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DougMacG
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« Reply #500 on: October 28, 2014, 01:55:04 PM »

California Leads Housing Slowdown As Case-Shiller Home Prices Decline For 4 Months In A Row

Case-Shiller data for August confirmed once again that US housing is rapidly slowing down, when the Top 20 Composite Index (Seasonally Adjusted) posted another decline in August, its fourth in a row, declining by -0.15% and missing expectations of a modest 0.2% rebound (following last month's -0.5%) decline.

S&P's David Blitzer: "The deceleration in home prices continues... The Sun Belt region reported its worst annual returns since 2012, led by weakness in all three California cities -- Los Angeles, San Francisco and San Diego."

  - But who cares what the birth (and death) place of every housing bubble is doing, right?
http://www.zerohedge.com/news/2014-10-28/california-leads-housing-slowdown-case-shiller-home-prices-decline-4-months-row
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Crafty_Dog
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« Reply #501 on: November 19, 2014, 12:49:36 PM »



Housing Starts Declined 2.8% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/19/2014

Housing starts declined 2.8% in October to a 1.009 million annual rate, coming in below the consensus expected 1.025 million annual rate. Starts are up 7.8% versus a year ago.

The decline in starts in October was all due to a sharp 15.4% drop in multi-family units; single family starts rose 4.2%. In the past year, single-family starts are up 15.4% while multi-family starts are down 6.0%.

Starts in October declined in the Midwest, Northeast and West, but were up in the South.

New building permits rose 4.8% in October to a 1.080 million annual rate, coming in above the consensus expected 1.040 million. Compared to a year ago, permits for single-units are up 2.4% while permits for multi-family homes are down 0.5%.

Implications: Home building has been very volatile over the past few months but the underlying trend remains upward and we expect that to continue. The best news from today’s report was that building permits rose 4.8% in October, as single-family and multi-family permits rose 1.4% and 10% respectively. Permits now stand at the highest level since June 2008, signaling future gains in home building in the months to come. October’s drop of 2.8% for home building was all due to multi-family units, which were down 15.4% in October and have caused large swings in overall housing starts over the past few months. Single-family starts have been steadily rising over the past three months. So, the multi-family volatility over the past few months has masked slow underlying improvement in the housing sector. To smooth out the volatility we look at the 12-month moving average. This is now at the highest level since September 2008. The total number of homes under construction, (started, but not yet finished) increased 1.4% in October and are up 20.1% versus a year ago. No wonder residential construction jobs are up 131,000 in the past year. Although multi-family construction has slowed over the past few months, it has still taken the clear lead in the housing recovery. Single-family starts have been in a tight range for the past two years, while the trend in multi-family units has been up steeply. In the past year, 36% of all housing starts have been for multi-unit buildings, the most since the mid-1980s, when the last wave of Baby Boomers was leaving college. From a direct GDP perspective, the construction of multi-family homes adds less, per unit, to the economy than single-family homes. However, home building is still a positive for real GDP growth and we expect that trend to continue. Based on population growth and “scrappage,” housing starts will rise to about 1.5 million units per year over the next couple of years.
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ppulatie
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« Reply #502 on: December 28, 2014, 12:21:21 PM »

New home sales are so great per Wesbury and others .............this really shows the truth.

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PPulatie
Crafty_Dog
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« Reply #503 on: December 28, 2014, 01:06:22 PM »

Pat:

A question:  The previous peak is a bubble yes?  So, by what measuring stick should we evaluate how well things are doing?

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DougMacG
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« Reply #504 on: December 28, 2014, 03:54:34 PM »

Pat:
A question:  The previous peak is a bubble yes?  So, by what measuring stick should we evaluate how well things are doing?

450,000 today compares with an average of 700,000 over the last 50 years.  So if we grow 3 - 4% per year, we will back to where we were ... almost never.



http://static.seekingalpha.com/uploads/2008/5/29/newhomesales527_1.png
« Last Edit: December 28, 2014, 03:56:38 PM by DougMacG » Logged
Crafty_Dog
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« Reply #505 on: December 28, 2014, 05:21:03 PM »

So, for 30 plus years we were essentially flat and around '97, the time of the Clinton Gingrich cap gains tax rate cut we went onto a new trajectory, but at present we are above the lows of '66, '70, '75, and '82?  Yes?

"Down 42% year over year" includes the numbers from the bubble years, yes?
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DougMacG
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« Reply #506 on: December 28, 2014, 10:26:38 PM »

So, for 30 plus years we were essentially flat and around '97, the time of the Clinton Gingrich cap gains tax rate cut we went onto a new trajectory, but at present we are above the lows of '66, '70, '75, and '82?  Yes?

"Down 42% year over year" includes the numbers from the bubble years, yes?

The chart I posted shows new home sales only through 2008, an extreme year.  PP's chart overlaps this covering 2005 to the present.  Agreed that the comment 'down 42% year over year' mostly tells us the peak values were artificially high.  If you want to ignore the peaks of the bubble, what years should we ignore?  Not all the way back to 1997, IMHO.  It seems to me the excessive push of easy money began in the aftermath of 9/11/2001, not showing up until the recovery kicked in during 2003.  Nonetheless, even if you go all the way back to 1997, it looks like the average, historic, new home sales figure is still over 600k compared with 450k now.  Hardly a full recovery, we are still running short by about 33%.

It begs the question, is the Obama economy with workforce participation at a 40 year low and food stamp and disability participation at all time highs the new normal?

The answer to that is a matter of opinion or conjecture.  My view is that we could put the growth and greater participation back into this economy any time we choose that.  Home affordability varies artificially with CRAp, QE, and mortgage rates, etc., but otherwise is a pretty simple function of family income.  Under Obama, family income is not up.  The income and GDP growth has been largely concentrated in the top 1% of earners, equities investors and S&P 500 type companies. 
« Last Edit: December 28, 2014, 10:47:17 PM by DougMacG » Logged
Crafty_Dog
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« Reply #507 on: December 28, 2014, 11:08:49 PM »

Well, the cap gains tax rate cut ('97?) would seem to justify a secular change, but IIRC there was big concern over computers having a giant brain fart on 1/1/2000 and so the Fed pumped pre-emptively- to be followed by the 9/12/01 flood of money so perhaps '99 should be our SWAG baseline?

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ppulatie
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« Reply #508 on: January 08, 2015, 05:30:08 PM »

Just a few comments:

Where the housing pundits miss the boat is that they just look at charts and graphs and then make assumptions. There is no underlying analysis of the factors that contribute to the housing "recovery" nor analysis of factors that will affect it in the future.

1.   With DougMacG’s graph, notice that about 1991 the beginning of the upward trend. Coincidently, that is when Bush 41 began the idea of increasing homeownership from about 64% to 70% or more.  Clinton then followed that up with programs designed to get maximum ownership.

2.   1993 saw a huge push by the GSE’s to begin to control the mortgage market. Banks, especially after the S&L crisis were considered risker for loans than the GSE’s.

3.   1991 saw the first real successful MBS issuance since about 1985 with Ameriquest securitizing a $61m offering.  By 1993, other Wall Street firms and Mortgage Bankers began to approach the MBS market. The target loans were those that the GSE’s would not buy.

4.   1993 saw the creation of a “working group” to create the methodologies that would be needed for future lending. The Banks, Wall Street, GSE’s and Mortgage Banker Associations were the major part of the working group. In 1995, its findings were complete and led to the creation of MERS. 1996 saw the first loan registered under MERS.  The beginning of large scale securitizations was set in place.

5.   About 1993 and later began the loosening of Leverage Ratios for Wall Street firms.

6.   1998 saw the repeal of Glass Steagall and now commercial banks could now engage in Wall Street type actions.

7.   Mid 1990’s saw greater emphasis on the Community Reinvestment Act. DOJ and other regulatory actions to promote “Fair Lending”.

8.     With the 2000 Market Crash and then 9-11, the Fed actions to loosen credit which promoted greater housing sales.

9.     Jun 22, 30 year interest rates hit 4.25% for one day, and the following day the Fed announces that they will begin to increase rates again. Jul 2005 saw the market top in "sales activity" with values falling in many areas and in some areas, continuing to increase at about a 5% yearly increase until the summer of 2006, when things went "dead".

10.   Dec 2006, the first Mortgage Bankers begin to fail. "Say goodnight to housing and hello to foreclosures."

When you look at the combined history of what occurred to facilitate the Housing Boom, then it becomes readily evident that what the Fed and the government has done since has been a total failure.

Fed actions have not been about stimulating a recovery. It has been about keeping the banks afloat with QE, getting the toxic assets off the books of the banks and out of Investor hands.  Right now, 75% of all Private MBS have been retired or else foreclosed. What is left is probably mostly held by the Fed.

Much of the hot money used to provide investors the ability to buy foreclosures and at risk homes was a deliberate action to prop up values. The reason is that Negative Equity was a key determinate in foreclosures when it hit 120% LTV or greater. At 120%, stressed homeowners began to look at home ownership as a negative. Why be finally stressed if values would not recover for years? As the stresses mounted, a homeowner was more likely to default.

At 140%, default became much more likely for stressed homeowners. Additionally, 140 saw a new motivation for default to occur. Homeowners who could make the payments began to buy more desirable homes, paying less than what they owned on their "smaller" and "less desirable" home. After the purchase, they moved into the new home and let the old home go into default.

At 160%, wholesale strategic defaults occurred.

The Fed needed to prop up values, so they have lowered rates, engaged in QE and attempted many other things to prop up values by stimulating housing. It has not worked.

Now, the GSE's and FHA are going to 97% LTV and lowering credit requirements. They are also allowing  more down payment assistant programs. At 97% LTV, default rates are 15.96% from the 2002 to 2008 years. They know that defaults will increase, but at one banker told me, if 85% of the loans do not default, then they are ahead of the game. 15% is not a big deal if they have reserves for losses.  (BTW, 81% LTV is the "break even point" for foreclosures. Above 81% and lenders begin to lose money on foreclosure sales.

What happens when rates increase? Payments go up, so to offset the payments, home values will drop.  Oops, that means more Negative Equity which will lead to more defaults. Also, credit lines increase in payments, living expenses increase, and disposable income goes negative. More defaults follow.

Currently 4m loans are delinquent. 800k plus loans have been modified by HAMP and the payments are beginning to increase. (400k other HAMP have already re-defaulted.)  2.5m lines of credit are now "resetting" with higher payments. ARM loans will have payment increases again when interest rates increase. More delinquencies and foreclosures to follow.

How is the Fed going to counter this?

BTW, I am no longer involved with the people I had been working with to bring to market new Underwriting and Ability to Pay evaluations. What happened is that we were told by Mortgage Bankers and Banks that using my model, they would have to either decline loans, or else the sellers would have to accept less of a sales price to sell the home, or else the buyer would have to find cheaper homes to buy.  Additionally, they did not want to know the risk of default with borrowers because it increased their liability if borrowers defaulted under the new Dodd Frank.

The solution for my "partners" was to take the system and "hide" the risk. Risk evaluations would be done and the lender could turn them on or off as desired. However, our system would still record it.  At this point I left them. They are now marketing the system as they revised it, and apparently have a couple of trial clients.

What the idiots do not realize is that by hiding the risk and allowing it to be turned or off by the lender, for every loan that is funded and sold to the GSE's or FHA, or any other party, they and the lenders are now "engaging in a conspiracy to commit fraud". These fools never learn........

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PPulatie
Crafty_Dog
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« Reply #509 on: January 08, 2015, 06:05:53 PM »

Very interesting Pat.  Thank you.
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DougMacG
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« Reply #510 on: January 08, 2015, 07:23:24 PM »

Yes, great history and analysis!  What a meddled market!  The Fed is still propping things up with money and the government still has too many intervention programs.  As PP suggests, what happens to values when mortgage rates go up (and incomes are flat)?  It won't be pretty.  And the only reason rates aren't going up is because demand is so soft in the economy.  The policy makers have not allowed housing to correct (proven in pp's figures).  

The financial crisis is over, stop the emergency programs.  Cut back on these efforts to get people to buy a home without saving for the down payment.  3% down is not a commitment or security against value fluctuation.  Allow interest rates to right-size.  People need to save, not just borrow.  There is no balance to it.  Most of all, housing affordability is a function of income, not about houses.  We need to grow the economy and grow incomes if we want people to afford homes.
 
I agree with PP that they are "engaging in a conspiracy to commit fraud".  We still have too big to fail and live in a bailout world.  Values are still inflated. If knowing about risk causes them to lose out on a profit, then covering their eyes works just fine, from their point of view.  If they miscalculate, fail, and collapse, it won't be the first time.  It's not like they will lose their house.  They might not even lose their bonus. 
« Last Edit: January 08, 2015, 07:31:43 PM by DougMacG » Logged
Crafty_Dog
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« Reply #511 on: January 29, 2015, 08:14:51 PM »

Building Toward Another Mortgage Meltdown
In the name of ‘affordable’ loans, the White House is creating the conditions for a replay of the housing disaster
By Edward Pinto
WSJ

The Obama administration’s troubling flirtation with another mortgage meltdown took an unsettling turn on Tuesday with Federal Housing Finance Agency Director Mel Watt ’s testimony before the House Financial Services Committee.

Mr. Watt told the committee that, having received “feedback from stakeholders,” he expects to release by the end of March new guidance on the “guarantee fee” charged by Fannie Mae and Freddie Mac to cover the credit risk on loans the federal mortgage agencies guarantee.

Here we go again. In the Obama administration, new guidance on housing policy invariably means lowering standards to get mortgages into the hands of people who may not be able to afford them.

Earlier this month, President Obama announced that the Federal Housing Administration (FHA) will begin lowering annual mortgage-insurance premiums “to make mortgages more affordable and accessible.” While that sounds good in the abstract, the decision is a bad one with serious consequences for the housing market.

Government programs to make mortgages more widely available to low- and moderate-income families have consistently offered overleveraged, high-risk loans that set up too many homeowners to fail. In the long run-up to the 2008 financial crisis, for example, federal mortgage agencies and their regulators cajoled and wheedled private lenders to loosen credit standards. They have been doing so again. When the next housing crash arrives, private lenders will be blamed—and homeowners and taxpayers will once again pay dearly.

Lowering annual mortgage-insurance premiums is part of a new affordable-lending effort by the Obama administration. More specifically, it is the latest salvo in a price war between two government mortgage giants to meet government mandates.

Fannie Mae fired the first shot in December when it relaunched the 30-year, 97% loan-to-value, or LTV, mortgage (a type of loan that was suspended in 2013). Fannie revived these 3% down-payment mortgages at the behest of its federal regulator, the Federal Housing Finance Agency (FHFA)—which has run Fannie Mae and Freddie Mac since 2008, when both government-sponsored enterprises (GSEs) went belly up and were put into conservatorship. The FHA’s mortgage-premium price rollback was a counteroffensive.

Déjà vu: Fannie launched its first price war against the FHA in 1994 by introducing the 30-year, 3% down-payment mortgage. It did so at the behest of its then-regulator, the Department of Housing and Urban Development. This and other actions led HUD in 2004 to credit Fannie Mae’s “substantial part in the ‘revolution’ ” in “affordable lending” to “historically underserved households.”

Fannie’s goal in 1994 and today is to take market share from the FHA, the main competitor for loans it and Freddie Mac need to meet mandates set by Congress since 1992 to increase loans to low- and moderate-income homeowners. The weapons in this war are familiar—lower pricing and progressively looser credit as competing federal agencies fight over existing high-risk lending and seek to expand such lending.

Mortgage price wars between government agencies are particularly dangerous, since access to low-cost capital and minimal capital requirements gives them the ability to continue for many years—all at great risk to the taxpayers. Government agencies also charge low-risk consumers more than necessary to cover the risk of default, using the overage to lower fees on loans to high-risk consumers.

Starting in 2009 the FHFA released annual studies documenting the widespread nature of these cross-subsidies. The reports showed that low down payment, 30-year loans to individuals with low FICO scores were consistently subsidized by less-risky loans.

Unfortunately, special interests such as the National Association of Realtors—always eager to sell more houses and reap the commissions—and the left-leaning Urban Institute were cheerleaders for loose credit. In 1997, for example, HUD commissioned the Urban Institute to study Fannie and Freddie’s single-family underwriting standards. The Urban Institute’s 1999 report found that “the GSEs’ guidelines, designed to identify creditworthy applicants, are more likely to disqualify borrowers with low incomes, limited wealth, and poor credit histories; applicants with these characteristics are disproportionately minorities.” By 2000 Fannie and Freddie did away with down payments and raised debt-to-income ratios. HUD encouraged them to more aggressively enter the subprime market, and the GSEs decided to re-enter the “liar loan” (low doc or no doc) market, partly in a desire to meet higher HUD low- and moderate-income lending mandates.

On Jan. 6, the Urban Institute announced in a blog post: “FHA: Time to stop overcharging today’s borrowers for yesterday’s mistakes.” The institute endorsed an immediate cut of 0.40% in mortgage-insurance premiums charged by the FHA. But once the agency cuts premiums, Fannie and Freddie will inevitably reduce the guarantee fees charged to cover the credit risk on the loans they guarantee.

Now the other shoe appears poised to drop, given Mr. Watt’s promise on Tuesday to issue new guidance on guarantee fees.

This is happening despite Congress’s 2011 mandate that Fannie’s regulator adjust the prices of mortgages and guarantee fees to make sure they reflect the actual risk of loss—that is, to eliminate dangerous and distortive pricing by the two GSEs. Ed DeMarco, acting director of the FHFA since March 2009, worked hard to do so but left office in January 2014. Mr. Watt, his successor, suspended Mr. DeMarc o’s efforts to comply with Congress’s mandate. Now that Fannie will once again offer heavily subsidized 3%-down mortgages, massive new cross-subsidies will return, and the congressional mandate will be ignored.

The law stipulates that the FHA maintain a loss-absorbing capital buffer equal to 2% of the value of its outstanding mortgages. The agency obtains this capital from profits earned on mortgages and future premiums. It hasn’t met its capital obligation since 2009 and will not reach compliance until the fall of 2016, according to the FHA’s latest actuarial report. But if the economy runs into another rough patch, this projection will go out the window.

Congress should put an end to this price war before it does real damage to the economy. It should terminate the ill-conceived GSE affordable-housing mandates and impose strong capital standards on the FHA that can’t be ignored as they have been for five years and counting.

Mr. Pinto, former chief credit officer of Fannie Mae, is co-director and chief risk officer of the International Center on Housing Risk at the American Enterprise Institute.
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ppulatie
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« Reply #512 on: January 30, 2015, 02:48:42 PM »

Ed Pinto is a sharp guy. He nails it with this article.  For a timeline of events with the GSEs leading to their fall, check out the following link to a pdf.

http://www.aei.org/wp-content/uploads/2013/08/-pinto-bailout-america-timeline-government-mortgage-complex_1305029805.pdf

Pinto also does a Monthly National Mortgage Risk Index where he evaluates the Risk of loans defaulting. The methodology was similar to what I have developed in Phase 1 of my work, using FICO, LTV and DTI to determine default but he used 180 days late as the default measure. Using these measures, he finds that default risk for GSE 2014 originations is at 11%, and for FHA, about 23%.

http://www.housingrisk.org/wp-content/uploads/2015/01/Housing-Risk-NMRI-methodology-1-8-15.pdf  (This is the pdf link to describe how he does it.

This is the link to the current report. http://www.housingrisk.org/wp-content/uploads/2015/01/01.26.15-NMRI-data-download.xlsx

I do have problems with his methodology.

1. He uses 180 day delinquency for his measure, a Basel 3 designation. I would use 90 days. The reason is that 90 days is the standard for a loan being considered and in default. Once a loan goes 90 days late, the cure rate without any type of modification is less than 5%. So, using 180 days results in rates that are much less severe than 90 days, and in my opinion, are misleading.

2.  He used DTI for the income portion of the risk measurement. I used it initially and found problems with DTI when I started to consider actual cash flow and ability to pay/residual income measures.

What happens with DTI is that borrowers who have larger loan amounts have a greater residual income that lessens default risk. For example, a $400k loan, 43% DTI,  would feature a guy with much greater income and ultimately larger residual income after all debt service and living expenses, than those who have a 43% DTI on a loan amount of $200k or less. In fact, the guy who has the $200k loan amount or less, dependent upon family size, could have a negative residual income. And if your are talking about a family of 4, with 43% DTI and a loan amount of $150k or less, negative cash flow becomes an almost certainty.

The problem for Pinto calculating Residual Income is that the  available data did not have the data needed, so assumptions on income, debt and living expenses had to be calculated. I did so, and then ran the statistical analysis and found that the use of Residual Income for default was much more effective as a default indicator than using DTI.
Of course as I mentioned previously, lenders would have to deny loans using my methodology, so they did not want it.

The great part is that the new QM loans have ability to pay determination requirements. They can use either DTI or ability to pay, and will jump on using DTI so they do not have to deny doing loans and earning that profit. Meanwhile, I sit waiting for the defaults to mount, especially with FHA. Then I hit them hard.


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ppulatie
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« Reply #513 on: January 30, 2015, 04:09:56 PM »

Make that 5 - 6% defaults on the GSE loans based upon 180 day defaults.

BTW, the reason that Basel went 180 days is that when a loan defaults, the lender has to carry greater amounts of regulatory capital and loan loss reserves. So using 180 instead of 90, the lender reduces reserves on these type loans by about 50%.
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DougMacG
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« Reply #514 on: February 19, 2015, 12:10:08 PM »

There's a standard and widely shared explanation of what caused the bubble. The villains were greed, dishonesty and (at times) criminality, the story goes. Wall Street, through a maze of mortgage brokers and securitizations, channeled too much money into home buying and building. Credit standards fell. Loan applications often overstated incomes or lacked proper documentation of creditworthiness (so-called no-doc loans).

The poor were the main victims of this campaign. Scholars who studied the geography of mortgage lending found loans skewed toward low-income neighborhoods. Subprime borrowers were plied with too much debt. All this fattened the revenue of Wall Street firms or Fannie Mae and Freddie Mac, the government-sponsored housing finance enterprises. When home prices reached unsustainable levels, the bubble did what bubbles do. It burst.

Now comes a study that rejects or qualifies much of this received wisdom. Conducted by economists Manuel Adelino of Duke University, Antoinette Schoar of the Massachusetts Institute of Technology and Felipe Severino of Dartmouth College, the study — recently published by the National Bureau of Economic Research — reached three central conclusions.

First, mortgage lending wasn't aimed mainly at the poor. Earlier research studied lending by Zip codes and found sharp growth in poorer neighborhoods. Borrowers were assumed to reflect the average characteristics of residents in these neighborhoods. But the new study examined the actual borrowers and found this wasn't true. They were much richer than average residents. In 2002, home buyers in these poor neighborhoods had average incomes of $63,000, double the neighborhoods' average of $31,000.

Second, borrowers were not saddled with progressively larger mortgage debt burdens. One way of measuring this is the debt-to-income ratio: Someone with a $100,000 mortgage and $50,000 of income has a debt-to-income ratio of 2. In 2002, the mortgage-debt-to-income ratio of the poorest borrowers was 2; in 2006, it was still 2. Ratios for wealthier borrowers also remained stable during the housing boom. The essence of the boom was not that typical debt burdens shot through the roof; it was that more and more people were borrowing.

Third, the bulk of mortgage lending and losses — measured by dollar volume — occurred among middle-class and high-income borrowers. In 2006, the wealthiest 40 percent of borrowers represented 55 percent of new loans and nearly 60 percent of delinquencies (defined as payments at least 90 days overdue) in the next three years.

If these findings hold up to scrutiny by other scholars, they alter our picture of the housing bubble. Specifically, they question the notion that the main engine of the bubble was the abusive peddling of mortgages to the uninformed poor. In 2006, the poorest 30 percent of borrowers accounted for only 17 percent of new mortgage debt. This seems too small to explain the financial crisis that actually happened.

It is not that shoddy, misleading and fraudulent merchandising didn't occur. It did. But it wasn't confined to the poor and was caused, at least in part, by a larger delusion that was the bubble's root source.

During the housing boom, there was a widespread belief that home prices could go in only one direction: up. If this were so, the risks of borrowing and lending against housing were negligible. Home buyers could enjoy spacious new digs as their wealth grew. Lenders were protected. The collateral would always be worth more tomorrow than today. Borrowers who couldn't make their payments could refinance on better terms or sell.

This mind-set fanned the demand for ever bigger homes, creating a permissive mortgage market that — for some — crossed the line into unethical or illegal behavior. Countless mistakes followed. One example: The Washington Post recently reported that, in the early 2000s, many middle-class black families took out huge mortgages, sometimes of $1 million, to buy homes now worth much less. These are upper-middle-class households, not the poor.

It's tempting to blame misfortune on someone else's greed or dishonesty. If Wall Street's bad behavior was the only problem, the cure would be stricter regulatory policing that would catch dangerous characters and practices before they do too much damage. This seems to be the view of the public and many "experts."

But the matter is harder if the deeper cause was bubble psychology. It arose from years of economic expansion, beginning in the 1980s, that lulled people into faith in a placid future. They imagined what they wanted: perpetual prosperity. After the brutal Great Recession, this won't soon repeat itself. But are we forever insulated from bubble psychology? Doubtful.

http://www.jewishworldreview.com/0215/samuelson020215.php3#ijGVxZpIZFR66jOi.99
http://www.nber.org/papers/w18868 (?)
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ppulatie
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« Reply #515 on: February 20, 2015, 09:36:51 PM »

DougMacG,

I have problems with this analysis.  Here is why:

1. The authors cite Debt to Income being a 2 and use the formula of Gross Debt to Gross Income. This alone shows that they know not what they speak. Debt to Income is Monthly Debt Payments to Monthly Gross Income. This is the standard calculation for mortgages. Under traditional guidelines DTI would be no more than 28%  for housing and for total 36%. During the Housing Boom, it became 45% and then up to 55% or more.

2. There was another method that was always considered optimal and was similar to what the authors said, and that was a 3.5 ratio, Price to Income. Using that formula, everyone under bought in their scenario.

3. They write that "First, mortgage lending wasn't aimed mainly at the poor". True, but it was aimed at non qualified borrowers after 2003. By late 03, qualified borrowers no longer existed that loans could be sold to. So lenders dropped standards, issued state income loans, and if you had a detectable breath in the last 24 hours, you were qualified.

4. Borrowers were assumed to reflect the average characteristics of residents in these neighborhoods. But the new study examined the actual borrowers and found this wasn't true. Comparing borrowers to residents.....did they account for the fact that in poorer neighborhoods investors were heavily buying?

5. Third, the bulk of mortgage lending and losses — measured by dollar volume — occurred among middle-class and high-income borrowers. True, but they are looking at people buying much more expensive homes. The reality is that homes in the Midwest, South and most areas were far less expensive than in the Sand States. So this would distort things measurably.

6. Specifically, they question the notion that the main engine of the bubble was the abusive peddling of mortgages to the uninformed poor. In 2006, the poorest 30 percent of borrowers accounted for only 17 percent of new mortgage debt.  At this point, I get totally pissed off. The reason is that the homes they bought were far less expensive than in Ca and elsewhere.

I have reviewed over 5000 defaulted mortgages in depth. I have also done statistical analysis on over 10 million GSE loans. I can tell you that lower middle and lower income people bore the brunt of the damage (think $50k or less). They were targeted with products that they did not understand, and could not afford.

As I learned in the past two years with people I was working with, statistical analysis is only as good as the assumptions you make. And when you go into a project with preconceived ideas, the work you do will have a bias towards the conclusions that you are trying to determine.

Damned academics should go back to their ivory towers and hide. They should not be seen or heard.




 
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PPulatie
ppulatie
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« Reply #516 on: February 20, 2015, 09:51:36 PM »

I am now heavily involved in a False Claims FHA action regarding  HAMP modification issues. We are looking for people who have:

1. Been in active modification processing or an actual modification or trial modification and who were foreclosed upon.

2. People who have been in active modification efforts for over 2 years and keep getting denied.

3. People who were given Trial Modifications and after making the payments, were denied for modification.

4. People who were given modifications, but began missing payments shortly after because the terms were so bad.

All applicable cases will go to the Department of Justice to be used as evidence of wrongdoing. The DOJ is targeting the largest servicers, including Nationstar, Ocwen,  B of A,  Chase, Wells, IndyMac, SPS, SLS, HMSI. I will be personally reviewing the facts and documents of each case to determine whether it meets the parameters of what we are looking for.

There is no guarantee that it will benefit the specific homeowner. However, each case sent to DOJ by me will show evidence of wrongdoing. Worst case, a homeowner could use the DOJ having the case to influence the servicer to consider modifying the loan.

This evaluation is of no cost to the homeowner. If you know of anyone that could be applicable, they can email me at patrick@lfianalytics.com for more details.
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DougMacG
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« Reply #517 on: February 21, 2015, 10:26:49 PM »

Regarding the academic authors and analysis, Pat, I agree with you on all those points. 

In addition to all of the policy blunders, fraud, deception, and monetary flooding, etc. I would agree with Samuelson that there was a bubble mentality at work.  People were buying, selling, lending, borrowing and appraising things for more than they were worth. 

I was buying in Mpls after the crash for 15 cents on the dollar of what they sold for in the peak years.  The previous sales weren't homeowner or investors.  They were what we used to call pigeons.  People just doing transactions, borrowing up to false value (criminally IMO) with no intent of ever living there or holding the property.
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ppulatie
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« Reply #518 on: February 23, 2015, 08:45:31 PM »

Absolutely Bubble Mentality at work.

BTW, see the Housing Starts for Jan and also the Existing Home Sales.  Certainly there is no Housing Recovery ongoing, contrary to what people think.  Looks like a downward trend from Jun on. And looks like levels are equal to 1999 activity.  (Don't forget, these are seasonally adjusted.)






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ppulatie
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« Reply #519 on: February 25, 2015, 09:58:42 AM »

Wow.........I am impressed with the New Home Sales Recovery



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Crafty_Dog
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« Reply #520 on: April 22, 2015, 02:02:35 PM »

Existing Home Sales Increased 6.1% in March To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/22/2015

Existing home sales increased 6.1% in March to a 5.19 million annual rate, coming in above the consensus expected 5.03 million annual rate. Sales are up 10.4% versus a year ago.
Sales rose in all major regions of the country. The increase in sales was due to gains in both single-family homes as well as sales of condos/coops.
The median price of an existing home rose to $212,100 in March (not seasonally adjusted) and is up 7.8% versus a year ago. Average prices are up 5.1% versus last year.
The months’ supply of existing homes (how long it would take to sell the entire inventory at the current sales rate) declined to 4.6 months in March from 4.7 months in February. The faster selling pace more than offset an increase in inventories.

Implications: Sales of existing homes rebounded nicely in March, coming in at a 5.19 million annual rate, the best level since September 2013. Sales are up 10.4% from a year ago, and the underlying trend suggests more solid gains in the year ahead. Sales of distressed homes (foreclosures and short sales) now account for only 10% of total sales, down from 14% a year ago. All-cash buyers are down to 24% of sales from 33% a year ago. As a result, even though total sales are up 10.4% from a year ago, non-cash sales (where the buyer uses a mortgage loan) are up 25.3%. What this means is that when distressed and all-cash sales eventually bottom out, total sales will start rising at a more rapid pace. So even though credit (but, not liquidity) remains relatively tight, we see evidence of a thaw, which suggests overall sales will climb at a faster pace in the year ahead. What’s interesting is that the percentage of buyers using credit has increased as the Fed tapered and then ended QE. Those predicting a housing crash without more QE were completely wrong. Another good sign is that the inventory of existing homes increased 100,000 in March, the largest for any March since 2006. More supply should help sales growth in the months ahead. The median sales price of an existing home rose to $212,100 in March, up 7.8% from a year ago. In other housing news this morning, the FHFA price index, which measures homes financed with conforming mortgages, increased 0.7% in February and is up 5.4% from a year ago. That’s a mild deceleration from the 7.1% price gain in the year ended in February 2014. Expect more of the same in the year ahead, with price gains continuing at a slower pace as more home building increases supply.
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Crafty_Dog
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« Reply #521 on: May 21, 2015, 01:03:58 PM »

Data Watch
________________________________________
Existing Home Sales Declined 3.3% in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/21/2015

Existing home sales declined 3.3% in April to a 5.04 million annual rate, coming in below the consensus expected 5.22 million annual rate. Sales are up 6.1% versus a year ago.

Sales declined in all major regions of the country except the Midwest. The decrease in sales was due a drop in single-family homes while sales of condos/coops remained unchanged in April.

The median price of an existing home rose to $219,400 in April (not seasonally adjusted) and is up 8.9% versus a year ago. Average prices are up 5.5% versus last year.
The months’ supply of existing homes (how long it would take to sell the entire inventory at the current sales rate) increased to 5.3 months in April from 4.6 months in March. This was due to an increase in inventories as well as a decline in the pace of sales.

Implications: Lets hold off on housing for a moment. The most exciting news today was that initial claims for unemployment insurance came in at 274,000, bringing the four-week moving average to 266,000, the lowest level since April 2000. This, paired with a decline in continuing claims to the lowest level since November 2000, signals greater strength in the labor market and further supports the Fed raising rates sooner rather than later. Sales of existing homes took a breather in April; however this marks the second consecutive month of sales above an annual rate of 5 million units. Sales have now increased year over year for seven months, showing that demand continues to grow. Sales are up 6.1% from a year ago, and the underlying trend suggests more solid gains in the year ahead. Sales of distressed homes (foreclosures and short sales) now account for only 10% of total sales, down from 15% a year ago. All-cash buyers are down to 24% of sales from 32% a year ago. As a result, while total sales are up a moderate 6.1% from a year ago, non-cash sales (where the buyer uses a mortgage loan) are up a more robust 18.6%. What this means is that when distressed and all-cash sales eventually bottom out, total sales will start rising at a more rapid pace. So even though credit (but, not liquidity) remains relatively tight, we see evidence of a thaw, which suggests overall sales will climb at a faster pace in the year ahead. What’s interesting is that the percentage of buyers using credit has increased as the Fed tapered and then ended QE. Those predicting a housing crash without more QE were completely wrong. The inventory of existing homes increased 10% in April, however it remains 0.9% lower than a year ago. Lack of supply is one of the main drivers behind continuing price increases and houses on the market selling faster in April (39 days) than at any time since July 2013 (32 days). The median sales price of an existing home rose to $219,400 in April, up 8.9% from a year ago. In other news this morning, the Philadelphia Fed index, a measure of strength in East Coast manufacturing, declined to 6.7 in May versus 7.5 in April, signaling continued Plow Horse growth in that sector.
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G M
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« Reply #522 on: May 22, 2015, 06:07:39 AM »

Listen to Wesbury, the economy is back! Yes!
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