Watt is going to do everything that he can to force Principal Reductions on GSE loans.  Of course, that means two things.

1.  Ginnie Mae bond holders (includes Fannie & Freddie) will suffer additional losses in income revenue from the reduced payments.

2.  Taxpayers will be bailing out the GSE's for further losses.

Additionally, he is going to push lower lending standards for people who can't qualify at established standards, which means that we will be back to the standards that led to the Housing Crisis.

How will the market ever recover with these idiots in charge?

Rep Mel Watt being named to run the FHFA and therefore the GSE's. Among other things:


1.  Took campaign donations from Fannie and Freddie

2.  Supports more mortgage lending for low income borrowers

3.  Supports more mortgage lending for blacks

4.  Supporter of Community Reinvestment Act

5.  Supporter of the GSE's

6.  Opposed restructuring of the GSE's in 2003

7.  Against making the Fed more "transparent" and more regulated

8.  In favor of principal reductions on underwater loans and borrowers in default

9.  Wants to keep the GSE's


And I thought Mark Zandi would  be bad.........................

Welcome to socialized housing............not that it doesn't exist now.


Pat

I'm baaaaaack!

To put housing into perspective, since I haven't had the time lately to do much of anything, here is a report that really talks about the Housing Recovery for what it is.  I normally do not agree with Lee Adler on many things, but here I do.


http://wallstreetexaminer.com/2013/04/23/its-a-housing-recovery-in-orwellian-terms-heres-the-reality/

It’s A Housing “Recovery” In Orwellian Terms – Here’s The Reality

April 23, 2013

The Commerce Department  today reported really good March home sales  relative the the past 4 years of the housing depression. Media reports included only the seasonally adjusted annualized sales rate, which was 417,000 versus a consensus estimate of 415,000. PR flaks at the major financial infomercial outlets were breathless in their reports. Bloomberg proclaimed “A dearth of existing properties is encouraging builders to undertake new projects that will keep fueling the economy. Mortgage rates close to record lows, higher home values and rising household formation are helping lay the groundwork for increased buyer traffic in 2013.”

It’s mostly mindless bullshit as usual. The numbers were good relative only to the recent past, and with the tailwind of Benito Bernanke’s massive mortgage rate subsidy. Looking at the actual numbers from the Commerce Department surveys, not annualized and not seasonally adjusted, we get a better view of current reality.

New house sales rose by 7,000 units to 40,000 in March. This was better than last year’s March gain of 4,000 units to 34,000, and better than the March 2011 gain of 6,000 to 28,000. Sales are up 43% in two years. Wow.




But let’s put this in perspective. It’s still below the 48,000 units that were sold in March 2008 in the middle of the housing market crash, the 120,000 units a month during the bubble years, and the 80,000 units per month typical before that.



New house sales normally peak in April, so there may yet be another peak ahead, but the NAHB builder survey indexes for March and April suggest that sales have already peak. Builders reported lower sales and traffic from mid March to mid April. This may be as good as it gets in this cycle.



Even with the Fed’s massive mortgage rate subsidy, sales have not surpassed 40,0o0 units per month. That’s half or less than half the peak levels reached from 1997 to 2007.

But builders are supplying enough houses to meet demand. The talk of inventory shortage is overblown.  Demand is weak. New supply production is consistent with the level of demand.




The talk of inventory shortage is overblown.  Supply production is consistent with the level of demand.  The inventory of new homes relative to sales is below the bubble years, but at normal levels relative to those seen in 2003-2005.





Median reported new house sale prices have risen 20% since 2009. Effective sale prices may have risen even more than that as builders were giving large incentives, including extra amenities, or discounts not reflected in prices as late as last year. Effective sale prices at the 2009 lows were lower than reported prices. The discounts and incentives have ended or been reduced in many cases.

Meanwhile, the average sale price dropped back over the past year as the ratio of cheap to expensive houses sold rose



The so called recovery is mostly a recovery in prices. Thanks to the Fed mortgage subsidy, we have housing inflation, but not much recovery in housing activity relative to historical norms. The market has bounced back to around 50% of historically normal levels only with the help of the massive Fed subsidy. We have to wonder where the market would be without that, or rather what will happen when that subsidy is withdrawn.  Knowing that removing this subsidy could devastate the so called housing recovery, it seems unlikely that the Fed would only do so under extreme pressure from the market in the form of consumer price inflation.  The government has managed to keep those numbers suppressed.

If you look at Shiller from a year ago, he was much more optimistic about a Housing Recovery.  Then about 6 months ago, he decided that recovery to 2007 prices might take up to 50 years.

At least he can change his mind a bit.

Tom Lawler is another one.  After leaving Fannie Mae, he started a Real Estate Consulting business.  He is extremely optimistic about recovery.  Of course, he must be so he can sell his services.

I don't think that anyone other than those who are actually engaged in the mechanics of trying to create a stable lending environment, in conjunction with meeting Basel 3, and the restoration of Securitized Lending, understand what the actual difficulties present are.

Heck, I can barely get my head around the tiniest of basics on Basel 3.  You can't believe how simple they have to make explanations for me. Even then, I only get about 10%.

But Wesbury says otherwise, so who is to argue?

The idiot................

GM,

The article you posted can be verified through US Census Data that breaks down home ownership by Age Cohorts.  The data shows that there is not enough new potential Home Buyers coming up in the 19-24 age cohort, the 25-34 cohort, or the 35 to 44 cohort to stimulate housing purchases.  This is because only the 35 to 44 cohort actually engages in buying behavior, and they are already at average highs.  The lower cohorts haven't the income, and don't engage in the same buying behavior.

But, when I have pointed this out before elsewhere, I have been pooh-poohed...................

BTW, the GSE's have just announced a new Modification Program for their loans beginning in Jul 2013, and extending through Aug 2015.  They will be No Income Doc and No Hardship Letter Streamline Programs.  As long as you have made payments for 12 successive months on time, at any time in the past, but are now behind from 90 days up to 720 days, you are automatically eligible.  You must also have Mark to Market LTVs greater than 80%.  Principal Forbearance will be granted.

What does this mean?  Essentially, the GSE's will be stopping foreclosures for those who chose to accept it.  Just let us know and we will provide you the Interest Rate relief that you want, and forbearance relief as well.   And, if we deny you a modification if you are up to date, then just stop making payments and we will modify your loan.

This is about nothing more than pumping more money into the economy by reducing homeowner monthly payments in one manner or another.  Whether HARP, HAMP or the new program, the government is going to keep the economy going by reducing mortgage rates.

Now, here is something that I am wondering, but there are no answers to yet:

Since the GSE's are going to be "ended" (we hope) in about 5 - 7 years, is this designed to effective pump up the economy through the destruction of the GSE loans?  Is the private lending going to be left to pick up the pieces of the Real Estate Industry from there?  Or is this designed to ensure that the GSE's cannot stop their lending?

After the willful modification of these loans, essentially the GSE loans mean that this bulk of homeowners are out of the RE market, pretty much for life.  That accounts for perhaps 50% or more of the entire market, and 95% of all loans done in the past 5 years.

Now you see why I was so depressed yesterday.  It is plain b.s. what is being done.  And we are left to create the new lending industry for the future.

You are probably right about the quote.  My memory gets worse daily.  If only I could "delete" memories and information to free up space like on a hard drive.

Reading the articles written by various commentators and financial analysts is so frustrating.  They just look at the raw data, and make proclamations without any real understanding of what is going on in "backrooms" across the country.  There are very well intentioned and knowledgeable people who are trying to develop the systems and the processes to restore not just the housing market, but lending in general.  As well, they are engaged in creating the monitoring systems to evaluate risk across portfolios, and then determine true reserve requirements under various scenarios.  Stress testing is a large part.

One of the things that we often read is how lending requirements are so tight, and they must be loosened.  But they make no recommendations, and just assume it is easily done.  That is not the case.

To create "loosened" lending standards is not simply a matter of reducing FICO Scores, or allowing for higher Debt Ratios, etc.  Each loan must be looked at from its own unique perspective, taking into account a large number of different factors.  My process looks at over 40 different factors alone and then the endless combinations that will affect default risk. Even then, it will be revised frequently to take account of changing economic conditions.

To give an example of how difficult loosening lending restrictions will be, we simply look at Fannie, Freddie and FHA.  Right now, F&F have extremely high qualifying standards, but not to the extreme that the new Qualified Residential Mortgage is expected to impose.  F&F defaults are at a semi-reasonable rate.  FHA, which has looser standards, but is still greater than what was occurring during the Housing Boom, is running delinquency rates of about 17%, and default rates of 9%.  Eventually, we expect to see defaults up to 30% over a 5 year time for FHA.

Qualifying for each of the programs are based upon FICO, Loan to Value and Debt to Income Ratios.  These are loosely linked together. 

The problem with this approach is that like with FHA, far too many bad loans are being funded, but also far too many good loans are being denied because the borrowers do not meet certain standards. 

To loosen the qualifying standards means more than just reviewing FICO, Loan to Value and Debt to Income.  One must also consider actual debt loads, family size, loan size, residual income, loan purpose, borrower behavior, and many other factors not currently considered and factored into the decision. 

A person with a 780 credit score, debt to income of 41%, and loan to value of 80% might seem like a very qualified borrower. But, if we are looking at a first time buyer, new construction home, loan amount of $150k, 4 kids, payment shock and medical insurance costs,  then this borrower is almost certainly going to default on the loan at some point. It is inevitable. 

Yet, at the same time, you could have a borrower who wants a loan, 90% loan to value, cash out debt consolidation, 36% debt ratio, but has a FICO of 603, and may very well be a perfect candidate for a loan, especially if the loan amount was $500k, and no kids.  But change the parameters to 45% debt ratio and a loan amount of $150k, and there is a significantly increased risk of default.

These are the types of problems that are being addressed, and we must resolve to allow for loosened qualifying standards.  But even then, it does not end at that point. 

How are the loans going to effect Basel 3 requirements for risk?  Greater risk means greater reserve requirements.  And if economic factors change, like increased costs from Obamacare, how is that going to affect borrower default risk?  What about decreasing home values, based upon rising interest rates?  What about exit strategies for loans going into default?

Then, how does one identify loans going bad, before they do, and how to institute loss mitigation procedures before it is too late? 

Or, how does one create a good pool of mortgages for securitization, which needs to be done if there is going to be a wind down of F & F?

These are the types of questions being asked daily, and for which we are looking for answers.

Thought it was time to check in again, and see what was being posted.  I have been heavily involved in Expert Witness work for a couple of homeowners and also further development of the Loan Default Risk Score.

Yesterday, I was in a meeting with people who are working on the Compliance Systems for lenders for Basel 3 risk issues. We were discussing different things, and of course FHA came up, as well as many different things.  All present, even a former Fannie Mae Risk Expert, had the same view of FHA, "bury it".

The consensus of all was that the Housing Recovery is smoke and mirrors, especially in light of 50% of home sales now being cash offers.  It is a propped up market, with much to fear, especially if the Fed can effect a 2% Inflationary effect as they desire. If that happens, Interest Rates would go to 4%, and there goes any Housing Recovery by the wayside.

A key issue that we are working on is related to Risk Evaluation of Existing Loans.  Noting that not only are Living Expenses increasing, which drives up risk, but also with the costs that Obamacare will end up in reducing Disposable Income, we are trying to expand upon the Default Risk Model to reflect the added Default Probability Percentage that will certainly occur. A difficult task, but one that needs to be taken into consideration at the very least, it will go to the heart of Basel 3 needs.

The simple fact is that foreclosures are going to increase again, as Living Expenses rise, and as Obamacare and other regulatory costs increase. People cannot realistically meet needs now, for up to 50% of the population. How will they do it 5 years, or 10 years in the future?

The idiots in Washington, and in each State Capital, haven't got a clue what they are actually doing.  The added costs from the b.s. programs that they are putting together will only serve to hasten collapse further, across all demographic divisions and divides.  The strains that the Middle Class is feeling now is only going to increase, and at a certain point, is going  to completely break in the next few years.  Then, the Depression will seem like the Roaring 20's.

Sorry about the rambling thoughts, but it is very disheartening when you meet with people who have far greater understanding of the factors at play, than you do and they confirm your thoughts.  Then, when you try and develop programs to stave off or lessen collapse, the idiots in Washington and elsewhere find new ways to destroy things in the name of "good".

Over the past decade I have really come to appreciate Thomas Jefferson and his comments about the "Tree of Liberty" needing to be replenished with the blood of patriots from time to time.  And I can really accept his belief that this must be done every generation.

Time to have a glass of wine and prepare for tomorrow................Cheers!!!!!

Why don't people like Wesbury look behind the numbers to what is really occurring?  At a certain point, this gets absurd. 

Here is the Market Share of the GSE's, etc.  Sure, this is a "healthy" recovery........

The reality is that with the CFPB and their new mortgage regulations, with the Safe Harbor for GSE loans, we will never be rid of the GSE's.  They are and will be the only market for home loans.


http://washingtonexaminer.com/federal-government-controlled-99.3-percent-of-mortgage-market-in-2012/article/2522042




Federal government controlled 99.3 percent of mortgage market in 2012

Fannie Mae, Freddie Mac, and Ginnie Mae, the three major Government Enterprises created to control the U.S. housing market, issued 99.3 percent of all mortgage backed securities (MBS) in 2012, according to Freddie Mac’s 2013 Investor Presentation. As recently as 2005 these government agencies backed just 45 percent of all mortgages issued in the United States, although they did purchase vast quantities of the mortgages backed by private issuers.

Fannie Mae, created by President Roosevelt during the New Deal, and Freddie Mac, created by Congress in 1970, were both nominally private corporations before the housing bubble popped in 2008. Investors had long charged Fannie and Freddie less to borrow money since they were created by the federal government and it was assumed creditors would be bailed out if the companies ever went under. That is exactly what happened during the financially crisis costing U.S. taxpayers $154 billion so far.

Last year, Treasury Secretary Tim Geithner announced that the Obama administration would pursue legislation that would “wind down the GSEs and bring private capital back into the market, reducing the government’s direct role in the housing market.” That, of course, never happened. Instead, government control of the housing sector rose every year under Geithner’s watch from 95.2 percent in 2008 to 99.3 percent today.

Conservatives have long pushed for elimination of the housing Government Enterprises, arguing that the federal government’s role only enriches bankers at the taxpayers expense, distorts markets, and makes housing unaffordable. A recent Heritage Foundation study found the Fannie and Freddie could be completely privatized without any major disruption to the U.S. housing market.

Housing Starts are in for January.

58k total Starts, Non Adjusted.  Called it right.

Single Family ran 39.6, up 1900 from Dec 2012.  Off by 5600.  Surprise that these were up. 

Key points

Northeast had 3k, down 800 from the previous month. 
Midwest down 1200 to 4.1k
South up 3300 to 23.6k
West up 900 to 8.9k

Year over Year, there were 6500 more Single Family housing starts than last year.  All areas had increases, with the South having 3900 more, the West at 2800 more, 400 for both the Midwest and the Northeast. An improvement, but it does not mean much.

Why are Housing Starts increasing?  Could it have anything to do with the low inventory of homes on the MLS?  Are people buying new homes over resales because of the "status" of a new home?

Scott mentions his experience on buying a piece of property.  Where I live in the Bay Area, similar things are happening.  Here are the facts behind what is happening here.

1.  Inventory is down to one month's supply. An equal mixture of homes under 2000 sq feet and above 2000 sq feet.

2.  Huge amount of foreclosures being held from market.  It is nothing to see a year before they are listed.

3.  Even greater number of delinquent homes over 90 days without Notice of Defaults filed.

4.  Large numbers of homes in the mod process, taking 6 months or more for a decision.

5.  25% of purchases for cash, Asian buyers.

6.  About 35% are REITS, buying straight from the lenders without listings.

7.  10% Move Up Buyers.

8.  Rest FHA, about 30%, 3.5% down, usually Hispanic buyers.

9.  Homes under 1900 sq ft are going for about $125 to $135 per sq foot, more than 20% above true market value, but going for that due to buyer bidding war for the properties, from lack of inventory.

10. Homes above 2300 sq ft generally going about $100 per sq ft.  Above 3000 sq ft, about $90 per ft.

11.  Investors buying homes no more than 1800 sq ft, and paying no more than $140k at the most. They try to keep purchase prices under $120k.

Does this sound like a healthy market? Or one that is recovering?  The media and realtors say so, but I don't believe them.

Thanks Doug.  Scott and I do have significant differences.


BTW,

My guess on Housing Starts coming out.  

Adjusted Starts will be up by 10%, month over month, and 30% year over year.

Non Adjusted will be about 58k  total, and about 34k single family.  Just a WAG...............but we shall see.

Scott and I have our differences on the Housing Market.  In his comments, he states:

"Buyers are getting desperate. Inventory is low. Prices are moving up. A classic picture of a turnaround."

But with this comment, he ignores salient issues that have caused the above.  The simple truth is that the inventory is low because banks are deliberately withholding inventory from market, either by not foreclosing, or not listing foreclosed properties on the MLS.  Therefore, in most of CA, there is a one month inventory of homes for sale.  Of course this will drive up prices.  But this is not a turnaround. 

The problem is when you go inside the numbers and what you see.

a. The growth in Housing Starts is generally confined to multiple unit, not single family.  Multiple units are mostly apartments being built for renters who cannot afford anything else. In other words, investors who partake in housing construction see where the future is, and it is not single family.

b. Single Family Starts is misleading, especially when quoting the Seasonally Adjusted Numbers.  Single Family for 2012 was the 3rd worst since 1963, when records began to be kept.  And, 1963 had only 178m people in the US.  (Three of the 5 worst years have been since the crash.)

c.  Housing Starts are only occurring because of the reduced inventory available for sale.  If the banks were doing foreclosures, then there would be much more inventory and prices would be much less.

d.  There are over 6 million homes, delinquent or in foreclosure.  90% of the homes will eventually be foreclosed upon. They are only being delayed because of regulations from the Fed and States.  Also, banks do not want to foreclosure because the added inventory will drive home values down.

e.  52% of homeowners are in either Negative Equity or Near Negative Equity positions, or haven't enough equity to sell and purchase a new home as a move up buyer.  There is no Move Up Market to speak of, yet Move Up Buyers are the key to any recovery.

f.  If home values decrease, whether from more foreclosures, or higher interest rates, more Negative Equity situations occur.  When this happens, the more defaults than occur, especially as Negative Equity hits 125%.  At that point, more defaults occur which drives prices down, causing more defaults.  The "Housing Death Spiral".

g.  If you look at the areas where home values are increasing, it is because inventory is down to about 1 month supply. Yet, the numbers of homes in foreclosure in each area is extremely high. (Las Vegas, Phoenix, CA, and elsewhere.) Let the foreclosures begin again, and values will begin to drop.

h.  A large portion, over 30% are investors doing cash sales. In CA, from what I hear from realtors, up to 50% is money from China, and most of the rest is from REIT's.  Homeowner investors are taking out seconds on their property, or investment properties that they own, to buy.  (Surprise, surprise, surprise.)  This is not representative of a healthy market.

i.  The 25-35 age cohort simply does not have the income available to buy.  They are debt laden and cannot afford anything.  Homeownership rates in the cohort is dropping fast.

j.  The 35-45 cohort is in a similar position, except that the ones owning  homes haven't the equity or income to become Move Up buyers.

k.  The homeowners that bought investment properties in the Boom Years were generally in the 55-65 age cohort.  They are out of the market now, due to aging and equity issues.  The ones replacing them in the cohort were the 45-55 group that lost out big in the collapse.

l.  New family creation is stymied at about 600k per year.  This does not even cover total Starts, Single Family & Multi Unit, even if they could afford to buy.

m.  Immigration is about 800,000 legal per year.  Unless they bring money, they cannot afford to buy.

n.  Falling incomes and lack of jobs is creating less opportunity to buy, and more foreclosures.

o.  The new Qualified Residential Mortgage Rules coming out still require no more than 80% loan to value and no piggy back 2nds, increasing the loan to value.  If it is finally adopted in 2014, then that will preclude further buyers, unless they go FHA.  Of course, FHA is now underwater itself, and is experiencing 16.7% default rates.

p.  The Fed continues to buy $85 billion per month in mortgages, whether MBS ($40b) or New Originations, ($45b). Pull this out, and here comes the collapse.

q.  New laws like the CA Homeowner Bill of Rights only serves to delay foreclosures further.  In fact, it was solely because of lenders changing procedures for foreclosures and the drop in CA was so massive that it caused the slowdown across the country.  Soon, CA will become almost all Judicial Foreclosure, and go away from Non-Judicial Foreclosure. That is because the Bill of Rights states that for every violation in the foreclosure process, the "lender/foreclosure firm" will pay $7500 to the state.  And, if a foreclosure is concluded with defects, then the Homeowner has actual damages from $50k minimum up, whichever is greater.  (I can find flaws with most foreclosures.)  So, lenders will end up taking the foreclosures to court, instead of risking the fines.

I speak with very involved people who are active in the housing industry.  Many are doing Portfolio Risk evaluations, and one was the former Risk Officer for Freddie Mac.  Others are former Risk Officers of banks.  All say that the "recovery" is a joke, and is not to be believed.  Their time frames for an actual recovery, though at a slow rate, is from 10 to 15 years out.
 

CD,

I  have been waiting for you to yank my leash on this.............

Here is the link to the release

http://www.census.gov/construction/nrc/pdf/newresconst.pdf

Here are key elements:

Total Starts are DOWN from Nov at 66,500 to Dec at 64,200, a drop of 2300 units.

Single Family DOWN from 40,100 to 36,400, a drop of 3700

The Northeast Region remained steady at 3300 for the second month in a row.  All other regions declined.

If you look close, Year over Year Seasonal Adjustments are quoted at 28%.  They don't quote Year over Year non seasonal.

Zerohedge had good charts showing what is going on.






Kinda get the idea that someone plays games with the numbers?

Meanwhile, Calculated Risk continues to play the cheerleader

http://www.calculatedriskblog.com/2013/01/some-comments-on-housing-starts.html

And Scott Grannis carries the pom poms

[ftp]http://scottgrannis.blogspot.com/2013/01/housing-starts-on-fire.html]http://www.calculatedriskblog.com/2013/01/some-comments-on-housing-starts.html

And Scott Grannis carries the pom poms

ftp://http://scottgrannis.blogspot.com/2013/01/housing-starts-on-fire.html

It is actually rather amazing. I spent most of Tuesday in conversations with the head of a major Risk Management and Consulting Firm, heavily involved in the Housing Market.  Last week, the guy was in Vegas last week, having dinner with a top FHA official.  Both fully agree with my opinions on housing.

The FHA guy said that all housing programs now, like over the past decade have not been about realistic housing policies.  It is all political, influenced by the politicians in the White House and on Capital Hill.  The Agencies know what will eventually happen, but no one has the cajones to do anything realistic about it.

Doug,

Of course, the Taxes/Ins is calculated into the 43%, so it does not really matter.

Let's assume a mortgage of $500k

Loan Amount of      $500,000
Interest Rate                 3.25
Monthly Payment      $2176
Taxes/Ins                 $600.00
Total Payment          $2776

Total Income to Qualify  $6200 per month
Take home per month  -  $4500

Disposable Income after Debt Service  $1824.  (Still, the homeowner would likely be negative cash flow.)

So the higher the income, the more likely that a homeowner will be able to pay.  Of course, as we all know, the higher the income and the more expensive the home, the greater the likelihood that the family will have far more expenses. 

(Expenses grow to take up excess disposable income.)

BTW, I used the $175k loan amount because it more closely reflects the average home values across the US.  One more reflection that first time buyers do not exist to pull the market out of the rut it is in.  Additionally, the constraints on move up buyers is just as pronounced.

Yesterday, the Consumer Bank Finance Protection Bureau came out with its final rules on Ability to Pay.

The BFPB was set up to protect the Homeowner. Among its requirements would be the lender having a Fiduciary Duty to a borrower to determine the Ability to Repay a loan. For enforcement, the homeowner would have a Private Right of Action to sue the lender. Yesterday, we found out where that would go.

The new Debt Ratio Guidelines establishes a 43% maximum Debt Ratio for the Qualified Residential Mortgage. The income and other factors of the loan would have to be properly verified. If so, then by having a 43% or less Debt to Income, the lender has a Safe Harbor, whereby the homeowner has no Private Right of Action.

The 43% DTI is greater than what the GSE's and FHA are doing right now. The GSE's are at 36% and the FHA is at 41%. So in effect, the BFPB has given permission to the GSE's to increase their Debt Ratio allowances, to 43%. But it does not stop there.

The BFPB also stated that any loan, even above 43%, if bought by the GSE's would qualify for the Safe Harbor. So, the GSE's and FHA can go up to whatever Debt Ratio that they desire, and originating lenders would be protected from the Ability to Pay legal issues.

Note that at 41%, the FHA has a 16% delinquency rate at this time.  Where is the sense of 43%?

Let's take a loan of $175k.  Borrower is married with 2 kids in grade school.  Here is reality

Loan Amount of      $175,000
Interest Rate                 3.25
Monthly Payment      $761.61
Taxes/Ins                 $100.00
Total Payment          $861.61

Total Income to Qualify  $2000 per month
Take home per month  -  $1605

Disposable Income after Debt Service  $734

Pray tell how a family of 4 will live off $734 per month, especially since they have coming out of this

Medical
Gas
Insurance
Food
Clothing
Utilities
Household Goods
Other expenses

The US Census for 2010 found that for a family of 2.5 people, living expenses average $1905 per month.  How will these people make it at 43%

Now, what are the implications for lending in the future?

1.  The GSE's and FHA will buy all Qualified Loans since the lenders will have the Safe Harbor provision on Ability to Pay.
2.  Politicians will put pressure on the GSE's and FHA to up Debt Ratios because the housing market will not be growing enough.
3.  Loan not meeting GSE or Safe Harbor requirements, including Stated Income, Interest Only, higher Debt Ratios, will only have either Private Securitization or Hard Money lenders for financing.
4.  Private Securitization will only accept a few loans, the best, since there is no Safe Harbor.
5.  Hard Money will only take loans with 65% or less Loan to Value.

The bottom line is that contrary to what is being said regarding the end of the GSE's in another 7 years, it will not happen. The GSE's will only cement their control of the Mortgage Market, maintaining their control of market share. Politicians will respond to the problem by allowing the GSE's to remain in business.

FHA will continue to grow, especially since they will continue to offer 3.5% equity loans. Never mind that these loans will fail in increasing numbers.

Private lending will continue to suffer.

Nothing changes.............

Here is one thing to consider:

We know that house flipping has returned with a vengence. Even FHA allows for flipping to occur. No more 3 or 6 month limits. 

One has to ask how many house flipping sales are occurring.  Doesn't this artificially inflate home sales?

Yet I have gone blue in the face arguing with Scott.  He believes that the housing market is recovering and no matter what I try to show otherwise, he does not accept it.

Of course, he does not believe that the Fed is creating money either, or is deliberately lowering interest rates.  For him, it is all supply and demand.  That is much to general of an argument for me.  I want to know why there is no demand.

GM,

That is a part of the reasoning, but there is more to it than that.  Imagine reducing people's house payment from 6% down to 3.25%.  Imagine the increase in disposable income in a homeowner's pocket.  That amounts to billions freed up. 

Also, another reason exists.  LTV's greater than 125% have a higher likelihood of default.  So the new action would be expected to reduce defaults to some degree. But, this assumes that people are interested in keeping their homes when they are severely underwater, and that a payment reduction would make a big difference in default likelihood.

For large numbers of homeowners who are in such negative equity positions, this may not the case.  Many are now recognizing that they will never be above water in their lifetimes.  At that point, why not go into default, walk away, and then re-buy a better home in 3-4 years, at a much better price than what they were paying on the old home.

The people who are receiving the HARP offers, whether GSE or Private currently, are making their payments.  Liquidity does not appear to be a problem for them.  Why would the Feds offer them a break, except to either free up additional disposable income, or stop the potential strategic defaults?

Even more disconcerting for me is that the GSE's will guarantee these loans.  It is further reason to believe that the GSE's are not going away.  And when the new Underwriting Guidelines come out next month, it will be a clear indication of what we can really expect with the GSE's.

The government and CFPB is seriously considering taking Privately Securitized Mortgages and allowing those over 125% LTV to refinance through HARP into the GSE's.  For 5 years, the government would pay the difference between the new interest rate, currently about 3.25%, and what the previous rate was on each loan, usually above 6%.  After 5 years, this guarantee ends and the investor gets the new rate.

There are some things about this article that are "puzzling". 

1. If the GSE's are refinancing the loans, then why is the RMBS investors going to continue receiving both the new interest rate, and also the guarantee on the original rate?  If it is a refinance, then the RMBS no longer have the loans on their books. The loans have been retired.

2. Why will the RMBS continue to receive the new interest rate after 5 years? Again, the loan was retired.

3. If the RMBS is keeping the new loan, why are the GSE's guaranteeing the loans?  Why is the tax payer assuming all the risk on privately held mortgages?

It sounds like the government is almost turning the loans into modifications and not refinances, and guaranteeing the loans.

Again, I believe that Dodd Frank, the CFPB and the government is doing nothing more than trying to eliminate the Private Housing Market.


http://www.cnbc.com/id/100340107

Government Refi Idea Gets Chilly Reception

The Treasury Department is considering a plan to expand the government's refinancing program to help borrowers whose loans aren't backed by the government, but the idea is getting a chilly reception from a mortgage investor group.

The Making Homes Affordable Refinance Program, initiated in 2009, has helped more than a million borrowers stay in their homes by modifying their loans, but it only applies to borrowers who have government-backed loans through Fannie Mae and Freddie Mac. The Obama administration would like to expand the program by transferring loans controlled by private investors to those two government-sponsored mortgage firms..

Under the proposal eligible borrowers must be severely underwater, with a loan to value ratio of 125 percent or higher and must be current with their payment. These borrowers would be given current market interest rates, replacing the 6 percent rates they've been unable to refinance out of (because they don't have any equity in the home) and giving them a lower overall monthly payment. The Treasury Department, probably with leftover TARP funds, would pay investors the difference between the old interest rate and the new for five years.

But the American Securitization Forum, which represents investors in residential mortgage backed securities, is balking at the idea, arguing that while underwater borrowers are at greater risk for default it's not clear reducing their monthly payment will change that. It figures $120 billion worth of loan principal would qualify. Taxpayers would kick in $11.5 billion to make up for the reduced interest payments for the first five years and investors would subsequently lose $9.7 billion for the following years.

"The key question from the policy side for both investors and taxpayers is would providing this reduction in monthly interest payments provide any benefit either to the investors or to the public at large by reducing foreclosures? Our answer is we don't think it will appreciably reduce people walking away from their homes," said Tom Deutsch, executive director of ASF.

Investors have been unwilling to reduce interest amountswithout reducing the risk of default. "If they are getting a 6percent interest now, why would they want to turn that into a 3.5 percentif the borrower would still pay the 6%. It would seem wholly irrational toreduce their interest rate if it's not likely to prevent a walk-away borroweror a foreclosure," said Deutsch.

The latest proposal, first reported by the Wall StreetJournal, emerged as part of the "fiscal cliff" negotiations.

Home prices appear to be making a steady recovery, with the latest S&P Case Shiller report showing a 4.3% annual price increase in October on the 20-city composite. A survey of economists by Zillow expects home prices to keep moving up, with expectations for prices to rise 3.1 percent in 2013. But prices are still 30 percent off their June 2006 peak for the 20-city composite. And it's worse in areas hard-hit by the bust. While Phoenix has been a roll for the last year, with prices up 22 percent, prices are still 47 percent below the peak.

Even with higher prices nearly 11 million borrowers still owe more on their mortgage than their home is worth, according to real estate researcher CoreLogic. Many believe it's those homeowners and those with near-negative equity, borrowers who have some equity, but not enough to afford a move, that will keep the housing market from returning to something close to a normal market.

Yeah, I know........and such easy targets.

BTW, for all.............

Jan 21, the Consumer Finance Protection Bureau is coming out with the new Residential Lending Guidelines for GSE loans.  The guidelines will set the "standard" for new lending with what the GSE's will buy.  It will also detail future restrictions on lending and lenders financial "duties" to borrowers.

The CFPB has been considering a few major changes that have been hotly contested.  They are

1. Debt Ratios of 31% for housing and 36% total for GSE loans
2. Loan to Value of 80% or less
3. No simultaneous 2nd mortgage piggy backs
4. No FICO scores used.  Only recent history to include no 60 day mortgage lates in the last two years.
5. Loans not sold to the GSE's requiring the lender to keep a 5% minimum partial interest in the loan.
6. A "Safe Harbor" provision whereby loans meeting the GSE requirements would not allow the borrower to have legal recourse against the GSE's except for TILA/RESPA violations.
7. A method for reducing and then eliminating the GSE's.

The American Securitization Forum and other entities have been trying to work with the CFPB and other groups to develop the new guidelines.  These different groups have felt that the CFPB has been acting in good faith developing the new guidelines. I have been trying to tell the ASF that they are being set up.

The new regulations will do the following.

1. It will reinforce the GSE's position by making them the lender of first resort. Lenders will go to them for the Safe Harbor provision.  The GSE's will cream the best of the loans, those having little risk.

2. It will not restart securitization.  Enough lenders will not exist with the ability to absorb the 5% interest retention.  Mortgage bankers will cease to exist. Only banks will be able to lend for securitization, and they will be reluctant to accept the 5% risk retention.

3. Non GSE loans will not have the Safe Harbor provision. All such loans will have the lender having a Fiduciary Duty to the borrower for ability to repay the loan.  (I have already developed the analysis to show that a borrower could or could not afford the loan. With this, I could either show the Duty has been met, or I could provide the homeowner with the ability to file a legitimate lawsuit against the lender for a Duty violation. I am just waiting for things to happen.)

This whole thing is simply another power grab by the GSE's to maintain their position in the marketplace without fear of risk. They get the best loans, and with a provision that they cannot be sued when things go bad. 

When the new regs come out, I will be doing a complete analysis for a couple of websites. I will also post here.

The idiots

Yeah, yeah, yeah..........Wesbury again spouting off.

Hey Wesbury!  Why don't you admit that Sales are on an Annual Basis rate of $363k for the year.  This would be an increase over last year of 18%......Wow!!!!!

The Fed started keeping stats on New Home Sales in 1963, when the population of the US was in the 160's million.

2012 will be the 3rd Worst Year since the stats began............only 2011 and 2010 were worse. 

I don't think I want him for an advisor.

BTW, had a long talk this afternoon with a guy who has a company that does Portfolio Risk Analysis for the big banks.  His partner used to be head of Risk Analysis in Bank of Canada, has done the same for the GSE's, and other US banks.  His perspective is as mine.................everything sucks until we get Securitization of loans back on track, and lenders and investors know what they are buying.

Interesting possibilities for me with this call......................

Doug,

You are absolutely correct about people wanting a new home over re-sales. And this is especially true with any move up buyer.  Why purchase a re-sale when you can get/order a new construction home with all the extras that you desire, and you get to landscape a yard as you desire.  Additionally, you do not have the problems of repairs needed in re-sales.

The first time buyers of new construction will be the ones to really be concerned with.  A first time buyer has no true knowledge of the costs of home ownership. As they buy new construction homes, after closing, they must put  in back yards, furnish and model the rooms, generally buy additional appliances, and who knows what else.  The result is that most of this is done by use of more credit.  Quickly, the homeowner  becomes over extended, and runs into financial stress.  (For first time buyers, re-sales are much more favorable to maintaining a better financial situation, since the work has already been done previously.)

One thing we saw quite often, actually commonplace, were new construction homes being foreclosed upon without having the normal needed upgrades, especially yards, drapery, etc.  The first time buyers could not afford the upgrades, and never did them, unless the home value went up and they refinanced, pulling cash out to pay off debt, and do the needed work.  Of course, this only increased their debt load.  (Hmmm, one more factor I need to include in my Default Risk Analysis.)

One final thing............it is VERY common to see after buying a home, for the new homeowner to go out and buy a new car.  This is because they were advised to hold off purchasing a car until after the home closed, otherwise they would not qualify due to debt ratios.  But the second the loan closed, they were out buying a car.

The has not been as much publicity on Nov Single Family Housing Starts, and here is why.

Non Seasonally Adjusted Housing Starts were DOWN from Oct.  They were:

Oct 2012   -   50,300
Nov 2012  -    40,000

A drop of 12,600 units

The Northeast fell        400
The South fell           3,500
The Midwest fell        3,200
The West fell            3,100

All total, Single Family is up 97,300 for the year to date.  Total to date is 496,900.
I expect that Dec will show about 38,000 Single Family Starts.

The drop is exactly as expected. The winter always sees drops in activity.  Dec should be even worse.

To put it in perspective,  (Sorry that dates did not show up, but it begins in 1960




The chart shows total housing start data since 1960.  When you consider that population of the US at various  times, you can really understand how bad housing is.

Speed up the demise......................

Like wives and step sons?   LOL?  That is me.

Guess I should say something about the latest Housing Starts numbers.

The Reverse Mortgage is a unique product, to say the least.  Homeowners 65 or over are allowed to take equity out of the home monthly, based upon the equity in the home.

Generally, to get an RM, one had to have sufficient equity in the home.  No more than a 65% Loan to Value was allowed, if I remember correctly.  Payments were based upon the equity, and upon the homeowner living to age 95.  It was thought that this would protect the lender in the event of default.

The "suspect" loans were the loans taken out from 2004 through 2007, while home values were still inflated.  When values fell, the Loan to Values were now 100%, but the homeowner was still able to take the money monthly. So these homes continue to go even more and more Negative Equity, each and every month that the homeowner still lives.

FHA and other reverse lenders cannot determine losses because they have no idea how long the homeowners are going to live. Some who die "quickly", the losses will be small.  Those who die slowly, the losses will be quite severe.

To give you an example of how bad it is, I know one person who took out an RM at the peak.  His home was valued at $550k, and he was 75 at the time.  The loan was based upon $357k, at 65% loan to value.  His home is now worth about $170k, a drop of $380k.  

If this guy lives to 95, the losses are going to be incredible on this loan.

These type of actions are becoming more prevalent as time goes by.

I was contacted last month by a law firm representing investors going after the lender.  The law firm is preparing a lawsuit, but has problems in that they do not have enough information regarding the actual loans.  They only have Trust information about loan performance and basic loan level information.  They believe that at this stage, they need more than what they have, but until the lawsuit survives the "dismissal stage", they cannot get access to the loan files.

Most analytic companies can do some work from the available information, primarily reporting the basic numbers and percentages of the loans in default.  But that is generally all that they can do at this stage.

I can go much further, with my loan default analysis, taking the available information and using a predictive model that shows why each loan defaulted among other issues. This would allow for discovery which would end up with the actual loan files being provided for analysis.

If the firm retains me, I can finally put everything I know together in one "package", and really become the "key" to these type suits going forward.

File this in the "I know there is a pony in there" when a child sees a pile of horsesh*t file.

http://www.housingwire.com/content/first-time-homebuyer-demographic-finds-more-employment

First-time homebuyer demographic finds more employment

First-time homebuyers have played only a small part in the nation's housing recovery, with investors and cash buyers doing a lot of the buying in key real estate markets.

But Trulia's chief economist Jed Kolko is more positive about this age group. He sees them turning a corner on the jobs front, which is the first step towards growing homeownership numbers.

He notes the month of November brought forth more solid numbers on the jobs front, especially among the 25-to-34 year old age demographic. With this demographic generally in the prime age group for first-time home buying, Kolko is decidedly more optimistic about what this age group may do for the housing market in the coming years.

"The good news: among 25-34 year-olds, the prime age group for housing demand, 75.2% were employed in November, up from 75.1% in October and from 73.9% in November 2011," Kolko wrote.

The unemployment rate for this age group sat at 7.9% in November, which is high, but down from 9.2% a year earlier.

The student debt situation and employment numbers have weighed heavily on this group, keeping them from homeownership. But Kolko's assessment on Friday is more hopeful.

Will first-time homebuyers make a come back in the next few years? That's the looming question as we steer timidly into 2013.

My comments:

What type of jobs are they getting?  How are they going to purchase a home when all their income will go to meeting living expenses and paying off student debt?  Where is the Down Payment going to come from?

Oh.......FHA............yeah, right...........

For housing to recover, demographics plays a crucial role as I have tried to demonstrate.  Here is an article from Business Insider, presenting a chart that tells it all. 

http://www.businessinsider.com/matt-kings-most-depressing-slide-ever-2012-12

CITI'S MATT KING PRESENTS: 'The Most Depressing Slide I've Ever Created'

Citi's Global Head of Credit Strategy, Matt King, has a knack for putting together useful illustrations.

Here, he examines one of the implications of one of the most powerful forces in all of economics: demographics.

King explained his charts to us like this:

It's what I like to call "the most depressing slide I've ever created." In almost every country you look at, the peak in real estate prices has coincided – give or take literally a couple of years – with the peak in the inverse dependency ratio (the proportion of population of working age relative to old and young).

In the past, we all levered up, bought a big house, enjoyed capital gains tax-free, lived in the thing, and then, when the kids grew up and left home, we sold it to someone in our children's generation. Unfortunately, that doesn't work so well when there start to be more pensioners than workers.

The slide:



If this chart is anywhere accurate, then it is simply more evidence of what is to come.

Here is the chart I was referencing..........

Foreclosure Starts are down for both the month, and Year over Year.  Expect some to claim how things are improving.  However, as the article suggests, there are reasons for the drop.

The National Mortgage Settlement (Feb 2012) and the OCC Consent Decree (Apr 2011) have severely reduced foreclosures over the past 18 months. Those in the business began to see significant drops in May 2011, with the Consent Decree.  With the Settlement, it was expected that further drops would occur.

The Settlement requires that when a homeowner misses a payment, the lender must contact the borrower, or attempt to contact the borrower, about foreclosure alternatives. Only after a period of time, usually 14 days to 1 month, can the loan be sent for foreclosure.  (The 14 days to 1 month time frame varies due to different state statutes that might require longer periods of time.) If a borrower responds to the lender contact, all foreclosure processing stops until a modification review is done. This can take from a minimum of three months, to literally a year or more, dependent upon whether the borrower provides additional information quickly or appeals any mod denial.  (I am looking at one that has been ongoing since Jun 2010 and still no decision.) Only when a final decision is reached, and no more appeals allowed, can a lender foreclosure. So, it is easy to see why foreclosure starts are down, and will continue to be so for about 3-6 months.

What is really important to note in the chart is the repeat starts. Repeat starts are generally about 15% to 20% of the total number.  These are modifications that have failed.  The borrowers will have another attempt to modify, so these will not go immediately to a true foreclosure. But, almost all will end up in foreclosure.

LPS: Foreclosure starts drop 21.9% on mortgage servicing settlement

http://www.housingwire.com/news/lps-foreclosure-starts-drop-219-mortgage-settlement-news

The National Mortgage Settlement and provisions it outlined for mortgage servicers may have accounted for a steep 21.9% drop in foreclosure starts in October, according to Lender Processing Services' Mortgage Monitor.

Year-over-year, October's foreclosure starts were even lower, down 47.8% from the same month in 2011.

http://lfi-analytics.com/s/cc_images/cache_3714465304.png?t=1354723120

While it may be tempting to attribute the drop in starts to an improving housing market, LPS warns not to jump to conclusions about the decline in foreclosure starts.

The data firm attributes the steep drop to servicing changes outlined by the $25 billion mortgage-servicing settlement that took effect around the month of September. One of those changes was a requirement that servicers give borrowers a 14-day notice in writing before referring a loan to foreclosure. Those letters were first mailed in September and the steep drop in foreclosure starts came soon after, according to LPS.

With that in mind, LPS suggests the quick drop in foreclosure starts may be a temporary trend that is subject to change.

At the same time, prices are going up nationwide, with prices up 3.6% year-over-year in September and on track to gain 5% to 7% this year alone.

Still, the housing market is far from recovery, LPS points out. In fact, by the firm's own estimations, the market is now churning sales at half the pace established during the peak of the housing market.

There have been about 4.1 million sales over the past 12 months, compared to 8.2 million in the fall of 2005, LPS said. Furthermore, about a third of the sales in the past 12 months, approximately 1.3 million, were considered distressed. That is well above the 226,000 sales recorded in 2005.  And prices, while improving, are still 23% below peak levels, according to LPS.

But LPS sees its latest mortgage monitor as somewhat of a mixed bag, with prepayment rates showing a possible rise in October originations and mortgage bond spreads performing better.

The percentage of delinquent mortgages in the U.S. hit 7.03% in October. The states with the highest percentage of non-current loans include Florida, Mississippi, New Jersey, Nevada and New York.

Those with the lowest percentage of non-current loans were Montana, Wyoming, South Dakota, Alaska and North Dakota.

I try.................

Have some  new info on the Baby Boomer cohort and their Property Investment behavior to post.  It does not offer support for a Housing Recovery.

Plus, more data on First Time Home Buyers.  I really believe that truly qualified First Time buyers are now a rarity, if we eliminate FHA buyers.

Regarding the FHA article

1.  Gretchen Morgenson has made a name for herself with the foreclosure crisis.  But, she is a poor "researcher" when it comes to her articles or books.  She makes fundamental errors in reporting that calls into question anything she does.  For example, in one book she wrote which was a Times Best Seller, she writes that the GSE's were doing subprime mortgages as early as 1993.  This was completely false.  That one statement alone was significant to call into question all else that she wrote.

2.  Morgenson has spoken with FHA people, and ones associated with FHA, for their views and comments.  Of course, each are optimistic that with higher FHA standards, loans after 2010 will not default.  She does not speak with others who really have different perspectives, instead of which she simply expresses "doubts".  Here is what she has "missed".

-  Early payment defaults are mentioned as "improved".  It is not mentioned as to whether the Early Payment Defaults are on loans that default within 2 - 3 months of origination, or within the first year.  This distinction is important, in that tightened standards should reduce EPD.  But over the long term, it will not affect loan performance.

-   Loan to Value of 96.5% is paid lip service.  At 96.5%, there is a 16% default rate alone. Yet, FHA continues to use these guidelines.

-   Debt to Income Ratios of 41%.  The GSEs have lower default rates in the 3's at 36%.  Yet FHA continues with 41%.  What happens to FHA as income is further degraded?

-   FHA is generally first time buyers.  This poses a far greater risk because these types do not know the true costs of home ownership.

-   FHA brags about the performance at the higher loan amounts of $729k.  Of course this should be expected.  The higher the income, the more the disposable income at 41% debt ratios.  Performance should be better.

3.  Morgenson does not even mention the FHA Study by Andrew Caplin, in conjunction with the NY Fed.  This report was done using data from literally hundreds of thousands of FHA loans. The conclusion was that 30% of these loans will default within 5 years.  (I agree fully with what I have seen and researched.)

Morgenson's article is like washing one window on the Empire State Building at the ground floor. You can see better from that window, but you really have no idea what is around you, or above you.

The problems of surviving spouses as mentioned in the article is a common problem across the US.  But, as with anything housing related, one must look further into the issues presents.

When I read that only the husband was in on title in one case, this indicated that other problems existed not mentioned. When a spouse was omitted from the loan, but kept on the title, this indicated that there would usually be a problem with the spouse, either extensive debt that by not showing her on the loan, would "hide" the debt, or else that credit scores were very low, and would result in a loan denial.  To get around this problem, the spouse would be left off the loan.

This option would work fine, until a death occurred. Then, by the requirements of the original Deed of Trust, anyone assuming the loan (the surviving spouse) would have to requalify. Of course, she could not do so, and then would come foreclosure.  (This also applies to loan modifications.) 

Servicers under different disclosure laws, would not be able to speak to the surviving spouse about the loan, since she was not on it. The only way that this problem would not exist is if the servicer had received an authorization from the borrower prior to death, to speak with the spouse.

In the "real world", the loan should never have been granted, and the couple forced to sell the home, and take the profit, rather than be in a home that they could not truly afford.  (Yes, if the spouse had to be omitted, then the loan should not have been granted.  Likely, for approval, it was also a stated income loan.)

What we see is a "legal trap", created by bad lending practices, and compounded by legal issues.

We see the same issues as above with Reverse Mortgages.  On an RM, if only one of the two parties were 65 or older, then only the older could be on the RM.  The under 65 person was left off.  If the older dies before the younger turns 65, then under the terms of the RM, the RM must be paid off, or the home sold.  Only if the younger has turned 65 can another RM be obtained to solve the problem, if enough equity exists in the home.

Always looke behind the story to find the rest of the story.

Today, you will be hearing about Oct Pending Sales Index up by 5.04%.  This means nothing to me.

Pending Sales come from NAR data. It covers signed and accepted Sales offers.  The loans must still close at some point.

Dependent upon the source used, from 48% to 60% of all Pending Sales do not close at this time. Either the borrower cannot qualify in the end, or the Appraisal comes in too low and nixes the deal.  And if it is a Short Sale, then the lender or investor must approve the deal, and this failure rate is far above 60%. (How many of the Pending Sales were the result of prior sales falling through, we do not know.  Would be very interesting if someone kept track of the data.)

Mortgage Banker Association reports that Purchase Application are up, and Refinance Applications are down. Purchase Applications would be the result of the Pending Sales increase, but Refinance Applications are now driven solely by either Interest Rates, or Negative Equity refinancing into HARP.

Here is an interesting tidbit for all:

Ellie Mae is a Loan Processing Engine. Information about the proposed loan is uploaded for further processing, etc.  Ellie Mae handles 20% of the entire lending market, so they have a representative sample of loans that can shed light on the quality of loan applicants.  Here is some relevant information on borrowers.


MONTHLY ORIGINATION OVERVIEW FOR SEPTEMBER 2012 – ELLIE MAE

                  Sep 2012   Aug 2012        June 2012    March 2012

Closed Loans

Purpose
Refinance            65%       61%         54%       61%
Purchase            35%       39%         46%       39%


Type

FHA                    19%       21%         23%       28%
Conventional        72%       70%         67%       64%



PROFILES OF CLOSED AND DENIED LOANS FOR SEPTEMBER 2012

                          Closed First                 Denied Loans
(All Types)

FICO Score (FICO)            750                        704
Loan-to-Value (LTV)            78                         88
Debt-to-Income (DTI)            23/34               27/44


Closed Loans     
                             Sep-12       Aug-12

FHA–REFI

FICO                            716           717 
LTV                               89            89 
DTI                           25/38       25/38 

FHA–PURCH

FICO                             701         700 
LTV                                95          96
DTI                           27/40       27/41


Denied Applications

                                 Sep-12    Aug-12
FHA–REFI

FICO                             670           671
LTV                                89            88
DTI                            28/45       28/43

FHA–PURCH

FICO                              665          670
LTV                                 95            95
DTI                             31/47       31/47


Conventional Closed Loans

                              Sep-12        Aug-12
REFI

FICO                            767            769
LTV                               70              70
DTI                           22/32         22/31


PURCH

FICO                             762           763 
LTV                                79             79
DTI                            21/33        21/33 


Denied Applications

                                Sep-12       Aug-12
CONV–REFI

FICO                              723            727
LTV                                 87             87
DTI                             26/43         27/42 


CONV–PURCH

FICO                               729            734
LTV                                  81              81
DTI                              24/43         25/42

Realtors, Brokers, and the media are all complaining about the tightened lending standards since the Crisis began.  This information provides a good perspective of how much lending standards have tightened.  Though these are averages, we can conclude the following:

For Conventional Loans

1.  Lenders have tightened up on FICO Scores.  Unless you have a large amount of a Down Payment or Equity, do not bother if your FICO is under 700. 

2.  Loan to Value is playing a large role again. LTV's over 85% will be extremely difficult to get approved.  It will depend upon whether you can get PMI coverage.

3.  The real key to approval is the Debt Ratio. Lenders are looking for 36% or less.  No more 45% and above allowed.


For FHA loans

The differences between FHA and Conventional are stark, at the very least.

1.  FHA will allow Debt Ratios up to 41%.  This is regularly approved.  At 38% being the average, it is far greater than the 31% for Conventional loans.

2.  95% LTV average, with 96.5% being commonly approved, far  above conventional as well.

3.  FICO of 700 average, with many loans down to 680 with equity present and lower Debt Ratios.


Looking at the differences in approvals, it is clearly evident why FHA has a current default rate of 16% plus, and is projected to reach 30%.  Yet, the GSEs are under 5% generally.

The government has turned FHA into the GSE subprime. Loans that would have been approved 5 years ago by the GSEs, but would be denied today, are the loans being approved by FHA.  Are these loans "credit worthy"?  When you look at the approval parameters, especially DTI, then it is clearly evident that large numbers of these loans are not "credit worthy" and will default in the next 2-3 years.

 

Just to add more fuel to the fire:

http://www.census.gov/construction/nrs/pdf/soldreg.pdf

If you go to this website, you will find Housing Sales data going back to 1963 on a Monthly Basis.  It provides Adjusted and Non Adjusted Sales.

The data really shows just how bad the New Home Sales really are.  Through most of the 2000's up to 2007, total units sold were over 1m.  Even in 1963, Adjusted Sales Monthly were in the 500's most months.  And, this is with a US population base of  189m. 

In fact, if you look at all the data, the two worst years for Housing Starts ever recorded was 2010 and 2011.  2012 is the 3rd worst on record.

How can anyone be optimistic about a few monthly increases?

Just to predict, Westbury  will say that all is well.

But,

1.  Sep 2012 new home sales were revised down by 20k to an annual rate of 369k, and not 389k as previously reported.  Oct 2012 reported 368k, and expect that this number will be revised down in the Dec report.

2.  Actual Oct 2012 Home Sales, not adjusted, was.....................(drum roll).........................29k. (Sep 2012 was actually 29k as well.)  Multiple 29k by 12 and you have total yearly sales, unadjusted, of 348k.  (See why I hate Adjusted Totals?)

3.  Both the median and average new home price ($237,700 and $278,900) were at the lowest values since June.

4.  The South had about 50% of all sales, at 14k.  The Midwest was 5k, West at 9k, and the Northeast at 2k.

Where is the Housing Recovery?  Am I blind?  I can't see it!!!!

Waiting for CD to post the new Wesbury on Oct Home Sales..............it will be interesting to see what the Kool-Aid Drinker has to say..........

GM,

I believe that we will have a few years to prepare individually for what is to come.  The government will try to use any method available to prevent a crash, and will manage to put it off until at least the next election.

I am working to prepare my own finances to allow my family, kids and grand kids, to be able to live through the crisis to come.  In the event of war, the gradson will still be too young to get drafted, so he should be immune from it.  If I can just get him and his sister fully funded, then I can rest easy.

Previously, I posted about where new buyers must come from to stimulate housing sales.  I expressed the view that the 24-29 cohort and 30-39 cohort would have to supply the growth. I was quite negative about hopes for this to happen.

US Homeownership by Age Group (Decennial Census)
                                        1980           1990            2000        2010
15 to 24 years                   22.1%        17.1%          17.9%      16.1%
25 to 34 years                   51.6%        45.3%          45.6%      42.0%
35 to 44 years                   71.2%        66.2%          66.2%      62.3%
45 to 54 years                   77.0%        75.3%          74.9%      71.5%
55 to 64 years                   77.6%        79.7%          79.8%      77.3%
65 years plus                     70.1%        75.2%          78.1%      77.5%
Total    Ownership             64.4%         64.2%         66.2%      65.1%

Here is new information coming from Zerohedge that places my concerns into a proper perspective.

The first chart shows how income has changed over a period of years.



For all cohorts except 65 and over, real income has dropped significantly.  Income levels are back to levels seen in the 1990's, in all cohorts except the 19-24 group, which will not be buying homes in any big numbers.  (Plus, income for the 19-24 cohort will not support homeownership in most cases.) Yet, average home values, based upon both LPS and Case Shiller suggest that values are at the 2003 level.  2003 home values were far higher that in the 1990's, so how will any of these cohort be able to increase ownership levels?  It can't happen in any great numbers needed to stimulate housing demand.

The second chart breaks down income into real numbers



With this, we see the actual effects of the income loss.  In the needed cohorts, income levels have dropped from $7k to $9k from peak levels seen in 2000. 

For the 25-34 cohort, with income of $50k, and with the likelihood of high levels of student or consumer debt, there is probably very little to increase ownership rates in the near or intermediate terms.  Only as this group ages, and hopefully achieves greater income growth, can we expect any increase in ownership.

The 35-44 cohort is already at 62% ownership rates. With decreasing income, how can this group be expected to grow further?  (Ownership increases dramatically in this group as people age. Likely, the 39-44 subset is closer to 70% ownership, with 35-38 being much lower than 62%.  Either way, it does not bode well for recovery.)

I ask:  Where are the new buyers going to come from if we have limited Move Up Buyers and we have a younger cohort that cannot afford to buy, even at 2003 prices? 
Can investors and foreign money fuel a housing recovery?  That answer is "No Way".

I have no idea where housing support will come from.  That is why I am in agreement with a previous article that said to let the Housing Market crash and quit trying to support it.

Case Shiller reports Home Values increasing 3.00% Year over Year for Sept 2012.  LPS said 3.6%.  Monthly totals for year...........

Case-Shiller Composite 20 Index
Month   YoY Change
Jan-12   -3.9%
Feb-12   -3.5%
Mar-12   -2.5%
Apr-12   -1.7%
May-12   -0.5%
Jun-12   0.6%
Jul-12   1.1%
Aug-12   1.9%
Sep-12   3.0%

This suggests that an improvement in home valuation is occurring, but it must be viewed with the following considerations.....

1.  Total Inventory of Homes for Sale is 5.8 months of supply.  This shows that there is a shortage of available homes for sale.  Shortages drives prices up.

2.  Interest Rates are at 3.34%, far below "reasonable rates" that should be about 7% to 8% in a "normal" environment.  Lower Rates causes prices to increase.

3.  30% to 40% of home sales are FHA with 3.5% down payments, representing less stringent qualifying standards, and which adds demand that should not exist, which drives up prices.

The simple conclusion is that with all the "artificial" supports put into place by the Fed, and with restrictive inventory, that the Housing Market can only muster a 3% Year over Year increase shows that Housing is truly weak and not responding to efforts to stimulate.

Thought I might comment on this tread.

I am a firm believer in "Generational Theory", a Cycle Theory that society operates along generational lines, with every 4th Generation being a "Crisis Generation".  This has been seen time and again since the 1400's.  For the US, Pre Revolutionary Times about 1760s to 1780s was a Crisis, followed by the Pre Civil War period, the mid 1920s to 1940s, and again about 2005 for the latest cycle.  In each 4th Generation, the US has undergone transformative changes, that have uniquely changed the culture and politics.  What the changes will be can never be predicted, but once the crisis begins, then the changes cannot be stopped.

This election, at least for me, was in many ways, a "non-event".  Though I thoroughly detest Obama, I knew that no matter how good Romney might have been, nothing would change, even if Romney had been elected.  The powers that be were too well entrenched into society, and the "looters", or "renters" as it is called now, would not walk away from what they could take from the populace.  (This applies to Crony Capitalists also.)

Most will agree that the US is not far from a complete financial collapse.  With continued increasing debt, and with the likelihood of increasing taxes, there is no way out of where we are, at least in a "reasonable" and "less harmful" manner.  Because of this, I was "torn" hoping that Romney would win, and delaying any collapse, or having Obama winning and then hastening the collapse.

At this point, I foresee that the US will continue its march to collapse. We will muddle through into the 2016 elections, and likely having another Dem president, even after a fiercely fought campaign over the economy, debt and deficit. People simply will not wish to make the sacrifices needed to "save" the Republic from collapse.

Probably about 2018, the feared "Crisis Trigger" will occur.  It might be financial, military, or another event that will bring into play the "revolutionary zeal" that each previous crisis has had occur.  At that time, the "Me Generation", born from the Mid 60's to the Mid 80"s will take the reins and lead the country into the "New Republic", in whatever manner and shape to come.  The 80's to 2004 Generation will be the one whereby the "burden of change", likely warfare, will fall on their heads. 

From this Crisis, a New Republic will rise from the ashes, in a form that we could not likely predict at this time.

Here are the latest Foreclosure and Delinquency Stats from LPS. 


LPS: Percent Loans Delinquent and in Foreclosure Process

                                                                                     Oct 2012           Sept 2012          Oct 2011
Delinquent                                                                                 7.03%              7.40%              7.58%
In Foreclosure                                                                         3.61%                3.87%              4.30%

Number of properties:

Number of properties that are 30 or more, and
less than 90 days past due, but not in foreclosure:                    1,957,000     2,170,000         2,219,000

Number of properties that are 90 or more days
delinquent, but not in foreclosure:                                            1,543,000      1,530,000         1,681,000

Number of properties in foreclosure pre-sale inventory:            1,800,000           1,940,000         2,212,000

Total Properties                                                                    5,300,000      5,640,000         6,111,000


My comments:

1.  LPS only covers about 70% of all first mortgages in their data sets.  So, these numbers are below the actual numbers present.

2.  This only applies to 1st Mortgages.  2nds are not considered.  And borrowers are not paying seconds in greater numbers than firsts, because seconds are not generally foreclosing.

The numbers in each category are certainly down. It would appear that the Foreclosure Crisis is beginning to abate. But when additional information is added to explain what is going on, then the perspective begins to change.

1.  Alt A Adjustable Rate loans were tied to either the LIBOR or the MTA Index.  They had Margins of 2.25% or 2.75%. This would be the lowest rate that the loan could have, when the fixed rate periods ended. For the 1 through 5 year loans, which represented over 90% of the loans, the Interest Rates are now down to 2.625% up to 3.25% in most cases. These loans have had defacto modifications with the Fed pushing rates lower.  As rates increase, these loans will begin to default, unless the homeowners refinance into HARP 2.  It is either foreclosure or no longer being a Move Up Buyer.  Either way, these homeowners are out of the housing market in one manner or another......(foreclosure or Move Up Buyer.)

For right now, the foreclosures in this cohort have been "stalled".

2.  HAMP and other modifications that have occurred, especially in the last year, have greatly reduced the number of delinquencies, lowering the numbers. But, it is statistical fact that 60% of the mods fail, so another delay has only occurred.  When the 5 year fixed rate period for the mods expires, then as the loan rates increase, so will more defaults.  For the first HAMP mods, that will begin in 2014.

3.  Lenders are increasingly allowing short sales, which is further decreasing the number of delinquencies and foreclosures.

4.  Compare the 90 plus delinquencies but not in foreclosure to those in foreclosure.  Those loans should all be in foreclosure, but the banks are not foreclosing, either due to attempting loan modifications or short sales prior to initiating foreclosure, or waiting for more foreclosures to occur before initiating foreclosure.  Most of the Non Foreclosure will end up in foreclosure.

Compared to two years ago, total delinquent properties are down about 1 million properties which is an impressive number, for sure. But the reduction must be taken in context with all of the foreclosure prevention programs that have been in place, either delaying foreclosures, or offering modifications to prevent foreclosures.  When these programs are factored in, then the numbers are not nearly so impressive.

When/if the economy crashes further, interest rates increase, or Obamacare begins to get enacted, we can expect that foreclosures will again increase and prevention efforts will fail.

This is an opinion I can get fully behind.

Time to Dump on Housing


    by Martin Hutchinson
    November 26, 2012

The U.S. National Association of Homebuilders Housing Market Index jumped to 46 on Monday, its highest level since May 2006, just before the peak in house prices. In Britain, especially in southeast Britain, house prices remain inordinately high in terms of wages, rents and purchasing power. In the United States house prices are subsidized by innumerable tax and other benefits, including an effective government guarantee of most home mortgages. In both countries, house prices are subsidized by interest rates that have been inordinately low for over four years. In both countries, government budget deficits threaten the stability of the financial system and the economy generally. Overall, it's time to put housing policy into reverse and to reclaim some of the subsidies from the housing sector.

Housing subsidies are largely a product of politicians’ sentimentality. In both the United States and Britain before 1980, house prices were affordable in terms of average incomes and housing finance operations like Jimmy Stewart’s Bailey Building and Loan ("It's a Wonderful Life," 1946) made mortgage loans to middle-income people who had saved a sufficient down-payment. It's likely this idyll could have continued forever but for the inflation of the 1970s, which caused interest rates to rise in both countries so that in Britain mortgages (which generally carried floating interest rates) became unaffordable and in the U.S. the losses on fixed-rate mortgages destroyed the balance sheets and cash flows of the savings and loan associations.

The inflation of the 1970s also affected the public's attitude to housing. In both countries, houses ceased being simply places to live and became investments. From this point, the better-off ceased worrying about the upkeep costs of a large house and began to extend themselves in the mortgage market, hoping to maximize their investment profits. The result was a massive run-up in prices in fashionable areas like London, New York and most of California, which took both housing and local jobs well out of range of ordinary people. I am by most standards quite wealthy, at least in terms of income, but I could no more afford to live comfortably in today's London than I could afford a luxury yacht and its attendant upkeep and crew.

The ideal we should aim at is Germany, where thanks to the admirable Bundesbank there has been little inflation, so home ownership is limited. Only around 43% of the population owns a home and finance is available for at most 80% of the purchase price, normally less. German house prices have been flat or slightly declining in nominal terms for two decades, and only recently, as euro monetary policy has been by German standards excessively lax and euro interest rates have been held down below German inflation, has there been a bump of maybe 10-15% in prices.

It's not a coincidence that Germany has the most successful industrial sector in Europe. Because of its lower house prices less of its savings are wasted in home purchase, even though the rich, like the Victorian British, are substantial investors in rental properties. (They invest little in equities, substantially in bonds and not at all in hedge funds or other worthless excrescences of the Anglo-American capital markets.) Houses are affordable, either to buy or to rent, yet staff are mobile when they are needed to be, since only the oldest and longest established own their homes.

In short, the German housing and house finance market is a good template, and our policies should be aimed at mirroring that market.

In the United States, the home mortgage interest tax deduction should be abolished, providing a sizeable $60 billion annually towards closing the $1 trillion Federal budget deficit. If as is likely a populist president and Congress wimp out of most of the tax increases in the “fiscal cliff,” abolishing the home mortgage interest deduction will at least provide a modest move towards fiscal sanity, even though that particular tax break is not as egregious as the "carried interest" treatment of private equity profits or the tax break for charitable donations, both of which actively encourage economically destructive behavior.

The most egregious housing subsidy in the U.S. system is the effective Federal guarantee of home mortgages through Fannie Mae and Freddie Mac. This grew up almost accidentally, resulting from the development of mortgage securitization techniques in the 1970s and 1980s. It has resulted in the death of the Jimmy Stewart model, and its replacement by a gigantic bureaucracy, which makes the mortgage process far more difficult than it needs to be.

In addition, the Federal Housing Administration  guarantees mortgages itself, a duplication of effort if ever there was one, and has exhausted its capital, having loosened its lending restrictions in 2008 just as everyone else was tightening them. The FHA now supports 15% of all mortgages, up from 5% in 2008, and its stated purpose of enabling the indigent to get mortgages has been stretched to include a maximum guarantee limit of no less than $729,000.

We were informed this week that Fannie Mae has expanded its staff by over 1,000 since its bankruptcy in 2008, although Freddie Mac has cut back slightly. In addition a nominal 15% decrease mandated by Congress in the value of mortgages bought directly by the entities has been effectively ignored.

This subsidy has gone on long enough. With housing recovering, these entities need to be shut down, not over a period of a decade or more but within a year. The U.S. banking system is eminently capable of making home mortgages itself, as it did for decades before 1970, and if the cost of housing finance increases somewhat, so what? It will push people towards lending and away from excessive leverage, both favorable developments for the overall economy.

There are other subsidies that also need to be removed. Under the Basel banking regulations, mortgages are given preferential; treatment in banks’ capital calculations compared with other loans. Experience since 2006 worldwide has shown the risk assumptions behind this to be faulty, as are the even more egregious subsidies given to holding government paper. Changing this is simple; the housing sector does not deserve such consideration.

The final subsidy to remove is that of ultra-low interest rates. These favor investment in long-term assets of limited volatility, such as home mortgages, thereby allowing banks to load up on mortgage assets on a highly leveraged basis while neglecting the far more economically valuable activity of lending to small business. Low interest rates have de-capitalized both the United States and Britain; they have also driven British house prices up to inordinate heights, and will do so again in the U.S. if the current housing recovery is allowed to fester.

Remove these subsidies, and house prices in Manhattan, the fashionable bits of California and South East England will collapse, halving or more in the Russian Mafia-dominated purlieus of central London. That will have a number of beneficial effects. It will cause losses to the more foolish and spendthrift rich, who have overinvested in housing. It will deter young successful people form overinvesting in housing, thereby increasing their investment in equities and especially small businesses. At a less exalted level, it will remove the bias between renting and home ownership, thereby increasing workforce mobility, so that families will tend to buy houses only when they are well established with children, perhaps in their 40s.

Naturally, to get Germany's housing market, the authorities in Britain and the United States will need to adopt Germany's monetary policy (or rather, that of the Bundesbank before 1999). For Britain, this will not be all that difficult; the traditions of the Bank of England include the wholly admirable Montagu Norman and Rowland, Lord Cromer. While there are few if any of the current staff left from the period of those worthies, there is at least no institutional bias against sound money.

In the United States, it will be more difficult. Paul Volcker lasted only eight years and was immensely lucky; one can imagine the fate of his sound policies when matched against a President George W. Bush rather than Ronald Reagan. The legislation governing the Fed needs rewriting, with the "dual mandate" to cover unemployment removed, and provision made so that Fed policy is adequately "Volckerized" in spite of political pressure. Mere independence is not enough; we have seen in the past few years the damage that can be done when an independent Fed is run by a Chairman more populist than Huey Long. Historically, however, even the Gold Standard Fed of the 1920s proved prone to meddling in the wrong direction, creating a surge of speculation in the 1920s followed by an orgy of debt deflation in the early 1930s. Criteria must be set so that future Fed Chairmen are forced to govern by monetary policies that mimic a true "free banking" Gold Standard, in which money creation is automatic and central bank policy meddling minimized.

That's for the long term, and after this month's election results not immediately feasible. However, removing the multiple egregious subsidies to housing is currently feasible, and forms a major element in the lengthy and difficult task of restoring the U.S. and British economies to full health.

 (The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations—8% versus 46.5%, according to recent research. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005)—details can be found on the Web site www.greatconservatives.com and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley—2010). Both now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.

Start it with Maureen Dowdy, great. 

Two more naval officers were relieved this week, a Captain and a Commander, due to misconduct.  It is beginning to suggest a "rot" at the upper levels of the military.
Of course, this has always been present in all forces, but never really mentioned or acted upon so publicly.

I have to wonder what is bringing this to the forefront now.  It seems that with all the publicity, there must be ulterior motives at work.

DougMacG,

Certainly what you write is a significant part of the equation as well.  But I really look at demographics.   To give you an idea on where new homeowners can come from:


US Homeownership by Age Group (Decennial Census)
                                   1980           1990            2000     2010
15 to 24 years                  22.1%   17.1%   17.9%   16.1%
25 to 34 years                  51.6%   45.3%   45.6%   42.0%
35 to 44 years                  71.2%   66.2%   66.2%   62.3%
45 to 54 years                  77.0%   75.3%   74.9%   71.5%
55 to 64 years                  77.6%   79.7%   79.8%   77.3%
65 years plus                  70.1%   75.2%   78.1%   77.5%
Total    Ownership               64.4%     64.2%   66.2%   65.1%

When we look at homeownership by age, it is readily apparent that the age group from 45 year up has little or no potential to grow the homeownership numbers. Those who can reasonably afford a home have already bought.  Additionally, although there will be some MUB in the 45-54 bracket, this number is severely restricted due to equity issues, income issues, and now, credit issues due to so many having experienced foreclosure.

The 35 to 44 cohort offers some hope over the next 10 years with the potential to increase rates above 70%, but this will be offset by the demise of the 65 plus bracket.

The 25 to 34 cohort is where we have to look currently for growth. But as we know, this is the age group most significantly hampered by debt issues, especially student loans, etc.  Additionally, they are also the ones being most affected employment wise.  Until economic realities change, there is little to suggest a major movement towards homeownership in this group.

The 15 to 24 cohort will be what will at least sustain housing at today's levels, if the income and future debt issues can be resolved.


    Census Population by Age
Age               2010                2000               1990
15-24   43,626,342   39,183,891   36,774,327
25-34   41,063,948   39,891,724   43,175,932
35-44   41,070,606   45,148,527   37,578,903
45-54   45,006,716   37,677,952   25,223,086
55-64   36,482,729   24,274,684   21,147,923
65-74   21,713,429   18,390,986   18,106,558
75+           18,554,555   16,600,767   13,135,273

Age wise, we see the potential that the younger cohorts bring to the table. The 15-24 and 25-34 cohorts have sufficient numbers to increase housing demand, even considering offsetting deaths, but this potential can only be realized by a complete change in economic realities. Until we get employment and income sorted out and sustainable levels and practices, these cohorts will not have the ability to begin a true housing recovery.

Looking at these numbers and weighing in all the various other factors, I can only conclude that we have 15-20 years before things really improve.  And even then, it is based upon a complete economic revival, which under present day leadership from both sides, it will not happen.




 

CD,

Those who are refinancing now into the lower rates are going to stay in their homes when rates go up.  Why go from 3.34% up to 5 or 6%, which was typical during the 2000's?  So, the refi market is doomed, and the MUB demographic severely degraded.

Another factor that I did not mention is that Property Tax considerations will also restrict mobility.

Here is a link to the Fed Paper which covers this in depth.

http://www.newyorkfed.org/research/staff_reports/sr526.pdf

DougMacG,

Good observations.

Multi Unit is never going to lead the way out of the Housing Crisis. It will simply work to alleviate some of the damaging effects of what is going on elsewhere in the industry, primarily offering low cost housing to the displaced (6 million homes at this time), the displaced to come, another 6 - 10 million, those entering the workforce and not being able to buy homes due to accumulated debt, and 1 million new "legal" immigrants a year.  Multi Unit under these circumstances is a realistic opportunity.

I have been having problems working on my next article. The problem entails how to present an overwhelming amount of data and evidence to support housing depression for decades. Here is my thinking.

We know that the Move Up Buyer (MUB) must lead the way out of our present mess. But at this time, the MUB represents no more than 55% of total sales. And actual sales are really not increasing. Why is this?

1.  28% of current homeowners are Negative Equity, and when you combine them with Near Negative Equity, the number is about 53%.  These people are out of the market for many years, except for a very few who might benefit from 2% appreciation per year. But if values fall further, then the total number could quickly reach 60%.  Anyway, at least 50% of potential MUB are gone for now.

2.  The Fed has been subsidizing lower interest rates, currently at 3.34%. The people who have been refinancing "down", plus the "recent" buyers, are now "locked into" the homes. Don't expect MUB from this sector.  (Thank you Fed for screwing this part up.)

3.  The bulk of homeowners with equity are into their 50's and above. They are not going to become a MUB, instead, as they age, they will much more likely begin to downsize.

4.  Those who have experienced foreclosure or are in foreclosure are out of the market for 10-15 years, contrary to what "official" underwriting guidelines say of 4 years.  The vast majority do not recover and repurchase in under 10 years.

5.  Decreasing wages and higher debt have led to otherwise potential MUB's being debt restricted from qualifying.

6.  There are not enough New Buyers (NB) to purchase the homes that an MUB would sell.  Additionally, the elderly who pass will have the majority of their homes put up for sale, which will attract NB.

7.  The "smart" MUB who says "Hell No!!!  Too risky to take on more debt by moving up.

8.  When rates increase, many potential MUB's get priced out of the market again.

9. General economic conditions.

The simple fact is that the MUB market is very restricted, and there are not enough potential MUB's to lead the way out of the crisis.  So for the market to move, other forces must take the lead..................New Buyers or Investors..................more on them later..............and that is not good either......................

I know what you do CD. 

You know how passionate I am about this stuff, and how much the b.s. ticks me off.

I actually get a kick out of your "gentle" nudgings.