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Wednesday, July 23, 2008
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8 comments:
Today's WaPo article on housing bill and its fate in general (i.e. that the White House has indicated that they will not veto it)
As pointed out in the Calculated Risk comments section...
Included in the bill is an elimation of the FHA DAP (down payment assistance program) whereby sellers can launder money to the buyers of their houses. Which is great news. But there's also this gem:
"First-time homebuyers who purchase a house by July 2009 would be eligible for a tax credit worth up to $7,500, though the credit would eventually have to be repaid to the Treasury."
WTH does that mean? A tax credit that has to be paid back? On what schedule and how?? Bizarro world is here. Maybe it will get cleaned up in the final bill...
To bulls though it means, see! buy your house now!!!
At first i didn't get how this would help. But now i understand FnF (fannie and freddie) hold most of the housing mortages/properties. These properties were in danger of foreclosure. Now they can rewrite the terms so they don't go into foreclosure.
Basically they are putting a plug in the drain. If there are less foreclosures then there's less drag on the market...and then people won't drop prices and everyone will be forced to purchase at artificial numbers again....
YEAH!!!.. brilliant. Except for that recession/income thing. I don't think people are worried about buying homes.. but more worried about paying bills.
Sad what free market has turned into...
But now i understand FnF (fannie and freddie) hold most of the housing mortages/properties.
I didn't realize the extent of the FnF REO either. I'm posting a portion of the article along with a link. I wonder how long they intend to hold on to their REO. Seems like the houses will just deteriorate if they don't spend a lot of money on upkeep.
Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show. Unsold properties may weigh on the company's stock, which lost almost half its value since June 5, said Moshe Orenbuch, managing director of equity research at Credit Suisse Group AG in New York. Late payments on the company's home loans, a harbinger of foreclosures, almost doubled in the past year.
Together, Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, owned a record $6.9 billion of foreclosed homes on March 31, compared with $8.56 billion held by all 8,500 U.S. commercial banks and savings and loans. Foreclosed houses sell at an average discount of about 20 percent, according to economists Ethan Harris and Michelle Meyer at New York-based Lehman Brothers Holdings Inc. At that rate, the two mortgage companies stand to lose $1.39 billion on the foreclosed houses they currently own.
. . .
Fannie Mae's goal in selling its properties is to get the highest possible price, even if it means hanging on to them longer, said Gabrielle Harrison, the company's vice president for REO sales. REO stands for ``real estate-owned,'' a designation for properties that have been repossessed by creditors. Getting the highest price helps preserve neighborhood property values, she said.
``We want to treat that home as if it was your own, or as if you were living next door to it,'' Harrison said. ``You wouldn't want that home to bring down your property value.''
The typical price Fannie Mae received for foreclosed homes sold in the first quarter fell to 74 percent of the unpaid mortgage principal from 93 percent in 2005, according to Harrison.
Harrison declined in an interview to say how long it takes to sell the average foreclosed home or estimate how many more Fannie Mae may acquire through foreclosure in the coming months.
. . .
Freddie Mac-owned properties spend an average of 152 days on the market and typically sell for 92 percent of the listed price, usually about 30 percent less than the peak prices of 2006, said Ingrid Beckles, vice president of servicing and asset management. The company re-evaluates prices every two weeks, she said.
``We are very careful to ensure our properties are not driving market values down and they show well,'' Beckles said. ``Our challenge is like everyone else's from a volume perspective: maximize recovery and minimize credit losses, and balance that with making sure we're not driving down property values and not destabilizing neighborhoods.''
http://www.bloomberg.com/apps/news?pid=20601109&sid=aMz0dl3IdwjU
Thanks zerodown.
It all makes sense now. The REO's I see with new price drops every two weeks are Freddie and the ones that go up from the short sale price after foreclosure to the WTF "make-me-whole" price are Fannie. Great... Explains also, why there are more in the latter category since Fannie is bigger.
Paraphrase, "we don't want to be driving down your home price by actually selling these distressed properties and creating new performing loans (through affordability) that would keep interest rates down and decrease your future tax burden. No, no, we'd rather let the neighborhoods slowly rot, as the financial crisis hits one family at a time and the ensuing divorces flood the market with more houses."
And it's all because Wall Street got drunk:
http://youtube.com/watch?v=eXj4-PFuMLc
Ok.. it seemes lawmakers congress and state have conflicting views. How can they fix the housing market with rising rates and dropping income and jobs?...
So the question i pose 2 you. What will you do about it?
Continue renting?
Stop paying taxes?
Purchase a home and go with the flow?
Sue?
I can't believe im seeing this *hit.
Since fnf have an unlimited line of credit... can i apply for a mini mansion loan?
Fairfax is doing this on a small scale? What are they expecting to accomplish?
If your not ready to buy... saving homeowners wont do a thing but help with taxes.
Well this is it.. if this doesn't work then????
the_Nothing said...
I can't believe im seeing this *hit.
Since fnf have an unlimited line of credit... can i apply for a mini mansion loan?
Sure. Purchase the largest home you can not afford, don’t pay any mortgage, live rent free for a few months (longer if you can string the bank along), start the foreclosure process, get a bail out (reduction in principal/rate/loan re-structure).
In the mean time tell your neighbors, fellow tax payers and congressperson of the woes of “predatory lending”. Pretty soon your neighbor will see the error of his ways and realize that there’s no incentive to pay his mortgage either.
Ahh, The American Dream.
And the next bubble? No worries, we see how the system “works” with this one. Bet it all on black and let the good times roll.
This housing bailout has very, very little (almost nothing) to do with helping out homeowners or making it affordable to live. It has everything to do with keeping our Chinese and foreign friends happy. A huge portion of the FnF debt is held by the China International Corp, and PIMCO's Bill Gross. Mish Shedlock, and CR have blogged extensively about this.
The line of thinking goes: With the dollar in the toilet and foreign confidence eroding in the US gov. the USG must make good on it's promise to back FnF. This will theoretically restore confidence in the US and not causing a run on the bank so to speak from our foreign "friends".
You see what you didn't realize is that in order to finance the massive amount of debt for the housing bubble the US has had to borrow MASSIVELY from china. I do mean literally here, it's not figurative, it's borrowed money from china.
In order to open up more credit to sell to people so they can buy massively overpriced houses banks must sell assets to the Fed Reserve. They receive many more times leverage vs. assets they sell to the Fed thanks to fractional reserve banking and very low reserve requirements (<10%). The banks sell the Fed treasury notes, which were purchased/borrowed from foreign entities like china who purchased them from the Fed who printed them (or created more of them).
So when banks start going belly up especially with FnF, it means the the banks can no longer pay back their lenders (i.e. foreign entities), who lose confidence in the US economic system and it goes kaploey, or so the reasoning goes.
Well there is just one small problem with their line of thinking. In essence you are trying to solve the problem of a massive amount of credit collapsing, which was caused by a massive amount of leveraging, with more credit.
And as everyone who has ever had credit card debt knows, you can't solve credit card debt problems by taking out a bigger credit card and taking on more debt.
In addition, there is a mindset that the Fed, CANNOT allow another Great Depression, and that the GD was b/c the Fed didn't print enough. They are very, very wrong. The GD didn't happen b/c of deflation, but precisely b/c the gov. tried to prop up the system. Unlike what you've been told in storybooks (historybooks), Hoover, FDR didn't stop the GD, they actually caused it with all their meddling in the economic system. If the gov. had done nothing the 1929 contraction would have been over with by 1931-32.
So built on a false premise the gov. is trying to prevent a massive credit collapse, which is ABSOLUTELY necessary after this massive amount of credit.
According to the NYT in 2007, the avg. family saved ~400 a year, avg. debt $124,000!!!!
That is so out of whack it must correct. There are only 2 ways for it to correct, #1 massive defaults, giving rise to massive deflationary pressures in assets & stocks, or #2 TRY to inflate the !@#@ out of the system until peoples incomes vs. debt is more realistic.
#1 is the free-market natural response to the problem.
#2 is the gov. solution, which doesn't solve the root problem and we will be at this same junction in a few short years.
In addition, inflation is completely non-uniform so even if open up the printing presses incomes MAY NOT RISE, but everything else will. Thus, a great reduction in the standard of living will occur.
The prob. with the housing bill is it is trying to solve the prob. without allowing the market to correct its own mistakes-thus causing bigger problems down the road.
So in sum, on a countrywide level we are so screwed. A world-power has almost never been conquered from without, they have almost ALL fallen economically 1st.
On a personal level, get out of debt, save money and put it in things that are liquid and hold value, and hold on, 'cuz we've got a Cat. 5 bearing straight for us.
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