The Essence Of The Housing Industrial Complex
Some housing bubble news from Wall Street and Washington. The Washington Post. “The agency that oversees Fannie Mae and Freddie Mac said this week that it might soon lower the downpayment requirements from five percent to three percent for loans backed by the two firms. The Federal Housing Administration, a popular source of low downpayment loans, may soon consider lowering the fees it charges borrowers on the loans it insures. The nation’s top housing official, Housing and Urban Development Secretary Julian Castro, recently said it’s time to ‘remove the stigma’ tied to promoting homeownership. Castro said boosting the homeownership rate is at the top of his agenda.”
“The nation’s home ownership rate jumped, from 43.6 percent in 1940 to 64 percent in 1980, where it stayed for many years. The norm for downpayments settled at about 20 percent around that time, but the low-downpayment loans continued to be available for borrowers who met relatively strict criteria. That went by the wayside as home prices soared at the start of the past decade.”
The Associated Press. “Experts say it’s hard to predict whether the regulators’ move will actually boost mortgage lending and the housing market. Anthony Sanders, a real estate finance professor at George Mason University, also suggested that it could re-open the door to risky lending. ‘The problem facing the housing and mortgage markets is too few borrowers with sufficient income to pass debt-to-income rules,’ Sanders said. ‘Lowering the down payment requirement misses the point. So now we are putting poorer households in low-down payment loans - again?’”
“The decision of the regulators to drop the 20 percent down payment requirement for banks to escape ’skin in the game’ for mortgage securities was a big win for finance industry lobbyists and advocates for affordable housing, noted Cornelius Hurley, a former counsel to the Federal Reserve who heads Boston University’s Center for Finance, Law and Policy. The regulators’ work on the rules ‘attracted the essence of the housing industrial complex,’ Hurley said. ‘They all came out of the woodwork.’”
The Atlantic. “‘What I’m paying for my mortgage is less than what I was paying in rent,’ says Yasmine Parrish, a 28-year-old marketing professional who recently purchased a home in Los Angeles. Parrish’s mortgage broker helped her find a program for first-time buyers that allowed her to put down 5 percent instead of the standard 20 percent.”
“Why aren’t all young would-be homebuyers just taking advantage of the low down-payment options offered by these plans to get into the market before prices rise further? Not everyone has access to the programs that can shrink a down payment, and even for those who do, such help may not be enough. ‘Typically the down payment is the biggest hurdle for a homebuyer’ says Ken Fears, director of regional economics and housing finance at the National Association of Realtors. Some programs, like Fannie Mae’s Community Home Buyer’s, require a 5 percent down payment, a sum that still makes saving a difficult proposition for many young people, particularly those in areas with quickly climbing home prices, such as San Francisco and San Diego. States like North Carolina and New Hampshire, have particularly well-regarded programs that allow for down payments of about 3 percent.”
“In competitive areas, where homes are scarce and multiple bids are common, an affordably low down payment can be limiting. ‘You’re not very competitive. If you’re going into a house with multiple offers and they see 3 percent down versus 10 or 20 percent down, they’re not going to go with your offer,’ says Anne Simpson, a 27-year-old teacher and prospective homebuyer in Washington D.C.”
Mortgage News Daily. “The latest Fannie Mae Lender Sentiment Survey discusses compliance costs and how much it costs. Most lenders (72%) reported that recent regulations have had a ’significant’ effect on their business. Critics ask what the Agencies are doing about that. Mid-sized lenders reported a 50% increase in compliance spending. Note that most lenders are worried more about compliance risk than volume decrease risk.”
“Let me know when all of this starts reminding folks of 2004, or even 2001 when Cuomo encouraged increasing home ownership. Of course it will take a while for aggregators to go along for the ride, although many depository banks have been at 97% for portfolio products for quite some time. And the big guys have already removed dozens of credit overlays. And why not - Fannie and Freddie have gained immense market share with small and mid-size lenders already, and the Wells and Chases of the world have to compete. LOs, when thinking about making a move, will tend toward the companies that will close these loans. So good mortgage companies lose originators - a wonderful spiral. On the other side of the fence are lenders grappling with buybacks from the Agencies - they will be much less inclined to increase LTVs or accept lower credit scores based on a ‘flawed GSE academic theory of increasing home ownership rates’ (as one CEO who wrote to me observed). And lenders just want buyback criteria better spelled out!”
“Congress, of course, has been unable to do anything by itself in terms of GSE reform. So the MBA, FHFA, and others are taking matters into their own hands. Eliminating F&F without an effective replacement would devastate the market, so let’s change them to suit the marketplace.”
“Turning to lenders…On Q Financial, Inc., is introducing non-QM loan programs. ‘On Q’s new non-QM loan products include solutions for self-employed or recently retired borrowers, individuals with a short credit history or flawed credit from a past short sale or foreclosure. On Q will also be offering debt-to-income ratios up to 50% on certain products and introducing a 40 year amortization Jumbo loan with an interest-only option in the weeks to come. In addition, On Q, a FNMA, FHMC and GNMA approved seller/servicer is also relaxing its underwriting credit overlays.’”
“Impac Mortgage Corp. Correspondent has an innovative bank statement program product which serves the self-employed. Unique features for borrowers include: Up to 50% DTI, down to 680 FICO, 5/1, 7/1, 10/1 ARMs, LTVs up to 80%, Cash out up to $350,000 on primary home, Loan amounts up to $2M. LDWholesale announced a New Jumbo Product. Loan amounts up to $3,000,000, 2-4 unit loans available, cash out refi’s on second homes and investment property permitted to $1,000,000 for purchase and rate term refi’s.”
From Highlands Today. “More than 60 percent of the 5,403 homes in the past three years have sold for cash, said Steve Fruit, a broker associate with RE/MAX Realty Plus II in Lake Placid. A good deal of the cash comes from Northern retirees, and Highlands County prices are more affordable than the homes they buyers sold in coastal Florida cities or large metro areas, Fruit said.”
“‘I think what we’re seeing is a return to a healthy market,’ said Chip Boring, RE/MAX broker in Sebring. However, he’s seeing a few unhealthy signs. ‘And it’s scaring the hell out of me. Online, they’re starting to offer no-verification loans,’ Boring said. Not requiring borrowers to prove their income was one of the causes of the real estate bust.”
“Realtor Arrested After Allegedly Asking Prostitute To Arrange Sex With Teen”
http://www.nj.com/monmouth/index.ssf/2014/09/brick_realtor_arrested_after_allegedly_asking_prostitute_to_arrange_sex_with_teen.html
A few of the comments at bottom of page;
“There is an epidemic of sex crimes and criminality among New Jersey Realtors.”
“They should all be required to pass psychological evaluations before receiving their licenses.
“What is wrong with these sicko realtors? In Bergen one beat another to death and another two were using an overpriced vacant house for sex trysts. No wonder they can’t sell anything. Too busy being sicko’s!”
It gets better…
“They’re sick all right. . . . Very sick! . . . Two of three “Real Estate Professionals” involved in my purchase of a house qualified as “sickos”: One was Margate, NJ’s Mark Arbeit, a realtor who was bounced from his post as an assistant elementary school principal on account of bizarre goings-on about which you can read in The Washington Post’s archives for June 20, 25 and 26,1987; the other was Gary Stephen Diamond, a mortgage broker who was busted in a “Catch a Predator”-type sting run out of Florida back in the Summer of ‘08. . . . NJ’s Department of Banking and Insurance was totally uninterested in either of these guy’s shenanigans. Arbeit’s still a very successful realtor; Diamond has since left the real estate rackets and works as a used car salesman. . . . Moral of the story? Buyer beware! . . . Seller too!”
“The nation’s top housing official, Housing and Urban Development Secretary Julian Castro, recently said it’s time to ‘remove the stigma’ tied to promoting homeownership. Castro said boosting the homeownership rate is at the top of his agenda.”
Same tired playbook; different players.
“‘The problem facing the housing and mortgage markets is too few borrowers with sufficient income to pass debt-to-income rules,’ Sanders said. ‘Lowering the down payment requirement misses the point. So now we are putting poorer households in low-down payment loans - again?’”
It’s hard to believe this could happen again after only six short years since the near-collapse of the global financial economy in no small part due to subprime lending to low-income American households. Are political memories really that short?
There is a big organized donating constituency for it now and no constituency against it until the SHTF again.
The only truth is the truth of the weight of the dough in their pockets.
“…no constituency against it until the SHTF again.”
Sounds to me like a terminal case of collective political amnesia.
They remember prices dropping and don’t want that. Most people don’t want that.
They “remember prices dropping and don’t want that” so they do the very things which caused it? Huh?
“The only truth is the truth of the weight of the dough in their pockets.”
Elizabeth Warren understands this principle.
There are rumors she may run for President, and if she actually won (I have my doubts) we would undoubtedly see another chameleon act a la Obama. Once a President is elected, the marionette strings are attached.
They’re fighting a demographic wave and a massive oversupply, and will ultimately fail. But not without first creating a new regime of widespread debt misery.
“They’re fighting a demographic wave and a massive oversupply…”
+1 And the supports are wobbling like a new born calf’s legs.
A thousand Wall Streeters went to jail for the S&L crisis; not a one has gone to jail for the much bigger 2008 Debt Crisis. The architects of the crisis, both politicians and business people, have not been punished. They’ve in fact been protected and their profits saved, and enhanced by politicians who put the taxpayer on the hook.
None of the players are going to change the play calls because those plays win the game for them. Not even Joe Cassano, the “Patient Zero” of the debt crisis, suffered an iota of financial loss. Instead he became wealthy enough so his future generations would never have to work.
HOWEVER: These policies of encouraging more and more debt are deflationary, ( especially in a society at peak debt, because it has to be paid back; that’s the definition of debt. Otherwise it’s merely money printing or money transfer if the lender holds the debt). That’s a drag on spending. It ossifies society and makes it less heterogeneous economically.
But it’s not like the central bank will just sit back and let its members’ profits erode. It’s increasingly broad mandates and powers include keeping banks healthy. So it’s always going to act in ways to favor debt increase - that’s a bank profit model.
Net result? I think continued stagnation. We see it in Japan, with Abenomics being the frenzied pinnacle of orthodox Keynesianism. Krugman himself said, “Japan is the model.” Indeed they are.
The concept of borrow and printing one’s way to prosperity seems absurd. If it were possible, Zimbabwe and Haiti could be fabulously prosperous. Instead prosperity comes from generating desired goods and services and perhaps financial products (desirable logical constructs). And from fiscal discipline, to keep it going for future generations.
We have reached a permanently stupid plateau.
+1
how many gov workers and agencies are we paying to pimp RE ?
uber alies
There was a big debate about who was responsible politically last time. Was it the CMRA or other factors. This time it is playing out in real time. Same people who wanted it before want it again. But we get n00bs who weren’t in office or higher office then having to go on the record now.
Mo Credik. More shrimp cocktails for the Rockefeller Rinos too.
The NAR has almost never promoted “home ownership” in the sense of owning the home outright. They want a burnt mortage about as much as the American Cancer Society wants a cure for cancer; which is, not at all.
That said, the best way to promote home ownership is to promote 15-year career jobs. Do that and home ownership will take care of itself.
They’ve made it clear that they don’t give a crap about the debt misery that ensues from people buying exorbitantly overpriced houses, as long as they book their commissions. If they did, they would support housing policies that are the exact opposite of what they do support.
only gov has a cozy guaranteed job
“‘What I’m paying for my mortgage is less than what I was paying in rent,’
Yet rent was half your current total monthly costs. Sucker.
Well at least you’re getting closer by saying “cost.” If I add in the HD stuff I did and had done, the mortgage approaches the rent. But not twice as much.
You’ll abandon your liar math eventually but it will be much too late.
Eventually we’re all dead. But in the meantime I can spend my feeble years in a house with no stairs.
Data Donk data.
“I have so much money left after “throwing money away on rent” every month that I don’t know where to throw it”
You better believe it.
I call BS. Where is this mystical magical house in LA that she purchased that was less than her rent, especially at 3% down?!?! I live in LA and have 20% down and I still couldn’t make anywhere pencil out anywhere close to my rent.
No thanks sister. I’m just going to hold on to every penny I can get my hands on. I think I’m going to need it.
says Anne Simpson, a 27-year-old teacher and prospective homebuyer in Washington D.C.”
The younger they are, the dumber they get.
“In competitive areas, where homes are scarce and multiple bids are common, an affordably low down payment can be limiting. ‘You’re not very competitive. If you’re going into a house with multiple offers and they see 3 percent down versus 10 or 20 percent down, they’re not going to go with your offer,’ says Anne Simpson, a 27-year-old teacher and prospective homebuyer in Washington D.C.”
Is this factually correct or more Stealtor BS? Why care about the down payment? You’re still getting paid. The seller is still getting the asking price. Full Cash, I could see mattering. A small difference in down payment, who’d care?
Sounds like more horse hockey.
It’s total BS. When I was house shopping I had the full 20% down (based on the price range I was looking at) and I constantly lost to idiots with 3% down and OPM. Sellers didn’t seem to care about anything except how much $$$ was gonna end up in their pockets.
For what it’s worth we’ve been renting in a better neighborhood than we could have bought in, and it’s the same monthly cost, so I consider it a wash. I’ve still got the down payment money too.
Back in 2006 I griped that, if I made an offer on a house, it would be based on real money that I had earned and saved, whereas prices at that time were based on credit that people who did not save money could access to outbid me. That scenario has yet to be repudiated by anyone in a position of political or economic influence, and I don’t expect it to be. Would Bernanke get $250,000 per speech if he said that?
Lowering downpayment requirements is a stupid move by overconfident, corrupt and utterly feckless “leaders.” The next crash will be horrifying and I expect it to take down democracy.
Sellers didn’t seem to care about anything except how much $$$
HBB likes to say screw the sentimental value, they’re gonna buy the shack at the lowest price possible. So a seller should have every right to say: screw who the new owners are, I’m outta here, I’m gonna sell the shack for the highest price possible.
it works both ways.
We’ve got a few socialists around here, but I’m not one of them. The only thing I’ve asked of loan owners is, please don’t take the dishwasher when you get kicked out.
“‘What I’m paying for my mortgage is less than what I was paying in rent,’ says Yasmine Parrish, a 28-year-old marketing professional who recently purchased a home in Los Angeles. Parrish’s mortgage broker helped her find a program for first-time buyers that allowed her to put down 5 percent instead of the standard 20 percent.”
The savvy under-30 homeowners are back!
You create toxic debt bubbles with the first-time homebuyers that you have…
There’s always a new generation of inexperienced marks coming on-line. For the past 10 years, they’ve been nailed hard for education debt and others for housing debt. Some for both.
It’ll be an interesting time when people realize that neither housing, nor education need to be so expensive; and that they are expensive due almost solely to Wall Street and political manipulation.
Without government backing of mortgages, one would not see these huge mortgages being generated.
“The nation’s home ownership rate jumped, from 43.6 percent in 1940 to 64 percent in 1980, where it stayed for many years. The norm for downpayments settled at about 20 percent around that time, but the low-downpayment loans continued to be available for borrowers who met relatively strict criteria. That went by the wayside as home prices soared at the start of the past decade.”
“That went by the wayside as home prices soared at the start of the past decade” …
Could/should read: “Home prices soared at the start of he past decade because that went by the wayside.”
The target for the next round of looting and collapse is not these ‘wealth-less’ retread real estate couples, but the reasonably well-heeled middle-class ETF suckers who are unaware that their paper equity is the next target for collapse-shock looting by those few at the controls of this fixed casino.
‘Whether it’s appropriate for the federal government to encourage low-down-payment lending remains a point of intense controversy in Washington. “We shouldn’t obsess about down payments,” said Julia Gordon, director of housing policy at the liberal Center for American Progress. “Research confirms that low- down-payment loans to lower-wealth borrowers perform very well if the mortgages are well-underwritten, safe and sustainable.”
‘It’s imperative for policymakers to figure out how to do safe low-down-payment lending, Ms. Gordon said, because the majority of new home buyers in coming years will be minorities from lower-wealth backgrounds who “lack access to the Bank of Mom and Dad.”
First, the “working poor” became “low-income,” and now it’s “lower-wealth”? That’s a new one.
Note how the entire notion of “income” has been completely removed from the equation, because, as Janet Yellen says, what the poor need to do to get rich is get some assets, asap! (Ideally assets they can borrow against.)
What a great way to sustain and expand the cycle of debt and poverty, implying to “lower-wealth borrowers” that they might someday be “higher-wealth”, if only they could get that 6-figure loan.
No, I think the lib has a point here. What is more important for making payments: a one time loan from rich Dad, or 30 years of howmuchmonths? (they could have left race out of it.)
The income verfication — along with paying full amort from Day 1 — will be enough to ensure that people aren’t buying above their price range. It will also keep prices from peaking and crashing again.
That said, I think 43% is a bit high for DTI. I think we’re gonna need those stable prices. When the pretty young things have kids/cars/layoffs and can no long fork over 43%, at least they won’t be underwater, so they can sell and go rent.
We gave up many years ago when it comes to wages, because we decided that we wanted to have everything made by disposable Asian slave labor. There are costs, however, that don’t appear on the Wal-Mart price tag. We forgot about those.
As for the “intense controversy in Washington,” how hard it is to say that there is no such thing as safe lending, or that lending money shouldn’t be safe? Somehow both of these became profoundly heretical propositions, the equivalent of Taleb’s black swan.
‘If the definition of insanity is “doing the same thing over and over again and expecting a different result,” then clearly Albert Einstein is not responsible for America’s housing policies.’
‘Federal Housing Finance Agency director Mel Watt on Tuesday unveiled new regulations that would make it easier for Americans to buy a house with little or no money down. The rules are aimed at private lenders who opposed a proposal that borrowers make a 20% down payment.’
“Finalizing this rule represents a major step forward to providing greater certainty to the housing finance market and paves the way for increased participation by the private sector,” Watt said Tuesday at the Mortgage Bankers Association’s annual conference held at the Mandalay Bay in Las Vegas (A casino? Really? The optics couldn’t be worse.)’
‘The root of all this insanity is a housing market that not only needs the Fed to keep rates at zero “for a considerable time” but also massive government-sponsored subsidies to maintain altitude. In sum, we’re going back to relying on banks to verify borrowers’ ability to repay loans with little or no money down while Fannie and Freddie are lowering limits on what loans they’ll guarantee. What could possibly go wrong?’
‘Somewhere a young Angelo Mozilo — maybe even the former Countrywide CEO himself — is preparing to launch a new venture aimed at lending to Americans with poor credit and/or little savings for a downpayment. After all, it’s a very lucrative business…and if things go awry, the taxpayer bails you out.’
This is a long post, but I think it’s important:
A couple years ago (2011?) on HBB I sent people to Regulations dot gov to write a comment on the proposed Qualified Residential Mortgage rule. This is the same proposed rule, and now it’s almost final.
I believe that this rule will NOT reinflate the housing bubble.
The rule stipulates that a bank must retain 5% of the risk of any loan that it originates. That is, when it wants to sell a loan to JP Morgan or Fannie Mae, it can only sell 95% of the loan. The fight was over whether to exempt home mortgages. Banks wanted to sell 100% of home mortgages, not 95%. Originally, the proposed rule said: if you have 20% down, banks can sell 100% of the loan. The final rule changed that. If the buyer has only has 5% down, the bank can still sell 100% of the loan. But in addition to the % down, the loan still has to meet all of these OTHER criteria too:
—————–
•Regular periodic payments that are substantially equal;
•No negative amortization, interest only or balloon features;
•A maximum loan term of 30 years;
•Total points and fees that do not exceed 3 percent of the total loan amount, or the applicable amounts specified for small loans up to $100,000;
•Payments underwritten using the maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment is due;
•Consideration and verification of the consumer’s income and assets, including employment status if relied upon, and current debt obligations, mortgage-related obligations, alimony and child support; and
•Total DTI ratio that does not exceed 43 percent
—————
[These requirements came from the Consumer Financial Protection Bureau.] Compared to the fogamirror of days past, those requirements are pretty stringent. All the stuff that got us in bubble bubble toil and trouble are effectively DE-nied. No more ARM, no more I/O, no more teaser rates, no more no-doc. No more “I can get you into this house.” No more “you can just refinance later.” Yes the DTI is a bit high, but since the loans are amortized from Day 1, the buyer will know that going in. These new requirements say — get a job, one that lasts more than a year, thank you.
We may get some strapped buyers, but I don’t think this will give us either a bubble or a bust.
———
If you’ve read this far, here’s another nugget. This rule applies to car loans too, and car loans have their own exemptions:
DTI of no more than 36%.
Verify the borrower’s income,
24 months of credit history (no 19-year-olds)
No bills more than 30 days overdue
no bankruptcies, foreclosures, repos in the last 3 years.
10% cash down, plus dealer fees, title, registration, warranties, and tax.
In other words, the poor who need cars will still be stuck with usury rates from outfits who retain the whole loan. On the other end, this will likely spell the end of $60K truck nutz (and none too soon IMO).
HA, this is for you: The rule has NO exemptions for auto and equipment leases. 5% retention all the way.
‘I believe that this rule will NOT reinflate the housing bubble’
You’re right about that, as the bubble has already been reflated and is now deflating again. There is more than one moving part here, but my initial take on it is, originators are on the hook for less and how many suckers will get thrown under the bus as a result?
The purpose of the rule is to prevent fogamirrors from bidding up runaway prices and foreclosing later, as happened in 2003-2011. The extra requirements in the rule alone are enough to do that, whether down payment is 20%, 5%, or 1%, or possily 0%.
Anyway, would asking for 20% instead of 5% bring on the much predicted second coming of craaaaater? Well, likely not. The current bubblet wasn’t caused by strawberry pickers with 5% down. It was investors with 100% down. This rule won’t change their behavior at all.
‘It was investors with 100% down’
Paying over asking price, etc. But any loan made is likely at similar prices to what the investors were/are paying. And note that we often see 25, 35, 45% of sales going to cash investors. (Many of whom finance it after the sale. See the post above for multiple house investor loans, like Jingle-mail’s GSE backed debt). That means the majority are using loans.
Not really. Its a price bubble without demand. You should understand what that means by now.
price bubble without demand
Oh there’s always demand. A price bubble is when the demand is for the profit from price appreciation, not for the product itself. Classic example — how many Dutch dudes actually like tulips?
Apparently not considering demand is at 20 year lows.
HA
I think you have hit unto something - “price bubble without demand” - because that does seem to be the case in specific markets where large purchases have been done by infestors and foreigners.
Nine trillion dollars of savings in the USA getting about 1.5% annual interest on average is removing about half a trillion in purchasing power from the economy - real money that has been used to lessen the gov’s deficits. The cheap money only seems to have increased stock and specific housing prices.
Until the markets are allowed to correct themselves I think these inefficient structural changes will continue to dominate.
“Until the markets are allowed to correct themselves I think these inefficient structural changes will continue to dominate.”
Anything is possible but this is doubtful. You’re already seeing how prices are sinking in every state.
Auto loans not to exceed 30 years also?
No, these mortgage rules apply only to mortgages. There are separate qualified loans for cars… see above. There does not appear to be a requirement for length of loan, but the 10% down + all the fees on top is killer enough, as is the credit history.
Here are my sources for explaining what this new rule will do the housing prices (that is, not much).
http://www.mortgagenewsdaily.com/10212014_qrm_rule_qm.asp
http://www.creditslips.org/creditslips/2014/10/credit-risk-retention-rules-and-qrm.html
It won’t do anything anyways. Demand is already at 20 year lows. This is why prices are falling again. A minor change in mortgages won’t change that.
‘Of course, those bubble years eventually came to an end, causing an economic meltdown of jawdropping magnitude. Now, in the wake of that historic lending-bonanza-turned-financial-crisis, federal regulators are concerned—but not that we might still be incentivizing people to take on more debt than they can realistically service. No, federal regulators’ concern is that the banking system isn’t making it easy enough for people to take out expensive mortgages.’
‘Luckily, they have a plan to help thousands of additional high-risk borrowers purchase homes they can’t afford. Sound familiar?’
Will the people running this scam have to eventually answer to the American voter? Or is it safe to assume that between Republicrat candidates and a dumbed-down, sheeplike American electorate, this reversion to subprime lending will get lost in the next electoral cycle amidst burning issues like Obamacare and abortion policy?
‘Sen. David Vitter, R-La., is reacting angrily to reports that mortgage giants Fannie Mae and Freddie MAC are planning to reinstitute support for mortgages obtained with down payments as little as three percent. The two quasi-public agencies last year increased the down payment requirement for most mortgage loans to five percent.’
“This is like déjà vu all over again of what prompted the financial meltdown in 2008,” Vitter said Monday. “It was Fannie Mae and Freddie Mac’s irresponsible lending to risky borrowers that led to their complete failure. They’ve already received close to $200 billion in bailouts, and moving backwards with this return to risky lending could make things worse.”
‘While Fannie MAE and Freddie Mack don’t make direct loans, they are huge players — purchasing loans from banks, and packaging them into securities. They guarantee to make investors whole if mortgage holders default on their payments.’
‘The likely move back to 3 percent down payments is part of a number of steps by the Obama administration designed to ease tight credit that some realtors say is hurting home sales — at least in some markets.’
‘On Monday, Federal Housing Authority Director Mel Watt in a speech to the Mortgage Bankers Association in Las Vegas announced new policies for bad lending practices that would trigger penalties. Watts said that enforcement against bad loans would continue, but that it would be triggered not by isolated violations but a series of violations.’
“We have started to move mortgage finance back to a responsible state of normalcy — one that encourages responsible lending to creditworthy borrowers while maintaining safety and soundness” Watt said in his speech.’
I’m sure the Democrats that post here have already fired off emails opposing this unilateral gift to the banks.
I have written my senators, once: I opposed the bailout in 2008. In return, I got short, substance-free formulaic responses (basically, “thank you for your input snake charmer!”) and I was placed on mailing lists.
It’s tough for anyone on the left to support this version of the Democratic Party, because once social issues are removed from consideration, there’s not a material difference between it and the GOP. Sen. Vitter is to be applauded for his position, but is that his party’s stance? They want REIC political contributions too.
The FIRE sector has enough political clout to have the government take on the risk of their business, while they keep the profit.
If that’s not parasitic, I don’t what is.
‘The National Association of Realtors® also issued a statement through their president Steve Brown. It said in part, “Realtors are confident that the new QRM rule will encourage sound and financially prudent mortgage financing by lenders while also ensuring responsible homebuyers have access to safe and affordable credit. The synchronization with the QM rule will provide lenders with much needed clarity and consistency as they apply the new standards to loan applications while also providing a framework to bring more competition to the secondary mortgage market.’
“Importantly, the final rule relies on sound and responsible underwriting rather than on an onerous downpayment requirement to qualify as a QRM loan. NAR strongly opposed earlier versions of the rule that included 20 and 30 percent downpayment requirements, which would have denied millions of Americans access to the lowest cost and safest mortgages.”
The junkies and donkeys are all corralled and ready for slaughter.
The doublespeak is in high gear, isn’t it? Pedal to the metal, we’re runnin’ this baby over the cliff.
How long do you think before they stop including the defaults from this new wave of low-income ‘mortgages’ in the lending foreclosure stats? If a new wave of what we call ‘debt donkeys’ actually materializes, it will be because the majority of the new home debtors will not see themselves this way. Instead, they will have little intention of ever paying on their obligations.
But the home sellers still will cash in their 6% so it’s all good.
‘With current mortgage rates the lowest they’ve been since mid-last year, U.S. home sales are thriving. In September, despite a limited number of home for sale nationwide, sales of existing homes topped five million units on a seasonally-adjusted, annualized basis, marking the fourth consecutive month sales totaled more than one-half million units on an annualized basis.’
‘Purchasing power is high and buyers are taking advantage. The typical “prime” home buyer can afford 10% more home as compared to the start of the year. Low mortgage rates may not last, however, and neither will low prices. Demand for homes continues to outpace supply, and home sale prices continue to ratchet higher in many U.S. markets.’
‘The good news for buyers is that low- and no-downpayment mortgages remain readily available; and a home buyer today can get approved for loan with credit scores of 580 or higher.’
‘Among the most popular options with today’s low-downpayment buyers is the FHA loan. FHA loans require just 3.5% down and offer flexible mortgage approval terms, including an allowance for average and below-average credit scores.’
‘Another common low-downpayment option is the Fannie Mae 95% program. This government-backed loan tends to work well for buyers with above-average credit scores who are buying single-family, detached properties (i.e. not condos or town homes).’
‘For buyers in rural and suburban areas, the USDA loan is an excellent no-downpayment option. The zero-down loan is backed by the U.S. Department of Agriculture and can provide below-market mortgage rates to applicants who use it.’
‘Lastly, as the mortgage market has loosened, so have requirements for the fixed-rate and adjustable-rate jumbo mortgages. Many banks now require just 10% down for a jumbo loan; and have lowered their minimum credit score requirement. This has helped spur the luxury housing market forward and is one reason why home sales over $750,000 continue to make gains.’
‘Three years ago, in the dark days of the housing crisis, regulators pressed for a controversial rule that aimed to crack down on shoddy and dishonest lending practices. Now they’re rolling back their plans.’
‘The original proposal called on lenders to hold a stake in the mortgages they sold to investors – specifically loans with less than a 20 percent downpayment. The government insisted such “risk retention” would encourage more prudent lending. No longer would banks be off the hook if they offloaded loans that later went bad.’
‘But then came fierce pushback from an unusual alliance. Not only did the industry oppose the plan, but so did housing advocates. Both sides, which rarely agreed on anything up to that point, said the change would force lenders to boost interest rates and fees on many low downpayment loans — and shut too many people out of the housing market.’
‘This week, six agencies adopted a milder version of the proposal. The move highlights a dramatic shift in focus for the government now that a full housing recovery is taking longer than expected.’
It should be noted this is a change to a down payment “proposal”.
Two words: Regulatory Capture.
This is just too hard. We put a man on the moon, but we’re going to blow ourselves up if it kills us.
“The regulators have dropped a key requirement: a 20-percent down payment from the borrower if a bank didn’t hold at least 5 percent of the mortgage securities tied to those loans on its books.”
Yeah, don’t want the banks at risk of recourse. No way!
I always thought the 5% requirement was somebody’s idea of a joke to start with. 50% would have made sense.
Exactly.
The more skin in the game that the local banks have, the more prudent they will be about who they loan funds to.
As it should be.
Utter Madness - yep what can possibly go wrong here given the articles cited by Ben et.al.
as one commentary ended above - Uber Alles!!!
‘Over the past two years many big mortgage lenders have paid billions of dollars in fines and been forced to buy back piles of dud loans on the grounds that they did not conform to Fannie’s and Freddie’s rules. These settlements were controversial, in that the pair had actively sought out risky mortgages to satisfy their mission to promote “affordable housing”.
‘In response, many banks have stopped lending to riskier borrowers. The new rules announced by Mr Watt are supposed to entice them to resume by narrowing the circumstances under which they can be held at fault. The banks, which hold buckets of surplus deposits and are eager for safe ways to deploy them, are pleased, since the risks of making loans with low deposits will once again rest with Fannie and Freddie.’
‘This week a consortium of federal agencies also announced new standards that would permit banks to securitise and sell mortgages without retaining a 5% stake—leaving them little incentive to maintain high lending standards.’
‘In 2011 these agencies had suggested that such securities should only include mortgages with a minimum deposit of 20% and monthly repayments of no more than 35% of the borrower’s income. In the end they raised the loan-to-income ratio to 43% and dropped the minimum deposit entirely. The reason for the weaker standard, they said, was the concern that “additional constraints on mortgage-credit availability” might “disproportionately affect LMI (low-to-moderate-income), minority or first-time homebuyers.”
‘Whether the lack of constraints might disproportionately affect taxpayers, the regulators did not say.’
‘The Security Exchange Commission (SEC) approved the rule by a 3-2 vote, and the two opposing Republican commissioners said they believe its exemption for low-risk mortgages is too broad and does not sufficiently crack down on lax underwriting standards. The two offered some colorful criticism to their colleagues.’
“Regulators working to adopt a final version of a proposed Henhouse Protection Rule should not abandon their independent judgment by capitulating to the views imposed upon them by a barrage of letters sent in by the Feed the Foxes Foundation and their allies,” Republican SEC Commissioner Daniel Gallagher said in his dissent from the vote.’
‘Gallagher and Piwowar’s dissent from the vote was expected after they published a letter to editor in the Wall Street Journal in June. In the letter, they said they were disappointed with the SEC’s decision to surrender the definition of “qualified residential mortgage” to the Consumer Financial Protection Bureau.’
“Today could have been the day when the commission and its regulatory partners … stood strong, resisted political and special interest group pressure and courageously seized this golden opportunity to address the failed federal housing policy that was one of the central causes of the financial crisis,” Gallagher said.’
‘Piwowar said in his dissent, that he remains concerned about the continued dominant role GSEs play in the housing finance industry, in particular Fannie Mae and Freddie Mac’s plan to offer 97% LTV financing.’
“I am also troubled by last week’s news – the timing of which was undoubtedly coordinated with this week’s rulemaking – that the Federal Housing Finance Agency is pushing Fannie Mae and Freddie Mac to consider programs that would make it easier for borrowers to obtain mortgage loans with down payments as low as 3%,” he said. “As prominent housing market scholar Mark Calabria remarked, 3′% [down payments] can disappear and become zero real quick…This is the sort of thing that gets people underwater.”
‘the sort of thing that gets people underwater’
‘Long & Foster says sales were down in every Northern Virginia county from a year ago, except Arlington. Alexandria saw the biggest year-over-year price decline in Northern Virginia last month, with the median selling price down 11 percent from a year ago.’
There it is in black and white. Inflated prices then collapsing demand then collapsing prices then moderating demand.
Liar math runs from this basic market fundamental.
“the sort of thing that gets people underwater”
FWIW, at 3% down, with 6% realtor fees, appraisal and mortgage origination fees, etc., the borrower is underwater as soon as the papers are signed, but the MSM will blame it on the weather.
‘6% realtor fees’
Sellers usually pay that, but closing costs, etc, point taken.
‘3′% [down payments] can disappear and become zero real quick…This is the sort of thing that gets people underwater.’
Yeah, like the moment you sign on to close the purchase - it’s 6% to the house sellers and 2-3% typical in other closing costs to get back out. 3% doesn’t become zero, it becomes minus 5-6% right on the spot.
And at the average duration of time that Americans live at one place, they might pay it back to zero on their 30 yr. by the time they’re ready to move, but no further… Plus they have a depreciating house and property to maintain!
‘The government, in recent days, has been giving one set of bankers nearly everything they want. In this case, the lucky lenders are mortgage bankers.’
‘In crucial ways, the rules on mortgage lending have become more lenient. This week, for instance, after fierce industry criticism, regulators weakened a provision of the Dodd-Frank Act of 2010 that governs how banks sell mortgages.’
‘The victory of the mortgage bankers over down-payment requirements did not surprise some housing finance analysts. Over the years, they say, the bankers have benefited from a broad alliance with homebuilders, real estate agents, consumer advocates and investors.’
“That was really what won the battle for mortgage bankers,” Mark A. Calabria, of the libertarian-leaning Cato Institute, said in an email.’
‘In recent years, mortgage lending has become quite profitable for banks as borrowers have taken advantage of low interest rates to refinance. At the same time, it has become a lower-risk business for banks because most home loans these days carry a government guarantee of repayment.’
‘To calm the banks, the regulators on Monday loosened the terms governing when Fannie Mae and Freddie Mac can demand that banks buy back loans.
But some housing specialists do not see why the government made that concession. To avoid buying back loans, they say, the banks could just do a better job of extending mortgages that meet the standards that they and Fannie and Freddie have agreed on.’
“It’s remarkable the way lenders say it’s been too harsh on them to buy back loans, rather than say, ‘We should make better loans,’ ” said Thomas J. Adams, a partner at the law firm Paykin, Krieg & Adams who specializes in mortgage securities. “The overwhelming evidence is that they are not very good at their business.”
‘Sacramento home values have risen by nearly double digits in the last year, a much slower pace than the year prior, according to Zillow.’
‘It appears more people are ready to start selling in Sacramento, taking advantage of the rise in home prices, as 35.8 percent more homes are on the market compared to this time last year.’
“‘What I’m paying for my mortgage is less than what I was paying in rent,’ says Yasmine Parrish, a 28-year-old marketing professional who recently purchased a home in Los Angeles.
Uhhhhhhhh, where?!?! Compton? Watts? Better buy a Kevlar vest with all that money yer savin’ honey.
key word Yasmine
Could this be her?
https://www.linkedin.com/pub/yasmine-h-parrish/7/101/a42
That looks about right. A Free $hit Army auxiliary soldier from the Obama Regiment.
It’s Medellín and everybody wants to live there! This guy has been pimping Colombian real estate to Britons and Americans for years as an alleged wealth opportunity, but I’ve never seen him suggest that an “investor” know local law, be wary of corruption and extortion, or even speak Spanish.
The Colombian Dream
Obviously there are exceptions to the rule, but generally speaking Colombians like love their real estate. They don’t trust the stock market, they don’t trust their banks, hell they don’t even trust pre-authorized debits for their utility bills. But they have nothing but faith in buying and renting apartments/condos and for the most part, Colombians are often quite sophisticated property investors for this reason.
This is why at Casacol we often see clients/families with 5, 10, 15 or more properties in their portfolio who spend their days managing their property managers such as yours truly. That’s what I would call living the Colombian dream. And often times I actually think of the service we provide at Casacol more like that of an investment advisor than strictly Colombian/Medellin Realtors or property managers.
http://blog.casacol.co/post/100748519265/how-to-invest-like-a-wealthy-colombian
Is it Lola?
Interesting graphs on permits for rent vs. SFR
http://www.ritholtz.com/blog/wp-content/uploads/2014/10/renting.png