Housing Bubble Bursting?

[Randolph Kinney]

S&P, Moody's sued for misrepresentation and failure to disclose

Rating agencies come under assault for losses

Ratings agencies Standard & Poor's and Moodys are among 49 companies which have become embroiled in legal action in the wake of the credit crisis.

Action has been taken against Robert Bahash, the executive vice president and chief financial officer of The McGraw-Hill Companies, which owns S&P, and Linda Huber, the chief financial officer of Moodys Corporation.

The cases are being brought by shareholders, including pension and annuity funds. They claim Mr Bahash and Ms Huber "misrepresented or failed to disclose" that their ratings agencies "assigned excessively high ratings to bonds backed by risky sub-prime mortgages - including bonds packaged as collateralised debt obligations (CDOs)".

 

[Austin]

Third, there needs to be a comprehensive approach taken to maintaining demand in the housing market to the maximum extent possible. The government operating through the Federal Housing Administration, through Fannie Mae and Freddie Mac, or through some kind of direct lending, needs to assure that there is a continuing flow of reasonably priced loans to credit worthy home purchasers. At the same time there need to be templates established for the restructuring of mortgages to homeowners who cannot afford their resets, so every case does not have to be managed individually.

That implies exactly what I have been saying for years: Loans with a loan to value ratios above 80% are not market transactions, they are a government subsidy program. What I see on the horizon is a separate market segment financed by direct government loans using tax payer money. The interesting thing is why would they need appraisers? The property is worth what they determine it is worth.
Back in the early 1970's the Farmers Home Administration had a housing program for the low incomers. They wanted me to do their appraisals. They basically told a house with 1,000 sq and no basement was worth $17,500. Add a carport at $1,500 and a basement at $4,000. They are the numbers I was to use. That is what they were financed at and that is their appraised value according to them. All building lots were worth $5,000. No matter where, what topography, just as long as it contained .2-acres. The price was $5,000 even when you could buy one $2,500 on the market.
Now we have come full circle. This is the way it will be in the future. So long form monkeys.

 

[Randolph Kinney]

Stand by for the government solution to the problem

Austin,

The real estate market is not functioning. Loans are not available or not reasonably priced to allow transactions to occur for available buyers. As a result, home values are falling and will continue to fall until financing is available.

You are right. There are essentially two real estate markets; 1) government direct subsidized 2) investor subsidized. The lending standards and limits are different.

I believe the recognition is becoming clear to some policy makers. If you allow the free market to set standards and limits, the unwinding of value (really prices) will take place quickly and it will not allow the politically correct to get out of the way. That loss will spread through the system so fast that even the government will be threaten.

What to do? The tools are well know; 1) monetary policy 2) fiscal policy. The last time the FED acted by lowering the funds rate down to 1% and the government cut taxes and increased spending along with a war. All that takes time to affect the system and players.

I suspect the government will have to have a special cabinet position called housing czar where HUD operates the buying and selling of homes with direct government loans or subsidies with out limits and standards that promote home ownership (zero down, nothing a month). :icon_mrgreen:

 

[Greg Bell]

Yikes...This guy is scaring me....Quick , get the beans and ammo..

November 26, 2007
FLASH: US banking system on verge of collapse: Senator Schumer calls for federal investigation of $51 billion in loans to Countrywide Toxic Mortgage
Folks, the United States banking system is about to collapse.

If you have money in US banks (especially Countrywide) beyond the FDIC limits, get it out tomorrow. Get it out fast. If you have money in money markets, which are NOT FDIC insured, get it out tomorrow. Get it out fast. If you still own bank and financial stocks, sell them tomorrow. Get out fast, while you still can.

The British government and Bank of England are in a whole heap of trouble for the reckless and stupid decision to bail out failed bank Northern Rock, and now they're coming to the realization they're not gonna get paid back.

But we all knew about the stupid actions in the UK. That's NOT the case in America today, where Countrywide Soon to Go Bankrupt Toxic Mortgage has secretly been fronted $51 BILLION by the FHLB member banks in order to keep them afloat, backed up by toxic loan paper that is becoming worthless real quick.

I can't believe this is happening. We (and our banks) are run by monkeys. And now even our friend Senator Schumer is freaking out, asking for a federal investigation today. When banker-owned Schumer is scared, you should be scared too.

U.S. Sen. Charles Schumer on Monday called for federal regulators to probe more than $50 billion in advances made by the Federal Home Loan Bank of Atlanta to troubled mortgage giant Countrywide Financial

In a letter dated Nov. 26 to Chairman Ronald Rosenfeld of the Federal Housing Finance Board, Schumer (D., New York) expressed "serious concern" that loans Countrywide Bank was pledging as collateral for those advances "may pose a risk to the safety and soundness of the FHLB system as a whole."

FHLB Atlanta has made $51.4 billion in advances to Countrywide Bank as of Sept. 30, Schumer wrote, citing the most recent Securities and Exchange Commission filings. The amount represents 37% of the bank's total outstanding advances and the $62.4 billion in loans Countrywide has put up as collateral represents 78% of its total mortgage holdings, Schumber said.

"I find these numbers alarming as reports continue to emerge about how Countrywide's reckless and predatory lending practices were a leading contributor to today's foreclosure crisis," Schumer wrote in calling for the probe.

 

[Cigar]

That implies exactly what I have been saying for years: Loans with a loan to value ratios above 80% are not market transactions, they are a government subsidy program.

Austin:

I agree, that then leads to the inescapable conclusion that an appraiser should look behind all transactions to see if they were over 80% LTV, and discard them as comparables if they were. The market using those loans is not a player in current market conditions, so what those players paid in the past isn't relevant to today's market.

 

[Riick]

Austin:

I agree, that then leads to the inescapable conclusion that an appraiser should look behind all transactions to see if they were over 80% LTV, and discard them as comparables if they were. The market using those loans is not a player in current market conditions, so what those players paid in the past isn't relevant to today's market.

In support --
City of Chester, PA. 8-10+ years ago, had two marketplaces for homes.
The investor/conventional market had one set of prices, which were much lower than the "retail" market
-which was financed almost entirely with FHA mortgages.

You could use the FHA financed homes as comps for an investor sale,
but your report wouldn't make sense
- Prices on a $/ft basis were perhaps 25% - 35% higher for FHA homes.

Gubbermint Subzidy.
.
.

 

[JSmith43]

Loans are not available or not reasonably priced to allow transactions to occur for available buyers.

That is a bit of an overstatement, unless your point is that owners whom are upside down can't find available loans to bail them out of a re-setting ARM.

Briefly, the investors fled non-conforming (jumbo loan) A paper, but, not to the extent they fled B/C. The spread between conforming and non-conforming has narrowed to roughly 1%. Two years ago it was roughly 1/8% spread, if memory serves me.

 

[moh malekpour]

That is a bit of an overstatement, unless your point is that owners whom are upside down can't find available loans to bail them out of a re-setting ARM.

Briefly, the investors fled non-conforming (jumbo loan) A paper, but, not to the extent they fled B/C. The spread between conforming and non-conforming has narrowed to roughly 1%. Two years ago it was roughly 1/8% spread, if memory serves me.

It should read that some buyers are not qualified for available loans regardless of the loan type: prime, jumbo or B/C. It means that about 25% of buyers who could get loans a year ago cannot get them today.

 

[Randolph Kinney]

That is a bit of an overstatement, unless your point is that owners whom are upside down can't find available loans to bail them out of a re-setting ARM.

Briefly, the investors fled non-conforming (jumbo loan) A paper, but, not to the extent they fled B/C. The spread between conforming and non-conforming has narrowed to roughly 1%. Two years ago it was roughly 1/8% spread, if memory serves me.

Mentor (Roger),

What has happened in the credit market was an adjustment across the board. Would be buyers that could qualify and purchase a home in the beginning of 2007 cannot today. A range of qualifications have been severely tighten and a number of loan products are no longer available at any condition, generally speaking. The net is the buyer pool has contracted along with the loan volume for purchases. The available homes on market have increased.

Of course, you can say we have a buyer of last resorts; foreclosure. :icon_mrgreen:

 

[JSmith43]

After a relatively short period of illiquidity, it became primarily a matter of investor pricing adjusting to the adjusted view of risk.

Sure, there are UW cutbacks, but not across the board. I objected to wording of the phrase I quoted. The necessary clarification that was forthcoming is exactly what I wanted to accomplish