San Diego Housing Bubble News and Analysis

Discussion of this on CalcRisk as well.

Yep I believe this was either Thursday or Friday on CR so this is old news. Don't think for a minute that all the stops have been figuratively pulled.

Fixing the latch after the horses are already out of the barn.

Or prepping nicely for the second wave.

This is just a pure attempt to delay the revaluing of the paper FNM and FRE are holding on these loans. By giving up to 24 months until foreclosure they are just delaying some of the bloodbath in the debt markets. The sad thing is they are using the beginnings of a gov't backstop (taxpayer money) to give out delay loans and delay a revaluing of assets that aren't worth jack.

Tell me that a publicly traded for-profit entity wants people to not lose their homes and I have some AAA MBS to sell you!

Yes cape sadly I would agree... and I think we will continue to see more bad behavior.

There seems to be alot of this "delaying the pain" going on, I found this on BigPicture concerning derivatives.

"FASB: OK For USA to Turn Japanese
Wednesday, July 30, 2008 | 09:30 PM
in Derivatives | Legal | Valuation

Just when you think there is a glimmer of hope that some of these ne'er do well, lying, cheating, sniveling, cowardly bank CEOs might finally be forced to step up to the confessional and tell all, this comes along: FASB Postpones Off-Balance-Sheet Rule for a Year."

"The longer they wait, the worse it ultimately will be. The long Japanese Recession (1989-2003) was caused by precisely this refusal to take the markdown, and engage in all manner of delays, excuses, procrastinations. Eee-diots -- This only will make it worse!"

http://bigpicture.typepad.com/comments/2...

Japan pulled out all of the stops and their land prices fell for 14 years. I am not saying we are the same as Japan in 1989 but it appears we are taking many of the same steps they did.

Thanks for pointing out the discussion on CalcRisk. I'm curious as to whether actions such as these are sufficient to thwart off price declines? Or whether prices will still find a botton quickly and simply draw out the botton and make for an L shaped recovery lasting years? Thoughts?

These actions have one single solitary goal which is to stall and provide time for market conditions to unwind and/or keep hoping for more bailouts.

They will not thwart off price declines in the long run, but rather will simply slow down the process of inventory hitting the markets which will do nothing but to prolong the slowdown, push the bottoming out process further out into the future and continue to hamper the market from returning to one that would be characterized as "healthy".

In essence they will provide further support for people who have defaulted and are simply living in thier homes for free. They will also allow those who revved up HELOCs to the hilt so that they can buy boats and other toys to continue to live in thier homes without paying a cent because they cannot afford it, and they even get to go water skiing on the weekend!

Don't worry though, 300 days later they may be foreclosed on. I really don't see how that promotes a speedier recovery.

Just my opinion of course

All these bail-out tactics are just stalling the inevitable. But that's the idea. Taking the whole hit all in one year could kill the host. But spreading it out over several years will allow survival. It's clear to me, we're in survival mode. And it looks exactly like the Japanese model from the early 1990's!! The outcome is a long, protracted recession. And it will probably cause the true bottom of the real estate market to take another year or two and then bump along the bottom for at least a couple more years.

bumping this top to get all the politics OT threads at the bottom.

This is probably going to prove to be one of the most ineffective and costly wastes of legislation in history. All the more why it's assinine that it passed, but all I read indicates it's virtually pointless for CA, where people all along have been planning on selling for massive gains once their loan adjusts.

This is from the doctorhousingbubble.com:

"The new housing bill now fully signed into law by the President will do very little to help California. Why? First, lenders should they wish to participate will need to have the property reappraised at today’s market value... In addition, the lender will be required to cut an additional 10 percent from the current appraised value. Well in places like Los Angeles where the median price is off by 35.65 percent an additional reduction of 10 percent will bring the one year correction to nearly 50 percent!...
...Another reason that this won’t fly in states like California is many borrowers even with the new bailout program will not be able to make their payments on a 30 year fixed...

So let us assume the borrower now goes with this loan. What does his monthly principal and interest payment work out to be?
30 year fixed new principal and interest payment = $2,210.26!!!
So even after the massive haircut the lender will take from the 35.65% market correction, the additional 10% in reduced appraisal terms, and the extra one time payment the borrower actually has a higher payment than the initial Pay Option ARM payment for a loan that was $271,223 larger."

I suspect the housing bailout will help..but only the bastards who did get the option-arm loans. I can't fault them for working "the system" but they fuct everyone else.

In the example above the NEW monthly FHA 30-year fix loan of $2,210.26 is only 200 bucks higher than the old option-arm payment of $2,053. It's a no brainer. These borrows will do the switch in droves.

Yes, but not if they spread as thin as they could to afford that $2,210/mo payment before gas and food doubled, and their income didn't increase in the last 3 years.

No to mention that assumes they actually earn what they claimed on their loan. Though I suspect liar loaners will be the last to try and requalify.

If they made it for the last 3 years, 200 bucks a month more for a 30 year fixed is doable.

For the people with option arms who weren't able to make it to Oct 08, then they have been weeded out. We'll know by February how many people are converting to the new FHA 30 year fixed loans.

So,

I have to ask, what is the benefit in this. Even if the current home owners want to stay in the property for the next couple of years at some point aren't they going to say "why the hell am I paying 400K for this house when its only worth 300K?". At some point they will walk away anyway?!?

Sounds like good money after bad again to me.

Take Care Piggs...

You're right it is. First the banks have to agree to participate, not just the homeowner (who in all likelihood will be better off walking, particularly in CA).

Then there's a really Marxist part of the bill where the Government gets a minimum 50% of the equity from your house when you sell:

• < 1 year 100% of equity goes to government/lenders
• < 2 years 90% of equity ” ”
• < 3 years 80% of equity ” ”
• <4 years 70% of equity ” ”
• <5 years 60% of equity ” ”
• >5 years 50% equity share

So who stands to benefit? The government, after spending OUR money on this, and the lender, who just has to take a hit up front.

This starts to look as much like retribution to the homeowner as it does a bailout.

To be fair to the US tax payer, the bail-out was designed to repay the tax payers. If you want a 40% reduction in your loan, spiting the profit when you sell it is only reasonable...they are like a silent partner in this.

People talk about walking away as if there aren't any ramifications. If they walk away and are under water by 100,000 or more which is common in Ca. they'll have to pay the tax on this amount. Add 100,000 to your income and see what tax bracket your in and then see how much you would owe the IRS. It's a scary thought.

Not sure what you mean about repaying tax payers. This bill is at the expense of the tax payers, in the form of a blank check for FNMA and FMAC to guarantee toxic waste bought by Chinese shareholders so they don't dump their US bonds and implode our economy.