Vital point from a commenter:
“Regardless of political mudslinging, the crux of the discussion is this section
“Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes
his or her monthly payments on time for two years, the one percentage point premium is dropped.”
So Candy, how many of the current defaulters used that program? I am sincerely asking the question. Is it 1% of the current defaulters, 10%, 50%, 0%? What is it?
Don’t go pointing fingers without having some answers.”
Anyone have the answers?
The Mortgage Bankers Association sees weaknesses in Obama’s real estate stimulus plan in the lending realm, like the upper limit of a 105% loan-to-value ratio required for refinancing, and the role of Freddie Mac/Fannie Mae as guarantors.
I finally found out why private mortgage insurance didn’t help with the mass of defaulting loans, thanks to this comprehensive article from Housingwire.com, which is kind of bullish on the HASP. GSE (government sponsored enterprises, like the Fannies and Freddie) charters prohibit financing for more than 80% of property value. If the loan to value ratio is higher than that, the loan must have third party credit support.
“Historically, this credit support has been in the form of PMI, but in the bubble-building years, borrowers found piggy-back second mortgages less costly (because they were securitized and off-loaded into CDOs and yield-hungry funds). As much as the GSEs have tightened their credit standards, PMI underwriting is even tougher, and their insurance premiums have gone up to reflect the realities of mortgage risk.”
I know the reports are preliminary, but I am already getting ulcers over President Obama’s cure for our housing woes. Here’s my first report card:
A -$8000 tax credit for first-time buyers, l like very much. Assuming this will work like a section 179 deduction and come right off the taxes, not add 5 more pages or 6 hours of CPA billable hours to the tax return, essentially using tax dollars to help fund the home purchase.
F- Revamping U.S. bankruptcy rules, giving judges the power to reduce mortgage payments and set lower interest rates. Excuse me, but I think part of our problem was that banks got too big, unregulated and complex. So now we are going to let judges play banker? This will slow down lending and banks will have to recoup their losses from somewhere —charge more to the customers who pay their bills, or higher PMI or PMI for everyone or higher interest rates.
Not fair, folks.
C – The government will match reductions lenders make to keep borrowers home payments at 31% of their income. What income — stated income? Does that include alimony?
Incomplete – Flushing Fannie Mae and Freddie Mac with $900 billion.
You haven’t heard from me because I spent half the day with travel delays –it’s cold and rainy in NYC, which matches the mood perfectly at this year’s Inman News Real Estate Connect. I tootled in just in time to hear Bob Shiller, the famed Yale economist who creates the benchmark SP/Case Shiller Housing Report. The heads — Bob Shiller wants to see us trade real estate securities like stocks, thinks the government should subsidize financial advisers for every family, and made liberal use of the D word — depression:
Love this article by Bruce Bartlett, a new Forbes columnist —- significant quote:
“While conceding that economic fundamentals were favorable to rising home prices, they also noted that there were elements of bubble psychology in the housing market. Case and Shiller pointed to an increase in the buying of real estate for investment purposes and high expectations of housing price increases.
They also observed an increasing sense of urgency and opportunity among home buyers, who were plunging into real estate for fear of being left behind as they perceived their friends and neighbors growing richer–classic signs of a bubble.”
My prediction: glorious low rates in 6 months. Today was my last full day of class at Champion School of Real Estate before my elective and then — I take the state exam! I am getting my real estate license to be a better real estate reporter for the D Empire and our forthcoming new website. Learned a ton – have TOTAL new respect for agents and brokers. From remembering intermediary to sub agent to IABS forms always need to be in size 10 type to HB 489 to independent contractor status to TRELA and TREC, ostensible authority and agency by estoppel, MLS to agent with appointment, without appointment, all I know is HOW DO YOU AGENTS DO IT? And I need an appointment with a glass of wine!
But, while I was ensconced in academia, history was made in the interest-rate realm. Here a couple of takes on that, jump for one from Philip Walker, one of my favorite agents at Keller Williams Turtle Creek, who brought lunch to recruit the A-plus students. Mortgage rate comments are on and the meter is running:
Oh yes, oh yes! Standard and Poor’s and Moody’s hired financial engineers who cooked the computer assessment of securities and tweaked until they got the answers they liked, then gave them to the rating agencies for AAA ratings. Not only does this sound like Enron, it also reminds me of those studies the government pays millions of dollars to figure out something we all know, like how children get better grades when they do homework in a quiet room without the distraction of televison.
Now they are playing hard-ball: The Mortgage Insider says that, beginning December 13, 2008, Fannie Mae and Freddie Mac have a bunch of guideline changes that will make it harder for people to obtain mortgages– basically ”No home equity, no down-payment, no dice.” Primary refi’s will be limited to 85% loan to value ratio, 75% for second homes and you’ll have to have a 25% equity stake in investment props for refi’s.
As a stock holder — or whatever I am now — I say too little, too late, baby. Loved this report depicting how a group of Republican Senators led by Chuck Hagel from Nebraska wanted to regulate FM/FM back in 2005 because they were smelling trouble. FM secretly paid a Republican consulting firm $2 million (of stockholder’s money) to lobby against this legislation: “If effective regulatory reform legislation… is not enacted…American taxpayers continue to be exposed to the enormous risk that FM/FM pose to the housing market, the overall financial system and the economy as a whole.”
Anyone else sick and tired and not wanting to take it anymore?
Just received my first of those all-too-familiar-looking, bar-coded notices notifying me of the class-action lawsuit against Fannie Mae: Franklin Raines, Timothy Howard, and Leanne G. Spencer as well as Fannie Mae’s former auditor KPMG LLP. Alleged violations: Sections 10(b) and 20 (a) of the Securities Exchange Act of 1934 and Rule 10b-6 by the SEC. Gretchen Morgenson at the NYT puts it the best way yet, but this graph really got my blood boiling:
“And, in another twist, we may also be asked to cover the legal bills of Franklin D. Raines, the former chief executive of Fannie Mae, who was ousted after that company’s accounting scandal in 2004. Under the terms of his separation agreement, Fannie Mae paid these bills.”
I hope Glenn Close is considering taking on this case.
We will have much to celebrate this New Year’s Eve, when the national housing market might be close to being wheeled out of ICU and into a regular HMO hospital room. (No private suites – too many ailing roommates on that policy – Bear Stearn, Lehman Brothers.) Alan Greenspan tells us we have to wait until 2009 for the national housing market to stabilize — stabilize meaning the patient is no longer on death’s doorstep, not meaning patient is jogging across the ICU floor. An article by James J. Cramer, co-founder of TheStreet.com. in last week’s issue of New York Magazine, targets the market-pick-up date as June 30, 2009. Personally, I think they are both taking Happy Pills.
Greenspan gets a lot of heat for the mess we are in, but I think he tried to make homes affordable for more Americans, particularly the influx of immigrants that our nation needs, immigrants the current administration has tried to keep out. (Cramer says it doesn’t matter who wins the election, both Obama and McCain will be more immigrant friendly than Bush has been. As the grandchild of immigrants, I have always thought it was dumb to try and “close the door”. We need immigrants, we just need to screen for terrorists better than we do. But illegal immigrants do overload our healthcare system, the next ICU patient.) It is not Greenspan’s fault that greedy mortgage brokers and even greedier Wall Street financiers made slippery loans, pocketed their fees, and then sold the packages to the next unsuspecting investor. Like a game of hot potatoe, these were passed to the last person holding the bag with the most subprime loans.
How Mr. Cramer can decide on a specific date is interesting. I hope he’s right: since Dallas hasn’t been hurt as much as other parts of the nation, that is only good news for us. June 30 will be the time next year’s spring market starts revving up, the key turning over about March. Maybe he means people will dip their toes in the water in April, May and June and find out the water’s not too bad. So everyone will dive in, much like they did five years ago. Some folks trusting enough to get back in the mortgage business would help. June 30, 2009? Let’s see what happens this week as more poo poo comes down… enough poo poo perhaps to maybe push interest rates down further?
(Cannot wait for New Year’s Eve!)
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