Tax Rebate

[olyclimber]

If I were Porter I'd carve a secret door into the foundation of the unsold McMansion next door so that I could seek shelter within its copious and tastefully appointed interior spaces when the depression fueled mobs start roaming the streets...

 

You know Jay, the only thing more enjoyable than watching that thing sit empty on the market waiting for a fool or a miracle is watching my cat saunter over and take a big dump in the $734,000 yard.

i'm noticing alot more house for sale with signs that say "NEW PRICE" on them . surely this is a sign of the coming apocalypse.

[JayB]

The tax rebate is little more than pandering during an election year. It's really too bad. Seems that something more targeted to the low income folks who both need it and would spend it would be better; or some type of public works program aimed at repairing some of our rusting infrastructure - which would pay some wages and get some needed jobs done.

 

As far as the current fiscal crisis - SC's quote of the Soros article is right on. Unfettered capitalism is interested in only one thing - short term gain. So the mortgage brokers, lending institutions, and Wall St traders made their commission and left others holding the bag. Hell, if Merril Lynch couldn't figure out the market implications how would you expect that some bureaucrat of a pension fund to know that Moody's AAA rating was a SOS?

 

The market will right itself, but it's going to take a long time and it will be bloody. Wouldn't it have been better to tighten down a bit on the financial market oversight - which was proposed in 2004 but trashed by the Rep. Congress. Merril Lynch has uped it loss forcast from 2.5 to $5.1 Billion. Despite comparative losses Washington Mutual's CEO just got a multi-million dollar bonus - great work guys!!

 

There is at least two more years of fallout from the subprime fiasco - some folks haven't even had their first rate jump. Can't wait to hear The Idiot's Wreck of the Nation speech tonight. What a contrast compared to how Clinton left the house in order.

 

FWIW I'm not entirely sure that FNMA/GNMA will emerge from this episode unscathed, either, and they are rather more fettered than other players in the market. It's hard to make definitive statements, since it's been a while since at least one of them has issued any financial statements that folks could use to evaluate where they stand. The fact that the spectrum of retards that fostered and participated in this speculative mania - from the folks who were taking out the neg-AM, I/O, stated-income option ARMS for homes they could never afford, to the appraisers who "hit the number" necessary for the loan to go through, to the folks who were selling and approving the loans, to the folks who repackaged and sold them, to the investors who loaded up on them are all collectively getting their asses handed to them on a platter is actually a vindication of the market economy. When the numbers don't add up - eventually it's impossible to hide. When losses can be obscured and subsidized indefinitely within a government program - it's much less likely that the problem will ever be detected, much less corrected.

 

Are boom-bust cycles in any given asset class preventable? I'm not sure that any regulatory regime exists that can both permit the efficient interplay of supply and demand and entirely prevent booms and busts.

 

What regulations do you think would have prevented the worst of the excesses?

 

 

 

[kevbone]

Does Bush really think that buy giving this money the people are going to vote republican? It is because of the republican thinking we are in the mess in the first place.

[Jim]

Have to agree about FNMA/GNMA - FNMA used to be a dependable investment vehicle earning a steady 6%. I yanked out of that a couple years ago.

 

As far as specific legislation - I'm no CPA but some oversight regs similar to what came out of the ENRON scandels but applicable to the financial markets would be worth investigating. The Sorbane/Oxley regs have increased the amount of documentation/oversight needed in how revenue is applied, and will keep most (hopefully) of the most outreageous cooking-the-books methods in check.

 

For starts - how could rebundled subprimes ever manage anything other than junk bond status by a rating firm? Instead they received the same rating as T-Bills and high end munis. And some limits on trading mortgages at all would likely be worthwhile.

[tomtom]

There is at least two more years of fallout from the subprime fiasco - some folks haven't even had their first rate jump. Can't wait to hear The Idiot's Wreck of the Nation speech tonight. What a contrast compared to how Clinton left the house in order.

 

Clinton initiated this mess through his National Homeownership Strategy.

 

The Clinton administration actions include:

 

Making It Easier to Qualify for Mortgage Loans. The FHA has eliminated unnecessary and overly strict requirements under its loan program that made it difficult for many families to qualify for mortgage loans. It has also given lenders greater flexibility to make homeownership possible for more nontraditional borrowers, and has clarified certain underwriting requirements so they are not applied in a discriminatory manner. With these improvements, thousands more families are eligible for FHA-insured home loans. It also streamlined its underwriting criteria, consolidated operations, and improved its performance. The cost savings from these improvements have resulted in cost savings to consumers.

 

In the end it just drove up housing prices.

[Jim]

There is at least two more years of fallout from the subprime fiasco - some folks haven't even had their first rate jump. Can't wait to hear The Idiot's Wreck of the Nation speech tonight. What a contrast compared to how Clinton left the house in order.

 

Clinton initiated this mess through his National Homeownership Strategy.

 

The Clinton administration actions include:

 

Making It Easier to Qualify for Mortgage Loans. The FHA has eliminated unnecessary and overly strict requirements under its loan program that made it difficult for many families to qualify for mortgage loans. It has also given lenders greater flexibility to make homeownership possible for more nontraditional borrowers, and has clarified certain underwriting requirements so they are not applied in a discriminatory manner. With these improvements, thousands more families are eligible for FHA-insured home loans. It also streamlined its underwriting criteria, consolidated operations, and improved its performance. The cost savings from these improvements have resulted in cost savings to consumers.

 

In the end it just drove up housing prices.

 

Got any proof of your assertions? This policy required a minimum of 5% down, waived some share of points, appraisal costs, and fees, and raised the eligible share of income costs from the industry standard of 38% to 45%. Hardly earth-shaking.

 

So what's the link to unfettered bundling and rebundling of mortgage-backed securities into unrecongnizable investments that get AAA ratings?

[KaskadskyjKozak]

[

Got any proof of your assertions? This policy required a minimum of 5% down, waived some share of points, appraisal costs, and fees, and raised the eligible share of income costs from the industry standard of 38% to 45%. Hardly earth-shaking.

 

In other words make it easier for people who can not afford a house... or more importantly the house beyond their means... to overextend themselves and get into financial trouble.

 

Don't blame the social engineers though, you guys never do. It must be Bush's fault.

 

[JayB]

There is at least two more years of fallout from the subprime fiasco - some folks haven't even had their first rate jump. Can't wait to hear The Idiot's Wreck of the Nation speech tonight. What a contrast compared to how Clinton left the house in order.

 

Clinton initiated this mess through his National Homeownership Strategy.

 

The Clinton administration actions include:

 

Making It Easier to Qualify for Mortgage Loans. The FHA has eliminated unnecessary and overly strict requirements under its loan program that made it difficult for many families to qualify for mortgage loans. It has also given lenders greater flexibility to make homeownership possible for more nontraditional borrowers, and has clarified certain underwriting requirements so they are not applied in a discriminatory manner. With these improvements, thousands more families are eligible for FHA-insured home loans. It also streamlined its underwriting criteria, consolidated operations, and improved its performance. The cost savings from these improvements have resulted in cost savings to consumers.

 

In the end it just drove up housing prices.

 

Got any proof of your assertions? This policy required a minimum of 5% down, waived some share of points, appraisal costs, and fees, and raised the eligible share of income costs from the industry standard of 38% to 45%. Hardly earth-shaking.

 

So what's the link to unfettered bundling and rebundling of mortgage-backed securities into unrecongnizable investments that get AAA ratings?

 

Background on rebundling/securitization:

 

http://www.securitization.net/pdf/content/ADC_SixDegrees_1Aug07.pdf

 

As far as how they got AAA ratings, I've forgotten most of the details I read, but from what I remember they took the subprime loans and sliced them up into various tranches. The bottom tranches would be the first to take the hit if the loans went south. These had the lowest ratings, and promised the highest returns. The highest tranches were, at least in theory, would be the very last to get hit in the event that the loans that they were constructed from started to go bad. How "cream-of-the-crop" subprime could ever be transmuted into AAA quality paper in this manner is an open question - but I don't personally think that you can pin this one on any particular administration.

 

I'd personally put a significant amount of responsibility for this particular aspect of the debacle on the ratings agencies. My sense is that they probably helped devise the tranches using historical loan performance stats/credit analysis. They were either unaware of the massive changes in underwriting standards, outright fraud, etc on the origination side of lending during this time, or had no incentive to ask the tough questions that might adversely affect their businesses - or both. Garbage in, garbage out. I'm kind of surprised that this hasn't become a full-blown scandal in it's own right, and that none of the ratings agencies have gone under as a result.

 

I think the performance of these loans/tranches, while still bad, may not be as bad as the headlines would lead you to believe. I think that most of the banks/institutions got in trouble not because the AAA tranches lost all of their value, but because the held them in portfolios that were so highly leveraged, that a 10% decline in the CDO/CMO/whatever's value would completely wipe them out. The fact the market for these things is liquid, the entire origination-to-security process was structured like a game of hot-potato, and that consequently no one can put a firm value on what these things are actually worth hasn't helped in this regard.

 

I suspect that people who figure out how to do so will buy up these assets for a fraction of their ultimate value and make quite a bit of money in the end.

[Jim]

kk- I think there's two conversations going here - the housing bubble and the subprime breakdown. Certainly there is a share between some folks who took too much risk - and the mortgage brokers just pushing a deal to get the commission.

 

My comments are more aligned to the financial slight-of-hand that has led to the market fallout and credit crunch. JayB's link provides a good thumbnail sketch with reasonable beginnings to more oversight.

 

I guess you could argue that if the bubble didn't burst then there would be no crisis. I'd argue that if the bubble burst without all the financial instutution complicity, it would have been a real estate cycle and not much more.

[JayB]

One more time...

[Jim]

Kinda looks like that stock market chart from a few years ago.

[tomtom]

Another accelerant on the bonfire was the performance of other asset classes early in the decade. The stock market was rolling down hill and nominal bonds weren't paying squat for interest - remember when MM funds were paying less that 1%? I'm sure it was pretty easy for salesmen to dangle complex financial products paying out higher interest and buyers closed their eyes to the risk. Risk that was probably impossible to calculate, anyway.

 

I've read several advisors who recommend avoiding even normal mortgage bonds because of issues of risk. Care to quantify prepayment risk?

 

 

[tomtom]

Background on rebundling/securitization:

 

http://www.securitization.net/pdf/content/ADC_SixDegrees_1Aug07.pdf

 

And it makes it hard to foreclose if you can't figure out who owns the property.

[Jim]

This is the miracle of not having securities mapped to the underlying loans,” said Josh Rosner, a specialist in mortgage securities at Graham-Fisher, an independent research firm in New York. “There is no industry repository for mortgage loans. I have heard of instances where the same loan is in two or three pools.”

 

Like I said. Would some accounting oversight help here?

[JayB]

Another accelerant on the bonfire was the performance of other asset classes early in the decade. The stock market was rolling down hill and nominal bonds weren't paying squat for interest - remember when MM funds were paying less that 1%? I'm sure it was pretty easy for salesmen to dangle complex financial products paying out higher interest and buyers closed their eyes to the risk. Risk that was probably impossible to calculate, anyway.

 

I've read several advisors who recommend avoiding even normal mortgage bonds because of issues of risk. Care to quantify prepayment risk?

 

 

I seem to recall that pension funds, after taking a beating in the equity portion of their portfolios, were especially hungry for yield...

[JayB]

More from the voluntary foreclosure front....

 

"“Matt and Stephanie Valdez say they knew exactly what they were doing when they bought a small two-bedroom for $355,000. They…planned to refinance the mortgage before the interest rate jumped to 11 percent. But they couldn’t do it because the value of the house had fallen below what they owed on the mortgage. They say they can afford the higher payments, but see no point in making them.”

 

“‘The house keeps going down, payments keep going up. Where’s the logic in that? And how can we fix it? I mean, that’s what this whole thing’s about for us is how can we fix this? And if we can’t fix it, then what do we do?’ Matt Valdez asks.”

 

“‘Why pay a $3,200 payment on a 1200-square-foot home? It makes no sense,’ Stephanie Valdez adds.”

 

“‘That’s what you agreed to do when you bought the house,’ correspondent Steve Kroft points out.”

 

“‘Fine. If the value is going up. But we’re not going anywhere. The price or the value is going down. It makes no sense because we will never be able to refinance and get a lower payment. There’s no way,’ Stephanie Valdez replies.”

 

“Real estate agent Kevin Moran, says it is happening every day. They were never really invested. Most of the people who lost the houses didn’t lose any money because they never put any money down.”

 

“Though their credit is damaged, and they could face legal action in some circumstances, they got to live in a new house for a couple of years, and some of them even managed to get some money with home equity loans or by refinancing.”‘

 

“Nobody seems to be saying, ‘Look, I made a contract with you. I borrowed money from you. I’m gonna do everything I can to pay off that obligation.’ People just seem to be saying, ‘Look, take the house. Good-bye. I’m leaving,’ Kroft says.”

[Hugh Conway]

“Nobody seems to be saying, ‘Look, I made a contract with you. I borrowed money from you. I’m gonna do everything I can to pay off that obligation.’ People just seem to be saying, ‘Look, take the house. Good-bye. I’m leaving,’ Kroft says.”

 

Individuals acting like corporations :tup:

 

Welcome to the reality of the disloyal saavy consumers you've spawned.

[JayB]

“Nobody seems to be saying, ‘Look, I made a contract with you. I borrowed money from you. I’m gonna do everything I can to pay off that obligation.’ People just seem to be saying, ‘Look, take the house. Good-bye. I’m leaving,’ Kroft says.”

 

Individuals acting like corporations :tup:

 

Yup. The loan was based on a contract, not a moral commitment. The penalty for breaking the contract is the damage they've done to their credit rating. They've concluded - probably correctly - that walking away from the loan is likely to be less costly for them in the end.

 

This is one of many reasons why anyone lending money for a home purchase used to require a substantial downpayment. Walking away from a loan and sticking someone else with a $100K loss is quite a bit easier than losing the 20-percent down-payment that you had to accumulate one paycheck at a time...

 

 

 

 

[Jim]

“Nobody seems to be saying, ‘Look, I made a contract with you. I borrowed money from you. I’m gonna do everything I can to pay off that obligation.’ People just seem to be saying, ‘Look, take the house. Good-bye. I’m leaving,’ Kroft says.”

 

Individuals acting like corporations :tup:

 

Welcome to the reality of the disloyal saavy consumers you've spawned.

 

I think this quote was from the 60 Minutes report from last night. The couple that was quoted - well they gambled and they lost. And the institution that gave them the loan in the first place? Same thing.

 

The folks I felt a bit sorry for were the ones that were really not very educated and took the mortgage company line that they could refinance after a couple of years. My wife thought they were victims of a smart-talking broker. I thought there was responsibility on both sides - even if you don't understand contract language then you should be hiring someone who does - like a lawyer - to spell it out for you. But on the other hand, no one was regulating these lame-o transactions.

[JayB]

Seems like having a real-estate attorney read through every line of any legal document associated with a home purchase or sale would be money well spent - for anyone.

 

Can't say the same for the 6% that goes to the realtors.

[Hugh Conway]

Can't say the same for the 6% that goes to the realtors.

 

Yeah - real estate agents have the sellers interests at heart almost exclusively. Why the buyer should pay for this is beyone me.

 

One would think there's a market for a flat fee sellers agent to guide and help people through this process - from finding a home to finding a means to pay through it to seeing the legal details through. That's capitalism, right? If you don't have the knowledge to do it yourself you pay someone - either who has the knowledge or when you get inevitably screwed.

[tomtom]

One would think there's a market for a flat fee sellers agent to guide and help people through this process - from finding a home to finding a means to pay through it to seeing the legal details through. That's capitalism, right? If you don't have the knowledge to do it yourself you pay someone - either who has the knowledge or when you get inevitably screwed.

 

They're called Buyer's Agents.

[JayB]

There's quite a few folks who are offering such services, but rumor has it that if you are a seller and you have availed yourself of such services - your chances of having a buyer's agent show clients your property are substantially reduced. However, if you are a builder and you are offering a premium to the standard commission, plus a bonus for closing a sale at the listed price, buyers agents will be much more enthusiastic about steering clients towards it...

 

The nature and extent of the conflicts of interest, etc that permeate the real-estate business are staggering. The world of retail investing is a kiddy-pool by comparison...

[sexual_chocolate]

One more time...

 

 

so i assume your point is....?

 

are you certain there is no history of unsustained commodity price appreciation which doesn't conform to historical trends?

 

we are now what, 2 years along the road since that graph came out, and we have witnessed a correction to historical averages? no.

 

we have witnessed further price appreciations in seattle and other markets, with some areas experiencing precipitous drops. nationwide, i believe the last year brought a 1% drop in prices on average? am i right in this?

 

since you are so bearish on the housing market, i'm curious about your opinion on what the eventual outcome of this will be, let's say 5 years out nation-wide, 5 years out seattle, and let's throw in a 10 year time-frame too for kicks. changes expressed in percentages.

 

 

clarification: i have no idea what the market will do, but my best guess is that certain areas of the country will get hammered for many years to come, while other areas (read, seattle) will plateau out (i think it's happened here with single family), maybe drop a few percentage points for a few years on average, then slowly appreciate again. the mortgage rate reduction would affect this....

[lI1|1!]

i filed my electronically