May 9, 2018

It Is A Fact That Oversupply Creates Lower Prices

A report from Bloomberg. “Freddie Mac has quietly started extending credit to nonbanks that issue mortgages, a move it says will help the companies maintain access to a crucial stockpile of cash if their home loans go sour. But critics say the financing could create an unfair market advantage that allows preferred lenders to muscle out competitors. The new Freddie credit lines, which haven’t been publicly announced, are meant to support nonbanks’ mortgage-servicing operations. That’s the lucrative business of managing a home loan after it’s been issued.”

“Although banks dominated mortgage lending immediately after the 2008 financial crisis, now they are facing stiff competition from companies such as Quicken Loans, Freedom Mortgage, LoanDepot and Caliber Home Loans. Nonbanks issued nearly half of mortgages sold to Fannie Mae and Freddie in 2016, compared with 8% a decade ago.”

“Last month, authors from the Federal Reserve and the University of California at Berkeley’s Haas School of Business wrote that the nonbank sector ‘in aggregate appears to have minimal resources to bring to bear in a stress scenario.’”

“Nancy Wallace, a Berkeley professor and one of the paper’s authors, said nonbanks are undercapitalized and rely too much on borrowed money. Being able to access credit lines from Freddie or Fannie wouldn’t solve that problem, she said. ‘Fannie and Freddie should not be in the business of that kind of lending,’ Wallace said.”

“The Federal Housing Finance Agency, which regulates Fannie and Freddie, approved Freddie’s request to provide financing to nonbanks. In its list of 2018 goals for the companies, the FHFA said they should find ways to support mortgage servicing liquidity.”

From The Real Deal in Florida. “Since the recession, the mortgage landscape in the Miami metro area and across the country has changed drastically. Nonbank financial institutions, including giants like Quicken Loans and LoanDepot, originated 48.3 percent all mortgages in the U.S. in 2016, up from 30 percent in 2012, according to researchers from the Federal Reserve Board and the University of California, Berkeley. The growth of these mortgage companies in South Florida, a place that was the epicenter of the subprime mortgage meltdown, is raising some concerns about the risks of moving mortgages to a less regulated corner of the market.”

“In South Florida, the changing of the guard in the mortgage world was best captured by a January 2016 announcement from Miami Lakes-based BankUnited. BankUnited, the area’s largest bank by assets, said it would no longer be writing residential mortgages, citing low profit margins and lack of scale. ‘We can’t make money in the business,’ said BankUnited CEO John Kanas in a conference call with analysts at the time.”

“But while nonbank lending platforms appear to provide easier access to getting a mortgage or refinancing, the paper by researchers from the Federal Reserve Board and UC Berkeley said these alternative lenders could face liquidity risks and have fewer safeguards to protect themselves if borrowers began defaulting on their payments. ‘The typical nonbank has few resources with which to weather these shocks,’ the paper stated.”

“A nonbank failure could be particularly harmful to low-income borrowers, according to the researchers. That’s because those alternative lenders now account for roughly 75 percent of mortgages insured by the Federal Housing Administration or the U.S. Department of Veterans Affairs. ‘Because this [nonbank lender] is one step removed from the banks it is not getting the regulatory scrutiny or understanding that it would otherwise,’ said Marcus Stanley, policy director of Americans for Financial Reform, a nonprofit advocacy group.”

From News 3 Las Vegas in Nevada. “If you’re in the market for a new home, you’ve noticed that the housing market is on fire. Multiple offers are the norm. We’ve identified the top five hottest zip codes in the valley, but as you’ll soon see, sellers are cashing in elsewhere. Joe Limon is on the hunt for a house. ‘The price of my house went up so that’s why I’m selling it to get something else,’ says Limon.”

The Argus Leader in South Dakota. “Sioux Falls is short on homes for sale. Really short. Amy Stockberger knows this better than most. She’s a Realtor on the hunt for homeowners interested in selling, in what is a hot, hot seller’s market. So Stockberger is taking to the skies. Literally. This weekend she rented a plane and pilot to fly a 3,000-square-foot banner over select parts of Sioux Falls. You might have seen it. It had 15-foot-high letters. The message: ‘We sell your home for more.’”

From the Elk Grove News in California. “After recent articles on Elk Grove News (EGN) regarding the Elk Grove Sphere of Influence (SOI) application before LAFCo, and the rise in the Elk Grove real estate market, the question now becomes: Will the Elk Grove City Council guide real estate property values back into another decline? As reported on EGN, Elk Grove is currently a seller’s market which is great considering that was not the case years ago. Good news for homeowners right now. However, what happens when the next housing boom in the Southeast Policy Area (SEPA) and the SOI hits? Or worse, when the next housing crash hits which economic theorists say is inevitable?”

“Recall thousands of Elk Grove homeowners were devastated by the housing market crash with foreclosures everywhere and we saw a significant rise of rental properties aka pot houses. Shouldn’t we learn from the past in planning future massive housing projects? By the looks of it, the Elk Grove City Council clearly has not. And want to bet the Elk Grove City Council, led by Pat Hume, will fast-track the SOI into an annexation vote so that more housing projects can be built in record time.”

“So many times, we have seen housing developers get in and get out, leaving a trail of Mello Roos taxes behind them. The writing is on the wall, it will happen again as Elk Grove is ripe for the picking and there is no one on the Elk Grove City Council who will get in their way.”

“If one council member had the courage to speak up, having learned from their past mistakes, keeping their constituents’ property values in mind, works to negotiate a fine balance between supply and demand to ensure home values continue to rise and phase in new housing slowly, that council member would immediately be labeled ‘anti-growth’ and soon, circa 2006, those same developers would form independent expenditure committees and oust that incumbent.”

“Housing developers are very good at playing the waiting game. Problem is developers appear to have bounced back from the housing crash with bigger plans for Elk Grove, more than ever before, acquiring vast areas of land in the SOI. With that, the developers, with the council members in tow, will suck voters in with their fancy wording on annexation of ‘long-term stewardship’ and ‘adding value’ to existing homes in Elk Grove. However, it is a fact that oversupply often creates lower prices for existing housing.”

From the East End Beacon in New York. “With a decision possible on the fate of more than 1,600 acres of land at the Enterprise Park at Calverton (EPCAL) as early as next week, environmental groups are urging the Town of Riverhead to not approve a deal to sell the property to a group of developers. ‘We are prepared to take further action should this deal be approved,’ said Rex Farr, a farmer and member of the Coalition Against EPCAL Housing (CAEH), a group that coalesced last year around preventing the industrial property from being used for housing, but has since expanded its concerns over the proposed CAT deal.”

“Mark Haubner of the North Fork Environmental Council decried the town’s development history, pointing out Riverhead’s historic lack of attention to the environment. ‘Riverhead has a glut of retail stores,’ he said. ‘They add nothing to our overall happiness.’”

“Bob DeLuca, of Group for the East End, pointed out that the $40 million price tag for the property is ‘what someone pays for a house in Sagaponack,’ and described the town’s philosophy as ’someone wants to give us a pile of money for this property and we should take it.’ Mr. DeLuca added that, generations from now, no one will remember what the town got for this paycheck. ‘You can’t give this property away,’ he said. ‘You’ll never get it back.’”