Fire Hydrant of Freedom

As I posted a response to the other site.

How can you trust a source that believes:

"At this pace, the Fed will soon accomplish their unstated goal of eliminating negative equity, which will allow for refinancing that will be great for the economy."

This is an absurd statement.  HARP already allows for Negative Equity financing, so who needs to artificially inflate values to eliminate negative equity again.   Inflating the values will only serve to prolong the housing crisis.

If you want to eliminate negative equity for refinancing, then you have to inflate to cover 25% of the homes with a mortgage.  This means another 10-20%.  But, that now means that you price buyers out of the market with the higher values.

This is a firm that does Real Estate Consulting?  Sounds like they are an off shoot of the NAR.

Here we go again.  Richmond,  the Bay Area crime capital, murder capital per capita, haven for gangs and drug dealers, is now going to try Eminent Domain to take underwater properties and sell them back to the homeowners, after screwing the investors.

This is a scam being perpetrated by Mortgage Resolution Partners, former mortgage brokers who now have a group of investors.  They and Richmond are essentially putting together a program whereby they will "steal" the properties from legitimate investors, and then earn a substantial profit when they take the home for 80% lf LTV, and then write down the underwater part of the original mortgage to 95%.  Then the borrower refinances into a 95% ltv loan.

Outside of theft, here are the other aspects.

1.  No defaulted loans allowed.  The borrower must be current, and probably have good credit.

2.  With 95% loan to value, the borrower must have cash to close to keep the 95% ltv.  How many have the funds?

3.  The loans would most likely be run through FHA.  Most GSE products would probably decline the loans.

4.  It is the original investors in MBS who get screwed.  GSE loans will not be  touched.  Banks might also be on the target list.

5.  Mortgage Resolution Partners make all the money.

Of course, the mayor of Richmond is a former school teacher.  She has no clue about the law, and the consequences of such as action.  You want to ruin Private Lending in the future, then watch what happens if Richmond succeeds.

Pat




A City Invokes Seizure Laws to Save Homes

The power of eminent domain has traditionally worked against homeowners, who can be forced to sell their property to make way for a new highway or shopping mall. But now the working-class city of Richmond, Calif., hopes to use the same legal tool to help people stay right where they are.

An abandoned home in Richmond, where roughly half of all homeowners with mortgages are underwater, meaning they owe more than their home is currently worth.

Scarcely touched by the nation’s housing recovery and tired of waiting for federal help, Richmond is about to become the first city in the nation to try eminent domain as a way to stop foreclosures.

The results will be closely watched by both Wall Street banks, which have vigorously opposed the use of eminent domain to buy mortgages and reduce homeowner debt, and a host of cities across the country that are considering emulating Richmond.

The banks have warned that such a move will bring down a hail of lawsuits and all but halt mortgage lending in any city with the temerity to try it.

But local officials, frustrated at the lack of large-scale relief from the Obama administration, relatively free of the influence that Wall Street wields in Washington, and faced with fraying neighborhoods and a depleted middle class, are beginning to shrug off those threats.

“We’re not willing to back down on this,” said Gayle McLaughlin, the former schoolteacher who is serving her second term as Richmond’s mayor. “They can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods.”

Despite rising home prices in many parts of the country, including California, roughly half of all homeowners with mortgages in Richmond are underwater, meaning they owe more — in some cases three or four times as much more — than their home is currently worth. On Monday, the city sent a round of letters to the owners and servicers of the loans, offering to buy 626 underwater loans. In some cases, the homeowner is already behind on the payments. Others are considered to be at risk of default, mainly because home values have fallen so much that the homeowner has little incentive to keep paying.

Many cities, particularly those where minority residents were steered into predatory loans, face a situation similar to that in Richmond, which is largely black and Hispanic. About two dozen other local and state governments, including Newark, Seattle and a handful of cities in California, are looking at the eminent domain strategy, according to a count by Robert Hockett, a Cornell University law professor and one of the plan’s chief proponents. Irvington, N.J., passed a resolution supporting its use in July. North Las Vegas will consider an eminent domain proposal in August, and El Monte, Calif., is poised to act after hearing out the opposition this week.

But the cities face an uphill battle. Some have already backed off, and those that proceed will be challenged in court. After San Bernardino County dropped the idea earlier this year, a network of housing groups and unions began working to win community support and develop nonprofit alternatives to Mortgage Resolution Partners, the firm that is managing the Richmond program.

“Our local electeds can’t do this alone, they need the backup support from their constituents,” said Amy Schur, a campaign director for the national Home Defenders League. “That’s what’s been the game changer in this effort.”

Richmond is offering to buy both current and delinquent loans. To defend against the charge that irresponsible homeowners who used their homes as A.T.M.’s are being helped at the expense of investors, the first pool of 626 loans does not include any homes with large second mortgages, said Steven M. Gluckstern, the chairman of Mortgage Resolution Partners.

The city is offering to buy the loans at what it considers the fair market value. In a hypothetical example, a home mortgaged for $400,000 is now worth $200,000. The city plans to buy the loan for $160,000, or about 80 percent of the value of the home, a discount that factors in the risk of default.

Then, the city would write down the debt to $190,000 and allow the homeowner to refinance at the new amount, probably through a government program. The $30,000 difference goes to the city, the investors who put up the money to buy the loan, closing costs and M.R.P. The homeowner would go from owing twice what the home is worth to having $10,000 in equity.

All of the loans in question are tied up in what are called private label securities, meaning they were bundled and sold to private investors. Such loans are generally the most unfavorable to borrowers and the most likely to default, Mr. Gluckstern said. But they are also the most difficult to modify because they are controlled by loan servicers and trustees for the investors, not the investors themselves. If Richmond’s purchase offer is declined, the city intends to use eminent domain to condemn and buy the loans.

The banks and the real estate industry have argued that such a move would be unprecedented and unconstitutional. But Mr. Hockett says that all types of property, not just land and buildings, are subject to eminent domain if the government can show it is needed to promote the public good, in this case fighting blight and keeping communities intact. Railroad stocks, private bus companies, sports teams and even some mortgages have been subject to eminent domain.

Opponents, including the Securities Industry and Financial Markets Association, the American Bankers Association, the National Association of Realtors and some big investors have mounted a concerted opposition campaign on multiple levels, including flying lobbyists to California city halls and pressuring Fannie Mae, Freddie Mac and the Federal Housing Administration to use their control of the mortgage industry to ban the practice.

Tim Cameron, the head of Sifma’s Asset Management Group, said any city using eminent domain would make borrowing more expensive for everyone in the community and divert profits from the investors who now own the loan to M.R.P. and the investors financing the new program. “Eminent domain is used for roads and schools and bridges that benefit an entire community, not something that cherry-picks who the winners are and who the losers are,” he said.

Representative John Campbell, Republican of California, has introduced a bill that would prohibit Fannie, Freddie and the F.H.A. from making, guaranteeing or insuring a mortgage in any community that has used eminent domain in this way. Eminent domain supporters say such limits would constitute a throwback to the illegal practice called redlining, when banks refused to lend in minority communities.

Opponents have also employed hardball tactics. In North Las Vegas, a mass mailer paid for by real estate brokers warned that M.R.P. had “hatched a plan to make millions of dollars by foreclosing on homeowners who are current on their payments.”

In a letter to the Justice Department, Lt. Gov. Gavin Newsom of California complained that the opposition was violating antitrust laws and that one unnamed hedge fund had threatened an investor in the project.

But not all mortgage investors oppose the plan. Some have long argued that writing down homeowner debt makes sense in many cases. “This is not the first choice, but it’s rapidly becoming the only choice on how to fix this mess,” said William Frey, an investor advocate.

Mr. Frey said that the big banks were terrified that if eminent domain strategies became widespread, they would engulf not only primary mortgages but some $450 billion in second liens and home equity loans that are on the banks’ balance sheets. “It has nothing to do with morality or anything like that, it has to do with second liens.”

Many of the communities considering eminent domain were targeted by lenders who steered minority families eligible for conventional mortgages into loans with higher interest rates and ballooning payments. Robert and Patricia Castillo bought a three-bedroom, one-bathroom home in Richmond because their son, who is severely autistic, would anger landlords with his destructive impulses. They paid $420,000 for a home that is now worth $125,000, Mr. Castillo, a mechanic, said.

They have watched as their daughter’s playmates on the block have, one by one, lost their homes. But they are reluctant to walk away from the house in part for the sake of their son.

“We’re in a bad situation,” Mr. Castillo, 44, said. “Not only me and my family, but the whole of Richmond.”

Here is some info to show all how screwed up things are.  These are Default Percentages of Loans originated through the GSE's in 2008 and 2009.  By that time, underwriting had tightened considerably, but there were still high LTV loans being done.

With the data, you can see the impact that low credit scores had on Default Percentages, but there are contrary indications that don't make sense at first.  What I am doing is evaluating a 15m loan data base from Freddie to understand why the outliers exist, the causes of such, and how my new scoring model can account for those factors.  Additionally, I and others are engaged in taking this data, using it to determine default risk probability, and then use the data to identify Tier 1 & 2 Capital requirements for banks under BASEL III.  The bad part is that I am not getting paid for this yet.  That only occurs when we roll everything out next month, and then start signing up banks.  At that point, my Patents Rights and Royalties kick in.  But until then, I am eating beans, without the ham hocks.


                         GSE Loan Default Rates 2008-2009 Loan Originations


                                     Loan to Value 25% to 75%

   FICO                           350-639   640-679   680-719   720-950

   DTI         20.1-25    14.80%     5.20%   3.00%     0.50%
   DTI         25.1-30    16.70%     6.70%   3.50%     0.80%
   DTI         30.1-35      17.60%     7.80%   4.30%     1.00%
   DTI         35.1-40   19.90%     9.00%   5.60%     1.50%
   DTI         40.1-45   22.20%   11.20%   6.40%     1.80%
   DTI         45.1-50   23.00%   11.50%   7.20%   21.00%
               
With this data, notice the increase in Default % for the 720 bracket.  This is purely a result of the high DTI.  Probably, it also means that the loan amounts were lower than $200k and presents a small positive Cash Flow after living expenses are considered.

For the under 640 bracket, notice the consistent high default percentages.  Typical of that credit profile. 

This data shows the nexus of DTI to FICO, especially when loan amounts are smaller and not larger.



                                       Loan To Value  75.% - 85%
               
               
   FICO                           350-639    640-679   680-719   720-950

   DTI         20.1-25   17.50%   8.90%   5.40%   1.30%
   DTI         25.1-30   19.00%   9.30%   5.90%   1.60%
   DTI         30.1-35   22.20%   11.00%   7.20%   2.20%
   DTI         35.1-40   24.20%   13.20%   9.20%   3.20%
   DTI         40.1-45   27.10%   15.40%   10.90%   3.90%
   DTI         45.1-50   27.60%   16.50%   11.40%   4.60%


At the 75-85% LTV, Defaults have increased across all cohorts.  This is the stronger influence of the higher LTV at work.  This is in line with studies that indicate the higher the LTV, the greater the risk.  A likely reason in this case is that many of the homes dropped in value from origination, preventing an ability to "exit" the loan as finances got worse.  Positive cash flow would be an issue with the DTI above 40%, for many of the loans.


                                            Loan To Value 85.1% to 95%

   FICO                          350-639   640-679   680-719   720-950

   DTI        20.1-25    17.40%   7.80%   5.00%   2.10%
   DTI        25.1-30    19.40%   9.00%   5.50%   2.50%
   DTI        30.1-35    22.40%   10.70%   6.70%   3.10%
        DTI        35.1-40    25.00%   12.70%   9.40%   4.30%
   DTI        40.1-45    27.20%   15.00%   11.10%   5.80%
   DTI        45.1-50    28.20%   16.20%   12.10%   6.80%
               
   
This chart offers an interesting observation.  With it, defaults from 719 and lower have remained reasonably steady.  This suggests that that there might be a "Cap" at some level for increased default risk.  (Means I have more research to do to figure this out.  For the 720 and up group, we see that the influence of DTI is being felt more.  Also, with the higher LTV, the possibility of exiting the loan through refinance or selling the property may have diminished, leading to a higher default rate.
                                         


                                                  Loan to Value 95.1 +

                  
   FICO                           350-639   640-679   680-719   720-950

   DTI         20.1-25   19.00%   6.80%   3.10%   1.30%
   DTI         25.1-30   21.00%   7.40%   3.50%   1.40%
        DTI         30.1-35   22.20%   8.50%   4.10%   1.70%
        DTI         35.1-40   25.10%   10.10%   5.00%   2.10%
   DTI         40.1-45   26.50%   11.60%   6.30%   2.80%
   DTI         45.1-50   26.20%   12.70%   6.80%   3.60%

The 95 plus LTV group has thrown me for a complete loss.  Default rates have fallen for the 640 and above credit scores.  Yet, they essentially remain the same for the 639 and lower scores.  From a risk viewpoint, we know that 95% plus LTVs have a much greater default rate than the 85-95 group, but this does not reflect that reality.

Different factors may come into play, from the volume of such loans being much lower, whether a purchase or cash out refinance, to even regional differences of where the homes are.  But without in depth analysis, who the hell knows. Or there could be one or more of 28 other factors that play a role in default risk.

Additionally, has HAMP played a part as well? Or the offering of Short Sales before a person went into default?

The good news is that the number of defaults have fallen in the 2010 and 2011 vintages, but they have one to two years less performance to evaluate.  Additionally, they were subjected to more stringent underwriting, than in 08 or 09.  But defaults are surely going to rise, especially when the Fed quits QE, and also when HAMP loans begin to experience interest rate increases in 2014. 

Understanding this data is critical for the banks.  Under BASEL III,  Loan Risk is a key factor in determining Capital  (iow, shareholder equity) requirements for liquidity and loss purposes.  Banks have to increase their Capital  from 6 to 8%, based upon risk calculations.  But the problem is quantifying risk, and that is what I am engaged in now.

Watt is going to do everything that he can to force Principal Reductions on GSE loans.  Of course, that means two things.

1.  Ginnie Mae bond holders (includes Fannie & Freddie) will suffer additional losses in income revenue from the reduced payments.

2.  Taxpayers will be bailing out the GSE's for further losses.

Additionally, he is going to push lower lending standards for people who can't qualify at established standards, which means that we will be back to the standards that led to the Housing Crisis.

How will the market ever recover with these idiots in charge?

I'm baaaaaack!

To put housing into perspective, since I haven't had the time lately to do much of anything, here is a report that really talks about the Housing Recovery for what it is.  I normally do not agree with Lee Adler on many things, but here I do.


http://wallstreetexaminer.com/2013/04/23/its-a-housing-recovery-in-orwellian-terms-heres-the-reality/

It’s A Housing “Recovery” In Orwellian Terms – Here’s The Reality

April 23, 2013

The Commerce Department  today reported really good March home sales  relative the the past 4 years of the housing depression. Media reports included only the seasonally adjusted annualized sales rate, which was 417,000 versus a consensus estimate of 415,000. PR flaks at the major financial infomercial outlets were breathless in their reports. Bloomberg proclaimed “A dearth of existing properties is encouraging builders to undertake new projects that will keep fueling the economy. Mortgage rates close to record lows, higher home values and rising household formation are helping lay the groundwork for increased buyer traffic in 2013.”

It’s mostly mindless bullshit as usual. The numbers were good relative only to the recent past, and with the tailwind of Benito Bernanke’s massive mortgage rate subsidy. Looking at the actual numbers from the Commerce Department surveys, not annualized and not seasonally adjusted, we get a better view of current reality.

New house sales rose by 7,000 units to 40,000 in March. This was better than last year’s March gain of 4,000 units to 34,000, and better than the March 2011 gain of 6,000 to 28,000. Sales are up 43% in two years. Wow.




But let’s put this in perspective. It’s still below the 48,000 units that were sold in March 2008 in the middle of the housing market crash, the 120,000 units a month during the bubble years, and the 80,000 units per month typical before that.



New house sales normally peak in April, so there may yet be another peak ahead, but the NAHB builder survey indexes for March and April suggest that sales have already peak. Builders reported lower sales and traffic from mid March to mid April. This may be as good as it gets in this cycle.



Even with the Fed’s massive mortgage rate subsidy, sales have not surpassed 40,0o0 units per month. That’s half or less than half the peak levels reached from 1997 to 2007.

But builders are supplying enough houses to meet demand. The talk of inventory shortage is overblown.  Demand is weak. New supply production is consistent with the level of demand.




The talk of inventory shortage is overblown.  Supply production is consistent with the level of demand.  The inventory of new homes relative to sales is below the bubble years, but at normal levels relative to those seen in 2003-2005.





Median reported new house sale prices have risen 20% since 2009. Effective sale prices may have risen even more than that as builders were giving large incentives, including extra amenities, or discounts not reflected in prices as late as last year. Effective sale prices at the 2009 lows were lower than reported prices. The discounts and incentives have ended or been reduced in many cases.

Meanwhile, the average sale price dropped back over the past year as the ratio of cheap to expensive houses sold rose



The so called recovery is mostly a recovery in prices. Thanks to the Fed mortgage subsidy, we have housing inflation, but not much recovery in housing activity relative to historical norms. The market has bounced back to around 50% of historically normal levels only with the help of the massive Fed subsidy. We have to wonder where the market would be without that, or rather what will happen when that subsidy is withdrawn.  Knowing that removing this subsidy could devastate the so called housing recovery, it seems unlikely that the Fed would only do so under extreme pressure from the market in the form of consumer price inflation.  The government has managed to keep those numbers suppressed.

But Wesbury says otherwise, so who is to argue?

The idiot................

You are probably right about the quote.  My memory gets worse daily.  If only I could "delete" memories and information to free up space like on a hard drive.

Reading the articles written by various commentators and financial analysts is so frustrating.  They just look at the raw data, and make proclamations without any real understanding of what is going on in "backrooms" across the country.  There are very well intentioned and knowledgeable people who are trying to develop the systems and the processes to restore not just the housing market, but lending in general.  As well, they are engaged in creating the monitoring systems to evaluate risk across portfolios, and then determine true reserve requirements under various scenarios.  Stress testing is a large part.

One of the things that we often read is how lending requirements are so tight, and they must be loosened.  But they make no recommendations, and just assume it is easily done.  That is not the case.

To create "loosened" lending standards is not simply a matter of reducing FICO Scores, or allowing for higher Debt Ratios, etc.  Each loan must be looked at from its own unique perspective, taking into account a large number of different factors.  My process looks at over 40 different factors alone and then the endless combinations that will affect default risk. Even then, it will be revised frequently to take account of changing economic conditions.

To give an example of how difficult loosening lending restrictions will be, we simply look at Fannie, Freddie and FHA.  Right now, F&F have extremely high qualifying standards, but not to the extreme that the new Qualified Residential Mortgage is expected to impose.  F&F defaults are at a semi-reasonable rate.  FHA, which has looser standards, but is still greater than what was occurring during the Housing Boom, is running delinquency rates of about 17%, and default rates of 9%.  Eventually, we expect to see defaults up to 30% over a 5 year time for FHA.

Qualifying for each of the programs are based upon FICO, Loan to Value and Debt to Income Ratios.  These are loosely linked together. 

The problem with this approach is that like with FHA, far too many bad loans are being funded, but also far too many good loans are being denied because the borrowers do not meet certain standards. 

To loosen the qualifying standards means more than just reviewing FICO, Loan to Value and Debt to Income.  One must also consider actual debt loads, family size, loan size, residual income, loan purpose, borrower behavior, and many other factors not currently considered and factored into the decision. 

A person with a 780 credit score, debt to income of 41%, and loan to value of 80% might seem like a very qualified borrower. But, if we are looking at a first time buyer, new construction home, loan amount of $150k, 4 kids, payment shock and medical insurance costs,  then this borrower is almost certainly going to default on the loan at some point. It is inevitable. 

Yet, at the same time, you could have a borrower who wants a loan, 90% loan to value, cash out debt consolidation, 36% debt ratio, but has a FICO of 603, and may very well be a perfect candidate for a loan, especially if the loan amount was $500k, and no kids.  But change the parameters to 45% debt ratio and a loan amount of $150k, and there is a significantly increased risk of default.

These are the types of problems that are being addressed, and we must resolve to allow for loosened qualifying standards.  But even then, it does not end at that point. 

How are the loans going to effect Basel 3 requirements for risk?  Greater risk means greater reserve requirements.  And if economic factors change, like increased costs from Obamacare, how is that going to affect borrower default risk?  What about decreasing home values, based upon rising interest rates?  What about exit strategies for loans going into default?

Then, how does one identify loans going bad, before they do, and how to institute loss mitigation procedures before it is too late? 

Or, how does one create a good pool of mortgages for securitization, which needs to be done if there is going to be a wind down of F & F?

These are the types of questions being asked daily, and for which we are looking for answers.

Why don't people like Wesbury look behind the numbers to what is really occurring?  At a certain point, this gets absurd. 

Housing Starts are in for January.

58k total Starts, Non Adjusted.  Called it right.

Single Family ran 39.6, up 1900 from Dec 2012.  Off by 5600.  Surprise that these were up. 

Key points

Northeast had 3k, down 800 from the previous month. 
Midwest down 1200 to 4.1k
South up 3300 to 23.6k
West up 900 to 8.9k

Year over Year, there were 6500 more Single Family housing starts than last year.  All areas had increases, with the South having 3900 more, the West at 2800 more, 400 for both the Midwest and the Northeast. An improvement, but it does not mean much.

Why are Housing Starts increasing?  Could it have anything to do with the low inventory of homes on the MLS?  Are people buying new homes over resales because of the "status" of a new home?

Thanks Doug.  Scott and I do have significant differences.


BTW,

My guess on Housing Starts coming out.  

Adjusted Starts will be up by 10%, month over month, and 30% year over year.

Non Adjusted will be about 58k  total, and about 34k single family.  Just a WAG...............but we shall see.

CD,

I  have been waiting for you to yank my leash on this.............

Here is the link to the release

http://www.census.gov/construction/nrc/pdf/newresconst.pdf

Here are key elements:

Total Starts are DOWN from Nov at 66,500 to Dec at 64,200, a drop of 2300 units.

Single Family DOWN from 40,100 to 36,400, a drop of 3700

The Northeast Region remained steady at 3300 for the second month in a row.  All other regions declined.

If you look close, Year over Year Seasonal Adjustments are quoted at 28%.  They don't quote Year over Year non seasonal.

Zerohedge had good charts showing what is going on.






Kinda get the idea that someone plays games with the numbers?

Meanwhile, Calculated Risk continues to play the cheerleader

http://www.calculatedriskblog.com/2013/01/some-comments-on-housing-starts.html

And Scott Grannis carries the pom poms

[ftp]http://scottgrannis.blogspot.com/2013/01/housing-starts-on-fire.html]http://www.calculatedriskblog.com/2013/01/some-comments-on-housing-starts.html

And Scott Grannis carries the pom poms

ftp://http://scottgrannis.blogspot.com/2013/01/housing-starts-on-fire.html

It is actually rather amazing. I spent most of Tuesday in conversations with the head of a major Risk Management and Consulting Firm, heavily involved in the Housing Market.  Last week, the guy was in Vegas last week, having dinner with a top FHA official.  Both fully agree with my opinions on housing.

The FHA guy said that all housing programs now, like over the past decade have not been about realistic housing policies.  It is all political, influenced by the politicians in the White House and on Capital Hill.  The Agencies know what will eventually happen, but no one has the cajones to do anything realistic about it.

Yesterday, the Consumer Bank Finance Protection Bureau came out with its final rules on Ability to Pay.

The BFPB was set up to protect the Homeowner. Among its requirements would be the lender having a Fiduciary Duty to a borrower to determine the Ability to Repay a loan. For enforcement, the homeowner would have a Private Right of Action to sue the lender. Yesterday, we found out where that would go.

The new Debt Ratio Guidelines establishes a 43% maximum Debt Ratio for the Qualified Residential Mortgage. The income and other factors of the loan would have to be properly verified. If so, then by having a 43% or less Debt to Income, the lender has a Safe Harbor, whereby the homeowner has no Private Right of Action.

The 43% DTI is greater than what the GSE's and FHA are doing right now. The GSE's are at 36% and the FHA is at 41%. So in effect, the BFPB has given permission to the GSE's to increase their Debt Ratio allowances, to 43%. But it does not stop there.

The BFPB also stated that any loan, even above 43%, if bought by the GSE's would qualify for the Safe Harbor. So, the GSE's and FHA can go up to whatever Debt Ratio that they desire, and originating lenders would be protected from the Ability to Pay legal issues.

Note that at 41%, the FHA has a 16% delinquency rate at this time.  Where is the sense of 43%?

Let's take a loan of $175k.  Borrower is married with 2 kids in grade school.  Here is reality

Loan Amount of      $175,000
Interest Rate                 3.25
Monthly Payment      $761.61
Taxes/Ins                 $100.00
Total Payment          $861.61

Total Income to Qualify  $2000 per month
Take home per month  -  $1605

Disposable Income after Debt Service  $734

Pray tell how a family of 4 will live off $734 per month, especially since they have coming out of this

Medical
Gas
Insurance
Food
Clothing
Utilities
Household Goods
Other expenses

The US Census for 2010 found that for a family of 2.5 people, living expenses average $1905 per month.  How will these people make it at 43%

Now, what are the implications for lending in the future?

1.  The GSE's and FHA will buy all Qualified Loans since the lenders will have the Safe Harbor provision on Ability to Pay.
2.  Politicians will put pressure on the GSE's and FHA to up Debt Ratios because the housing market will not be growing enough.
3.  Loan not meeting GSE or Safe Harbor requirements, including Stated Income, Interest Only, higher Debt Ratios, will only have either Private Securitization or Hard Money lenders for financing.
4.  Private Securitization will only accept a few loans, the best, since there is no Safe Harbor.
5.  Hard Money will only take loans with 65% or less Loan to Value.

The bottom line is that contrary to what is being said regarding the end of the GSE's in another 7 years, it will not happen. The GSE's will only cement their control of the Mortgage Market, maintaining their control of market share. Politicians will respond to the problem by allowing the GSE's to remain in business.

FHA will continue to grow, especially since they will continue to offer 3.5% equity loans. Never mind that these loans will fail in increasing numbers.

Private lending will continue to suffer.

Nothing changes.............

Yet I have gone blue in the face arguing with Scott.  He believes that the housing market is recovering and no matter what I try to show otherwise, he does not accept it.

Of course, he does not believe that the Fed is creating money either, or is deliberately lowering interest rates.  For him, it is all supply and demand.  That is much to general of an argument for me.  I want to know why there is no demand.

The government and CFPB is seriously considering taking Privately Securitized Mortgages and allowing those over 125% LTV to refinance through HARP into the GSE's.  For 5 years, the government would pay the difference between the new interest rate, currently about 3.25%, and what the previous rate was on each loan, usually above 6%.  After 5 years, this guarantee ends and the investor gets the new rate.

There are some things about this article that are "puzzling". 

1. If the GSE's are refinancing the loans, then why is the RMBS investors going to continue receiving both the new interest rate, and also the guarantee on the original rate?  If it is a refinance, then the RMBS no longer have the loans on their books. The loans have been retired.

2. Why will the RMBS continue to receive the new interest rate after 5 years? Again, the loan was retired.

3. If the RMBS is keeping the new loan, why are the GSE's guaranteeing the loans?  Why is the tax payer assuming all the risk on privately held mortgages?

It sounds like the government is almost turning the loans into modifications and not refinances, and guaranteeing the loans.

Again, I believe that Dodd Frank, the CFPB and the government is doing nothing more than trying to eliminate the Private Housing Market.


http://www.cnbc.com/id/100340107

Government Refi Idea Gets Chilly Reception

The Treasury Department is considering a plan to expand the government's refinancing program to help borrowers whose loans aren't backed by the government, but the idea is getting a chilly reception from a mortgage investor group.

The Making Homes Affordable Refinance Program, initiated in 2009, has helped more than a million borrowers stay in their homes by modifying their loans, but it only applies to borrowers who have government-backed loans through Fannie Mae and Freddie Mac. The Obama administration would like to expand the program by transferring loans controlled by private investors to those two government-sponsored mortgage firms..

Under the proposal eligible borrowers must be severely underwater, with a loan to value ratio of 125 percent or higher and must be current with their payment. These borrowers would be given current market interest rates, replacing the 6 percent rates they've been unable to refinance out of (because they don't have any equity in the home) and giving them a lower overall monthly payment. The Treasury Department, probably with leftover TARP funds, would pay investors the difference between the old interest rate and the new for five years.

But the American Securitization Forum, which represents investors in residential mortgage backed securities, is balking at the idea, arguing that while underwater borrowers are at greater risk for default it's not clear reducing their monthly payment will change that. It figures $120 billion worth of loan principal would qualify. Taxpayers would kick in $11.5 billion to make up for the reduced interest payments for the first five years and investors would subsequently lose $9.7 billion for the following years.

"The key question from the policy side for both investors and taxpayers is would providing this reduction in monthly interest payments provide any benefit either to the investors or to the public at large by reducing foreclosures? Our answer is we don't think it will appreciably reduce people walking away from their homes," said Tom Deutsch, executive director of ASF.

Investors have been unwilling to reduce interest amountswithout reducing the risk of default. "If they are getting a 6percent interest now, why would they want to turn that into a 3.5 percentif the borrower would still pay the 6%. It would seem wholly irrational toreduce their interest rate if it's not likely to prevent a walk-away borroweror a foreclosure," said Deutsch.

The latest proposal, first reported by the Wall StreetJournal, emerged as part of the "fiscal cliff" negotiations.

Home prices appear to be making a steady recovery, with the latest S&P Case Shiller report showing a 4.3% annual price increase in October on the 20-city composite. A survey of economists by Zillow expects home prices to keep moving up, with expectations for prices to rise 3.1 percent in 2013. But prices are still 30 percent off their June 2006 peak for the 20-city composite. And it's worse in areas hard-hit by the bust. While Phoenix has been a roll for the last year, with prices up 22 percent, prices are still 47 percent below the peak.

Even with higher prices nearly 11 million borrowers still owe more on their mortgage than their home is worth, according to real estate researcher CoreLogic. Many believe it's those homeowners and those with near-negative equity, borrowers who have some equity, but not enough to afford a move, that will keep the housing market from returning to something close to a normal market.

Yeah, yeah, yeah..........Wesbury again spouting off.

Hey Wesbury!  Why don't you admit that Sales are on an Annual Basis rate of $363k for the year.  This would be an increase over last year of 18%......Wow!!!!!

The Fed started keeping stats on New Home Sales in 1963, when the population of the US was in the 160's million.

2012 will be the 3rd Worst Year since the stats began............only 2011 and 2010 were worse. 

I don't think I want him for an advisor.

BTW, had a long talk this afternoon with a guy who has a company that does Portfolio Risk Analysis for the big banks.  His partner used to be head of Risk Analysis in Bank of Canada, has done the same for the GSE's, and other US banks.  His perspective is as mine.................everything sucks until we get Securitization of loans back on track, and lenders and investors know what they are buying.

Interesting possibilities for me with this call......................

The has not been as much publicity on Nov Single Family Housing Starts, and here is why.

Non Seasonally Adjusted Housing Starts were DOWN from Oct.  They were:

Oct 2012   -   50,300
Nov 2012  -    40,000

A drop of 12,600 units

The Northeast fell        400
The South fell           3,500
The Midwest fell        3,200
The West fell            3,100

All total, Single Family is up 97,300 for the year to date.  Total to date is 496,900.
I expect that Dec will show about 38,000 Single Family Starts.

The drop is exactly as expected. The winter always sees drops in activity.  Dec should be even worse.

To put it in perspective,  (Sorry that dates did not show up, but it begins in 1960




The chart shows total housing start data since 1960.  When you consider that population of the US at various  times, you can really understand how bad housing is.

The Reverse Mortgage is a unique product, to say the least.  Homeowners 65 or over are allowed to take equity out of the home monthly, based upon the equity in the home.

Generally, to get an RM, one had to have sufficient equity in the home.  No more than a 65% Loan to Value was allowed, if I remember correctly.  Payments were based upon the equity, and upon the homeowner living to age 95.  It was thought that this would protect the lender in the event of default.

The "suspect" loans were the loans taken out from 2004 through 2007, while home values were still inflated.  When values fell, the Loan to Values were now 100%, but the homeowner was still able to take the money monthly. So these homes continue to go even more and more Negative Equity, each and every month that the homeowner still lives.

FHA and other reverse lenders cannot determine losses because they have no idea how long the homeowners are going to live. Some who die "quickly", the losses will be small.  Those who die slowly, the losses will be quite severe.

To give you an example of how bad it is, I know one person who took out an RM at the peak.  His home was valued at $550k, and he was 75 at the time.  The loan was based upon $357k, at 65% loan to value.  His home is now worth about $170k, a drop of $380k.  

If this guy lives to 95, the losses are going to be incredible on this loan.

File this in the "I know there is a pony in there" when a child sees a pile of horsesh*t file.

http://www.housingwire.com/content/first-time-homebuyer-demographic-finds-more-employment

First-time homebuyer demographic finds more employment

First-time homebuyers have played only a small part in the nation's housing recovery, with investors and cash buyers doing a lot of the buying in key real estate markets.

But Trulia's chief economist Jed Kolko is more positive about this age group. He sees them turning a corner on the jobs front, which is the first step towards growing homeownership numbers.

He notes the month of November brought forth more solid numbers on the jobs front, especially among the 25-to-34 year old age demographic. With this demographic generally in the prime age group for first-time home buying, Kolko is decidedly more optimistic about what this age group may do for the housing market in the coming years.

"The good news: among 25-34 year-olds, the prime age group for housing demand, 75.2% were employed in November, up from 75.1% in October and from 73.9% in November 2011," Kolko wrote.

The unemployment rate for this age group sat at 7.9% in November, which is high, but down from 9.2% a year earlier.

The student debt situation and employment numbers have weighed heavily on this group, keeping them from homeownership. But Kolko's assessment on Friday is more hopeful.

Will first-time homebuyers make a come back in the next few years? That's the looming question as we steer timidly into 2013.

My comments:

What type of jobs are they getting?  How are they going to purchase a home when all their income will go to meeting living expenses and paying off student debt?  Where is the Down Payment going to come from?

Oh.......FHA............yeah, right...........

Here is the chart I was referencing..........

I try.................

Have some  new info on the Baby Boomer cohort and their Property Investment behavior to post.  It does not offer support for a Housing Recovery.

Plus, more data on First Time Home Buyers.  I really believe that truly qualified First Time buyers are now a rarity, if we eliminate FHA buyers.

The problems of surviving spouses as mentioned in the article is a common problem across the US.  But, as with anything housing related, one must look further into the issues presents.

When I read that only the husband was in on title in one case, this indicated that other problems existed not mentioned. When a spouse was omitted from the loan, but kept on the title, this indicated that there would usually be a problem with the spouse, either extensive debt that by not showing her on the loan, would "hide" the debt, or else that credit scores were very low, and would result in a loan denial.  To get around this problem, the spouse would be left off the loan.

This option would work fine, until a death occurred. Then, by the requirements of the original Deed of Trust, anyone assuming the loan (the surviving spouse) would have to requalify. Of course, she could not do so, and then would come foreclosure.  (This also applies to loan modifications.) 

Servicers under different disclosure laws, would not be able to speak to the surviving spouse about the loan, since she was not on it. The only way that this problem would not exist is if the servicer had received an authorization from the borrower prior to death, to speak with the spouse.

In the "real world", the loan should never have been granted, and the couple forced to sell the home, and take the profit, rather than be in a home that they could not truly afford.  (Yes, if the spouse had to be omitted, then the loan should not have been granted.  Likely, for approval, it was also a stated income loan.)

What we see is a "legal trap", created by bad lending practices, and compounded by legal issues.

We see the same issues as above with Reverse Mortgages.  On an RM, if only one of the two parties were 65 or older, then only the older could be on the RM.  The under 65 person was left off.  If the older dies before the younger turns 65, then under the terms of the RM, the RM must be paid off, or the home sold.  Only if the younger has turned 65 can another RM be obtained to solve the problem, if enough equity exists in the home.

Always looke behind the story to find the rest of the story.

Just to add more fuel to the fire:

http://www.census.gov/construction/nrs/pdf/soldreg.pdf

If you go to this website, you will find Housing Sales data going back to 1963 on a Monthly Basis.  It provides Adjusted and Non Adjusted Sales.

The data really shows just how bad the New Home Sales really are.  Through most of the 2000's up to 2007, total units sold were over 1m.  Even in 1963, Adjusted Sales Monthly were in the 500's most months.  And, this is with a US population base of  189m. 

In fact, if you look at all the data, the two worst years for Housing Starts ever recorded was 2010 and 2011.  2012 is the 3rd worst on record.

How can anyone be optimistic about a few monthly increases?

Waiting for CD to post the new Wesbury on Oct Home Sales..............it will be interesting to see what the Kool-Aid Drinker has to say..........

Previously, I posted about where new buyers must come from to stimulate housing sales.  I expressed the view that the 24-29 cohort and 30-39 cohort would have to supply the growth. I was quite negative about hopes for this to happen.

US Homeownership by Age Group (Decennial Census)
                                        1980           1990            2000        2010
15 to 24 years                   22.1%        17.1%          17.9%      16.1%
25 to 34 years                   51.6%        45.3%          45.6%      42.0%
35 to 44 years                   71.2%        66.2%          66.2%      62.3%
45 to 54 years                   77.0%        75.3%          74.9%      71.5%
55 to 64 years                   77.6%        79.7%          79.8%      77.3%
65 years plus                     70.1%        75.2%          78.1%      77.5%
Total    Ownership             64.4%         64.2%         66.2%      65.1%

Here is new information coming from Zerohedge that places my concerns into a proper perspective.

The first chart shows how income has changed over a period of years.



For all cohorts except 65 and over, real income has dropped significantly.  Income levels are back to levels seen in the 1990's, in all cohorts except the 19-24 group, which will not be buying homes in any big numbers.  (Plus, income for the 19-24 cohort will not support homeownership in most cases.) Yet, average home values, based upon both LPS and Case Shiller suggest that values are at the 2003 level.  2003 home values were far higher that in the 1990's, so how will any of these cohort be able to increase ownership levels?  It can't happen in any great numbers needed to stimulate housing demand.

The second chart breaks down income into real numbers



With this, we see the actual effects of the income loss.  In the needed cohorts, income levels have dropped from $7k to $9k from peak levels seen in 2000. 

For the 25-34 cohort, with income of $50k, and with the likelihood of high levels of student or consumer debt, there is probably very little to increase ownership rates in the near or intermediate terms.  Only as this group ages, and hopefully achieves greater income growth, can we expect any increase in ownership.

The 35-44 cohort is already at 62% ownership rates. With decreasing income, how can this group be expected to grow further?  (Ownership increases dramatically in this group as people age. Likely, the 39-44 subset is closer to 70% ownership, with 35-38 being much lower than 62%.  Either way, it does not bode well for recovery.)

I ask:  Where are the new buyers going to come from if we have limited Move Up Buyers and we have a younger cohort that cannot afford to buy, even at 2003 prices? 
Can investors and foreign money fuel a housing recovery?  That answer is "No Way".

I have no idea where housing support will come from.  That is why I am in agreement with a previous article that said to let the Housing Market crash and quit trying to support it.

Thought I might comment on this tread.

I am a firm believer in "Generational Theory", a Cycle Theory that society operates along generational lines, with every 4th Generation being a "Crisis Generation".  This has been seen time and again since the 1400's.  For the US, Pre Revolutionary Times about 1760s to 1780s was a Crisis, followed by the Pre Civil War period, the mid 1920s to 1940s, and again about 2005 for the latest cycle.  In each 4th Generation, the US has undergone transformative changes, that have uniquely changed the culture and politics.  What the changes will be can never be predicted, but once the crisis begins, then the changes cannot be stopped.

This election, at least for me, was in many ways, a "non-event".  Though I thoroughly detest Obama, I knew that no matter how good Romney might have been, nothing would change, even if Romney had been elected.  The powers that be were too well entrenched into society, and the "looters", or "renters" as it is called now, would not walk away from what they could take from the populace.  (This applies to Crony Capitalists also.)

Most will agree that the US is not far from a complete financial collapse.  With continued increasing debt, and with the likelihood of increasing taxes, there is no way out of where we are, at least in a "reasonable" and "less harmful" manner.  Because of this, I was "torn" hoping that Romney would win, and delaying any collapse, or having Obama winning and then hastening the collapse.

At this point, I foresee that the US will continue its march to collapse. We will muddle through into the 2016 elections, and likely having another Dem president, even after a fiercely fought campaign over the economy, debt and deficit. People simply will not wish to make the sacrifices needed to "save" the Republic from collapse.

Probably about 2018, the feared "Crisis Trigger" will occur.  It might be financial, military, or another event that will bring into play the "revolutionary zeal" that each previous crisis has had occur.  At that time, the "Me Generation", born from the Mid 60's to the Mid 80"s will take the reins and lead the country into the "New Republic", in whatever manner and shape to come.  The 80's to 2004 Generation will be the one whereby the "burden of change", likely warfare, will fall on their heads. 

From this Crisis, a New Republic will rise from the ashes, in a form that we could not likely predict at this time.