Irvine Housing Blog

I can’t help but think the graphic has some errors.  From its legend, its entire range is from 0% renters to 1% renters.  Could it be that the numbers are actually percentages represented as their numerical values (0.0-1.0) and not normalized as percentages?

The programs have failed and the unemployment is rampant and it appears that the fecal matter is definitely impacting the air circulation unit, but will the banks really be forced to capitulate with reality?  I’m getting worn out by all this.  I have 100% faith in our elected and unelected officials’ ability to figure out a new way to make our financial markets 100% filled with lies.  Or make that 1.0% faith and 10000% lies; I’m not sure.

Wouldn’t such a law be wrong?  It would throw contract law out the window and give people a message that this is a country based on mob rule and not laws to protect.  And so much for private property rights.  I may not like the bankers, but taking away their private property rights is wrong and totalitarian.  Yes, it is wrong to bailout the banks, and adding another wrong to a wrong will not help.

This so called ‘right to rent’ legislation is evil.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

I agree with the viewpoint that the new bill would encourage default on a grand scale and crush California’s housing market. At time, when the passion for real estate investors is very dim, introducing such a bill will not go in favor of bankers. This might do more harm than good!!

Living here in AZ, it’s interesting to hear and see what’s going on in other states. Obviously we were hit pretty hard here. It’s not good anywhere, but what you have going on in LA is fascinating.

How you would reduce the incentive to enter right-to-rent?  Tie it to bankruptcy.  Write a new chapter of the bankruptcy code, and have a judge look at assets/debts, income & expenses.

We already have strategic defaulters not paying anything, so wouldn’t it be better for them to be paying something?  You could also tie an option to the after 5 yr purchase so that the original note holder could get most, if not all, of the appreciation. 

What you’d have to start with is the occupant signing the deed over immediately.  At that point, the bank can evict much quicker than if they have to foreclose first.  This ensures payment.  If someone had not been paying for a while, they’d have to make back ‘rent’ payments to get ‘current’.  Because of this accelerated deed-signover, I think banks will fight this even harder because of the immediate losses they’d have to realize than the strategic defaults it might cause.  The game is pretend-and-extend, and anything speeding things along goes against the rules of that game.

Where’s John Nash when you need him?  The situation is one where both parties going after their own best interest results in a suboptimal overall solution.  There needs to be some cooperative solution that yields a far increased overall benefit AND increased benefits for both parties.

There is a simple solution.  Just require all new mortgages to have a right to rent clause in them.  This will have the same effect…all future demand will have a price ceiling at the ~ rental parity price.  It doesn’t bail out the victims (speculators) or desecrate all the existing housing contracts.

@awgee—

Can you explain how the Fourth Amendment is relevant to this discussion? I think I know where you’re trying to go, but I don’t know.

This has to be the singularly worst idea I have seen anyone float on IHB.

The 4th amendment reference is due to the Govt seizure of assets from the lender, transferring them to the buyer, and subsequent restriction of the use of the assets of the lender.

Lets suppose someone buys a property for $500,000, and puts 10% down for a mortgage of $450k, and a rate of 5%.  But they could rent a similar property for the equivalent of 5% of $400k. 

With this scheme, the govt steps in and decrees that the contract is void, and instead of the bank owning a loan of $450k, they instead are forced to trade that loan for a physical asset that is now worth only $400k.

Now, on top of that, the bank is not free to dispose of that asset as they wish, they are forced to rent it to the person who just took them for $50k.

Sure it would reduce home prices… but that is just because it would make it absurdly difficult to get a loan.

You could also just declare that the govt. would no longer enforce any loan contracts, that would also eliminate the existence of mortgages and subsequently reduce home prices. 

We could also do the opposite of this plan… declare that any renter has the option of buying the home they are renting at any time and all they have to do is pay the govt mandated buyout price. So all those positive cash flow rental units can get claimed by the tenants.

So now we have no one willing to loan money to buy a home, and no one willing to rent a home to someone.  That would make for a fun experiment.  Prices would drop because no one would be willing to loan money at a reasonable rate, rents would rise because the supply of rental houses would decrease, and because the owners who were willing to rent a house out would have to charge more to compensate for the risk of asset seizure. 

The people who would make out like bandits would be the foreign cash buyers.  Everyone else would end up living in shanty towns.

I can imagine a self published Tea Party fan fiction novel that uses this as a plot line.  The USA plunges into chaos, only to be saved by the heroic Tea Party.  Hmm… Maybe this is actually the plot of the up coming remake of Red Dawn. 

And this still may not flatten sale prices in premium areas where the loan balance is below rental parity.

Looking at Scott Gunther’s 2009 data of an average of 40% down in Irvine, many of the homes being bought either have a low or zero loan payment. This “right-to-rent” will only affect the low end as I’m sure there will be a cap as to what type of products can be covered under it. What good rental comps can you pull for a $5mil Shady home?

It’s the same reason why prices haven’t been decimated in premium areas because many of the homeowner are not underwater due to the high down transactions. For every 0 down or HELOC abuse IR profiles here… I can probably find ALL CASH buys that are just as hard to believe.

OK, so who’s going to come and fix & pay for the leaky roof or the broken air conditioner or water heater? Who’s going to do the maintenance on this rental?

This is a terrible idea.  It abrogates the property rights of the lenders and rewards squatters.  If lenders cannot rely on their contracts, then future interest rates will be higher to compensate for such government-created risk.  That means, once again, the responsible will pay for the irresponsible. 

It is, after all, ridiculous to even consider the underwater debtors as “owners”.  Anyone who put 0 down or 3% down is, de facto, a 0% or 3% owner; and when the property goes underwater, such a title owner has nothing.  Why should he/she receive any special consideration? 

There is a good idea here, and it should only apply to new loans.  Require mortgage loans to comply with responsible lending ratios (e.g. 28/36).  And as a further check against bubble lending, add IR’s suggestion and limit the appraised value to the lesser of market (comps) and an appraisal tied to fair rental value.

Awgee and others seem to miss one important point.  The banks took bailout money from gov/tax payers and hence we can tell them how to treat their existing loans.  I fully agree that it would be wrong to force a lender to change a 450k loan to 400k if they didn’t take tax payer money but since they did, I think we have the right to do so.

“This would give homeowners an important degree of security, since they could not simply be thrown out on the streets,”

I can’t even believe this appalling quote, let alone that Irvine Renter could support such ridiculous thinking. “Homeowner”? “security? They aren’t homeowners if they aren’t paying their mortgage. If you want security, pay your mortgage or go rent somewhere else.

And what about people who played by the rules, and have a huge amount of their assets invested in homes that will now further depreciate because we want to keep idiots in their homes? Just more MORAL HAZARD. Homeownership as entitlement.

Does this program go on forever, preventing any actual RE market from existing? Basically instead of pumping up a bubble the government’s job will now be to permanently deflates the RE market? Great, really males me want to buy a house now! An asset the government intentionally caps appreciation on! Careful what you wish for. Have we not learned what happens when the government tinkers with markets?

I can’t believe I am reading this here. Government OUT OF ALL MARKETS.

Calif. homeowner optimism plummets

http://lansner.ocregister.com/2010/09/27/only-15-of-calif-homeowners-see-rising-prices/82674/

Why in the world would a squatter who is paying nothing (no payments to the bank) be willing to rent from the bank for real cash?

I’m surprised that so few people understand the purpose and intent of the Federal Reserve and the GWB and BHO bailouts.

The US Supreme court has put a very low bar on what constitues public usage.  Since the banks will control the appraisal process for the taking of their property for public usage, the taxpayers should be prepared to bend over.  If it the Joe six-packs property that being taken, Joe will need to bend over.

Right to rent would destroy most banks. But, something seems to be afoot for next year. Check out the bottom of this FDIC link:

http://www.fdic.gov/deposit/deposits/insured/basics.html

<quote>Note: Beginning December 31, 2010 through December 31, 2012, deposits held in noninterest-bearing transaction accounts will be fully insured, regardless of the amount in the account, at all FDIC-insured institutions.</quote>

That would be small business banking accounts. Why is the FDIC insuring these accounts after the November elections? And why for only two years?

Hmmm.

http://www.ritholtz.com/blog/2010/09/principal-reduction-balloon-payment/ “Better Idea: Principal Reduction/Balloon Payment” seems like a complimentary proposal.  The Dems and Reps can surely figure out a way of letting the government assume all the bad loans the banks made.
Note: the above URL posting is of the website referenced and is not mine.

IR:

> In Detroit, however, the marginal saving is only $89 between owning and renting home.

My advice is to leave Detroit out of any normal analysis, since it’s a special case - post-apocalyptic America.

There’s no personal security there even in broad daylight, and the city council hasn’t functioned in decades.

Its kind of telling that IR hasn’t posted a single comment in defense of the idea.  I think someone hadn’t had their cup of coffee yet when they wrote that post. 

I’m sorry IR, I can’t support you on this one.  While you are right on one hand that it would cause the market to correct quickly, removing all of the bull$hit government props and letting the market work would do the same thing more efficiently.  Instead, you are creating even more moral hazard and rewarding loan owners while punishing current renters:  now people will get to squat for 12-24 months rent free, then essentially squat for another 5 years.  Banks won’t write loans for most of the housing stock period if this legislation goes through.

This is BAD legislation and BAD economics.

Thanks for relating the news about the proposed legislation; I see litle chance of it passing. As I’ve commented before, I believe that a Financial Regulator with broad powers will be announced by the President, and that this Credit and Housing Boss, will direct banks to rent out properties. 

Alos, in my linked Financial Market News Report for September 29, 2010, I relate The chart of Active Real Estate, PSR, shows a 2% fall in value over the last seven days compared to the S&P. When taken in conjunction with the 3% fall in Banks, KBE, I conclude that the FASB 157 entitlement to value real estate at the bank manager’s best estimate, rather than at market, has ended.

The ability for the real estate cartel consisting of the banks, and the the GSEs Fannie Mae and Freddie Mac, to pretend and extend unreal real estate prices, is done and over.

This means that the GSE policy of loss mitigation will now be taken seriously, and those living payment free in the bank’s shadow inventory will be foreclosed upon and then either evicted or asked to pay rent.

The corporate mission of banks will change from one of lending to one property management and renting of REO properties.

Americans will be very much surprised to see the value of their home values plummet in value.

And unfortunately, it won’’t be like in Hungary, where the government lets people go scotch free in paying of Swiss Franc and Euro denominated carry trade mortgages.