[Edited on September 28, 2008 at 9:55 PM. Reason : ]

9/28/2008 9:55:21 PM

Quote :

" So you want to abolish the American Dream?"

When a Dream becomes a waking hallucination- it's time to take your damn anti-psychotics.

9/29/2008 2:15:09 AM

Quote :

"but in the next couple years, there are going to be (10s of?) millions of people who are $10, 30, 50k+ in the hole when they sell their house. "

I acknowledge that I pulled those numbers out of my ass, and they were just a gut feeling.

just watched Bill Moyers from last week and got a bit of validation from George Soros.

Quote :

"GEORGE SOROS:The homeowner needs to get relief so that he pays less because he can't afford to pay. And the value of the mortgage should not exceed the value of the house. Right now you already have 10 million homes where you have negative equity. And before you are over, it will be more than 20 million. "

http://www.pbs.org/moyers/journal/10102008/transcript1.html

10/17/2008 10:20:08 PM

Some interesting points. Neither Canada nor Australia are or have suffered anything similar to what is transpiring in America. I suspect it has something to do with having more sensible laws.

Of the three, America is the only one that leds homeowners deduct mortgage interest on their taxes, distorting housing markets and wasting resources. America is the only one that does not grant automatic recourse for lenders to recover negative equity from the borrower. Only America discourages pre-payment penalties which would otherwise discourage house-flipping.

The American laws seem designed to fuel speculative furver (by dumping all potential losses upon the lender). And then, when a speculative bubble does burst, it dumps all the losses upon the lenders. Worse than that: it strongly encourages home owners to make the matter worse by walking away from the house, forcing the bank to sell in a hurry, while if the occupant had stayed around long enough to sell the property it would have sold for much more.

Quote :

"However, it could take 5, 10, 20+ years for those prices to rise back to the levels they were a couple years ago"

We pray not. The prices of the peak were indefensible and far more likely they will not get that high again for 50+ years, long enough for inflation to eat away. In well functioning housing markets, prices rise with inflation, nothing more.

[Edited on October 18, 2008 at 12:18 AM. Reason : .,.]

10/18/2008 12:17:00 AM

These record low mortgage rates will lead to more housing crisis in coming years, according to "Mr. Mortgage"
http://www.ritholtz.com/blog/2008/12/low-rates-spur-new-wave-of-defaults/



and not directly related to the previous link, but interesting and relevant nonetheless, here is the Case-Shiller inflation-adjusted home price index for over 100 years. Looks like we have a lot more "correction" to come

1/3/2009 11:29:01 AM

^^ Exactly. Homes only appreciate with inflation.

In fact they actually depreciate because you have to consider all of the upkeep that goes into maintaining a houses utility (new roofs, plumbing, etc)

Its curious to me why most people believes homes have magical powers and are put on the planet in order to make people rich. Sure some local housing markets will appreciate due to desirability of the area (job market, prestige, commercial growth, etc) are going to appreciate but there will be other areas that offset that (Michigan, rural NC, etc)

1/4/2009 11:42:01 AM

^,^^^ Good points. Stanford economist, John Taylor, (known for the "Taylor rule") makes a very convincing argument for the role monetary policy played. (see full pdf here: http://www.stanford.edu/~johntayl/FCPR.pdf)

One of the most interesting pieces of evidence he provides:

Quote :

"Most important is the evidence that interest rates at several other central banks also deviated from what historical regularities, as described by a Taylor rule, would predict. Even more striking is that housing booms were largest where the deviations from the rule were largest...The country with the largest deviation from the rule was Spain, and it had the biggest housing boom, measured by the change in housing investment as a share of GDP. The country with the smallest deviation was Austria; it had the smallest change in housing investment as a share of GDP."

He also goes on to assert the Treasury/Fed bailout worsened credit markets due to the uncertainty it created. He thinks Lehman was not the cause of the rapid deterioration in credit markets, but rather the TARP proceedings. It is very difficult to discern what credit markets price in on any given day, so it is impossible to prove his thesis, but it is interesting nonetheless.

Quote :

"The main message of Figure 13 is that identifying the decisions over the weekend of Sept 13 and 14 [when Lehman filed for bankruptcy] as the cause of the increased severity of the crisis is questionable. It was not until more than a week later that conditions deteriorated. Moreover, it is plausible that events around September 23 actually drove the market, including the realization by the public that the intervention plan had not been fully thought through and that conditions were much worse than many had been led to believe. At a minimum a great deal of uncertainty about what the government would do to aid financial institutions, and under what circumstances, was revealed and thereby added to business and investment decisions at that time. Such uncertainty would have driven up risk spreads in the interbank market and elsewhere. Some evidence of the uncertainty is found in a survey taken later (November 5) by the Securities Industry and Financial Markets Association (SIFMA); it showed that 94 percent of securities firms and banks found that the TARP lacked clarity about its operations. The problem of uncertainty about the procedures or criteria for government intervention to prevent financial institutions from failing had existed since the time of the Bear Stearns intervention in March. The implication of that decision for future interventions was not made clear by policymakers. This lack of predictability about Treasury-Fed intervention policy and recognition of the harm it could do to markets likely increased in the fall of 2008 when the underlying uncertainty was revealed for all to see. What was the rational for intervening with Bear Stearns, and then not"

[Edited on January 5, 2009 at 7:32 PM. Reason : .]

1/5/2009 7:28:41 PM

This wasn't new thread worthy, but this seemed like the most relevant thread to put this in:

http://finance.yahoo.com/news/As-Housing-Prices-Plunge-cnbc-14355008.html

"McCusker, a public relations executive, and his wife, a school teacher bought their home in July of 2005 for $462,500 with a 30 year fixed loan at 6.3 percent. But today, the home has a value today of $433,000. "We have good jobs, never missed a mortgage payment, "says McCusker. "But I can't get any help. There's something wrong with that."

Wrong? Yes, you are a greedy asshat who feels entitled
1. You overpaid, bought at the peak
2. A house is not an investment with a guaranteed return
3. You have a fixed loan at a historically (relatively) low rate but you are greedy and want to refinance. And you expect folks to help you save money when you made a bad business decision

How does anyone argue that a bank should give a loan to someone for an asset that is worth less than the loan?

2/13/2009 1:56:21 PM

Quote :

"2. A house is not an investment with a guaranteed return"

True, but it's not crazy to think you'll get a return. Just not a high return.

2/13/2009 1:59:52 PM

Agreed, historically, houses appreciate, but our current culture of instant gratification creates expectations of home ownership resulting in huge returns immediately.

If this couple keeps doing what they're doing, in 30 years, their home *will* have appreciated in value. Right now, in 2009, it doesn't look pretty. The whole mentality of "the government needs to do something about this right now" is what irritates me.

2/13/2009 2:02:54 PM

we're f'ing screwed



[Edited on May 3, 2009 at 6:07 PM. Reason : .]

5/3/2009 6:06:05 PM

why option adjustable mortgages are bad

Quote :

"Option mortgages take this problem and build on it in a very bad way; some call these loans the most dangerous mortgage ever. Option adjustable mortgages are simply adjustable rate mortgages with flexible payment options. Doesn’t sound too bad right? There are four payment choices for homeowners with option mortgages. The first option is a traditional 30 year amortization schedule; by far the safest choice. The second choice utilizes a 15 year amortization schedule. The third choice is an interest only payment; paying interest only will never build equity in your home. Finally, the fourth option is a “minimum payment amount.” This minimum amount does not pay the full amount of interest due. The remaining interest due is simply added on to the mortgage principal. This concept of “minimum payment” is where negative amortization comes from. Instead of gradually paying down your mortgage loan and paying this minimum amount, your mortgage is actually growing. If you are a homeowner that continues to pay the minimum amount every month the lender could pull the loan and require you to refinance; your contract would specify this stipulation. If you are unable to refinance the mortgage you could lose your home. The reason for this is that your home may no longer be worth enough to cover the loan that secures it. Option mortgages are for investors or homeowners that intend to keep the property for a short time. Paying the minimum amount is a dangerous trap many homeowners find it easy to fall into. If you are considering financing your home with an option mortgage your best bet is to reconsider and use a traditional 15 or 30 year fixed rate mortgage."

some douchebag mortgage broker tried selling me one of these in 2005...its definitely one of those too good to be true things.

[Edited on May 3, 2009 at 6:20 PM. Reason : .]

5/3/2009 6:17:23 PM

In the golden days people bought houses not to sell and make money off of or as an investment....most of the time it was a money losing purchase but you know you have your own place..and we have dropped about to where it was at the beginning....that last boom to bust took 20 years for the prices to get back to where they were....and I seriously doubt houses will go up in value to match what they lost in 5 years, lets try 20 years....looking at the history of housing prices, that is how long it took the last time.

Many of them were way overvalued to begin with and will never be worth that again.

[Edited on May 3, 2009 at 10:02 PM. Reason : w]

5/3/2009 10:00:50 PM

1. Canada never had restrictions on interstate banking, so Canadian banks spread their assets and liabilities across Canada, and it doesn’t matter if a local housing market goes bust.

2. Canada never had Glass-Steagall restrictions separating commercial banking from investment banking, and the investment banks in Canada joined the retail banks some years ago.

3. Canada doesn't have mortgage interest deductibility for income taxes. So paying down your mortgage in Canada is a tax-free investment, and most people want to pay down their mortgages.

4. Except in Alberta, mortgages in Canada are fully recourse. You can’t just walk away from a negative equity home and hand the keys to the bank; the bank will come after you for the difference.

5. If a Canadian investor wishes to take some risk, the New York-based banks may be the most efficient means of doing that (added by Tyler Cowen).
http://mjperry.blogspot.com/2009/05/banks-and-housing-markets-canada-vs-us.html

5/8/2009 9:43:39 AM

another view of what's to come



http://www.calculatedriskblog.com/2009/06/option-arms-paying-98-month-on-350.html

6/11/2009 11:29:00 AM

The wife was watching property virgins last night. They were in Vancouver, the original air date of the show was March but who knows when they shot it. This couple found a home that was listed at 450,000. They really wanted it and there were 4 others putting in offers on it. So they offerred 531,000 for it.

Mind boggling.

6/11/2009 12:29:02 PM

http://www.ritholtz.com/blog/2009/06/most-subprime-lenders-werent-covered-by-cra/

data backing up the fact that the Community Reinvestment Act was not a direct cause of the housing crisis

6/28/2009 12:07:00 AM

^ you expect actual facts to change the opinions of the blowhards who have jumped on the CRA bandwagon just so they can blame the crisis on Democrats and poor people? ha, why would they change their minds now? they've been saying the same thing for 2 years, without any actual data to back them up the whole time.

never the less, here are a couple more take-downs of the CRA theory
http://www.ritholtz.com/blog/2009/06/cra-thought-experiment/

Quote :

"Imagine, if you will, that the discredited far right meme is actually correct: Assume that the CRA was a prime cause of the mortgage, credit and housing related crises. Yes, he typed, it was all the CRA’s fault. (Stay with me here). Assume arguendo that CRA legislation forced banks into making high risk, ill advised loans. And, let’s further assume a huge percentage of these government mandated mortgages have gone bad. The buyers who could not legitimately afford these homes or otherwise qualify for other mortgages have defaulted, and these houses are either in default, foreclosure or REOs. What would this alternative nation look like? Given the giant US housing boom and bust, this thought experiment would have several obvious and inevitable outcomes from CRA forced lending: 1) Home sales in CRA communities would have led the national home market higher, with sales gains (as a percentage) increasing even more than the national median; 2) Prices of CRA funded properties should have risen even more than the rest of the nation as sales ramped up. 3) After the market peaked and reversed, Distressed Sales in CRA regions should lead the national market downwards. Foreclosures and REOS should be much higher in CRA neighborhoods than the national median. 4) We should have reams of evidence detailing how CRA mandated loans have defaulted in vastly disproportionate numbers versus the national default rates; 5) CRA Banks that were funding these mortgages should be failing in ever greater numbers, far more than the average bank; 6) Portfolios of large national TARP banks should be strewn with toxic CRA defaults; securitizers that purchased these mortgages should have compiled list of defaulted CRA properties; 7) Bank execs likely would have been complaining to the Bush White House from 2002-08 about these CRA mandates; The many finance executives who testified to Congress, would also have spelled out that CRA was a direct cause, with compelling evidence backing their claims. So much for THAT thought experiment: None of these outcomes have occurred. Zero."

http://blogs.reuters.com/felix-salmon/2009/06/25/john-carneys-bizarre-crusade-against-the-cra/

Quote :

"The problem with the subprime bubble was not with people trying to buy affordable housing, it was with people trying to buy unaffordable housing. Default rates on people buying into affordable-housing developments have always been very low, partly because those houses are generally cheaper than neighboring market-rate developments. As a result, it’s generally cheaper for families to make their mortgage payments than to rent elsewhere. "

6/28/2009 10:25:30 AM

Here's How The Community Reinvestment Act Led To The Housing Bubble's Lax Lending

Quote :

"Earlier this week I noted that I had changed my mind on the Community Reinvestment Act. Contrary to my initial conclusion, the evidence is overwhelming that the CRA played a significant role in creating lax lending standards that fueled the housing bubble. Once I realized this, I had to abandon my suspicion that the anti-CRA case was a figment of the rhetoric of Republicans attempting to distract attention from their own role in the mortgage mess. So I laid out the facts and arguments that had convinced me to switch sides in the CRA debate. It was a long series of posts that generated hundreds of responses and counter-arguments. Felix Salmon’s response is here, Barry Ritholtz’s here, Mike Rorty's here, Ryan Chitum’s here, and Matthew Wurtzel’s here. All of my posts are here. Henry Blodget's earlier post on the CRA, with which I largely agreed until recently, is here. If you carefully run through these posts and the accompanying comments, I think you'll see that every argument raised by the "Defend CRA at all costs" crowd has been refuted. For people with less time on their hands, here's a quick guide to the main points raised by the CRA defenders and the arguments that refute them. If I’ve left out any salient points, please let me know and I’ll add them to the list. Let's begin: How could a piece of 1977 legislation be significant to the deterioration of mortgage standards 25 years later? The CRA was not a static piece of legislation. It evolved over the years from a relatively hands-off law focused on process into one that focused on outcomes. Regulators, beginning in the mid-nineties, began to hold banks accountable in serious ways. Banks responded to this new accountability by increasing the CRA loans they made, a move that entailed relaxing their lending standards. That’s still too early. Why would changes in the mid-nineties result in a mortgage boom a decade later? Throughout the nineties banks, as banks lowered their mortgage standards, mortgage rates remained high. The laxity was spreading but the incentives for borrowers to re-finance even under relaxed standards remained low. New buyers often still didn’t know that some of the loosey-goosey mortgages existed. Speculators had an internet bubble, so they weren’t yet attracted to real-estate. Treasury rates were not yet so low that investors seeking yield would pour into mortgage backed securities. Securitization levels were low enough that banks weren’t yet willing to fully embrace the loose standards. The historical data on default and loss rates from the lax lending were not yet available, so they weren’t embraced by banks or the broader market. But as the years went by, these factors changed. The Fed pushed interest rates down. This made refinancing more attractive, and created an investor demand for yield. Fannie and Freddie popularized low-income securitization. Low defaults and loss rates from lax loans made them seem not as risky as previously expected. A shrinking consumer asset base thanks to the dot com bust created a demand for home-equity loans and high loan-to-value loans, as consumers exchanged high-interest credit card debt for low interest home debt. Speculators seeking higher returns and ordinary home buyers became aware that lax lending standards would allow them to buy bigger homes with little or no money down. In short, the lax lending standards created in response to the CRA had dug a pit that was waiting to get filled when the circumstances were right. Ah ha! So it wasn’t the CRA that caused the mess. It was everything else! Of course it wasn’t the CRA that caused everything. The CRA was a factor in lowering lending standards. This was a necessary, although not sufficient, cause for the mortgage mess. Wait a minute! Paul Krugman told me the CRA was relaxed during the Bush administration. What about that bit of evolution, buster? It’s true that the CRA requirements were relaxed during the Bush administration. But at this point the lax lending standards were already in place. In any case, the relaxation took a peculiar form that actually made CRA lending more important rather than less. You see, the government let banks drop things like putting in ATMs in rural areas in favor of letting their compliance be judged entirely on CRA loans. This means the CRA had more of an influence on home lending after the requirements were relaxed, not less. What's more, George W. Bush was a major proponent of the kind of mortgages that banks had started making under the CRA. He urged low-to-no doc mortgages and the elimination of downpayments, just like the CRA regulators had long done. “We certainly don't want there to be a fine print preventing people from owning their home,” the President said in a 2002 speech. “We can change the print, and we've got to.” What about "No Money Down" Mortgages? Were they required by the CRA? Actually, yes they were. The regulators charged with enforcing the CRA praised the lowering of down payments and even their elimination. They told banks that lending standards that exceeded that of regulators would be considered evidence of unfair lending. This effectively meant that no money down mortgages were required. A Treasury Department study published in 2000 found that the CRA had successfully lowered down payments not just for CRA loans, but for all mortgages. Explain the shift in loan to value away from the traditional lending requirement of 80%. Again, the regulators told banks that much higher LTVs was an appropriate way to meet the CRA obligations. What about the elimination of payment history? How about income requirements? Regulators instructed banks to consider alternatives to traditional credit histories because CRA targeted borrowers often lacked traditional credit histories. The banks were expected to become creative, to consider other indicators of reliability. Similarly, banks were expected by regulators to relax income requirements. Day labors and others often lack reportable income. Stated-income was a way of resolving the gap between actual income of borrowers and reported income. The problem, of course, comes when the con-artists and liars come into the game. Did the CRA require banks to develop automated underwriting systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible? This was another lending innovation praised by regulators to the point that it became mandatory for banks. Those who were not employing automated underwriting would be putting their CRA ratings at risk. Automated underwriting was seen as a way of eliminating bias in lending. Point out to me where in the CRA or any regulation that any of this is required. I cannot. But this kind of legislative fundamentalism misconstrues the way laws constrain business activity. An unenforced law exercises little constraint, regardless of how onerous it is worded. Think of the way anti-trust enforcement changes from presidential administration to presidential administration. In the case of the CRA, it was the activity of the regulators that matters. And each of these credit innovations described above was put into place to satisfy the CRA regulators. Wouldn’t lending standards have been lax during the boom even if we didn’t have a CRA? That’s an interesting question to which we’ll never have a satisfactory answer. It’s possible. But this kind of counter-factual is just a game. We know that we had the CRA and that it caused relaxed lending standards in the reality we actually live. In another universe, another reality? Well, if you get there send us a post-card and let us know how it turns out. Couldn’t the increase in CRA loans have been accomplished without these lax lending standards? This is another interesting question about an alternate universe. It is possible that banks may have been able to meet their CRA obligations with tighter, more traditional lending standards. But we’ll never know. We know that they thought they needed to employ lax standards, and so did the regulators. A banker who refused to relax standards risked the wrath of regulators, and—more importantly—if his unorthodox, novel attempts failed he’d be found to be in non-compliance with the CRA. In the real world, lax lending standards were the only known way of satisfying the CRA regulators."

[Edited on June 28, 2009 at 10:48 AM. Reason : Cont. below.]

6/28/2009 10:48:02 AM

Quote :

"Isn’t it really securitization that is the culprit? The government pushed for greater mortgage securitization in an effort to increase CRA lending. At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of “affordable” mortgages. The government was intentionally decreasing the risks to the original lenders in order to increase loans to low-income borrowers, and minorities in particular. In short, you can’t blame securitization without coming back around to the CRA. Weren’t the majority of the subprime loans made by mortgage service companies not subject to the CRA? This is true. But it is largely beside the point. A huge driver of the demand for subprime loans was the demand for CRA bonds. Banks operating under the CRA could meet their obligations by buying up CRA loans or MBS built from CRA loans. The CRA created a demand that the mortgage servicers were meeting. What's more, many smaller mortage service companies hoped to be acquired by larger banks. Increasing their CRA lending made them more attractive take-over targets. A study put out by the Treasury Department in 2000 found that the CRA was encouraging the mortgage servicers to provide loans to low-income borrowers, in part because the CRA loans had been so successful. Finally, the Clinton adminstration threatened to subject the mortgage companies to the CRA if they didn't comply voluntarily. They promptly agreed to increase their CRA-type lending in order to escape the kind of public scrutiny that comes with official CRA regulated status. If the CRA was forcing all this lax lending, why weren't bankers objecting? Are you really in the dark about why the leaders of large public corporations wouldn't publicly object to a piece of civil rights legislation? Fine. I'll be totally open with you: this would have been career suicide and an open invitation to bias litigation and increased scrutiny from regulators. In this case, silence is misleading. What's more, no one said the bankers hated the lax lending the CRA was requiring. Sure, some did. But those people were quickly shown the door, while the enthusiasts were promoted. The regulations themselves selected for enthusiasts for the program of lax lending. How do you explain the fact that CRA loans historically had low levels of default. Doesn’t this mean that loan standards were not relaxed? Actually, no. We know that lending standards were relaxed under the CRA. The fact that they had relatively low default levels was initially a surprise but it isn’t an indicator that lending standards were secretly high. There are plenty of explanations for this, including the lack of borrower ruthlessness in unsophisticated home owners and a tendency of delinquent low-income borrowers to sell the home and prepay the mortgage rather than default. Especially during a period of rising home prices, the default option was not heavily exercised. But even during the crisis, CRA loans didn’t default at higher rates than other mortgages. CRA banks aren’t failing more than other financial institutions, CRA areas aren’t hotspots of defaults. What about that? In part, this is evidence that the lending standards of the CRA had spread to the rest of the mortgage market. I thought you said CRA loans caused this crisis. Nope. It isn’t losses from CRA loans that drove the crisis (although they are disproportionately responsible for losses at some banks). Instead, the CRA required lax lending standards that spread to the rest of the mortgage market. That fueled the mortgage boom and bust. So how and why did the CRA lax lending spread to the rest of the mortgage market? The structure of the CRA regulations encouraged the spread. Banks that were the best at making CRA loans were allowed to grow by making acquisitions and opening new branches. This created a kind of political-financial Darwinism that reward the biggest enthusiasts for lax CRA lending standards. Of course, the most successful people under this regime were not the types who needed their arms twisted to make loose loans. They were who were predisposed to engage in loosey-goosey finance, who discovered that the CRA had made the world their oyster. As for the “why” part of your question, the answer is a bit ironic. Banks making CRA loans initially expected that defaults would be higher due to lax lending standards. When they discovered the low-income borrowers had an unexpected propensity to pay their mortgages. After years of data poured in showing that borrowers were paying mortgages despite high LTVs, low down payments and unconventional income measures, bankers began to believe that many of the traditional measure of credit worthiness were overly conservative. Recall what I said earlier about how mortgage service providers started pursuing low-income borrowers in part because of the CRA. What they didn’t take into account was that different types of borrowers may behave differently, and that much of the data on those lax lending mortgages was warped by increasing home prices. Wealthier, more sophisticated borrowers ruthlessly default when their mortgage goes underwater, for example. What’s more, the reversal of housing prices meant that defaults across all borrower classes increased. Making matters worse, President Bush pushed hard for lax lending standards. He wanted to expand minority and low income home ownership far beyond what the CRA required. So he pushed even harder for the broadening of these lending standards. Wait. So you’re saying that the CRA's lax lending to low income borrowers became dangerous when it was extended more broadly? In part. Ironically, the low income lending practices, particularly when undertaken on a limited basis in a low-securitization and rising house price period, seemed safe. This led to the practices being spread across the much broader category of loans. In a sense, you can look at the mortgage mess as what happens when CRA lending was applied much more broadly. If we'd confined the lax lending standards to just the geographical areas and low-income borrowers directly targeted by the CRA, our mortgage crisis would be far more manageable. Studies have suggested that only 6 percent of subprime loans were extended by CRA-regulated lenders to either lower-income borrowers or neighborhoods in the lenders' CRA assessment areas. Since these loans suffer from outsized losses (for reasons not yet clear), we'd still have a major problem. But it would probably be only about 1/4 of the size of the current mortgage mess. That doesn’t sound very Republican of you. I told you from the start this wasn’t some plot to make the GOP look good. But don't get carried away with this irony. Now that we are in this crisis, loans located in low income areas are almost twice as likely to be in foreclosure as other loans. There's also an unfortunate racial angle, with African Americans being 1.8 as likely to be in foreclosure as whites, and Latinos being 1.4 likely to be in foreclosure. What's more, an enormous amount of subprime loans were made to lower-income borrowers target by the CRA. Forty-five percent of subprime loan originations went to lower-income borrowers or borrowers in lowerr-income neighborhoods in 2005 and 2006, where the foreclosures are almost twice as likely. This suggests that the kind of low income borrowers targeted by the CRA are likely to be responsible for the majority of subprime foreclosures."

http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6

6/28/2009 10:49:23 AM

I dunno joe, it looks like even hooksaw is finally admitting the CRA wasn't the problem. From his own link

Quote :

"Ah ha! So it wasn’t the CRA that caused the mess. It was everything else! Of course it wasn’t the CRA that caused everything. The CRA was a factor in lowering lending standards. This was a necessary, although not sufficient, cause for the mortgage mess."

After reading through most of that, John Carney seems like kind of a joke. You should be embarassed for putting all that up there without reading through it. Or maybe you did and just like everything else "economy" you don't comprehend it.

[Edited on June 28, 2009 at 11:07 AM. Reason : .]

6/28/2009 10:53:26 AM

^ You're an idiot--cherry pick much? I read it, but you didn't.

[Edited on June 28, 2009 at 11:08 AM. Reason : You suck at life.]

6/28/2009 11:07:59 AM

I absolutely read it and he draws conclusions that don't at all make sense based on the fact presented. I'll give you just one example because I could give you 20 and you'll still never change your mind

Quote :

" * How do you explain the fact that CRA loans historically had low levels of default. Doesn’t this mean that loan standards were not relaxed? Actually, no. We know that lending standards were relaxed under the CRA. The fact that they had relatively low default levels was initially a surprise but it isn’t an indicator that lending standards were secretly high. There are plenty of explanations for this, including the lack of borrower ruthlessness in unsophisticated home owners and a tendency of delinquent low-income borrowers to sell the home and prepay the mortgage rather than default. Especially during a period of rising home prices, the default option was not heavily exercised. "

Unlike some of his other "answers" he provides no link to the bolded part. Furthermore, unsophisticated, low income (ie, stupid, poor undeserving home owners) don't just stop paying because they can't pay, they sell the home at no loss? And for some reason non-CRA borrowers aren't this unsophisticated or lucky? Really?

If you continue to be an obtuse douche about this, I may pick out more pieces of this shit to laugh at you about. But before we bother with that, just who is John Carney

Quote :

"His writing often takes controversial positions on business topics."

I'm shocked a blogger would be controversial, what, with ad revenue relying on incoming links.

He has argued

Quote :

"that backdating isn't so bad, insider trading should be legal, many corporate CEOs are underpaid,"

Quote :

"Warren Buffett is overrated"

Quote :

"hedge funds are over-regulated"

Quote :

"bonuses at successful Wall Street's firms are deserved and possibly undersized, management buyouts are boons to the economy, Enron's management was victimized by an over-zealous prosecution,"

Quote :

"shareholder democracy is overrated,"

And he previously wrote pieces AGAINST the CRA causing the housing mess. This guy is laughable as fuck. You guys would probably be best friends.

6/28/2009 11:27:41 AM

Quote :

"I dunno joe, it looks like even hooksaw is finally admitting the CRA wasn't the problem. From his own link Quote : "Ah ha! So it wasn’t the CRA that caused the mess. It was everything else! Of course it wasn’t the CRA that caused everything. The CRA was a factor in lowering lending standards. This was a necessary, although not sufficient, cause for the mortgage mess.""

yeah, jesus..... rationalize much?

That's basically a Creationist argument - you already "know" how everything started, therefore, your only task is to fit everything that's happened since then into your preconceived view of how it all began.

6/28/2009 12:31:38 PM

Reading through that Business Insider blog, I felt like John Carney was repeatedly being owned by the statements he was attempting to refute.

6/28/2009 1:36:11 PM

Yeah, I was like, this is a ton of words to say so little to address the points you are making.

You also have to wonder what a former corp lawyer is doing as a small time blogger. Maybe he got burned out and wanted a change of pace. Maybe he just doesn't know what the fuck he is talking about?

6/28/2009 1:44:03 PM

My money is on Barry

http://www.ritholtz.com/blog/2009/06/100000-cra-challenge/

Btw, as I mentioned above, why did a corp lawyer turn semi-pro blogger? Apparently, he doesn't have 100k lying around to go head to head with Barry on this, meaning, he didn't get wealthy as a corp lawyer. Fail.

[Edited on June 29, 2009 at 10:22 PM. Reason : .]

6/29/2009 10:19:24 PM

f'ing CRA and Fannie/Freddie and Jimmy Carter and Bill Clinton, forcing these poor speculators to flip houses for millions in profit

http://www.heraldtribune.com/article/20090719/ARTICLE/907191031#

Quote :

"Fraudulent property flipping ran rampant during this decade's housing boom, with $10 billion in suspicious deals in Florida alone, a Herald-Tribune investigation has found. The deals -- many of them inflated sales among friends, family and business associates -- drove up property values and tax bills during the boom, fed bank bailouts and failures after the boom, and fueled the foreclosure wave that has gutted property values. Unscrupulous property flippers would buy houses or condos, then drive up the price in a few days or weeks by selling it to someone they knew. Buyers used the inflated price to get bank loans for more than the property was worth, leaving money for flippers to split as profit."

Quote :

"• Many of the questionable flip deals were orchestrated by real estate professionals. A close review of several thousand flips in Sarasota and Manatee counties showed that 40 percent of the flippers were industry insiders -- real estate agents, mortgage brokers and attorneys. • Lenders facilitated fraud by approving mortgages on suspicious transactions. In deal after deal, loan officers either failed to make the most basic checks to flag risky loans or ignored what they found. In some cases, the Herald-Tribune found, bank employees knew deals were suspect but approved mortgages anyway."

Quote :

"In 2003, the U.S. Department of Housing and Urban Development announced that the federal government would no longer insure mortgages on properties resold in 90 days or less -- regardless of the increase in value. A report issued by HUD stated that the sales were likely to involve mortgage fraud and therefore too risky to insure."

Quote :

"Despite the unusual price increases that accompanied their sales, many of the flippers identified by the Herald-Tribune said they did nothing wrong. They described themselves as victims of a real estate downturn and said their actions had not hurt anyone. But their manufactured sales distorted real estate prices and drove up property tax bills. The inflated sales led some homeowners to borrow more and more money against their own homes because skyrocketing sales prices had made their houses appear to be worth more. And when the bubble popped, the flippers' bad loans saddled banks with properties worth far less than what was owed, threatening the stability of the entire banking system."

Quote :

"The speculation drove every aspect of Florida's economy. Lenders and real estate companies made millions in fees and commissions. Contractors had more work than they could handle. Governments, collecting record property taxes, hired new employees and awarded raises to everyone from police officers to code compliance officers. The volume of real estate sales provided perfect cover for fake sales and manipulated property values. "It became easy to do any type of mortgage fraud," said Scott Friedman, a special agent with the Florida Department of Law Enforcement. "Even people who never thought they'd do that type of thing found themselves caught up in it.""

7/26/2009 10:59:35 AM

The above is not inconsistent with the CRA/Fannie/Freddie theory.

UT economist, Stan Leibowitz, has an interesting take http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1211822

[Edited on July 26, 2009 at 12:34 PM. Reason : .]

7/26/2009 12:32:54 PM

^ ok, sure.... whatever.

anyway, i'm sure you can find someway to blame this on Fannie/Freddie/CRA also.

oh, wait, here you go, i'll do it for you - maybe the gov't didn't hold a gun to the homeowners's heads and force them to refinance, or force the banks to give insane refinancing mortgages, but they fostered an environment where such activity was encouraged, nay, even rewarded!

Quote :

"Study Finds Underwater Borrowers Drowned Themselves with Refinancings Why are so many homeowners underwater on their mortgages? ... Michael LaCour-Little, a finance professor at California State University at Fullerton, looked at 4,000 foreclosures in Southern California from 2006-08. He found that, at least in Southern California, borrowers who defaulted on their mortgages didn’t purchase their homes at the top of the market. Instead, the average acquisition was made in 2002 and many homes lost to foreclosure were bought in the 1990s. More than half of all borrowers who lost their homes had already refinanced at least once, and four out of five had a second mortgage."

http://blogs.wsj.com/developments/2009/07/28/study-finds-underwater-borrowers-drowned-themselves-with-refinancings/

Quote :

"The conventional wisdom is that households who purchased at the top of the market during the recent housing bubble are those most at risk of default due to recent price declines, upward re-sets of adjustable rate mortgage instruments, the economic downturn, and other factors. Here we use public record data to study Southern California borrowers facing foreclosure in late 2006 and 2007. We estimate property values at the time of the scheduled foreclosure sale with the automated valuation model of a major financial institution and then track actual sales prices for those properties that actually sold, either at auction or as later as REO. We find that virtually all of the borrowers had taken large amounts of equity out of the property through refinancing and/or junior lien borrowing with total cash extracted exceeding $300 million. As a result, losses to lenders exceed those of borrowers by a substantial margin, calling into question policies aimed at protecting borrowers. "

http://www.areuea.org/conferences/papers/download.phtml?id=2133

7/28/2009 10:19:51 PM

At this point, with as much ink that has been spilled about the housing blowup, anyone that tries to pin the majority of the blame on any one entity simply shouldn't be dealt with when discussing it. It's asinine.

7/28/2009 10:42:10 PM

Somewhat on topic: interesting WaPo article on why loan modifications generally haven't been taking off:

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/27/AR2009072703065.html?nav=rss_email/components

The short answer? Spending money modifying loans to avoid foreclosure is only profitable for those who actually would avoid foreclosure. Which means those who actually can't make their payments (rather than those who could if they actually got their act together, and those that can't or won't no matter what). In fact, looks like plenty of loan-mods have already gone re-delinquent.

Quote :

"The problem is that modifying mortgages is profitable to banks for only one set of distressed borrowers, while lenders are actually dealing with three very different types. Modification makes economic sense for a bank or other lender only if the borrower can't sustain payments without it yet will be able to keep up with new, more modest terms. A second set are those who are likely to fall behind on their payments again even after receiving a modified loan and are likely to lose their homes one way or another. Lenders don't want to help these borrowers because waiting to foreclose can be costly. Finally, there are those delinquent borrowers who can somehow, even at great sacrifice, catch up without a modification. Lenders have little financial incentive to help them."

Insert something about forcing the responsible to pay for the mistakes of the irresponsible here.

7/29/2009 7:18:04 AM

yeah, and the fact that the vast majority of loan modifications don't actually adjust the principle. Any of the modifications that just adjust the interest rate or change from an ARM to a fixed or whatever are just delaying the inevitable. To make them work, the principle must be adjusted to the current market value, and the bank has to eat the difference (or get it subsidized or whatever)

7/29/2009 1:06:59 PM

Quote :

"SEC charges Goldman Sachs with defrauding investors about products tied to subprime mortgages."

4/16/2010 11:25:13 AM

http://www.reuters.com/article/idUSTRE63F3JX20100416?feedType=RSS&feedName=topNews

4/16/2010 11:58:26 AM

Not sure if this is the best place for this, but....

http://blogs.reuters.com/james-pethokoukis/2010/08/05/an-august-surprise-from-obama/

Quote :

"Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011."

8/5/2010 10:50:31 AM

oh joy, rewarding more irresponsible behaviour! hot damn!

8/5/2010 1:56:15 PM

If that is true, there needs to be riots

8/5/2010 2:09:13 PM

^^^ Fuck.

[Edited on August 5, 2010 at 2:12 PM. Reason : ]

8/5/2010 2:11:49 PM

yeah, riots and forcing people to forclosure, that's the ticket to economic prosperity

8/5/2010 6:08:19 PM

Thats a really fucked up way to look at it. The thing about this entire ordeal that pisses me off the most is how undemocratic the stimulating of the economy has been handled. First, we shoveled money at the banks and this was meant to benefit us all because the alternative would be massive whole scale layoffs as companies couldn't get the liquid money they needed to pay people. The idea that this would have actually come to fruition is really fucking dubious. I can't see large multinational employers just wholesale firing people because they couldn't get overnight funding to pay their payrolls.

After they did that, they started targeting cars, homes, appliances, homes, and the unemployed. So, if you weren't in the market for any of those and you were lucky enough to keep a job...well, you haven't gotten a god damned thing since this administration took over.

Wouldn't it be...oh, I dunno...a little more democratic to take the sum total of all that has been spent and give it to Americans evenly and let them decide where they want to blow the money?

8/5/2010 6:17:37 PM

Quote :

"Wouldn't it be...oh, I dunno...a little more democratic to take the sum total of all that has been spent and give it to Americans evenly and let them decide where they want to blow the money?"

Not a bad idea, but the consumer spending would probably just fuel a bubble in another industry, probably luxury cars, or it could be even worse, and people would just save it.

8/5/2010 6:26:29 PM

Quote :

"forcing people to forclosure"

lol, seriously dude? Ive heard horrors of people getting kicked out of hotels after the amount of nights they have money for runs out. People being FORCED out of their dream vacations bc they dont have the money. I know if I paid the first months payment on a sign and drive car and stop..they should leave me alone and be happy they got 300 bucks for the 30k dollar car I now have. get real

8/5/2010 7:21:15 PM

My wife and I just put our house on the market. I have owned it since 2002. We are going to be upgrading considerably from the current house, but I am only looking at distressed areas (areas where homes are abnormally priced because of the defaults in the area). I am going to do my best to minimize downside exposure. The homes we are looking at, you can't even build them with free labor for what they are asking. There are some unfortunate people in the neighborhood that are trying to sell their house for 200k more than a larger foreclosed house next door. Bad for them, but good for me.

And we are doing 10% down, and will probably have PMI waved (through my mortgage company). Not sure why you guys were arguing with a 19 year old that almost certainly doesnt own a home.

8/6/2010 4:44:06 PM

Quote :

"Not a bad idea, but the consumer spending would probably just fuel a bubble in another industry"

There is no reason to expect it would.

Quote :

"or it could be even worse, and people would just save it"

Not in an environment where they are getting .5% in their local bank savings account.

Worst case (from the stupid Keynesian point of view) is they use it to pay off debt.

8/6/2010 5:27:15 PM

Quote :

"Not sure why you guys were arguing with a 19 year old that almost certainly doesnt own a home. "

Pretty much what I suspected.

Congrats and good luck with your housing search. There are real opportunities for those in a good cash position or that have enough equity or reserves to cover if they are upside down in their current.

My wife and I have been looking into foreclosures to buy and rent out, however, I dont want to be a long distance landlord and the repos in this area are pretty crappy. Some are cheaper than new cars. However, it wouldnt be worth the hassle of the neighborhood.

Some of the arguements in this thread are ridiculous. Some of you need to be renters for life if you cant accept the risks of owning a house. You want a guaranteed return stick to your money markets. lol.

8/7/2010 8:11:05 AM

So long as the federal government continues to actively distort the housing market, I wouldn't touch it. Well, they are distorting all markets, but it's easier to say "ok, they are printing money, that will likely flow into commodities and real producers (think emerging markets)" than to try and figure out what will happen to housing given direct targeted programs. Everything I have read says there is still a shit ton of shadow inventory that will continue to come onto the market at a slow pace (so the banks can slowly write down their bad debts) and this will serve to suppress home prices. I'm sure you're looking to generate some income and down the road if this economy really turns around you'll make additional profit from the appreciate of your home values, but its simply too risky right now so long as the federal government is fucking it all up.

8/7/2010 10:09:43 AM

Even if I could buy a house right now, I wouldn't. There's a very good chance that home prices haven't hit bottom, given that the bad debt was never dealt with in a meaningful way.

The housing bubble had many causes, but one of the reasons it got so big is because people felt that a home was an investment, rather than an expense. Real estate agents were routinely telling people that they could buy a house, then sell the house years later, and retire off the money. In retrospect, it sounds ridiculous, but that was the attitude back then. It just makes no sense...houses lose value over time, just like anything that suffers from wear and tear. Sure, you can maintain the home, or make improvements to it to increase its value, but those are expenses as well.

The sooner we get over the whole "everyone needs to own a house" mentality, the better. More people would be able to own homes if the government weren't propping up home prices, but until that stops, there are many people that are better served by renting. Renting should not be looked down on; it's the only rational decision for many individuals.

8/7/2010 10:31:22 AM

Quote :

"Even if I could buy a house right now, I wouldn't. There's a very good chance that home prices haven't hit bottom, given that the bad debt was never dealt with in a meaningful way. "

I see what you are getting at, but you should buy a home when you need one and can afford it.(which you later mentioned) If you are looking at buying one to flip short term then I agree. We were looking at getting a deal on some rental property that we can pay off quickly and generate cash flow, not for a quick flip.

^good post

8/7/2010 12:57:37 PM

Quote :

"Freddie Mac said Monday it lost $6 billion, or $1.85 per share, in the April-to-June period. The company is required to pay a 10 percent annual dividend to the Treasury Department on money it has received from the government. That made up $1.3 billion of the company's second-quarter losses. That compares with an $8.0 billion loss in the prior quarter and is the best three-month performance in a year. The firm lost $840 million in the second quarter of last year. The company said losses stemmed primarily from loans purchased or guaranteed between 2005 and 2008. The U.S. Treasury took control of Freddie Mac and its sister entity, Fannie Mae , at the height of the financial crisis in 2008 as loan losses mounted. Since the government takeover, the two firms together have requested close to $150 billion from the government's unlimited credit line, scheduled to expire at the end of 2012. "

8/10/2010 1:18:39 AM