Lenders really need to let go. They blew it. It's over. Just let it die. Both the lender and the borrower pay a price -- or at least they are supposed to. Instead, we bail them out, and we pay the price. Don't forget about us who pay for their mistakes. Part of the price we pay is obvious in the accounting for the various bailouts, but much of the price we pay is hidden in higher home prices, greater public indebtedness, and in the subsidized entitlements of borrowers everywhere. Government backed loan modification attempts are ill-conceived because bailouts create moral hazard. However, the bailouts and the resulting moral hazard can be disguised inside the black box of obfuscation and paperwork of the HAMP program. If the banks and bureaucrats raise the standard of entitlement allowed under the loan modification program, more people will qualify -- and more people will be sustaining their indulgences[READ MORE]
Archive for March, 2010
Did our brilliant politicians and the cool heads at the Federal Reserve save the world? Popular public opinion says yes. Me and many other astute observors say no. The only thing our collective actions has accomplished is to stop a group of greedy and ignorant fools from experiencing the consequences of their actions. Instead, the consequences have been passed on to us in the form of huge government bailouts and locally inflated house prices.
Politicians and the media continue to refer to the economic downturn as being the result of a financial crisis. This is wrong. We have 15 million people out of work because the housing bubble that drove the economy since the last recession finally burst. The financial crisis may have been good entertainment for those who like to see huge banks collapse, but it was a sidebar. The[READ MORE]
Lenders and borrowers dance with disaster. Borrowers have the lead in the amend-pretend-extend fandango, but as the economy improves, along with lender balance sheets, lenders will take the lead. As the default shuffle plays out, wallflowers who chose not to cha-cha are wilting under the economic distress caused when the music stopped. Dancers are short on chairs.
Dana Lane doesn't look devastated. It's part of a California subdivision built in the late 1980s, a mix of stucco and wood siding with mismatched fences. It looks like so many working-class suburban blocks. But since the foreclosure crisis started, Riverside County, Calif., has ranked near the top of the list for its rate of homes being taken back by banks. This is a county that has long attracted Los Angeles refugees who drove east until they could afford[READ MORE]
Properties are encumbered with too much debt, and buyers in markets where prices have not crashed are being asked to pay much higher prices as a percentage of their incomes than generations past. Today's buyers are being asked to pay for the excesses of those that came before them and sell out to the money changers.Published: March 5, 2010
FOR decades, the federal government has subsidized housing — particularly owner-occupied housing. This has been especially true during the continuing financial crisis, with Fannie Mae, Freddie Mac and the Federal Housing Administration propping up the housing market by issuing guarantees for investors on most new mortgages. But what[READ MORE]
Wouldn't life be much easier if we could hit a reset button and wipe away the excesses of the housing bubble? In the housing bubble era, reset is associated with a bad thing that happens to adjustable rate mortgages. I remember last year a few astute observers much wiser than me chastised me for worrying about adjustable rate mortgages because they were all resetting to lower rates -- problem solved. Foolish me. I must be a Chicken Little sounding a false alarm, right? I wrote most recently about The ARM Problem in the summary post Option ARM story. The problem with adjustable rate mortgages resetting and recasting to higher payments has diminished in importance because many of the loans have defaulted early, so now the major problem is shadow inventory. The ARM problem is still with us, and much of our shadow inventory -- and ultimately foreclosure[READ MORE]
Many people currently living off the fat of the land are doomed. Like the condemned enjoying a final peaceful meal, they wait in comfort for a disheartening drop. In the meantime, we manifest a new housing entitlement in the United States; once you sign loan documents and move in, you are entitled to live in comfort indefinitely. The amend-pretend-extend dance will continue until lenders tire of paying the piper. Shadow Inventory contains the new entitlement class; while unemployed renters sleep in shelters, unemployed homeowners squat in luxury, sustain false lives on lender largess, and exalt their status in preparation for the unceremonious fall from entitlement. Today I want to introduce you to the one couple living off lender largess -- and indirectly they're living off you and I as taxpayers subsidizing lenders -- from the LA Times article Many borrowers in default live for free as lenders delay evictions:
Despite being months behind, many strapped residents are hanging[READ MORE]
Maybe that song should be, "You Don't Mess Around with Ben." Arguably, Ben Bernanke is a powerful man in Washington because decisions he makes have major impact on citizen's lives. His most consequential recent decisions concern the Federal Reserve's program of buying agency debt and what under what circumstances the program would be continued.
With the Federal Reserve set to wind down its purchases of mortgage-backed securities in a little more than 30 days, there’s growing uncertainty about what will happen to mortgage rates. Already, rates bumped up last week after the Fed said it would raise the discount rate by quarter point to 0.75% last Thursday.
But the elephant in the room is the Fed’s planned exit from the mortgage market, and analysts expect rates to rise by anywhere from a quarter-point to a full percentage point or[READ MORE]