Comments on: Don't Be Fooled by the Housing Market's False Bottom

By: gerald d

gerald d — Tue, 26 Jan 2010 13:52:17 +0000

thank you everyone for your comments i have learnt and enjoyed reading all.

By: Chris

Chris — Tue, 12 Jan 2010 15:44:18 +0000

As a 17 yr veteran of the Mortgage Biz. I have seen lending go from one extreme to another.
This entire mess did start back in 1997/1998 when Barney Frank decided Banks were not lending to low income and/or minorities. It was the CRA (community reinvestment act) that mandated banks to lend to certain areas/demographics. Together w/ Fannnie/Freddie the banks built a lending model that allowed for lower/no downpayment, and allowed for more liberal debt to income ratios and employment stability.
Banks were rated on how many loans were closed using this model. A bank could not get approval for expansion or could get penalized if not enough of these loans were being made.

After 9/11 we saw a huge increase in the securitization of MBS using the now defunct model of a CDO. The rating agencies were able to put AAA ratings on CDO's b/c of the something known as 'traunching', slicing/reselling slivers of the debt to 'spread the risk'.

THE ONE PROBLEM WITH THIS MODEL: It made two assumptions

1. Housing prices would go up for perpituity
2. The unemployment rate would remain relatively low

The reason for all the 'failures' on Wall St. was b/c everyone thought they were 'protected' by using Credit Default Swaps and other sophisticated financial instruments.

From 2003-2007 my business was 'dead'. This was b/c I didn't orlginate sub prime loans. I was an A paper retail originator and all the loans being done were sub prime.

So you saw a mix of mostly good loans w/ a few bad ones morph into mostly bad loans w/ a few good ones. But hey! If you can get a AAA rating and a credit default swap and have NO SKIN IN THE GAME, what did it matter. The loans were sold before the ink was dry.
Some loans were already delinquent before they had even been securitized.
We are in a new era and I love it!

By: Marie Saqueton

Marie Saqueton — Wed, 06 Jan 2010 19:24:39 +0000

Don't blame all Mortgage Brokers on the housing foreclosures, because the banks offered the NEGATIVE AMORT. PROGRAMS a couple of months after we close escrows, and replaced the good fully amortized loans with their ARM. Ignorant homeowners, who did not read the fine prints of course took the lower mortgage payments. It was a game the Banks played, because they had the malicious intent to sell the notes overseas on the MARK UP PRICES. They victimized foriegn investors and made a lot of profit. Then they cried WOLF and our Congress gave them the bailout WITHOUT AUDITING WHERE THE PROFITS THEY MADE OVERSEAS WENT? GERNMANY LOST BILLIONS ON THOSE NOTES, AND SO DOES UK, AUSTRALIA, ETC,ETC,… ASK CONGRESS WHY WAS THERE NO AUDITS FIRST????

By: Fred Alexander

Fred Alexander — Wed, 06 Jan 2010 16:14:13 +0000

Correct me if I am wrong but it is my understanding this mess was started over minority rights.
The liberals advised Clinton that lenders were not lending in poor areas because they were racists which was false because the real reason was due to poor credit, etc.
Standards were loosened so there would be no excuse not to lend in these areas and this started the ball rolling.
We need to go back to standards that require a down payment, job and income qualification.

By: Jim Gall

Jim Gall — Wed, 06 Jan 2010 15:43:18 +0000

The equation for a Rent/Buy decision is infiitely simple. If the cost to rent is less than the current rate payment on a 100% of selling price mortgage, plus taxes, H.O.insurance, HOA fees, maintenance and appreciation, RENT! The kicker there is obviously appreciation and how to accurately calculate it. If you are a renter, keep track of proces in your neighborhood or where you want to buy. Do it regularly, not less often than every 3 months and be ready to move when the market does. Also, bank the difference, otherwise you have just used the savings to live on.

By: Dennis Norman

Dennis Norman — Tue, 05 Jan 2010 05:11:48 +0000

I think Mr. Hutchinson makes some very good points in this article…in fact they are consistent with my sentiment in many of my recent articles regarding the housing market and it's "recovery"….Back in late August I published a very good article from Charles Hugh Smith from "Of Two Minds" about the false bottom in housing at:

http://realestateconsumernews.com/real-estate-market/beware-the-false-bottom-in-housing/

By: Peppi

Peppi — Mon, 04 Jan 2010 14:38:03 +0000

Finally a commentary that expresses my thoughts. Well done sir! Our housing market is being artificially inflated. It is less expensive and more politically correct to offer incentives than it is to make tax payers absorb a foreclosed piece of real estate. Things are just so rosy. I see more loan defaults in our future directly caused by the current administrations incentive programs. Our finical system is being urged to free up their loaning policies once more. Another democrat named Clinton set this stage.

By: ARC Fleet

ARC Fleet — Mon, 04 Jan 2010 04:54:27 +0000

Real estate is not the issue. Faulty lending practices to maintain sales of real estate is the problem. When lenders relaxed the rules and qualifications for buyers, they followed in the footsteps of the auto industry.
Soon there were so many people trying to make money on the housing "boom" that there were not enough truly qualified buyers. So the process cycled, until people who had no business being approved for loans were in houses they could not afford.
Now, overspenders and unemployed are crushing the market and modest homeowners like myself are feeling the pressure because we cannot refinance without a 720 empirica or 20% equity yet my taxes will bailout the dirtbags that overbought in the brand new subdivision down the street.

By: Duncan

Duncan — Sun, 03 Jan 2010 18:42:15 +0000

Jonathan, now more than ever if you don't know the local market, don't invest. Where I live, (a "prime" section of LA) the current data available for due diligence is very misleading. I've just gone through this with a would-be investor. He did everything right as an outsider, pulled stats on the local rental market. Problem is, the vacancies stats are not up to date. And what he "thinks" landlords are getting in rents is not what the several property managers I know say. Sure, 2006-7 -- but not anymore. There are at least 40 vacancies on my block, and most due to people not being able to pay the jacked-up rents from the bubble times. Landlords are finally coming down in rent, but it's a slow, slow process. Many of them refinanced and cannot cover their mortgages if they reduce rent. The commercial strip near me is full of empty storefronts, so commercial RE is taking a hit. Sure, you can get stats on what those stores rented for last year, the year before. But I can guarantee you they will not rent for those prices this year. Be very careful right now, and for god's sake don't trust salesmen. Go to the neighborhoods and take a few property managers out for a drink. They know what's really happening.

By: Jonathan

Jonathan — Sun, 03 Jan 2010 08:12:34 +0000

I am just thinking of investing in US real estate market after joining with some international investor. How do the locals see in big cities like LA , New York? Is the house affordable? or the rental market yeild is good?
If not I will be putting the money in US tech stocks like Microsoft, Googles, Apples cos that is more safer.