The Promotion Of Policy To Seek Riskier Products
A Saturday post on this recommended editorial in the New York Post, written by Paul Sperry, who is ‘a former Hoover Institution media fellow and author of “The Great American Bank Robbery: The Unauthorized Report About What Really Caused The Great Recession.”
“A recent report by the Office of the Comptroller of the Currency, a federal agency that regulates the nation’s banks, warns that declines in mortgage underwriting standards are mirroring pre-crisis trends.
“‘Underwriting standards eased at a significant number of banks for the three-year period from 2013 through 2015,’ the report said. ‘This trend reflects broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.’ Not since 2006, it noted, have lenders taken on so much credit risk, and it says the hazard will continue to grow this year: ‘Examiners expect the level of credit risk to increase over the next 12 months.’”
“A large chunk of the risk is coming from first-time home buyers with shaky credit and so-called ‘rebound’ buyers who previously defaulted on home loans. The American Enterprise Institute reports that its National Mortgage Risk Index for first-time buyers jumped almost a full percentage point in January from a year earlier, driven by ‘loose credit standards.’ The demand from otherwise uncreditworthy home buyers ‘is driving home prices up faster than incomes and inflation,’ noted Edward Pinto, co-director of AEI’s International Center on Housing Risk in Washington.”
“This is especially true in hot spots like California, where subprime-mortgage lenders offering interest-only loans with no FICO-score requirements are cropping up from the ashes of Countrywide Financial, the bankrupt subprime giant.”
“In another sign housing is overheating, home ‘flipping’ is red hot again and hitting levels not seen since just prior to the mortgage meltdown. Nationwide, almost 180,000 homes were sold and then resold last year — the highest level since 2007. In fact, according to RealtyTrac, flipping in a dozen metro areas — including New York, Los Angeles, San Diego, Miami and Jacksonville, Fla. — exceeded peaks set in 2005, when investors took advantage of low interest rates and easy credit.”
“Like the last bubble, this one is fueled by artificial demand from government-induced lax lending standards and accommodative interest rates set by the Federal Reserve. ‘The result has been a rapid increase in real, inflation-adjusted home prices, with prices up nationally about 16.5% since the home-price trough in 2012,’ Pinto said. He notes that once prices hit 20% or higher, historically, a painful drop in prices follows. Pinto noted that prices for entry-level homes have climbed by an even higher 19%, making it harder for low-income borrowers to buy without taking out a high-risk loan they really can’t afford.”
“Today’s relaxation in mortgage-underwriting standards is largely a function of government housing-policy changes at FHA, Fannie Mae and Freddie Mac, which dominate the nation’s mortgage activity. As in the last easy-credit cycle, we are seeing ‘the promotion of policy to push firms to seek riskier products to promote growth,’ Wells Fargo Chief Economist John Silvia said All three agencies have slashed down-payment and other requirements under pressure from Obama regulators, who include, most significantly, former Congressional Black Caucus leader and Obama appointee Mel Watt, head of the new Federal Housing Finance Agency, which now controls Fannie Mae and Freddie Mac.”
“Last year, Fannie Mae launched a new subprime-mortgage product called HomeReady that caters to recent immigrants with weak credit and limited income. The new loan program, which offers ‘income flexibility,’ allows borrowers for the first time to bundle income from roommates and relatives to meet qualifications for income. They only have to put 3% down, and can use gifts from nonprofit groups to subsidize their down payments.”
“‘There is no limit on the number of non-borrower household members who can be present on a single transaction,’ Fannie advises originators. And even then there is “’documentation flexibility,’ a frightening echo of last decade’s ‘no-doc loans.’”
“You don’t have to show personal financial independence. You can be maxed out on credit cards and even live in government-subsidized housing. Just as long as you round up enough income-earners and pool finances to help meet a debt-to-income ratio of up to 50%. And you don’t need good credit. ‘If the borrower’s credit score is less than the minimum credit score required,’ Fannie tells loan underwriters, ‘the lender may develop an acceptable nontraditional credit profile’ that takes into consideration timely payments on electricity bills and car insurance — and even gym dues — in lieu of payments on credit cards and loans.”
“Under HomeReady, you can even qualify for a ‘cash-out refinance’ of your mortgage, a type of loan that led to over-leveraging and a wave of defaults during the mortgage crisis.”
“Why would Fannie offer the same kinds of poorly underwritten loans that forced it into bankruptcy? Because HomeReady aligns ‘with our housing goals’ set by Watt, it says in its HomeReady literature. It’s all part of a government campaign to ease access to home loans for recent Hispanic immigrants — including those living here illegally. In fact, HomeReady caters to illegal immigrants by allowing borrowers to waive Social Security documentation.”
“Watt, who as a congressman once demanded Freddie Mac back loans for welfare recipients in his North Carolina district, has instructed Fannie and Freddie to come up with ‘alternative credit-scoring models’ to FICO and approve more home buyers. ‘We have the pedal to the metal’ on adopting a new model, Watt said.”
“The hope is that the new standard will lift scores by as much as 100 basis points, thereby qualifying millions of low-income African-Americans with subprime credit and Hispanic immigrants with thin credit for home loans. Of course, those same minority homeowners will be hit the hardest when the entire house of cards collapses. Once again, real-estate prices are outstripping income. But this time, income levels are much lower — real wages fell again in February — and when the bubble bursts, the pain will cut deeper.”
“‘Underwriting standards eased at a significant number of banks for the three-year period from 2013 through 2015,’ the report said. ‘This trend reflects broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.’ Not since 2006, it noted, have lenders taken on so much credit risk, and it says the hazard will continue to grow this year: ‘Examiners expect the level of credit risk to increase over the next 12 months.’”
It will be interesting to see how the PTB drum up support for bailouts in the next deliberately manufactured subprime lending crisis. It seems like the mood of the country is most unfavorable to support a repeat of the massive wealth transfer to Wall Street that played out in the post-2008 crisis period.
“It will be interesting to see how the PTB drum up support for bailouts in the next deliberately manufactured subprime lending crisis.”
The bailout won’t be packaged up and sold as a bailout (wrong shade of lipstick), instead it will be packaged up and sold as Saving The Homeowner, just as it was the last time.
I would like to know how can my white American born high school passed employees who have always wanted to buy a house take advantage of this Program. My employees are mostly guys between the ages of 28 thru 42. Most of them pay around $1000 per month in rent.
Some of them have kids also
“The hope is that the new standard will lift scores by as much as 100 basis points, thereby qualifying millions of low-income African-Americans with subprime credit and Hispanic immigrants with thin credit for home loans. Of course, those same minority homeowners will be hit the hardest when the entire house of cards collapses. Once again, real-estate prices are outstripping income. But this time, income levels are much lower — real wages fell again in February — and when the bubble bursts, the pain will cut deeper.”
Why is U.S. housing policy anti-Hispanic and anti-African-American? The goal seems to be to set the very households Uncle Sam claims to want to help on a path to financial ruin.
whoa CRA type race baiting accelerated the housing stank last time
no mo free sht
Professor Bear: Why is U.S. housing policy anti-Hispanic and anti-African-American? The goal seems to be to set the very households Uncle Sam claims to want to help on a path to financial ruin.
The cost of ownership of a paid off house is going to be less than renting. There are plenty of white underclass families who own their houses outright, purchased perhaps by previous generations. That’s going to improve their standard of living. I appreciate that Watt wishes to see the same thing happen for the black community.
The question is how to get there.
Saddling them with enormous debt is probably not the answer. Government pumping vast sums into this sector makes houses more expensive.
Watt should probably be considering some way to simply give his target groups houses at no or minimal cost. That would put them in the end state he would want them in.
Realize however, that running marginal buyers through the ringer is very profitable for the FIRE sector. Virtually all mortgage debt is guaranteed by the government, so as they loosen the rules for QRM (which are just the rules government has imposed for buying mortgages), it’s just a larger money pump to the FIRE sector. IIRC, there’s a stealth QE happening, still to the tune of hundreds of billions of dollars a year.
I wonder what ever happened with the Richmond California mortgage eminent domain case.
‘As in the last easy-credit cycle, we are seeing ‘the promotion of policy to push firms to seek riskier products to promote growth,’ Wells Fargo Chief Economist John Silvia said. All three agencies have slashed down-payment and other requirements under pressure from Obama regulators’
This is the why. Working with the central bank, housing activity and wealth effects = hope to stay in power after the next election. I’ve said it a few times, they won’t be able to hang this one around wall streets neck.
The cost of ownership of a paid off house is going to be less than renting.
Don’t get me wrong, the TCO of owning a house, including paying off the mortgage interest in addition to the purchase price, as well as the ancillary costs is going to be higher than renting in the short and intermediate terms, and it becomes a wash, or becomes less than renting only depending on how long you set the long term.
However, if one sets the starting point at the house being paid off, then it’s less than renting.
“Watt should probably be considering some way to simply give his target groups houses at no or minimal cost. That would put them in the end state he would want them in.”
I’m in. Where do I sign up for my free house?
“I’m in. Where do I sign up for my free house?”
Haha… good luck whitebread. —Watt
This time there is a massive pile of subprime auto loans on top of the subprime mortgage buildup. If someone lights a match, the whole forest could go up in smoke.
The Wall Street Journal
Markets
Subprime Flashback: Early Defaults Are a Warning Sign for Auto Sales
High level of missed payments for such loans made recently has raised concerns about underwriting standards
A used-car lot in Brandon, Fla., last November. A majority of subprime borrowers purchase used cars.
By Serena Ng
Updated March 13, 2016 9:45 p.m. ET
To understand how far the U.S. auto business has been reaching for new customers, consider the early performance of a bond issue called Skopos Auto Receivables Trust 2015-2.
The bonds were built out of subprime auto loans and sold in November. Through February, about 12% of the underlying loans were at least 30 days past due, a third of which were more than 60 days delinquent. In another 2.6% of loans, borrowers had filed for bankruptcy or the vehicles had been repossessed.
Those borrowers are at the outer fringe of the auto market. Still, the high level of missed payments for loans made so recently is a warning sign for an industry that needs every customer it can get to keep sales increasing at a record pace.
The early delinquency rates seen in the debt issue from Skopos Financial LLC, a Dallas-based lender that specializes in loans to people with weak or no credit histories, are in line with those for several similar bond deals from other lenders around the same time. About 12% of the loans backing bonds sold in November by Exeter Finance Corp., another Dallas-based subprime lender, were more than 30 days delinquent through February, according to the company. A spokeswoman said delinquency rates came down from the previous month.
…
Good point PB. Sub prime auto is a mess. Luckily it’s only a 6 or 7 year mess, not 30 years of mess….like a home loan!
Jeebus did you even bother to read Ben’s post before commenting?
I did. Just because Ben posted an editorial by Paul Sperry, that doesn’t make it true. It is an editorial….opinion….and somewhat misguided!
Good point PB. Sub prime auto is a mess. Luckily it’s only a 6 or 7 year mess, not 30 years of mess….like a home loan!
It’s also a lot easier to repossess and resell said vehicles. In fact some companies have turned that into a business model.
Keep in mind that more sub-prime mortgage were made 2008-current than 2000-2007.
Anyone who pays more than 2.5 x net income with borrowed money is subprime.
Anyone who needs down payment assistance or forbearance is subprime.
Anyone who has to borrow for 15 or 30 years is subprime.
Anyone who’s house is more than 100% of their net worth is subprime.
Anyone without 6 months living expenses in cash is subprime.
Anyone who thinks owning with debt is cheaper long term than renting modestly is subprime.
Anyone who buys two houses to catch the capital gains is subprime.
Anyone who paid more for a house than it was worth 20 years ago is subprime.
That’s alot of subprime.
Yes, according to your definition, that is a lot of subprime. I just don’t share your definition of subprime.
Remember….. 3% down payment mortgages are the very definition of subprime.
No Jake (or HA or Mafia), sub prime refers to credit score. Here, I can help you understand….
Defining subprime: The term subprime refers to the credit quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers. As people become economically active, records are created relating to their borrowing, earning and lending history.
I can help too!
Paying too high a price with borrowed money is the definition of subprime. Credit “worthiness” doesn’t capture this; when the future price expectation drops below the credit obligation, defaults are inevitable.
Not realizing that we are in the midst of the biggest housing bubble in history can lead one to wrong conclusions.
I can also help. What a 3% down payment, rock bottom low interest rates and lax qualification standards all do is to qualify buyers to purchase at a far higher price point than they could with higher down payment requirements, normal interest rates or prudent underwriting of credit risk. The end result is that a bevy of mortgages made at high multiples of buyer incomes to enable the purchase of homes at bubble prices have a much greater risk of eventually going underwater, into default or both.
The buyer’s credit score is obviously only a small piece of the high risk lending equation. The common ingredient is whatever is needed to enable buyers to increase the leverage in a home purchase.
Subprime never had anything to do with the borrower. Subprime has everything to do with the terms and conditions of the mortgage agreement.
Again…. 3% down payment mortgages are the very definition of subprime.
i looked at the same Encompass data paul Sperry did and have 2 data points I think might interest you. 1)Conventional refinances had an LTV of 69% according to Encompass in February (better than I expected)and 2) according to my analysis of the Data, about 19% of the loans made in Feb. were at a 95+% LTV. This 19% was drawn using estimated of the data in the report and was not directly in the report.
Would you please provide where the data backing up this statement can be found?
Keep in mind that more sub-prime mortgage were made 2008-current than 2000-2007.
Would you please provide where the data backing up this statement can be found?
The post just above was in relation to the comment by Jake. Sorry for the double post and any confusion.
Would you please provide where the data backing up this statement can be found?
This question was diercted to Jake’s comment.(below)
Keep in mind that more sub-prime mortgage were made 2008-current than 2000-2007.
Sorry for the double post.
mba dot org
Once again HA has no data to back up his posts….
Plenty of data posted to day that you’re backpedalling from.
Who is Ha?
In Canada there is literally one registered vehicle for every man, woman, and child in the country. 33 million.
Which suggests about 8 million still have financing.
Funny thing, in Atlantic Canada they actually sold more new pick ups in January 2016 than last year. Despite work problems with the tar sands !
Our North American economy me thinks is baffle gabbed.
In other words -
I had a front row seat to the Housing Bubble in 2006 caused by the sub-prime lending. What you see today is nothing compared to the lending from 2005-2007.
If you want reasonable housing prices, make it easier to build more houses and then build more houses.
The problem in northern California is the lack of product.
I suspect you’re missing it, as lots of Sacramento is what my kids call “sketch.”
San Diego bubble pricing in many upscale areas has surpassed the 2007-08 insanity levels.
This goes right to the point PB. Supply. Build more houses and the market will become more balanced.
My point was that houses in “sketch” areas tend to stay affordable even in a bubble. Nobody wants to live in a crime-ridden hell hole.
That is not really the case where I live in Sonoma County…crappy T111 tract houses in very sketchy neighborhoods are typically $400K plus currently and meanwhile median household income is only abut $65K so this price is only affordable to a small percentage of locals.
I’d expected the echo bubble to collapse locally much sooner and am still confident that is inevitable…maybe this year…
Actually, when you see homes in lower middle income Mira Mesa approaching or sometimes surpassing upscale areas, then you know that we’re in an overvalued bubble. Which is the case at this time.
“If you want reasonable housing prices, make it easier to build more houses and then build more houses.”
Do you really think the recent subprime buyers, the county assessors or the bond markets want lower housing prices?
“…..ashes of Countrywide Financial, the bankrupt subprime giant.”
Countrywide never went into bankruptcy, which just shows the lack of knowledge and erroneous conclusions of the author.
Is housing in a bubble? Possibly, even probably. But it has less to do with financing than supply & demand. If you want reasonably priced homes, make it easier to build reasonably priced homes.
This issue is price. Think about it… Current asking prices of resale housing are 250% higher than long term trend and double construction cost.
Exactly HA. If you want a lower price, make it easier to build more housing. The supply is not meeting demand. When it does, prices will moderate.
Jake is a cute new name for you BTW. HA!
Ironically, after the biggest building boom in US history, housing prices are dramatically higher.
If you want lower house prices, end crazy lose lending.
The housing boom ended in 2006, just in case you weren’t paying attention. Housing starts have been down substantially since then and are not keeping pace with demand.
With housing demand at 20 year lows and 25 million excess empty and defaulted houses, why build more?
‘Housing starts have been down substantially since then and are not keeping pace with demand.’
‘Realtors and builders are at odds on the fundamental question of whether it’s a supply problem or a demand problem. The Realtor association’s chief economist, Lawrence Yun, says it’s a supply shortfall. He argues that builders “are just not robustly getting back into the game” by picking up their pace of construction.’
‘David Crowe, chief economist of the National Association of Home Builders, counters that builders would churn out more houses if there was sufficient demand to warrant it. “Supply is an issue; that is true,” he said. “But the dominant issue still is demand. That’s the reason builders aren’t building more homes.”
‘“If demand was there, there likely would be more supply,” said Mike Dahl, an analyst who tracks home builders for Credit Suisse AG.’
‘PulteGroup Inc., a builder in 29 states, has seen nascent demand for starter homes, but not enough. “As you start to see more consistent sales paces, that’s when builders will get more active in that entry level space,” Pulte spokesman Jim Zeumer said.’
‘For his part, Mr. Crowe of the builders association noted that the Realtor group’s research overlooks a couple of points. First, he said, some people in newly created jobs might move into previously vacant, existing housing, such as foreclosed homes. Second, wage growth has lagged job creation of late, meaning that not all workers in new jobs can afford their own home.’
“Just because you have a job doesn’t necessarily mean you can afford to live on your own,” Mr. Crowe said. “More adult children are living with their parents that ever before. They may have a job, but it isn’t sufficient for them to move out.”
“The housing boom ended in 2006″
Living in the mania never gets old.
Anecdote: the two foreclosed homes being held on the books of the banks (they sat empty for 6 years and 4 years) finally sold in the past 6 months to actual buyers. The bank had rented them occasionally during that span. This is in SoCal.
I meant to write the two homes on my block. Part of the “shadow inventory” and confirmation to me that it really did and does exist.
Ben, housing starts are down significantly from the mean. Starts are not keeping pace with population growth. The NAR & the BIA people cannot change those facts.
Considering population growth is at record lows(population falling in CA) and the fact there are 25 million excess empty and defaulted houses, there is no need to build more housing.
Collapsing demand and massive excess supply are two facts that remain with us.
My salary doesn’t depend on a sub prime financing resugence being true. In fact, it is just the opposite. Housing bubble bust are important to my net worth. I can, in the words of Ben Jones, “feast on the carcasses of housing speculators”.
Believe me, if I saw the sub prime lending of 2006 happening today, I would be posting it here just like I did in 2006 & 2007.
I am quite liquid today & liquidating more over the next year or two in preparation for a 2018 correction.
So said the blind man.
I can see my bank account statements. You cannot! HA!
Underwater on worthless dirt without a buyer in sight is the very definition of illiquid.
‘Countrywide never went into bankruptcy, which just shows the lack of knowledge and erroneous conclusions of the author’
‘The word bankruptcy is derived from Italian banca rotta, meaning “broken bank”, which may stem from a custom of breaking a moneychanger’s bench or counter to signify his insolvency, or which may be only a figure of speech.’
You’ve gotten to be like mightmike and oddfellow. Living to pounce on the HBB on any little misspoken word or inaccuracy so you can dismiss. EVERYTHING HERE IS INVALID!
‘The new loan program, which offers ‘income flexibility,’ allows borrowers for the first time to bundle income from roommates and relatives to meet qualifications for income. They only have to put 3% down, and can use gifts from nonprofit groups to subsidize their down payments.’
‘There is no limit on the number of non-borrower household members who can be present on a single transaction,’ Fannie advises originators. And even then there is “’documentation flexibility,’ a frightening echo of last decade’s ‘no-doc loans.’
‘You don’t have to show personal financial independence. You can be maxed out on credit cards and even live in government-subsidized housing. Just as long as you round up enough income-earners and pool finances to help meet a debt-to-income ratio of up to 50%. And you don’t need good credit. ‘If the borrower’s credit score is less than the minimum credit score required,’ Fannie tells loan underwriters, ‘the lender may develop an acceptable nontraditional credit profile’
So go on about your day, Jingle Male, I knew you’d be the first to show up and declare it’s different this time. But some of us kinda want to know why house prices are up so much. Remember:
‘There is no limit on the number of non-borrower household members who can be present on a single transaction’
‘Hispanic homeownership rates and the number of owner Hispanic households have gone up, according to the new State of Hispanic Homeownership report. This came as the overall U.S. homeownership rates declined for the 12th consecutive year.’
‘The report was issued by the National Association of Hispanic Real Estate Professionals and the Hispanic Wealth Project.’
‘According to the U.S. Census Bureau, the Hispanic homeownership rate averaged 45.6 percent in 2015, 0.2 percent higher than in 2014. In the 12 months ending December 2015, the increase was more dramatic surging from 44.5 percent to 46.7 percent — the largest one year spike in more than a decade.’
“The State of Hispanic Homeownership should be required reading by everyone in housing, especially lenders and realtors,” said David Stevens, president and CEO of the Mortgage Bankers Association. “The significance of Hispanics to housing and the economy will only grow, creating opportunity for all who focus on this vibrant, dynamic, and impactful part of the U.S. economy.”
‘if I saw the sub prime lending of 2006 happening today’
‘There is no limit on the number of non-borrower household members who can be present on a single transaction’
Think about that. I can round up some people; hey you guys on this blog, let’s buy a mcmansion! Are you citizens? Never mind, it doesn’t matter!
I certainly do not think everything on the HBB is invalid. I am a big supporter of this blog, as you well know, and consider it very important to housing market and to my own well being.
I just get tired of the ceaseless point that housing is constantly collapsing. It goes through the same cycles that have been going on for eternity and will continue to go on into the future. Sometimes, housing increases in value and sometimes it drops in value. Many on this blog cannot or will not see the cycles and do a disservice to other readers with that point of view. I just provide a balance.
I agree with you that the new financing guidelines are a bit ridiculous. Counting roommate income is stupid when the roommate can leave and will likely leave over some extended period of time. However, the program is a minor blip compared to what we observed in 2005, when a strawberry picker could by a $750,000 house with a NINJA loan or a stripper (The Big Short) could by 5 houses and a condo.
Here is an example of the sub prime mortgage fraud I am referencing. I saw these transactions go down in 2006 & 2007 and was incredulous. It took 10-years to put these idiots in prison. I was proud to be a part of the solution, working with the FBI to get them in jail. I don’t see this kind of fraud today………////
A federal judge in Sacramento Tuesday sentenced a former Loomis real estate agent to 14 years in prison for multiple counts related to a $16 million mortgage fraud scheme in the Sacramento area.
Vera Kuzmenko, 46, was found guilty in December following a 16-day jury trial over multiple mortgage fraud counts that cost financial institutions more than $16 million, according to a news release from the U.S. Attorney’s office.
Kuzmenko, who had been a licensed real estate agent, was also found guilty of witness tampering and money laundering. Kuzmenko was charged for creating fraudulent loan applications for straw buyers. Mortgage applications were filled out with bogus income, employment, asset and other information. The witness-tampering charge stems from her telling witnesses to lie to the FBI and other investigators to blame a dead woman for breaking the law.
Kuzmenko, and Rachel Siders, 40, of Roseville, were found guilty at trial related to mortgage schemes in 2006 through 2008 involving more than 30 properties in the Sacramento area. Siders is scheduled to be sentenced on June 21. Siders ran a Rocklin escrow office used on the majority of the mortgage transactions.
The case was investigated by the FBI and the Internal Revenue Service. Assistant U.S. Attorneys Lee Bickley andMichael Anderson and Special U.S. Attorney David Ward prosecuted the case.
Kuzmenko, Siders and six others initially were arraigned in 2011. Four of the other defendants were previously sentenced to lengthy prison terms by the same judge, U.S. District Judge John Mendez. In October Mendez sentenced the others, including co-defendants Peter Kuzmenko, 37, of West Sacramento, to 19 years in prison; Aaron New, 41, of Sacramento, to 11 years and three months in prison; Nadia Kuzmenko, 36, formerly of Loomis, to eight years in prison; and Edward Shevtsov, 52, of North Highlands, to eight years in prison. They were found guilty on February 13, 2015, after a 21-day trial, of multiple counts of mail and wire fraud associated with the mortgage fraud scheme.
Housing doesn’t “cycle” in terms of price. Demand may increase or decrease but the value of housing falls over time due to depreciation. We’re in a mania and have been for a decade or more. The difference between everyone here and you is you happen to be swept up by it and it’s a horrific financial consequence for you.
You’re living in the past and ignoring the widespread mortgage, realtor and appraisal fraud going on right now.
‘Counting roommate income is stupid’
They don’t have to be roommates. It can be anyone.
Are you sure Ben? This is from the post:
“….allows borrowers for the first time to bundle income from roommates and relatives to meet qualifications for income.”
and relatives
Who can’t be a potential roommate? I qualify renters. They’ll say anything. I looked into a credit qualification service from Transunion. It had degrees of income versus rent. The top was 50%. Who the heck would want to take in a tenant that is devoting 50% of STATED GROSS income to rent? I also see what these applicants are paying to current landlords; there’s a whole bunch of people out there living on the edge.
Oh, but a mortgage guy would never fib to make a commission. With these rules, he doesn’t even ave to fib.
“This issue is price. Think about it… Current asking prices of resale housing are 250% higher than long term trend and double construction cost.”
Price! Yes, the issue is price! Get the prices up and - presto! - you have magically created WEALTH, wealth in the form of EQUITY!
Prices! Get the prices of houses up and you will get to push up the prices of rents! Pushing up the prices of rents - actual rents - and you, at the very same time, will push up the prices of imputed rents - something that goes into computing GNP.
Think of it! Think of the magic, the miracle! Control prices and you control wealth AND you control income.
Q. And you do this how? You control prices how?
A. You use others (you use fools) to control prices, not all others, only a few others will do, a few others who represent the many, the few others who will push up the prices of the comps, the comps that determine the amount of equity wealth for the many, the comps that determine the amount of imputed income for the many.
GNP = GDP
Zillow! I just now keyed up a Zillow report and this Zillow report said my imputed rent went up to $2,300 per month from the $2,200 a month that I posted here just about a week ago.
Now just how amazing is that? Chances are my neighbor’s Zillow report did the same, as well as my neighbor’s neighbor.
So here I am - existing - and while I am existing my house and probably my neighbor’s house and my neighbor’s neighbor’s house is generating increasing amounts of imputed income for me and my neighbor and my neighbor’s neighbor that will somehow finds its way into the computation of our country’s GDP.
Yet rental rates are half the cost of buying the same structure.
“Yet rental rates are half the cost of buying the same structure.”
Cost is one measurement, price is another.
In the world of real estate the measurement using cost is not what is used to determine income and wealth, it is the measurement using price that is used to determine income and wealth.
And price, in the world of real estate, is something that is determined by strangers, strangers who have access to money.
If these strangers are deluded fools then prices will reflect this deluded foolishness.
In this case of buy/rent, it’s one and the same.
Words, words can be fun!
Ask somebody what his house is worth and he will probably tell you what the market price is. Ask him how much it is costing him to buy and he will probably tell you what his monthly payment are.
“Price” denotes one thing, “cost” denotes another.
The going price determines the amount of equity one has in his house (if any) and the cost of buying is what determines just what this going price will be - a determination not made by the current homebuyer but something that is determined by strangers.
So if the cost of buying a monthly-payment chunk of a house can be reduced then the price of the entire house can be increased, and if the price of the house can be increased then wealth will be magically sprung into existenence for everyone who has previously committed himself to buying a house.
“he will probably tell you what his monthly payment are.”
Debt donkeys are not able to figure the cost of a thing. It would make their heads explode.
As long as high prices maintain their lofty altitudes the debt donkeys won’t care. They will only care when the lofty prices drop and their equity vanishes and they discover that they are underwater on their mortgages. That’s when they will care.
Note: The drop in prices won’t translate to a drop in their monthly payments, it will only translate into a WILLINGNESS of them making their monthly payments.
When prices are rising then monthly payments are considered to be a good thing because at that time they are “building wealth”. But when prices have fallen these same monthly payments are seen as shoving money down a rat hole, something that they need to be “rescued” from doing.
Same monthly payments, different perception.
“… a drop in their monthly payments” = “a CHANGE in their monthly payments”
The amount of the monthly payments won’t change but their enthusiasm for paying them will.
Parse words all you want. It won’t change the fact that rental rates are a small fraction of the cost of buying at current grossly inflated asking prices of resale housing.
Jingle Male: Countrywide never went into bankruptcy, which just shows the lack of knowledge and erroneous conclusions of the author.
Countrywide collapsed from all the bad loans it made, BOFA bought it at what it thought was a good price, but instead, the deal cost the CEO his job, and has cost BOFA 40 billion and counting.
I think that counts as de facto bankruptcy.
Ref:
1) Chronicle of Countrywide’s collapse and purchase: http://fortune.com/2010/12/23/how-the-roof-fell-in-on-countrywide/
2) Discussion of the impact on BOFA: http://www.npr.org/2013/01/11/169108131/looking-back-on-bank-of-americas-countrywide-debacle
I agree. Paul Sperry could have been using the term “bankruptcy” as an informal description of “collapse”. Thanks.
Davis, CA Housing Market Craters; Prices Plunge 8% YoY As Housing Demand Evaporates
http://www.zillow.com/davis-ca/home-values/
Jake, is that you? HA!
Did you study the data?
US Housing Demand Plummets To 20 Year Low
http://1.bp.blogspot.com/-0q8fIAsczFk/VUANHEhSbnI/AAAAAAAAjRs/oANwXOUviGw/s1600/MBAApr292015.PNG
I do study the data, which is why I pay no attention to your posts! HA!
“I pay no attention”
At your own peril.
Novato, CA Housing Market Caves; Prices Plunge 12% YoY As Housing Demand Collapses
http://www.movoto.com/novato-ca/market-trends/
You have been touting the “housing collapse” and plunging prices for the last 5-years, while it has been substantial bull market.
PB says “San Diego bubble pricing in many upscale areas has surpassed the 2007-08 insanity levels….”
Can you give us your take on San Diego? HA?
Are you sure?
San Diego, CA Housing Prices Crater 9% On Collapsing Housing Demand Nationally
http://www.zillow.com/san-diego-ca-92130/home-values/
Inventory is very tight because so many people “can’t afford to move” because they “couldn’t afford to buy their own house” or anything comparable.
So which is it?
PB says there is a tight inventory with rising prices and huge pent up demand and trapped renters……….yet
HA/Jake/Mafia says….. San Diego, CA Housing Prices Crater 9% On Collapsing Housing Demand
There is no contradiction. You can have collapsing demand lead to lower prices, even with limited supply. And I didn’t mention the massive resurgence of home construction in our area, which is supposedly “built out”, greatly adding to the supply side.
You missed the contradiction. I’ll restate it:
PB says Ssn Diego prices are exceeding levels of 2007.
HA says prices are collapsing.
Which is it?
I said prices are cratering. Who said anything about prices collapsing?
Who is ha?
San Diego prices could have been well above 2007 prices last year and crashing this year.
Again, no contradiction…
HA says prices are collapsing.
He always says prices are collapsing. Even when they were rising at double digit rates.
But, as saying goes: a broken clock is right twice a day.
1) Who is ha?
2) Unless the price declines exceed 20%, it’s never stated as a collapse.
Prove otherwise.
GO!
Chapel Hill, NC Housing Market Implodes; Prices Crater 12% YoY As Housing Correction Ramps Up Nationally
http://www.zillow.com/chapel-hill-nc/home-values/
why does Zillow predict 3.3% increase when the market is already 10% over peak?
What matters here is falling prices.
Remember…. Nothing accelerates the economy, creates jobs and raises the standard of living like falling prices to dramatically lower and more affordable levels. Nothing.
You forgot to change your “name” back to HA. You started this post as HA!
I think youre confused again. Falling prices is the topic.
Laguna Niguel, CA Housing Prices Crater 7% YoY On Collapsing Housing Demand
http://www.zillow.com/laguna-niguel-ca/home-values/
Denver homes appraising for less than purchase price…
http://www.thedenverchannel.com/money/consumer/denver-houses-appraising-for-less-than-their-selling-price
These home sellers, who don’t have two nickles to rub together, likely added their realtor fees into the sales price, $12k in this piece. They’re not happy in their humble dwelling, nope, gotta chow-down on that easy credit and buy a larger place. Losers!
Watched The Big Short last night. Two things:
1) Most of us didn’t bet on it, but the ones who were at the HBB saw this coming too. My gut told me things were effed up in 2004, and thank goodness Ben was here to shepherd us through the process of discovering this great crime against Americans. What most of us didn’t see was the enormous echo bubble…
2) …that places us in the last 1/3 of the film where the hedge funds are losing their ish over the CDO values going up despite rising delinquency rates, knowing they should be blowing up. Meanwhile, they’re being slapped in the face with corruption at every level of the game, from ratings agencies to journalists to gov regulators. (Hat tip to the director for the shot with the ex-SEC employee publicly making out with the Goldman Sachs dude after implied carnal knowledge the night before… then he leaves in a cab while she hopes for a job. A little obvious, but a nice metaphor.)
(We’re going to watch Inside Job tonight so my SO gets the bigger picture. Side note: watching the Big Short makes it easy for laymen to understand and I think will give enough context to make Inside Job a little easier to understand.)
We’ve watched, again, as prices unaccountably went up from 2012 until now, watched a close friend commit financial stupidity by buying a house at $600 psf in San Jose and cash-out refi it THREE TIMES in two years to fix it (because it was a lipstick-on-a-pig flip) and now this Post article lays it all out again, although you could piece this together both from extensive reading of financial news. I am competing for houses with illegal immigrants and people on welfare so the government can keep the party going long enough to shift the blame to the next guy in the White House.
We were chided by our accountant, who is otherwise great, yesterday. Every year he asks us why we haven’t bought a house. He rubbed salt in the wound saying that “If you’d even bought one year ago, you’d be in a better position” to which I replied, no, we’d be in a huge amount of debt.
I’m with Selfish Hoarder, Senior Housing Analyst/Jake/Mafia and Goon on this one still. The only way to win is not to play, all the while taking the profits from keeping our costs well below revenue. If prices crash and nobody wants to touch RE with a ten foot pole, we’ll buy. If they don’t, we’ll keep doing what we’re doing: keeping our money and enjoying our freedom.
That sounds like a great plan hllnwlz. I see how that works for you.
I bought a nice (but trashed) house from BofA in 2010. My PITI is $500/mon less than rent, I pay down my loan by $650/mon and I deduct property taxes and interest from my gross income.
You see how that works for me?
Perform the honest math.
Did you include your losses to deprecation?
I’m glad it works for you. But you do have to live in Sacramento. Icky. Meanwhile, I’ll get to retire when I’m 45. To each his own.
‘There’s been lots of talk from a wide variety of experts about the demise of the housing market in 2016 and comparing it to the real estate crash of 1986. But, there’s one important difference that everyone seems to have forgotten. In 1986 mortgage interest rates were 10.19 percent for a 30-year fixed rate loan. Today, that rate is 3.75 percent for the same loan. When comparing the rate on a $500,000 mortgage, the math is shocking.’
‘At today’s interest rate the payment is $3,283.95, including principal, interest, taxes, and insurances. At 10.19 percent the payment would have been $4,880.65 — a difference of $1,596. Even more importantly, a buyer’s income would have needed to be $6,000 more per month to qualify for the mortgage.’
‘In conclusion, let’s take a walk down memory lane. In 1984, a Foxwood condo with two bedrooms, two baths, a stall garage, a fireplace, and approximately 800 square feet sold for $86,000. In 1989, it sold for $32,000. Today, one is on the market for $157,000.’
‘Does anyone really believe that this year or next, it will sell for $32,000 again? I certainly don’t and I’ve worked the highs and lows of the residential market place for over 35 years.’
http://www.alaskajournal.com/2016-03-16/inside-real-estate-why-2016-not-1986-anchorage-real-estate-market#.Vu2lHXpTRL8
I’d bet there weren’t many $500,000 houses in 1986. And a 30 year old condo is on the market for five times the price in the last bust?
‘Take a deep breath, Anchorage. While you might sense panic in the real estate market, we have been here before. While the names and events that led us here are different, we will survive. Here are a few statistics to help put things in perspective.’
‘In the current real estate market, properties priced under $499,999 have an absorption rate of less than four months. For properties $500,000 to $749,999 the absorption rate is 4.76 months. The absorption rate is 10.79 months for properties in the $750,000 to $999,999 range and 18.06 months for properties $1 million and above. While a 18-plus month absorption rate may sound high for properties over $1 million, it is much lower than the peak of over 50 months during August through October 2012.’
‘So don’t panic, Anchorage. Instead, breathe. Over the course of our young statehood, we’ve survived a number of traumatic events and have always found our way out. The lower number of homes for sale will help maintain stability in the real estate market.’
‘Don’t allow the fear that things are worse than before to create a more negative market perception than statistics show. The real loss to Anchorage is the oil-related friends and neighbors who are leaving. Their contribution to our economy, personally and professionally, will be missed.’
http://www.adn.com/article/20160319/ramseys-despite-low-oil-prices-anchorage-real-estate-market-will-be-ok
Sarasota, FL Housing Market Implodes; Prices Crater 16% YoY As Foreign Nationals Dump Properties
http://www.movoto.com/sarasota-fl/market-trends/