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Congress Tackles the Risky Loan Shortage
Here's the New York Times summary of the housing legislation Congress is on the verge of approving:
The centerpiece of the Senate package is a rescue-refinancing plan aimed at stemming the tide of more than 8,000 new foreclosures a day that lenders are filing across the country. The plan would allow distressed borrowers and their lenders to stem losses by allowing qualified owners to refinance into more affordable, 30-year fixed-rate loans with a federal guarantee.
The legislation would also provide benefits for first-time buyers, who would receive a refundable tax credit of up to $8,000, or 10 percent of the value of a home, on purchases of unoccupied housing.
As part of a regulatory overhaul of Fannie Mae and Freddie Mac, the mortgage finance giants, the bill would permanently increase to $625,000, from $417,000, the limit on loans they can purchase from lenders in expensive housing markets, making it easier for borrowers to obtain mortgages at discounted rates.
Problem: Lots of people took out loans they could not afford to buy houses that subsequently declined in value.
Solution: Bail out borrowers and lenders, putting taxpayers on the hook for the bad loans; increase subsidies for home purchases; and make it easier to take out big mortgages.
What could possibly go wrong?
|6.25.08 @ 10:19AM|#
Is there anything congress can't do...please...tell me there's something congress can't do!!!
|6.25.08 @ 10:20AM|#
My experience is that 30 year fixed-rate loans carry a higher interest rate than adjustable loans. For the same principle, they should have higher monthly payment than a 30-year adjustable loan? My impression is that the vast majority of sub-prime loans were 30 (or 40) year adjustable rate loans. How can these new loans be more affordable than the loans they are replacing?
Ben|6.25.08 @ 10:22AM|#
Please RC, you are only a little person and just because you
don't understand it does not mean that Congress has not made it
so.
Maybe Bush vetoes this? Someone please tell me that Bush will veto
this.
robc|6.25.08 @ 10:23AM|#
RC Dean,
For most sub-prime loans, the teaser rate (rate before the first
adjustment) was HIGHER than 30-year fixed rates.
|6.25.08 @ 10:24AM|#
R C Dean said:
How can these new loans be more affordable than the loans they are replacing?
Because the ARMs in question have already adjusted their rate
beyond the existing market rate for 30-Year Fixed mortgages.
I know someone who got buried by an ARM. I also know that it was
100% their own fault.
Jozef|6.25.08 @ 10:26AM|#
Solution: Bail out borrowers and lenders, putting taxpayers
on the hook for the bad loans; increase subsidies for home
purchases; and make it easier to take out big mortgages.
...and keep housing prices artificially inflated, preventing more
fiscally responsible people from purchasing houses at fair market
values.
robc|6.25.08 @ 10:27AM|#
MP,
Because the ARMs in question have already adjusted their rate
beyond the existing market rate for 30-Year Fixed mortgages.
I know someone who got buried by an ARM. I also know that it was
100% their own fault.
Yep. For those unaware here is how the process went:
Bank: We have loose standards
Sub-Prime Borrower: okay, give me that 3-year arm. In 3 years, I
will be able to refi right?
Bank: Sure.
(2.5 years pass)
SPB: I would like to refi before my rate changes.
B: No.
SPB: What?
B: Havent you heard, the housing market has peaked, foreclosures
are going up, we have had to tighten up our standards.
SPB: But I cant afford to pay the adjustable rate.
B: Get in that foreclosure line over there.
Colin|6.25.08 @ 10:32AM|#
Even if it's filibustered or vetoed, President Obama will
gleefully sign it and many others like it into law.
The day of the proletariat quickly approaches!
PC|6.25.08 @ 10:34AM|#
"...and keep housing prices artificially inflated, preventing
more fiscally responsible people from purchasing houses at fair
market values."
Housing prices, college tuition, health care, corn prices etc.
Kyle|6.25.08 @ 10:35AM|#
Lost_In_Translation,
Congress can do anything it wants. Why? Because if this blows up in
their face, the public will simply blame the President (whoever it
is). It's a nice system for them really, since someone else always
gets the blame.
Congressman|6.25.08 @ 10:38AM|#
Moral hazard? Moral hazard?! I'd say throwing these people out on the street is a "moral hazard"!
|6.25.08 @ 10:40AM|#
I was just thinking how awesome it would be if Congress could find a way to artificially raise the value of a house. It would have been much better if Congress had passed legislation prohibiting the listing of a house for less than 5% over its last sale value, and require any interested buyers to bid on and eventually buy that house.
|6.25.08 @ 10:41AM|#
Nice post title.
My neighborhood went nuts during the bubble and our property tax
evaluation went through the roof. They were buying $250,000 houses
and tearing them down to build 5,000 sq. ft. mini-mansions on
10,000 sq. ft. lots and try and sell them for $1M.
Currently, in my 32 house block, 3 mini-mansions have been for sale
for over a year, 5 other houses have been foreclosed on and sit
vacant and for sale, 3 private renovated homes for sale (bought as
flippers), and 4 houses are now rental properties.
Both the banks and the idiots who bought houses they couldn't
afford are to blame. Bail-out none of them. And cut my goddamn
property taxes.
Brett|6.25.08 @ 10:41AM|#
This won't set irreversible precedents now will it? I'm sure
we'll learn from our mistake and this will be a one time thing,
right?
ha...
Guy Montag|6.25.08 @ 10:43AM|#
The most recent adjustment on my mortgages gave me a lower
interest rate, but I need to look into this and see if I can get an
even better deal.
All loans should be from the government, right? Just like the
system they have in Cuba. Perhaps we can get their healthcare
system too.
|6.25.08 @ 10:44AM|#
Funny how congress thinks it's its job to try to "do something" about the price of gas, oil, corn, food, milk, basic materials, etc. - but when it comes to housing, somehow to "do something" about the price somehow means to make it less affordable?
|6.25.08 @ 10:45AM|#
Don't worry. We'll finance it with "windfall profits" tax on those greedy oil companies.
Guy Montag|6.25.08 @ 10:46AM|#
Reinmoose,
But homeowners are not EvilBigOil, we are innocent victims in the
clutches of EvilBigBanking.
Brett|6.25.08 @ 10:48AM|#
As a renter am I now allowed to villify the selfish and greedy BigBorrowers, or was it the Homeowner Industrial Complex?
|6.25.08 @ 10:49AM|#
If the price of corn continues to rise, and the price of houses continues to fall, the "crisis" will self-correct; in the Midwest, it will become worthwhile for farmers to buy up houses in order to demolish them and return the land to its prior agricultural use.
Guy Montag|6.25.08 @ 10:51AM|#
P Brooks,
But only if they use traditional farming methods and do not become
slaves to BigOil and BigAg, with genetic freak corn and all of
that.
|6.25.08 @ 10:54AM|#
First thing we need is a national gag order on saying bad things about ARMs and the real estate market. Then we need to institute a national "middling wage" that is enough to support a fixed rate mortgage, i.e., employers would immediately be required to raise middle class employees' salaries by the amount their ARMs went up. Then we could punish the mortgage speculators by imposing on them huge amounts of filthy lucre.
|6.25.08 @ 10:58AM|#
I was watching a news report on the current spate of FBI PR arrests, the other night. It was funny (in a sad, ridiculous sort of way); the newsperson was trying to tell me the G-men were rounding up evil mortgage brokers who had funneled vast sums of money to individuals with no means to repay it because they had "defrauded the borrowers."
Kent|6.25.08 @ 10:59AM|#
Lamar,
Congress will decree that all workers must make at least the
average wage.
|6.25.08 @ 11:01AM|#
1990's Democrat: "We want to reward those who work hard and play
by the rules"
New Millennium Democrat: "You bought a modest house on a 30-year
fixed rate loan and now you're upset you've got to bail out the
greedy homeowners and banks who weren't as prudent as you?
SUCKER!"
Kolohe|6.25.08 @ 11:01AM|#
who would receive a refundable tax credit of up to $8,000,
or 10 percent of the value of a home,
Is this whichever is greater? It seems like a weird cutoff. There
aren't a lot of $80K homes, and even less in the places that are
most affected by foreclosure (MI possibly excepted, but their
problems are unrelated to the housing bubble)
|6.25.08 @ 11:02AM|#
serious questions.
How do we deal with the 8000 dumbasses a day that could become
homeless without robbing the smart to bail out the stupid? How do
we, as a nation, require real personal responsibility, without
going through a complete societal and economic breakdown?
|6.25.08 @ 11:06AM|#
It's truly awe-inspiring to watch people who haven't yet wondered whether millions of foreclosures could have consequences beyond those experienced by the borrower and bank chortle about how everybody else is clueless about economics.
Waterhouse|6.25.08 @ 11:06AM|#
How do we deal with the 8000 dumbasses a day that could
become homeless without robbing the smart to bail out the stupid?
How do we, as a nation, require real personal responsibility,
without going through a complete societal and economic
breakdown?
There are these things called Less Expensive Houses, as well as
Apartments.
|6.25.08 @ 11:08AM|#
brotherben said:
How do we deal with the 8000 dumbasses a day that could become homeless without robbing the smart to bail out the stupid?
They can still rent. They won't be homeless because they're not
jobless.
a complete societal and economic breakdown
Not a likely scenario.
|6.25.08 @ 11:08AM|#
brotherben,
By realizing that the bust in the housing market is really a boom
in the rental market disguised.
But really, the smart bailing out the stupid seems to be the
American way. Congress will bail out both just enough to take the
sting out the lesson, and the whole thing starts all over again.
And the financial prudent sigh, and begin unbuckling their pants
for another rampant ass fucking.
|6.25.08 @ 11:13AM|#
"How do we deal with the 8000 dumbasses a day that could
become homeless without robbing the smart to bail out the
stupid?"
A popular thing around here is the buy and lease back. I buy your
foreclosed house, then rent it back to you. It really doesn't
change much. The person renting the house is renting it from a
person instead of "renting" it from the bank.
Waterhouse|6.25.08 @ 11:15AM|#
It's truly awe-inspiring to watch people who haven't yet
wondered whether millions of foreclosures could have consequences
beyond those experienced by the borrower and bank chortle about how
everybody else is clueless about economics.
Yeah, one of those consequences is that the newly-competitive
marketplace forced my rent down by 20%, while at the same time
forcing the company to drastically renovate the building.
Invisible Finger|6.25.08 @ 11:16AM|#
Because the ARMs in question have already adjusted their
rate beyond the existing market rate for 30-Year Fixed
mortgages.
Expect 7.5% to 8% 30-year rates within 12 months. Inflation alone
is going to do that, plus the increased demand for loans coupled
with a decreased supply of investor money makes a continued rise in
the 30-year mortgage interest rate more likley.
|6.25.08 @ 11:17AM|#
joe said:
It's truly awe-inspiring to watch people who haven't yet wondered whether millions of foreclosures could have consequences beyond those experienced by the borrower and bank chortle about how everybody else is clueless about economics.
Get a grip. Who's denying that there won't be economic fallout from
this process of unwinding bad mortgages? So we're in a time of
economic contraction. Big deal. Is that supposed to be some sort of
mind-blowing new event?
Guy Montag|6.25.08 @ 11:17AM|#
brotherben,
Yea, what some others said. They will probably become rentors and
not homeless at all.
|6.25.08 @ 11:17AM|#
Why do we weep for these former homeowners? They were "renters"
the entire time.
They were in houses they couldn't afford. They paid money every
month to live there. When they could not afford the payments, they
had to leave. That sounds like every rental agreement I've ever
seen. If you can't afford to buy, you rent. That's true even if you
thought you were buying. You have no equity in the place,
you can't afford the payments and you never owned the house in the
first place.
|6.25.08 @ 11:18AM|#
From a while ago.
J sub D | September 6, 2007, 10:53am | #
Who am I supposed to bail out? People who took mortages out on houses they couldn't afford, or those who gave them the mortages? To both groups my response is "You made your bed, now lie in it."
Oh yeah, "And quit whingeing."
I guess the answer is both. Who wants to bet the default rates for
these guaranteed loans will not be 25% higher than industry
average?
Don't all speak at once now.
robc|6.25.08 @ 11:19AM|#
joe,
It's truly awe-inspiring to watch people who haven't yet
wondered whether millions of foreclosures could have consequences
beyond those experienced by the borrower and bank chortle about how
everybody else is clueless about economics.
Do you not read? As Ive pointed out to you multiple times before,
we realize there are other consequences, we just think those people
(including myself) deserve it too. Why the fuck didnt I sell my
WaMu stock before it crashed? Because Im a dumbass and got what I
deserved.
All "we"s in the previous paragraph are possibly royal.
|6.25.08 @ 11:20AM|#
It's truly awe-inspiring to watch people who haven't yet
wondered whether millions of foreclosures
massive transfers of wealth from the prudent to the
imprudent, and the injection of still more moral hazard into the
banking system could have consequences beyond those
experienced by the newly enriched borrower and
bank chortle about how everybody else is clueless about
economics.
Kolohe|6.25.08 @ 11:21AM|#
By realizing that the bust in the housing market is really a
boom in the rental market disguised.
Yes and no. Most places rents have gone down as well, as people are
trying to hold on to their homes longer until the crash subsides.
Renting them out in the interim is putting new capacity on the
market.
|6.25.08 @ 11:22AM|#
Expect 7.5% to 8% 30-year rates within 12 months.
Let's hope it stays there. Those aren't historically-high
figures.
But the era of absurdly-cheap credit is over. Hey, it got us
through the last cyclical recession without too much harm, and the
90s ruled. If we can pull off a soft landing from this financial
recession we're in, things will have worked out quite nicely
overall. But that's a big if.
robc|6.25.08 @ 11:23AM|#
Guy,
Nah. On some issues joe is intelligent. This is not one of those
issues.
robc|6.25.08 @ 11:24AM|#
joe,
If we can pull off a soft landing from this financial recession
we're in, things will have worked out quite nicely overall. But
that's a big if.
Even with a fairly hard crash it will have worked out nicely
overall.
Bingo|6.25.08 @ 11:25AM|#
They don't become homeless, jesus christ. It's not like they are thrown into the streets. There are these things called "apartments" you know. I've been living in one for the past 6 years and, believe it or not, its not too terrible!
|6.25.08 @ 11:25AM|#
robc, MP,
Until my comment, the only postulated outcomes from this problem
were 1) "stupid people" get what they deserve, and 2) the weakness
in the homeownership market will be balanced out by increasing
strength in the rental market.
But now, we're getting somewhere.
Guy Montag|6.25.08 @ 11:26AM|#
robc,
To each their own, of course.
Perhaps better city planning and more prudent zoning will solve
this whole mortgage thingie.
There could be forclosure-free zones, and other solutions that we
just have not thought of . . .
robc|6.25.08 @ 11:27AM|#
joe,
Until my comment, the only postulated outcomes from this
problem
Only if you treat threads in isolation. Plenty of other postulated
outcomes from the 47,000 other threads on bailouts.
|6.25.08 @ 11:27AM|#
Isn't that what the gubmint is doing? Putting big ole poofy pillows under the falling economy? Shouldn't we all praise their actions as the self interest for the greater good that they are?
|6.25.08 @ 11:29AM|#
Even with a fairly hard crash it will have worked out nicely
overall.
The problem with crashes is that cause damage above and beyond what
the aggregate numbers you're looking at show.
It's certainly true that the the boom was strong and long enough
that we could give back a large amount of the gains, and still come
back ahead. There is a long way to drop from, say, Q4 1999 before
we're back to 1992.
But that doesn't take the damage from the shock into account.
|6.25.08 @ 11:29AM|#
joe said:
But now, we're getting somewhere.
Whatever. Last I checked, every discussion didn't need to follow
joe's optimum path of where a discussion should lead.
robc|6.25.08 @ 11:30AM|#
Outcomes:
1. Stupid people get what they deserve
2. Weakness in housing market balanced out by strength in rental
market
3. My WaMu stock crashes
4. The Amish dont notice
In this case, by not participating, the Amish made a very smart
decision. The rest of us are dumbasses who deserve whatever happens
to us.
|6.25.08 @ 11:30AM|#
How do we deal with the 8000 dumbasses a day that could
become homeless without robbing the smart to bail out the
stupid?
They weren't gonna be friggiin' homeless. They would have been
forced to move into a 2 BR apt that they can afford and their
credit rating will be justly trashed. Those holding the paper would
have faced reduced profits or losses due to their imprudent
lending/investment decisions. Perhaps some would have faced
stockholder revolts.
That would have been justice. I'm a very pro-justice sort of guy.
See my comment upthread.
|6.25.08 @ 11:30AM|#
A filter is easier, or just ignore.?
Apparently, not easy enough.
Ohai, Gai. I'm in yr hed, ubsessin yr thawts.
Guy Montag|6.25.08 @ 11:30AM|#
brotherben,
What falling economy? Do you mean that growth not accelerating as
fast as it was before, but still growing, means falling?
Neu Mejican|6.25.08 @ 11:31AM|#
As someone who is as far from expert on this as you can get, it
seems to me there are fixes here that don't involve a "bailout" at
all.
e.g., If stupid lender X gave a mortgage to stupid borrower Y using
the affordable (but adjustable) rate Z, then adjusted that upwards
to rate FUCK causing Y to default because s/he couldn't make the
payments...the fix is to renegotiate that loan to a payment that Y
can afford. No one needs to give Y extra money, no one needs to
give X extra money. So if there is a federal role in this it seems
it would be limited to saying that Y has a right to renegotiate the
loan rather than default, and to, perhaps, provide some guidelines
about how that process should proceed. No taxpayer money need be
involved.
What am I missing?
(I am sure I am missing something)
robc|6.25.08 @ 11:31AM|#
joe,
Shock is a short term negative and a long term positive.
Ive said it before and I know I cant prove it, but I still contend
that boom/bust cycles are stronger in the long term than controlled
steady growth.
robc|6.25.08 @ 11:32AM|#
Ohai, Gai. I'm in yr hed, ubsessin yr thawts.
You really shouldnt post like that without linking to an
appropriate cat image too.
|6.25.08 @ 11:32AM|#
Last I checked, every discussion didn't need to follow joe's
optimum path of where a discussion should lead.
Heh heh heh.
You must not have checked many threads.
robc|6.25.08 @ 11:34AM|#
NM,
You arent missing anything. Apparently the banks think foreclosing
is a better deal than renegotiating. I know banks are going slower
on foreclosures and giving borrowers more chances to catch up, but
for some reason, refiing at an affordable rate doesnt seem to be an
option.
I dont know why either, but hey, its their call.
|6.25.08 @ 11:34AM|#
Please, somebody be more specific about what the possible fallout is from the government doing nothing to "soften the blow." I keep hearing that there will be consequences, major consequences, if we don't bail out the borrowers/home "owners." But please, to those who insist there will be these major consequences, please explain further.
kinnath|6.25.08 @ 11:35AM|#
In other news, Illinios sues Countrywide . . .
In its lawsuit, the state alleges the Calabasas, Calif.-based
company engaged in "unfair and deceptive practices" in the sale of
mortgage loans, The Wall Street Journal reported Wednesday, citing
a draft of the complaint.
Illinois officials also say Countrywide relaxed its underwriting
standards, put together loans with risky features and used
marketing and sales tactics that motivated employees and brokers to
push loans regardless of whether borrowers had the resources to
repay them, according to the newspaper.
Can you say "tobacco settlement 2.0"
|6.25.08 @ 11:36AM|#
Guy Montag, I'm assuming the fall is occuring based upon government intervention in so many aspects of it. That could just be my pubic high school education at work.
|6.25.08 @ 11:37AM|#
robc,
I still contend that boom/bust cycles are stronger in the long
term than controlled steady growth.
I'd say, up to a certain point. I doubt you'd argue that a crash as
severe as the Great Depression was a net positive in the long
term.
But in principle, I'd agree. Steady 2-3% growth every single year
forever is less desireable than some turbulance. It's not
acheivable, anyway.
Ravac|6.25.08 @ 11:37AM|#
Until my comment, ...
I see joe's ARM is limber enough to pat himself on the back all the
time.
|6.25.08 @ 11:39AM|#
Why the hell is home prices coming down considered a bad thing.
The "American Dream" costs less without this bailout of undesrving
borrowers and lenders.
Housing prices decline as the mortgage holders sell at reduced
prices.
Rental prices go up as people move from mortgaged property to
rental property.
Others in rental properties see their rent go up and home prices
decline.
They buy a home.
This reduces the upward pressure on rental prices.
Everbody wins except those who foolishly borrowed, lent and assumed
the overvalued paper.
What is wrong with this?
Guy Montag|6.25.08 @ 11:40AM|#
Please, somebody be more specific about what the possible
fallout is from the government doing nothing to "soften the blow."
I keep hearing that there will be consequences, major consequences,
if we don't bail out the borrowers/home "owners." But please, to
those who insist there will be these major consequences, please
explain further.
The end of life on this planet as we know it. This crisis is
greater than Global Climate Change.
How's that?
|6.25.08 @ 11:41AM|#
somebody be more specific about what the possible
fallout
Your friendly neighborhood Sandinistas, who have been getting so
much political traction from bleating about "affordable housing"
will have to find something else to boo hoo about, as housing
actually becomes more affordable.
|6.25.08 @ 11:41AM|#
joe,
I think you're entirely wrong. A bailout rewards risky behavior.
Lenders have substantial blame in all of this, but a large number
of the borrowers got themselves into trouble, gambling on an
ever-increasing price and on perpetually low rates. I don't have a
problem with consumers suing lenders over any fraudulent practices,
but a legislative bailout is stupid. I'd say that the S&L
bailout in the 80s had no small effect on the risk tolerance of the
lenders in the Oughts. And so it goes. . . .
I leave out any discussion of whether it is fair for me, someone
who lives within my means, to subsidize those who don't. The spike
in foreclosures is a middle class problem, too, not a poor-people
problem, because, all told, banks don't generally lend money to buy
houses to people with extremely low incomes. That goes for subprime
lenders, too.
robc|6.25.08 @ 11:41AM|#
joe,
The Great Depression was part of a long term positive. It, itself,
was a negative, but it was only the negative part of a positive
trend.
The Fed and people supporting bailouts are wanting controlled
steady growth. They are strongly discounting the postive aspects to
chaos.
Hail Eris!
Neu Mejican|6.25.08 @ 11:41AM|#
robc,
but for some reason, refiing at an affordable rate doesnt seem
to be an option.
I don't know why either, but hey, its their call.
That call is the "predatory" call that some consider a problem, if
I am understanding things correctly.
Stupid lender X above is actually predatory and savvy lender Xprime
and knows that he could fool Y out of some of his/her money and
eventually get the house back to sell to the next sucker. Savvy
Xprime also knows that his company can weather the crash by renting
it until it is worth enough to sell again. That is why I am saying
the role of government here would simply be to say to Xprime, sorry
you should have known that Y couldn't afford this rate if you
adjusted it up, so you don't get the house back...you have to
renegotiate rather than foreclose...or something. Again, no
taxpayer money seems to be involved.
|6.25.08 @ 11:42AM|#
The government created this mess by pushing looser credit so
that people could "afford" to buy houses at heavily inflated rates.
So what do they do to try to fix it?
Tighten credit? NO!
Make it even more easy for people to take out bad loans that they
can't afford, only this time the federal government is taking on
the risk!
Invisible Finger|6.25.08 @ 11:44AM|#
Let's hope it stays there. Those aren't historically-high
figures.
True, but hardly anyone under the age of 35 has experienced it. And
if you can't afford your ARM when it adjusts to 8.5% now, you
likely won't be able to afford an 8% fixed 30-year mortgage
either.
Foreclosure is the best long-term option for these borrowers,
instead they're being encouraged to continue to make payments on a
reduced-but-still-excessive mortgage.
|6.25.08 @ 11:44AM|#
Countrywide relaxed its underwriting standards, put together
loans with risky features and used marketing and sales tactics that
motivated employees and brokers to push loans regardless of whether
borrowers had the resources to repay them
Another self-correcting phenomenon: after Countrywide goes broke,
because nobody will provide capital to idiots, other lenders will
look harder at their loan apps.
I know- I had trouble typing that, I was laughing so hard.
Russ 2000|6.25.08 @ 11:46AM|#
In this case, by not participating, the Amish made a very
smart decision.
There are actually a few cases where the Amish made gobs of cash by
selling their land in an inflated market an relocating to areas
where the prices were still sane.
robc|6.25.08 @ 11:47AM|#
NM,
That is why I am saying the role of government here would
simply be to say to Xprime, sorry you should have known that Y
couldn't afford this rate if you adjusted it up, so you don't get
the house back...you have to renegotiate rather than foreclose...or
something. Again, no taxpayer money seems to be
involved.
I see no reason to get the government involved at all. I see
nothing predatory on foreclosing on someone who doesnt pay their
payments. There are very few savvy Xprimes. The companies that
bought these loans are getting killed, not making profits off of
this. They are trying to minimize losses, not maximize profit.
kinnath|6.25.08 @ 11:47AM|#
Having a leg cut off is traumatic, but dieing from diabetes-induced gangrene will ruin anyone's day.
|6.25.08 @ 11:48AM|#
ARMs are the big problem today, much more than the subprime
crisis we keep hearing about. The subprime hit had a lot more to do
with a small increase in defaults that blew holes in the
securitized portfolios in the secondary market. And the leverage
off of those. It was a bubble, too.
Incidentally, the government capped subprime rates for the more
risky borrowers at rates far below those indicated under any
rational risk-based pricing model. The federal Home Ownership and
Equity Protection Act and the various state "predatory lending"
laws played no small role in creating this mess. Oops.
The increase in housing prices may have happened for the same
reason that tuition goes ever upwards--cheap and sleazy credit.
|6.25.08 @ 11:49AM|#
We were prudent about what we could (barely) afford, and now
we're stuck, upside down in a lousy house in a neighborhood we'd
like to move out of.
Others who were imprudent, who bought into better, more expensive
neighborhoods, are going to get bailed out.
Goddammit.
Congress could have at least thrown a free pony in there for the
rest of us.
robc|6.25.08 @ 11:51AM|#
Those shifty Amish fellas...
Is it the Amish that are descendents from the Swiss or is that the
Mennonites?
Okay, they were originally Swiss Mennonites, if you can trust
wikipedia. They learned their crafty, money-making ways from the
Gnomes.
|6.25.08 @ 11:51AM|#
Congress could have at least thrown a free pony in there for
the rest of us.
You'll get your pony when gas hits $5.50 per gallon; you'll need
it, to get to work.
Kent|6.25.08 @ 11:55AM|#
The Great Depression led to FDR's election and the New Deal -
not exactly a net positive in the long term. You are spot on this
time, joe.
"I doubt you'd argue that a crash as severe as the Great Depression
was a net positive in the long term."
|6.25.08 @ 11:55AM|#
Neu Mejican said:
Savvy Xprime also knows that his company can weather the crash by renting it until it is worth enough to sell again.
Savvy Xprime is finding out that they are holding on to giant piles
of horseshit. Apparently, they're not so savvy.
Look, let's say you buy a house for 750,000 and you finance 5% of
it (sounds crazy, but that's why we're in this mess). So you have
37,500 into the house. Now, the house drops in value to 650,000 and
your mortgage payments go up 50% because that cheap ARM hit its
trigger. So now you can't afford the payments (especially while
you're getting killed at the gas pump and with your home heating
oil bills). And even if you sold, you'd owe the bank...a lot. So
foreclosure is your best option. You eat the 37,500, you get a
black mark on your credit, and you move on.
And the bank, far from being a winner, is now out 62,500. Assuming
they can even sell the house for 650K...which, in a foreclosure
auction is highly unlikely.
Foreclosure is not something that enriches a bank. Everybody loses
in a foreclosure. And renegotiating a loan is not the answer
either, because now the bank wants you to have the full 20% down
instead of that measly 5%.
|6.25.08 @ 11:56AM|#
"Apparently the banks think foreclosing is a better deal
than renegotiating."
Sort of an unrelated observation: a lot of people who got into
banking over the last 10 years made money regardless of whether
they were intelligent or not. This is the first major culling of
the banking heard.
Countrywide owns a
certain house in Orlando that has a cracked foundation,
condemned balcony, cracked plumbing, no central AC, a $5,000/yr.
tax bill, and an out of code electrical system. The house is worth
only what the land is worth (maybe less, because the house has to
be torn down). Yet Countrywide lent somebody $305,000 to buy this
junker in 2004.....And we're supposed to impute intelligent,
rational decision making to these idiots?
By the way, the kicker about that house is that some stooge put new
floors and appliances in it! Gotta love the "flip this turd of a
house" crowd.
|6.25.08 @ 11:58AM|#
kinnath said:
Can you say "tobacco settlement 2.0"
Tobacco companies mint money. Failing mortgage lenders do not.
|6.25.08 @ 12:02PM|#
Let us not also forget that there are entire sections of the
country that did not benefit from the housing boom, but under
congress's pen, will suffer losses. In my area we saw very little
growth in housing prices over the period where they trippled in the
DC area, but we are somehow supposed to pay for people to keep
appreciated gains during a bubble that we didn't benefit
from?
Seriously, people like joe think they're moral because of this?
Invisible Finger|6.25.08 @ 12:05PM|#
What am I missing?
(I am sure I am missing something)
What you're missing is that the stupid lender then sold that
mortgage to a stupid investor (aka hedge fund, pension fund,
foreign bank, etc.) and is only servicing the loan for the
investor; it isn't the original lender's loan to renegotiate
anymore. You'll have to track down the actual current investor of
the actual loan in each individual case and get their willingess to
work with the individual borrower. That'll take so much time that
30-year fixed mortgage rates are sure to rise to historically sane
levels (or higher) - and you'll find most of these borrowers can't
afford even that slightly lower principal at the historically-sane
rates. Even then, when these investors see the amount of work
involved going over each borrower's financial ability to repay (the
typical underwriting process rather than the fog-a-mirror test of
the last few years) these investors will likely just say "fuck it"
and foreclose because it's a lot faster and cheaper
overhead-wise.
Bottom line - unless the borrower's principal is around 2.6x-to-3x
his annual income, these bailout schemes amount to nothing but face
time for politicans. The typical underwater borrower has principal
6x his annual income; that's going to require tax credits of close
to 200K - even Democrats know better than to suggest that.
Neu Mejican|6.25.08 @ 12:08PM|#
MP,
Like I said, I am far from expert in this field.
So this puzzles me...
because now the bank wants you to have the full 20% down
instead of that measly 5%.
and this
Foreclosure is not something that enriches a bank. Everybody
loses in a foreclosure.
Seem at odds. If the bank loses in a foreclosure, but requiring you
to pony up 20% in the renegotiation means that you will foreclose,
what is their incentive to require that 20%.
As for the 750k now being 650k, why would I as a home owner or a
bank assume that this house wouldn't be worth more than 750k by the
time the 30 years is up? Why are these decisions about long-term
value being made based on current/short term trends in prices?
|6.25.08 @ 12:09PM|#
(aka hedge fund, pension fund, foreign bank, etc.) "
I thought them damnable speculators had to have something to do
with this.
Neu Mejican|6.25.08 @ 12:13PM|#
You'll have to track down the actual current investor of the
actual loan in each individual case and get their willingess to
work with the individual borrower.
Okay, I seemed to have understood this vaguely already...this seems
like the incentive for a broad policy fix...an even playing field
that says "this is how you go about doing this." In the end maybe
everyone loses some, but if foreclosures are lose-lose-lose, but
only a win because of the hassles/overhead involved in
renegotiation then the policy fix remains procedural and should be
aimed at reducing that overhead to avoid the
lose-lose-lose...
No?
Russ 2000|6.25.08 @ 12:13PM|#
The Great Depression was part of a long term
positive.
robc, you really can't believe that, can you?
All the Great Depression did was put more power in the hands of the
central bank - the party that CAUSED the problem.
That's a long-term negative in my book.
|6.25.08 @ 12:18PM|#
Lenders lose big time (usually) when they have to foreclose. The
costs of foreclosure, the condition of houses being foreclosed upon
(often trashed, similar to the case with defaulting tenants), and
the legal limits placed on foreclosing lenders (to protect
borrowers) all make it hard to even break even. Especially when the
market is frozen like it is now. Of course, part of that is due to
the practice of requiring lower and lower downpayments. For a
while, loans were being made with loan-to-value ratios of greater
than 100%. Craziness.
There's also the fact that a higher foreclosure rate means that the
anticipated income for the bank from its mortgages may be much
lower. This is complicated by the fact that loans are often
securitized and sold in the secondary market, but it remains a bad
thing.
Ultimately, foreclosure is considered better than nothing. It
certainly beats writing off the loan, but that's the whole point of
securing loans in the first place. Banks will generally try to work
out something rather than jump to foreclosure, though, in this
market, they may decide that's a waste of time in some cases.
|6.25.08 @ 12:27PM|#
Neu Mejican said:
Seem at odds. If the bank loses in a foreclosure, but requiring you to pony up 20% in the renegotiation means that you will foreclose, what is their incentive to require that 20%.
The amount of equity that a borrower has in a property is directly
related to how bound that borrower is to the property. In the
example I gave, the borrower with 5% down was willing to walk. With
20% down, they're much more likely to find a way to make things
work. Thus, down payment sizes are directly related to risk
management, and banks right now have every incentive to be diligent
about their risk.
As for the 750k now being 650k, why would I as a home owner or a bank assume that this house wouldn't be worth more than 750k by the time the 30 years is up?
Future value isn't relevant when you can't make payments today. And
in any refinance, the bank is going to appraise the house at
today's market value. So that 100K difference is relevant today,
because in the refi, the bank isn't going to give you 750K for a
house that's only now worth 650K.
Anyhow, as you point out, there's a lot of incentives pro and
against. So obviously my simplistic case should be considered
representative of every situation.
|6.25.08 @ 12:27PM|#
Let us not forget that there is still an oversupply of housing, even at the lower rates. It's not like we have the optimal number of housing units for the population, and we simply can't afford them. It's that there are too many units for people to be able to afford to buy them at reasonable prices and lending rates, and houses were built (ahem, speculators) assuming the lower lending rates, lower down payments, and lower income to home-value ratios. Trying to prop up house values is exactly the opposite of trying to keep people in their homes.
Rhywun|6.25.08 @ 12:28PM|#
Where have you folks been? The American Dream is non-negotiable. That means getting every American into their own house, even if they can't afford it. We're not gonna trump up those home-ownership rates by letting Americans stay in rentals.
Invisible Finger|6.25.08 @ 12:31PM|#
Why are these decisions about long-term value being made
based on current/short term trends in prices?
Because a short-term amount of money (5% or less) is being put
down.
It's a 2-way street. If you are putting 5% down, you are
statistically a short-term buyer hoping on quick appreciation; if
you put 20% down you are statistically a long-termer. If you say
you are a long-termer, you need to put your money where your mouth
is.
|6.25.08 @ 12:32PM|#
"Ultimately, foreclosure is considered better than
nothing."
What seems so funny to me is that banks will not work with somebody
who can't afford the payment, but has a job, and can make something
close to the payment. Instead, they'll foreclose, then pay taxes
and insurance on the house while it rots on the market at 75% of
what the person who couldn't meet the current payments was on the
hook for. It's almost like they are saying, "you couldn't afford to
pay us the extra 2% in interest, so we're going to lose $80,000 on
this $300,000 house. That'll show 'em."
Then the banks have foreclosure "auctions" where they show up and
up the bidding. A few months back people griped and complained, but
now people just skip these silly charades. Why would I spend $1,000
to inspect a house when the bank is going to jack up the price to
near bubble levels?
I'm looking for a house right now just begging to give my money to
somebody...and they just don't seem to want it. There has to be
some systemic reason why their actions are so idiotic. I just can't
believe that everybody in banking is a reject from law or
engineering.
|6.25.08 @ 12:33PM|#
down payment sizes are directly related to risk
management
Once upon a time (like, during the S&L crisis, from which we
apparently learned, err, nothing), I read a study
which found the single best indicator of the likelihood that a loan
will be repaid is- tah daaah!- the down payment as a percentage of
the loan amount>
Holy crap! Who'd a thunk that?
Russ 2000|6.25.08 @ 12:37PM|#
The American Dream is non-negotiable.
Yes, but the American Dream is 100% equity in your titled property,
not merely having a giant mortgage for it.
Neu Mejican|6.25.08 @ 12:44PM|#
Thanks for clarifications guys.
Lamar's post gets at what I am thining...
So this makes me ask this...
If you are already in a contract and renegotiating the loan...this
is fundamentally different than making a new loan. You already
screwed up, but are trying to minimize loss...given the
lose-lose-lose nature of foreclosure...why does the renegotiation
need to be about anything other than the monthly payment? You are
renegotiation payments on the same loan, not making a new one. That
is what I am talking about.
Again giving buyers this option as a policy fix seems to involve no
taxpayer funded buy-out. If it involves procedural changes that
reduce overhead/costs for the lender then it could, conceivably
have the desired effect with no federal cash involved.
No?
Nigel Watt|6.25.08 @ 12:45PM|#
So since home prices in Houston didn't participate in the bubble since we don't have zoning, can Houstonians be exempted from paying for this?
Invisible Finger|6.25.08 @ 12:45PM|#
It's almost like they are saying, "you couldn't afford to
pay us the extra 2% in interest, so we're going to lose $80,000 on
this $300,000 house. That'll show 'em."
If you actually do the math, it makes perfect sense.
Over the life of the 300K loan, that extra 2% is $180,000. Would
you rather lose $80,000 or $180,000?
TallDave|6.25.08 @ 12:49PM|#
In the 1990s it was:
Problem: Lots of people have a poor record of repaying their loans,
and so cannot get mortgages to buy homes.
Solution: Make it easier to give loans to people who are poor risks
to repay their mortgages.
What could possibly go wrong?
Neu Mejican|6.25.08 @ 12:53PM|#
Over the life of the 300K loan, that extra 2% is $180,000.
Would you rather lose $80,000 or $180,000?
I think this is framed incorrectly.
Isn't that extra $100k not a loss, but a potential profit not
realized? Seems fundamentally different than a loss.
Again, what am I missing?
|6.25.08 @ 12:53PM|#
Again giving buyers this option as a policy fix seems to
involve no taxpayer funded buy-out. If it involves procedural
changes that reduce overhead/costs for the lender then it could,
conceivably have the desired effect with no federal cash
involved.
No?
The desired effect is that the irresponsible buyer looses their
house and the irresponsible loaner takes a lose....we want this
effect to discourage bad behavior.
Ever heard the words "Moral Hazard"?
|6.25.08 @ 12:54PM|#
In the subprime world, historically, workouts were common.
Lenders might allow a deferred payment or some other mechanism for
helping a borrower avoid default. And, of course, the most common
option was to refinance. One problem today is that the refinance
option is no longer widely available.
I suspect that lenders are going to have limited tolerance for
sustaining losses over time, given their generally shaky financial
status as an industry. So, they may just jump to the foreclosure
decision in the belief that certain borrowers will go bad sooner or
later.
One thing that would be nice about not bailing out
borrowers or lenders is that the kind of madness we saw in the last
ten years would be much less likely in the future. Losing your
house and tens of thousands of dollars is bad, and something you'll
want to avoid doing again. Watching your business tank is similarly
disincentivizing.
|6.25.08 @ 12:56PM|#
Neu Mejican said:
why does the renegotiation need to be about anything other than the monthly payment? You are renegotiation payments on the same loan, not making a new one.
I don't believe that's an option. That's outside of my realm of
expertise though. But AFAIK, there's nothing in the mortgage
contract that allows either side to renegotiate. A renegotiation
clause would introduce large variables in the predictability of the
mortgage revenue stream. One can argue that those additional
variables could act as a safety valve in situations like what we're
currently experiencing, but I'm sure there would be numerous other
(potentially highly undesirable) consequences. Thus, you have to
write up a whole new contract.
Neu Mejican|6.25.08 @ 12:57PM|#
Joshua Corning
The desired effect, even by your own formula, is that the
irresponsible buyers and lenders learn a lesson and pays for their
mistakes. This doesn't have to involve losing their house...in the
scenario I am talking about both parties take a hit...why does that
hit need to be so dramatic in your mind?
robc|6.25.08 @ 1:00PM|#
robc, you really can't believe that, can you?
Sure I can. Compared to the long term economic growth in the
history of mankind, the great depression is merely a blip.
Neu Mejican|6.25.08 @ 1:01PM|#
MP,
I don't believe that's an option.
Probably not, or it seems people would be taking it. I am
suggesting the fix may be to open that option up and see what
happens.
but I'm sure there would be numerous other (potentially highly
undesirable) consequences.
Of course if you believe that no smart policy can be crafted then
you wouldn't want to do anything...but if the policy can anticipate
these and minimize them, then it may be worth trying. As problems
arise, it can always be fine-tuned.
|6.25.08 @ 1:02PM|#
I'd say, up to a certain point. I doubt you'd argue that a
crash as severe as the Great Depression was a net positive in the
long term.
It would have been if FDR had not prolonged it for an extra 10
years.
Invisible Finger|6.25.08 @ 1:03PM|#
Isn't that extra $100k not a loss, but a potential profit
not realized? Seems fundamentally different than a loss.
If you were forced to take a cut in salary, but you had a choice of
taking either an $80K cut or a $180K cut, which would you take?
|6.25.08 @ 1:03PM|#
why does that hit need to be so dramatic in your
mind?
You're still assuming that this hit is dramatic. Can you expand on
what the negative consequences of just letting it take its own
course is?
robc|6.25.08 @ 1:04PM|#
down payment sizes are directly related to risk
management
I was reading recently that during the 1800s, 50% down was the
absolute minimum if you wanted a loan to buy property.
|6.25.08 @ 1:04PM|#
Neu Mejican,
One thing to keep in mind is that litigation is an option for
borrowers. I'd venture a guess that 80-90% of the loans in question
are on the up-and-up (overall--some lenders would have a higher
number of questionable loans). However, for the ones that aren't,
federal and state consumer protection laws provide any number of
bases for going after the lender. I'm not sure all of this is
amenable to class action, but I'll be surprised if plaintiffs'
attorneys don't jump into this, either way. Certain consumer
protection laws and fraud can get you noncontract damages, too
(anything from treble damages to punitive damages), which should
make some attorneys happy to help.
|6.25.08 @ 1:05PM|#
It's truly awe-inspiring to watch people who haven't yet
wondered whether millions of foreclosures could have consequences
beyond those experienced by the borrower and bank chortle about how
everybody else is clueless about economics.
Hey joe while you are on the subject of Krugman...where is that
recession he has been predicting for like 7 years?
Russ 2000|6.25.08 @ 1:05PM|#
Compared to the long term economic growth in the history of
mankind, the great depression is merely a blip.
Good for you. Pesonally, I don't a fuck about what the economics of
people in the year 3535 are going to be. Call me a heartless
bastard.
robc|6.25.08 @ 1:10PM|#
NM,
Some banks are doing what you discussed. Its just, in most cases, a
bigger loss than the foreclose now option is.
Think of it this way: You owe me 500k on a 400k home, you cant
afford the payments at 10% (subprime plus adjustment). I can
foreclose and take a 100k loss. Or, I can follow the Neu plan,
refinance it to a 6.5% loan, collect payments for a year or so and
then foreclose because you cant make that payment either. Is that a
positive or a negative? Tough to say.
Banks seem willing to work with anyone who can possibly sorta
convince them that they can catch up soon. If they are financially
strong, they can refinance. The problem is the people who cant make
the payments, cant make the lower payments either, in many
cases.
The key is the banks didnt make the loans thinking that the people
would make the payments, they made them knowing that they would
gain so much equity from the increase in home values that whether
they made the payments or not, they would be able to pay off the
loan by selling a few years down the road.
robc|6.25.08 @ 1:14PM|#
Russ 2000,
The Great Depression ended ~30 years years before I was born. It
has the same relevance to me as the economy in 3535. They are both
just hypotheticals.
robc|6.25.08 @ 1:18PM|#
As an aside, defining a "block" as a chunk of land surrounded by
roads on 4 sides with no roads inside it, there is new construction
going on on my block (just not on my street).
Despite the fact that Louisville has already bottomed out (due to
being a bubblet at most), I find this amazingly stupid.
miche|6.25.08 @ 1:21PM|#
Nigel,
I'm selling my house in Plano and I can tell you that we didn't
participate in the bubble crap. We are getting an offer today and
if it works out, we'll be making or losing nothing. And, we bought
the house right: 20% down, very low fixed rate, paid extra to the
loan, and beat the builder to shit on the original price. We are
lucky that we are in a good place with the house but my husband
wants to just get rid of it because we are already in our new home
which we also bought right. Everybody seems to think that it's fire
sale season, low balling offers and there are builders down the
road who can offer brand new at same pricing area. I think it's the
perfect property to rent but my husband makes the money, pays the
bills and doesn't want the headache of having tenants.
It's like we rented for 8 years.
|6.25.08 @ 1:23PM|#
Reinmoose,
Let me take a stab at it. If I recall, when this started to take
shape, the battle cry was that the mortgage lending meltdown would
affect all lennding practices. Lenders would only lend to the
lowest risk borrowers. Many businesses would be unable to borrow
operating capitol and would fail. It would be a devastating domino
effect on the entire economy of the whole world.
disclaimer: I have had one semester of high school econ with a
teacher that had a habit of investing in things at their peak and
taking a beating.
|6.25.08 @ 1:26PM|#
It's an analogy of limited usefulness, but- a Suburban (for
example) which was bought new from a dealer two years ago is now
worth less than half its sticker price. However, the buyer
continues to make the payments, because of its utility value.
There are unquestionably people who cannot make their current
monthly house payments, but there are also a lot of people who can
afford their payments, but are crying because the price
appreciation they expected, or were told to expect, has not
occurred. Should they abandon their homes? Should they be "bailed
out" by Congressional attempts to put a floor under house
prices?
What about people who had equity, but cashed it out with "home
equity lines of credit" in order to buy plasma televisions? Do we
bail them out?
|6.25.08 @ 1:26PM|#
The key is the banks didnt make the loans thinking that the
people would make the payments, they made them knowing that they
would gain so much equity from the increase in home values that
whether they made the payments or not, they would be able to pay
off the loan by selling a few years down the road.
One thing you should note in this is that the increase in home
values was a regional phenomena found only in areas with stringent
land use and zoning regulations...essentially "smart growth"
discouraged the creation of new supply to meet growing demand and
as a result home prices rose.
This bail out is a massive wealth transfer from regions with good
land use regulations, where the prices remained affordable in too
areas with draconian "smart growth" land use regulations.
|6.25.08 @ 1:31PM|#
"essentially "smart growth" discouraged the creation of new
supply to meet growing demand and as a result home prices
rose."
Then why did the bubble hit places with open development (i.e.,
Florida) so much harder than it hit the "smart growth" places like
Portland?
Invisible Finger|6.25.08 @ 1:33PM|#
I was reading recently that during the 1800s, 50% down was
the absolute minimum if you wanted a loan to buy
property.
That was common in the early 1900's unless you went the Building
& Loan route, which was sort of a mutual society. Building
& Loans amortized mortgages (and required other purchases in a
mutual company) whereas other residential mortgages were typically
interest-only & variable-rate with lump payments of principal
at the end of the term. (I'm amused when the modern press calls
these "new" products.)
Also, by "property" you must mean "residential" (aka non-income
producing, aka "dead", hence "mort"gage). For farming and
industrial property and probably for apartment buildings the down
payment wasn't typically that high because of the expected income
to be derived from the property. (And technically those loans are
"live" gages rather than "mort" gages.)
Don't forget that most borrowers were fucked in the Great
Depression by the fact that the Fed allowed the banks to close
without paying off their depositors. When you are saving up for
your lump sum payment by opening a deposit account and the bank
then closes and your principal payment vanishes, you are fucked.
Before one thinks that the FDIC prevents that problem, think of the
typical mortgage principal ($400K) and think of the FDIC maximum
insured amount ($100K). The insured deposit is still small - if you
had a 400K lump sum payment at the end of your interest-only loan,
and the bank ran off with all of your deposit except for 100K,
you're still fucked. 30-year amortization helps spread the risk and
lower the payments but at that length you accumulate almost no
equity (because you pay down hardly any principal) for the first 10
years or so.
|6.25.08 @ 1:35PM|#
"Over the life of the 300K loan, that extra 2% is $180,000.
Would you rather lose $80,000 or $180,000?"
What are you talking about? If I invest $80,000 today, I'll have
over a million dollars in 30 years. So, let me think about
this...[mulling it over]...I'll take the $1.2 million over the
$180,000.
|6.25.08 @ 1:41PM|#
A couple of things:
1. You're not likely to be able to find an apartment anywhere
decent unless you can pass a credit check.
2. With very few exceptions, the people buying McMansions in the
exurbs that they couldn't afford to buy (and now can't afford to
heat) were determined to protect their snowflakes from the trauma
of coming within 20 miles of a brown person before age 18--at any
cost.
And they vote. And they believe they have a God-given right to live
as far away from the ghetto and the barrio as humanly
possible.
Those are the consequences politicians are afraid of. Governments
have been subsidizing white flight from the cities since the
Forties. One of the biggest welfare scams ever. God help any
politician who opposed it now.
|6.25.08 @ 1:44PM|#
"If you were forced to take a cut in salary, but you had a
choice of taking either an $80K cut or a $180K cut, which would you
take?"
Same as above. I would much, much, much prefer to take the $180,000
cut spread out over 30 years ($6,000 per year) than an immediate
$80,000 cut. The extra $74,000 would be nice, but not as nice as a
humble foreign policy.
|6.25.08 @ 1:49PM|#
Then why did the bubble hit places with open development
(i.e., Florida) so much harder than it hit the "smart growth"
places like Portland?
Care to quantify that in anyway?
Or is "harder hit" based on the number of news articles you have
counted?
And where did you get the idea that Florida had "Open
development"?
http://miamidade.gov/wps/portal/overview
Neu Mejican|6.25.08 @ 1:53PM|#
Then why did the bubble hit places with open development
(i.e., Florida) so much harder than it hit the "smart growth"
places like Portland?
Maybe because those smart growth policies have helped maintain
value/prices?
Maybe the homes in those smart growth cities are actually worth
more as a result of being in smart growth cities?
I could be convinced otherwise, of course. Just speculating here,
but it seems people include quality of life as a result of location
as part of home value. The nice neighborhood with a good quality of
life provides a nice cushion when the bricks and mortar become
worth less than they were before...
No?
Neu Mejican|6.25.08 @ 1:56PM|#
Seattle's home prices have slowed in their rate of
increase.
Is this due to the increased development apparent everywhere in the
city, or is it due to the national market?
Those smart growth policies in place in Seattle seem to be allowing
for a huge surge in the supply of housing in Seattle despite the
national downturn.
What am I missing?
|6.25.08 @ 2:00PM|#
"Care to quantify that in anyway?"
Not really. I don't think it is any secret that prices in FL rose
higher and fell farther than prices in Oregon. I'm not aware of any
angle that shows Oregon as harder hit than Florida, or Portland
harder hit than, say Punta Gorda.
The study was done by Moody's, a respected analyst.
And I say that Florida has "open" development because (1) it is my
business and I know, (2) I've yet to see a request for a major
development (or a small one) denied (but maybe I'm just that
awesome of a lawyer). In fact, Florida lefties talk tough, but
developers run this state. Only two governors since 1970 have been
something other than a developer.
|6.25.08 @ 2:16PM|#
Seattle's home prices have slowed in their rate of
increase.
Can we say foreclosures?
The increase in supply is not an increase in the number of houses
but a drop in quantity demanded.
But yeah everything you said agrees with what I said. Regional
hikes in prices are due to "smart growth" policies of those
regions.
In fact, Florida lefties talk tough, but developers run this
state. Only two governors since 1970 have been something other than
a developer.
So your comparison is Smart growth light with a larger population
then smart growth capital city was a more severe in Smart growth
capital city?
How is Kansas doing? Or Ohio? You know areas with actually no smart
growth. Where densities are determined by markets rather then
government mandate.
but maybe I'm just that awesome of a lawyer
I have my doubts...any land use lawyer who says government mandates
that prohibit sprawl is "Smart Growth" while government mandates
that require sprawl is "open development" is a fucking idiot who I
would never hire.
It does not matter if the total amount of housing is locked up in
huge lots required by law or in open space required by law the end
result is a lack of supply of housing stock.
robc|6.25.08 @ 2:29PM|#
From what I understand, Houston had very little bubble and I
think they qualify as the definition of "open" development.
I doubt South Dakota has anything resembling smart growth but they
didnt even know a bubble existed. Their prices are going up while
everyone else's are going down.
Neu Mejican|6.25.08 @ 2:36PM|#
Joshua C,
The increase in supply is not an increase in the number of
houses but a drop in quantity demanded.
You need to get over the mountains more often.
Seattle is seeing a rapid increase in the number of actual homes
available. Most are in the form of multi-use condo/coop style
developments. This is partly due to the fact that some smart growth
polices involved removing restrictions on these types of
development.
|6.25.08 @ 2:47PM|#
"So your comparison is Smart growth light with a larger
population then smart growth capital city was a more severe in
Smart growth capital city?"
I really don't understand what this sentence means. I'm not being a
dick, but could you restate it?
"any land use lawyer who says government mandates that prohibit
sprawl is "Smart Growth" while government mandates that require
sprawl is 'open development' is a fucking idiot who I would never
hire."
LOL! I send the "land use" work to specialists. I don't dirty my
hands with the grunt work.
But again, I don't understand your statement. Smart growth, in
general, is urban planning (and adherence thereto) that
concentrates population nearer to city centers. I used the term
"open development," to mean "without serious regulatory
impediments." Perhaps you were confused because I made up that
term, borrowing it from the techies. I was hoping it would be more
user friendly than that.
And I'm not aware of any government regulations that "require"
sprawl, but perhaps you have something in mind?
I'll admit, I don't know much about Kansas or Ohio. But for
whatever reason, both Kansas and Ohio rank low in population
growth, whereas FL and OR are much higher.
Invisible Finger|6.25.08 @ 2:52PM|#
Same as above. I would much, much, much prefer to take the
$180,000 cut spread out over 30 years ($6,000 per year) than an
immediate $80,000 cut.
If you take an 80,000 cut now, you have a (smaller) pile of cash
you can reinvest - "If I invest $80,000 today, I'll have over a
million dollars in 30 years" - otherwise you lock yourself into a
smaller profit than what you originally agreed to.
The lender had 300K. After loaning it, he has 0K (zero K). He
expects that loan to give him 540K at the end of 30 years (6%
interest). If he works out a 2% interest cut with the borrower,
he'll have 360K in 30 years. A 180K cut spread out over 30
years.
If instead he forecloses now with an immediate 80K cut, he'll
receive 220K which he can reinvest in your apparently nine-percent
risk-free, "If I invest $80,000 today, I'll have over a million
dollars in 30 years" scheme; which in 30 years will earn give him
3000K. Heck, he may as well pocket 140K and invest only 80K in your
scheme and in 30 years he'll have 1140K. That's still more than
DOUBLE the 540K in the original deal. IOW, the lender would be an
idiot NOT to foreclose ASAP.
If the agreed to the 2% interst reduction workout, the lender would
receive monthly payments and put that money into the 9% investment
of yours. But in 30 years he'd receive around 1800K, 40% less than
the 3000K he could get if he foreclosed.
Russ 2000|6.25.08 @ 2:55PM|#
Maybe because those smart growth policies have helped
maintain value/prices?
Or helped maintain unaffordability, depending on your point of
view.
Neu Mejican|6.25.08 @ 3:00PM|#
And I'm not aware of any government regulations that
"require" sprawl, but perhaps you have something in
mind?
They usually involve requiring a certain amount land around a
building, a certain number of parking spaces per square-foot of
building, a restriction on residential use in commercial
developments, a limit to how sub-divided a particular piece of land
can be...things like that.
|6.25.08 @ 3:14PM|#
Lamar can speak to this more authoritatively than I can, but
Florida being run by developers (esp. at the local level) is an
example of how what looks like a free market isn't entirely.
Developers get major subsidies and regulatory exceptions, often in
exchange for things that look suspiciously like bribes. Even when
the latter doesn't occur, the developers are rarely denied their
sweetheart deals.
Don't misunderstand me--I'm upset about the government's role in
this more than I am with the developers themselves, though they are
part of the problem, too, of course.
|6.25.08 @ 3:15PM|#
It's truly awe-inspiring to watch people who haven't yet
wondered whether millions of foreclosures could have consequences
beyond those experienced by the borrower and bank chortle about how
everybody else is clueless about economics.
No, there's also the consequence that letting housing prices fall,
because their appreciation is no longer being fueled by easy
credit, will make houses more affordable to people who want to buy
them on prudent terms (such as 20% down payment, fixed interest
rate, 30 year term) and who have been paying rent waiting for the
bubble to burst. What's truly awe-inspiring is how joe is
comfortable with fucking those people for the benefit of people
(borrowers and lenders) who gambled on 5-year ARMs and the
expectation that prices would go up indefinitely.
Russ 2000|6.25.08 @ 3:16PM|#
And I'm not aware of any government regulations that
"require" sprawl, but perhaps you have something in
mind?
If you're talking exurbs, you're typically talking about
communities without sewer systems. So for waste you need septic
systems (and a large enough yard to house one) and open space in
lieu of storm sewers. Space is also required for wells.
|6.25.08 @ 3:33PM|#
"If instead he forecloses now with an immediate 80K cut,
he'll receive 220K..."
From who? The magical liquidation fairy? What I find hilarious is
that you spout off like an expert, but you never once questioned by
figures (2%, $80,000 loss), which were just sarcastic made up
exaggerations.
If mortgages are such bad investments for banks, such that they'd
always be better off and prefer to foreclose, why do they make the
loans in the first place????
|6.25.08 @ 3:47PM|#
This bad market aside, the amount of money a bank makes from a loan that performs versus one they have to foreclose on is huge. It's a big deal when a bank has to write down or write off a loan of that size in good times. Banks are heavily leveraged, too, which means that money that just sits around can get them into trouble.
Tim Cavanaugh|6.25.08 @ 3:48PM|#
"The plan would allow distressed borrowers and their lenders to
stem losses by allowing qualified owners to refinance into more
affordable, 30-year fixed-rate loans with a federal
guarantee."
Since all of this describes what a qualified "owner" can do
already, is the only difference the federal guarantee? If so, does
that guarantee refer to a conforming-loan guarantee (also available
now), or an actual contract in which some federal entity will be on
the hook if the borrower defaults?
|6.25.08 @ 3:54PM|#
I used the term "open development," to mean "without serious
regulatory impediments." Perhaps you were confused because I made
up that term, borrowing it from the techies. I was hoping it would
be more user friendly than that.
Then perhaps you can explain how I get 4 homes per acre in this
type of zoning?
http://www.miamidade.gov/planzone/Library/brochures/EU-1C.pdf
And how does a mandated 15% max lot coverage on 2.5 acre lots
increase the housing supply?
To say that these are "Open Development" standards is a fucking
joke.
Michael Ejercito|6.25.08 @ 3:55PM|#
I was just thinking how awesome it would be if Congress could find a way to artificially raise the value of a house.
Something bugs me.
Why is it that lower home prices are seen as a bad thing,
while higher gas prices are seen as a bad thing. Is this
not a contradiction?
|6.25.08 @ 3:57PM|#
And I'm not aware of any government regulations that
"require" sprawl, but perhaps you have something in
mind?
Here you go:
http://www.miamidade.gov/planzone/Library/brochures/EU-1C.pdf
Seriously do you have any idea what the fuck you are talking
about?
|6.25.08 @ 4:46PM|#
"How do we deal with the 8000 dumbasses a day that could
become homeless without robbing the smart to bail out the stupid?
How do we, as a nation, require real personal responsibility,
without going through a complete societal and economic
breakdown?"
Just make everyone take drug tests, then we will all be OK. Because
testing people for drugs makes them better employees
drones, then by extension they will pay on time. It's a win win,
drug tests are one of the few things made in America and everyone's
on dope anyway, so they won't mind.
Kolohe|6.25.08 @ 4:49PM|#
Also, by "property" you must mean "residential" (aka
non-income producing, aka "dead", hence "mort"gage).
This explanation of the etymology is too good to check.
|6.25.08 @ 5:01PM|#
"To say that these are "Open Development" standards is a
fucking joke."
Having "relatively few impediments" to development is not the same
as not having any. More importantly, zoning laws are changed all
the time. Comprehensive plans, zoning laws and construction
permitting rules are all fluid.
"Seriously do you have any idea what the fuck you are talking
about?"
LOL! Apparently not! Did you see that brochure you linked
to! That was some heavy stuff! I've never seen a developer able to
get land re-zoned! I've never seen a developer get denied at the
local level then take his case to the state-level under a
Development of Regional Impact theory! I've never seen counties try
to use the availability of water and wastewater utilities as a way
to limit growth! I've never seen zoning boards rezone entire areas
in exchange for environmental protections! I've never seen county
commissioners reverse positions when a developer contributes to
their campaign! I've never seen new elections change the
entitlement opportunities for a parcel of land! I really have no
experience in any of this!!
What I DO know, is that if there is a f*cking brochure that says
your house must be on an acre, you better believe that everything
within that jurisdiction will be on an acre lot whether it is built
today or 5,000 years in the future.
In fact, since the law is so clear, and so fixed, and so impossible
to alter in any way, there's really no need for lawyers anymore.
Heck, I'm not even sure why I show up to work everyday, what with
all the nothing I don't know about anything.
Thanks for educating me, Dondero. I really am glad you know the
first thing about development. Especially in your area of
expertise, i.e., the political atmosphere and adherence to
development planning in Portland vs. the atmosphere in Florida
cities.
|6.25.08 @ 5:09PM|#
"And I'm not aware of any government regulations that
"require" sprawl, but perhaps you have something in mind?
Seriously do you have any idea what the fuck you are talking
about?"
I have to inquire: since I asked politely for a clarification, what
made you take the douche-bag angle in responding? You never
answered my original question. Did you get all vinegary to hide the
fact that I mentioned the city of Punta Gorda as the hardest hit,
yet you responded with zoning laws in Miami? Or was it to obscure
the fact that virtually all cities have zoning? Or possibly to hide
the fact that completely government-free development rarely
exists?
I'm just wondering if I was rude in any way prior to your turning
into a total asshole for no apparent reason.
Invisible Finger|6.25.08 @ 5:35PM|#
From who? The magical liquidation fairy? What I find
hilarious is that you spout off like an expert, but you never once
questioned by figures (2%, $80,000 loss), which were just sarcastic
made up exaggerations.
REO auctions happen often, hardly a liquidation fairy.
Perhaps you meant those figures to be exaggerations, but they are
in fact typical of the market. A 26% loss (80K off of 300K) is
attainable in a REO sale. The lender would be more likely to work
out terms with the borrower if the drop in value was closer to 60%
since the funds recovered in a REO auction might not be enough in
comparison to how close (and how willing) the borrower is to making
the payment on a modification. Then again, if the property is
dropping in value that much, the borrower would benefit from a
foreclosure more than the lender would.
I don't see the 2% interest figure as an exaggeration, it's
typical. Did you think it was too high or too low?
I mocked your invest-80K-get-1.2-million-in-30-years - I don't know
what's guaranteeing a 9% return for 30 consecutive years these
days. On that front I will not claim to be an expert. Then again, a
9% fixed rate mortgage was about the norm in early '95.
Nice chatting with you.
|6.25.08 @ 6:16PM|#
Three-hundred-billion dollars is a lot of money. Whether right
or wrong; the bailout scheme makes me ask a few questions:
1) Will the bill become law?
2) Who benifits?
3) How can I get my dirty dick-skinners on some of that filthy
lucre?
|6.25.08 @ 6:17PM|#
"Nice chatting with you."
Wait, I still want to know why banks do mortgages at all if they
can make better money elsewhere.
|6.25.08 @ 6:25PM|#
4) Why does Wall Street love this plan?
5) Why do congress critters love this plan (sse #4)?
6) Why do freedom loveing tue patriots hate this plan (see #4).
Invisible Finger|6.25.08 @ 7:28PM|#
Wait, I still want to know why banks do mortgages at all if
they can make better money elsewhere.
Do you put all your egss into one basket?
|6.25.08 @ 8:16PM|#
"Do you put all your eggs into one basket?"
So aren't we back where we started? If they have a certain amount
of money in basket A, the mortgage business basket, our discussions
about the future value of $80,000 doesn't mean much I guess. It
wouldn't go into basket B anyway.
If the bank puts that $220,000 into a different loan at 6%, they
would be around $25,000 ahead over 30 years than if they would have
reduced the first guy's loan by 2% (assuming he paid at 6% for,
say, two years). Clearly we are oversimplifying interest and risk
assessment, but isn't this about right?
|6.26.08 @ 3:41PM|#
The solution to everything is to cut interest rates, create special liquidity facilities, and backstop bad loans with fiscal policy. It's worked every time it's been tried!
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