Nov182015
Orange County housing will never be cheap again
The conditions that caused house prices to crash far below fundamental values will likely never happen again.
During the 00s house prices rose far above any justifiable fundamental value juiced by affordability products. When these products proved unstable, millions of delinquencies and foreclosures followed, and house prices crashed far below fundamental values. In 2012 a house price rally reflated the old bubble back to a new and higher equilibrium price based on record low mortgage rates and stable loan products.
In order to gain control of the distressed inventory on the MLS, lenders instituted new loss mitigation programs of aggressive loan modification, also known as kicking the can. If implemented in the future (assuming another unlikely mortgage disaster), must-sell inventory will never again come to the market in large enough volume to push prices below fundamental value like we saw in 2011.
In other words, housing will never be as cheap as during the housing bust ever again.
O.C. housing ‘will always be expensive’
Jeff Collins, Nov. 13, 2015
Orange County – which had the nation’s third-highest median home price this past summer – will always be a pricey place to live, just like New York and San Francisco, Lawrence Yun, chief economist for the National Association of realtors said during the association’s annual convention, held this year in San Diego.
“Orange County has always been a sought-after county,” Yun said at a news conference Friday. “It’s a super-star county. London will never be cheap. Same thing with Hong Kong and Tokyo. Super-star cities will always be expensive.”
LOL!
He didn’t really say that, did he?
Yes, he did! ROFLMAO!
My belly hurts from laughing…
I’m tearing up…
London, Hong Kong, Tokyo, and … Orange County?
OMG!
I can’t stop laughing…
Thank you, Lawrence Yun, for the best laugh I’ve had in a very long time.
Some OC residents undoubtedly got a thrill out of Lawrence Yun’s kissing their ass. It’s human nature to want to believe the place you live is special, and Orange County is more desirable than many other suburban enclaves, but Orange County is not a super-city. It has no urban core (unless you count Santa Ana).
Orange County can’t credibly be mentioned in the same breath as London, Hong Kong, or Tokyo.
Focusing on the nation as a whole, Yun noted the housing market just had its best year since the recession and likely will see more growth, only at a slower pace.
On the one hand, job growth and rising consumer confidence are giving the housing market a boost, he said. But price and sales gains are starting to level off in the face of decreased affordability, a low inventory of new and existing homes and projected mortgage rate hikes.
As I mentioned many times over, as mortgage rates rise, sales volumes will suffer, and if it gets bad enough, prices will fall.
Specifically, Yun predicted: …
“So,” said Yun, “the recovery will continue, but at a slower (pace).”Mortgage interest rates will increase next year, but not enough to have much of an effect on sales or prices, he said.
He will, of course, be wrong.
Yun predicted the 30-year fixed mortgage rate will average 4.5 percent and “touch 5 percent” next year, compared to this year’s average of 3.8 percent. …
Five percent mortgage rates would certainly have an effect on sales and maybe prices, particularly in Coastal California.
If mortgage rates rise above 4.75%, sales volumes will be severely impacted and prices may drift gently lower. The increased cost of financing will not allow buyers to bid high enough to support current prices. The discretionary sellers active in the market will be forced to lower their prices if they want to sell. The activity of these few discretionary buyers will cause prices to drift down at higher mortgage rates.
If mortgage rates rise above 5.25%, the housing market will be a catastrophe. Homebuilders won’t be able to sell anything, homebuilding unemployment will rise, triggering a recession, and the housing market will experience record low sales volumes and prices 5% or more below today’s levels.
Rising mortgage rates and a shortage of homes for sale are hampering sales, he said. Mortgage rates, however, are the least of the market’s worries.
“The (30-year) mortgage rate will have to go up to 6 percent to have a meaningful impact on the buyer,” he said.
Remember he said that.
So why is sales and price growth starting to slow?
“Affordability,” Yun said. “That is the key reason why the growth rate will be slowing down.”
Yun also predicted the “credit box” will open up slightly next year, with lenders starting to approve mortgages for buyers with moderately high credit scores.
Currently, buyers need to have a FICO score in the 750 to 760 range to qualify for a loan backed by Fannie Mae or Freddie Mac, Yun said. Next year, lenders are expected to approve loans to buyers with credit around 740.
I have to assume he meant the average FICO score is the 750 to 760 range because the minimum qualifying FICO score for a GSE loan is 620.
“If they go down to 740, it will be an improvement,” he said. …
“Fewer and fewer people are participating in this recovery,” Yun said.
Housing is as affordable today relative to rent as it was during the 1990s.
Without affordability products, buyers can’t push prices above the new price equilibrium. For two and one half years now, house prices in nearly every market in Southern California have been tightly tethered to this predicted price level — and for identifiable reasons.
This price level is exactly where market rents dictate they should be, and if affordability products don’t return (and they probably won’t), prices should remain tethered to this equilibrium. The implications of this will become apparent when interest rates rise. The ill effects that Lawrence Yun doesn’t believe will happen will actually occur, and it will “surprise” him.
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you forgot to add an extra 1,000,000 dollars to the cash needed category for the down-to-the studs remodel
$3.5M is a great deal of money to pay for the site and the view.
A friend complained to me this weekend about how the contingency chain of buyers related to his current purchase attempt was in jeopardy. Their lender couldn’t give final approval because: 1) past income was sufficient due to self-employment character, 2) reserves weren’t sufficient due to the 60% discount on retirement funds, and 3) large student loans were adjusted to fully-amortizing for underwriting purposes inflating their DTIs.
While this is a terrible position to be in and I can empathize, the whole time we were talking I was thinking, “Dude, you’re buying too much house.” What’s comforting though, is that this conversation confirmed what we know – that underwriting since the Great Recession is very real and robust due to internal risk controls and external pressure (ATR/QM).
I’m not sure when it started, but during the 00s people came to believe that if they could finance it, they could afford it. Perhaps in an era of responsible lending the two are one and the same, but during the 00s, the ability to finance far outstripped the ability to repay. Perhaps Dodd-Frank has changed that permanently, and it will take time for consumers to accept this reality.
We’ve discussed the concern that purchasers from China could slow or even evaporate, and how that might affect prices in OC and elsewhere. What if China’s economy keeps growing at a 5%+ pace? What if Chinese money keeps flowing into certain US cities over the next decade or two? What if prices in these cities grow even faster than the historical “inflation rate + 1-2 points”?
If that were to happen elsewhere, I would say it would prompt a wave of new construction. If that happens here in Coastal California, it will drive up house prices to unstable levels and prompt me to start warning about another housing bubble.
Today’s price levels are as stable as the interest rates that support them. If prices go up higher than rents and interest rates can support them, those gains are not supportable long-term. At that point, it only becomes a matter of when prices correct and how painful it will be.
Where does global growth come from:
http://www.ritholtz.com/blog/wp-content/uploads/2015/11/global-growth.jpg
Stubborn buyer loses home over stupidity, how to handle?
If the buyer is pissed about the behavior of the agent when the buyer acted against their agent’s advice, then it’s on the buyer, not the agent. If the behavior is causing the agent to work fruitlessly, then the agent should fire the buyer. You can lead a horse to water, but if they refuse to drink, then it’s a waste of time to lead the horse from one waterhole to another.
“The buyer used silly excuses such as values listed on the tax assessment of the property & replacement values from insurance quotes.”
This is the kind of thing that makes me chuckle, because I did some of the same things as a rookie home buyer. During our search, I remember writing up lengthy memos to my agent, detailing why we were making the offers/counter-offers that we were. It’s almost like I needed some sort of validation from my agent about my thought process. As if the agent needed to be on my side in order for my offer to get any traction.
The truth of the matter is that buyer doesn’t owe anyone a justification, and nobody really cares why the buyer thinks his/her offer is fair. The market, the competition and the urgency of the seller are the only things that matter when an offer is being considered.
Perhaps the only exception is the inspection, where the property is in escrow and the buyer is referencing specific problems to justify further reductions.
But in the future, my corresponce with my agent is going to be simple. “Work up the paperwork at (X amount).” It’s one of the reasons I’ll be using a discount brokerage such as Redfin when I make my next purchase.
Your comment is spot on. The only thing that matters in any real estate negotiation is the specifics of the written offer. The rest is just fluff.
Unfortunately, most novice buyers (which is most people) do need the help of a good agent, and like the people in this example, the ones that don’t listen (or don’t find an agent who gives good advice) end up going their own way to their peril. Experienced buyers don’t need an agent with an opinion, but most people also overestimate their own prowess and probably should use an agent.
DOJ reportedly pursuing criminal charges against JPMorgan Chase, RBS executives
Following through on policy changes announced earlier this year that opened the door to individuals being held criminally responsible for corporate misconduct that helped cause the financial crisis, the Department of Justice is reportedly pursuing criminal charges against executives at the Royal Bank of Scotland (RBS) and JPMorgan Chase (JPM).
According to a report from the Wall Street Journal, federal investigators are working on establishing cases against the RBS and JPMorgan Chase executives for “allegedly selling flawed mortgage securities,” despite reportedly receiving warnings that they were securitizing too many potentially toxic mortgages.
From the Wall Street Journal report:
Officials are working to establish that the bankers ignored warnings from associates that they were packaging too many shaky mortgages into investment offerings and are weighing whether they can prove that constituted fraud, the people said.
At RBS, prosecutors are scrutinizing a $2.2 billion deal that repackaged home mortgages into bonds in 2007, the people said. In a 2013 civil settlement with RBS, the Securities and Exchange Commission described the lead banker on that deal, whom it didn’t name, as trying to push it through over concerns of the diligence department.
At J.P. Morgan, prosecutors are focusing on two people who worked on a different residential-mortgage deal, the people said.
According to the WSJ report, the DOJ is pushing to complete any criminal cases against individuals before the end of President Obama’s presidency and the expiration of the 10-year statute of limitations in 2017.
Great, but will one of these individuals they pursue be Jamie Dimon? If not, then this DOJ inquiry is seriously just for political grandstanding.
First American economist: Freddie, Fannie loan limits will rise
Mark Fleming, housing expert and chief economist at First American Financial (FAF), is going on the record and saying that the housing market has recovered.
His reason: Having to adjust the Federal Housing Finance Agency loan limit for inflation is one very strong sign that we’re in a recovery.
The FHFA will soon decide whether it will increase the conforming loan limit of Fannie Mae and Freddie Mac. The conforming loan limit is currently $417,000. This was last confirmed in November 2014. And in Fleming’s opinion, the loan limit is about to rise.
Here are the 3 steps to Fleming’s conclusion:
1. The GSEs are only allowed to securitize loans at or below the conforming limit.
2. The GSE conforming loan limit can rise with house price inflation, but cannot fall in the event of any house price depreciation.
3. This means that GSE market coverage effectively expands in times of stress (when prices are falling), and is inflation-adjusted in times of rising house prices.
And here is Fleming’s full take:
“While the debate continues about reducing the role and market share of the GSEs in the housing market, my expectation is that we will increase the market share of the GSE with an inflation-adjustment to the loan limit of almost 3% next year. Without the inflation-adjustment, over time the market share would decline without any further legislative action required. Has the housing market recovered? Having to adjust the FHFA loan limit for inflation is one very strong sign that it has.”
“Using the proposed ‘expanded-data’ FHFA house price index, year-over-year appreciation from the third quarter of 2014 to the third quarter of this year of approximately 2% would have been sufficient to surpass the price level used to set the current loan limit of $417,000. We estimate that the index will likely report a 5.5% increase year-over-year in the third quarter. Based on the HERA mandated formula, the conforming loan limit will increase almost 3% to a new overall limit of $429,000.”
Will the FHA MMI Fund’s Sudden Spike be Enough to Silence Critics?
When FHA announced it was lowering its mortgage insurance premiums in January by 50 basis points down to 0.85 percent, the move drew intense criticism from Republican lawmakers who accused the agency of cutting off a revenue stream while the Mutual Mortgage Insurance Fund capital ratio sat at 0.41 percent, less than one-quarter of the 2 percent threshold required by Congress.
On Monday, the FHA shocked nearly everyone by announcing the capital ratio of the MMI Fund had leaped from 0.41 percent in Fiscal Year 2014 to 2.07 percent in FY 2015, above the minimum threshold. Is this vindication for HUD Secretary Julián Castro, who bore the brunt of the criticism for lowering the premiums?
“Last year, it was below 2 percent, yet they were still able to reduce the mortgage insurance premiums, which is partly contributing to the good news that they announced today,” said Brian Montgomery, Collingwood Group Vice Chairman. “It’s easy to say if you’re not meeting a Congressionally mandated threshold to be continually called out on that topic, as FHA has been. Now that they’ve exceeded it, it kind of quiets those voices somewhat.”
Rep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, was one of the most vocal critics of the lowering of the premiums. Hensarling grilled Castro on the topic a full Committee hearing back in February during Castro’s first testimony before Congress since becoming HUD Secretary in July 2014. Hensarling was unimpressed with Monday’s announcement that the MMI Fund had exceeded the 2 percent minimum, however.
“This is no time for hollow victory laps from administration officials,” Hensarling said. “Hardworking taxpayers remain exposed to more than $1 trillion in FHA insured mortgage credit risk, and the FHA capital reserve remains woefully insufficient.”
Many Consumers Still Weighed Down by Mortgage Debt
Many Americans are still struggling with mortgage debt, which is the third most-popular form of debt in the nation. Much of this debt stems from borrowing at the wrong time and for the wrong purpose, preventing consumers from achieving financial stability.
An Urban Institute report titled, “Americans’ Debt Styles by Age and over Time” released recently found that 54.5 percent of those ages 18-22 are debt free, while 39.2 percent of those ages 23-27 are debt free. However, as borrowers age, that number drops drastically to 18.1 percent for the 63-67 age group, but rises for those over 77 at 36.1 percent.
“Consumers tend to borrow and consume less than predicted early in their lifetimes. Second, they also tend to consume more and save less than predicted in middle age, when they have their highest earnings; consequently they do not have enough savings to maintain their consumption levels in retirement,” the report explained.
In 2014, mortgage debt was the third-highest form of debt among consumers, with 28 percent holding some form of housing-related debt, the report showed. The highest percentage of consumers have mortgage debt in their late 30s through their early 60s. For borrowers with mortgages, debt balances averaged $160,000 in 2014, up from $150,000 in 2010.
“These debt patterns reflect lifestyle changes as consumers get older: they finish their higher education and largely pay off the associated debt in their 20s and 30s, finance and become auto and homeowners in their 30s through their 60s, and accumulate enough equity on their homes to finance other spending against that equity in their late 40s through late 60s,” the report said.
The Urban Institute research showed that those without debt tend to have lower Vantage scores within each age group. The 39.2 percent of 23–27-year-olds with no debt have a median Vantage score of 524, compared to 669 for those who have debt. For older consumers age 77 and over, the median Vantage score is 675, compared to 805 for consumers with debt. The median Vantage score for consumers 30 or younger is no more than 650; but it is more than 780 for consumers 68 or older.
“This suggests that those who have no debt have not built the credit history necessary to obtain debt, rather than the alternative, that they have no need for debt,” the report stated. “Across age groups, younger consumers tend to have much lower credit scores than older consumers.”
No mention in the “study” of debt service costs as a percentage of income, or assets. The unsupported conclusion they arrive at: that many consumers are still weighed down by mortgage debt, is based solely on the fact that consumers still have mortgage debt.
Having a debt vs. no debt, can certainly be a burden. Having rent vs. no rent is also a burden. But does the burden of a mortgage weigh a consumer down any more than rent? If the mortgage debt is refinanced is the consumer’s burden as heavy? If you put % and $ on one side of the equation and ignore rates and income on the other side, how can you possible conclude that it doesn’t balance?
In the full study also states that:
“… the percent of consumers with mortgage debt and HELOC debt has fallen, particularly for HELOC debt… THe proportion of consumers holding mortgage debt for the peak age cohort – late 40s – has declined from 43 percent in 2010 to 39 percent in 2014. This parallels the steady decline in the homeownership rate. However, for borrowers with mortgages, the median debt balance has risen from $150,000 in 2010 to $160,000 in 2014.
We find 12.5 percent of consumers in their 50s held HELOC debt in 2010, falling to 9.5 percent in 2014; their median HELOC balance fell from $38,000 in 2010 to $37,000 in 2014. The declining percentage of consumers with HELOCs most likely reflects a combination of pay-downs, foreclosures, and extremely tight credit following the financial crisis.”
With mortgage balances rising, the percentage of debtors and delinquency rates falling, and credit qualification tightening, it seems to me that those who still have mortgages and HELOCs aren’t being weighed down nearly as much as they were before.
Pity that the authors didn’t conduct a real study to determine the burden of the debt, and not just its existence. If they had, they might have reached different, albeit more useful, conclusions.
It’s nearly impossible to find reasonable thorough articles on housing. As you point out, neglecting alternatives (RENT) is a huge fail.
I think studies like this one are conducted with a pre-conceived conclusion in mind. The data gathering and analysis is biased from the beginning to see what the authors want to see.
Could it be that those with no debt have no debt because their credit scores are so low that nobody will loan them money?
I have no consumer debt, and when I last checked my credit score, it was quite high. Perhaps if they sorted their data set for those who have no debt by choice rather than by a lack of availability, they might get different results.
Fed Chairman Yellen Urges Congress to Reject Fed Reform Bill
Federal Reserve Chairman Janet Yellen on Tuesday wrote a letter to newly-appointed Speaker of the House Paul Ryan and House Democratic leader Nancy Pelosi urging Congress to reject a proposed bill that would increase transparency from the Fed.
H.R. 3189, known as the Fed Oversight Reform and Modernization (FORM) Act, is scheduled for a full House vote this week after passing in the House Financial Services Committee by a 33-25 vote on July 29. The bill is sponsored by Rep. Bill Huizenga (R-Michigan), who is the House Monetary Policy and Trade Subcommittee Chairman.
Yellen made it clear in the letter that she was vehemently opposed to the FORM Act, saying that “The bill would severely impair the Federal Reserve’s ability to carry out its congressional mandate and would be a grave mistake, detrimental to the economy and the American people.”
The FORM Act requires the Fed to transparently communicate its monetary policy decisions to the American people by requiring the Fed to generate a monetary policy strategy of its own choosing, in order to provide the American people with more transparency about the factors that lead to the Fed’s monetary decisions. The Act would also eliminate the restrictions on the Government Accountability Office’s ability to audit the Fed, allowing the GAO to conduct an audit of the Fed anytime there is a policy change.
“This provision would politicize monetary policy and bring short-term political pressures into the deliberations of the FOMC by putting into place real-time second guessing of policy decisions,” Yellen wrote in the letter. “Such action would undermine the independence of the Federal Reserve and likely lead to an increase in inflation fears and market interest rates, a diminished status of the dollar in global financial markets, and reduced economic and financial stability.”
Among other provisions, the FORM Act requires more transparency from the Fed’s stress test of the biggest financial institutions and would limit the Fed’s ability to make emergency loans to those institutions during economic downturns.
While Yellen claimed in the letter that the FORM Act would make it more difficult for the Fed to do its job and would be detrimental to the economy, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) responded to the letter in defense of the FORM Act.
“While the Fed’s unusual monetary activities and power have increased, there has regrettably been no corresponding increase in its transparency and accountability,” Hensarling said Tuesday in response to Yellen’s letter. “The FORM Act will correct that.”
At Yellen’s Congressional testimony earlier this month, Hensarling said, “Simply put, the Fed must not be allowed to shield its vast regulatory activities from the American people and congressional oversight by improperly cloaking them behind its traditional monetary policy independence.”
The FORM Act’s sponsor, Bill Huizenga, stated, “The Fed’s recent high degree of discretion and its lack of transparency in how it conducts monetary policy demonstrate that not only are reforms needed, but more importantly that reforms are necessary. We need to modernize the Federal Reserve and bring it into the 21st Century.”
Sen. Rand Paul (R-Kentucky) re-introduced similar legislation in the Senate last week, S. 2232, known as the “Audit the Fed” bill, to which Yellen is also vehemently opposed.
It’s a three page letter. Definitely worth reading:
http://www.federalreserve.gov/foia/files/ryan-pelosi-letter-20151116.pdf
Yellen takes exception to the loss of control over monetary policy to the GAO. Basically, the GAO would have to approve a mathematical formula or directive policy rule that would control how the FOMC adjusts its policy at every meeting.
I tend to agree with Yellen that setting an immutable policy rule is a very bad idea, especially in times of crisis. This is akin to fixing the rudder along a set course. If a previously unknown iceberg pops out of the mist, then the captain has to phone back the Joint Chiefs to get permission to avoid it. Worse still, the Joint Chiefs will have to confer with the Commander-in-Chief, who needs the advice and consent of the Senate AND Congress before a policy change could be implemented. Now, neither advice nor consent can be given without committee hearings, GAO audits, studies, etc.
Meanwhile, at the bottom of the ocean…
“Conducting monetary policy by strictly adhering to the prescriptions of a simple rule would lead to poor economic outcomes.”
Yellen also notes that the Fed is already independently audited:
“The provision is based on a false premise–that the Federal Reserve is not subject to an audit. To the contrary, under existing law, the financial statements of the Federal Reserve System are audited annually by an independent accounting firm under the supervision of the Inspector General for the Board. These audited financial statements are made publicly available and provided to Congress annually. The GAO may also conduct an audit of the Board’s financial statements and of transactions that the Federal Reserve conducts in the course of its lending and other activities. In addition, each week the Federal Reserve publishes its balance sheet and charts of recent balance sheet trends, as well as every security the Federal Reserve holds, along with each security’s CUSIP number. Moreover, as specified in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Reserve now releases detailed transaction level information for all open market operations and discount window lending with a two-year lag.”
My advice to Congress is that if they don’t like how the captain is sailing, then pick a different captain. They have that power:
“The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for four-year terms.”
Those seven members constitute a majority of the 12 members on the FOMC. The other are five members are Reserve Bank presidents. The 14yr term limits the ability of sitting presidents to stack the Fed in their own image (thankfully). Similar to the SCOTUS.
Is financial independence any less important than legal? Congress already has control to make the laws, do we also need them to have control over the printing press? Think. Choose wisely.
I’m with Yellen on this one. The federal reserve needs to keep its independence. I would like to see more details on the shady, back-room deals they made with the big banks, but apparently, these should be public record as part of the yearly audit.
Lawrence Yun has failed to tell us in his propaganda that London prices have taken a 10% haircut in the last month.I feel blessed that I didnt miss out on the Dutch tulip craze and always listen to the gold promoters.Oc is like any other area in that it is not immune to a nasty downturn.
The world according to Donald Trump.
http://www.ritholtz.com/blog/wp-content/uploads/2015/11/trumpMap.png
House poised for vote to roll back mortgage regs
http://thehill.com/regulation/260482-house-poised-for-vote-to-roll-back-mortgage-regs
Consumer advocates are lashing back against a Republican-backed bill they say would open the door for the brand of reckless lending practices that led to the financial crisis of 2008.
The House is expected to vote Wednesday on the Portfolio Lending & Mortgage Access Act, a bill introduced by Rep. Andy Barr (R-Ky.) that the Center for Responsible Lending (CRL) says would weaken federal rules that took effect last year to ensure a borrower’s ability to repay a loan.
“Not only does it open the door to past, but it opens the door to the past with a legal shield that’s not merited,” Yana Miles, CRL’S policy counsel, said of the bill.
The Consumer Financial Protection Bureau regulations, part of the government’s answer to the crisis, provide exempt small and rural banks from certain mortgage standards the agency created to prevent bad lending practices, while still providing them a “safe harbor” protection from federal penalties and lawsuits brought by borrowers who have defaulted on their loans.
Barr’s bill would extend that safe harbor to all banking institutions and provide flexibility supporters say is needed for rules that are now too restrictive and have caused community bankers to decrease or eliminate their mortgage businesses.
“Borrowers have to jump through hoops to show they have the ability to repay a loan,” said Joseph Pigg, senior vice president and counsel for the American Bankers Association. “If a bank is willing to make loan and hold it on their books, they have the credit risk and interest rate risk. If the bank is willing to make a loan to that customer, that really should be the only hoop they have to jump through.”
For a qualified mortgage status on a loan, under CFPB’s rules, a borrower’s debt-to-income ratio has to be 43 percent or less; the loan’s points and fees have to be less than or equal to 3 percent of the loan amount; the loan must not contain any risky features like negative amortization, interest-only or balloon payments; and the maximum loan term has to be less than or equal to 30 years.
“Our members want to stay in business for the long-term, so they are only going to make loans that can be repaid,” Pigg said. “What we saw during the financial crisis was that lenders — many of which were non-banks — made loans and didn’t care if they were repaid because they would sell the loans right away.”
The Portfolio Lending & Mortgage Access Act, he contends would provide a safety valve to keep that from happening again.
According to Barr’s office, a loan would lose its protection in the safe harbor created by the proposed legislation if it’s securitized or sold into the secondary market.
In a statement to The Hill, Barr said his bill would give banks and credit unions greater discretion over their mortgage lending decisions if they are willing to keep those loans in portfolio and assume 100 percent of the risk.
“The current one-size-fits-all, top-down, Washington-directed mortgage lending rules are limiting loans to creditworthy individuals, and contributing to consolidation and closures among community banks and credit unions,” he said, later adding that his bill would “expand the dream of homeownership and grow our economy while protecting the health of the financial system and taxpayers from future bailouts.”
Though banks would only remain protected if they held onto the loan, the Consumer Federation of America (CFA) said consumers would lose key protections altogether.
Under the ability to repay rule, Barry Zigas, CFA’s director of housing policy, said a lender has an affirmative obligation to meet reasonable expectations that a borrower can comply with the terms of the mortgage presented.
“That may seem commonsensical and something banks would have a natural indication to do, but we know from the financial crisis there were too many financial institutions that bypassed that and presented loans that put borrowers almost in an immediate risk to not be able to repay the loan.”
The House Rules Committee passed a resolution Tuesday night by a 7-1 vote to move the bill to the floor. One amendments offered by Rep. Donald Norcross (D-N.J.) will be considered at that time. The amendment clarifies that the safe harbor protections don’t apply to banking institutions whose failure might trigger a financial crisis.
At its meeting, the committee received a letter from the Executive Office of the President saying Obama’s senior advisors would recommend the president veto the bill if it were to make it to his desk.
The House is expected to vote Wednesday evening.
This isn’t insane. The bill would allow big banks to make risky loans, but would be subject to ATR’s remedies if the loan were securitized.
It would be fun to identify every politician who votes in favor of this bill, and then search each Congress-person’s comments about how they want to eliminate too big to fail banks.
It’s important to remember though, that no creditor is prohibited from making any type of risky loan and layering every risky feature prominent during the bubble run-up. You can make today, a teaser-rate interest-only loan with negative amortization features, verifying no job, income, nor assets. However, if that loan defaults, the borrower will have additional remedies available including burden shifts.
The problem is when the banks fail again (and they will fail again at some point) it doesn’t matter what this bills says the politicians are going to bail out their cronies. The tax payer has now become liable for all financial risk in the system by default no matter what the law says.
If the government had wiped out the stock holders, bond holders, upper management, and wrote off all the bad debt the first time I might have a shred of belief in their hollow words.
Whiting: Santa Ana working to be a downtown for the entire county
Santa Ana wants nothing less than to become the central gathering place for the entire county, and it may soon have the ingredients to pull that off.
Nearly bankrupt just three years ago, the idea may seem audacious, even silly. But times change. Fast.
There are nearly 3,000 housing units being built or in the pipeline. These include single-family homes, condos, apartments and lofts.
The downtown where some fear to tread – and let’s get over that silliness – has plans for everything from a trolley line to pedestrian-friendly public bathrooms to creating a hip 21st-century vibe.
“I want to make it,” City Manager David Cavazos says, “the heart of Orange County.”
It’s an ambitious goal for an area many still regard as a struggling ethnic enclave. But given the energy, enthusiasm and background of Cavazos, it’s a vision we might see before this decade is over.
Already, there are inroads that go beyond the city’s modest Artists Village. Over the weekend in Santa Ana’s downtown, hundreds of video gamers jammed into the debut event for what its owners call “North America’s first dedicated e-sportsfacility.”
Taking over 15,000 square feet in a century-old building, e-sports will typically be self-contained with a new interior catwalk allowing fans to watch the action on the floor below. But last weekend was different. With nearly 2,000 gamers and an estimated 1.5 million online, the event occupied a city street.
Cavazos says the agility to close a street for a hot event is critical to the downtown’s future. He adds he also plans to tear down the garage that blocks through traffic on Sycamore Street.
CHANGING LIFESTYLES
I’ve worked in Santa Ana for a quarter century. It is a safe, interesting city. But I also have witnessed plenty of unrealized efforts to turn around the city’s sleepy, aging downtown.
The Artists Village is a nice idea. And the few galleries are interesting. But the idea of artists injecting the necessary spice to make for a thriving downtown is dumb. It didn’t work in Detroit. And it won’t work in Santa Ana.
Yet there are things that could make the downtown dream a reality.
The city is the county seat. On weekdays, it is home to thousands of federal, state and county workers. The challenge is to keep those workers in Santa Ana after their workday ends.
But lifestyles are changing. According to studies and hopeful developers, the millennial generation prefers to skip long commutes, take public transportation or walk to work, and, once home, walk to shops and restaurants.
Drive down almost any major street in central Santa Ana and there is housing construction to allow just that sort of lifestyle. There also is the critical mass to keep things hopping.
Already, Santa Ana is the fourth-densest city in the nation, just behind New York, San Francisco and Boston. And with 335,000 people, Santa Ana also is a large city.
By the end of the decade, Cavazos says, the trolley will be in operation to help ferry people from Santa Ana’s train station, along Fourth Street and up Harbor Boulevard to Garden Grove.
He predicts the trolley will play a key role in revitalizing the city’s historic downtown.
They need to remove the massive amount of homeless camping around all the county buildings. I think the court house actually allows the homeless to camp around it.
They also need to address their massive gang problem. While it is no where near as bad as Los Angeles it’s still pretty bad.
But this is downtown Orange County, a hub of a super-city, right?
Somewhat off topic, but preview screenings of “99 homes” are scheduled in LA area this week and coming months.
Website to register
http://broadgreenguilds.com/screenings/99-homes/
Select “screenings” tab.
Registration process appears to require affiliation with a professional organization, but I sure the majority of OCHN readers have ties to professional groups.
When that movie hits the theater, I will be there.