The legislation says any loans that are not approved by Oct 1. I believe they will probably still be able to close for 45-60 days after the 10-1 based on previous experience with FHA. That will put us past the election and Barry can bring it back!
It's enforceable by requiring documentation of where the downpayment funds come from, e.g., bank account statements. You know, just like all the lenders used to do. Those FHA guys, such troglodytes...
Based on the reaction from the broker boards I would say this is a pretty big deal as far as how much it would effect demand (I believe it was Lennar said 33% of its sales used DPA).
I just don't think people (Dems and large trade groups like the NAR, NAHB, MBA, etc) would let it die. And the talk is that it wont.
Weekly unemployment claims running high all month long, non-stop press releases about layoffs/plant closings/BKs... and ADP comes out with employment gains. Market rallies on the report. Amazing.
Confused, according to the WSJ: "one in 10 home buyers". The 25% is from certain home builders (that used DAPs heavily). Others didn't use them at all.
We actually used a DAP in 1999 to purchase our first home. We stayed in that home for 8 years and didn't default. The program was actually pretty good and you were required to take a class about home ownership and finances to receive the money.
I'm not against them as much as everyone else here.
Here in San Diego a lot of buyers had the $ for downpayment but used the DAPs b/c they wanted or needed to use the cash for necessary immediate home improvement. Some of it was dumb (granite countertops, oy!) but some needed b/c poorly maintained shacks were way overpriced.
"Buy this new $200,000 home and L****R will open a new V**A credit card for you with $5,000 availible credit to use for whatever you want.....maybe the down payment?"
The good news is default rates should decline on FHA loans. - CR comment
Think this through in its macro aspects. I think default rates will rise over time. One thing that kept regular people who bought too much house from defaulting was the ability to sell to the next fool. Kicking the can down the road so to speak. With the new stricter lending standards not only will prices drop more but the ability to refinance is constrained and things will be generally tougher in a slower economy. The elimination of explicit DAP buyers is just one more downward pressure on the existing crop of mortgage borrowers.
3.5% on a 300k house? Jesus if you can't save 10 grand towards a house you'll probably be paying at least 2k a month for in mortgage + taxes then maybe you need a cheaper house.
Seems pretty obvious: if the lender desires to have some margin of value in the property, and the seller provides that margin, then the property was not worth what was paid and the margin thus does not exist.
No appraisal needed; no question of ability to pay; just simple fact that the property was not worth the price.
Wells Fargo spokesman, Jason Menke, declined to comment on the Camile Street loans, citing privacy issues. But Menke said the bank has stiffened its standards in response to today's economic and credit climate.
"Wells Fargo makes all mortgage lending decisions based on a combination of proven risk predictors such as loan-to-value, debt-to-income, credit scores and other factors related to the borrower's financial situation, the type of loan requested and the property type," Menke said in a statement.
Mr. Beach, in my first several posts on this bill, I pointed out that there are two major provisions in the bill: the Paulson Plan for the GSEs (Fannie and Freddie) and the provision to allow the FHA to insure up to $300 billion in new mortgages.
There are many other provisions, and I'm sure Tanta and I will mention them at different times. That doesn't mean they are anywhere near as important as the two main provisions.
frantically fighting the tape the past 2 days... SRS finally returning to some shred of reality. CBG getting crushed and SRS going south, which made me press, hard.
Houston Business Journal
Franklin Bank Corp. receives NASDAQ non-compliance notice
"Franklin Bank Corp. on Tuesday said it had been notified by the NASDAQ stock market on July 23 that it no longer met listing requirements because its share price had been below the required minimum price of $1 for 30 consecutive days..." Franklin Bank Corp. receives NASDAQ non-compliance notice - Houston Business Journal:
Most state and local downpayment assistance plans don't work this way anyhow. In California many first-time buyers get assistance from "silent second" programs run by state and local housing agencies. The difference is that here the government is standing in for the Bank of Mom and Dad for buyers whose parents can't afford to help, rather than having the seller do it. Having the seller provide the funds is a conflict of interest.
Almost everyone I know who bought in California either used one of these programs or received help from the family bank. Going to grandma for the money isn't "saving."
The program was actually pretty good and you were required to take a class about home ownership and finances to receive the money.
There are two types of DAP. One was funded entirely by charitable contributions/government from parties with no interest in the property. These are still acceptable.
The DAPs that are banned, are the ones that force the seller to make a "charitable contribution" of the downpayment + a fee. The program then puts the fee in their pockets and hands the downpayment to the buyer. The problem with this type of DAP is the seller just increases the price of the house by 3% to cover their contribution. This raises the comps in the area and forces those who don't use those programs to pay more than they should. Same applies to any program where the seller contributes the downpayment.
As others have noted that Congress in all it's wisdom will probably create another version of this next year, making this DPA program look small.
Corruption at the Federal levels has no bounds in particuliar in its desire to create the American Dream.
It is common for new home sales people to make 1% commission on the sale of a home plus a small base salary. If you add the 1% + 3% DAP, thats 4% to sale the home. Realtards make between 5% to 7% on existing sales. I think that is why you see mostly builders using them. For an existing home seller to use this program they would have to add 3% DAP on top of what they are paying their realtor which most can't afford.
I don't know Tanta and CR and how involved they've been in past reform efforts/causes. But most of us in America know that the more vested interests there are in support of something the Reformists are against & want changed, the greater likelihood the Reformists will be over-turned / out-foxed over time, and the status quo returned anew like a Phoenix in a bewitchingly different coat of colors that still serves the same purpose.
Let's agree to revisit DAP in 9 months, March 2009, once the regs have been in place (and that timeline is not a given, per HUD) and also in 18 months, January 2010.
I would not dance in celebration until then.
km4 writes:
"The number of chronically homeless people has dropped by about 30 percent between 2005 and 2007, Bush administration officials said on Tuesday".
--
What housing programs and policies have exposed is the CRIMINAL nature of the USG and the Fed to engage in an evil activity -- Pushing Debt on the households and the future taxpayers. Only a moron can be made to believe that we have the best economic and political system for the welfare of the general population. These morons were systematically bred with blind faith in the system no matter how bad the system becomes every day. Crooks are fully in-charge! And born-and-bred American dopes cant do a damn thing about it, can they? I didn't think so.
We actually used a DAP in 1999 to purchase our first home.
Bob-- We used something similar, but it was a state run program for first time buyers. It required us to pass an exam on finances and was, I think, a very different kind of program to the ones being objected to here. The problem with the DAP's, as I understand it, is that the money comes from the seller-- who provides the 'assistance' -- instead of simply lowering the price. That distorts the comps, makes the property less affordable to the new (presumably not-well-off) buyer, and generally sets the stage for kickbacks of all sorts and all stages of the loan process.
Only 3.5% down needed to get a government/taxpayer backed loan. How is it in my interest to insure the loan of such a marginal buyer? Pathetic. Another giant step in the wrong direction, i.e. more instead of less government involvement in the housing market. Securitization, which is now pretty much dead, along with government do-gooding had to be the two big facilitators of excessive risk-taking.
I agree with Rob Dawg that elimination of DAP will further restrict lending in a time when bringing more borrowers to the market is the only way to stop the home price freefall. It is unfortunate this bill was passed because there are a few aspects of it that will prove to have unintended consequences later on.
When I started house shopping in 2004 as a first time homebuyer I planned to use an FHA 30-year fixed loan. I had enough saved for the 3% downpayment and closing costs, but not much more than that (I had about $10k and was looking in the under $200k range.) When I heard about the AmeriDream program from a builder I thought it sounded great. I could buy a brand new home and have the builder pay (or roll into my loan) the 3% down and the closing costs. I would get to keep my savings for emergencies. So it helped convince me to buy a new home. I ended up spending $2500 cash on appliances that I didn't buy with the house, and kept the rest as a cushion. I have great credit and have never been late on a payment as I have a steady job and didn't buy more than I could afford. I also got a fixed rate. I think the DAP was a good thing for people like me. I think within the context of an FHA fixed rate loan with full underwriting and a prime credit score, DAPs are actually a good thing to get first time buyers started.
My guess would be that 66% of the people that used DAPs had the means to make a 3% down payment either via savings, credit card advances, or relatives, but choose to use the DAP because simiply because it was available and appeared to them to be the path of least resistance. So I don't think it will effect the market as much as some people think. I'm glad to see that scam program gone.
Connecticut's attorney general said on Wednesday that his office was suing the three leading credit rating agencies, saying they intentionally gave lower ratings to bonds issued by municipalities, which drove up costs for taxpayers.
Housing prices can only go up, and will rebound shortly thanks to our economic plan. Look, in other countries following a similar model, housing is already worth quadrillions of dollars.
Anon, with all due respect I don't think that your parents would have been allowed to put less than 3% down on a house. The Problem is that you had no financial cushion and a decrease in your income would have pushed your home in foreclosure.
Bob and Anon, DAPs raised the default risk something like 3 times on FHA loans.
Not only that, but it inflates the prices of homes as well. The downpayment you have saved up is typically a hard limit on how much house you can buy. Once you decouple house prices from the ability to save for a downpayment you have the runaway housing inflation of the last few years.
Anon said: "I would get to keep my savings for emergencies. So it helped convince me to buy a new home."
FHA loans don't require any reserves - you can put your last nickel on the closing table. It was prudent of you to have a $10k reserve, but I'm sure you can see how the seller funded DAP has the potential to get not so prudent borrowers into trouble.
The real white elephants are going to be the over-improved tract houses. Pergraniteel (Pergo flooring, granite countertops and stainless steel appliances) in 2100sf on 4500sf lots may very well end up having a negative ROI.
DAPs are overcautious when home prices are rising and interest rates are dropping.
That is not the case today.
Trying to use historical experiences or data from an entirely different environment is like trying to decide if it's safe to walk the streets tonight while in Comptom using personal experiences from your days growing up in Mayberry.
It's apples and oranges.
Are downpayments necessary? They are critical at the top and probably not necessary at the bottom. It's the nature of markets.
Are downpayments necessary? They are critical at the top and probably not necessary at the bottom. It's the nature of markets.
Beautiful Joe. That is why prices were inflated most at the low end and why the corrections have been steeper there. Do you work for OFEO? CR we have been infiltrated...
Actually, I think having a financial cushion because I didn't use every last penny of my savings to get into a house kept me out of foreclosure not the other way around. But I agree that someone with no savings whatsoever probably shouldn't buy a house with zero down where they're stretched to the limit just to make the monthly payment.
It can be very difficult for single first time homebuyers in their 30's to save enough for a downpayment, etc. Now maybe I should've been smart enough not to buy at the peak of home prices, but I also got an interest rate I'm never likely to see again (5.75%).
I keep seeing people say that this will now require Americans to "save". I'm unfamiliar with this term outside of its normal uses in hockey and evangelical religion. Please explain.
Top and bottom refers to the cycle of the market and home prices.
When prices are low and can basically only go up, then downpayments to protect the lender are probably overcautious since the homeowner is likely to try to keep an appreciating asset and any default will mean that losses to the bank are less painful.
I was referring to people who recall the days that they bought a house (back in the mid 90's say) and wish they could have obtained a trickly lown, or a DAP, or whatever and bought as much house as the bank would allow since houses have appreciated so much since then.
Today we have low rates that can only go up and house prices that can only go down, and down further with any rise in rates. But today's buyers are being reassured through the stories of their parents or others who say that "homes are good investment" or that you should "buy as much as you can get a lone for" based upon their historical experience. (hence my Comptom/Mayberry example).
I also got an interest rate I'm never likely to see again (5.75%).
You also will have smallest mortgage tax deduction in history while making payments and paying taxes on ever depreciating asset. This is exactly what the banks wanted, to make savers into debtors.
I used a DAP to buy my house, a two-family, in 2001. Took the home buyer course and all (quite useful, especially the landlord-tenant stuff). I was one year out of grad school, a newly minted Ph.D., and making the big bucks (cough) as an assistant professor in a medium-sized northeastern city. I was quickly paying down a large chunk of credit-card debt accumulated during my final year of writing, and had almost no savings.
Thank god I was able to buy then, because subsequently home values shot up and within a year or so were unaffordable to others in my salary range. Even with the slide in values, my home today could probably sell for twice, even more than twice what I paid (and three times my mtge).
I consider myself verrry lucky. Yes, I generally have good money habits, but still, if it wasn't for the DAP I probably would not have bought when I did.
But yes, I know, one anecdote is of absolutely no statistical significance.
Sort of like finding a peanut in a turd.
It would have been nice by itself, but wrapped like this it's rather unappetizing.
I have to keep reminding myself that Reagan proved deficits don't matter. Thank God.
Look, I work in the housing/mortgage/securitization industry. I have a pretty skeptical view of where things are going. But I do not believe houses are an ever depreciating asset. Not where I live, which is not California. My home value is not headed towards zero. I may not have equity now, but one day the house will be sold and the loan paid off in full.
I pay a helluva lot less income tax owning a home as I did as a renter. My mortgage is the same as my rent was 4 years ago. My mortgage won't go up like my rent did.
I would love to have an ITIN number to trash for a few years and then get a real SS number later under McCain/Obama.
WE WERE SOLD OUT BY THE GOVERNMENT-GLOBALIST-MEDIA-NEW-WORLD-ORDER-COMPLEX. THE INVESTMENT BANKS ARE AT THE TOP, AND THEY MUST BE TOPPLED. WITHDRAW ALL MONEY FROM BANKS ASAP TO SEND THEM A MESSAGE THAT WE HAVE THE ULTIMATE POWER.
DAP is gone, Woo-hoo... And we now have a CLL of $729k vs. $417k. And the GSEs have a $300 billion backstop from the Treasury. Wow, what an awesome 'victory'.
I don't know if I can financially survive any more 'victories' like this.
CSC,
Barney Frank wants to help you....he is proposing legalizing weed up to 100grams...from CNN...
The U.S. should stop arresting responsible marijuana users, Rep. Barney Frank said Wednesday, announcing a proposal to end federal penalties for Americans carrying fewer than 100 grams, almost a quarter-pound, of the substance.
"HUD is currently offering a $100 down payment initiative. The $100 d.p. is for owner occupants purchasing a HUD Home with FHA financing.....
It's a great time to Purchase a HUD Home with FHA financing."
P.S. IMO in less than 3 months(from now on) this $100 D.P. is going to be extended to all purchases involving FHA financing.
P.P.S. The last sentence would make any realtor proud.
Oy vey, talk about transparent excuses. They say mortgage lenders were forced into disasterously loose lending standards by a mild pullback in GSE loans. When F&F don't buy every loan, the banks are just forced to make c**p loans. Poor them.
Oh, and they're using the "subprime" wordplay we've all been ragging on.
"Thank god I was able to buy then, because subsequently home values shot up and within a year or so were unaffordable to others in my salary range."
And if people can't buy houses then... the Government should step in to keep them unaffordable? This is the equivalent of people using their Visa to pay their Mastercard, just to keep eating out.
Lender funded DPA essentially distorts the actual value of the home and so the appraisals in the area. It allowed 100% morgages to be written that looked on paper like 90%. During resent tightening of lending standards and appraisals the lenders should have learned that paid price != value of a property. And if they have not - who could they sell the loan?
The impact of this change will be felt more long term. It removes a mechanism that allowed housing prices to move upwards faster than inflation.
Premature celebration. Maxine Waters promised to bring back DAPs as a standalone. Maybe DAP won't get inserted into some authorization this year, but you can bet your joyful-witchingdeath-glee that DAP will be back in 2009 with Obama and Democrat majorities. In fact wouldn't the NAR and mortgage companies be lobbying to bring back DAPs as well?
Do you really think it'll be dead for long!? DAP will come back when they pass the second Fannie-Freddie-bailout bill... and you can take that to the TAF!
Talk about an act of academic masturbation. Did y'all see at the bottom the sponors of this great academic treatise?
The research was partly funded by the Homer Hoyt Institute, Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors Subprime Crisis Research Consortium. An earlier version of the research was first presented at the 2008 meeting of the Allied Social Science Associations.
P.S. I wonder how Randy H is doing advocating his theory of home price stickiness.
Lol. Much as I hate to admit it, when it comes to 'prime' areeas of the Bay (Marin, Noe, Cow Hollow, Marina, Atherton, Morage, Orinda), it's about right. Prices are just now starting to creep down, but it's nothing like the bloodbath in the Central Valley, Inland Empire or high deserts.
We were talking on a thread late last night about MetLife earnings disappointment and why haven't life insurance companies experienced much pain yet.
I think it's coming, just a delayed reaction. They have so much exposure to bad paper. And their sales and revenues dry up in a recession.
I said 2009 would be the year of life insurance failures, starting with the smaller companies that have a lot of doubtful bonds on the books.
Here's my best short idea. A company near me in Nyack, Presidential Life (PLFE). They have $3.4 billion on the books in bond market value, but who knows what it's actually worth?
As of 3/31/, 42% was single-A and about 33% was Baa or lower. If you think corporates are being propped up by ratings agencies and are eventually going a lot lower, with many defaults, this could be a good short. Market cap is about half a billion.
The kicker is that the CEO is 89 years old, he's been there forever, and there is no real #2, #3 etc. He owns one quarter of the float. So, it's not just a bond default short. It's kinda a mortality based short.
Another thing: The company's main product is single-premium deferred annuities. A little known fact about SPDAs is that there has been hardly any "sales" for years, although companies keep reporting them. It's mostly just churning of old contracts into new commissions. Helps the agent, not the company.
In any kind of run, older SPDAs (beyond surrender charge) are like cash. They disappear from the books fast. This was what brought down Baldwin United.
'We were quite surprised to find the intensity of subprime lending was insignificant after controlling for all the other factors influencing the market, but [b]we were really blown away when Fannies and Freddies continuing presence in the market was shown to be so important,'[/b] said Kerry Vandell, UCI finance professor and Center for Real Estate director." . . .
[b]"The research was partly funded by the Homer Hoyt Institute, Freddie Mac,[/b] the Mortgage Bankers Association and the National Association of Realtors Subprime Crisis Research Consortium. An earlier version of the research was first presented at the 2008 meeting of the Allied Social Science Associations. "
Can't help but notice that home prices are caught in a classic unstable feedback system. The downpayment requirement is one of the few damping factors in the system and seller provided DAP simply removes that.
Providing funding for Fannie and Freddie, as repugnant as that may be for those of us who believe that "price discovery" should occur as rapidly as possible, may be tolerated as further damping; is it really desirable for home prices to drop so low that no homes are built, and no one can sell because they must bring money to the closing?
The most marginal owners will simply walk away, but the majority have money to make payments, but cannot raise sufficient sums to pay the transaction costs to sell once prices drop below the initial purchase price.
Once interest rates have escalated to account for the high risks and low volume of a market with the only sales foreclosures, I think none of us will be very happy.
Oil down, Market RALLY. Oil UP, Market _____ ?
Banks sold all their oil holdings to buy up their shares (speculation). Market trades flat to down with Thursday, Friday being bad days when the news come out.
"Other buyers will borrow from parents and friends or...."
will borrow from the Holy Trinity Church of Chicago via a USG grant.
Something no one wants to talk about.
OT: In anticipation of Friday's NFP I just researched the birth/death adjustments for the past few months, and found something interesting.
Mon 2007 -- 2008
Apr 262 -- 267
May 174 -- 217
Jun 155 -- 177
Jul 3 -- ???
The B/D adjustments for each month are quite close to the previous year's numbers for that month. If this trend holds then the B/D for July 2008 should be very low and we could be seeing a payroll number that is much worse than predicted.
Banks sold all their oil holdings to buy up their shares (speculation).
I think they are selling their oil holdings in small batchess to trigger $3-4 dollar drops when they need to buy/boost share prices and prevent a widespread collapse. Perhaps they will let it drift back up (and their share prices down) so long as the movement is slow. Then they will rinse/repeat. At least, it seems this pattern seems to have been repeated over the last 2+ weeks...
"HUD is currently offering a $100 down payment initiative. The $100 d.p. is for owner occupants purchasing a HUD Home with FHA financing.....
It's a great time to Purchase a HUD Home with FHA financing."
Wait until Maxine Waters finds out that people who don't have $100 won't be able to buy a house.
"Providing funding for Fannie and Freddie, as repugnant as that may be for those of us who believe that "price discovery" should occur as rapidly as possible, may be tolerated as further damping; is it really desirable for home prices to drop so low that no homes are built, and no one can sell because they must bring money to the closing?"
Hell yes it's desirable! How do you get rid of an unsustainable overhang of housing? DON'T BUILD new housing and go back to historical norms in under-writing which means 20% down, verifiable income and a clean credit score.
For ANYONE to argue otherwise after the cler fck that has just happened and continues to happen is idiotic at best and probably also immoral.
Do you work for NAR or are you just one of those hypocritical pseudo-capitalist shills on CNBS.
I swear I want to scream now everytime I read crap like this.
Just to add to my comment above. No I'm not some bitter renter. We bought our house in 1996 with 20% down that we scrimped and saved for. We sold in 2004 when the fundamentals made ABSOLUTELY no sense whatsoever.
I didn't expect any handouts when I lost my shirt in the dot-com crash.
"HUD is currently offering a $100 down payment initiative. The $100 d.p. is for owner occupants purchasing a HUD Home with FHA financing.....
It's a great time to Purchase a HUD Home with FHA financing."
if it is not a typo they "need help"... HUD that is
That dog don't hunt, my man. I put down cash and bought in '99, myself, but I simply don't see it as being in my interest to have the whole thing implode completely. Screwing the handful stupid enough to buy in '06 in a bubble-zone with a neg-am is another matter entirely, but the votes just aren't there for a "Year Zero" solution. As it was, is and ever shall be, a matter of self-interest.
there is a strange ghost in one of my computers (with streaming charts + Java): every time there is a pump attempt the cpu goes bonkers. It always occurs at 2.30 or 3 pm, never in am open even though volume can be much higher then.
today the pump attempt is not working very well, so far.
until price discovery is achieved builder's won't stop building against worthless RE, and banks won't stop lending against worthless RE, and wall street won't stop trying to scam against worthless RE. Each "damper" designed to cushion the blow of the downward spiral will in effect make house prices go much much lower.
All of the govt and FED intervention to save housing markets is ensuring that prices will drop peak to trough similar or greater than in the great depression. 90% plus drops.
The more the govt and FED step in to try and do something about the problem the bigger they make the problem.
We had the choice to take our medicine and the majority didn't want to. Now we are going into a bust that will dwarf the great depression
Where did they pull the number 400,000 out of? A hat? This just goes to show you that it's all a load of crap. It's a bail out for Freddie and Fannie and Wallstreet (aka. investment banks). Buy a gun and a safe and withdraw your money. There's too much money sitting in non-managed mutual fund accounts for them not to crave it. 401ks were a construct of the investment banking industry to CONTROL AND DOMINATE YOUR MONEY FOR THEIR OWN GREEDY GAINS. TAKE OUT YOUR MONEY AND KEEP IT SAFE SOMEWHERE ELSE.
Any kind of normal grandma-provided DAP wouldn't involve appraisal fraud. The appraisal fraud comes in to allow every participant to get a cut up front, with a bigger loss whenever F & F go to push back the loan and find a vacant office in a vacant stip mall where the bank used to be.
F & F are eventually backed up by the FDIC, by this scheme.
A bank run, on a fractional reserve system, is essentially a lender's strike.
But if the Fed can loan or print, every lender's strike can and will be broken,
up to the point when the currency is
worthless. So apparently we actually will
dance until the music stops.
I'm not worried about DAP returning next year, because I'm certain that by then FHA (as well as the HBs) will be in no position to support them. IOW, no FHA = no DAP.
Chill, Drone.
I AM one of those who believes in 20% down, verifiable income and good credit score.
I put 30% down when I bought my home 20 some years ago, and am actually eagerly watching for prices in my area to drop, since I would happily move up a bit.
I'm also watching the south end of my county, where nearly new homes sit empty, foreclosed, the prices 40% below sales from 2005. Sales are ramping up, but a spike in interest rates could kill that quickly. Most of the buyers in that area have, shall we say, moderate credit scores.
Cost of ownership there, with a decent loan rate, would be less than renting. Rental rates are rising, there actually is a housing shortage.
Would it be good to constrict credit until all those with a rate reset are squeezed out? If the prices are already below replacement costs and rental costs, how much lower should they go?
Anyway, have a nice scream.
I don't understand how that is even possible. I figured money going into energy would be money coming OUT of financials. It takes some buying pressure to spark a rally and then the hot money should chase momentum ?
CSC-
I agree I think the sheeple are currently in kind of shock about what debt does to them and what it doesn't do to banks and crooks.
OT-You remember when immigrants came here because hard work and honoring your word provided opportunities to build a better life for thier family and thier country didn't; They came here because contracts were honored, governments were democratic, ideals upheld and a regulated finance system, faith was tolerated, freedom provided sense of pride and many brave people the courage to fight tyranny and evil dictators instead of wars built on false truths...
America is in trouble because we have become more like the countries the immigrants left...
who thought looting was only confined to haiti, mexico, nigeria, mynamar etc?
they just paint the picture differently here, they need a lot of green to fill in all that red...
I don't understand how that is even possible. I figured money going into energy would be money coming OUT of financials'
seems to me that it is going out, or rather it did in the am when the volume was high (see XLF, GS...) and even yesterday around close when there was mostly "churning"
it has to do with the usual up/down volume ratio: the 2-3 pm pump for ex. is in a rather small volume (under 1/3 just eye balling) = dragging in the last suckers (or fooling some naive shorts)
negative divergence usually reflects the move tries to continue but the volume has turned much lower
Tech is starting to look weak. Actually, it's starting to look a lot like 2000, where undercapitalized and unprofitable tech companies got caught in a downdraft and couldn't get enough capital to survive.
Wanna see a real miss? KEM reported a quarterly loss of $2.33 vs. estimate of + 2 cents! Down 50% for the day.
What's difference about now compared to 2000? Then, there more stock. Now, there's more debt. A lot more leverage...
"Kemet notes that if it cannot obtain funds to redeem the Senior Notes, or otherwise restructure them or get an additional waiver, the holders would be able to declare them in default. And that would create a default on the companys $152 million credit facility with UniCredit. And if the company failed to pay either of those back when due, the holders of the companys $175 million of convertible senior notes could demand repayment. And heres the thing: at June 30, they only had $35.5 million in cash. You dont need to be a financial genius to see that the math doesnt work in Kemets favor."
I've been telling you about all these 1-year and 2-year heged fund secured loans to small companies at 12-16%.
cd writes:
OT-You remember when immigrants came here because hard work and honoring your word provided opportunities to build a better life for thier family and thier country didn't; They came here because contracts were honored, governments were democratic, ideals upheld and a regulated finance system, faith was tolerated, freedom provided sense of pride and many brave people the courage to fight tyranny and evil dictators instead of wars built on false truths...
This is the grand transformation that makes me so angry. I am also hearing a fair amount of, "Naw...that was all always bullshit." And as cynical as I am, I can't believe that is true.
"Rental rates are rising, there actually is a housing shortage."
Or another alternative way of thinking about it is:
House is foreclosed on and bank sits on inventory.
Former home owner needs a place to stay and goes out and rents a place.
Number of rental units has stayed constant as bank sits on it's inventory.
And magically you get higher demand for rental units even though the population hasn't increased.
Now what do you think happens when those units are dumped by the banks back onto the market. Or better yet what happens when the economy dives six months down the line.
And, I'm sorry...but when you have to go to the Civil War to excuse the actions of your President, and the Great Depression to find comparisons for the economy, then how the "F" can we speak of short, shallow, 6-months slow-downs and life-as-its-been.
Man...I'm hitting it. Sorry.
You remember when immigrants came here because hard work and honoring your word provided opportunities to build a better life for thier family and thier country didn't; They came here because contracts were honored, governments were democratic, ideals upheld and a regulated finance system, faith was tolerated, freedom provided sense of pride and many brave people the courage to fight tyranny and evil dictators instead of wars built on false truths...
I would add that American education used to another beacon for immigrants. Now, it's a scary thing to think that MIT and the Ivies are often "safety schools" for legions of Indians and Chinese students.
KEM was confirmed on the slide around 6.5 and then 5 ... and now (around 1 !) it is time to wait for a "dead cat bounce' to enter a short IMO.
I do not "chase", but rather try to catch the move a bit ahead of the curve
Hi, Darth
I'm in Santa Cruz; rental prices are kept high by UC students, vacation rentals, slow growth and greenbelt policies. The immediate Santa Cruz area home prices are kept high by tolerable commutes to Silicon Valley,
while the South County is really too far, but there was the available land for home construction.
So I think prices on new homes overshot by 60% or so, the 40% drop eats that and brings them into near parity with rents. The bottom dregs of older homes probably overshot by 100%, for buyers of those there is no hope.
DK, the 400,000 number comes from a Congressional Budget Office analysis. The same analysis guesses that 35 percent of those 400,000 borrowers will default on their refi'd FHA-insured loans, with a loss severity of 60 percent.
Or that china produces 10 times the number of engineers we do in the US.
Oh and despite it's growing economy, china's unemployment rate for new college grads is over 20%! So that means there are 200k unemployed engineers graduating every year in china, which is 3 times as Many engineers as the US graduates per year
Seems to me that those who are saying "DPA programs are good for first-time buyers." are really saying, "Real estate only goes up, and if we can shoe-horn these people into a house, they will be OK if they stay there 5 or more years." Yeah, but only if real estate really does alway goes up.
"It takes some buying pressure to spark a rally and then the hot money should chase momentum ?"
... all it takes is the minimum volume needed to "spark" the move up, by triggering shorts to start covering(want to bet they know where the "stops" are?), let the short covering run out at each step or better: unload your longs on them as the covering gains momentum, then repeat to the next level up etc...
That is the way i would do it at least, just using the minimum fire power to trigger those nervous guys.
Any speculative tape bombs on the menu for tomorrow, just curious because we have a $30+ billion TIO in the slosh tomorrow...or just Hank feeling his oats?
Santa Cruz is one of those strange areas where I could actually see some rental price increases in the near term (used to live in Los Gatos years ago.) I'm not sure how long it will last though, considering that a lot of it depends upon healthy tech salaries, and the tech picture is unclear.
Holden Lewis writes: (the CBO) analysis guesses that 35 percent of those 400,000 borrowers will default on their refi'd FHA-insured loans, with a loss severity of 60 percent.
CBO paper sez: "CBO estimates that...the cumulative claims rate (default) for the program would be about 35 percent and that recoveries on defaulted mortgages would be about 60 percent of the outstanding loan amount."
A 60% recovery rate is a 40% loss severity rate. Not to nitpick, it's still very high. I actually find myself mostly agreeing with Dean Baker on this point. I feel woozy.
Kill DAP or other low down payment plans all you want. It will only drive prices lower. No one can make a move in this market unless they already have strong equity. Nothing can break the log jam. Prices will continue to fall - there is nothing to stop them.
So the Housing Bill is passed - and FHA got their wish - to axe the Seller funded downpayment assistance program. Which is a very large part of the current sales activity in the market. Because of claims about "possible" losses.
Once again - how about some math and real facts to support the claims?
From FHA - as of June 30:
Total Active Portfolio - 3,896,389 loans - Foreclosures total 58,876 - which makes the total foreclosure rate is 1.51% currently on the entire FHA portfolio.
The FHA added 68,588 new loans in June 2008, an annualized rate of appx 823,000
Various reports claim a foreclosure rate 2 times higher on the loans with Seller downpayment assistance and that appx 30% of FHA loans are current originated using Seller funded downpayment assistance.
At 30% - there would be appx 247,000 new loans this year that used Seller DAP.
The regular foreclosure rate of 1,51% on these loans would equal 3,728 foreclosures normally. With a doubled foreclosure rate of 3.02% on loans with Seller DAP appx 3,728 additional foreclosures would occur on this pool over the year. This represents just 0.45% of the total number of new FHA loans for the year.
Using a median home price in the US in June 2008 of $215,100 that would represent $801.99 million in additional loans foreclosed due to Seller DAP. The FHA loose appx 25% as each of these loans are sold after foreclosure - which would mean on these additional 3,728 foreclosures over the next year a total loss of $200.49 million.
So - 247,000 homeowners are helped overall by the Seller downpayment Assistance Program. A total of 3,728 over the standard foreclosure rate for all loans with and without downpayment assistance would be foreclosed out of these 247,000.
Which means 243,000+ homebuyers were helped by the Seller downpayment assistance program who were NOT foreclosed.
The total costs to help those 243,000+ homeowners is appx $200 million (the loss on the additional foreclosures due to the program.) If we divide $200 million by the total 247,000 loans that received Seller DAP this loss comes out to $812 per loan. Why would we NOT simply increase the FHA mortgage Insurance premium for Seller funded Downpayment assistance loans by $812 - and continue to help the 99.55% of people who used the Seller DAP and did not get foreclosed?
More ridiculous yet - the FHA MIP is financed - added into the loan. At 6.75% interest over 30 years that $812 costs $5.97 per month
The Seller DAP helps people buy homes. Some will default, and at a higher rate than loans without it. Instead of simple rational effort to assess those costs to benefiting borrowers - who would gladly trade $812 in insurance premium for their downpayment - we throw out the entire program.
Why is it smart folks - with excellent insight - like Tanta and Calculated Risk - do not make the effort to drill down to the facts regarding these issues?
"No one can make a move in this market unless they already have strong equity....Prices will continue to fall - there is nothing to stop them."
Paul, prices will stop falling when young folks can prudently buy a decent house...maybe around 3x of one income.
Part of what's infuriating about all this is "We have to keep prices high or EVERYONE will lose their wealth" kind of sucks when you were in high school or college while the bubble was inflating, and watched others lavishly spend Appreciation Fairy money while you struggled to pay your student loans and rent.
In other words, people under 30 or 35 effectively face "taxation without representation." Especially singles.
Everytime you guys say "The Fed cannot print, because you need a willing borrow & lender", I need you to remind yourself that no one sends a stimulus check back.
The helicopter isn't dropping loan applications to be picked up at
a later date...
This will resurface somewhere witha different acronym. May I suggest CRAP-Clearly Reprehensible All Parties or whatever i'm to tired to think of something truly clever.
Since everyone is so excited DAP is going away watch as property values drop even more as we going into the end of 2008. And lets make sure we remember where the problem arose - which was not DPA - it was conventional mortgages. To point the finger at DPA for what happened is missing the real reason for the meltdown.
love the title
Which old DAP?
Is it about time? Why does the obvious take so much time to rectify?
If you can't save 3.5% down on anything you have no business to be anywhere near it.
Is this effective immediately?
The wicked DAP
sellers will just do carry backs. See previous story.
Effective Oct 1.
You will see a huge rush of DAP loans during the next 8 weeks. Should screw up some sales stats.
"Other buyers will borrow from parents and friends or will wait until they save the 3.5% down-payment."
Whoa! Stop the presses! People might have to save and come up with 3.5whopping% down!
CR said:
Not all of these buyers will disappear.
CR,
The post you quote says:
one that could eliminate as many as one in 10 home buyers from the market
Doesn't that sound like they have already modeled how many buyers of the 25-33% using DAP's will be eliminated - and that is 10% of the market?
Many leading Dems want the program and many very big trade groups want it as well.
I don't think we've heard the last of DPA (or as CR calls it, DAP).
Just go to Wells Fargo and say you need a house, no down payment necessary
DAP's were a form of fraud. It distorted pricing and was meant to qualify a borrower into a conforming mortgage.
RICO the bastards. If that isn't racketeering, I missed the defination.
How, exactly, is this enforceable?
The legislation says any loans that are not approved by Oct 1. I believe they will probably still be able to close for 45-60 days after the 10-1 based on previous experience with FHA. That will put us past the election and Barry can bring it back!
Good question, JP
Who cares about DAP. Isn't this the bill that raises the debt ceiling by $800 billion (to $10.6 trillion)?
@JP & Alo:
It's enforceable by requiring documentation of where the downpayment funds come from, e.g., bank account statements. You know, just like all the lenders used to do. Those FHA guys, such troglodytes...
Once you hit 9.8 trillion in debt, does another 800b really make any difference?
Based on the reaction from the broker boards I would say this is a pretty big deal as far as how much it would effect demand (I believe it was Lennar said 33% of its sales used DPA).
I just don't think people (Dems and large trade groups like the NAR, NAHB, MBA, etc) would let it die. And the talk is that it wont.
If you can't save 3.5% down on anything you have no business to be anywhere near it.
If we follow this rule consistently, what will become of hedge funds?
Great title and good news !!!!
Weekly unemployment claims running high all month long, non-stop press releases about layoffs/plant closings/BKs... and ADP comes out with employment gains. Market rallies on the report. Amazing.
Confused, according to the WSJ: "one in 10 home buyers". The 25% is from certain home builders (that used DAPs heavily). Others didn't use them at all.
Best to all.
We actually used a DAP in 1999 to purchase our first home. We stayed in that home for 8 years and didn't default. The program was actually pretty good and you were required to take a class about home ownership and finances to receive the money.
I'm not against them as much as everyone else here.
It's enforceable by requiring documentation of where the downpayment funds come from, e.g., bank account statements.
Then I predict a rise in joint accounts with complicated signature rules.
I am long brown paper bags.
Here in San Diego a lot of buyers had the $ for downpayment but used the DAPs b/c they wanted or needed to use the cash for necessary immediate home improvement. Some of it was dumb (granite countertops, oy!) but some needed b/c poorly maintained shacks were way overpriced.
Let me think five seconds.
"Buy this new $200,000 home and L****R will open a new V**A credit card for you with $5,000 availible credit to use for whatever you want.....maybe the down payment?"
I'm brilliant.
The good news is default rates should decline on FHA loans. - CR comment
Think this through in its macro aspects. I think default rates will rise over time. One thing that kept regular people who bought too much house from defaulting was the ability to sell to the next fool. Kicking the can down the road so to speak. With the new stricter lending standards not only will prices drop more but the ability to refinance is constrained and things will be generally tougher in a slower economy. The elimination of explicit DAP buyers is just one more downward pressure on the existing crop of mortgage borrowers.
In bubble markets, this will save many wanna be homebuyers from themselves.
3.5% on a 300k house? Jesus if you can't save 10 grand towards a house you'll probably be paying at least 2k a month for in mortgage + taxes then maybe you need a cheaper house.
The mortgage application index is currently broke on the MBA site but Bloomberg reports a purchase index of 309.5... Lowest since February 2003.
CR, with all due respect, this is inconsequential within the context of the larger bill.
Now had the headline been: "Ding-dong, the GSEs are dead". That would have been something.
The more I think about this problem, the more I'm convinced that moving towards SIZABLE downpayments is the problem.
Yes, I realize that consigns some people to (gasp) rentership.
Ug. Should have read:
The more I think about this problem, the more I'm convinced that moving towards SIZABLE downpayments is the solution.
Yes, I realize that consigns some people to (gasp) rentership.
Of course, who needs DAP, when outright fraud is perfectly acceptable to Wells Fargo?
Seems pretty obvious: if the lender desires to have some margin of value in the property, and the seller provides that margin, then the property was not worth what was paid and the margin thus does not exist.
No appraisal needed; no question of ability to pay; just simple fact that the property was not worth the price.
Wells Fargo faile "the smell test" in a BIG way!!
Wells Fargo spokesman, Jason Menke, declined to comment on the Camile Street loans, citing privacy issues. But Menke said the bank has stiffened its standards in response to today's economic and credit climate.
"Wells Fargo makes all mortgage lending decisions based on a combination of proven risk predictors such as loan-to-value, debt-to-income, credit scores and other factors related to the borrower's financial situation, the type of loan requested and the property type," Menke said in a statement.
"The number of chronically homeless people has dropped by about 30 percent between 2005 and 2007, Bush administration officials said on Tuesday".
Well gee.... the elimination of DAP is a severe blow to Bush's glorious 'ownership society' vision.
Mr. Beach, in my first several posts on this bill, I pointed out that there are two major provisions in the bill: the Paulson Plan for the GSEs (Fannie and Freddie) and the provision to allow the FHA to insure up to $300 billion in new mortgages.
There are many other provisions, and I'm sure Tanta and I will mention them at different times. That doesn't mean they are anywhere near as important as the two main provisions.
Best to all.
frantically fighting the tape the past 2 days... SRS finally returning to some shred of reality. CBG getting crushed and SRS going south, which made me press, hard.
Houston Business Journal
Franklin Bank Corp. receives NASDAQ non-compliance notice
"Franklin Bank Corp. on Tuesday said it had been notified by the NASDAQ stock market on July 23 that it no longer met listing requirements because its share price had been below the required minimum price of $1 for 30 consecutive days..."
Franklin Bank Corp. receives NASDAQ non-compliance notice - Houston Business Journal:
Implode-O-Meter's Franklin Bank news:
The Mortgage Lender Implode-O-Meter News Pick-ups: Ailing/Watch: Franklin Bank, SSB
(Here we go in Texas again!)
Most state and local downpayment assistance plans don't work this way anyhow. In California many first-time buyers get assistance from "silent second" programs run by state and local housing agencies. The difference is that here the government is standing in for the Bank of Mom and Dad for buyers whose parents can't afford to help, rather than having the seller do it. Having the seller provide the funds is a conflict of interest.
Almost everyone I know who bought in California either used one of these programs or received help from the family bank. Going to grandma for the money isn't "saving."
The program was actually pretty good and you were required to take a class about home ownership and finances to receive the money.
There are two types of DAP. One was funded entirely by charitable contributions/government from parties with no interest in the property. These are still acceptable.
The DAPs that are banned, are the ones that force the seller to make a "charitable contribution" of the downpayment + a fee. The program then puts the fee in their pockets and hands the downpayment to the buyer. The problem with this type of DAP is the seller just increases the price of the house by 3% to cover their contribution. This raises the comps in the area and forces those who don't use those programs to pay more than they should. Same applies to any program where the seller contributes the downpayment.
As others have noted that Congress in all it's wisdom will probably create another version of this next year, making this DPA program look small.
Corruption at the Federal levels has no bounds in particuliar in its desire to create the American Dream.
It is common for new home sales people to make 1% commission on the sale of a home plus a small base salary. If you add the 1% + 3% DAP, thats 4% to sale the home. Realtards make between 5% to 7% on existing sales. I think that is why you see mostly builders using them. For an existing home seller to use this program they would have to add 3% DAP on top of what they are paying their realtor which most can't afford.
I don't know Tanta and CR and how involved they've been in past reform efforts/causes. But most of us in America know that the more vested interests there are in support of something the Reformists are against & want changed, the greater likelihood the Reformists will be over-turned / out-foxed over time, and the status quo returned anew like a Phoenix in a bewitchingly different coat of colors that still serves the same purpose.
Let's agree to revisit DAP in 9 months, March 2009, once the regs have been in place (and that timeline is not a given, per HUD) and also in 18 months, January 2010.
I would not dance in celebration until then.
Did subprime lending not cause the housing bubble?
News :: UC Irvine TODAY
km4 writes:
"The number of chronically homeless people has dropped by about 30 percent between 2005 and 2007, Bush administration officials said on Tuesday".
PAUL HARVEY VOICE
"And now... the rest of the story."
/PAUL HARVEY VOICE
--
What housing programs and policies have exposed is the CRIMINAL nature of the USG and the Fed to engage in an evil activity -- Pushing Debt on the households and the future taxpayers. Only a moron can be made to believe that we have the best economic and political system for the welfare of the general population. These morons were systematically bred with blind faith in the system no matter how bad the system becomes every day. Crooks are fully in-charge! And born-and-bred American dopes cant do a damn thing about it, can they? I didn't think so.
Jas
We actually used a DAP in 1999 to purchase our first home.
Bob-- We used something similar, but it was a state run program for first time buyers. It required us to pass an exam on finances and was, I think, a very different kind of program to the ones being objected to here. The problem with the DAP's, as I understand it, is that the money comes from the seller-- who provides the 'assistance' -- instead of simply lowering the price. That distorts the comps, makes the property less affordable to the new (presumably not-well-off) buyer, and generally sets the stage for kickbacks of all sorts and all stages of the loan process.
...the 3.5% down-payment.
Only 3.5% down needed to get a government/taxpayer backed loan. How is it in my interest to insure the loan of such a marginal buyer? Pathetic. Another giant step in the wrong direction, i.e. more instead of less government involvement in the housing market. Securitization, which is now pretty much dead, along with government do-gooding had to be the two big facilitators of excessive risk-taking.
I stumbled across a pic of jas, to share...
Redirect Notice
I agree with Rob Dawg that elimination of DAP will further restrict lending in a time when bringing more borrowers to the market is the only way to stop the home price freefall. It is unfortunate this bill was passed because there are a few aspects of it that will prove to have unintended consequences later on.
When I started house shopping in 2004 as a first time homebuyer I planned to use an FHA 30-year fixed loan. I had enough saved for the 3% downpayment and closing costs, but not much more than that (I had about $10k and was looking in the under $200k range.) When I heard about the AmeriDream program from a builder I thought it sounded great. I could buy a brand new home and have the builder pay (or roll into my loan) the 3% down and the closing costs. I would get to keep my savings for emergencies. So it helped convince me to buy a new home. I ended up spending $2500 cash on appliances that I didn't buy with the house, and kept the rest as a cushion. I have great credit and have never been late on a payment as I have a steady job and didn't buy more than I could afford. I also got a fixed rate. I think the DAP was a good thing for people like me. I think within the context of an FHA fixed rate loan with full underwriting and a prime credit score, DAPs are actually a good thing to get first time buyers started.
Hahahahahaha.
Q: If the banks and lenders refuse to write these loans, then what?
A: Public and political pressure may prompt them to participate.
From
Yahoo! 404 - Page Not Found
My guess would be that 66% of the people that used DAPs had the means to make a 3% down payment either via savings, credit card advances, or relatives, but choose to use the DAP because simiply because it was available and appeared to them to be the path of least resistance. So I don't think it will effect the market as much as some people think. I'm glad to see that scam program gone.
Bob and Anon, DAPs raised the default risk something like 3 times on FHA loans. So what do you want, a low interest rate or down payment assistance?
[/i]barely writes:
I stumbled across a pic of jas, to share...
[i/]
Thatsa Niiiiice.
Connecticut's attorney general said on Wednesday that his office was suing the three leading credit rating agencies, saying they intentionally gave lower ratings to bonds issued by municipalities, which drove up costs for taxpayers.
Connecticut sues top credit rating agencies
| Reuters
Get those bastards!
Housing prices can only go up, and will rebound shortly thanks to our economic plan. Look, in other countries following a similar model, housing is already worth quadrillions of dollars.
Zimbabwe's Money Worth More As eBay Novelty Than As Actual Money
Anon, with all due respect I don't think that your parents would have been allowed to put less than 3% down on a house. The Problem is that you had no financial cushion and a decrease in your income would have pushed your home in foreclosure.
Bob and Anon, DAPs raised the default risk something like 3 times on FHA loans.
Not only that, but it inflates the prices of homes as well. The downpayment you have saved up is typically a hard limit on how much house you can buy. Once you decouple house prices from the ability to save for a downpayment you have the runaway housing inflation of the last few years.
Anon said: "I would get to keep my savings for emergencies. So it helped convince me to buy a new home."
FHA loans don't require any reserves - you can put your last nickel on the closing table. It was prudent of you to have a $10k reserve, but I'm sure you can see how the seller funded DAP has the potential to get not so prudent borrowers into trouble.
Great. Now the banks have a strong incentive to re-ignite the appraisal fraud fires. Yippee.
Forex investors see new president helping dollar
Forex investors see new president helping dollar
| Reuters
Think the dumb asses are going to be sorely disappointed.
The real white elephants are going to be the over-improved tract houses. Pergraniteel (Pergo flooring, granite countertops and stainless steel appliances) in 2100sf on 4500sf lots may very well end up having a negative ROI.
DAPs are overcautious when home prices are rising and interest rates are dropping.
That is not the case today.
Trying to use historical experiences or data from an entirely different environment is like trying to decide if it's safe to walk the streets tonight while in Comptom using personal experiences from your days growing up in Mayberry.
It's apples and oranges.
Are downpayments necessary? They are critical at the top and probably not necessary at the bottom. It's the nature of markets.
"DAPs are overcautious when home prices are rising and interest rates are dropping."
DAP's should be down payments
Are downpayments necessary? They are critical at the top and probably not necessary at the bottom. It's the nature of markets.
Beautiful Joe. That is why prices were inflated most at the low end and why the corrections have been steeper there. Do you work for OFEO? CR we have been infiltrated...
Tim,
Actually, I think having a financial cushion because I didn't use every last penny of my savings to get into a house kept me out of foreclosure not the other way around. But I agree that someone with no savings whatsoever probably shouldn't buy a house with zero down where they're stretched to the limit just to make the monthly payment.
It can be very difficult for single first time homebuyers in their 30's to save enough for a downpayment, etc. Now maybe I should've been smart enough not to buy at the peak of home prices, but I also got an interest rate I'm never likely to see again (5.75%).
Tim - There is no Dana (OFHEO)... there is only Zuul (FHFA).
Anonymous--
Lots of communities have tried to sue the rating agencies. They're protected by First Amendment rights. It's not likely to go anywhere.
How about a little help for a newbie?
I keep seeing people say that this will now require Americans to "save". I'm unfamiliar with this term outside of its normal uses in hockey and evangelical religion. Please explain.
Tim,
Top and bottom refers to the cycle of the market and home prices.
When prices are low and can basically only go up, then downpayments to protect the lender are probably overcautious since the homeowner is likely to try to keep an appreciating asset and any default will mean that losses to the bank are less painful.
I was referring to people who recall the days that they bought a house (back in the mid 90's say) and wish they could have obtained a trickly lown, or a DAP, or whatever and bought as much house as the bank would allow since houses have appreciated so much since then.
Today we have low rates that can only go up and house prices that can only go down, and down further with any rise in rates. But today's buyers are being reassured through the stories of their parents or others who say that "homes are good investment" or that you should "buy as much as you can get a lone for" based upon their historical experience. (hence my Comptom/Mayberry example).
Two different worlds.
I also got an interest rate I'm never likely to see again (5.75%).
You also will have smallest mortgage tax deduction in history while making payments and paying taxes on ever depreciating asset. This is exactly what the banks wanted, to make savers into debtors.
Hope you don't take any of this personal I feel for people in your situation. I hope every works out for you...
ATC - Isn't your top holding ELN? Must be a tough day. Hope you pared your position before today. OUCH!
I used a DAP to buy my house, a two-family, in 2001. Took the home buyer course and all (quite useful, especially the landlord-tenant stuff). I was one year out of grad school, a newly minted Ph.D., and making the big bucks (cough) as an assistant professor in a medium-sized northeastern city. I was quickly paying down a large chunk of credit-card debt accumulated during my final year of writing, and had almost no savings.
Thank god I was able to buy then, because subsequently home values shot up and within a year or so were unaffordable to others in my salary range. Even with the slide in values, my home today could probably sell for twice, even more than twice what I paid (and three times my mtge).
I consider myself verrry lucky. Yes, I generally have good money habits, but still, if it wasn't for the DAP I probably would not have bought when I did.
But yes, I know, one anecdote is of absolutely no statistical significance.
Sort of like finding a peanut in a turd.
It would have been nice by itself, but wrapped like this it's rather unappetizing.
I have to keep reminding myself that Reagan proved deficits don't matter. Thank God.
Tim,
Look, I work in the housing/mortgage/securitization industry. I have a pretty skeptical view of where things are going. But I do not believe houses are an ever depreciating asset. Not where I live, which is not California. My home value is not headed towards zero. I may not have equity now, but one day the house will be sold and the loan paid off in full.
I pay a helluva lot less income tax owning a home as I did as a renter. My mortgage is the same as my rent was 4 years ago. My mortgage won't go up like my rent did.
The bill should eliminate ITIN borrowers as well, but I see no evidence of this.
http://www.eliudgautier.com/
http://www.realtor.org/cipshome.nsf/files/Module%208%20ITIN%20Broker%20Toolkit_FINAL.pdf/$FILE/Module%208%20ITIN%20Broker%20Toolkit_FINAL.pdf
I would love to have an ITIN number to trash for a few years and then get a real SS number later under McCain/Obama.
WE WERE SOLD OUT BY THE GOVERNMENT-GLOBALIST-MEDIA-NEW-WORLD-ORDER-COMPLEX. THE INVESTMENT BANKS ARE AT THE TOP, AND THEY MUST BE TOPPLED. WITHDRAW ALL MONEY FROM BANKS ASAP TO SEND THEM A MESSAGE THAT WE HAVE THE ULTIMATE POWER.
Imelda Blahnik proves my point perfectly,
Any program that get you in a rising market is a smart move and therefore a good program.
The very same progam that gets you into a falling market is now a bad program.
Perhaps it has less to do with the progam and more to do with market timing.
DAP is gone, Woo-hoo... And we now have a CLL of $729k vs. $417k. And the GSEs have a $300 billion backstop from the Treasury. Wow, what an awesome 'victory'.
I don't know if I can financially survive any more 'victories' like this.
Currently Smoking Cannabis writes:
Sort of like finding a peanut in a turd.
Bingo!
CSC,
Barney Frank wants to help you....he is proposing legalizing weed up to 100grams...from CNN...
The U.S. should stop arresting responsible marijuana users, Rep. Barney Frank said Wednesday, announcing a proposal to end federal penalties for Americans carrying fewer than 100 grams, almost a quarter-pound, of the substance.
I may not have equity now, but one day the house will be sold and the loan paid off in full.
When 5 years, ten years, I don't think you can say. Until then you owe the bank.
My mortgage is the same as my rent was 4 years ago. My mortgage won't go up like my rent did.
You weren't legally obligated to rent the same house for 30 years either.
Anon
Last thing someday you will pay off the loan but would you have been better off not taking one out in the 1st place. I think you would have.
10/4/2007 BUY HUD with FHA
(Florida) (Update)
"HUD is currently offering a $100 down payment initiative. The $100 d.p. is for owner occupants purchasing a HUD Home with FHA financing.....
It's a great time to Purchase a HUD Home with FHA financing."
P.S. IMO in less than 3 months(from now on) this $100 D.P. is going to be extended to all purchases involving FHA financing.
P.P.S. The last sentence would make any realtor proud.
I don't know if I can financially survive any more 'victories' like this. - HARM
Vee haf vays of makink you pay!
P.S. I wonder how Randy H is doing advocating his theory of home price stickiness.
I'll put a wage that Congress adds the DAP to some legislation next year. Any takers?
franz writes:
I'll put a wage that Congress adds the DAP to some legislation next year. Any takers?
"Don't you want poor families to own their homes?" Angelo Mozilo
franz writes:
I'll put a wage that Congress adds the DAP to some legislation next year.
Franz, you most certainly will be putting wages into that program. Congress: the gift that keeps on taking.
UCI says subprime didn't cause housing boom
Oy vey, talk about transparent excuses. They say mortgage lenders were forced into disasterously loose lending standards by a mild pullback in GSE loans. When F&F don't buy every loan, the banks are just forced to make c**p loans. Poor them.
Oh, and they're using the "subprime" wordplay we've all been ragging on.
"Thank god I was able to buy then, because subsequently home values shot up and within a year or so were unaffordable to others in my salary range."
And if people can't buy houses then... the Government should step in to keep them unaffordable? This is the equivalent of people using their Visa to pay their Mastercard, just to keep eating out.
Fair Economist writes:
UCI says subprime didn't cause housing boom
Ah the Harvard of the West...
Blech, another form of vendor financing.
Not sure it is a big deal in the short run.
Lender funded DPA essentially distorts the actual value of the home and so the appraisals in the area. It allowed 100% morgages to be written that looked on paper like 90%. During resent tightening of lending standards and appraisals the lenders should have learned that paid price != value of a property. And if they have not - who could they sell the loan?
The impact of this change will be felt more long term. It removes a mechanism that allowed housing prices to move upwards faster than inflation.
Premature celebration. Maxine Waters promised to bring back DAPs as a standalone. Maybe DAP won't get inserted into some authorization this year, but you can bet your joyful-witchingdeath-glee that DAP will be back in 2009 with Obama and Democrat majorities. In fact wouldn't the NAR and mortgage companies be lobbying to bring back DAPs as well?
Do you really think it'll be dead for long!? DAP will come back when they pass the second Fannie-Freddie-bailout bill... and you can take that to the TAF!
Fair Economist, JB,
Talk about an act of academic masturbation. Did y'all see at the bottom the sponors of this great academic treatise?
The research was partly funded by the Homer Hoyt Institute, Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors Subprime Crisis Research Consortium. An earlier version of the research was first presented at the 2008 meeting of the Allied Social Science Associations.
Best,
P.S. I wonder how Randy H is doing advocating his theory of home price stickiness.
Lol. Much as I hate to admit it, when it comes to 'prime' areeas of the Bay (Marin, Noe, Cow Hollow, Marina, Atherton, Morage, Orinda), it's about right. Prices are just now starting to creep down, but it's nothing like the bloodbath in the Central Valley, Inland Empire or high deserts.
OT
We were talking on a thread late last night about MetLife earnings disappointment and why haven't life insurance companies experienced much pain yet.
I think it's coming, just a delayed reaction. They have so much exposure to bad paper. And their sales and revenues dry up in a recession.
I said 2009 would be the year of life insurance failures, starting with the smaller companies that have a lot of doubtful bonds on the books.
Here's my best short idea. A company near me in Nyack, Presidential Life (PLFE). They have $3.4 billion on the books in bond market value, but who knows what it's actually worth?
http://www.presidentiallife.com/002/02.asp#balance
As of 3/31/, 42% was single-A and about 33% was Baa or lower. If you think corporates are being propped up by ratings agencies and are eventually going a lot lower, with many defaults, this could be a good short. Market cap is about half a billion.
The kicker is that the CEO is 89 years old, he's been there forever, and there is no real #2, #3 etc. He owns one quarter of the float. So, it's not just a bond default short. It's kinda a mortality based short.
Another thing: The company's main product is single-premium deferred annuities. A little known fact about SPDAs is that there has been hardly any "sales" for years, although companies keep reporting them. It's mostly just churning of old contracts into new commissions. Helps the agent, not the company.
In any kind of run, older SPDAs (beyond surrender charge) are like cash. They disappear from the books fast. This was what brought down Baldwin United.
Oh, insurance companies that sell SPDAs are like banks without FDIC.
Maxine Waters? The one who is widely acknowledged to be one of the most corrupt members of Congress?
What a co-inki-dink.
Doin a heckuva job, Maxy.
RE: 404 :: UC Irvine TODAY? key=1805
'We were quite surprised to find the intensity of subprime lending was insignificant after controlling for all the other factors influencing the market, but [b]we were really blown away when Fannies and Freddies continuing presence in the market was shown to be so important,'[/b] said Kerry Vandell, UCI finance professor and Center for Real Estate director." . . .
[b]"The research was partly funded by the Homer Hoyt Institute, Freddie Mac,[/b] the Mortgage Bankers Association and the National Association of Realtors Subprime Crisis Research Consortium. An earlier version of the research was first presented at the 2008 meeting of the Allied Social Science Associations. "
Can't help but notice that home prices are caught in a classic unstable feedback system. The downpayment requirement is one of the few damping factors in the system and seller provided DAP simply removes that.
Providing funding for Fannie and Freddie, as repugnant as that may be for those of us who believe that "price discovery" should occur as rapidly as possible, may be tolerated as further damping; is it really desirable for home prices to drop so low that no homes are built, and no one can sell because they must bring money to the closing?
The most marginal owners will simply walk away, but the majority have money to make payments, but cannot raise sufficient sums to pay the transaction costs to sell once prices drop below the initial purchase price.
Once interest rates have escalated to account for the high risks and low volume of a market with the only sales foreclosures, I think none of us will be very happy.
Oil down, Market RALLY. Oil UP, Market _____ ?
Oil down, Market RALLY. Oil UP, Market _____ ?
Banks sold all their oil holdings to buy up their shares (speculation). Market trades flat to down with Thursday, Friday being bad days when the news come out.
"Other buyers will borrow from parents and friends or...."
will borrow from the Holy Trinity Church of Chicago via a USG grant.
Something no one wants to talk about.
Maxine's protege is none other than our astute Ms Richardson of long beach..
OT: In anticipation of Friday's NFP I just researched the birth/death adjustments for the past few months, and found something interesting.
Mon 2007 -- 2008
Apr 262 -- 267
May 174 -- 217
Jun 155 -- 177
Jul 3 -- ???
The B/D adjustments for each month are quite close to the previous year's numbers for that month. If this trend holds then the B/D for July 2008 should be very low and we could be seeing a payroll number that is much worse than predicted.
Banks sold all their oil holdings to buy up their shares (speculation).
I think they are selling their oil holdings in small batchess to trigger $3-4 dollar drops when they need to buy/boost share prices and prevent a widespread collapse. Perhaps they will let it drift back up (and their share prices down) so long as the movement is slow. Then they will rinse/repeat. At least, it seems this pattern seems to have been repeated over the last 2+ weeks...
sonic-thats a great find..
this friday should be interesting..
"HUD is currently offering a $100 down payment initiative. The $100 d.p. is for owner occupants purchasing a HUD Home with FHA financing.....
It's a great time to Purchase a HUD Home with FHA financing."
Wait until Maxine Waters finds out that people who don't have $100 won't be able to buy a house.
"Providing funding for Fannie and Freddie, as repugnant as that may be for those of us who believe that "price discovery" should occur as rapidly as possible, may be tolerated as further damping; is it really desirable for home prices to drop so low that no homes are built, and no one can sell because they must bring money to the closing?"
Hell yes it's desirable! How do you get rid of an unsustainable overhang of housing? DON'T BUILD new housing and go back to historical norms in under-writing which means 20% down, verifiable income and a clean credit score.
For ANYONE to argue otherwise after the cler fck that has just happened and continues to happen is idiotic at best and probably also immoral.
Do you work for NAR or are you just one of those hypocritical pseudo-capitalist shills on CNBS.
I swear I want to scream now everytime I read crap like this.
Just to add to my comment above. No I'm not some bitter renter. We bought our house in 1996 with 20% down that we scrimped and saved for. We sold in 2004 when the fundamentals made ABSOLUTELY no sense whatsoever.
I didn't expect any handouts when I lost my shirt in the dot-com crash.
Corn Rises for 5th Session as U.S. Keeps Restrictions on Acres
Corn Rises for 5th Session as U.S. Keeps Restrictions on Acres - Bloomberg.com
Anyone buying these crap boxes is Cornholiod, they will be ASSimilated.
"HUD is currently offering a $100 down payment initiative. The $100 d.p. is for owner occupants purchasing a HUD Home with FHA financing.....
It's a great time to Purchase a HUD Home with FHA financing."
if it is not a typo they "need help"... HUD that is
Drone,
That dog don't hunt, my man. I put down cash and bought in '99, myself, but I simply don't see it as being in my interest to have the whole thing implode completely. Screwing the handful stupid enough to buy in '06 in a bubble-zone with a neg-am is another matter entirely, but the votes just aren't there for a "Year Zero" solution. As it was, is and ever shall be, a matter of self-interest.
New HUD raido campaign:
"DO YOU HAVE $100 AND A JOB? DO YOU WANT A HOUSE BUT AFRAID YOU CAN'T AFFORD IT? NOW YOU CAN!!!"
barely writes:
"Oil down, Market RALLY. Oil UP, Market _____ ?"
there is a strange ghost in one of my computers (with streaming charts + Java): every time there is a pump attempt the cpu goes bonkers. It always occurs at 2.30 or 3 pm, never in am open even though volume can be much higher then.
today the pump attempt is not working very well, so far.
DAP is caulk.
DAP Products - Caulks, Sealants, Adhesives, Repair and Floor Covering
I know I can't be the first to note that the caulk is drying up.
I guess they'll just use toothpaste now - the old kind, not that newfangled spangled blue stuff.
until price discovery is achieved builder's won't stop building against worthless RE, and banks won't stop lending against worthless RE, and wall street won't stop trying to scam against worthless RE. Each "damper" designed to cushion the blow of the downward spiral will in effect make house prices go much much lower.
All of the govt and FED intervention to save housing markets is ensuring that prices will drop peak to trough similar or greater than in the great depression. 90% plus drops.
The more the govt and FED step in to try and do something about the problem the bigger they make the problem.
We had the choice to take our medicine and the majority didn't want to. Now we are going into a bust that will dwarf the great depression
Where did they pull the number 400,000 out of? A hat? This just goes to show you that it's all a load of crap. It's a bail out for Freddie and Fannie and Wallstreet (aka. investment banks). Buy a gun and a safe and withdraw your money. There's too much money sitting in non-managed mutual fund accounts for them not to crave it. 401ks were a construct of the investment banking industry to CONTROL AND DOMINATE YOUR MONEY FOR THEIR OWN GREEDY GAINS. TAKE OUT YOUR MONEY AND KEEP IT SAFE SOMEWHERE ELSE.
Any kind of normal grandma-provided DAP wouldn't involve appraisal fraud. The appraisal fraud comes in to allow every participant to get a cut up front, with a bigger loss whenever F & F go to push back the loan and find a vacant office in a vacant stip mall where the bank used to be.
F & F are eventually backed up by the FDIC, by this scheme.
And here's why you cannot even quit the game:
A bank run, on a fractional reserve system, is essentially a lender's strike.
But if the Fed can loan or print, every lender's strike can and will be broken,
up to the point when the currency is
worthless. So apparently we actually will
dance until the music stops.
I'm not worried about DAP returning next year, because I'm certain that by then FHA (as well as the HBs) will be in no position to support them. IOW, no FHA = no DAP.
Chill, Drone.
I AM one of those who believes in 20% down, verifiable income and good credit score.
I put 30% down when I bought my home 20 some years ago, and am actually eagerly watching for prices in my area to drop, since I would happily move up a bit.
I'm also watching the south end of my county, where nearly new homes sit empty, foreclosed, the prices 40% below sales from 2005. Sales are ramping up, but a spike in interest rates could kill that quickly. Most of the buyers in that area have, shall we say, moderate credit scores.
Cost of ownership there, with a decent loan rate, would be less than renting. Rental rates are rising, there actually is a housing shortage.
Would it be good to constrict credit until all those with a rate reset are squeezed out? If the prices are already below replacement costs and rental costs, how much lower should they go?
Anyway, have a nice scream.
I'm not convinced they CAN print. How many people can and want to take on more debt right now? To print, someone must borrow, no?
How do we replace the home ATM-bubble-to-the-masses with a few loans that will never get to Joe Sixer?
I don't think we do.
Massive short squeeze across the energy stocks today. Violent swing.
"Massive short squeeze across the energy stocks today. Violent swing.'
was expected; news from Niger, Iran "messages", and inventory this am
negative divergence shaping up in financials
The wild root(s) of the housing bubble is not down payment assistance. "A little DAP will do ya"
sorry...
"negative divergence shaping up in financials"
I don't understand how that is even possible. I figured money going into energy would be money coming OUT of financials. It takes some buying pressure to spark a rally and then the hot money should chase momentum ?
the FED cannot inflate without the banks being able to use the cash to have a transaction occur. That requires the following 2 factors to be in place
China tells servant Hank to back GSE's. Problem is we are Hank's servants.
Political Diary - WSJ.com
CSC-
I agree I think the sheeple are currently in kind of shock about what debt does to them and what it doesn't do to banks and crooks.
OT-You remember when immigrants came here because hard work and honoring your word provided opportunities to build a better life for thier family and thier country didn't; They came here because contracts were honored, governments were democratic, ideals upheld and a regulated finance system, faith was tolerated, freedom provided sense of pride and many brave people the courage to fight tyranny and evil dictators instead of wars built on false truths...
America is in trouble because we have become more like the countries the immigrants left...
who thought looting was only confined to haiti, mexico, nigeria, mynamar etc?
they just paint the picture differently here, they need a lot of green to fill in all that red...
Canadaman - aka - The next bag holders.
"Rental rates are rising, there actually is a housing shortage."
Curious. What part of the country are you in? It's hard to imagine much rental pricing power with the soft job market and high vacancy rates.
I don't understand how that is even possible. I figured money going into energy would be money coming OUT of financials'
seems to me that it is going out, or rather it did in the am when the volume was high (see XLF, GS...) and even yesterday around close when there was mostly "churning"
it has to do with the usual up/down volume ratio: the 2-3 pm pump for ex. is in a rather small volume (under 1/3 just eye balling) = dragging in the last suckers (or fooling some naive shorts)
negative divergence usually reflects the move tries to continue but the volume has turned much lower
Remember Ed? Ed McMahon that is (did I spell his name right; I am seldom called upon to spell it). He is back in the news:
Yahoo! 404 - Page Not Found
I sure hope he manages to wiggle out of all this.
I meant the 3 pm pump volume appears less than 1/3 the early morning down volume -visual integration-
Tech is starting to look weak. Actually, it's starting to look a lot like 2000, where undercapitalized and unprofitable tech companies got caught in a downdraft and couldn't get enough capital to survive.
Wanna see a real miss? KEM reported a quarterly loss of $2.33 vs. estimate of + 2 cents! Down 50% for the day.
What's difference about now compared to 2000? Then, there more stock. Now, there's more debt. A lot more leverage...
"Kemet notes that if it cannot obtain funds to redeem the Senior Notes, or otherwise restructure them or get an additional waiver, the holders would be able to declare them in default. And that would create a default on the companys $152 million credit facility with UniCredit. And if the company failed to pay either of those back when due, the holders of the companys $175 million of convertible senior notes could demand repayment. And heres the thing: at June 30, they only had $35.5 million in cash. You dont need to be a financial genius to see that the math doesnt work in Kemets favor."
I've been telling you about all these 1-year and 2-year heged fund secured loans to small companies at 12-16%.
They're coming due.
cd writes:
OT-You remember when immigrants came here because hard work and honoring your word provided opportunities to build a better life for thier family and thier country didn't; They came here because contracts were honored, governments were democratic, ideals upheld and a regulated finance system, faith was tolerated, freedom provided sense of pride and many brave people the courage to fight tyranny and evil dictators instead of wars built on false truths...
This is the grand transformation that makes me so angry. I am also hearing a fair amount of, "Naw...that was all always bullshit." And as cynical as I am, I can't believe that is true.
"Rental rates are rising, there actually is a housing shortage."
Or another alternative way of thinking about it is:
House is foreclosed on and bank sits on inventory.
Former home owner needs a place to stay and goes out and rents a place.
Number of rental units has stayed constant as bank sits on it's inventory.
And magically you get higher demand for rental units even though the population hasn't increased.
Now what do you think happens when those units are dumped by the banks back onto the market. Or better yet what happens when the economy dives six months down the line.
I'll let you connect the dots.
And, I'm sorry...but when you have to go to the Civil War to excuse the actions of your President, and the Great Depression to find comparisons for the economy, then how the "F" can we speak of short, shallow, 6-months slow-downs and life-as-its-been.
Man...I'm hitting it. Sorry.
Real estate service companies today:
Ziprealty Inc\t-18.00%
Hff Inc\t-18.12%\t
Richard Ellis Group Inc\t-19.33%
Move Inc Com\t-22.22%
Jones Lang LaSalle inc\t-26.90%
FirstService Corporation -35.30%
Grubb & Ellis Company\t-41.37%
You remember when immigrants came here because hard work and honoring your word provided opportunities to build a better life for thier family and thier country didn't; They came here because contracts were honored, governments were democratic, ideals upheld and a regulated finance system, faith was tolerated, freedom provided sense of pride and many brave people the courage to fight tyranny and evil dictators instead of wars built on false truths...
I would add that American education used to another beacon for immigrants. Now, it's a scary thing to think that MIT and the Ivies are often "safety schools" for legions of Indians and Chinese students.
KEM was confirmed on the slide around 6.5 and then 5 ... and now (around 1 !) it is time to wait for a "dead cat bounce' to enter a short IMO.
I do not "chase", but rather try to catch the move a bit ahead of the curve
Hi, Darth
I'm in Santa Cruz; rental prices are kept high by UC students, vacation rentals, slow growth and greenbelt policies. The immediate Santa Cruz area home prices are kept high by tolerable commutes to Silicon Valley,
while the South County is really too far, but there was the available land for home construction.
So I think prices on new homes overshot by 60% or so, the 40% drop eats that and brings them into near parity with rents. The bottom dregs of older homes probably overshot by 100%, for buyers of those there is no hope.
OT:
wow. SBux came in with a loss...
DK, the 400,000 number comes from a Congressional Budget Office analysis. The same analysis guesses that 35 percent of those 400,000 borrowers will default on their refi'd FHA-insured loans, with a loss severity of 60 percent.
rowen,
Or that china produces 10 times the number of engineers we do in the US.
Oh and despite it's growing economy, china's unemployment rate for new college grads is over 20%! So that means there are 200k unemployed engineers graduating every year in china, which is 3 times as Many engineers as the US graduates per year
Seems to me that those who are saying "DPA programs are good for first-time buyers." are really saying, "Real estate only goes up, and if we can shoe-horn these people into a house, they will be OK if they stay there 5 or more years." Yeah, but only if real estate really does alway goes up.
lots of hiring freezes in tech. Heard some rumors that even mighty google has stopped hiring.
I heard that rumor back in May about google. I wonder if it is true.
"It takes some buying pressure to spark a rally and then the hot money should chase momentum ?"
... all it takes is the minimum volume needed to "spark" the move up, by triggering shorts to start covering(want to bet they know where the "stops" are?), let the short covering run out at each step or better: unload your longs on them as the covering gains momentum, then repeat to the next level up etc...
That is the way i would do it at least, just using the minimum fire power to trigger those nervous guys.
It all stops when they run out of suckers
Any speculative tape bombs on the menu for tomorrow, just curious because we have a $30+ billion TIO in the slosh tomorrow...or just Hank feeling his oats?
Red, 10-4.
Santa Cruz is one of those strange areas where I could actually see some rental price increases in the near term (used to live in Los Gatos years ago.) I'm not sure how long it will last though, considering that a lot of it depends upon healthy tech salaries, and the tech picture is unclear.
Holden Lewis writes: (the CBO) analysis guesses that 35 percent of those 400,000 borrowers will default on their refi'd FHA-insured loans, with a loss severity of 60 percent.
CBO paper sez: "CBO estimates that...the cumulative claims rate (default) for the program would be about 35 percent and that recoveries on defaulted mortgages would be about 60 percent of the outstanding loan amount."
A 60% recovery rate is a 40% loss severity rate. Not to nitpick, it's still very high. I actually find myself mostly agreeing with Dean Baker on this point. I feel woozy.
Kill DAP or other low down payment plans all you want. It will only drive prices lower. No one can make a move in this market unless they already have strong equity. Nothing can break the log jam. Prices will continue to fall - there is nothing to stop them.
So the Housing Bill is passed - and FHA got their wish - to axe the Seller funded downpayment assistance program. Which is a very large part of the current sales activity in the market. Because of claims about "possible" losses.
Once again - how about some math and real facts to support the claims?
From FHA - as of June 30:
Total Active Portfolio - 3,896,389 loans - Foreclosures total 58,876 - which makes the total foreclosure rate is 1.51% currently on the entire FHA portfolio.
The FHA added 68,588 new loans in June 2008, an annualized rate of appx 823,000
Various reports claim a foreclosure rate 2 times higher on the loans with Seller downpayment assistance and that appx 30% of FHA loans are current originated using Seller funded downpayment assistance.
http://www.gao.gov/new.items/d071033t.pdf
At 30% - there would be appx 247,000 new loans this year that used Seller DAP.
The regular foreclosure rate of 1,51% on these loans would equal 3,728 foreclosures normally. With a doubled foreclosure rate of 3.02% on loans with Seller DAP appx 3,728 additional foreclosures would occur on this pool over the year. This represents just 0.45% of the total number of new FHA loans for the year.
Using a median home price in the US in June 2008 of $215,100 that would represent $801.99 million in additional loans foreclosed due to Seller DAP. The FHA loose appx 25% as each of these loans are sold after foreclosure - which would mean on these additional 3,728 foreclosures over the next year a total loss of $200.49 million.
So - 247,000 homeowners are helped overall by the Seller downpayment Assistance Program. A total of 3,728 over the standard foreclosure rate for all loans with and without downpayment assistance would be foreclosed out of these 247,000.
Which means 243,000+ homebuyers were helped by the Seller downpayment assistance program who were NOT foreclosed.
The total costs to help those 243,000+ homeowners is appx $200 million (the loss on the additional foreclosures due to the program.) If we divide $200 million by the total 247,000 loans that received Seller DAP this loss comes out to $812 per loan. Why would we NOT simply increase the FHA mortgage Insurance premium for Seller funded Downpayment assistance loans by $812 - and continue to help the 99.55% of people who used the Seller DAP and did not get foreclosed?
More ridiculous yet - the FHA MIP is financed - added into the loan. At 6.75% interest over 30 years that $812 costs $5.97 per month
The Seller DAP helps people buy homes. Some will default, and at a higher rate than loans without it. Instead of simple rational effort to assess those costs to benefiting borrowers - who would gladly trade $812 in insurance premium for their downpayment - we throw out the entire program.
Why is it smart folks - with excellent insight - like Tanta and Calculated Risk - do not make the effort to drill down to the facts regarding these issues?
@ASG,
This is kind of an 'anti-consumer' blame-the-borrowers blog at times...
3-5% down payment absolutely pathetic!!!
This entire real esatte market was the BIGGEST MISALLOCATION OF CAPITAL IN US HISTORY!
What the F%$# does building acres and acres of Mcmansions do for our economy's competitiveness?
It is time to change policy now!
"No one can make a move in this market unless they already have strong equity....Prices will continue to fall - there is nothing to stop them."
Paul, prices will stop falling when young folks can prudently buy a decent house...maybe around 3x of one income.
Part of what's infuriating about all this is "We have to keep prices high or EVERYONE will lose their wealth" kind of sucks when you were in high school or college while the bubble was inflating, and watched others lavishly spend Appreciation Fairy money while you struggled to pay your student loans and rent.
In other words, people under 30 or 35 effectively face "taxation without representation." Especially singles.
Everytime you guys say "The Fed cannot print, because you need a willing borrow & lender", I need you to remind yourself that no one sends a stimulus check back.
The helicopter isn't dropping loan applications to be picked up at
a later date...
This will resurface somewhere witha different acronym. May I suggest CRAP-Clearly Reprehensible All Parties or whatever i'm to tired to think of something truly clever.
Since everyone is so excited DAP is going away watch as property values drop even more as we going into the end of 2008. And lets make sure we remember where the problem arose - which was not DPA - it was conventional mortgages. To point the finger at DPA for what happened is missing the real reason for the meltdown.