just affect certain ZIP codes, it will weigh on America’s housing market as a whole.
Now that rosy recovery will dampen. “This will certainly create a negative in the short term,” says Lawrence Yun, chief economist of the National Association of Realtors. “The bottom line is we clearly anticipate a slowdown, but it will be temporary.”
Along the East Coast, expect home sales to trend downward in coming months, as sellers take their damaged digs off the market and buyers hold off on purchases. Pending sales will be delayed or in some cases collapse altogether as lenders insist upon new appraisals in areas battered by Sandy. Yun expects the regional drop in activity to log a “notable, measurable impact” large enough to pull the national sales statistics down for November onward. Home sales typically begin to slow due to seasonality at this time of the year; the storm’s lingering effects will ensure that slowdown manifests more dramatically.
Even so, that short term pain may actually evolve into a market boost four-to-six months from now. “With past natural disasters, home sales pause but what generally happens is in later months, as insurance money begins to flow in, the housing market gets elevated to higher levels than before the storm,” explains Yun.
The seasonal slowdown is going to be blamed on Sandy this year. The NAr is shameless in its lies.
Industry Weighs in on the Shadow Inventory Debate
Tony Youngs, a full-time real estate investor in the Atlanta area, thinks the shadow inventory is probably bigger than we realize. “I feel the market is appearing to get better because the administration does not want anyone to know about the shadow inventory,” he said. “[T]here are millions of people behind on their payments and some have not made a payment in over two years but foreclosure has not been started yet. The back payments to bring these loans current are so high it would be impossible to catch up. … The current president had come up with all sorts of plans and programs to help, but lenders would not cooperate so all these plans failed.”
Ron Sullivan, an REO agent with Sully and Associates Realty, Inc., in Bakersfield, California, addressed the market’s foreclosure crisis, first and foremost. “I have done REO for the past six years and seen the inventory drop drastically year-to-year, but yet on every street there is a vacant home, or three or four, underwater mortgages. I can’t help to think that the Obama administration has been a big influence on the [slowing of the] foreclosure process.”
Mancovsky explained, “The reality is that banks and servicers have been dealing with a lot of change since the crisis began, including the AG settlement which left the field open for future lawsuits. In addition to the changes, default professionals are trying to catch up on the backlog since the pipeline locked in August of 2010. Add to that the challenges associated with new regulations, which seem to come out faster than adjustments can be made and the never-ending list of potential risks associated with foreclosure, and it starts to get slightly more complicated. It’s getting harder and harder to move anything to REO, especially if you are one of the bigger banks.”
She added, “If we see inventory post election, it’s just reflective of the timeline it took to get there and not based on the fact that an election happened to be scheduled at the same time.”
Imagine that, the millions of homes sitting in some form of delinquency or pre-foreclosure are not flooding the market due to it being an election year. I can’t wait til next month so our real estate market can continue to tank when the banks are “allowed” to continue foreclosing.
I would be excited too if I thought the banks had a reason to foreclose. They are benefiting from the reduced inventory because they get more money when they do sell one in foreclosure, and since they don’t have any real cost to carry these bad loans, they will drag this out as long as they can — unfortunately.
Apparently QE infinity is not enough…
Fed’s Kocherlakota: Fed May Not Be Providing Enough Stimulus
Continuing problems in the U.S. economy suggest that the Federal Reserve may not be providing enough stimulus, a central bank official said Tuesday.
“The U.S. economy is recovering from the largest adverse shock in 80 years–and a historically unprecedented shock should lead to a historically unprecedented monetary-policy response,” Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said in remarks prepared for delivery before a gathering at the University of Minnesota in Duluth.
Observing that most Fed policy makers expect inflation to be at or under the Fed’s 2% target for some time to come, Mr. Kocherlakota said he believes the central bank has more room to act. “Given how high unemployment is expected to remain over the next few years, these inflation forecasts suggest that monetary policy is, if anything, too tight, not too easy,” the policy maker said.
Mr. Kocherlakota is not currently a voting member of the Federal Open Market Committee. The policy-setting body met last week in a gathering that left the central bank’s existing stimulus plan in place. The FOMC decided to continue forward with a mortgage-bond-buying program launched in September, and it also kept in place its conditional pledge to keep rates steady until the middle of 2015.
Mr. Kocherlakota has drawn a lot of attention in recent weeks for what many saw as a radical shift in his outlook. The official spoke earlier in the year about the possibility of tightening monetary policy sooner than others on the FOMC thought appropriate. In a recent speech, the central banker changed gears and suggested the Fed keep policy very stimulative until the unemployment rate fell to 5.5%, as long as inflation remained under 2.25%. Mr. Kocherlakota has said it is likely to be years before that happens.
Once again, IR, you risk biting off your nose to spite your face.
Better that hundreds of thousands (perhaps millions) of honest people who tried (but failed) to make a go of their piss-poor mod–which was offered to “fix” their bubble-manipulated original financial raping, I mean “deal”–better that they all go to the wall than that an equal or perhaps larger number of “ponzis” get a taxpayer-financed get out of jail free card, right?
But the problem with your equation is not that it is draconian (which it is). The problem is that Liniger is right. We have no choice but to extend the Mortgage Forgiveness Relief Act because the alternative is that NOTHING moves for five years. Right now there is a back door open through which families can escape their woes when they can no longer kid themselves that everything is going to be fine. You want to lock that door. They will respond by burning down the house around them. Good solution for everyone!
You are like Javert in Les Miserables, the self-righteous inspector who hounds Jean Valjean for decades for stealing a loaf of bread. Get over yourself. There is way more at stake than proving that ponzis are scum and sticking it to everyone who got caught up in a crappy market. I have learned a lot about the housing market in California from reading your blog. You know what I’ve learned? You southern Californians are pretty screwed up financially, and you’ve basically dragged down the rest of the country with you. Well, I don’t need to watch the whole country burn down so that you get to buy a better house someday in Orange County.
On any given day criminals, ponzis, honest people, and idiots all pile into the real estate market and take their chances. We don’t each have separate markets–we’re in it together. So when the system crashes you either save everyone (except, I hope the criminals) or you save no one. You consistently say “ok, then, no one it is.” You are taking the wrong side of the bet. In the end, even Javert realizes what a prick he has been. May you be blessed with the same epiphany.
Do you really think my motive for writing about these issues for nearly six years is only to obtain a better priced house in Orange County? I must really want that deal pretty bad.
No one is entitled to a free ride. What you’re advocating is selling out to the deluded masses and allowing them to take money from your pocket. All bailouts lead inevitably to moral hazard necessitating even larger future bailouts. People made decisions, and they need to experience the consequences. Like the cartoon at the end of this post, I don’t feel the need to experience those consequences with them and for them. Like many who didn’t participate in the financial mania, I already have paid a high price for being a bystander. My industry is in ruins, and I have struggled like many during the recession caused by the collapse of the housing bubble.
Ultimately, you are probably right that they will need to extend the tax forgiveness act for the same reason they had to bail everyone out. If they don’t, Orange County and other Ponzi infested markets will be an economic catastrophe for decades. The California economy is so completely dependent upon Ponzi borrowing that there may be no going back. That should worry everyone because some day the collapse of a California real estate Ponzi scheme may do even more damage than it did in 2008. That’s the road we are traveling now.
The relative cost of this tax break is not large. The cost of letting it expire is huge. Moral hazard is real, but it is best addressed in other areas.
There really hasn’t been a bailout of the homeowner–ponzi or otherwise. What there has been in a breakdown in rule of law. First on the part of the banks (who got off scottfree), and then as a handshake deal of sorts between the banks and government–you won’t throw people out of their homes and they won’t pay. THIS is infuriating. But you are wrong to blame the homeowners for it. They didn’t ask for this “deal” and a lot of them don’t want it. Is it better than being thrown out? Yes. But it ruins their credit, turns them into beggars, and leaves them no good options in terms of turning their lives around. Thanks, Obama!
I think you and I are basically on the same page but you turn your cannon on the wrong people sometimes. The middle class got way ahead of itself during the bubble years, got totally burned by the crisis, and have been turned into beggars and thieves by the “recovery.” You see them as free agents, I see them as rats in a maze trying to get the cheese. Why hate the rats? The guys in the lab coats are way more culpable?
We probably are closer than perhaps it first appears. As I reminded someone the other day, lenders Are More Culpable than Borrowers. I try to be “fair and balanced” in my criticism of all the parties. None of them are blameless, although some people feel the need to make it out like blame can be apportioned 100% to one party and 0% to the other. Nothing in life is that black and white, particularly when you’re talking about two parties to a private transaction.
There were certainly innocent borrowers who got hosed, but those sob stories are all the media focuses on when in truth, most of the injured “victims” did it to themselves.
“…There really hasn’t been a bailout of the homeowner–ponzi or otherwise…”
I don’t think this is accurate. Thirty-year mortgage rates have been cut in half from 2006-2007. That “bails-out” a ton of homeowners with mortgages. If you were responsible when you bought/financed your house, then you’ve had the opportunity to refi and dramatically cut your interest costs/monthly payment. In my case it required we bring two years’ worth of savings to get back “above water,” but we were able to save because we didn’t over-buy in the first place.
You appear to want all homeowners to receive a bail-out of some sort. I don’t know where you would cut-off aid?
If a family making $50k bought a $500k house in 2007 using an option-ARM and have been making the minimal payment possible to date, and the house is worth $300k today, do you just want $200k forgiven and a refi on the $300k remaining at 3%?
Apparently the dozen or so housing programs started under Bush and Obama don’t count as housing bailouts either. At some point, you have to choose between telling somebody they can’t afford their house under any reasonable scenario or you just give them a free house. There really is no middle ground.
The poor homeowners were willing participants on the gravy train to riches. Before you buy a house, RTFM.
Stop trying to socialize the losses of the gambling house speculators, aka bubble buyers. This blog is brimming with collectivists. It is a festering pool of statism. Disgusting.
This bubble originated from poor monetary policy and all the lemmings misread the signals. Let them take their lashings. Not everyone in this country is stupid. And nobody should have to pay for anothers stupidity and speculation.
BTW, my perspective might be a bit warped, I am reading Atlas Shrugged right now….
Your perspective is now unwarping from a lifetime of contra-education.
May i recommend reading “Capitalism: the Unknown Ideal”? You can have my copy. Same author, NonFiction.
The real minority in this country is true capitalists. And this is why a currency crisis is unavoidable.
Youtube “mike wallace ayn rand interview” She spells out this disaster 50 years ago and blames collectivist rot. She is right.
An mixed economy with elements of socialism and capitalism is the worst type of economic phenomenom.
Matt138,
I always enjoy your comments. I thought my reading of Atlas Shrugged with sit well with you. Based on your comments, I figured you must have read that novel yourself.
IR,
Glad to hear you are reading it. Capitalism the Unknown Ideal is Atlas Shrugged minus the plot. One chapter has Greenspan’s 1960s ‘gold and economic freedom’. It boils it down very well. Of course, this is before Greenspan became politically connected and his motives changed for the worse. He became a statist central planner, anticapitalist, traitor, enemy of freedom.
Many people hate Rand. The hate stems from their misunderstanding. She advocates a free economic society where standards of living would be highest and voluntary charity would be as well. I am far more charitable with my money when I have high profits. She is against force and compulsion. She wants people to do things in their own rational self interest. Without these concepts, societies degrade and freedom is destroyed. We are seeing it in realtime here in the USA.
Those who rail against her: do not fully comprehend her or are contra-educated statists (socialist, communist, fascist) at their very core. Most people refuse to admit they are socialist or communist, but a large percentage of our population unknowingly are.
“There are two novels that can transform a bookish fourteen-year-old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish daydream that can lead to an emotionally stunted, socially crippled adulthood in which large parts of the day are spent inventing ways to make real life more like a fantasy novel. The other is a book about orcs.” – John Rogers
From wikipedia: “Acclaim has not been unanimous. Nobel Prize-winning economist and liberal commentator Paul Krugman alluded to an oft-quoted quip[59] by John Rogers in his blog”
Krugman is on your side. And that speaks volumes.
You completely miss the point. What you’re basically arguing is that there are two choices:
1) Let those who made mistakes pay for those mistakes themselves.
2) FORCE everyone else who didn’t participate in the game (taxpayers), to cover the losses of those who gambled and lost, and let off the gamblers free and clear.
You want to see houses burn down? Try continuing to rape the U.S. taxpayer to pay for the gross negligence and greed of those around them.
I sat by for 8 years watching values in my neighborhood (Northern VA) skyrocket. I watched myself being priced out. I watched as c*nty little soccer moms thumbed their noses at everyone else while they drove Lincoln Navigators 1/4 mile to the grocery store to pick up 2 things for their spoiled brat children. I watched at parties, friends of mine get ripped to shreds for advising against home buying (early 2007) for being “jealous” of “all the money (we) will make off of this condo”. I watched as 9 months later those people were in foreclosure. These are the same a-holes who are now crying that “not enough is being done to help them”.
The point here is, the idiot homeowner who bought too much house, DESERVES to lose their home. It’s written into the goddamned contract. Every a-hole who’s still in their home up in Jersey, or NY, or FL, that’s been in foreclosure for over 3 years, DESERVES to lose their home (immediately). It’s people like me, that never bought, that never succumb to greed, that never believed I was less “successful” just because I refused to ponzi borrow my way to prosperity with the rest of the sheep. They all DESERVE no help at all. They are getting an unbelievably easy ride to the bottom, on my back as a taxpayer.
For you to sit there and say basically, “Get over it”, is not only insulting, it’s astonishingly ignorant. You’re basically saying, “Yes, most of us Americans are selfish, irresponsible children…but since we’re the majority, you high-horse riders better shut up and just accept the fact that mob rules, and we’re going to wail and moan so loudly the government will have no choice but to acquiesce to our demands, no matter how unfair, or how detrimental it is to the country’s financial strength, or it’s longevity.
All due respect, but “get over it”?? F*ck you.
Agreed. My experience is similar to yours, but I jumped in the market in 2007. I have yet to personally know, read about, or hear about, a homeowner who deserves any more aid than what is already being offered.
Does Leviathan think I should receive aid? We were underwater $100k on a house worth $500k just a couple months ago. Should my lender have been forced to write-down our mortgage $100k? What about in 2009 when the underwater position was $150k+? What if they’d written-down our mortgage then $150k?
Who said anything about writing down mortgages? I’m talking about a tax break that keeps people from having to declare bankruptcy and ruin their lives for a decade. You’re talking about some douchebag handing out $100 bills in sacks.
IR is a reasonable guy so I write what I think to help him think through alternate scenarios. Too many of you guys on this site run through the “What about me? What about my pain? Screw the world–I hurt too!” This is not an argument it is just pure Id. There’s no reasoning with you, it’s all “me too, me too, me too.”
So go on insisting that capitalism is pure and you are the good guys. You need it psychologically.
In point of fact, far more of your tax dollars are going to subsidize interest free loans to institutional investors for pennies on the dollar to buy up foreclosures to be rented out to your neighbors, or to the banks that want to make them these loans, or to the politicians who crave their donations. They are laughing at you right now. Come to think of it, so am I.
Leviathan, I call bullshit.
I personally know people who have filed bankruptcy and their families ended up BETTER OFF because they absolved massive debt loads and started with a clean slate.
Filing BK is healthy. Pretending you’re not BK is the real joke.
And spare us the BS about credit scores. The only thing a credit score does is allow you to BORROW A LOT OF MONEY. So, now a family has to pay cash or borrow from a family member to buy a crappy, running car and live within their means. OPEN YOUR EYES, THIS IS THE SOLUTION.
Matt,
If you want to encourage people to run up massive debts so that they can get it all wiped out in bk, this is a good way to do it. I don’t see how this gets us to a sustainable economy, but if you are interested in continuing the “sugar high” capitalism of the past decade, it all makes sense.
Leviathan,
we dont have capitalism.
and shame on you for wanting to extend the mortgage forgiveness relief. learn the terms ‘moral hazard’ and ‘unintended consequence’
banks and homeowners who made mistakes should fail. anything else is SOCIALIZING losses and creates both moral hazard and unintended consequence.
Interesting pricing history for today’s featured REO.
A very expensive (~50%) haircut in about 4 years.
Despite all the realtor hype, a textbook example of bloated pricing in Irvine.
Saturday, August 30, 2008 3:18 PM
MLS# U8003906 SFR priced at $18,500,000*
28 BOULDER VIEW, Irvine, CA 92603
Saturday, January 22, 2011 8:20 AM
MLS# U11000292 SFR priced at $18,900,000*
28 BOULDER VIEW VW, Irvine, CA 92603
July 04, 2011 9:38 PM
MLS# U11002875 SFR priced at $17,900,000*
28 BOULDER VIEW, Irvine, CA 92603
September 26, 2011 10:34 PM
MLS# U11002875 SFR priced at $14,888,888*
28 BOULDER VW, Irvine, CA 92603
Monday, July 02, 2012 9:17 PM
MLS# U12002649 Single Family priced at $14,888,888*
28 Boulder View, Irvine, CA 92603
Friday, October 19, 2012 9:17 PM
MLS# U12004052 Single Family priced at $9,499,000*
28 Boulder View, Irvine, CA 92603
The prices people ask for some of these high-end properties are truly delusional. How does someone have the balls to ask more than double what something is ultimately worth? And there’s no certainty it will sell for the current $10M asking price.
Irvine Renter – I think rationality has little to do with the pricing of houses like this. Houses like this are listed with the hope that someone somewhere out there will somehow “fall in love” with the house. It takes one person to do that. The buyer isn’t someone who has calculated the price per square foot of all the comps…it’s someone who doesn’t make decisions like this rationally. Of course its crazy…but that’s how the ultra high end of the market works.
It’s interesting that the house has never been lived in. I wonder how many mansions there are like that. Think of the waste involved in building a palace that sits empty for at least three years.
What’s funny here in Orange County is that 10% of the properties think they are part of that exclusive 1% priced to appeal to the very rich. The overhang of supposedly high-end properties is very large here.
With regard to everyone who is on the same side of the (medium to long term ‘inflationista’) trade, King-Dollar is gonna give new meaning to the ‘throw a monkey wrench into’ idiom.
You heard it here first
Have a great weekend!
What does this mean for Hyperinflation and Continued Economic Contraction Crowd?
And don’t think of selling bulk properties to one investor. Think of the commissions we’re going to miss out on….
http://www.foreclosurewarehouse.com/content/foreclosures/florida-realtors-sale-program-foreclosure/
Complaining from sea, to shining sea.
realtors are consistent and predictable when it comes to lobbying for their fees. I hope they strike out in Florida too.
I would think most Realtors would vote for Romney because he does not want to stop the foreclosures, and because his biggest campaign donors are banks (across the board).
More foreclosures might mean lower values for a while, but the lower nut value can perhaps be made up with more volume over time, given that demand is extremely high. Am I right?
I don’t think it matters. What really matters is whether banks will have any new motivation to get back into the lending business and stop behaving like engorged warehouses of overvalued properties. There’s nothing in the campaign rhetoric that leads one to believe the behavior of banks will change markedly over the next 4 years on this question.
You are right about more supply meaning lower prices and more transactions. Unfortunately, realtors don’t see it that way. Anything that lowers prices is considered bad even if it increases volume and would increase their commissions overall.
I also agree that nothing in the campaign rhetoric leads me to believe either candidate will do much of anything to change bank behavior.
[...] http://ochousingnews.com/news/realtor-to-candidates-do-no-harm-to-our-commissions————(sold the good stuff) JPMorgan Chase buys $70 billion in MetLife mortgage servicing rights – Posted by jgaffney – … The $70 billion servicing portfolio will increase Chase’s $1.1 trillion mortgage servicing business by more than 5%. … – Housingwire [...]
[...] It was pretty funny letter. IR, had an update here. [...]