Smalltownbanker

The Homebuyer Credit as Economic Success Story

One other scenario based on actual observation of what is happening instead of pure speculation is that the credit encourages those who were thinking of buying to go ahead and make a purchase despite the current employment situation. That buyer purchases their first home. They file an amended return, receive their $8,000 then go shopping to furnish the new home spending that stimulus money on furnishings, landscaping and improvements.

As a result of their purchase the seller now makes a move up purchase of a new home helping to reduce the excess inventory and opening up the next pricing level of the market which has suffered most severely. This cycle continues until the market actually begins to improve accross the board. Some of the sellers will move down in housing but this does not hinder the equation because activity still exists and as long as it keeps going we have momentum.

This is why I consider the FTHB tax credit to be the best use of stimulus funds I have seen to date. It not only provides direct stimulus to sales, it doesn't artifically inflate pricing because it is a rebate and is not received up front. It has a low administration cost and with proper administration fraud can easily be kept to a minimum. Before granting the credit you simply review the last 3 years of tax returns, a settelment statement on the home purchased and process the credit on that basis.

Why the FHA Will Need a Bailout

The problem in 2007 was almost exclusively caused by Seller Funded Down Payment Assistance programs that exploded as the only form of 100% financing available once Subprime lending sources evaporated. FHA as an agency had been trying to close this IRS loophole for more than a decade but Congress refused to cooperate until they saw it cratering the performance of FHA loans in 2007 and finally acted legislatively to end the practice completely in early 2008. FHA did not cause this problem and the author correctly identifies that they were an instrument manipulated by Congress and the Administration(s) for the purpose of managing the crisis.

No Money Down Mortgages Continue (Unfortunately)

Today I find myself in an unfamiliar position, which is defending a "government" program. FHA has been a solvent and self supporting program requiring no tax dollars to fund it for decades. It has been used as a tool by the current and former administration as a tool to address the crisis and this has led to financial stresses that are unrelated to the Agency.

Your commentary is not only inaccurate it is without substance. First of all the $8,000 tax credit is not received prior to the sale so it is not replacing down payment. FHA down payment requirements were increased from 3.00% to 3.5% and the ability to finance part of closing costs was eliminated at the same time. One must file for the tax credit after closing on a home so the funds are not used for down payment unless a loan is made against that anticipated tax credit. That is a very uncommon practice.

FHA loan performance has been primarily impacted by the government's use of the program to try and keep people in homes they were about to lose. If you take out these factors FHA loan performance has not really faltered more than would be expected in this economic environment.

FHA / VA & USDA low and $0.00 down payment mortgage programs DID NOT CAUSE or Contribute greatly to this crisis other than the private sector exploitation of a tax loophole that was finally closed last year through the same reform measure that increased FHA down payment requirements.

The FHA program has historically performed well and its insurance fund has adequately covered its losses. The same goes for VA and USDA Rural Housing programs. Comparing these to the programs that led to failure in the marketplace is ridiculous and unsubstantiated.

How Much Did Goldman Know?

They knew exactly what they were peddling.

First-Time Homebuyers Proliferate: What Are the Consequences?

Investor purchase activity today is value driven as opposed to speculation driven. Most investor purchase activity that I see today is buy and hold (rental) as opposed to buy and flip which put us where we are. I think your concerns are unfounded. The high percentage of first time buyers is encouraging and leads to a recovery in the move up market. When the first time buyer purchases it allows the seller to move up. Problem so far is that many with the opportunity to move up have become tenants. This has driven the investment property growth as well.

Property Values Set to Fall 43% from Current Depressed Levels

By the way. The 43% figure is way too high and will not happen. Call that a predicition if you like...

Property Values Set to Fall 43% from Current Depressed Levels

Two invalid assumptions.
One is that Case Shiller's index accurately measures a market like the current market where such a high percentage of sales are foreclosure activity. Clue: It does not.
Two is that the second chart shows an increase in government lending acitivity. Lending funded by private securitization has virtually disappeared but the total lending has significantly declined also. Granted the percentages have shifted dramatically towards government backed programs but it would be interesting to see this correlated to a total lending volume by agency chart. I think the biggest shift you would find is the increase in FHA is coming from a decrease at Fannie / Freddie and not from the private securitization arena. Credit policy changes have eliminated the market that was served primarily by private securitizations.

FDIC, FHA, Fannie and Freddie Real Estate Exposure Killing Home Values in Georgia

As a Georgia Banker I can tell you that the failures noted here had nothing to do with the government. They are left to clean up the mess. Yes the values of the remaining homes suffer but FHA does not restrict the use of FHA financing to a certain percentage of the homes in a neighborhood. This development was built in the outer and more distant suburbs of Atlanta. The failures began to occur when gas prices crept over $3 per gallon the first time.

While Atlanta's growth has not been geographically restricted it has over the last few years changed based on commute costs. There are other factors but Hampton is just one example. All suburbs at this distance from Atlanta's center have suffered. I know because I worked for a bank that failed in one of those areas.

In the future we must be smarter about how we development, how we plan our land use, where we build our homes and certainly how we finance them. Each entitiy mentioned in your article may be a government agency but the Federal Agencies behind each do not communicate regarding collateral disposition and never will. They can scarcely keep up with their own inventory today.

You are searching for a solution that will never be found.

Were Fannie and Freddie the Real Enablers of the Housing Bubble?

Fannie and Freddie did not create the bubble, they were not the cause of the bubble, they were late to the party as this chart shows. In 2004 Fannie and Freddie began doing stated income loans and began to regain a piece of the market which they had lost to private securitization. I have been telling people for three years that they are scapegoats for Wall Street's non-agency securitization of garbage that accelerated into 2005. The entry of Fannie & Freddie into the stated income market created competition for the non-agency feeding frenzy and drove them to push subprime into higher and higher LTV products in order to feed the insatiable appetite for the over rated securities.

How Hard Is It to Transfer Credit Card Debt?

Good customers go away, those who are struggling now can't move and will now default. Citi loses, customer loses. Taxpayer loses because we bailed out these morons.

AIG's New Competition Threatens on All Fronts

The Federal Government has no business meddling in the management of private companies, salary caps or otherwise. It will backfire every time. They should regulate business activities, not pay at individual companies.

U.S. House Prices Could Fall Another 10%

Essentially 18 States restrict deficiency judgments within their non-judicial foreclosure process. Others are non-judicial foreclosure but deficiency judgments can be obtained, some with limiting circumstances.

More Reasons to Break the Plastic Habit

Received the same letter from Citi on my Hilton Honors Card. Don't be surprised to see affinity partnerships evaporate completely as well as the rest of their good credit customers.

Housing Litmus Tests: Good News, Bad News, and a Black Swan

Are there any published statistics on what percentage of current sellers, who are the beneficiaries of the tax credit subsidized sale, are actually re-investing in another home. In Georgia we have seen very limited growth in move up buyers who have managed to sell to an FTF. (First Time Fool)

A New Quirk in the Mortgage Tale: Debt-Free Homes

Can anyone say skyrocketing premiums for E&O Insurance for Banks and Attorneys going forward? Hmmm...