[patientrenter]

nsr,

You paint a scenario of banks (or investors for whom the banks are administering mortgages) beginning to lower REO prices only when the market punishes them by lowering their own stock/loan values. I agree. Is there anything that could prevent that from just playing out over time as most of us here expect (or hope)?

This last week we saw a concerted private bank effort to avoid a melt-down in sub-prime loan values. For a modest infusion of bank capital, a melt-down was averted. If this continues for a long time, banks and others will eventually run out of capital they want to put at risk.

But the federal government has pockets deep enough at that point to put up a very powerful resistance to significant further drops in home prices, and even increase them. Imagine a new program from FNMA that insures loans up to $850,000 with 1% down and no principal payable for the first 10 years, based on the buyer solemnly swearing that he or she has the income to make the payments. How many congressmen would vote against that if home prices were down 20% across a large part of the country? How many lobbying dollars would swing behind that? How would that make the CEO of FNMA look in front of the court of public opinion and congress?

I think we have to be realistic here and realize that, barring an additional powerful downward kick from some unanticipated force, like a global recession, the only circumstance under which house prices in Southern California will drop severely is if the severe drops are restricted to a small fraction of the whole country. Any scenario that would cause a severe drop in home prices for a large number of voters nationwide will be met with very powerful countermeasures.

I realize the federal government is not all-powerful, and anything it does will have downsides that will be considered before decisions are made, but 50 million voters ‘losing’ $100,000 or more each and pounding angrily on the doors of the committees in congress will tilt the debate pretty sharply.

Anyone see a reason this couldn’t or wouldn’t happen? (I already buy into the “shouldn’t”, so this is not a question of what’s right or wrong politically, only what’s most likely.)

Patient renter in OC

[patientrenter]

“We do apologize for single-handedly screwing up the housing market for you.”

CbC,

You sarcastically dismiss the voice of people who merely pount out that they were damaged by your fraudulent actions and similar actions by others like you. Meanwhile you are looking to get massive tax-dollar-funded resources of the community to fight on your behalf against some of your co-conspirators. Can you spell H-Y-P-O-C-R-I-S-Y?

Patient renter in OC

[patientrenter]

“We do apologize for single-handedly screwing up the housing market for you.”

CbC,

You sarcastically dismiss the voice of people who merely pount out that they were damaged by your fraudulent actions and similar actions by others like you. Meanwhile you are looking to get massive tax-dollar-funded resources of the community to fight on your behalf against some of your co-conspirators. Can you spell H-Y-P-O-C-R-I-S-Y?

Patient renter in OC

[patientrenter]

CbC,

You’re getting a little sympathy here, but less than you want. I think most of us see the possible fraud committed against you, and we hear and understand your protestations of naivete and complete innocence.

But we can also see that, no matter how naive you claim to be, you had to have known that you were entering into an arrangement to extract gains from an asset you couldn’t afford to buy through normal, honest and prudent means, and you were doing so with absolutely no plan to pay for losses.

Furthermore, many of us who play by the rules of personal financial responsibility understand that we are victims of your actions or similar actions of others like you. Home prices became unaffordable for us because of people like you signing fraudulent applications for “stated income” loans and other loans that they couldn’t afford to pay unless they were lucky enough to sell the home for more money to someone else in the future.

If a bank robber caught in the act was being led away in handcuffs, and was shouting that his leader had lied to him about his share of the take and that the leader should be put in jail for it, and I knew that his leader had lied horribly and criminally to him, I would have about the same sympathy for the bank robber as I do for you.

Sorry for the brutal honesty, but there it is.

Patient renter in OC

[patientrenter]

CbC,

You’re getting a little sympathy here, but less than you want. I think most of us see the possible fraud committed against you, and we hear and understand your protestations of naivete and complete innocence.

But we can also see that, no matter how naive you claim to be, you had to have known that you were entering into an arrangement to extract gains from an asset you couldn’t afford to buy through normal, honest and prudent means, and you were doing so with absolutely no plan to pay for losses.

Furthermore, many of us who play by the rules of personal financial responsibility understand that we are victims of your actions or similar actions of others like you. Home prices became unaffordable for us because of people like you signing fraudulent applications for “stated income” loans and other loans that they couldn’t afford to pay unless they were lucky enough to sell the home for more money to someone else in the future.

If a bank robber caught in the act was being led away in handcuffs, and was shouting that his leader had lied to him about his share of the take and that the leader should be put in jail for it, and I knew that his leader had lied horribly and criminally to him, I would have about the same sympathy for the bank robber as I do for you.

Sorry for the brutal honesty, but there it is.

Patient renter in OC

[patientrenter]

myito,

You are correct that the opinion on this board is lopsided in favor of prices decreasing. I’m on that side. And you’re even correct that some of the people here don’t have much credibility because they always think it’s a bad time to buy. I’m in that group: I didn’t buy when I moved from LA to OC in 1996. Argh!

But you’re incorrect that we all think buyers are stupid, or that we’re all convinced we’re right and you’re wrong regardless of evidence. Given your past success in buying real estate, you are probably quite satisfied to take on some extra risk now, and it wouldn’t ruin you if it didn’t work out. If I were in your situation, I might buy too. I don’t like the emerging market signals, but I’m probably wrong!

Good luck with the buying, and please let us know if you see any signals that could help the rest of us see what’s really happening.

Patient renter in OC

[patientrenter]

myito,

You are correct that the opinion on this board is lopsided in favor of prices decreasing. I’m on that side. And you’re even correct that some of the people here don’t have much credibility because they always think it’s a bad time to buy. I’m in that group: I didn’t buy when I moved from LA to OC in 1996. Argh!

But you’re incorrect that we all think buyers are stupid, or that we’re all convinced we’re right and you’re wrong regardless of evidence. Given your past success in buying real estate, you are probably quite satisfied to take on some extra risk now, and it wouldn’t ruin you if it didn’t work out. If I were in your situation, I might buy too. I don’t like the emerging market signals, but I’m probably wrong!

Good luck with the buying, and please let us know if you see any signals that could help the rest of us see what’s really happening.

Patient renter in OC

[patientrenter]

SD Transplant,

I see a lot of single digit %’s here (or low double digits on a small base). But you should bear in mind that there are people whose earnings are very heavily performance based, and I suspect for them, the $amount is larger and the % increase 2006-2007 sometimes is quite healthy (unless they’re in real estate). I’m thinking stock options and the like.

I can’t remember my pay last year, but the increase 2006-2007 is probably 15-25%. (It could easily turn into a decrease next year or 2009.)

Patient renter in OC

[patientrenter]

SD Transplant,

I see a lot of single digit %’s here (or low double digits on a small base). But you should bear in mind that there are people whose earnings are very heavily performance based, and I suspect for them, the $amount is larger and the % increase 2006-2007 sometimes is quite healthy (unless they’re in real estate). I’m thinking stock options and the like.

I can’t remember my pay last year, but the increase 2006-2007 is probably 15-25%. (It could easily turn into a decrease next year or 2009.)

Patient renter in OC

[patientrenter]

Very perceptive, Dr Chaos. Restructure your own loans until the other guy can’t.

Patient renter in OC

[patientrenter]

Very perceptive, Dr Chaos. Restructure your own loans until the other guy can’t.

Patient renter in OC

[patientrenter]

PerryChase,

I don’t see it as an on-off switch. The world of buyers can’t possibly divide neatly into one population of buyers who can afford traditional fixed rate 30-year mortgages and another population who can only afford IO/option ARMS/liar loans. I’d guess there are many people somewhere in between.

Does anyone know of any data that would help in understanding the number of buyers who can afford various levels of initial payment intermediate between fixed 30-year and IO/option/liar?

Patient renter in OC

[patientrenter]

PerryChase,

I don’t see it as an on-off switch. The world of buyers can’t possibly divide neatly into one population of buyers who can afford traditional fixed rate 30-year mortgages and another population who can only afford IO/option ARMS/liar loans. I’d guess there are many people somewhere in between.

Does anyone know of any data that would help in understanding the number of buyers who can afford various levels of initial payment intermediate between fixed 30-year and IO/option/liar?

Patient renter in OC

[patientrenter]

temeculaguy,

I agree that the level fixed 50-year loan will not revolutionize the market. But any loan that allows less in payments up front in exchange for higher payments later could do the trick. Here’s how the amount of supportable principal varies by loan type, assuming all the loans have the same first year payment and charge interest at a fixed rate of 6.5%:

1. Level payment for 30 years: 100%
2. Level payment for 50 years: 113%
3. Pmt increase 3% for 30 yrs: 139%
4. Pmt increase 2% for 50 yrs: 151%
5. Pmt increase 3% for 50 yrs: 178%

It’s easy to do, and if Congress tells FNMA to sign off, the housing market could see much less downward pressure, maybe even increases.

Patient renter in OC

[patientrenter]

temeculaguy,

I agree that the level fixed 50-year loan will not revolutionize the market. But any loan that allows less in payments up front in exchange for higher payments later could do the trick. Here’s how the amount of supportable principal varies by loan type, assuming all the loans have the same first year payment and charge interest at a fixed rate of 6.5%:

1. Level payment for 30 years: 100%
2. Level payment for 50 years: 113%
3. Pmt increase 3% for 30 yrs: 139%
4. Pmt increase 2% for 50 yrs: 151%
5. Pmt increase 3% for 50 yrs: 178%

It’s easy to do, and if Congress tells FNMA to sign off, the housing market could see much less downward pressure, maybe even increases.

Patient renter in OC

[Author]

Posts