San Diego Housing Bubble News and Analysis

I remember hearing about these FHA loans some time ago, and thinking we are so beset with problems, what's one more going to do. If past experience is anything to go by, will the removal of the Government guarantee (as is the suggestions) really provide incentives to ensure the underlying loans are good? I'd rather that there were tighter regulations to ensure that.

" will the removal of the Government guarantee (as is the suggestions) really provide incentives to ensure the underlying loans are good?"

Of course it would. As long as you didn't replace it with another govt guarantee, like a govt guarantee against bank losses if banks take on the risk.

But this misses the whole point of FNM and FRE and FHA. They are there to funnel money into housing demand, to make home prices higher than they would otherwise be. Since most voters own homes, and most voters really want to see their home prices high, not low, pols direct various institutions to do things that increase house prices. If they pulled the guarantee from FHA loans, pols would replace it with something else. If they didn't, home prices would really collapse, and voters and banks would besiege Congress.

That was an excellent article. I would add that all govt-backed loans should explicitly ban any kind of seller credits. These credits seem to be getting pretty outrageous, and it artificially inflates the official selling prices -- which are used as comps for the next sale... Same problems as before. The only difference is that the taxpayer is now officially backing these junk loans.

As stated before, selling a house usually costs well over 5-6%. If a buyer only puts 3.5% down, they are underwater from day one.

The **minimum** down payment should be 20%, and credits (both tax credits and seller credits) should be somehow reflected in the official recording of the sale. This is the only way to safeguard the lenders -- and the taxpayers who are backing all these mortgages.

But this misses the whole point of FNM and FRE and FHA. They are there to funnel money into housing demand, to make home prices higher than they would otherwise be. Since most voters own homes, and most voters really want to see their home prices high, not low, pols direct various institutions to do things that increase house prices. If they pulled the guarantee from FHA loans, pols would replace it with something else. If they didn't, home prices would really collapse, and voters and banks would besiege Congress.

State governments also need home values high for property taxes. Realtors need them high for commissions. Banks need them high because they make more interest (as long as they don't have to suffer the result of defaults).

What do you think will happen? A sudden return to sanity, 20% downpayments, and getting your mortgage from your local banker? Or more intervention, more chicanery, more government guarantees? Who stands to gain in each case?

"" will the removal of the Government guarantee (as is the suggestions) really provide incentives to ensure the underlying loans are good?"

Of course it would."

Well I'm sorry but it was my impression that the unfettered and unregulated market was the one that got us into this mess. So how is it that these same forces are also going to get us out of it. I agree that Government support is not helping from many perspectives, but the lack of regulation played a equally important part in this chaotic situation? However, it doesn't seem to be a very attractive option because it means a big shift in the balance of power.

"Well I'm sorry but it was my impression that the unfettered and unregulated market was the one that got us into this mess."

I think political partisans on one side like to point to govt intervention as the source of all the problems, and partisans from the other side like to point to the lack of govt intervention as the source of all problems.

I think we had a lot of things going on:

1. Excess savings imported into the US from China and some oil exporting countries via US trade deficits with those countries

2. Cowboy activity in the private investment world recycling the extra dollars into high risk debt disguised as AAA debt

3. Baby boomers saving virtually nothing for the last 30 years, but expecting long and luxuriant (and medically expensive) retirements on the back of nothing but asset price inflation, not the production of more goods and services over their working lifetime than they consume

A few well-timed and well-placed actions could have made a big difference. Hitting hard against the whole collapse in home loan underwriting standards would have helped. Yanking the FNM, FRE, FHA etc govt supports from housing finance would have made a real difference. It would help a lot now, too, but we seem to have the stomach only to point at symptoms, or more minor causes. We really don't want to truly deflate the housing bubble. That would PO the baby boomers, big-time. There's only one thing that will get people more excited than the chance of getting a free lunch, and that's the chance they'll lose a free lunch.

We really don't want to truly deflate the housing bubble. That would PO the baby boomers, big-time. There's only one thing that will get people more excited than the chance of getting a free lunch, and that's the chance they'll lose a free lunch.

Don't forget the state governments. What would they do if property taxes suddenly plunged as house values reduced 50%? And don't forget the banks. What would happen to them if they had to realize 50% losses on their mortgage portolios? The baby boomer homeowners are only a small (and not very influential) part of the pressure to keep home prices high.

Governments seldom get rid of any program or bureau once they have it. When is the last time you saw in the news that the federal government was shutting down some department to save money? The only tool they have is the money printing machine, and they're going to use it.

Any very powerful and successful political movement (like the movement to keep home prices high) typically depends on two key factors, not just one:

1. A core group of people who have a lot at stake, and a lot of money. They drive the lobbying of the pols.

2. A wide group of voters committed to the cause. Even a stinky rich lobbyist isn't going to be able to pull off a massive and broad redirection of a dozen Congressional committees and dozens of federal agencies. You need a large group of voters (and journalists etc pandering to them).

I don't think politicians worry about delivering on promises to voters one bit, at least at the congressional level. Just look at the re-election rate statistics. If you are a house member in 2008, your re-election chances are 94%. Only 6 in 100 lose their job every four years. They just make promises and then do whatever their lobbyist benefactors want them to afterwards. They know the public will forget all about those broken promises the next time election day rolls around.

Also, I've never heard a single politician run on a platform of keeping home prices high. If anything they run on a platform of "increasing home ownership" which is just code for more government backing of loans.

I am not saying this is good, I'm just saying it's reality.

I think Chris Dodd and Barney Frank have made it pretty clear that is their priority. Of course, no one comes out and says that they want homes to be overpriced, or artificially manipulated up. Instead, they talk about the need for a "stable" market during natural downturns, and "more affordability" (read: cheap easy money) during upturns. Same outcome -higher home prices.

"The idea here is very simple: If you buy a home this year, you should be able to get your tax credit this year. That's when you need it most. That's how we'll help people start spending again. ****That's how we'll help raise home values***, stabilize our housing market, create new jobs again. That's our plan. That's what we're going to do right here in California."

I even put *** around the part that talks about raising home values... but maybe that is not the same thing as keeping home prices high...

Silly me.

Here is the link to the quote made this March.

http://latimesblogs.latimes.com/washingt...

Oh yeah this if from our president. So if people don't think guys like Frank, Dodd, Schumer and the rest of the clowns dont wanna raise prices then I guess we will agree to disagree once again.