Keeping The Money Flowing More Freely
A reader suggested a topic on the latest change in Washington. “What are the housing policy implications of turnover at the top of the FHFA?”
From NPR. “Seven months after his was nominated, the U.S. Senate this week confirmed former Rep. Mel Watt, D-N.C., to head the agency that oversees Fannie Mae and Freddie Mac, the giant companies that control much of the mortgage market. The vote occurred after Democrats changed the rules on filibusters — now the Senate can confirm presidential nominees with a simple majority. For people who watch the U.S. housing market, Watt’s confirmation is a very big deal that could mean easier credit.”
“Edward DeMarco, the official who has been in charge of the FHFA, has been controversial. He locked horns with the Obama administration. The administration wanted to use Fannie and Freddie to help more Americans refinance after millions of them were stuck in high-interest-rate mortgages. Democrats said letting those homeowners refinance would help stimulate the economy. DeMarco was seen as dragging his feet or outright blocking some of those efforts.”
“DeMarco was starting to wind down Fannie and Freddie and tighten credit. Watt is expected to keep the money flowing more freely to the mortgage market.”
The American Genius. “Watt has been and continues to be at the center of various controversies, for example, Watt supports the Stop Online Piracy Act (SOPA), mocking critics by saying that it is ‘beyond troubling to hear hyperbolic charges that this bill will open the floodgates to government censorship.’”
“Watt was found guilty of racial gerrymandering in his district in 1994 and his response to a 2009 investigation by the Office of Congressional Ethics was to slash funding for the Office, even though he was cleared of wrongdoing. Nearly a decade ago, he went head to head with Ralph Nader who demanded and never received an apology for Watt’s racist rant, allegedly stating, ‘You’re just another arrogant white man — telling us what we can do — it’s all about your ego — another [expletive] arrogant white man.’”
“In 2009, Ron Paul’s bill HR 1207 called for mandatory audits of the Federal Reserve, and in subcommittee, Watt altered the bill so substantially that all audits were essentially removed, a move which Paul said left nothing ofthe original bill. When Paul called for the bill to be restored, Chairman Barney Frank sided with Watt. The stripping of the bill was suspect as Bank of America is headquartered in Watt’s district and threatened to leave.”
From Reuters. “By Elyse Cherry. Most news stories today focus on overall foreclosure numbers dropping and home prices rising, but the truth is more nuanced. Prices are indeed up in some wealthier neighborhoods, and foreclosures are dropping in many communities.”
“But the big foreclosure statistics don’t include the significant number of delayed foreclosure proceedings still pending, and don’t capture the realities facing many communities with high concentrations of poverty. In these communities, where predatory lending practices were commonplace during the bubble, homeowners still need help, and vacant homes are commonplace. The effect on the overall housing market and local business is clear, as struggling owners hold back the consumer spending that drives our economy.”
“Even the oft-cited ‘improving’ national numbers remain far worse than they were before the bubble. There are 1.3 million homes in some state of foreclosure or owned by banks. The foreclosure crisis continues — and it affects us all.”
“Too much of our policy on the foreclosure crisis has been driven by a misplaced emphasis on ‘moral hazard.’ Experience shows that these homeowners are not the irretrievable deadbeats that some creditors claim them to be. The entire U.S. economy was taken in by the housing bubble. At my organization, we have learned that our clients pay on time when given a loan payment that they can afford.”
“It makes no sense to sacrifice our entire economy in the name of a single ideological principal, which has hardly been enforced consistently over the last decade. When this same crisis threatened the livelihood of our largest financial institutions, moral hazard was put aside in the name of economic stability, and the government provided generous aid packages to help them weather the storm. The role our homeowners, families, workers, and local small businesses play in the economy is deserving of equal respect. Moral hazard should not be our first concern; we need to stay focused on the best choice for the big picture.”
“Currently, in the name of moral hazard, the FHFA — which Watt will run if his appointment is confirmed — prevents homeowners who have loans backed by Fannie Mae and Freddie Mac from taking part in programs that reduce the principal owed on a mortgage. My organization has had great success by buying homes at or beyond foreclosure and reselling them back to struggling homeowners with mortgages they can handle. But we are currently barred from working with any of Fannie and Freddie’s legions of underwater borrowers because the FHFA refuses to allow the government-sponsored enterprises to sell homes — even in foreclosure — to firms like ours, which offer borrowers a reduced principal balance.”
“Banning participation in principal reduction only prevents Fannie and Freddie from recouping some of their losses, and forces homeowners to remain in unwinnable situations. We have been able to reduce our clients’ monthly mortgage payments by almost 40 percent on average, and they overwhelmingly pay their new mortgages on time. Fannie and Freddie are strengthened by getting a fair market price for loans in foreclosure, without the costs associated with repossessing and reselling the homes.”
“We need new leadership at FHFA so we can have a clear, real conversation about what works, what doesn’t, and what’s right for our communities and our national economy.”
A comment to the Reuters opinion piece:
‘“The entire U.S. economy was taken in by the housing bubble.” Actually, there were a lot of people who were not taken in. However, there were a also lot more people who wanted to believe that they could use money that they borrowed from someone else to buy an endlessly appreciating asset and then repay their loan with roughly the same amount of money that they would be spending on anyway on renting each month.’
Another:
“Do some research on how Boston Community Capital makes its money – yes, this non-profit has an income of approximately $1.2 Million for 2011.
Elyse Cherry – made $313K in 2011 and $261K in 2009 (that’s quite a raise for a non-profit) running Boston Community Capital – it is able to attract capital because it is a CDFI – Elyse’s non-profit , BCC, has the ability to give out Federal Corporate Tax Credits to Big Banks who invest money in Boston Community Capital projects. All of us working stiffs will have to pay more in taxes in order for Ms Cherry’s non-profit to thrive and Ms Cherry can laugh all the way to the Bank.
Here is an article on New Market Tax Credits from the US Treasury being assigned to Boston Community Capital.
http://www.bostoncommunitycapital.org/ne ws/75-million-new-market-tax-credits-awa rded-boston-community-capital
Rebecca Regan – the COO of BCC was paid $222K in 2011
Andrew Chan – of BCC was paid $243K
Sharon Shepard of BCC was paid $223K
5 other people made in the $100K-$150K
So Elyse and the rest of the Boston Community Capital have no skin in the game and the more homeowners that get caught in foreclosure means there are more people for Elyse to profit on.
The Sun Initiative is the way Elysee invests the money she gets from the Big Banks, then the Big Banks get to reduce their future corporate income with Tax Credits BCC hands to the BANK.
Elyse is making a great living by giving away our/yours future Tax dollars. I wish Ms Cherry would be honest and admit how she makes her money. How many folks do readers know at for profit companies who have seen a 20% raise since 2009 ( Elyse made $261K in 2009 and in 2011 made $313 – I’m curious to see her raise for 2012).”
The entire
U.S.global economy was taken in by the housing bubble“Banning participation in principal reduction only prevents Fannie and Freddie from recouping some of their losses, and forces homeowners to remain in unwinnable situations. We have been able to reduce our clients’ monthly mortgage payments by almost 40 percent on average, and they overwhelmingly pay their new mortgages on time.”
Who gets to pay for these 40 percent reductions in mortgage payments for a protected class of U.S. citizens?
‘New Market Tax Credits from the US Treasury’
Sweet deal if you qualify!
Half a decade ago, a poster here used to regularly opine, “Cramdowns are coming.”
Is it finally true? Are cramdowns upon us now?
Who pays for these? Or do hundreds of thousands of dollars just flow into household balance sheets like manna from heaven?
Who cares who pays? Why should anyone have to pay? Just so the money flows is all that really matters.
‘Are cramdowns upon us now? Who pays for these?’
By definition a cramdown would mean the creditor is forced to take a reduction in the amount loaned. For the GSE’s, that would ultimately be the bond holders. Seeing as how the GSE’s have to go to the bond market for billion$ every week, it seems unlikely they would receive any more billion$ if they did that. It would end the GSE’s flow of cash overnight. The housing market would lose 90% of its financing. Housing prices go down.
I smell a rat. As we’ve discussed before, any meaningful reduction in principle across the board would serve to lower house prices. More borrowers underwater, more foreclosures, etc. So I’d guess we will see some political opportunism about small reductions, like HAMP/HARP (foaming the runway), with a little pocket stuffing on the side like this non-profit seems to be doing.
Look at what this guy has done in the past. He’s in the pocket of wall street.
By definition a cramdown would mean the creditor is forced to take a reduction in the amount loaned. For the GSE’s, that would ultimately be the bond holders.
No, Ben—the bond-holders were given explicit federal guarantees.
So the reduction in the amount loaned will have to be paid for by the US taxpayers, no one else.
‘the bond-holders were given explicit federal guarantees’
The pensioner’s in Detroit were given guarantees too.
The bond holders are the only ones with money. The Federal government doesn’t have any money. They can issue more bonds. Opps!
The pensioner’s in Detroit were given guarantees too.
Those “guarantees” weren’t worth the paper they weren’t written on. The underlying reality remains the same: promising to spend what you do not have and cannot get ends in tears.
“By definition a cramdown would mean the creditor is forced to take a reduction in the amount loaned.”
Don’t federally guaranteed mortgages make ‘the taxpayer’ the creditor?
It seems like the way forward for U.S. housing policy is to externalize the cost of bad loans away from the lenders who made them and the borrowers who used them to buy houses they couldn’t afford.
‘Don’t federally guaranteed mortgages make ‘the taxpayer’ the creditor?’
Who says it’s all mortgages? We don’t know what the GSE’s have stacked up in the Caymans. Is it interest rate related derivatives?
Anyway, I say bring it on Mel. Let’s take the housing market down at the knees. I’m sure he can unilaterally spend a trillion or two as the government contemplates cutting social security, etc.
‘Who cares who pays? Why should anyone have to pay?’
I can’t resist; If you want your house, you can keep your house.
“If you want your house, you can keep your house.”
+1 You should register that before Shaun Donovan does.
“Who pays for these? Or do hundreds of thousands of dollars just flow into household balance sheets like manna from heaven?”
Who pays for stock market losses?
Those who own stock.
Who pays for cramdowns on debt in bankruptcy?
Those who hold the debt (or sold the credit default insurance).
Who pays for cramdowns on pension oblications?
Those who were due the pensions (or those who guaranteed the pension promises).
In many cases, it’s complicated…since the debt is held often by pension funds, the ultimate payee on the cramdown could ultimately be a beneficiary of the entity that holds the debt.
Aside from the fact GSE’s and GSE-like organizations exist solely to enslave the public with their 15 and 30 year mortgage “products”, they are entirely corrupt. Back room deals in the tens of millions, nepotism and no-show jobs and an army of people who have no nose for bull$hit out there yapping how altruistic these rotten corrupt outfits are.
Open the books, expose the theft, prosecute, shut them down.
‘Open the books’
Yesterday we discussed the Japan Model of dealing with bubbles. One thing the Japanese did was to hide massive amounts of bad corporate loans in off-shore entities. This is illegal in the US. Enron did this, BTW.
So I wonder, what ever did happen with the thousand or so of off-shore special purpose entities the GSE’s created? Gee, you’d think some one other than a non-journalist blogger like myself would want to know.
eh heh….
all sea channels lead to the FR.
“Housing is a depreciating asset and a loss, always. Your losses are magnified tremendously if you finance it.”
BINGO
“Game Over for Real Estate: Time to Short US Housing Market”
http://www.nomadiccapitalpartners.com/short-us-housing-market/
Obviously this article doesn’t take into consideration changes at the top of the FHFA.
Millions of homeless people, millions of houses sitting empty and falling to ruin. This is what happens when you let your country be ruled by money.
‘Finding an affordable apartment can be a challenge. The task can be especially difficult in Los Angeles where over 52 percent of residents are renters.’
‘While most financial planners would recommend that an individual spend no more than 30 percent of his or her income on rent a new study released Monday by the Joint Center for Housing Studies at Harvard University found that more than half of americans living in rentals now spend more than the recommended percentage.’
‘Twenty-seven percent of renters actually spend more than half of their income on rent. As people devote more money to rent, they have less disposable income to spend elsewhere, which ends up harming the economy as a whole.’
From the comments:
‘Kelly: My husband and I are in our 40’s and have 2 elementary school aged kids. We’ve been renting our house for about 4 years in Highland Park. Our rent is close to 3000.00/month. Now our landlords are selling the place and want almost a million dollars for it. We had hoped to buy it but it’s out of the question at that price. The houses in our price range….$600-700K….are all small, broken down fixer-upers in weird places. Ugh.’
‘Kelly, Your biggest mistake was not buying a house you could never possibly afford back in 2005 with an exotic interest only adjustable rate mortgage. Then you would be a proud homeowner today.’
‘I used to own and it was eating up 50% of my income, now that I’m renting, I’m able to afford other things besides food. I don’t dream of owning a house anymore, not in LA.’
‘You know if the housing market was allowed to correct back in 2008-2009, maybe people could’ve moved into homeownership. But Kamala Harris said that’s a bad thing.’
‘It’s simple economics and the fall of America through greed. When the middle class is eliminated and workers can’t make a living wage to afford even rental housing the economy topples. When corporations show billions in net profits while 90% of the population can’t afford housing what does it look like? Stay tuned.’
‘Want to get rents down? Get house prices down. Want to get house prices down? Rework Prop 13 so IT ONLY APPLIES to the ONE HOUSE (make it even better - it only applies if you are a US citizen, state resident, and live full time in the house) you live in. Everything else is fair game and isn’t protected by Prop 13. That will put a stop to house flippers, bank/hedge fund hoarding, and people who feel a need to own 18 houses and drop the prices to affordable levels.’
‘Since rents are tied to the underlying property value, and politicians we elect like Kamala Harris and Mike Feuer have repeatedly said that appreciating property values are a good thing and falling property values are always bad worthy of government interference and regulations, why are we complaining? After all we need to get back to a world where houses in Palmdale are worth $600,000. Kamala Harris said so.’
Money! MONEY! MOOOOOOOOONEY!
“The lack of money is the root of all evil.” - Rev. Ike
Honey, whaddya do for money?
Honey, whaddya do for money?
Yeah, whaddya do for money honey, how you get your kicks?
Whaddya do for money honey, how you get your licks?
Rev IKE iz dee mon!!
http://www.youtube.com/watch?v=fgtU9Y1YN1k
Rev. Ike: “No one has a right to be a parasite”
http://www.youtube.com/watch?v=eskhhls0D1w
‘I used to own and it was eating up 50% of my income, now that I’m renting, I’m able to afford other things besides food. I don’t dream of owning a house anymore, not in LA.’
Great response.
52% of L.A. people rent? There, that is the reason you see so many people driving cars like they own the world: BMW M6, Infiniti, Lexus, Jaguars, Mercedes Benz - all over LA County.
In Orange County it’s different. More home moaners than renters where I’m at. The traffic jams are full of hondas, Toyotas, Kias, Hyundais, Mustangs, Camaros, domestic brand SUVs. It is a big noticeable difference.
But I also noted this in the SFH neighborhoods of the South Bay part of L.A. where it was obvious people owned. No snob cars.
I can have a snob car I know. A neighbor renter has a fancy Mercedes Benz that I drool over but I have better plans on what to do with my money. My 2003 (bought in March 2003) Toyota will cross 75,000 miles next weekend as I drive home to Arizona for the balance of the year.
When I was a renter in SoCal most of my neighbors drove beaters.
Talk to your buddies in Washington, DC, about this. They have more wealth among them than does any other metropolitan area in the country.
You might wanna check in with your buddies in New York City and San Francisco as well. They, too, are remarkably well off.
The geography of wealth matters, as do the voting patterns within the geographies.
‘Mortgage rates are impacted by the loan amount, and eligibility for a loan can be impacted as well. The vast majority of home loans are ultimately funded by Fannie Mae, Freddie Mac or the Federal Housing Administration. These agencies set limits on the maximum loan amount they will make, and since about 2009 loan amounts of $417,000 have been restricted to certain high cost areas and currently are capped at $625,500, except for FHA, which is $729,750.’
‘As the federal government tries to decide the degree that it wants to be involved in the home loan business, there was considerable speculation that the first shoe to fall would be to lower loan limits in high cost areas, which around here includes Eagle, Summit, Pitkin and Routt counties.’
‘The thought of this change rightly caused alarm in groups such as the National Association of Realtors and many mortgage industry groups who lobbied heavily against the change. Mortgage money is the cheap gas that keeps the real estate economy train moving.’
‘The head of the Federal Housing Finance Agency (who oversees the other government agencies that actually lend the money) made the long anticipated announcement and said that for 2014 at least, loan limits would not change.’
‘This means home buyers in Eagle County and the surrounding areas will find it easier to qualify and get a lower rate if they need a conventional loan between $417,000 and $625,500. The rate will be about 1⁄8 percent higher on a loan of this size than a loan under $417,000 and the down payment requirement will be at least 10-20 percent. But qualifying for a conventional loan such as this is generally easier than a portfolio loan.’
‘For those who need a loan of more than $417,000 but are down payment challenged an option for an owner occupied purchase would be a FHA loan, which can go to $729,750 and only requires a 3.5 percent down payment.’
‘This combined with a couple of other bits of good news lately should help the real estate market stay on course. Fannie and Freddie recently announced that buyers who had experienced a shortsale or did a deed-in-lieu of foreclosure would be eligible to apply for a new purchase money loan within 36 months (previously that was a 7-year limit).’
Considering we’re profitable building new structures anywhere in the country at $55/sq foot(lot, labor, materials and profit), why pay more than $35-$40/sq ft for a 20+ year old house?
‘Lender forgave payments to avert Mozilo PR crisis, borrower insists. Countrywide forgave mortgage payments to end a PR mess involving a misfired email from Angelo Mozilo, a borrower says. Now, BofA threatens foreclosure.’
http://www.latimes.com/business/realestate/la-fi-live-for-free-20131214,0,4150658.story#ixzz2nWDizYVB
‘A spokeswoman for the U.S. Attorney’s Office in Fresno said Friday that former Bakersfield real estate mogul David Crisp will appear at a change of plea hearing Monday, along with his wife, Jennifer Crisp. Both are among 15 defendants in the long-running case.’
‘The other main man behind Crisp & Cole Associates, Carl Cole, admitted guilt to conspiracy to commit mail, wire and bank fraud during a federal court hearing last month.’
‘David Crisp and Cole were accused of scamming millions of dollars out of banks and mortgage companies between 2004 and 2007. They allegedly submitted fraudulent loan applications with material misrepresentations.’
‘David Crisp has agreed to plead guilty to conspiracy to commit mail, wire and bank fraud, according to a document filed Friday in court. Fifty-five other counts will be dismissed. Jennifer Crisp will plead guilty to mail and wire fraud. David Crisp’s plea deal is contingent on his wife also pleading guilty, according to his agreement filed in court.’
‘David Crisp faces a maximum of 30 years in prison and a $1 million fine under his agreement. His wife faces a maximum sentence of 20 years in prison and a $250,000 fine.’
California is ground zero for housing fraud by realtors and mortgage salesmen.
And today we saw a report about some CA prices hitting “bubble highs.” Boy, nothing wrong with those prices, considering they were based on the craziest lending and fraud in the history of real estate. If Crisp and Cole hadn’t got caught, they’d be considered geniuses by the media today.
considering they were based on the craziest lending and fraud in the history of real estate.
Not only that, but don’t forget that the economy actually had more good-paying jobs back then!
The fact that we could return to bubble heights this quickly is pretty mind-blowing, particularly considering how much worse the economy is…
The classic definition of O.P.M.!!…
‘“The entire U.S. economy was taken in by the housing bubble.” Actually, there were a lot of people who were not taken in. However, there were a also lot more people who wanted to believe that they could use money that they borrowed from someone else to buy an endlessly appreciating asset and then repay their loan with roughly the same amount of money that they would be spending on anyway on renting each month.’