More on how the game has changed forever:
More on how the game has changed forever:
Hat tip to Eddie89 for sending in this article – he also wondered when we’ll see this around here!
Palo Alto is seeking housing solutions for residents who are not among the Silicon Valley region’s super-rich, but who also earn more than the threshold to qualify for affordable housing programs.
The city council has voted to study a housing plan that would essentially subsidize new housing for what qualifies as middle-class nowadays, families making from $150,000 to $250,000 a year.
The plan would focus on building smaller, downtown units for people who live near transit and don’t own cars, along with mixed-use retail and residential developments.
“Prices have just gone through the roof, making it unaffordable for middle-class people, your firefighters, your teachers, and, frankly, some of your doctors,” Palo Alto Vice Mayor Greg Scharff said.
Scharff worries that losing middle-class workers will hurt the city. “What the council is proposing is that we work together to fund and subsidize, what is basically middle-class housing; which, traditionally, has not been subsidized,” Scharff said.
Bean can hardly believe it.
“We have people struggling to make it at a quarter-million dollars a year,” Bean said. “That’s a terrible thing.”
I saw these questions from Ed DeMarco on Twitter. My answers:
1. Have the M.I.D. apply towards primary residence only (not second homes), and lower from $1,000,000 to $500,000. Those buying in hopes of a bigger write off will still buy a house, and take the partial benefit – and be in it for the appreciation and to raise a family (make wifey happy).
2. Have the mortgage interest deduction be in effect for the first ten years of ownership only. It would encourage borrowers to pay off mortgages in the ten years, and not refinance every year.
3. Require that only the buyers can pay for mortgage insurance (sellers can pay in full now).
4. Redirect the disadvantaged folks to subsidized rentals until they aren’t disadvantaged. Only stable, secure, affluent people should buy a house – it’s too late for the rest, unless they drive to the suburbs/outer edge of town.
5. There are several loan programs available to help the disadvantaged already. NACA is still around, helping buyers purchase with no down payment and no closing costs (H/T daytrip):
6. Lower the capital-gains tax for 1-2 years to incentivize those reluctant-but-motivated possible sellers to unload a rental property or two. Cut federal rate to 10% for the first year (currently 20%), and then back to 15% in the second year. The crotchety old guys still won’t sell, so there won’t be a flood. But more inventory = more sales while stabilizing prices.
7. Keep Fannie/Freddie the way they are for now. If they can keep operating in the black, let’s allow the mortgage industry to enjoy the fluidity. I attended a seminar today on the new loan disclosures coming on October 3rd, and it is clear that Fannie/Freddie will be extremely strict on compliance. It doesn’t mean tougher credit, it means the mortgage industry needs to submit the cleanest loan packages ever – which is good for the taxpayers.
8. The new compliance crunch will virtually eliminate mortgage brokers – wholesale lenders won’t want to take a chance on them. Yes, we still have room for you over here to be a realtor – there’s only 11,000 of us chasing 3,500 sales each month.
9. Encourage a private jumbo-MBS market without subsidizing it. Eventually, a private MBS marketplace could help shift the burden from Fannie/Freddie.
10. Run a tight ship. We can handle it.
The powers-that-be have made some great moves to get us this far, now bow out gracefully and let free enterprise take care of the rest.
From the SD Union-Tribune:
Hat tip to daytrip for sending this along:
Eric Mains is fulfilling a dream many Americans have had since the onset of the financial crisis seven years ago: He’s attacking fraud in the banking industry as aggressively as he can, using every possible tool under the law to achieve justice —and win some money back for himself.
Mains, a former team leader with the Federal Deposit Insurance Corporation (FDIC), has become so bitterly embroiled in a six-year dispute with his mortgage lender that he left the regulatory agency, fearing that he might have to eventually name it as a defendant in a federal lawsuit. He’s one of a small yet determined band of people still fighting foreclosure (the seizure of property) cases with obscure and sometimes arcane arguments, built on a simple yet mind-blowing premise: The true ownership of millions of mortgages issued during the housing bubble was fatally corrupted, and now it’s impossible to prove who actually legally controls those mortgages.
Recent Supreme Court precedent suggests that by rescinding his mortgage—canceling it, basically—Mains and people like him can put the onus on banks to prove they have the right to assets like his house in the first place. If Mains or his allies succeed, they would rip open a wound that virtually everyone in power has tried to stitch up and forget. But such a long-awaited victory wouldn’t make up for the years of stress and personal hardship Mains has suffered, including a failed marriage and now the end of his career in public service.
“I had to ask myself a question: Will I do this no matter if it hurts?” Mains told me. “I said yes. If I can afford to fight these suckers and bring this illegality to light, that’s why I went to law school.”
Mains has gotten divorced, lost custody of his kid, and wound up in the hospital – read the full article here:
More foreclosure-avoidance incentives were announced this week:
“While the housing sector has strengthened in recent years, there are still many homeowners struggling to make their mortgage payments,” said Secretary of the Treasury Jacob J. Lew. “The changes we are announcing today offer meaningful incentives for borrowers to stay current in their modifications, increase their opportunity to build equity in their homes, and provide vital safety nets for those facing greater financial strains.”
The Home Affordable Modification Program (HAMP), established in 2009, offers homeowners loan modifications with lower monthly payments achieved through lowered interest rates and modified loan terms. Many homeowners with HAMP modifications have been eligible to earn up to $5,000 if they adhere to modification terms for five years. The amount is applied to their outstanding principal balance.
Under the revisions an additional $5,000 will be available to homeowners after a sixth year of on-time payments and they will then have the opportunity to re-amortize the reduced mortgage balance, thus further lowering their monthly payment. HUD/Treasury estimate some one million borrowers with HAMP modifications may be eligible for the new incentive.
HAMP Tier 2 was developed as an alternative for homeowners who can’t qualify or are unable to sustain a HAMP Tier 1 modifications. It provides modifications with a low fixed rate for the life of the loan. The revision announced this week will include reducing the interest rate for these modified loans by 50 basis points which will also make more borrowers eligible for the program. It also extends the sixth year $5,000 pay-for-performance incentive to Tier Two borrowers.
The looming real estate crisis in China, from 60 Minutes:
From David D. at FDL:
The way almost everyone looks at this is about the impact on housing, specifically mortgage prices. But mortgage rates haven’t changed at all since the announcement of QE3, and if the Fed was trying to influence the expectations channel, the impact really should have been that immediate.
Then again, rates didn’t rise, either. It could be that QE3 arrested a trend toward increasing mortgage financing costs. But more likely, banks are taking the profits out of the eased cost of mortgage financing for themselves:
The banks are choosing not to reduce mortgage rates further. One reason: By keeping the rates elevated, they are able to earn much larger profits when they sell the mortgages into the bond market. If the level of profits on those sales stayed at recent average levels, borrowers might, for instance, pay $30,000 less in interest payments on a $300,000 mortgage, according to a recent New York Times analysis.
The fact that banks haven’t prepped for a backlog of mortgage applications, meaning that the benefits of QE3 cannot possibly get to customers in a reasonable amount of time, leads us more toward this conclusion. Banks have no problem securing cheap backstopping of mortgages, but they don’t have to channel those savings into the mortgages they sell. It’s a form of collusion, because nobody else has dropped their rates to gather the lion’s share of the business. And nobody can actually get a loan to move, either, because that would require hiring staff. This way, banks can benefit from lower rates for themselves on one side and higher rates for customers on the other. The arbitrage between those two prices equals massive profits.
Let me add another postulate to all this. When you have this delay in financing, the beneficiaries are those who have the working capital to purchase in cash. Furthermore, the cheap market for foreclosures invites groups who can accumulate capital to come in and scoop up the housing stock. This is what we’re seeing all over the country – institutional investors buying up foreclosed properties to rent out in the short term and sell at a profit in the longer term. They are securing very large amounts of capital to pull this off.
This is the next bubble, happening right here, and QE3 facilitates it.
Investment firms can scoop up cheap housing stock and flip it into rentals. There’s also talk of securitizing the rental income streams, which really reinflates the bubble machine. Meanwhile the character of neighborhoods completely changes, homeowners get nudged out for properties by the investors, the phenomenon of absentee slumlord-ism takes hold, and power relationships change when one company owns a substantial amount of the housing stock in a city.
What’s happening in housing right now should absolutely terrify people. The forces that are being coordinated to show positive statistics at the macro level are also creating a dangerous environment for the future.
Hat tip to HW for publishing this story, but I’m not sure that they or Barclays grasp the full meaning – that banks are deliberately letting defaulters live for free…..for years.
Loans serviced by Bank of America tend to remain in the 90-plus-delinquency state for significantly longer than loans serviced by other big banks, analysts at Barclays Capital find. The length of time that a loan is in the 90-plus delinquency bucket, they say, is driven by the credit quality of the borrower, its geographic location, and especially, by the servicer processing the loan.
A disproportionate share of BofA mortgages in the 90+ days delinquent bucket — 62% — are there for more than three years. That’s biggest among Too Big to Fails.
“We believe that this is partly driven by the more intense media scrutiny and government pressure being applied to BofA with respect to its foreclosure practices, given its history of servicing lapses,” Barclays says.
Over the past few years, BofA has likely exhausted all other avenues of resolution (loan modifications, short sales, deeds-in-lieu of foreclosure, etc.) before proceeding with moving a borrower into foreclosure. The bank implemented a temporary foreclosure moratorium across the country in late 2010.
In January, 2009 the Fed didn’t hold any mortgage-backed securities.
Today they have $843 billion, and yesterday they “agreed to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.”
“These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
(seen at CR, HT josap)
Will the Fed’s buying more MBS make a difference in housing?
Everybody I know was happy at the thought of getting a 3.875% rate. Freddie Mac’s 30-year rate was 3.55% this week. If the Fed’s actions push them lower, what is the effect on monthly payments?
They are only buying agency paper, so let’s look at the conforming $417,000 loan amount:
$417,000 @ 3.55% = $1,884.17
$417,000 @ 3.00% = $1,758.09
If 30-year conforming rates got all the way down to 3.00%, buyers would either save $126/mo., or be able to afford a $30,000 higher mortgage and pay the same $1,884.
But JimG nailed it – this MBS buying spree will allow banks to offload stinky paper to the Fed, rather than foreclosing. Banks can predict when a mortgage is going bad – because borrowers people typically slow-pay before defaulting. Servicers would be able to dump any suspected about-to-default mortgages, and keep the short-sale desk open for the borrowers who want to cooperate over the next few years.
The Fed would probably be more accomodating of the folks who don’t pay, so defaulters would enjoy an extended free-rent period. Foreclosures will dry up further (causing banks to appear solvent), the real-estate market will have fewer distressed sales giving people the idea that prices will improve soon, and the Fed will look like a hero.
In the meantime, we’ll have tight inventory and more OPTs.