Smalltownbanker's Comments

Seasonal Bump in Case-Shiller Home Price Index Abates

Wed, 25 Nov 2009 11:14:55 -0500

Add to all of that the fact that Case Shiller completely ignores foreclosure sales and you will see that real price declines are larger than expected. Amherst's recent analysis showed negative equity as a more predictive indicator of default than even unemployment so the CoreLogic data does not bode well for California and Florida which account for 42% of all the mortgages which are under water. Once you add in Arizona, Nevada, Michigan you have over 50 % of the most at risk mortgages in 10% of the States. That is what I would call good news for the rest of us.

Back to FHA Insured Loans: Start by Charging Up-Front Premiums

Tue, 24 Nov 2009 10:38:53 -0500

The same scenario is available for conventional mortgage insurance. There is no perverted circlular logic. Keep in mind that this program was never intended as a financing vehicle for high priced jumbo loans. It is intended as a low to moderate income program for affordable housing. Congress gutted it last year and raised the limits to enable financing of Jumbo mortgages in an attempt to save California and other grossly overpriced markets from total collapse.

FHA Insured Loans: Black Magic

Sun, 22 Nov 2009 17:39:55 -0500

The higher limits for FHA loans should never have been passed. The problem here is Congress. They increased the limits to insure mortgages on homes in key markets that are so overvalued they could drop by 60% and would still be priced at more than their real value.

They took a viable low to moderate income program for affordable housing and used it to refinance troubled Jumbo loans. It was criminal and they should be voted out of office for supporting it.

Wells Fargo Thinks It Doesn't Have to Reserve Against Bad Loans

Sun, 22 Nov 2009 17:17:42 -0500

Technically the author has a point. While FHA & VA do issue guarantees on the loans there is always repurchase risk to the Lender, particularly over the last 7 years. The bank has significant exposure that is not reserved for in this scenario. In the case of Conforming loans neither Fannie or Freddie insures or guarantees the loans so the lender has their full uninsured balance exposure. In today's environment with declining values that risk is enormous on a $1.1 Trillion dollar servicing portfolio.

He may not have gone to school with you but he has a point. Beside the fact that Wells Fargo has been sued over blatant overcharging of veterans on VA guaranteed loans. If they lose the suit, which they will because there is no legitimate defence for what they have done, they lose the guarantee from the VA and carry 100% of the default risk on those loans.

Delinquent Mortgages Equal to Three Times the Balanced For-Sale Inventory

Fri, 20 Nov 2009 09:39:00 -0500

Common sense tells me that a high percentage of those homes listed for sale have delinquent mortgages. There is also consideration that a percentage of mortgages are always delinquent but do not always end in default. There lots of assumptions in that chart and it results in figures that look much worse than reality.

Community Reinvestment Act Getting Bashed, Again

Fri, 20 Nov 2009 09:24:52 -0500

They have done the same to FHA since the bubble burst and it is now causing problems in an agency that has been strong since its beginnings.

On Nov 19 03:13 PM Leftfield wrote:

> The point that non-CRA-covered non-bank lenders increased lending
> more to low-income areas than banks is interesting. It says to me
> that upfront fees and commissions were the main idea behind the bubble.
> Which ended up as leveraged products Wall St. feasted on.
> Perhaps it would be more productive to examine Frank and Dodd's bill
> that got FRE and FNM into jumbo loans in '05. This put those agencies
> fully into the worst bubble regions of the country, where housing
> had inflated the most.

Community Reinvestment Act Getting Bashed, Again

Fri, 20 Nov 2009 09:22:55 -0500

CRA is not a regulation on mortgage companies, it is a requirement for banks. CRA has nothing to do with skin color, it is based on georgraphy and income. CRA simply requires banks to lend in areas where they take deposits and outlaws redlining of communities. There is nothing bad about CRA and I am a mortgage department manager in a Bank held to those standards.

On Nov 19 01:52 PM Tony Petroski wrote:

> Mr. Baseline. The CRA isn't getting bashed "again." It's getting
> bashed for the first time. It shoulde have been bashed when it was
> forced on the nation's mortgage lenders but wasn't. Your prescription
> is to maintain a policy of testing people's skin color and tabulating
> the results as part of the loan-application process?

This Is What a Housing Recovery Looks Like?

Thu, 19 Nov 2009 08:47:39 -0500

There have been a lot more guilty parties than CNN & ABC. It seems that their philosophy is one of hope for a self fulfilling prophesy. It we say it, it will happen. I think there is an entire administration in Washington who believes in this philosophy. The fact is things are tough. There are still opportunities out ther but we have to work hard to get the business that is out there. Caution is the number one issue in banking today. You have to be careful or you end up with a visit lots of Federal Employees of Sheila Bair late on a Friday afternoon.

Mixed Signals: What's Ahead

Tue, 17 Nov 2009 10:26:43 -0500

A better solution for FHA.
1. Reduce loan limits back to normal affordable housing levels and quit trying to support outrageous values in markets that are imploding but sacrificing the FHA.
2. Stop allowing use of the program to refinance people who are under water on their loans and let the investors who made the bad loans to begin with absorb that risk.
3. Give Stephens the power to enforce his initiatives and let them work. He is definitely moving the agency in the righ direction.

Home Purchase Tax Credit Extended: Is This Wise?

Mon, 09 Nov 2009 11:03:11 -0500

Reason #1 False. The tax credit comes back to the consumer after they buy a home. This money is going to be used to furnish the home and make improvements such as landscaping, painting, upgrades, etc. in most cases because that is what first time buyers do when they buy a home. The infrastructure projects expenditures are simply moving projects up which needed to and would have been done anyway eventually. The tax credit stimulates sales on the low end resulting in move up sales and thus rejeuvenates a market that was virtually dead.
Reason #2 False: They do not receive the money at closing and cannot use it to defer downpayment, closing costs or other expenses unless some fool non-profit organization makes a loan to them to enable this. Regarding home prices. When land value as a percentage of home price falls to Zero how much more real price depreciation can occur? The answer is none because once recovery begins prices will rise to a level that supports the cost to build plus a profit or homes will not be built.

By the way Case/Shiller index is not an accurate measure of market activity today and does not reflect the true total fall in market value because it excludes foreclosure sales. Real prices have fallen farther than it indicates.

I disagree with all of your conclusions on this measure. "Feel Good" give me a break. $6 Billion is a gross underestimation of the true impact and $32 Billion diversion is absurd. The tax credit may in some cases increase the buyers willingness to bid but I have seen no cases where it has led them to bid up a price and I do mortgages for a living. My market is primarily move up buyers and lots of them are coming our way now since the credit has led to the sale of their previous residence.

If the credit were available at time of close it could be inflationary but in 99% of all cases it is not monetized to be used at closing. Therefore I do not believe this credit is impacting the quest for a bottom to pricing.

The Homebuyer Credit as Economic Success Story

Fri, 06 Nov 2009 11:45:25 -0500

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

Thu, 05 Nov 2009 10:29:33 -0500

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)

Wed, 04 Nov 2009 09:33:54 -0500

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?

Mon, 02 Nov 2009 09:57:01 -0500

They knew exactly what they were peddling.

First-Time Homebuyers Proliferate: What Are the Consequences?

Mon, 02 Nov 2009 09:56:07 -0500

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

Mon, 02 Nov 2009 09:48:31 -0500

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

Mon, 02 Nov 2009 09:47:43 -0500

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

Mon, 02 Nov 2009 09:02:33 -0500

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?

Wed, 28 Oct 2009 10:12:40 -0400

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?

Tue, 27 Oct 2009 09:51:41 -0400

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

Tue, 27 Oct 2009 09:48:17 -0400

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%

Tue, 27 Oct 2009 09:45:03 -0400

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

Mon, 26 Oct 2009 09:42:12 -0400

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

Mon, 26 Oct 2009 09:36:07 -0400

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

Mon, 26 Oct 2009 09:24:42 -0400

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

A Few Unhealthy Home Purchase Statistics

Mon, 26 Oct 2009 09:18:06 -0400

Those South FL cash buyers are actually Medicare Fraudsters reported on 60 minutes last night but hey, at least they are putting some of the cash they are bilking from us back into the economy.

Real housing recovery is 2-3 years away. Over-inflated markets still have room to fall but some have reached bottom where land value is virtually nil and foreclosed homes are being sold for under cost to build. Next waive of declines in value will be inside the beltways in the city markets that have continued to hold much of their value. Presure from lower prices in the near suburbs will force them down.

Housing and Banking Set to Lead Another Economic Wave Lower

Tue, 20 Oct 2009 20:57:23 -0400

Hardwood Floors needs a new banker and the attorney should go fishing for clients somewhere else. As a community banker I can tell you that we have more money to lend than we have opportunities to lend it. Deposits are up and we have excess lending capacity but can't find enough good deals to make.

Regarding mortgages, the area of the bank which I happen to manage, we have no more problems today approving well qualified buyers than we did 3 years ago. The margninal credit borrower is now hard to get financing for but it should be harder than it once was. The self employed person who thinks self employment is a method of avoiding income taxes can't get a loan. Honest self employed people who report their earnings and pay their taxes are getting loans from me every day.

One group who is no longer eligible for a mortgage is the individual with no credit score. My Dad's last loan was taken out 2 years before I was born, or about 52 years ago. Today if he wanted it he would not be able to get a mortgage, at least not an agency mortgage sold into the secondary market. That is unfortunate.

Otherwise the deadbeats who never paid their bills anyway can't get loans. People who are chronic late payers can't get loans. People with prior bankruptcy and foreclosure are waiting longer and must take steps to rebuild positive credit befre becoming eligible to buy again. None of these are bad things. It is the way it should be. If I am going to loan someone money to repay over a 10-30 year term I should be able to expect them to maintain a good record for at least the last 2-3 years.

We are back to what should be considered normal. If you manage your finances in a way the deserves consideration for a loan you will get one.

Does Autumn Mean 'Fall' for the U.S. Housing Market?

Wed, 07 Oct 2009 22:57:27 -0400

Some markets around Atlanta are stabilized on pricing and marketing times are becoming more reasonable. This is in the mid range of prices for the area, 250-350,000. Lower priced homes are moving well but the higher end is still stagnant. There are also still lots of in-town properties in run down areas selling for under $20,000. Some up and coming areas in-town have recovered pretty nicely up the the $500,000 level.

Taylor Bean: A Cautionary Tale for Ginnie Mae

Sun, 27 Sep 2009 21:47:51 -0400

I fail to see the point of this rehash of the work of others. You added nothing to it and made no noteworthy comment about it.

Are Case-Shiller Home Price Gains Real?

Sun, 30 Aug 2009 16:51:05 -0400

"They are not anywhere close to the bubble years due to the catastrophic loss of affordability through exotic finance but they have increased as prices fell. "

Does he genuinely believe this was a catastrophic loss. If so I could care less what else he has to say. As far as CS is concerned, my opinion is that in today's market his statistics are useless and should be completely ignored as a reflection of true market movement of prices. Ignoring foreclosure sales may be relevant when they account for <2% of sales but not when they account for >40% of sales.

An accurate measure of current pricing is not readily available.