there’s a really good slideshow describing the mess over here http://bigpicture.typepad.com/comments/2008/02/how-subprime-re.html
——-

BoA wants to bailout homeowners:
http://www.nytimes.com/2008/02/23/business/23housing.html?_r=2&adxnnl=1&oref=slogin&ref=business&pagewanted=all&adxnnlx=1203789658-akwU8daMS7OEV8+FJqYU0g

“Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.”

Looks like responsible taxpayers should be paying for stupidity of lenders and greedines of homeowners, remember that homeoner in TRidge who took out over 100K a year (after tax) from his/her home, we now should pay for that. How stupid it is

BAD IDEA ...IR.Foreclosure may be painful…but your zero coupon quick fix is WORSE.I currently rent…and find the prospect of ownership suspect under the current scenario.I look at home ownership the way I look at marriage: Those who are in it LIE to you about how wonderful it is because they want you to join in the SUFFERING.Your plan would remove all doubt.

Yeah, the OTS plan isn’t going to fly for the “greed” reason. But, is it really greed? No. Just common sense. Why own a home if you don’t get the benefit of price appreciation down the road? You’re better off renting since you get to avoid maintenance and all the other costs of home ownership.

Somthings off with the posting of comments; text is jumbled up.

The Japanese asset bubble chart makes me think of only one thing:

http://youtube.com/watch?v=EpCcelpvkps

User Farmer over at Calculated Risk posted about his experence at USDA/FHA when they did exactly this about 25 years ago when commidity prices colapsed under Volker’s fight against inflation.  Growers initally were so thrilled that the goverment didn’t run them off their farms that they turned around and sued when the government reset their loans 10 years later on they sued the USDA for doing them the favor!

Here’s the link:

http://www.haloscan.com/comments/calculatedrisk/4958140800954406904/#412825

Dr. Vegas,

I understand what you say about marriage, and respectfully disagree.

I hated being single.  The partying was fun, but I can still do that now.

That is hilarious!

Does anyone think it’s politically feasible for politicians to “sell” this housing crisis as follows? 

“There are many Americans, millions, who are going to lose their homes over the next couple years, and that’s a terrible situation to be in.  However, there are no fair solutions to keep a family in a home they cannot afford.  The great news is, that many more millions of Americans will be able to afford to buy a reasonable home relative to their income.  The average family cannot buy an average home in most parts of this great country.  Homes returning to fair values is great news for middle America!”

Wouldn’t that sound reasonable?  Sell the positives in this crisis.  And there are definitely positives.

Mark,

Three stars for you my friend. Yes, it could be spun that way in my opinion and given the future demographics, it would work too. Not to mention that at it’s core, it is a true message.  I’ll go out on a limb and say that it may become more politically expediant to adopt that position as this crisis deepens because it is easier than implementing any of the proposed bailouts thus far.

All they have to say is that it is for “the children”. Because if they can’t afford them in the future, then you can’t sell yours to them. It’s just that simple.

Yes sir, I’m in it for the appreciation too.

IR, you get 3 gold stars for prescience!  Your April 2007 musings about a “Wall Street genius” coming up with a splitting of homeowner debt into a regular piece with affordable monthly payments, and another piece that pays off only on future sale of the home, sounds very like this new equity certificate just cooked up by…. Wall Street “geniuses”.

It’s fascinating to watch all the rats looking for a safe, dry plank as the ship of overpriced homes takes on water.  Which plank will they jump on next?  The main cannon on this ship is the US government, and at the end of all this you will find all the rats perched on that cannon, with taxpayers lashed to it, forced to swim frantically to keep it above water.  Already, between the FHLB and FHA and FNMA and Freddie, virtually all risk on new loans to buy homes is the US is now being taken on by taxpayers.  This will continue for years.

Seriously, the flood of dollars from China and oil countries hasn’t stopped, and they need to lend vast amounts of money every month to someone, preferably someone who will use it to keep buying their manufactures and oil.  A few Australian mines can’t absorb all the Chinese and oil money.  Until this spigot gets turned off, it’s hard to see a major collapse in the global asset price inflation of the last few years.  Instead of buying MBS directly, now the money will go into private equity groups, let’s say, who will no longer need to tap into US savers, leaving the US savers no choice but to buy the MBSs.  Or into Treasuries, to pay for all the future mortgage defaults.

We all know that the US trade deficit and the flood of foreign lending that supports it has to stop eventually, but it seems that will only happen when a few key leaders in China and the oil countries decide that they don’t want to send any more real stuff to the US in return for claims on future US household income valued in depreciating dollars.  I don’t evidence of that happening just yet.  As things are, the Chinese and oil economies are doing great.  Even an eventual trillion-dollar default is worth the price of turning your country from a backwater into a highly developed, educated powerhouse.  The Chinese who became entrepeneurs, manufacturers, engineers, etc. aren’t all going to lose their skills and equipment when the US defaults on the debt.  It’ll be just a bump on their road.

So I think the timing of a real hard landing for real estate (and some other US asset prices) depends on the timing of some inevitable decisions in Beijing.  But I’ll be darned if anyone in the US knows when the boom will be lowered.

As I posted elsewhere, a client of mine actually had this exact arrangement some years ago.  Didn’t work.  Place was foreclosed anyway.

It’s the same problem you see with the “affordable” housing arrangements in Huntington Beach and elsewhere.

People buy them and think it’s great, then the bubble rolled on and all of a sudden, they can’t sell for the same bubble prices as everybody else and “it’s not fair!”.

It’s al a crock IMHO.

“If the borrower eventually sells the home, the FHA mortgage would be paid off first. Remaining cash would be applied to paying off the value of that certificate. Anything left over would go to the borrower.”

And when it is worth 20% less next year?  The FHA takes the hit and forecloses when the borrower opts to walk away…

Basically, another plan to transfer all the junk to the us, the taxpayer.

The banks just eat a tiny loss at today’s loss levels at “supposed” market rates today.  Versus, foreclosure costs and actually having to get all the stuff out there actually sold which in most areas still shows major gaps between where the market thinks it is and where it is.

New song suggestion…  from Janis

Oh HELOC, wont you buy me a mercedes benz ?
My friends all drive porsches, I must make amends.
Worked hard all my lifetime, no help from my friends,
So HELOC, wont you buy me a mercedes benz ?

Oh HELOC, wont you buy me a color tv ?
Dialing for dollars is trying to find me.
I wait for delivery each day until three,
So oh HELOC, wont you buy me a color tv ?

Oh HELOC, wont you buy me a night on the town ?
Im counting on you, oh credit line, please dont let me down.
Prove that you love me and buy the next round,
Oh HELOC, wont you buy me a night on the town ?

Everybody!
Oh HELOC, wont you buy me a mercedes benz ?
My friends all drive porsches, I must make amends,
Worked hard all my lifetime, no help from my friends,
So oh HELOC, wont you buy me a mercedes benz ?

Received in today’s mail from my mortgage banker in Madison, Wisconsin (where I still own a house):

“It’s a bungalow…or is it a blingalow?”

I think it’s clear under this plan an owner would have limited reason to upgrade and maintain their home.

But I will take it one step further…...

Owners might actually trash their homes to make sure the banks do not get a penny of their “equity”.  You can see this already in the foreclosed homes on the market.

Why would banks want to take on that risk?

They would essentially be going into the landlord business on an asset they won’t be maintaining.

However, they lost, so apart from some wasted court resources (not that enormous, all things considered) it all worked out OK. You could stick in a clause that people who sue over this issue are responsible for the government’s defense bill if they lose to discourage abuse.

Why didn’t it work?  Do you have more details?  Did the client walk?  Or couldn’t make the payments eventually?  Do tell.

Bitter, party of one… your table is ready

Time to grab your musical chair, because the silence is deafening.

Americans won’t be able to buy the imported goods and oil anymore, because they are too expensive. The US consumer is looking at unemployment. All of the consumer spending was the result of home equity. That is where the boom of the last few years came from. The consumer cannot obtain any more equity credit, and is probably way too over there hear in debt to accept any debt, even if was offered to him.

Do you think a bunch of amateur capitalists in Beijing have more control over the world economy that an empty-nester in Des Moines, Iowa? Think again.

Mark, may I quote you verbatim on my own blog, for the benefit of my neighbors?

I’ll attribute your quote to you- I’m not a thief.

Why one of our presidential candidates hasn’t said what you suggest in so many words, is beyond me.

I could go further and suggest that the government has no productive role in housing at all beyond zoning and planning for appropriate land necessary for a liveable community, which should not include the right to seize property via eminent domain proceedings to further the interests of their developer cronies and contributors.

80 years of government intervention in the housing market has given us ruined cities, billions of dollars spent on housing projects that are uninhabitable after 20 years, rampant suburban sprawl, and increasingly unaffordable housing prices in combination with tens of millions of homedebtors who are buried forever in laughably overpriced houses, and finally, ruined credit markets and a financial system on the verge of collapse.

All the proposed “bailouts” will do nothing but prolong the misery and inflict it on those who didn’t take part in this rampage. The collapse of the housing market is the necessary corrective that is needed for housing costs to return to their normal relationship to incomes, and for our financial markets to return to sanity.

The reason she had this arrangement was because she couldn’t make the payments.  Afterwards, after a while, she couldn’t make the payments.

Come to think of it, it wasn’t exactly the same, her payment amounts weren’t reduced by a reduction of principal or anything, just that the amount owed was tucked on to the end, with interest for 28 years or whatever.

On the other hand, it wasn’t a toxic loan either, just a plain ole 30 year fixed.

And you can add: people make mistakes, but in our society we believe that those that make the mistakes should pay for them. While losing a home is devastating, it’s not the end of the world. To soften the blow we will put into place programs to help families find housing. Work with banks to help families rent the home they are currently occupying until it sells. Renting of foreclosed homes will help minimize disruptions to the rental marke, prevent neighborhood blight and give people time to make the transition. However, there is nothing else the government can do short of bailing out the banks or those that made unwise financial decisions to soften the impact of the correction going on in the housing market.

Sure thing.

I love it!

New listing on Corkwood in UP….
http://www.redfin.com/stingray/do/printable-listing?listing-id=1504815
Listed at 850K when two similar sized homes are listed at 650K? Admittedly, the other two are closer to 405. And the listing touts the home’s potential as a remodel. Lastly, maybe there is something extraneous about the previous home purchase, but the 12/2001 sell price at $183,500? Maybe this WTF listing was influenced by the “Jewel of Irvine” home across from Wholesome Foods Market?

Hey IR, did that brochure you posted come with prices?  I’d be curious to see what they were.

I hope that people read Greenspan’s book.  My background is in physics and math, not economics, so it’s taking me a bit longer than usual to read the book but he does present some very good reasons for the bubble (“froth” ) in RE.  In essence, too much capital chasing investment opportunities.

He also discusses the US savings and loan fiasco and compares it with thee problems in Japan.

I agree wholeheartl with IR’s assertions.  This bubble will be best handled quickly, like we handled the savings and loan, and it may require some type of a Resolution Trust (RTC) like entity to write down the loans and sell them en masse.

I would propose that the banks simply bundle the troubled mortgages, sell them at a discount to the Home Builders, let them clean up the properties and then sell them.  This would help the banks by cleaning up their books, keep the Home Builders in business, provide some work for the construction trades and quickly establish a price point.

I have no sympathy towards the home buyers who got over their heads.  They should have known all along that this was a bubble.  Indeed, anyone who did NOT refinance into a fixed 30 year loan in 02 and 03 when the interests rates were historically low was a fool. 

Heck, sure the banks were loose with their lending requirements but the terms of the loans were clearly disclosed.

There may be some predatory lenders in the sub prime, and those should be addressed by the law, but anyone who went and got a 100LTV on a 2MIL home up in TRidge, Quail Hill and east out on the Irvine Moreno Valley was a complete speculator and a fool.

Let them lose their home and rent an apartment.  They took an ill advised gamble and lost.  Just like The Bellagio doesn’t ask me to pay taxes to help the losing gamblers in their casino, I strongly believe the the US Gov should not come in a help the homeowners and the banks.

They both gambled, now it’s time to own up, pay up the casino and move on.

I think the Chinese Politburo is on the same ship as us.  They are forced to buy dollars and invest here to prevent their currency from floating in the open market.

If those amateur capitalist commies would stop to think about economies they would realize they are shooting themselves in the foot.

OTOH. the care more about political power and they remember Napoleon’s adage about an army marching on its stomach.  The top commies think that so long as the people are fed they will not ask for freedom… and on this they are wrong.  Ultimately the chinese people will demand political change, this will happen when China transitions all of its work force into the global labor pool.  At that point inflation will come back and wages will rise globally.

Then, will the reckoning come.

I just hope the Chinese Revolution will be clean, like it was in the Soviet Union.  Otherwise, I hope we don’t get no warheads coming our way.

ROTFLMFAO!!!

“What am I supposed to tell my Norwegian villagers????”

“Tell them you f*****d up!”

Shorter Greenspan’s book: The collapse of the Soviet Union is the cause of the housing bubble.

I just saved you $19.95 and about four hours of tedium.

Your Zero Coupon solution seems a lot like choosing the lowest payment on an Option Arm.

Although that’s one of the possible outlooks, the book is far more than that.

I’m truly enjoying seeing the world through of the eyes of a rather good and politically well placed economist.  There are things in it that I had not thought about.

Of course, he is quite amoral about the whole thing and takes a very dry view of the chaos that market capitalism engenders… but I think that his book should be required reading for many people.

It’s not tedium.. it’s a “conundrum”.  ;-D

If you read the book, then you’ll understand the pun.

“present some very good reasons for the bubble (”froth” ) in RE. In essence, too much capital chasing investment opportunities.”

Um… wouldn’t that be rather directly related to incredibly loan interest rates and increased liquidity which where the hallmarks of his rein.

low not loan.

The point of Greenspan’s “conundrum” was that so much money was pouring into the Western Economies that when the Fed tried decided it was time raise rates, it couldn’t.  The yield on the 10 year actually went down.

In essence, while the Fed tried to restrict the flow of money, foreign investors were shoveling tons of money into our economy looking for a place to invest it.

The increased liquidity was a byproduct of (1) capital protection under US Law; (2) less protectionist tariffs across the world; (3) flow of capital from First to Second and Third world countries (ie: jobs and plant construction ) and (4) those selfsame countries reinvesting their profits into dollars in order to keep their currencies low.

The end result was that the deflationary pressures on wages on First World countries, low interest rates, globalization of capital and availability of huge amounts of money needed a safety valve.  The Dot Com bubble was a pre echo ( there wasn’t as much money moving around then ).  The RE bubble was its Big Brother… and note that the RE bubble is not just in the US.

Just wait until the EU starts to face their own bubble.  Their interest rates will drop and the Euro will dive.  Indeed, they’ll have to do this anyways because otherwise their economies will stagnate big time.

Laura Louzader

[snipped anti-suburbia rant

Wow. Good luck with that, ya hippie.

The subprime crisis is just the tip of the iceberg. Fundamental changes in American life may turn today’s McMansions into tomorrow’s tenements.
http://www.theatlantic.com/doc/200803/subprime

“For 60 years, Americans have pushed steadily into the suburbs, transforming the landscape and (until recently) leaving cities behind. But today the pendulum is swinging back toward urban living, and there are many reasons to believe this swing will continue. As it does, many low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and ’70s—slums characterized by poverty, crime, and decay.”

I believe that suburbia will once again become the preserve of the super-affluent, as it was in the first half of the 20th century.

Not only are most Americans very sick of 50-mile commutes, they can no longer afford them, and they will either start to gravitate to the old cities or to small towns, or their suburbs will “densify” around retail & commercial cores.

This will take no government action, nor should it. Right now, the movement back to the cities and to more traditional small towns and inner suburbs is being driven by the desire for shorter commutes, stable communities where children have streets with sidewalks to walk on instead of 6-lane collector roads, and where daily needs can be met by walking or a short drive.

Many newer suburbs are revamping their zoning to encourage mixed uses and greater density around retail and transit cores.

It is already happening. It’s no fluke that the most desirable suburbs of Chicago, my town, are the exclusive north shore suburbs, which are older “railroad” suburbs established in the early 20th and are arranged like traditional small towns, with lovely homes on tree lined streets within walking distance of the town center with traditional retail and commuter rail stops. These are places like Evanston (which is really a small city), Wilmette, Winnetka, Lake Forest, and Highland Park.

Southern California, however, does not fit the mold because it’s a post urban metropolis.  It has NO single urban center.  Instead it has a multitude of small urban centers surrounded by acres of suburbia and light industrial / commercial zones.

Even cultural centers are not congregated:  Disney Hall, Segerstrom Hall, Dorothy Chandler, UCLA, Cerritos, UCI, all of these are sufficiently apart that they would be in different provinces all together if European geographical scales were used.

My take on this is that Coastal Southern California, mostly anything within ten miles from the coast will not go urban.  Instead I foresee that some areas will go to luxury high rises, while others will remain as very expensive SFHs and “low density” town homes.  Anything inland will morph into three to five stories neighborhoods which oddly will allow better use of the land and will make mass transit more reasonable and affordable.

And yet, yet… the way SoCal is growing, I fear that people will still live past Moreno Valley then.  Except that work will move out there as well.  The LA metropolitan area is now over 13 million people and if you add San Diego and Santa Barbara I believe we’re pushing over 16.  This is mind boggling because t places LA as the 11th largest metropolis in the world, second only to New York ( 19 mil ) in the US.

And when you look at how LA achived this population then your realize how truly mind boggling and large we are.  LA is mostly suburban, and the metropolii that are larger are extremely crowded:  Tokyo, Seoul, Osaka, NYC, Delhi, Shanghai, Manila, Sao Paulo…. LA has managed to amass 16 million living in affluence, with no shanty towns and in a suburban environment.  Folks living in Moreno or the Antelope Valley live in complete luxury when compared with their counterparts in Manila, Sao Paulo…..

So, no, I don’t believe SoCal will ever go urban.  I think we will see areas go to higher density along the coasts and the mountains, but all in all I see at most a quadrupling of population density, a lot more industrial and commerical centers and more efficient transportation.

Read his book?  He does present some interesting comments that refute your accusations.

Stay calm, count to 10 first ...

Handing saving renters objections to bailouts…

http://video.msn.com/video.aspx?mkt=en-US&brand=&vid=0f94e028-30bc-4451-b237-1039cfd93f7f

The folks that trash Greenspan know what they know and can’t be told any different, facts be damned.

I’m not saying he’s perfect.  But blaming this on him is just ignorance of the facts.

Stupid:

I am not that guy, but I could be that guy.

Let ‘em all get crushed.

Stiglitz: Greenspan is a hack
http://www.bloomberg.com/apps/news?pid=20601103&sid=abh8h7M3uKBA&refer=us

Krugman: Greenspan is a hack
http://www.nytimes.com/2005/03/04/opinion/04krugman.html?_r=1&hp=&adxnnl=1&adxnnlx=1109912991-H17k/mI3CBhVcBrEEUIBPQ&oref=slogin

Senate Majority Leader Reid: Greenspan is a hack
http://www.dollarsandsense.org/archives/2005/0705miller.html
I’m not a big Alan Greenspan fan.… I think he’s one of the biggest political hacks we have in Washington.
—Senate Minority Leader Harry M. Reid (D-Nev.) on CNN’s “Inside Politics,” March 2005

Greenspan: I’m a hack
http://time-blog.com/swampland/2007/09/the_greenspan_book_1.html
Though Mr. Greenspan does not admit he made a mistake, he shows remorse about how Republicans jumped on his endorsement of the 2001 tax cuts to push through unconditional cuts without any safeguards against surprises. He recounts how Mr. Rubin and Senator Kent Conrad, Democrat of North Dakota, begged him to hold off on an endorsement because of how it would be perceived.

“It turned out that Conrad and Rubin were right,” he acknowledges.

Yes, I have friends and co-workers who are losing their homes. I feel badly for them. They made bad choices. They are suffering the consequences. If they had flipped the homes, I’m sure I would be hearing great stories about their financial savvy. The market should decide their fate.

Yeah… all of those people are not hacks themselves….

If the negative equity certificate was paid first out of sale proceeds, there would be a price range at which the seller would have no incentive to negotiate for a higher price—like a 100% marginal tax rate.  In the case of a $250k mortgage with a $250k negative equity certificate, the seller has no incentive to sell for more than $250k unless he can get more than $500k.  Also, there will be pressure for rebates and other shady tricks to get the seller some cash.  Imagine a seller listing a house for $350k.  What would prevent him from selling it for $250k plus a $50k under the table payment?

If the banks were smart, they’d phase in the repayment of the certificates (maybe on a 50/50 basis) to encourage the sellers to try to sell for the highest possible price.  True, it would take a higher price for the bank to recoup their negative equity, but they would be more likely to get anything.  That addresses the problem of not making any money, although the amount made by sellers would be less and that would affect the move-up market.  But, negative price pressure on move-up homes isn’t necessarily a bad thing.

Bad idea. Any rational owner would be out as quickly as possible. Take the bail out and sell ***immediately***. The lender takes the hit and the coupon is gone. You walk away with your credit more or less intact and start saving for a new place.

Yes, by selling immediately you would not take any equity with you. Of course, you could also keep paying for many years and still not have any equity. Start from scratch today or start from scratch in 5, 10 or 20 years. What kind of choice is that?

The logic behind doing this is that some poor schmuck will keep paying his mortgage for the next 10 or 20 years, then hand it all over to the bank when he sells.  Hell yes there would be an outcry, because there are people are stupid enough to fall for it. Reminds me of those elderly folks who continue to rent their phones from Ma Bell, eventually paying thousands of dollars for the damn thing.

I am moderately envious of your marriage my friend.Does she have a hot ...similarly minded…sister ?;->