Smalltownbanker

Seasonal Bump in Case-Shiller Home Price Index Abates

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

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

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

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

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

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

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?

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

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?

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

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.