Minyanville: Subprime Lending Is Back with a Vengeance 33 comments
an article to
-
Font Size:
-
Print
- TweetThis
The shell game is very clearly laid out now... FHA, Fannie, Freddie, and now even state governments will be giving out nothing to "3%ish" down loans, to low credit borrowers who will have no stake in the home since many will be putting nothing down. We will declare housing recoveries. Then quarter by quarter the sausage will be squeezed out the other end as Freddie, Fannie and eventually the FHA suffer magnificent losses.
We've outlined the losses Freddie and Fannie are already taking, and Friday morning, another $20B bailout that I'll delve into in a separate piece. This is truly a shell game of the most amazing magnitude, and we are simply continuing the practices that got us here. Because Americans are not savers and there are not enough marginal buyers, we literally are turning renters into homeowners and they need to bring nothing to the table ... again. So they will have no problem walking away... again.
This is the latest outrage via an excellent piece at Minyanville... that $8000 credit we were lauding as an incentive? Well it is no longer being used as it was intended to be... i.e. borrower comes to government with their 3% down and then gets the $8000 the following year. The American "saver" is so scarce that states are rolling out programs where the $8000 "refund" is used as the down payment, and for closing costs. So essentially the US taxpayer is now being used to subsidize not the tax rebates, but indeed closing costs/down payments for people who cannot even come up with 3% down. In the old days we used to call people who could not save 3% of a home value "renters". Not anymore.
I simply cannot make this stuff up.
- Just when you thought it was safe to go back in the water... Subprime lending has come roaring back. But this time, reckless financial innovation isn’t being hatched on Wall Street. Instead, state governments are angling to “monetize” first-time homebuyer tax credits so borrowers can purchase homes with little or no money down. If this sounds eerily similar to the type of lending practices that got us into this mess, well, it should.
- The federal government, as part of the recently passed economic stimulus program, will refund first-time homebuyers up to $8,000 if they meet certain eligibility requirements. The program is frequently cited as one of the myriad reasons a bottom in the housing market is imminent. Critics, however, argue that rebates don't end up in a buyer’s pockets until his or her 2009 tax returns are filed - even though rebates are credits, not just deductions.
- Homebuilders like Pulte Home (PHM), Lennar (LEN) and KB Home (KBH), along with their lobbying arm, the National Association of Homebuilders, have thrown their full weight behind the rebate program, but say it still doesn't go far enough.
- In an effort to boost home buying -- even for marginally qualified borrowers -- a number of states are finding creative ways to advance the tax credit to buyers on the day they get their new keys, rather than having to wait for next year's refund check. This allows buyers to pay for things like closing costs, mortgage points - or even the down payment.
- States are employing schemes whereby they offer prospective buyers low or no-interest loans for the amount of the tax credit, due upon of receipt of their money from Uncle Sam. If the borrower doesn’t make good, the loan becomes a junior lien on the property, with an interest rate that is far from usurious - usually just a bit over the prime lending rate. States are even lobbying the IRS to deposit the refunds directly to the states, rather than to the home buyers, in order to circumvent non-payment. The IRS, for its part, “is reviewing” this idea.
- Not surprisingly, local real-estate professionals are behind the initiative. Washington Association of Realtors president Bill Riley told the San Francisco Chronicle he believes around half of would-be first-time buyers in his state “cannot save enough money for the down payment and closing costs.”
- Exactly. That’s the point. This is precisely what differentiates a “would-be” home buyer and a home buyer. And that’s the way it should be.
- If the federal government wants to subsidize home ownership, fine. It's already proven unwilling to learn the lessons of Fannie Mae (FNM) and Freddie Mac (FRE) about the costs of jamming borrowers into homes they can't afford. But these rebates should at least be limited to borrowers that meet even the most modest requirements to buy a home in a responsible manner.
- The Federal Housing Administration -- another vehicle for government-backed mortgages where taxpayers bear all the risk -- gives out loans that require borrowers to post a meager 3% down payment. If a “would-be” homeowner cannot scrape together this amount of cash, that person should rent and save their pennies. They should not receive a no-interest loan from the state government. This is not discrimination, this is not redlining, its common sense.
- In a rush to prop up home prices and delay the ultimate day of reckoning for the vast majority of US real-estate markets, the federal government -- and now state governments as well -- insist on coercing taxpayers to over-leverage themselves and take on a debt burden they cannot truly afford.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
Some people should remain renters - there is nothing wrong with that.
Some people should own investment property and be landlords - there is nothing wrong with this either.
The majority should save money to use as a down payment (or borrow from a family member), then purchase their own home. This is the American dream, to own you own house with pride!
I feel great knowing that I saved up the down payment with my hard work. I know that I could've spent every cent I made, but I didn't. I will fight to keep my houses. If necessary, I can work two jobs. I will fight to keep my credit bureau clean. I've worked hard to keep my expenses and spending in line with my income. I feel good that I provide housing for people who can't or don't want to own a house. I am a good landlord. I provide a well maintained, nicely appointed home for very fair prices.
Unfortunately, some people in government believe that I and my fellow taxpayers should be subsidizing the people who don't plan for the future. I don't subscribe to this. I believe that hard work should be rewarded. I believe we have been given free will to do as we feel necessary. I believe there are consequences - this is a necessity in life! If we don't let the hammer fall on these people, then we are helping them be anchors in our society. We are telling them it's okay to leach off the system. It's okay to walk away from your agreements. It's okay for you to dishonor your word - the most valuable thing you have. Shame on us for allowing our society to become weak. Shame on us for allowing our government to herd us like cattle. It's up to us to do something different, before it's too late.
On May 13 02:50 AM Autolander wrote:
> Come on guys. Why should the government back lenders who will only
> have 3 1/2 % down payment. It's too easy to back out when the going
> gets tough.
>
> Some people should remain renters - there is nothing wrong with that.
>
>
> Some people should own investment property and be landlords - there
> is nothing wrong with this either.
>
> The majority should save money to use as a down payment (or borrow
> from a family member), then purchase their own home. This is the
> American dream, to own you own house with pride!
>
> I feel great knowing that I saved up the down payment with my hard
> work. I know that I could've spent every cent I made, but I didn't.
> I will fight to keep my houses. If necessary, I can work two jobs.
> I will fight to keep my credit bureau clean. I've worked hard to
> keep my expenses and spending in line with my income. I feel good
> that I provide housing for people who can't or don't want to own
> a house. I am a good landlord. I provide a well maintained, nicely
> appointed home for very fair prices.
>
> Unfortunately, some people in government believe that I and my fellow
> taxpayers should be subsidizing the people who don't plan for the
> future. I don't subscribe to this. I believe that hard work should
> be rewarded. I believe we have been given free will to do as we feel
> necessary. I believe there are consequences - this is a necessity
> in life! If we don't let the hammer fall on these people, then we
> are helping them be anchors in our society. We are telling them it's
> okay to leach off the system. It's okay to walk away from your agreements.
> It's okay for you to dishonor your word - the most valuable thing
> you have. Shame on us for allowing our society to become weak. Shame
> on us for allowing our government to herd us like cattle. It's up
> to us to do something different, before it's too late.
Insanity: doing the same thing over and over again and expecting different results.
Of course Einstein was a physicist and not a politician, so what would he know about insanity?
On May 11 09:31 AM robert.b.ferguson wrote:
> This program is designed to shore up the democrat party just as the
> original CRA was. Eventualy we will get the same results over again.
> Einstien had a word for this.
When many of these not ready for prime time owners fall on their sword in 2 years, we will have not only wasted the 8000, but also be on the hook for bank losses.
Business as usual.
On May 13 02:50 AM Autolander wrote:
> Come on guys. Why should the government back lenders who will only
> have 3 1/2 % down payment. It's too easy to back out when the going
> gets tough.
>
> Some people should remain renters - there is nothing wrong with that.
>
>
> Some people should own investment property and be landlords - there
> is nothing wrong with this either.
>
> The majority should save money to use as a down payment (or borrow
> from a family member), then purchase their own home. This is the
> American dream, to own you own house with pride!
>
> I feel great knowing that I saved up the down payment with my hard
> work. I know that I could've spent every cent I made, but I didn't.
> I will fight to keep my houses. If necessary, I can work two jobs.
> I will fight to keep my credit bureau clean. I've worked hard to
> keep my expenses and spending in line with my income. I feel good
> that I provide housing for people who can't or don't want to own
> a house. I am a good landlord. I provide a well maintained, nicely
> appointed home for very fair prices.
>
> Unfortunately, some people in government believe that I and my fellow
> taxpayers should be subsidizing the people who don't plan for the
> future. I don't subscribe to this. I believe that hard work should
> be rewarded. I believe we have been given free will to do as we
> feel necessary. I believe there are consequences - this is a necessity
> in life! If we don't let the hammer fall on these people, then we
> are helping them be anchors in our society. We are telling them
> it's okay to leach off the system. It's okay to walk away from your
> agreements. It's okay for you to dishonor your word - the most valuable
> thing you have. Shame on us for allowing our society to become weak.
> Shame on us for allowing our government to herd us like cattle.
> It's up to us to do something different, before it's too late.
You have to like this comment:
"The program is designed for first time home buyers, many of which are young and just beginning their careers. This is a period in the life cycle where income rarely is adequate to provide both a standard of living and wealth accumulation. Low savings rates at this stage of life should not be interpreted as a deficiency. These resources provided by the government not only are helping to spur demand that had been erased by the fear of catacylsmic financial loss, but are helping to move people into an investment vehicle, real estate. "
I thought this was what got us into this mess, but I guess I was just wrong. It didn't work once, so lets do it again. that is wall street logic. It translates to: I got my bonus once for messing up the world economy, I deserve it again.
Of course it once again assumes wages will rise and one will be able to refinance at cheap rates, and unemployement will go down. fool me once shame on you, fool me twice shame on me. The governments programs are designed to get money to corporate interests, not help the american people. view the programs as the smokescreen they are, and insight happens.
Articles like this remind me of the quote from Darryl Hannah in Blade Runner, "Then we're stupid and we'll die".
The federal government loved these programs by the states so much they've decided it is now national policy
I kid you not
www.fundmymutualfund.c...
If no one else will, I'll say it: I AM appalled.
First, lest I be labeled "out of touch", my credentials.
I know what it's like to be poor - I qualified for food stamps most of my adult life. But I never took them. Just because something makes me comfortable doesn't mean it's automatically good.
You got your "American Dream" of the back of a taxpayer subsidized program (FHA). Your acquisition, and any attendant saving, come some unknown opportunity cost to the taxpayer (Bastiat's parable), and a serious societal cost in terms of the consequences of "nomalised" government intrusion into market processes (which is eXACtly our current problem). You Are the Meltdown, Writ Small.
As for you assertion that you can afford your house, well, good fortune to you, but that experiment isn't over yet, is it? As recent events make so clear, Getting the loan is the easy part. Post back in 6 years.
"AND...I didn't have the 3% downpayment saved...it was given to me as gift by family. By the thinking of almost everyone who commented...that means I didn't deserve my house...or I couldn't afford my house. And that's wrong."
No, actually that is exactly right. You CAN'T afford your house and you even admit it. And in the words of Snoop from HBO's "The Wire"...Deserve ain't got nothing to do with it.
You WANTED a house. But without a taxpayer subsidy to allow a measly 3% to even qualify as a down payment, and without family members to give you that 3%, you would have nothing.
"I take pride in my home and would fight to save it...because it's my home and contrary to popular belief, I did go through a lot of hassle and worry to get it."
Unfortunately, so have I and all my fellow taxpayers. You getting your house is an enormous hassle and BURDEN to me and my fellow taxpayers. Especially those of us in the upper percentiles who have, and will continue, to generously finance this whole charade.
Lastly, you said:
"So before you all sit and judge and make the assumption that someone doesn't deserve a home because they used assistance...or that someone has less of an investment in their home because they put less than 20% down...why don't you actually learn more facts and try a little compassion. "
Again, let's get literal. When you put less than 20% down upfront, BY DEFINITION you have less of an investment than someone who saved and put 20% down. That isn't even debatable. And I suggest you take your own final advice. YOU are the one who needs compassion. You should have come on here and said, "Hey I just wanted to say I got one of these absurdly cheap taxpayer deals. Guys, I know it wasn't fair but I just want to say thanks for making it possible. I will make the most of this opportunity. God bless America!" But that's not what you said. You are being defiant and acting as if you are somehow entitled to a house. Not just entitled to a house, but entitled to BETTER TERMS on a mortgage than responsible lenders.
So I urge YOU to "learn some more facts and try a little compassion."
MM
This country should provide its poorest of citizens a roof over their heads - thats what I consider a basic obligation of a 1st world country. Home ownership is not one.
I've lived in an underwater home for most of the 8 years I've owned it since I live in Michigan. I have paid despite not being able to flip it and indeed nearly a decade later I'd have to bring money to the table to sell it. I didn't buy in a bubble... I bought in 2001. I got an FHA loan too. But I did bring my own down payment and closing cost. Because I was ready to stop renting.
You should still be a renter, there is no shame in it. Think about each person you deal with in fast food or in Walmart - each of them you took a little piece of their taxes to subsidize your home. Just as you took some from the multi millionaires or "upper middle class" or whomever.
We are all paying for it. If you are cool with that, than that's your right. I am not. If you (or someone in your situation) defaults on your rent the only person who takes a hit will be your landlord. Now, I and the Walmart greeter and Burger King cashier, and multimillionaire, and soccer mom in middle class America will all be on the hook. And multiply it by what appears to be millions of people.
On May 13 06:13 PM Jasper M wrote:
> Oneof,
> If no one else will, I'll say it: I AM appalled.
>
> First, lest I be labeled "out of touch", my credentials.
> I know what it's like to be poor - I qualified for food stamps most
> of my adult life. But I never took them. Just because something makes
> me comfortable doesn't mean it's automatically good.
>
> You got your "American Dream" of the back of a taxpayer subsidized
> program (seekingalpha.com/symbo...). Your acquisition, and
> any attendant saving, come some unknown opportunity cost to the taxpayer
> (Bastiat's parable), and a serious societal cost in terms of the
> consequences of "nomalised" government intrusion into market processes
> (which is eXACtly our current problem). You Are the Meltdown, Writ
> Small.
>
> As for you assertion that you can afford your house, well, good fortune
> to you, but that experiment isn't over yet, is it? As recent events
> make so clear, Getting the loan is the easy part. Post back in 6
> years.
We miff you.
Mark, I am confused - you lead with "still wrong", and invluded My post. Were you refuting Me, or oneofthemasses?
On May 13 09:55 PM Jasper M wrote:
> Good post, Mike.
> We miff you.
>
> Mark, I am confused - you lead with "still wrong", and invluded My
> post. Were you refuting Me, or oneofthemasses?
Some things that strike me in relation to this:
1) Apparently no one in America can learn from mistakes. Maybe this is a function of the fact that in school, we are not allowed to children they are wrong, or give them an appropriate grade for fear we might stunt their creativity or make them feel bad about themselves. If you never do anything wrong, then by definition, you should keep doing what you are doing. I know...insanity. But look around. So few get it. Geitner blames easy money for the bubble, but declares we need easy money now. We have a housing/credit bubble and the solution is to put more money (other people's money) at risk to put the people just foreclosed back into homes.
2) I am really getting tired of lobbyists. I don't ever want to hear another word from the National Association of Anything. Realtors want the government to give my tax $s to someone else so they can buy a home??? WHAT? Homebuilders agree? Well, they seem like they have only the country's best interest at heart so we should do it.
All of the current ills of the country can be traced to the political misteps (away from personal responsibility and liberty...and the American Dream) made in the past 80-some years. The founding fathers was pretty intelligent, but this fake two-party system is now killing us and we can't stop it even if we wanted to...which stunningly, we don't...
ugh.
"We are telling them it's okay to leach off the system. It's okay to walk away from your agreements. It's okay for you to dishonor your word - the most valuable thing you have."
We need some historical context here.
This country was BUILT (and the land you live upon was obtained) by YOUR government walking away from its agreements.
Governments are the DE FACTO owners of ALL the property within their dominion (i.e., the extent of the claims on natural resources/property that they are able and willing to defend); they set up "DE JURE" ownership (however they like) to try to ensure and enhance their own survival and maximize profits for whoever has control of that government.
In our particular case that would be "rich people": that is, at least since 1787-1789 when they hired a private army to put down Shays Rebellion (a group of Massachusetts farmers and Revolutionary War vets who had gotten fed up with being "cash cows" for the rich) and decided that, the next time they had to do something like that (put down a revolution or steal some more land), they wanted "the cash cows" to foot the bill for hiring the thugs, and so they got George Washington riled up enough to come out of retirement (he was so easy to "work") and they got Ben Franklin (and perhaps likewise Tom Paine) onto their side by loaning him enough money to buy a shipload of Bank of North America shares. (They also made Franklin's son-in-law a BNA director.)
Franklin, part of Pennsylvania's banking-dominated delegation to the "Constitutional Convention" - doesn't that term sound a lot better than "Counter-Revolution"? - argued during the "Convention" AGAINST the "Colonial Scrip" -see eh.net/XIIICongress/cd... - that he had helped set up and had previously lauded so much that England had passed the Currency Act of 1764 in order to outlaw the colony-issued paper money that was cutting into English banking profits; that law was said by Franklin and others to have been the principal cause of The Revolution.
The US Constitution was created to give the rich the weapons they required to keep the cash cows in line, while at the same time (and this is the best part) convincing the cows that they have some voice in how things on the farm are run. Everything else is just "smoke and mirrors". It was harder back when everybody knew everybody else in a community, but now the oligarchs just run some attack ads and make sure that only their own people are able to get on ballots and the rest is history. Pretty ironic that the weapon that put the gun to your head is looked to as "our last, best hope".
And so here we are today.
Basically it comes down to this: if they need to screw or kill or maim some (or even all) of the cash cows (foreign or domestic, since the herd owned by "USA, Inc." now pretty much includes everybody in the whole world, the other governments in the world having the same "de jure" status as US homeowners and may continue so only as long as the real owners allow) in order to maximize profits, that's just what has to (and will) happen. Got it?
Whether or not some poor people get a good deal or get to sponge a little or whatever is totally irrelevant to our cash cow farm owners: as long as a good bit of the labor of the cows goes into their pockets, everything else is a nitpick. They are not doing this BS to help anyone but themselves.
If you thought there was anything you could do about it, would you be doing it? See my plan on the "alajac" page of u4prez.com for what I believe will fix it (with no shooting required).
See also "Creating the U.S. Dollar Currency Union, 1748-1811: A Quest for Monetary Stability
or a Usurpation of State Sovereignty for Personal Gain? (start on page 15 with "RHETORIC VERSUS REALITY AT THE CONSTITUTIONAL CONVENTION") at
eh.net/XIIICongress/cd...