Category

Mortgage Market

Housing Market

Profit Massively from This "Margin Call" on American Homeowners

Get ready. There's more trouble ahead for home buyers, home builders, and especially homeowners who took out home-equity lines of credit before the housing crisis. Those heydays have turned into haymakers.

What's already started to happen might not only knock out the formerly aspiring but now petering-out housing recovery, but also might knock the already weak economy to the ground.

Back in the good old days, when banks and mortgage shops were selling mortgage money and home-equity credit lines like carnival barkers wowing crowds into the big top, millions of homeowners stepped right in.

That circus tent was nothing but a trap, however. And now I'm going to tell you what that trap means for those borrowers – and the rest of the economy…

Housing Market

The Next Trillion-Dollar Mortgage Meltdown May Be Coming

The fourth securitization deal of big investor-owned single-family homes for rent is here.

Is this just another Wall Street gamble that will wreck the economy again, or is this time different?

You be the judge.

I'll tell you where I stand…

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Politics

Fight Club: Is the Home Mortgage Interest Deduction Worth Keeping?

Garrett Baldwin: Don't Just Cut the Mortgage Deduction… Cut All Deductions and Lower Taxes


If home ownership is the American Dream… then why do we need government to subsidize it?

The home mortgage interest deduction (HMID) is a lopsided tool of economic alchemy that favors the rich, and artificially increases housing prices due to the "stimulus" it creates.

According to the Congressional Budget Office, this tax break will "cost the government" more than $1 trillion over the next decade. The HMID mostly benefits households earning $75,000 to $500,000 a year. According to the Tax Policy Center, this range of Americans earns 77% of the tax savings from the HMID.

Housing Market

How Higher Mortgage Rates Will Dent Housing's Recovery

How much do higher mortgage rates reduce home sales?

That, of course, depends on how much rates rise and whom you ask. But there's no doubt higher mortgage rates hurt sales, experts say.

Interest rates have been climbing since May. Rates on 30-year, fixed-rate mortgages averaged 4.37% for the week ending July 18, Freddie Mac's weekly survey of conforming mortgage rates said. That's up more than a percentage point from early May.

And existing home sales fell 1.2% in June, to a seasonally adjusted annual rate of 5.08 million, from 5.14 million in May (but still 15.2% higher than in June 2012), the National Association of Realtors said Monday.

Lawrence Yun, the NAR's chief economist, told Money Morning he expects interest rates to hit 5% to 5.5% within a year. And while he foresees existing home sales rising as much as 10% for 2013, he predicts only a single-digit percentage increase next year primarily because of higher mortgage rates.

"There's no risk of any reversal of this housing recovery; it's just slowing the pace of this housing recovery," Yun said.

He said robust demand and affordable prices would lessen the impact of the higher mortgage rates in much of the country, but pricier markets in New York, parts of California and Hawaii would be hit harder by the higher mortgage rates.

Read More…

Case-Shiller Index: Is This the Housing Market Bottom?

Analysts, government officials and certainly homebuyers are spending hours trying to figure out if we have reached the housing market bottom.

Yesterday's (Tuesday's) data would seem to suggest the bottom is a bit bumpier than most people think.

According to the S&P/Case-Shiller home price index of 20 cities, home prices declined 3.5% from a year ago, while the 10-city composite slipped 3.6%. That meant fresh new post-bubble lows for home prices.

New-home sales in March also fell from their February level, the Commerce Department said. Together, they pointed to a more lackluster market.

"We're still in a slow period," said Robert Shiller, who co-founded the index that bears his name. "We're still in a funk."

But behind those numbers, there are reasons to be hopeful.

With borrowing costs near all-time lows, an economy that's bouncing back and cheap foreclosure properties attracting buyers, housing could be on the mend.

Knowing whether the housing market has bottomed out is important because nobody wants to pay thousands of dollars more for a property that could decline in value next week, next month or next year.

"The perception that prices could go lower…that's certainly keeping some people on the sidelines," Louis Cammarosano, general manager at HomeGain told Bankrate.com.

That's a problem because until buyers come back in significant numbers, the housing market can't completely regain its health. And without a housing market recovery, there won't be a real economic recovery.

But while we'd all like to know where the bottom is – pinpointing the exact date really doesn't matter.

Here's why…

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Mortgages for the 'Middle-Rich' Are Class Warfare Ammunition

For weeks now I've been telling you the markets are broken.

Now I'm going to prove it.

Today I'm talking about the housing market. It's broken. The truth is Congress broke it. Of course, it had help from mortgage originators, banks, and a deliriously greedy public.

But now, amidst all the rhetoric about class warfare, wouldn't you know it, some congressmen want to further grease the wheels of an already slippery housing market for a class of homebuyers I call the "middle-rich."

It's just plain stupid. And not only will it add to our housing woes, it's ammunition for middle-class Americans, who rightly recognize they are the biggest losers in a class warfare battle they never imagined would undermine the American dream.

A Good Idea Gone Terribly Wrong

What's being debated in Congress is the maximum size of mortgages that Fannie Mae and Freddie Mac can guarantee.

The previous maximum mortgage eligible to be backed by the Government Sponsored Entities (GSEs) was $625,000. In the aftermath of the credit crisis and housing bust lobbyists easily got that maximum raised to $729,750.

The increased limit expired on September 30, 2011. But the usual lobbying forces – in this case that would be banks, mortgage originators, realtors, home builders and financial intermediaries that trade mortgage pools guaranteed by taxpayers – are pushing to extend the higher limit until at least the end of 2013.

It doesn't make sense for the government, or taxpayers, to guarantee mortgages at all. The whole scheme, which originated in the Great Depression and made good sense at that time, should have been phased out decades ago. Instead, it mushroomed.

The idea is simple enough. In order to drive money towards housing finance, the government establishes "conforming" criteria for mortgages. When mortgages conform they are believed to be of a certain standard and quality and can be packaged into mortgage-backed pools. The government guarantees the payment of principal and interest on those pools. Investors buy the pools because they are guaranteed, and the money they pay banks and originators for the mortgages in the pools goes back to originators and banks, which now have more money to make more loans to more homebuyers.

Taken at face value this isn't a bad idea. But as is so often the case with even the best ideas, there are unintended consequences. In the case of the government guaranteeing mortgages, there are plenty of very negative unintended consequences, like "moral hazard," for example.

That's why, after the horror of the Great Depression had passed, government guarantee programs should have been phased out, so that private markets could freely price the risk of originating and holding mortgages.

Unfortunately, that didn't happen. That's why we find ourselves in the situation we do today.

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Money Morning's Shah Gilani Responds to Reader Comments on His Housing Plan

Dear Money Morning readers:

To every one of you (and there were more than just a few!) who took the time to comment on my housing-fix plan, thank you. I read every single comment, twice.

Money Morning readers have always impressed me with their insights and activism. That's why I write for Money Morning, I get to have a "conversation" with you, which motivates me, enlightens me and always keeps me looking at every side of all the issues I write about.

Here are some of my thoughts on your comments:

First of all, it's not possible for any comprehensive address of a problem as deep and wide as what our housing market is facing to be perfect. There is no such thing as a simple solution to such a complex set of attendant issues. And, no matter how exhaustively researched and designed a packaged solution is constructed, there will always be unintended consequences and naysayers who would rather complain about the status quo than change it.

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Employment Numbers Not Good News For Housing

(West Palm Beach) A clear and direct relationship has existed between employment and house prices in the US over the past 9 years. In order for housing prices to turn up, a necessary condition would be a sustained upturn in total employment. Although the widely reported seasonally adjusted employment data seems to indicate that such […]

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Money Morning Mailbag: Mortgage Rates Slip But U.S. Housing Market Still Unfriendly for Some Seeking Refinancing

U.S. mortgage rates dropped to a record low this week as the U.S. Federal Reserve started its second round of quantitative easing (QE2).

The 30-year fixed loan rate fell to 4.17% from 4.24%, Freddie Mac (OTC: FMCC) said yesterday (Thursday). The average 15-year rate fell to 3.57% from 3.63%.

Lower rates pushed up refinancing applications by 6%, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending Nov. 5. The refinancing gauge has more than doubled since the beginning of 2010.

Read More…

With Kickbacks on Force Placed Insurance, the U.S. Mortgagegate Scandal Just Gets Deeper

I thought that I'd seen it all with the "Mortgagegate" scandal, but the story that American Banker broke yesterday (Wednesday) underscores why the U.S. housing market has been host to the biggest and most-profitable scam the world has ever seen.

According to the article, the newest development in the American mortgage saga has to do with "force-placed" insurance policies: When mortgage borrowers don't pay their homeowner insurance premiums, are in default or in the foreclosure pipeline, mortgage-pool servicers make sure homeowner properties remain insured by requiring the purchase of a force placed insurance policy.

That makes sense. After all, the collateral that underlies the mortgage has to be protected from damage or total loss.

As it turns out, force-placed insurance policies are aptly named.

The American Banker article disclosed that the force placed policies that servicers are making homeowners buy can cost as much as 10 times more than standard policies. And servicers are making homeowners buy policies from preferred vendors.

In return for delivering these new insurance customers, mortgage-pool servicers are getting commissions – "reinsurance fees," in insurance-industry parlance, reinsurance fees.

I call these "fees" what they really are – kickbacks.

To understand the breadth of this latest scandal development, please read on...