According to David Stevens, head of FHA, the U. S. housing market is on life support. In an article in Bloomberg Businessweek, Stevens is quoted as saying: “This is a market purely on life support, sustained by the federal government.” He went on to say that the FHA’s monopoly of residential lending is “a sign of a very sick system.”
We should all be concerned by the level of lending from FHA and the potential for disaster should large numbers of the loans default. Earlier this year an article in the Washington Post reported that FHA delinquencies had increased by more than a third in the past year, with more than 9 percent of borrowers at least 90 days behind in their mortgage payments. And while newer data indicates that number to be decreasing, the concerning factor is the tremendous exposure of FHA due to the sheer volume of loans guaranteed. Recent data indicates that FHA’s involvement in home purchase transactions appears to have surpassed that of both Fannie Mae and Freddie Mac.
Stevens has repeatedly tried to downplay the current risk by pointing out that the majority of the “problem” loans were originated in 2007 and 2008 when more lax lending standards were in place. New requirements, he points out, should significantly lower the default rate. But what FHA seems to be ignoring is the risk from continued sluggishness in the economy combined with high unemployment. Lacking a robust recovery, many of the borrowers who may have once been good credit risks may have difficulty remaining current on their mortgages.
The ultimate problem, however, isn’t just one of the FHA; the dramatic increase in loan guarantees puts taxpayers on the hook for 100 percent of any losses the agency incurs.
The Housing Guru: The expert source for all your housing questions
John - I recall being concerned with the volume of loans being picked up by the FHA because of the vanishing Subprime Market & the stricter parameters associated with Conventional Loans. So, this doesn't necessarily surprise me. We continue to live in challenging times, but I think we are up to the task ... individually and as a Nation.
Jason - I agree that the people are certainly up to the challenges we face; the ones that concern me are the politicians and bureaucrats who don't seem to have a clue.
Mr. Stevens has been injected with a dose of "blame" dna from the administration which seems to require the mantra of "we inherited".
Fact is, Mr. Stevens sat on the low FHA premium rate for months longer than they should have.
They still fail to realize that the housing industry is the fuel on which the American economy runs. Yet, their persistent goal of making home buying harder is counterproductive.
They didn't "inherit" the bad economy, they campaigned for it, won it and are now hapless in figuring out how to refuel it.
Lenn - I think you've pretty much "nailed it." All Stevens has done is to continue playing "kick the can" with his cronies. We'll pay for some hefty losses due to FHA's policies.
Awesome Lenn!
The more they meddle in the business the more they realize how complex it is. If they would have left it alone 3 years ago and stopped trying to save all these people in their homes we probably would be done and this would be a memory.
I did enjoy a nice run with the tax credit though.
It's headlines like this that scare the American consumer and create a self- fullfilling prophecy of the housing market sinking lower and lower,
Several years ago during the past administration the government was raising interest rates, and my belief than was that housing was the only thing keeping the economy alive, The Federal Govt and Administration were doing everything they could to dismantle it.
Well, it only took another year before the whole thing collapsed.
I agree with Len (as usual).
Wouldn't it have been interesting to be at the meeting with Hank Paulson and Bush when Mr. Paulson and anti-Keynesian if there ever was one telling the President, if you don't do something like TARP this country is going to financial hell, and you will sink even lower than Hoover in idiocy. This is just reality, that what was put into motion in the 1980's has wrecked vengeance on us. I appreciate a federal official instead of lying like with the weapons of mass destruction BS, actually tells the truth. It aint over until its over.
Less lax lending standards aren't going to prevent people from simply walking away because they don't have equity in their primary residences in non-recourse states like Arizona.
Nice. Tell us how you really feel Len! Great comments.
John: Good thoughts! I read this as well and it's a concern. I agree with you. We obviously need to learn to stand on our own two feet without artificial supports! Take care.
Steven - Govt. has become the chief "meddler."
Linda - While I'm not trying to "scare" consumers, I do want them to be aware of the risks involved in a home purchase. That's why I always recommend they seek the guidance of a real estate professional.
Joe - I was surprised by Stevens' candor.
Dean & Sonia - Exactly!
Paul - Crutches only keep us "limping."
That's it for me.... I have had enough......A new committee for responsible housing and Real Estate dealings is being formed. I nominate the following.......
John Mulkey....Chairman...for correct change NOW with no excuses
Len Harley..Vice Charmian...in charge of the NO NONSENSE division..with enforcement powers....
Steve,...R&R Director.....
Linda,....Team Support Division
Joe...Chief Morales Officer..you do wrong, we get you.....
Dean & Sonia...Directors for Housing Cure Administration...problem/solution specialists
Richie...Chief Instigator, Feather Ruffler and pay attention reminder officer
Mark...poster child & logo
Future commentators.......unlimited positions available
I am applying for one of the future commentator positions. I know that the increased FHA loan limits were a boon to our local real estate market over the last couple of years.
I agree we are in a mess FHA has and continues to pick up the slack right or wrongly... The economy needs housing new and resale to flourish for the economy to recover. I not sure anyone knows what is going to happen; we are in uncharted waters...
Interesting...
All we keep hearing is that they (meaning the Bush Admin) left us with a bigger mess than we could have ever imagined. The last time I checked, the Dems run the house and Senate. Who's is to blame? Both sides, fully and completely. The system is so broken and our country is either far left or far right and everything in the middle get's steamrolled. Everything is slanted towards the rich and the corporations they run. Politicians are bought and sold on a daily basis. Nothing get's done anymore unless everyone gets a dip in the cookie jar.
With the credit crisis and fallout of the last part of 2008 FHA was one of the only sources through Ginnie Mae that could provide liquidity to the housing market. We still have a long way to go before things return to normal but, with the higher premiums and tighter underwriting, FHA is going to assist in the market recovery. ~ Doug
Richie - If nominated I will not run; if elected I will not serve. Thanks, but I think the "Chief Instigator" should be in charge. : )
Vickie - I second your nomination.
Richard & Janet - We'll have to create millions of new jobs to restore the housing market. Until that happens, housing is going nowhere.
Michael - True; unfortunate, but true.
Doug - I'm afraid FHA has already extended beyond its reach.
John you are totally right, until we get this unemployment under control, we're going nowhere on the road to recovery. We see the stock market rising and yet where are all the jobs? Where's our money going to?
It's the blame game all over again - first from the liberals - then from Obama - now from FHA - how sad!
John - I just saw on CNBC this morning the prediction that home prices will fall another 20% before they hit bottom because of the increase in foreclosures and short sales.
I have read that this exposure to "the public" (you and me) tops $90 trillion. Is that so?
We are now about 4 weeks post tax credit and activity is slowing !!!!!!!!!!!!!!
Congratulations this post is now featured in the Silent Majority Group of Active Rain.
Christine - While many point to the stock market as an indicator of recovery, it's not. Just ask the millions of unemployed or those whose savings and home equities have vanished.
Nicholas - Actually, I blame everyone. I try not to show partiality : )
Mike - I've seen those predictions too, but I don't think it will be that severe--it's possible, but unlikely I think.
Jay -The exposure from FHA is about 750 billion; but of course, we're on the hook for ALL U. S. debt, and that number is almost 100 trillion.
Michael - Yes, in most ares of the country.
Nicholas - Thanks for the feature!
John,
The mismanagement by the private and public sectors combined just kicked the feet out from under the housing and mortgage markets. Who are these guys?
Esko - It almost has the appearance of a sinister plot, but many of those involved seem too inept for it to be deliberate.
The gobment is backing more than 50% of all mortgages. The exposure has to be a lot more than $750 billion, doesn't it?
it's all about jobs...where are they?....oh wait, just blame the previous administration
Jay - I'm just talking about the FHA part; and they've just become the major players in the last couple of years.
MJ - Everyone wants to blame someone--It certainly can't be their own fault.
John,
It could definitely get UGLIER! There is really nothing supporting the housing market at this point, with the concerns of it being a bad market causing a continued downturn, like a snowball rolling down a hill.
Good info to share, even if I am an eternal optimist, I like to be realistic!
All the best, Michelle
Michelle - Contrary to what some believe, I'm also an optimist; but I also believe in having all the facts to help me make the most prudent choices.
John,
I agree with you, the FHA loan situation is a bad situation that could and mostly will get worse in the months to come. I have also heard of RD loans in limbo now, not knowing when they will be processed because RD is out of money. An ugly situation can easily turn into a monster.
Hi John -- I heard top economists on NPR the other day saying "volatility" in many sectors (real estate included) and the economy in general will be the norm for quite some time. Sigh.
John,
I've said it before and I shall again. The crisis in Europe hasn't come home to hit us yet, but it will.
Terry's words are scarying me . . .
It's scary to consider where all of this could take us. I got a kick out of Richie's comment and worry at Terry's.
Dinah - The country is out of money; we need to re-think all this borrowing to create "prosperity."
Chris - That's certainly true. Just look at the stock market; it can't decide which way it's going.
Terry - Yesterday I talked with a friend from Greece. His words echoed your sentiments. "The U.S. is doing the same thing we did," he said.
Carla - Scary but true.
Christine - We just need to keep our personal "financial houses" in order, because the govt. seems unable to do the same.
Even in my area of Bucks County, Pa. and neighboring Montgomery County, Pa. sales are SLOW even with FHA making lending more affordable. If the JOBS situation doesn't get better, what can we expect in Real Estate, not a good picture that's for sure.
Could it really get any worse than it already is? I guess it can...
Until we are able to sustain our own personal economic activity without the assistance of government, we will not see any permanent improvement to our financial well being, nor that of our clients. Selling homes to people who can not afford them (which means equity and cash reserves which to pay mortgages in financially difficult times) only satisfies short term greed, not sustainable growth and a healthy long term economy. The balance of leverage in the housing equation is critical moving forward.
I challenge you to ask yourself this question:
How many of my buyers utilized an FHA loan to purchase a home in 2009 and thus far in 2010? Would they have qualified for any other loan? Did the closing utilizing the FHA loan = a payday for me? If you answer was yes then I challenge you to read on ..........
It seems that we, the people of the US, are doing the best we can in times we have never experienced before. New changes/challenges arise everyday and with new challenges we have to put on our moral thinking caps on and figure out how to implement the changes and continue to offer homes and homes loans to people just like you and me.
I don't think that Subprime or FHA loans are the cause of people walking away from their homes. In 2006/2007 consumers could buy a home utilizing an 80/20 loan, they could also, at the same time, purchase large consumer items with loans: boats, vehicles, RV's, ATV's and were offered large balances on credit cards.
WOW all of a sudden they were living the GOOD life! They had a great house, they were off on the weekends with their friends camping in their new 32' trailers and in the back of their brand new pick they had 3 new motorcycles, the kids and the wife looked great in their new outfits and life was good. Suddenly one of them lost their job and the month to month income they were scrapping by on wasn't enough to pay all of the bills. Three months goes by and they come home to find a notice posted on their front door, Pay or your OUT!!!The family does not have the money to cover all of one months payment let alone get caught up on three now four payments so they have no other choice then to pack up and move. Of course they take the trailer and pack up the truck with their toys and possessions and find a place to rent all the while feeling defeated and perhaps destroyed and finding that their marriage can't withstand the stress and another family is destroyed.
Are we really going to blame this scenario on subprime and fha loans - I don't think so. There are way to many other factors involved to be able to point our fingers at the loan system.
The next time you receive an approval letter with the buyer being approved for an FHA loan what are you going to do? Will you tell your buyer that this is a bad loan and that it will hurt the economy because more and more people will default on this type of loan or will you graciously thank the loan officer for knowing their loan products and for working hard to get your buyer approved for a loan? I assume you will choose to be thankful.
I am thakful for every referral, every person that finds me on the internet and for the 1 our of 5 loans I work on that I can actually close. Loan guidelines have tightened up so much that it would be hard to get the President approved for a loan yet I am thankful for my job as a loan officer and I encourage you to be thankful today too!
Elections matter. Deficits and debts matter. The people in DC have failed us and need to go home. More power to the states.
Read about Mr. Stevens and the FHA working with big banking in Death of an Industry-Real Estate Appraisal. howtomeasureahouse.com
I'm not sure why this is news to any one. If you had been following the rise and fall of this housing bubble this should just be another piece in this horrific puzzle. I think too many folks that were benefitting from the bubble didn't want to see the fact that many folks were buying that shouldn't be buying. Many of these people got sucked up in to the 'buy now or be priced out forever' bs or the 'it's a great investment' and of course, 'it's the American dream'. Along with all the creative financing, raising the FHA limit was foolish, why encourage some one who cannot save for a down payment for a traditional loan to take on a large mortgage?!?
Buying a home is a huge responsibility. You have property taxes that only go up, maintainance, unexpected repairs, and for some you've eliminated your mobility. Significant down payments should be the norm. If you can't save up say 5% how are you going to afford the other expenses of home ownership.
Not every one should own a home.
And I'm perplexed how some can praise the FHA limit incease and the home buyers credit because it was a boom to the RE market yet gasp when it's the tax payer left with the bill...why the disconnect?
You really want to know the SCARY part- imagine if FHA was super tight or even non-existent. You would have seen the next DEPRESSION. Yeah we need to be concerned, BUT over 70% of ALL sales in the last couple years are under $ 250K. In many markets, most of those purchases used FHA. It's the domino effect. You want to sell your home- the buyer is most likely using an FHA loan to buy your home SO you can buy your more expensive home.
Conventiional and jumbo does need to relax some guidelines BUT until they do we need FHA as a catayst. Rememeber- FHA has always been Full doc, reasonable DTI's, and flexible credit. If people lose a job- it doesn't matter what program they are in.
My lending side is coming out. What we really need is a good Self-employed 70-80% LTV product with verified assets to get small businesss going. We all know Small business is what will bring the jobs and most self-employed have had their Home Equity lines and credit cards slashed.
The "kick the can along" analogy says it all. It seems to me if we let the market completely correct itrself, there would be a lot of short term pain for long term stability.
Ha! This one filled your comment bank! David Stevens cut his real estate teeth in our county. He was with Long and Foster real estate for years. He came to speak at one of our office sponsored functions a few months ago. He knows the problems and speaks VERY candidly...he knows real estate and lending from the ground up. I am glad he is there....but he can't fix stuff by himself...Fanny and Freddy and Congress all have cooks in our kitchen.
The bigger problem isn't with the mortgage industry, the banking industry or house prices. The big problem is with Government getting involved in private industry where they shouldn't. If there had been no intervention by politicians the housing crisis would be over by now, instead we have prolonged the inevitable. If there had been no bank bailout we would have less banks, and they would be smaller banks, but there would be banks. Instead we have banks that are still overpaying their senior management and making the same mistakes they were making before, why change....there's always a bailout if we need it. if there had been no cash for clunkers and no auto industry bailout we would have a much different auto industry today.
Attrition is a natural course that needs to take place, otherwise we never learn taht there is a real consequence to our actions and nothing ever changes until it becomes catastrophic.
Barry Habib hit the nail on the head:
http://video.foxbusiness.com/v/4210331/making-sense-of-the-housing-numbers
Thumbs up!
The numbers I've seen show that the gov't has a had a hand in 97% of all mortgages funded so far in 2010. Add that to the recent massive purchases of land by the Feds and you'll realize that this is not only a dangerous way of doing business that puts the taxpayer on the hook for poetentially huge mortgage losses, but it's also part of an overall land grab by the Feds.
It's funny how they only give you the glass 1/2 empty approach. This pool of loans is from when there was no FICO minimum and some 580 scores...which hasn't been the case in over 12 months. Default rates are getting higher on all loan types weither it's Auto, Credit Card or Mortgage based on high unemployment and the current state of the economy. There is more data and information showing how default rates have come down to a acceptable level based on curtailing of loan guidelines. They recently increased the FHA Up Front Mortgage Insurance to 2.25% of the loan amount to build back reserves as well which should help offset some of the bad loans.
Need more evidence that government meddling played a significant role in the "housing crisis". Check out this article about the "CRA Scam". Although there have been many articles written about this I like the way the author points out the contradictions of those who supported the act and in the same breath blame greedy lenders for all of our housing woes.
Government needs to stay out of private industry. We all know what a great job they have done managing the federal budget. Our grand kids grandchildren will be paying off the national debt which is now more than $13 Trillion. That's trillion with a "T".
John, well I wondered about this recently and I think we have been sold a bill of goods. I went thru the sales in 2 of my local towns and the loans closed DID NOT have FHA as the largest - it was conventional! Which means more people put more money down! That doesn't agree with what 'they' have been telling us is it?
Check with your own area and then form an opinion on this. Your sales numbers won't lie as there is no benefit not to put the correct mortgage information into closed data.
I loved Lenn's "they campaigned for it"? comment.
I think that the new extra 1/2 percent in the upfront mortgage insurance premium is a good start to building / rebuilding necessary cash reserves for problem loans.
Assuming time passes and this mess gets behind us, how long will it be before they start raiding the extra premiums for some unrelated purpose?
John,
Is the sky really falling or is it Volcano Ash?
Have a great day!
Lucky :)
All the anti-government, free-market rhetoric that you hear on AR isn't a big surprise... but I do find it amazing. Keynesian economics and the concepts of viable health and even remedial social care are pretty much out the window and all that remains are the bailouts for the banks and Wall Street (and a massive defense and homeland security budget.) The major corporations and especially the banks have been giving Washington it's marching orders for years... decades... forever (take your pick.) Unfortunately, you can't argue that what's good for them is good for America and us any more. Most of these big corporations are trying to set up shop in international waters where no one can tell them what to do.
The current crisis has been a rip off of global proportions. Putting the taxpayers on the hook for FHA loans intended to prop up the economy is just another bank payment pushed through the system by the people who are really running the show in Washington.
"They still fail to realize that the housing industry is the fuel on which the American economy runs."
Wow. I couldn't agree with this statement LESS. The housing market has never been the "fuel" on which the American economy runs. The housing market is incidental to the greater economy. The fuel on which the economy runs is natural resource exploitation resulting in agricultural production and raw materials refinement leading to manufacturing. Without the latter, the former couldn't exist in the way in which we produce housing today. The fix for the housing market can't occur until we fix unemployment in this nation.
I knew we were in trouble back in 2001 or 02 when I heard our former president announce during the previous recession that the housing market was the shinning light on the hill that was going to pull us out of that recession. It took longer than I thought it would, but in the end, that bubble burst BIG TIME! To once again turn attention to the housing market as the solution to our recession problems should just about put the last nail in the coffin of this economy.
The real problem is financial services representing 40% of GDP. In the 60's it was about 6%. Which was also about the last time we had "true" full employment in this country.
Do some research please!
Carl S
It's just scary no matter how you cut the pie.
We're going to see more "strategic defaults" at least in my market. Homeowners who thought they'd "ride it out" and see their home values increase are discouraged, frustrated and plain old angry that there is no help for those who continue to pay their mortgage on their now underwater home.
Just watch - it's a coming......
Why I'm so happy to be a landlord!
Congress approved the insanity of FHA limits up to $750,000 in February 2008. The dog and pony show put on by our government is, and has been for sometime, a SNAFU. In 2005 residential real estate made up 16% of our Gross Domestic Product. Barry Ritholtz who writes The Big Picture, Harry Dent predicted this in his subscription newsletter and finally Addison Wiggins and gang at The Daily Reckoning blog predicted this housing collapse well in advance. If there is anyone to blame it is us (we the people) for not keeping informed and holding congress to account for their decisions. To transform congress into a responsible entity who truly protects us, will take decades, regardless of when we start; otherwise rolling with the punches is wise.
okay ,,, not exactly what I was hoping to read this morning ,,, including all the cheery comments but I prefer to know reality than think happy thoughts pretending its raining when in reality someone is peeing on my leg ;-)
There are a number of things that can be done to solve the problem now. I may or may not agree with a number of them, but the Key Stone Cops solutions they are doing now are costing more than even what I consider bad options and are not solving the problems.
right on John. All this uncertainty makes me very nervous.
Brian, you state that government should have stayed out of this fiasco and let the bad banking weed itself out but FHA, VA, USDA loans ARE government programs!
Good way to describe current market ...
For all the critisism subprime has taken over the last 2yrs I'd take the subprime loan with 20% down over the typical fha deal 7days a wk and twice on Sun. Too much emphasis on credit and not enough common sense underwriting. How sad that a borrower cannot get a loan when they have significant "skin in the game" but FHA will gladly insure a loan for a borrower with a 620 fico, 55% dti, and 3.5% down payment - usually a gift from family. What could possible go wrong?
Leigh,
Yes they are all government backed programs, but they were all there prior to this whole debacle, and they have all been tweaked recently to help the government continue to meddle.
I was referring to the banks themselves with the bad mortgage debt on their books. The banks came up with the underwriting guidelines for these programs, the loans failed and there was virtually no consequence to the bank because they get bailed out with taxpayers money. Had the government stood back and done nothing this whole thing would be over by now. The financial landscape would definately look different than it does today, but it would be over and we would be on our way to the "new normal".
There is a natural progression in everything that is the same no matter if we are talking about human life or businesses. It (or you) are born, you grow , you mature and you die. Certain decisions you make along that basic path are going to affect the timeline, but everything follows that line. What is happening now is the Government is putting the banks on life support, and instead of asking them to pay their co-pay they are requiring us to do it. Let the natural progression happen, did we learn nothing from the stories of the exploits of Dr. Frankenstien?
people buy homes with government backed loans --> economy looses jobs --> less jobs means less taxes collexted --> taxes go up to make up for it --> government pays out unemployment to those people --> taxes go up to pay for it --> the unemployed people default on mortgages --> Taxes go up to pay for those defaults --> people are now over taxed and can't afford their bills causing more defaults --> spiral down spiral down spiral down. Call me a pessimist on this one but this system is bound to fail eventually.
I don't quite understand what you are all reading or seeing but it sure seems to me me that too many of you believe in a future with some kind of normalcy. This situation we are all in, Europe, USA, , Greece, Spain, Potugal, Iceland etc with housing, with debt, with security issues, with the changing of constitutional law, with the implementation of new restrictions through new laws etc this situation is in no way rerpairable with a few econonmic fixes. The global economy is under an attack from the banking elites where every aspect of society is being manipulated to serve they're mandate will hell and that's all there is to it.
We have been asleep for too many years and now our unwillingness to face up to these manipulators is coming home to roost. With most of the power in the hands of these banking manipulators of freaking everything we once new and trusted few are going to do well if they even survive at all. If the economy gets any worse than it is as it certainly will only the implementation of extreme preparedness will give some people any measure of a chance to be alive in 5 years.
Why is everyone talking about the FHA when in fact they are set up to destroy the economy and not in anyway help the good citizen's buy a home to raise they're wonderful families. Wake up people the aim is complete take over and control of all aspects of society the gov etc is not at all on your side working to improve your way of life. Sorry but too many will be completely taken by surprise when they see whats really on the doorstep.... Too late to turn back now its crash and burn only and only from the ashes will we ever be a world of any measure of prosperity again.
Brian, the bubble was a long time in the making. There were red flags back in the Clinton administration. Did you see The Warning on PBS? http://www.pbs.org/wgbh/pages/frontline/warning/
Well worth your time. My thought is that no one wanted to rain on the parade. We were enjoying lifestyles like no one imagined...big homes, vacations and all the toys.
There were lots of factors that played out besides policy, ie Glass Steagall Act being repealed, psychology was a big factor, ie greed, ignorance, naiveness, and then there were those creative folks on Wall Street that helped banks unload those loans onto investors.
I too, thought the bail out should not have happened the way it did. Heck, banks were admitting how they were going to 'invest' the first delivery of bailout funds from Bush...very pathetic...So what would have happened if the bail out didn't happen. Could we imagine? It was unprecedented and it wasn't looking good. I personally think the money should have went to the individual home owners, the ones that consume and make the world go round...but nnooooooo, now the gap between the haves and the have nots just got much bigger.
WOW! What a great post and thread. Such great comments and perspectives. I love being able to have such a wonderful collective of industry leaders who really make sense. I'm forwarding this to the President.
See Don, you are raining on my parade. Debt = Wealth, don't you know;O)
Elea - When the jobless rate begins to normalize, we'll know that a "genuine" recovery is in place. Until then it's just smoke and mirrors.
Halina - It can get worse; let's hope it doesn't.
John - We're in uncharted territory, and our leaders are trying to forge ahead without a compass.
Sabrina - It's not so much about being thankful for what we have as working to improve our system before it collapses. Housing needs a firm foundation, not being propped up with sticks.
Phil - And until more folks become interested in what our "leaders" are actually doing, the electoral process won't see much change.
Hamp - Most of our bureaucrats and politicians have little understanding of the "big picture," and those who do seem unwilling to do what is necessary to bring about meaningful reform.
Leigh - I'm sure many ignored the disaster in the making, but now that it's here, it must be addressed by all.
Mark - I'm afraid all we're accomplishing with FHA taking the lion's share of lending is creating another "bubble."
Jon - We're going to have the pain whether we choose to or not. Choosing it now could lessen the effect.
Steve & Jan - I found Stevens candor refreshing; but you're right that, regardless of his knowledge, he can't fix the system alone.
Brian - And if there had been no government interference, we wouldn't have the problem we're currently facing.
Jeff - Interesting interview; he seems to have a good understanding of the problem.
Rob - Thanks!
Dan - The reality should be a concern for all taxpayers.
Chris - But they are counting on a relatively quick recovery. If it doesn't come, FHA will have lots of bad loans and taxpayers will have to foot the bill.
Great discussion, and I see both sides of the coin. If the Fed was not insuring mortgages, the majority of us would all be looking for a 9-5 job at this point. Noooo! The alternative to "life support" is not good either.
While it is easy to point the finger at the Fed, the real meltdown was brought on by Wall Street, in their greedy frenzy to bundle and sell mortgage-backed securities. The American public is now holding the bag, after bailing out Goldman Sachs and thier ilk.
For an interesting read on this complex topic, read "Our Lot: How Real Estate Came to Own Us"
Another part of the current problem is the current administration hasn't figured out that their actions today don't have a real effect for 6-12 months. They are under the misguided belief that programs and policies implemented today will have an immediate effect tomorrow. There is a serious problem with governance by knee jerk.
I would also appreciate it if they would stop doctoring the unemployment figures and then going back 2 weeks and revising them up as they have done almost every time. The market reacts to news that is grounded in fiction. But according to Barney Frank, the general public are all idiots who need the politicians making decisions for them.
Darla- to your comment that if the Fed wasn't insuring mortgages the majority of us would all be looking for a 9-5 job, I would say that we probably will be soon. This problem hasn't even gotten that serious yet. That is exactly what I meant when I said the government was prolonging the inevitable. It's going to happen and a band aid can't fix it. The amount of shadow inventory that banks are holding on their books will probably astound you when it hits the market. Values will decline again. There is another wave of foreclosures coming and these people have already tried to go through one of the governments bailout plans and failed. If you don't have a job you can't pay your mortgage. Job creation is the fix all for this problem.
Well...this lively discussion left me with a couple options:
1) Jump now and just forget about it all, or
2) Wait till you've been beaten to a pulp, had everything taken from you by credit card companies legalized mafia that can extort 20-30% interest rates on your credit card, been kicked out of your house, living on the street....and then jump in front of a bus.
Seriously, even tho a real estate professional, a lot of this (through lack of really digging deep into everything) has gone over my head, and probably a good portion of the public. I really can't say WHAT would of happened to our economy if the banks had truly failed....and would they have truly failed if they so quickly could pay back money, and bonuses and huge salaries?
Reading this post and comments makes it hard for me to even focus on my blog....or my clients.
And I swore to myself last night I was going to stop drinking.
Maybe next week.
Aloha John,
What is the value of the dollar tied to? It used to be gold until Nixon got rid of the Gold Standard but what is it now? Money equals debt. The more debt there is the more money there is in circulation. Pay down the debt and the money supply shrinks. How much money is actually in circulation, you won't get an honest answer from the Fed who's influence and policy is responsible for this situation. But all that money generated by the housing boom is out there, just where is it? By collapsing the market and defaulting the debt you get to keep the cash and dump the debt, unfortunately the American consumer gets fleeced and hung out to dry in the process. So what if the average American loses their home, we have trillionaires now. Just how little have the little people become?
Peace,
Thank you Andrew Jones; You appear to be the only one on this thread who makes any sense to me.
John,
This administration does not want the economy to improve, everything they do goes against conventional wisdom.
David Stevens, typical liberal rhetoric 101, blame it on the last guy, goes to show he shouldn't even be in this job. The simple fact of not extending the tax credit proves my point, please don't get me started on the appraisal issues or fha raising the percentage from 1.75 to 2.25 or the good faith estimates issue. do you see a trend here? I do, it's lets punish the good folks and let the malcontents get the relief
Lucien - And government has no plans to stop, but instead will borrow and spend more.
Lyn - The overall national stats seem to confirm that FHA is taking the "lion's share" of the business, but I'm sure it varies somewhat by location.
Robert - If FHA accumulates extra cash--and that's a pretty big if--you can count on politicians to "raid" the fund just as they did with Social Security.
Lucky - Oh I think the sky is far from falling, but I do want to protect myself from government incompetence and mismanagement.
Andrew - Can't find too much with which I'd disagree.
Carl - I guess you're referring to one of the comments, but although I didn't say it, I do agree. Without a housing market, the economy will never recover, for too many jobs depend upon construction. I do understand your points, but also realize that housing and employment are interlinked in ways that make it difficult for either to return to normalcy as long as one is ailing.
Susan - I think we have the potential for more strategic defaults than many imagine.
Karen - Many are, but some are "reluctant landlords."
Darrell - "To transform congress into a responsible entity who truly protects us, will take decades" And the sad part is, we haven't yet begun.
Gene P - I'd always prefer to have the facts; it helps me make the most prudent decisions.
Gene R. - We have the ability to bring about change, but we each must be willing to suffer some pain and must be willing to participate in the solution.
Chris & Maria - There is uncertainty, and we can't depend upon career politicians to bring about a cure.
Tina - Not necessarily positive, but accurate.
Also to add to the dilemma, I read an article in the New York Times today indicating that in Switzerland they are setting the tone internationally in regard to Basel 1 which would REQUIRE banks worldwide to have 15% cash reserves and if this comes to fruition, this will effect pricing of home loans and other products and that will have a negative impact on the economy if unemployment does not decline.
In regard to the local market I have noticed a very significant lull in activity and sales due to the expiration of the tax credit on April 30th. We may need another shot in the arm, so to speak to help the housing market and the economy recover, but job creation is a factor.
Marco - What could possible go wrong? We'll probably see sooner rather than later.
Leslie - Too many were impatient or greedy to allow the normal progression of home ownership to take place. We'll all pay the price.
Jeff - The system has already failed; it's on life support. When we can no longer maintain the "feeding tubes" is when disaster will strike. We will have to experience some pain for all our excesses, but our "leaders" are trying to postpone the inevitable as long as possible.
Don - I'd like to disagree for the sake of those who can't deal with the crisis we've allowed to be created, but I do see some very tough times ahead.
Since the tax credit is gone, so are the number of buyers willing to buy.......they haven't been given their "taxtax fix" to push them into purchasing. I see the market slowing for the next few months. And if the government doesn't stop trying to pass new tax programs penalizing investors and homeowners, this housing market will continue to slow. Our housing market has always been the major wheel that runs the encomony. Stop letting the government change everything and let's get back to normal.
Carey - Please let us all know when he responds : )
Darla - You're right. We can't point one finger; it takes at least all ten. The current crisis is so complex and involved banking, Wall Street, the SEC, Congress, Presidents, and many others. And of course, we have to include ourselves for participating in what should have been easily recognized as a Ponzi scheme.
Brian - Starting over with a new Congress would be a good start, but the electorate isn't yet ready to tackle that issue.
Thom - Have another drink on me! While it sounds bad, there are lots of reasons to be optimistic. Our problem is, we've just had life a bit too easy for too long. Sure, we'll have some pain, and some will fail, but some of our greatest inventors, financiers, and leaders have all failed at some time in their past. Those who are willing to work hard, use their creative talents, and who are open to change can not only find success; they can create incredible opportunities. While the news is negative, I don't have to be; and I choose to look for my new opportunities each day. The best to you!
Kimo - Interesting comment. Virtually all the govt. initiatives in the past few years have ignored Mainstreet. The big have been getting bigger--Goldman Sachs comes to mind--but we still have the power to reverse the trend. Unfortunately I think we lack the fortitude to do what is necessary.
Larry - It has certainly been working that way.
Diane - Job creation is key; we have 25 million or more unemployed or underemployed. It will take years to return to normal levels of employment.
Kay - I think we'll have to settle for a "new normal," one far less attractive than we might like.
Why oh why oh why are folks wanting the tax credit extended?!?! It is keeping prices artificially high making housing unaffordable. Look around, if folks are spending most of their income on housing then little gets spent on the local economy. And who is footing the bill for that tax credit?
http://www.calculatedriskblog.com/2009/09/streitfeld-housing-tax-credit-debate.html
And I highly recommend this blog is you are not already a regular.
And this blog offers a great 'financial crisis for beginners' section...
http://baselinescenario.com/
As for job creation what do you recommend? Everything seems to be made in Mexico, Thailand, Vietnam, South Korea, Indonesia, etc. Intel, the bread and butter of my area, has employees in 45 countries. We've been losing middle income jobs for years and are becoming a service industry country. So should we build more houses? We seem rather over built in my neck of the woods, Portland, Oregon, and I can say the same for Arizona and Nevada. The world is getting smaller and we are getting left behind. I think single income families will be the new norm. Along with smaller homes and ten year old cars.
"2012" is right around the corner.
CrazyRay signing out!
Leigh - I, for one, don't want the tax credit extended, and have blogged against it several times. As for your last paragraph, I agree that we are in a transitional phase, one that will require different strategies and somewhat lowered expectations in some areas. And yes, we have sent lots of jobs to other countries, but we are great innovators; we can solve the jobs problem if we focus upon it--small business would be a great start.
CrazyRay - And then all of these discussions will be "moot." : )
Unfortunately I don't think elections will help. Have we forgotten about Bush's infusion of $$$ to the banks just before leaving, the 'Don't ask, don't tell' us what you are gonna do with it? And the fact that interest rates were kept so low during the build up and continue to be kept low (and might I add that screws savers like me...yahoo...1.25% CD, yippeee!) And look who's fighting against banking reform right now!!! The only two things I can agree with the Libertarians are the 'End the Fed' policy and their thoughts on war but eveything else I find frightening and Rand demonstrated that. I think things will have to get fairly ugly before Americans wake up and even then I'm not sure what the answer will be as I feel like Neo in The Matrix. We will need a lot more Neo's to get this accomplished.
But I think Americans are too concerned about the last episode of Lost, the next episode of Idol, etc. When I speak to folks about why the apathy they state they feel helpless and hopeless so they don't even bother to try to learn about the financial crisis, etc. Too depressing they state. I even run into people that didn't realize we are still at war in Afghanistan...wtf?!?! Maybe every one needs a prescription of Prozac and then we need to face the truth about the direction of this country.
My favorite bumper picked up one early Saturday afternoon after completing a marathon is, "26.1 Miles, What can possibly go wrong?"
To many organizations dropped the ball leading to this abyss we call our economy. Two opposing forces, one which obsessively tries to avoid pain, the other slobbeing in red faced greed, want to assert their influence. The middle ground of common sense, appoximately 2.1mm wide, has be pushed aside and labeled the drum beat of annoyance.
Now, as we see the magic greed demonstrated by makeing billions of dollars dissappear, and observe pasta shaped people kicking the can of accountability away from them, we come to realize each and everyone who bought the "Pay less, Live better" mantra have played a overwhelming role in sabataging the ability to create an organic recovery through employment and manufacturing.
Let's see the hands, have you bought chinese make products from Walmart. 'What were you thinking?"
Lenn (regarding post #3),
Always trying to learn from you wisdom, but please expain how your comments:
1. "Fact is, Mr. Stevens sat on the low FHA premium rate for months longer than they should have."
2. "They still fail to realize that the housing industry is the fuel on which the American economy runs. Yet, their persistent goal of making home buying harder is counterproductive."
aren't contradictory.
Joe (regarding post #7) AGREE 100%!
What can go wrong?, At one time I was frequently mocked for paying extra to buy local. What's easy in my neck of the woods (PNW) and I'm shocked more people don't do it, especially in farmland Midwest, is to buy local produce. Some people have housekeepers and gardeners, well, I have a farmer:O) Now it's trendy to partake in a CSA and I am happy to see the change. I also buy furniture from local craftsmen. Sure it's about 3X as much but it will last a lifetime and that's my plan. Going on 15 years:O) I'm not much of a consumer, USA as we know it would not exist if more folks had my 'minimal' habits.
Regarding changes to the USA, my local paper ran this interesting piece this week: http://portlandtribune.com/news/story.php?story_id=127430464853874100
I think NAR should focus on the lack of liveable wages and not on all these damn tax breaks. How can any one buy a home on barista wages, Walmart wages, etc?
For those who who don't want to follow the link...
Income gap widening
The gap between rich and poor has grown in the United States since the mid-1970s, while the economic position of the middle class has eroded. As a result, the distribution of income in the U.S. is now close to what it was in the 1920s, and close to the level found in many Third World developing nations, says Portland State University economics professor Mary King.
Middle-class American wages and jobs have been hammered by the offshoring of jobs and increased automation, she says, as well as the declining share of workers in unions, who get an income bump from collective bargaining.
Among Multnomah County residents - 80 percent of whom live in Portland - there's been a steady erosion in the share of income earned by one-fifth of residents in the middle of the income ladder, the point where two-fifths earn more and two-fifths earn less.
In 1980, folks in that "middle fifth" collectively earned one-seventh of the total income pie, according to Oregon Department of Revenue data measuring adjusted gross incomes of individuals and families. Their share of the pie shrank in the 1980s, 1990s and 2000s.
By 2007, before the Great Recession took hold, the middle fifth earned one-ninth of the income pie in Multnomah County.
"That's a huge change," King says. In a generation, their slice of the economic pie fell by one-fifth.
Meanwhile, the one-fifth of Multnomah County residents at the top of the economic ladder went from earning a little more half the total income in 1980 to more than three-fifths by 2007.
The top 1 percent of income-earners fared best. Their share of the pie in Multnomah County doubled in a generation, from nearly one-tenth in 1980 to almost a fifth by 2007. Much of that explosive income growth came from capital gains from stock and other investments, says Joy Margheim, a policy analyst for the Oregon Center for Public Policy.
Growing income disparity in Multnomah County is no aberration. State tax collection data shows an almost identical pattern for Portland's tri-county area, and for the state as a whole.
Leigh - Electing the same old faces or new faces with the same mindset certainly won't help. And as for people being apathetic, I agree totally. I think the level of pain will have to increase dramatically before the average citizen is spurred to action. Until then, we're in deep stuff, and are likely to remain there for some time.
WCGW And Others - View this humorous but all too true clip about the European financial system to see where we're headed. http://www.youtube.com/watch?v=qBiZi2WQhZg&feature=player_embedded
Lenn, Amen! There is more finger pointing going now than ever.
"They still fail to realize that the housing industry is the fuel on which the American economy runs. Yet, their persistent goal of making home buying harder is counterproductive. " Lenn #3
Is it because realtors profit from buying/selling RE that you guys can't see the problem? Maybe I'm missing something here. Can some one please explain how the housing industry fuels the economy? So mcuh so that some are asking for a new tax credit?!?! Other countries, ie, Germany, have much lower home ownership rates but seem to have solid economies.
Heck, the housing industry helped create this mess. When housing prices return to affordable prices then feel free to say that home ownership is healthy for our economy but not when folks are putting more than 50% of their income into housing.
OK, didn't mean to sound so harsh. I just think the housing industry (builders, furniture, landscaping) are a part of a much bigger economy and the folks living in those homes need jobs, good paying jobs that have been disappearing for decades and aren't coming back until our wages are lower than those in developing countries.
Leigh - A robust housing market is healthy for the economy, but I certainly don't want government incentives or interference that will create another bubble. It would be better if government would get out of the way. A healthy housing market is responsible for millions of jobs, in not only the industry itself, but in many other industries also. And the spending of those millions of workers stimulates the economy creating additional jobs.
However, in the past couple of decades we let our dependence upon the good side of housing to make us believe that everyone needed to own homes; and that was a very bad idea. Politicians eager to have more growth in the economy gambled with our nations wealth and worse, with the wealth of every citizen. We're paying the price for those excesses and will continue to for years to come. Eventually, we may return to a stable economy and housing market, but we're far from such an ideal at present.
I'm not sure this comment applies, but after this week and dealing with banks making things harder, as well as not being able to get things done on time, is really beginning to irk me and that is putting it mildly. Gone are the days of a mortgage commitment meaning anything! It is kind of like a preapproval now, because you are still on pins and needles to find out if you are going to get a clear to close. Someone is always looking for another piece of paper, that has probably been sent 3 times already, but no one can find it. Banks don't seem to care about a closing date that is in the contract or the fact that people have movers lined up, possibly other sales waiting to close, and the big banks are the worst offenders. Or how about the buyers with excellent credit, an appraisal that came in fine, but because the property doesn't conform to someone's standards and they can't sell the loan, no one will do it. After 30 years in real estate, I'm not sure I have ever seen anything like we are seeing right now. Our mortgage company has told us they want 3 weeks from mortgage commitment to closing in order to take care of all of the conditions. The banking industry because of their mistakes has turned things so completely the other way, that it is almost a joke except for us who do our jobs and through no fault of ours, can't close the deal. Care to comment?
For all the critisism subprime has taken over the last 2yrs I'd take the subprime loan with 20% down over the typical fha deal 7days a wk and twice on Sun. Too much emphasis on credit and not enough common sense underwriting. How sad that a borrower cannot get a loan when they have significant "skin in the game" but FHA will gladly insure a loan for a borrower with a 620 fico, 55% dti, and 3.5% down payment - usually a gift from family. What could possible go wrong?
Marabeth - I agree that the big banks are the worst; and the reason is they have the backing of the government. They no longer have to be concerned with customer service; they're "too big to fail."