John Preston

Time for an FHA Shakeup?

Karl, for once you are right...TDTI ratios are TOO high...and were to high on Conventional loans starting in the late 1990's....that was the real problem...

Your "skin-in-the-game" comments, are however, not right......there neve has been a real study absolutely correlating down payment to deafault...

Every study correlates Death; Disability: Discharge: Down turn in the economy; and Divorce as the top reasaons for default.....essentially, acts of god to some degree....



On Sep 19 08:54 AM Karl Denninger wrote:

> "Ability to pay" is more than just the ability to make a payment
> RIGHT NOW.
>
> It also includes the ability to amass reserves (proved only by having
> done so before - it is called a down payment) in the event that you
> lose your job or otherwise have an interruption of income or, God
> Forbid, your "new house" needs a water heater, furnace or washing
> machine replacement.
>
> DTIs are commonly being approved into the FIFTY PERCENT range today.
> That's ridiculous and is absolutely unsupportable. DTIs are computed
> off GROSS income (yet we all pay taxes) and in high-cost-of-living
> areas (California anyone?) taxes, car insurance and other "must buy"
> items eat dramatically into actual disposable income. No, eating
> cat food (or scrounging into the dumpster for something) is not acceptable.
>
>
> 50% price reductions are great. However, this does not mean that
> one can raise DTIs or lower down payment requirements in response.
>
>
> The age of "home prices never decline so if the buyer gets hosed
> we won't" is OVER.
>
> On Sep 18 01:50 PM Karl Liesman wrote:

Why House Prices Will Resume Their Fall

OP

You are one of the few who are active on this site who continually needs the support of profanity to make an argument..why is that?

Anyway, Your blast at RE agents demonstrates a really narrow vision of the free market and rational/responsible behavior.

Bad RE agents are no worse than any "bad" service provider or product perveyor. Attorneys...CPA's....s... owners...taxi cab drivers... all aspects of commerce, have bad apples, who push their product or service for a buck.

Anyone who touts a point of view is shilling for themselves...me and you included.....

Rational are reasonable behavior,on the part of market participants, is the goal of a free market, not the reality of its observed behavior.

Businessmen and market participants do not appear to be striving for sainthood.....so lets keep the bar the same level for all.....and let's keep it clean...


On Jul 31 12:58 PM OptimizedPrime wrote:

> @User 464204 -- Finally, an honest real estate agent, or at least
> one that "gets it".
>
> These days there are two kinds of agents:
>
> 1. Agents that will do anything, lie any lie, join any and every
> fantasy of a Seller in order to get the listing. Whereas other agents
> offer the Truth, they offer Hope. They get the listing and the honest/realistic
> agent goes begging.
>
> Then they join the Seller in waiting until hell freezes over for
> somebody to come buy their home at the 2007 price, possibly dropping
> the price by the odd 1-2% to "adjust" to the market.
>
> 2. Agents that are honest and want the sale to CLOSE, not just sit
> on the market for months/years. Agents that show sellers the literature
> that informed people here on the Internet read every day about the
> direction of the market. Agents who will tell sellers that NOW is
> the best time to sell because their losing investment is just going
> to LOSE EVEN MORE if you wait.
>
> In other words, agents who will SCARE THE SHIT out of a seller to
> get them to move.
>
> You don't need to make anything up to scare somebody in this market.
> Just show them the facts and trends and they'll sign whatever you
> want.
>
> Agents, try this with me:
>
> "There have been many better times to sell, but those days are gone
> forever. I'm very sorry you missed the rocket to riches. Now it's
> time to be realistic. NOW is the best time to sell for the next 10
> years and possibly forever. Profits are not going to happen. Cut
> your losses before you lose everything."
>
>
> OP

10 Subprime Myths?

Tom

Interesting post and article to bring to the group....my answer got too long...I'll make it a post.....I will just say that there are many myths working their way into them mindset of the popular culture....it is important that everyone stay informed and open minded....

Housing: Ingredients for Recovery

Does anyone not get the point that housing was central to the success of the economy....creating jobs....absorbing workers whose jobs were exported...and creating a positive mood in the economy....

A great many people, at all levels and in all sectors of the economy, benefited mightily during this time....no one really complained about all of this good fortune....

Why is it then that, for 18 months, or more, as job losses mounted as a result of the contraction in construction, the pull back in consumer spending, and the fall in housing values, comments cheering the further demise of housing and, with it, continued decline in the economy, have become common place...and ordinary...

I challenge SA readers to promote real solutions alongwith their comments....too many comments lack any attempt at advocating a proactive solution, and appear to be simply served up as koolaid for their angry constituency........

Reading Rates: MBA Application Survey

Actually quite on point.....the comments at least, by Mr. Mouch....I always felt that MBA stood for "More Bad Advice".....

Jim the Realtor: Touring the Housing Problem

Did Jim take any video of the shadow buyers...you know they are there....shadows work both sides of real estate...there is in reality a sizeable shadow market to be analyzed and understood....

I actaully met with 3 new first time buyers this week in my area of North Central AZ.....they're not wanting to miss the tax credit....

Before housing really hit the fan, I saw jobs being shed in construction in the fall of 2006.....and while the related aspects of housing...foreclosures and inventory issues are real...the story all along has been jobs and declining household income...

One of our local Safeways cut all employees to half time a while bback...they still had jobs....just for half value...but no direct layoffs...

50% cuts in wages makes life tough for the entire economy...not just housing...

SO, the shadow inventory will be out there, as will the shadow buyers....maybe we can find some shadow jobs......

I gave John Galt a thumbs up for his assesment....this is a very serious, but also a very repairable, problem...but it must be worked on in a positive and proactive manner, and not left to its own demise.......we need real, workable solutions....not simple reports and anecdotal rhetoric.

CIT Execs Should Resign

Is there any top tier management, at any financial firm, who should still be employed..or even employable????????

JP Morgan's Jamie Dimon Still the Golden Child in Washington

Years ago, in the 1980's, I worked at a Savings & Loan in California. We were, at best, an OK mortgage lender in terms of the overall marketshare....

We were, however, exceptionally profitable...exception... well capitalized....and exceptionally well positioned for fluctuations in the interest rate markets. We were Forbes #1 ranked S&L for 5 straight years.

Our achilles heel was our asset structure. As the S&L crisis hit full steam in the late 1980's to early 1990's....re-regulation occurred. The new rules required a new asset structure, which required liquidation of over 30% of the balance sheet. The resulting erosion of value in the assets to be sold crushed the S&L and cost the taxpayers about 1 billion dollars....

This process, at least for thissingle institutionm could have been avoided if the assets had been allowed to amortize off te balannce sheet, and the process had been stretched out for a longer period of time.

It is my understanding, from reading, not from direct analysis, that JPMC is in the same boat. The wrong re-regulation could crush this bank...and the cost would be far greater than 1 billion dollars.

On of the so-called "take aways" from the current mess is that all too often haste, and poorly focused, angst driven decisions, can lead to bigger problems.....

Please, Shoot the Vultures, But Don’t Blame Them for Being Vultures!

Actually, the real plan was to stabilize the prices....let the economy cool and find new footing....and let lenders re-invent the mortgage process in a more safe and sane manner.....

The problem I saw...which is now a reality, is that dramtically falling prices would lead to excessive reduction on consumption and a severe jobs problem.....

My mental model was to find support for prices, in todays world, somwhere above current levels..but obviously somewhere below the peak values....a mid-point if you will....and allow the re-invented lending process to finish the process of establishing prices in a more rational evirionment.

It is my feeling that the heights of bubbles, and the depths of recessions, are the wrongplaces to try and define normal and to try and apply the big "fix"....


On Jul 22 01:41 AM derryl wrote:

> Mr. Preston,
> I just read your plan and the problem I see is that, while you acknowledge
> government programs and bad lending artificially inflated housing
> demand and prices, your plan seeks to stabilize that demand and prices
> at current levels. I think prices need to fall low enough to attract
> buyers who can qualify for a real old style 20% down no 'features'
> mortgage. Supporting the bubble punishes new buyers who can afford
> payments on affordable houses but who are effectively locked out
> by inflated prices and tighter lending standards.
>
> There is no banking god who says insolvent banks MUST be shut down
> and liquidated, unless the BIS and Basel II are acting as that god.
> But Paulson's $700B Wall St bailout proves that even god's will can
> be thwarted if there is sufficient confusion and taxpayer money available.
> What I'm saying is that declining real estate prices do no necessarily
> cause bank failures. Forcing a failure or relaxing standards so the
> bank can continue are human decisions made by banking regulators.
> So artificially supporting bubbled real estate prices cannot be justified
> on grounds of systemic risk to banking.

Prime Bomb: Former Golden Child Hudson City Bancorp Sees Prime Delinquencies Skyrocket

Good insights...finally...

Equity does not make monthly payments....jobs and income do...

While subprime and no docs loans make good fodder for the media and serve to drive mass angst, ultimately it was overlveraged income via the underwriting process by Fannie/Freddie (and other credit grantors) that crippled the borrowers....you cannot (and F/F did) commit 45%-60% of a homeowners gross income to the mortgage payment and not expect problems...

The myth of the "20% down payment is one of todays problems. The only security for a homeowners a solid job, is consistent monthly income and some cash reserves. The down payment is a non-factor...always has been...and always will be a secondary issue in underwriting...

ANY borrower whose income-to-debt ratio has gone up as a result of declining household income is in deep trouble....and down payments...and high credit scores...and even full doc processing cannot overcome the lack of income....

Hudson BC's CEO was pretty arragant on TV....telling us all that they went by the book and did things the "old fashioned way"...28/36 ratios/downpayments, etc. If Hudson really did this...follwed the old rules, and, keep in mind, F/F was allowing MUCH higher ratios within their AUS systems (over 60%).....what this is really saying that the problem is in the jobs and income...and for many, overlev eraging of income, which is where thisw mess first started....

The Housing Crash Isn't Over: Here's How to Profit

the "P' is supposed to read "profit"

The Housing Crash Isn't Over: Here's How to Profit

Problem...Solution...P... the same formula that got us into this mess....

Perhaps we should really solve the probelm...

The Housing Crash Isn't Over: Here's How to Profit

Some sort of up load issue...???

here is the post:

Problem...Solution...P... the same formula that got us into this mess....

Perhaps we should really solve the probelm...

The Housing Crash Isn't Over: Here's How to Profit

Problem...solition...p... the same formula that got us into this mess....

Perhaps we should really solve the probelm...

Bank Walkaways Caught Many by Surprise

The whole "walk away" concept is one of the reason that the response to the mortgage crisis need to be swifter and more complete...

SO far, we have put a very exspensive bandaid on on very serious prblem, one that required more attention than it received.

Homeowners walked away because, in many cases, they could not get a workable solution in a timely manner. Now, the banks are walking away because they cannot provide and adequate solution in a timely manner....

Someone should get the homeonwers and banks in the same room.

This will never happen...its too logical and might actually lead to a solution.......