Mortgage Reform

[drebo]

At least for a historical perspective of U. S. markets, watch "The Flaw" on Netflix: http://www.bestonnetflix.com/title/the-flaw/t/70166261

It does unfortunately have a bit of an overlaid political idealogy / message, but if you can ignore that, it does lay out about a century of housing and mortgages in U. S.

Everyone likes to rip on subprime as "the" culprit of whole financial meltdown, but that documentary says that in mid-1990s it was predatory lenders who swooped into minority neighborhoods and pushed serial refis onto homeowners with lots of equity in their homes and stripped that all away.

Plus Ground Zero for the housing crash in 2000's was centered on California, Arizona (Phoenix), Nevada (Las Vegas), and Florida. I think 4 western states accounted for something like 50% of U. S. housing markets.

Former Wells Fargo CEO also reinterated again on tv that it was just 10 investments banks and 10 Savings and Loans institutions that were responsible for crash.

And as Larry Kudlow used to crow, subprime is only 15% of GDP and could cause a mild recession, at worst.

So, obviously, the root cause was something else...


IIRC, this YouTube summary of housing cycles also states that there should have been a housing correction in 2002, but Bubbles Greenspan subverted it: http://www.youtube.com/watch?v=Cus4opgTJb0 (start around 3:40 mark)

But here's the thing...No one FORCED these people to take out second, third, fourth mortgages on their houses. No one said "you do this or we'll kill your cat."

These people did this because they're stupid. They thought it would be a good idea to take out a second loan on a $100k house to pay the downpayment on a $250k motorhome and then go to Europe.

No one is at fault here except the idiots who took those loans. They should not have been given a free pass, and neither should the banks have been given a free pass for making the loans.

The real criminals were the rating agencies that allowed the banks to package the shit loans with good loans and sell them as AAA. Those people should be in prison.

 

[mshan]

"Time and again, otherwise canny investors fall for the salve that in a liquid market, they can always get out, therefore what’s the problem? At Lehman, in the mid 2000s, executives took comfort in the notion that that the bank was in the “moving business” not the “storage business.” Then, the mortgage market froze, and everyone was in the storage business.

Liquidity is a backward-looking yardstick. If anything, it’s an indicator of potential risk, because in “liquid” markets traders forego trying to determine an asset’s underlying worth - - they trust, instead, on their supposed ability to exit. Investors now in low-yielding U.S. Treasury bonds may, one day, discover this lesson for themselves.

It’s hard to overestimate the extent to which the siren of liquidity has seduced even ordinary Americans. During the housing bubble, anyone who took out a mortgage they couldn’t afford, upon advice they could always refinance, was tacitly assuming they could trade their old loan for a new one. They were counting on continued liquidity in the mortgage market--and so were the banks that lent them the money."

"Corzine’s bet may still prove correct; “these countries” -- Italy and Spain, for instance -- may emerge from the current crisis solvent. But if they do, MF Global will not be around to reap the gains. Because the firm was so highly leveraged, and because it was dependent on short-term financing, its liquidity dried up and it failed. This seems to be the lesson that Wall Street never learns."

http://www.bloomberg.com/news/2011-...ns-of-long-term-capital-roger-lowenstein.html

http://brontecapital.blogspot.com/2008/07/deflation-and-bank-bailouts-in-japan.html

"The shorthand story of Wall Street over the last generation is that every firm -- Goldman included -- became less like the old Goldman, more like Salomon. Old-line commercial banks like JP Morgan and Bankers Trust were converted into derivatives traders. Venerable investment banks like Lehman Brothers and Morgan Stanley became packagers of mortgages -- essentially, shops for buying and selling, assembling and splicing, mortgage securities. And all with other people’s money."

- 40 - 50 to 1 leverage.

- Using borrowed money that has to be rolled over frequently (e. g. http://video.cnbc.com/gallery/?video=3000058679; start around 3:25 mark)

- A financial system of nebulous interconnectedness (e. g. http://www.businessinsider.com/why-is-re-hypothecation-central-to-mf-global-2011-12) that requires the continued confidence of all participants that the shaky house of cards will continue to hold and that they can get out before the music stops...

What could possibly go wrong...

 

[Texashiker]

Plus Ground Zero for the housing crash in 2000's was centered on California, Arizona (Phoenix), Nevada (Las Vegas), and Florida. I think 4 western states accounted for something like 50% of U. S. housing markets.

The system is designed to keep the price of homes going up. If the price goes down the market goes into a tailspin.

Prices can only go up X amount before people can no longer afford to buy a home. Lower and middle income familes are stretched to the breaking point. Sooner or later something has to give. I think the crash of 2008 is going to be a semi-regular event.

 

[mshan]

"Prices can only go up X amount before people can no longer afford to buy a home."

This video is from a few months ago (before say 1% jump in mortgage rates), but Ivy Zelman said prices could go up another 20% and mortgage rates jump 200 basis points (4% to 6% on 30 year fixed) before we got back to historical average level of affordability (monthly payment as a percentage of income):

http://video.cnbc.com/gallery/?video=3000152733 (her comments start around 1 minute mark)

(headlines we all see on tv about 10 - 20% plus year over year home price appreciation is skewed, because those gains are mainly in a few West Coast markets where prices were severely depressed, but as chart shows, still way below the nominal peak) Comment I've read previously was that, at least before the financial crisis and plummeting interest rates since then, anything below 6.5% was considered cheap by historical standards.

http://www.realestateconsulting.com/blog/john-burns/huge-geographic-differences

 

[Texashiker]

This video is from a few months ago (before say 1% jump in mortgage rates), but Ivy Zelman said prices could go up another 20% and mortgage rates jump 200 basis points (4% to 6% on 30 year fixed) before we got back to historical average level of affordability (monthly payment as a percentage of income):

Working middle class are having problems affording a home now, much less if prices got go up 20%.

I watched the video, and it seems wall street is out of touch with main street.

The majority of new jobs being created are low wage jobs. Baby boomers are retiring, generation X should have their home paid for by now, generation Y has a bleak outlook on jobs.

The honest truth is, wages have been stagnated since the 1990s (maybe even the 1970s), but home prices have continued to go up.

 

[fstime]

Working middle class are having problems affording a home now, much less if prices got go up 20%.

I watched the video, and it seems wall street is out of touch with main street.

The majority of new jobs being created are low wage jobs. Baby boomers are retiring, generation X should have their home paid for by now, generation Y has a bleak outlook on jobs.

The honest truth is, wages have been stagnated since the 1990s (maybe even the 1970s), but home prices have continued to go up.

Housing values are also stagnated when adjusted for inflation. Your $140,00 house bought in the 80's is probably worth $300,000 today which means your gains after inflation are most likely in the single digits.

 

[EagleKeeper]

Do you know your history? There was once a time when land ownership was reserved for royalty.

You can not have it both ways.

Either everyone is entitled to own land and a home, or only a select few are.

From your post you seem to think that rights and free go hand-in-hand, which is not the case.

Home ownership is reserved for those who can afford it.

But once someone can afford to buy a home, then they have a right to buy said home.

They still do not have the RIGHT to buy the said home.
They can not go to some one and say sell me the house.

They have the ability to purchase a house that is available for sale.
IF they can not pay cash; then it is up to them to locate funding for the amount they need.

 

[mikegg]

This video is from a few months ago (before say 1% jump in mortgage rates), but Ivy Zelman said prices could go up another 20% and mortgage rates jump 200 basis points (4% to 6% on 30 year fixed) before we got back to historical average level of affordability (monthly payment as a percentage of income):

http://video.cnbc.com/gallery/?video=3000152733 (her comments start around 1 minute mark)

(headlines we all see on tv about 10 - 20% plus year over year home price appreciation is skewed, because those gains are mainly in a few West Coast markets where prices were severely depressed, but as chart shows, still way below the nominal peak) Comment I've read previously was that, at least before the financial crisis and plummeting interest rates since then, anything below 6.5% was considered cheap by historical standards.

http://www.realestateconsulting.com/blog/john-burns/huge-geographic-differences

Those 2 charts don't tell us anything about affordability.

Is there a chart with inflation adjusted housing prices/income?

 

[HeXen]

They still do not have the RIGHT to buy the said home.
They can not go to some one and say sell me the house.

They have the ability to purchase a house that is available for sale.
IF they can not pay cash; then it is up to them to locate funding for the amount they need.

And welcome to 3rd grade common knowledge everyone. Please turn to chapter 2 now.

 

[EagleKeeper]

And welcome to 3rd grade common knowledge everyone. Please turn to chapter 2 now.

Some may not have made it to this level of understanding. - Regretfully

 

[TerryMathews]

And welcome to 3rd grade common knowledge everyone. Please turn to chapter 2 now.

Google Dcal430

 

[Texashiker]

They still do not have the RIGHT to buy the said home.

Under the fair housing act, isn't anyone who can afford to buy a home entitled to do so?

If buying a home is not a right, then how can people cry about discrimination in housing?

When lenders do not lend due to race, religion,, or other factors, isn't the lender breaking the law?

 

[TerryMathews]

Under the fair housing act, isn't anyone who can afford to buy a home entitled to do so?

If buying a home is not a right, then how can people cry about discrimination in housing?

When lenders do not lend due to race, religion,, or other factors, isn't the lender breaking the law?

No. There are any number of criteria which are not protected under FHA. FHA enumerates specific protected classes.

 

[Texashiker]

FHA enumerates specific protected classes.

According to the posters in this thread home ownership is not a right. So therefor nothing needs to be protected.

 

[TerryMathews]

According to the posters in this thread home ownership is not a right. So therefor nothing needs to be protected.

And it still isn't. FHA eliminates discrimination. Not the same thing.

IE you don't have a right to a job. You do have a right to not be discriminated against based on race at said job. See?

ETA: attacking your point on a more basic level. You imply that home ownership is a right. Think this through, what happens if you don't pay your real estate taxes? If you're legitimately poor and don't have sufficient income, what happens? They can't take your house because you have a right to it? Right?

 

[piasabird]

I would like to say that the housing crash had nothing to do with racism or rampant stupidity of white guilt trying to correct a perceived existing problem. However, the problem and the solution both ignored the basic problems in the home loan market. The entire system is designed to favor banks and corporations. I think what cities and the USA needs more than anything is planning and development of housing and land usage in and around cities.

Freedom is great and commerce is nice but allowing people to just build houses everywhere and rich people to buy up property and build only larger houses is not a good way to manage our resources.

We need to make some real changes in the home loan market that favors both the Banks and the home owners. Having purchased a home (Still Paying), I understand how expensive it is and how long it takes to pay off a home loan. There is no way the little guy can win. One solution would be for the government to limit the amount of money the bank can make, regardless of interest rates. Loans could have a more logical approach where half the loan payment was the principal and the rest was interest or pay the interst last and the principal first or use some hybrid model. The way it works now you pay all the interest first. Banks know at first you will try to pay the bank and usually later is when you get into financial problems. So banks want their Interest first. The government could just change this so both the bank and the purchaser are on the same footing.

 

[Texashiker]

ETA: attacking your point on a more basic level. You imply that home ownership is a right. Think this through, what happens if you don't pay your real estate taxes? If you're legitimately poor and don't have sufficient income, what happens? They can't take your house because you have a right to it? Right?

Wrong.

The government does not tax the buying of property. The property itself is taxed. You do not pay the property taxes, the state takes the property.

Just as gun ownership is a right, but the government can take your guns under certain situations. The government can also forbid gun ownership for felons, and those convicted for domestic violence.

 

[TerryMathews]

Wrong.

The government does not tax the buying of property. The property itself is taxed. You do not pay the property taxes, the state takes the property.

Just as gun ownership is a right, but the government can take your guns under certain situations. The government can also forbid gun ownership for felons, and those convicted for domestic violence.

Wrong. It taxes both.

 

[OutHouse]

The right to own a home is a basic human right, which does not have to be affirmed by law.

source?

 

[TerryMathews]

source?

His feels, of course.

 

[Matt1970]

Under the fair housing act, isn't anyone who can afford to buy a home entitled to do so?

If buying a home is not a right, then how can people cry about discrimination in housing?

When lenders do not lend due to race, religion,, or other factors, isn't the lender breaking the law?

You are getting closer. There are laws that prohibit discrimination based on race when obtaining a loan to purchase a house. That would be a right. That is something you are entitled to. It is guaranteed by our government. What you are not guaranteed or entitled to is a house or even for that matter the loan itself.

 

[TerryMathews]

You are getting closer. There are laws that prohibit discrimination based on race when obtaining a loan to purchase a house. That would be a right. That is something you are entitled to. It is guaranteed by our government. What you are not guaranteed or entitled to is a house or even for that matter the loan itself.

No, FHA also protects the purchase.

For example it's illegal to deny selling a house to an African American based on their race, even if they're paying cash.

Was designed to put an end to white-only gated communities etc.

ETA: http://portal.hud.gov/hudportal/HUD?src=/program_offices/fair_housing_equal_opp/FHLaws

 

[rudder]

This is fucking hilarious...


http://www.publicintegrity.org/2009/subprime-25


Now, please review each one and tell me which ones were CRA regulated. It wasn't Countrywide, nor Ameriquest nor Newcentury, not First Franklin or Option one.

CRA was such a small part of the mortgage universe and wasn't even close to being as bad as the NINJA loans. It's ridiculous you people keep this up.

Furthermore, they only bought that much for a very small period as they lost tons of prime business to the mortgage brokers. They were nothing compared to the volume out in the market.

Finally, the biggest problem was the equity tranches. Had the banks been regulated properly, eliminating SIVs and proper treatment of CDOs, and reduction of leverage, there wouldn't have been a problem.

well we wont get into a big to and fro on this... just a quick thought for you. Would those lenders have had the same market available or lowered their lending standards in the same manner had the banks not been trying to appease the government dictates from the CRA? Was it because of threats by the clinton and bush administration who could have easily put those mortgage servicers under the CRA umbrella that they followed the banks?

 

[LegendKiller]

well we wont get into a big to and fro on this... just a quick thought for you. Would those lenders have had the same market available or lowered their lending standards in the same manner had the banks not been trying to appease the government dictates from the CRA? Was it because of threats by the clinton and bush administration who could have easily put those mortgage servicers under the CRA umbrella that they followed the banks?

Before you blather on about CRA tell me the following, exactly, otherwise, you do not even understand what caused this.


1. What % of *ALL* mortgages in each vintage year were CRA mortgages.

2. What % of those CRA mortgages defaulted and what was the loss severity in default.

3. What was the % of those CRA mortgages that were included in Subprime RMBS.

4. Of the CRA mortgages included in Subprime RMBS, what was the equity enhancement and what eventually happened to that (aka was it included in CDOs?.

Now go ahead and search around and get back to me. I already know the answers but I am wondering if you'll even go through the tough exercise of actually going beyond your pre-conceived and ridiculous notions.

 

[Texashiker]

source?

Since the dawn of humanity.


Maybe the people who are opposed to buying a home being a right think homes should be free?

Nobody is debating homes should be free. If someone has the money, they have a basic human right to own a home. This puts an end to only the rich and royalty being able to own homes.

Should we go back to days when only certain families were able to own land?

Do we wish to return to when lords maintained the land for the king, and everyone had to work for the land lord?

By saying "no, people do not have the right to own a home.", we relegate ourselves to a sub-class to the group who can buy homes?

Who decides who can buy a home? If home ownership is not a right, who gets to say who can and can not buy a home?