San Diego Housing Bubble News and Analysis

Love it!

What I like about it:

-the govt takes first-lien position, protecting
taxpayers' interests

-the FBs are still expected to pay off their loan(s)

What I don't like about it:

-Ms. Bair makes the common mistake of confusing
housing affordability with gimmicky mortgages.
True housing affordability comes in the form of
**lower prices**, not more gimmicky loans that
postpone the actual payment of principal & interest.

-What happens in five years when wages are stagnant or
lower and housing prices are stagnant or lower -- leaving us right back where we are today? Do we
get another "5 year plan"? Does it ever end?

-What about the incoming buyers? Are they expected to
take on funky mortgages because the govt insists on
keeping an artificial floor under housing prices?

-Who is making sure we don't see any more of these loan
"products" that caused the problem in the first place?
I'm still hearing commercials for funky loans and the
pace seems to be picking up again -- heard of the new
"combo loan" from Countrywide where you wrap all your
debt into a mortgage -- effectively what people were
doing all along, but is now being directly encouraged
by the lender...

I still think the best method is to let housing prices fall to such an extent that people can buy based on their documented income (and no more than 30% DTI, max!), using traditional, 15-yr or 30-yr fully amortized loans.

With all the crying about the "affordable housing crisis" over the past few years, one has to wonder why they are now fighting like mad to keep housing at artificially high and unaffordable levels.

CAR, you got it.

On the surface it sounds GREAT to everyone who might be helped stay in their house.
(The house that they bought that they cannot afford and have no real equity in anyway)

But there are more things not to like for those that won't benefit from it.

IF it is allowed to work, it will artificially keep prices high. Anyone who it doesn't directly help should be outraged.

She repeats that it's not a bailout. What she wants to say is that it is not a bailout of homeowners..OK, sorta.
But she doesn't admit that it IS a bailout of LENDERS.

There is no pain for those who were irresponsible.
Irresponsible buyers AND irresponsible lenders. This allows them to carry on their merry way "until the market improves" Let them suffer the consequences of their actions.

There is NO REASON for houses to increase in value at this time. The improvement is the falling prices for those waiting to buy.

For ANYONE to suggest that things will be better in 5 years is irresponsible and wishful thinking. It's certianly not a guarantee.

It just passes the problem off to a diff group of folks and a different administration, who will be just as cluless what to do when they need to deal with it.

OK... what genius has the next idea that isn't going to work either ??

So this will be like the UK and they inherit the land if you can't pay. Great, socialist housing now. Heck of a job.

"OK... what genius has the next idea that isn't going to work either ??"

How about putting a five year or so moratorium on lenders exercising due on sale clauses for loans that are not in default? Granted, lenders probably would not exercise them now anyway in the current market climate, but investors would have some incentive to assume these things without fear of having a loan called on them. Not a cure all, but maybe a step in the right direction.

Kingside,
What are you suggesting....
That wraparound mortgages and AITD's become acceptable ?

You are correct in saying that a DOS is not likely to be enforced anyway.
A servicer would have to have an IQ of 2 to call a loan that has payments being made, regardless of who is making them.

This goes so far beyond that. See the YIKES! thread.

One problem today is "investors" seeing houses as a share of stock.

Reality ?
1)Require non-owner occupied loans to require 50% down.
2)Allow one ONE mortgage in a persons name unless they have had it at least 24 months
3)Create a system of "fair" rent control, so a tenant can have a 10-20 year lease and know that they won't be inflated out of a place to live.
Not attractive to a landlord? Tough, then don't become one.

Ya, it might sound crazy, but would give a whole lot of stability to people's sense of security.

Wanna really discourage house investing ?
Raise the capital gains on profits to 50%

Wanna control prices ?
Require 50% down for owner occupied..

Market will correct to affordability real quickly..
This is just as extreme as allowing 100% financing to make houses UNaffordable...

The entire market is nothing more than a ponzi scheme, with the govt as the puppeteer, pulling the strings, except now the responsible taxpayer is involved with an expensive ticket to see the show of all the irresponsible puppets, whether we want to watch it or not.

It's like watching a train wreck in slow motion, you know what the outcome is going to be, but you can't help watching the destruction unfold.

HLS, you seem pretty anti-investor. IMHO, investors will eventually be a big part of the solution, once fundamentals make sense for investors. The problem of speculators seeing housing as appreciating flipable equity was a few years ago. I don't think it is how most investors view the situation today.

Why wouldn't AITDs be acceptable in the right situation? you seem to suggest there is something wrong with them on principal. You think passing rules to discourage investors will get us through the train wreck quicker? I think the opposite is true.

Alienation of property should be encouraged, not restrained.

King,,
I'm not anti investor AT ALL.. "I R ONE" have been for 25 years, and am also in the mortgage biz...gladly helping people who deserve to be helped.

I'm just pointing out that there are two sides. I bought my first property in 1980, with an FHA loan.
I've done AITD's, and owner financing and assumable loans as well as qualifying for full doc and stated income.

I didn't suggest that anything is wrong with any creative financing.

I'm not deluded one bit about what is happening today.
There are plenty of places in this country that buying rentals makes perfect sense TODAY, not hoping, wishing or praying that the market "recovers" to have the investment make sense.

In the 70's-80's you could buy a home for 100x monthly rent (or less) in So Cal, it wasn't crazy or hard at all. It just wasn't nearly as popular as it is now..
Buying stocks weren't popular to the masses then either.

When I was younger, "bread & butter" units were rentals,
2BR maybe 3BR homes or duplexes...
VERY few people ever considered a 4BR or a really nice house as a rental...it would have been considered INSANE.

There's been a huge shift in thinking, and it's created a monster, fueled by the govt, because it's good for the economy(supposedly)

I've got a little more skin the game and years of experience than many others, and I'm willing to talk about both sides, the pros AND the cons.

There are just too many people, young and old that only see UP without taking into account any sort of risk..
Most newly created "landlords" haven't got a clue about tenants rights and what they are up against.

I'd love for everyone to have a home worth a million bucks and no debt, but it just isn't possible.

The California Gold Rush only lasted a short time and never happened again. The fools rush to buy houses looking for month over month gains falls into the same category.

Alienation of property should be encouraged, not restrained.
***********************
OH YA,,
King, perhaps a matter of semantics, but "alienation" also means insanity.

INSANITY OF PROPERTY is exactly what inflated this bubble by millions of people who had no business getting on the train... (no down, no assets, little income)

It was promoted to them as a gravy train that went on forever, when in reality it was nothing more than a boring commuter train that only went to the end of the line, and then turns around.

It's going to be a very, very, very long time until it gets back to that station with way, way too many people thinking that it's going to arrive sooner rather than later.

I'm not sure Ms. Bair's plan helps with bubble areas like SD.

For homes that are already "upside down" by 20% or more (which is the typical case for most of the distressed homes in SD), why would the borrowers agree to the restructured loans. Even if they get to pay down 20% of the principal interest-free in the next five years, they still end up with a loan as big as what their house is worth now at the end -- except by that time probably their house will have lost more value, and the accumulating interest (assuming 5.88%) will have added 33% debt to the remaining 80% = 106.4% of present debt.

In other words, having paid off their debt to the government steadily over the first 5 years, they will end up with a debt 6.4% more than what is owed now. Given that house prices are likely to go down another 15-20%, they will still be in the same situation then as now, and they will have thrown away all that money they will pay back the government's 20% loan.

For people who are about to walk away due to being upside down several 100K's, this plan doesn't help them at all.

She did say that it's not meant to help people who are already seriously distressed, which the FHA proposal is supposed to address.

I think a proposal like this could be a good idea if the market has already over-corrected and is in an unjustified downward-spiral. It only works by assuming that house prices will stabilize or even start rising if only this vicious cycle of defaults & foreclosures could be stopped (and that's not a bad idea, since the economic damage caused by ex-owner vandalism on foreclosures, as well as the expensive legal costs of undergoing foreclosures both cause inefficiencies to the economy). But the market is far from over-correcting, and the sheer volume of homes already foreclosed will continue to pressure the market downward.

Implementing a plan like this now cannot really help a still "bubbly" market like SD, it will only cause inflation and devalue responsible people's savings by selling an extra $50 billions in treasury debt, which is how they're proposing to fund this HOP plan.

FER..
Shhhhhh!! You make too much sense,,, They don't want you sharing that logic.
Ms Bair is clarifying that it's not a bailout, remember.

WHY would a FB agree ?? to be able to stay.

There are all the people who are looking for a reason to be able to stay in the house that they OWN, remember.
It's theirs, the one that they couldn't afford that they bought with no money down....

The 20% gets deferred without additional interest.
The 80% gets paid P&I, but in the first 5 years you won't be paying much "pee"
They will still owe the majority of todays 100% in 5 years.

It's a plan,,,, but not the best one.

FDIC has bigger fish to fry. They are EXPECTING 100-200 bank failures in the next couple of years.. Encouraging sign ?? UH-UH... A bank failure with millions of account holders may just take some priority to sort out.

Even if some ppl were upside down $500K, they have too much pride to get foreclosed on, and some people just aren't going to walk away, no matter what. They would rather bleed their retirement accounts and the kids college fund to keep making those payments and protect thy glorious, almighty credit score

How dare you tell them that they will owe more than the house is worth in 5 years too...so mean!!

No Aunti em,, it just isn't possible, I'm going to click my heels and everything is going to be OK,, I just know it.
C'mon Toto,, we're off on the yellow brick road.

Enough of the common sense and logic...

The bigger issue is if they are offering lower payments and deferring 20% interest free for 5 yrs, WHERE DO I SIGN UP ??
How many payments do I need to miss so I can get the bailout(oops)too ??
There's no pain to the borrower, just a benefit. I want it also!!

How does she still have a job?!

Her first mistake is making a claim that the credit squeeze is over... and the even more ironic statement is "Fortunately, we're in a much stronger position today. Banks are healthy, and we want them to stay that way."

That's why the non-borrowed reserves are negative and the FDIC is hiring back folks preparing for bank seizures at an unprecendented rate. The fraud continues!