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Fairfax Underground
Welcome to Fairfax Underground, a project site designed to improve communication among residents of Fairfax County, VA. Feel free to post anything Northern Virginia residents would find interesting.
Welcome to Fairfax Underground, a project site designed to improve communication among residents of Fairfax County, VA. Feel free to post anything Northern Virginia residents would find interesting.
The Future of Housing Finance (More of the Past)
Posted by:
mcsmack
()
Date: August 17, 2010 10:03AM
This so called Housing Finance Summit is a scam. The Obama administration knows where it's going with this and already has its plan drawn up and ready for battle.
Frankly I'm tired of all these so called summits held only because they know 1/2 the American people will think they are actually brainstorming for the best solutions on any given issue. The same thing happened with health care.
This is a locked article on WJS so I pasted it instead of linking here. But one excerpt illustrates what should have been a "learning moment", using some of O's vernacular.
"In 1991, the Senate Committee on Banking, Housing, and Urban Affairs was advised by community groups such as Acorn that "Lenders will respond to the most conservative standards unless [Fannie Mae and Freddie Mac] are aggressive and convincing in their efforts to expand historically narrow underwriting."
Congress made this advice the law of the land when it passed the inaptly named Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (GSE Act of 1992). This law imposed affordable housing mandates on Fannie Mae and Freddie Mac."
Did you catch that? "The Federal Housing Enterprises Financial Safety and Soundness Act"of 1992.
Safe and Sound?...........Fuck Me!
For those who want to read more here is the locked article and imbed video from todays WSJ
By EDWARD PINTO
Today the Obama administration will begin a discussion on how to overhaul our nationalized housing finance system. Moderated by Treasury Secretary Timothy Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), the "Conference on the Future of Housing Finance" seeks answers to what went wrong in the U.S. housing market. This promises to be the next big domestic policy debate—one that could mold housing finance for a generation or more. But the early signs of where policy makers might be headed are not promising.
A consensus is building around a three-part grand bargain:
• An explicit federal guarantee of a large portion of the mortgage-backed securities created to finance American's home mortgages;
• A tax on these securities to fund low-income housing initiatives; and
• A requirement that issuers of securities meet affordable housing mandates.
This is a dead end for two reasons. First, while supporters of an explicit federal guarantee tell us it will never be called upon, Americans have read this book before and know how it ends.
Former Chief Credit Officer Edward Pinto explains how it all went wrong.
The second is much less well known but equally deadly: the central role in the recent real estate collapse that was played by the federal affordable housing policy created by Congress and implemented since the 1990s by HUD and banking regulators.
In 1991, the Senate Committee on Banking, Housing, and Urban Affairs was advised by community groups such as Acorn that "Lenders will respond to the most conservative standards unless [Fannie Mae and Freddie Mac] are aggressive and convincing in their efforts to expand historically narrow underwriting."
Congress made this advice the law of the land when it passed the inaptly named Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (GSE Act of 1992). This law imposed affordable housing mandates on Fannie Mae and Freddie Mac.
Thus, beginning in 1993, regulators started to abandon the common sense underwriting principles of adequate down payments, good credit, and an ability to handle the mortgage debt. Substituted were liberalized lending standards that led to an unprecedented number of no down payment, minimal down payment and other weak loans, and a housing finance system ill-prepared to absorb the shock of declining prices.
In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that "Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership [including Countrywide] should work collaboratively to reduce homebuyer downpayment requirements."
The upshot? In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.
"[T]he financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices," Sheila Bair, chair of the Federal Deposit Insurance Corporation, noted this June. One needs to look no further than HUD's affordable housing policies for the source of this "reckless departure." If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred.
Compounding HUD's forced abandonment of underwriting standards was a not-unrelated move to increased leverage by financial institutions and securities issuers. They were endeavoring to compete with Fannie and Freddie's minimal capital requirements. The GSEs only needed $900 in capital behind a $200,000 mortgage—many of which had no borrower down payment. Lack of skin in the game promoted systemic risk on both Main Street and Wall Street.
How should we go about repairing this dysfunctional housing finance system?
The goals should be larger down payments, stricter underwriting standards, reliance on the private sector and private capital, and the removal of affordable housing mandates. If there is to be an affordable housing policy, it should not be implemented by hidden subsidies and loose lending standards, but instead made transparent and funded on budget by the government.
Getting there will take time—probably a 15-year rebuild that fosters an orderly phase-out of government guarantees and a transition to a deleveraged, market-based system. This will require both long- and short-term policies.
Long-term we should consider ideas such as: the proposal by Columbia University's Charles Calomiris to increase minimum down payments by 1% per year over 15 years, bringing them back to 20%, where they had been for decades. Peter Wallison of the American Enterprise Institute has suggested that the private sector be encouraged to grow by reducing the GSEs' maximum mortgage amount by a percentage every year until it matches the Federal Housing Administration's (FHA) reduced limit, at which point the GSEs disappear. I have suggested that the FHA be returned to its former role of serving the low-income market over a five-year period, but with a higher minimum down payment so borrowers have more skin in the game.
Finally, the property appraisal process should be re-engineered along the lines suggested by the Collateral Risk Network, an organization representing the nation's leading appraisal experts. The boom was promoted by appraisal practices that relied on one input—the latest prices that were the result of an overheated market. A return to traditional appraisal theory based on price trends, replacement cost and value as a rental is necessary.
To get the housing finance system out of intensive care, short-term policies need to be implemented that promote deleveraging. Perhaps some of the excess supply of foreclosed properties should be sold to buyers who agree to put 40% down and use the properties as rentals. Josh Rosner, managing director of the research firm Graham Fisher, has suggested that homeowners who voluntarily pay down a portion of the principal on their underwater mortgage receive a tax credit also applied to their mortgage principal. In return, they would forgo future tax deductions of their mortgage interest payments.
While the road to housing hell may have been paved by the government, the road back will be built by the private sector.
Mr. Pinto, a consultant to the mortgage finance industry, was executive vice president and chief credit officer at Fannie Mae in the late 1980s.
Frankly I'm tired of all these so called summits held only because they know 1/2 the American people will think they are actually brainstorming for the best solutions on any given issue. The same thing happened with health care.
This is a locked article on WJS so I pasted it instead of linking here. But one excerpt illustrates what should have been a "learning moment", using some of O's vernacular.
"In 1991, the Senate Committee on Banking, Housing, and Urban Affairs was advised by community groups such as Acorn that "Lenders will respond to the most conservative standards unless [Fannie Mae and Freddie Mac] are aggressive and convincing in their efforts to expand historically narrow underwriting."
Congress made this advice the law of the land when it passed the inaptly named Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (GSE Act of 1992). This law imposed affordable housing mandates on Fannie Mae and Freddie Mac."
Did you catch that? "The Federal Housing Enterprises Financial Safety and Soundness Act"of 1992.
Safe and Sound?...........Fuck Me!
For those who want to read more here is the locked article and imbed video from todays WSJ
By EDWARD PINTO
Today the Obama administration will begin a discussion on how to overhaul our nationalized housing finance system. Moderated by Treasury Secretary Timothy Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), the "Conference on the Future of Housing Finance" seeks answers to what went wrong in the U.S. housing market. This promises to be the next big domestic policy debate—one that could mold housing finance for a generation or more. But the early signs of where policy makers might be headed are not promising.
A consensus is building around a three-part grand bargain:
• An explicit federal guarantee of a large portion of the mortgage-backed securities created to finance American's home mortgages;
• A tax on these securities to fund low-income housing initiatives; and
• A requirement that issuers of securities meet affordable housing mandates.
This is a dead end for two reasons. First, while supporters of an explicit federal guarantee tell us it will never be called upon, Americans have read this book before and know how it ends.
Former Chief Credit Officer Edward Pinto explains how it all went wrong.
The second is much less well known but equally deadly: the central role in the recent real estate collapse that was played by the federal affordable housing policy created by Congress and implemented since the 1990s by HUD and banking regulators.
In 1991, the Senate Committee on Banking, Housing, and Urban Affairs was advised by community groups such as Acorn that "Lenders will respond to the most conservative standards unless [Fannie Mae and Freddie Mac] are aggressive and convincing in their efforts to expand historically narrow underwriting."
Congress made this advice the law of the land when it passed the inaptly named Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (GSE Act of 1992). This law imposed affordable housing mandates on Fannie Mae and Freddie Mac.
Thus, beginning in 1993, regulators started to abandon the common sense underwriting principles of adequate down payments, good credit, and an ability to handle the mortgage debt. Substituted were liberalized lending standards that led to an unprecedented number of no down payment, minimal down payment and other weak loans, and a housing finance system ill-prepared to absorb the shock of declining prices.
In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that "Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership [including Countrywide] should work collaboratively to reduce homebuyer downpayment requirements."
The upshot? In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.
"[T]he financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices," Sheila Bair, chair of the Federal Deposit Insurance Corporation, noted this June. One needs to look no further than HUD's affordable housing policies for the source of this "reckless departure." If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred.
Compounding HUD's forced abandonment of underwriting standards was a not-unrelated move to increased leverage by financial institutions and securities issuers. They were endeavoring to compete with Fannie and Freddie's minimal capital requirements. The GSEs only needed $900 in capital behind a $200,000 mortgage—many of which had no borrower down payment. Lack of skin in the game promoted systemic risk on both Main Street and Wall Street.
How should we go about repairing this dysfunctional housing finance system?
The goals should be larger down payments, stricter underwriting standards, reliance on the private sector and private capital, and the removal of affordable housing mandates. If there is to be an affordable housing policy, it should not be implemented by hidden subsidies and loose lending standards, but instead made transparent and funded on budget by the government.
Getting there will take time—probably a 15-year rebuild that fosters an orderly phase-out of government guarantees and a transition to a deleveraged, market-based system. This will require both long- and short-term policies.
Long-term we should consider ideas such as: the proposal by Columbia University's Charles Calomiris to increase minimum down payments by 1% per year over 15 years, bringing them back to 20%, where they had been for decades. Peter Wallison of the American Enterprise Institute has suggested that the private sector be encouraged to grow by reducing the GSEs' maximum mortgage amount by a percentage every year until it matches the Federal Housing Administration's (FHA) reduced limit, at which point the GSEs disappear. I have suggested that the FHA be returned to its former role of serving the low-income market over a five-year period, but with a higher minimum down payment so borrowers have more skin in the game.
Finally, the property appraisal process should be re-engineered along the lines suggested by the Collateral Risk Network, an organization representing the nation's leading appraisal experts. The boom was promoted by appraisal practices that relied on one input—the latest prices that were the result of an overheated market. A return to traditional appraisal theory based on price trends, replacement cost and value as a rental is necessary.
To get the housing finance system out of intensive care, short-term policies need to be implemented that promote deleveraging. Perhaps some of the excess supply of foreclosed properties should be sold to buyers who agree to put 40% down and use the properties as rentals. Josh Rosner, managing director of the research firm Graham Fisher, has suggested that homeowners who voluntarily pay down a portion of the principal on their underwater mortgage receive a tax credit also applied to their mortgage principal. In return, they would forgo future tax deductions of their mortgage interest payments.
While the road to housing hell may have been paved by the government, the road back will be built by the private sector.
Mr. Pinto, a consultant to the mortgage finance industry, was executive vice president and chief credit officer at Fannie Mae in the late 1980s.
Re: The Future of Housing Finance (More of the Past)
Posted by:
Wahhh
()
Date: August 17, 2010 10:20AM
It is plain and simple - one shouldn't be allowed to buy a house if one cannot afford it. This idea that everyone is entitled to their own piece of real estate is absurd - it is excessive and, obviously, devastating to the long term health of the economy. I have heard stories about people putting down payments for houses on credit cards because they had no cash in hand to bring to the table. WTF? That is a huge red flag - even a complete idiot can predict with certainty how such a scenario is going to end.
I say limit access to the housing market. If you want to buy, you should have good credit, a down payment in hand at closing, a set amount in your savings account, be gainfully employed, and can demonstrate that you can consistently pay your bills. Oh wait, this is they way it used to be...nevermind - WE ARE FUCKED!
I say limit access to the housing market. If you want to buy, you should have good credit, a down payment in hand at closing, a set amount in your savings account, be gainfully employed, and can demonstrate that you can consistently pay your bills. Oh wait, this is they way it used to be...nevermind - WE ARE FUCKED!
Re: The Future of Housing Finance (More of the Past)
Posted by:
WashingTone-Locian
()
Date: August 17, 2010 10:29AM
The problem we had with the housing bubble was that unscrupulous mortgage brokers were ginning up the numbers for unqualified applicants and working with unscrupulous appraisers to jack up the value of properties to pump up their commissions. I have heard virtually nothing about these assholes going to jail or any laws being passed to stop this kind of shit from happening again.
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http://bible.cc/1_corinthians/13-11.htm
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http://bible.cc/1_corinthians/13-11.htm
Re: The Future of Housing Finance (More of the Past)
Posted by:
mcsmack
()
Date: August 17, 2010 10:31AM
Wahhh Wrote:
-------------------------------------------------------
> It is plain and simple - one shouldn't be allowed
> to buy a house if one cannot afford it.
I put off my first home purchase in 1982 just so I could pay 20% down instead of the required 10% to avoid Mortgage insurance premiums (MIP) which added around $65.00 monthly to my payment. I like the idea of having "skin" in the game. With an interests rate of 10.5 percent it was brutal but there was no way I was going to lose my original investment. I believe unemployment was around 10 percent at the time also so I damn sure showed up to work every day. Insecurity can be a prime motivator.
Edited 1 time(s). Last edit at 08/17/2010 10:32AM by mcsmack.
-------------------------------------------------------
> It is plain and simple - one shouldn't be allowed
> to buy a house if one cannot afford it.
I put off my first home purchase in 1982 just so I could pay 20% down instead of the required 10% to avoid Mortgage insurance premiums (MIP) which added around $65.00 monthly to my payment. I like the idea of having "skin" in the game. With an interests rate of 10.5 percent it was brutal but there was no way I was going to lose my original investment. I believe unemployment was around 10 percent at the time also so I damn sure showed up to work every day. Insecurity can be a prime motivator.
Edited 1 time(s). Last edit at 08/17/2010 10:32AM by mcsmack.
Re: The Future of Housing Finance (More of the Past)
Posted by:
Bill
()
Date: August 17, 2010 10:37AM
You neglect to mention a bigger piece of the puzzle, namely the reduction of lenders who were making portfolio loans. In the years leading up to the loan collapse most of the loans being made were being made by insitutions that had no intention of keeping the loans in their own portfolios.
Rather than making their money off the interest that borrowers were paying each month these lenders were making their money off the up front fees that they were getting for making the loan and from the money they were making by packaging and selling those loans on the securities market. Under this model the companies making loans didn't have an incentive to make good loans, only an incentive to make as many loans as possible. If the loan went bad the company that made it didn't really care. After all they had already made their money.
In fact there was an incentive to make marginal loans under this system. If a lender loaned money to a more marginal borrower the lender could charge a higher interest rate for the loan, plus more up front fees. The lender got to keep the up front fees, and when the lender then sold the loan, it could package those questionable loans with better quality loans and then sell the package for a higher amount (meaning more profit to the lender) because the package had a higher rate of return than a comparable package of all good borrowers. Naturally this was not advertized to the people that were buying those loan securities as investments. They were simply being told that rather than getting 4% on another package you could get 4.5% on this one.
Rather than making their money off the interest that borrowers were paying each month these lenders were making their money off the up front fees that they were getting for making the loan and from the money they were making by packaging and selling those loans on the securities market. Under this model the companies making loans didn't have an incentive to make good loans, only an incentive to make as many loans as possible. If the loan went bad the company that made it didn't really care. After all they had already made their money.
In fact there was an incentive to make marginal loans under this system. If a lender loaned money to a more marginal borrower the lender could charge a higher interest rate for the loan, plus more up front fees. The lender got to keep the up front fees, and when the lender then sold the loan, it could package those questionable loans with better quality loans and then sell the package for a higher amount (meaning more profit to the lender) because the package had a higher rate of return than a comparable package of all good borrowers. Naturally this was not advertized to the people that were buying those loan securities as investments. They were simply being told that rather than getting 4% on another package you could get 4.5% on this one.
Re: The Future of Housing Finance (More of the Past)
Posted by:
Wahhh
()
Date: August 17, 2010 10:39AM
Yep, you are exactly right. I worked and saved for over a decade post college before I bought my first home, and spent almost a year talking with different lenders to find the best deal. What amazed me is how much some of the loan people did not know, or how often they would give inaccurate information. Same experience when buying a car earlier this year - the people at the dealerships did not know dick about their own programs and incentives. The Chevrolet dealer in Manassas was the worst - the schmuck that met me on the lot for a test drive knew nothing about the Malibu. I ended up telling him more about the features on the car - it was pathetic. I bought a new Accord instead btw.
mcsmack Wrote:
-------------------------------------------------------
> Wahhh Wrote:
> --------------------------------------------------
> -----
> > It is plain and simple - one shouldn't be
> allowed
> > to buy a house if one cannot afford it.
>
> I put off my first home purchase in 1982 just so
> I could pay 20% down instead of the required 10%
> to avoid Mortgage insurance premiums (MIP) which
> added around $65.00 monthly to my payment. I like
> the idea of having "skin" in the game. With an
> interests rate of 10.5 percent it was brutal but
> there was no way I was going to lose my original
> investment. I believe unemployment was around 10
> percent at the time also so I damn sure showed up
> to work every day. Insecurity can be a prime
> motivator.
mcsmack Wrote:
-------------------------------------------------------
> Wahhh Wrote:
> --------------------------------------------------
> -----
> > It is plain and simple - one shouldn't be
> allowed
> > to buy a house if one cannot afford it.
>
> I put off my first home purchase in 1982 just so
> I could pay 20% down instead of the required 10%
> to avoid Mortgage insurance premiums (MIP) which
> added around $65.00 monthly to my payment. I like
> the idea of having "skin" in the game. With an
> interests rate of 10.5 percent it was brutal but
> there was no way I was going to lose my original
> investment. I believe unemployment was around 10
> percent at the time also so I damn sure showed up
> to work every day. Insecurity can be a prime
> motivator.
Re: The Future of Housing Finance (More of the Past)
Posted by:
Yep
()
Date: August 17, 2010 04:50PM
Bill Wrote:
-------------------------------------------------------
> You neglect to mention a bigger piece of the
> puzzle, namely the reduction of lenders who were
> making portfolio loans. In the years leading up
> to the loan collapse most of the loans being made
> were being made by insitutions that had no
> intention of keeping the loans in their own
> portfolios.
>
> Rather than making their money off the interest
> that borrowers were paying each month these
> lenders were making their money off the up front
> fees that they were getting for making the loan
> and from the money they were making by packaging
> and selling those loans on the securities market.
> Under this model the companies making loans didn't
> have an incentive to make good loans, only an
> incentive to make as many loans as possible. If
> the loan went bad the company that made it didn't
> really care. After all they had already made
> their money.
>
Exactly!!! and who was mandated to buy a majority of those risky loans...Fannie and Freddie making them the scapegoat in this housing debacle
-------------------------------------------------------
> You neglect to mention a bigger piece of the
> puzzle, namely the reduction of lenders who were
> making portfolio loans. In the years leading up
> to the loan collapse most of the loans being made
> were being made by insitutions that had no
> intention of keeping the loans in their own
> portfolios.
>
> Rather than making their money off the interest
> that borrowers were paying each month these
> lenders were making their money off the up front
> fees that they were getting for making the loan
> and from the money they were making by packaging
> and selling those loans on the securities market.
> Under this model the companies making loans didn't
> have an incentive to make good loans, only an
> incentive to make as many loans as possible. If
> the loan went bad the company that made it didn't
> really care. After all they had already made
> their money.
>
Exactly!!! and who was mandated to buy a majority of those risky loans...Fannie and Freddie making them the scapegoat in this housing debacle
Re: The Future of Housing Finance (More of the Past)
Posted by:
mcsmack
()
Date: August 18, 2010 09:29AM
Yep Wrote:
-------------------------------------------------------
> Bill Wrote:
> --------------------------------------------------
> -----
> > You neglect to mention a bigger piece of the
> > puzzle, namely the reduction of lenders who
> Exactly!!! and who was mandated to buy a majority
> of those risky loans...Fannie and Freddie making
> them the scapegoat in this housing debacle
That is exactly why these GSE's should go. Phase them out or what ever just get the fuck rid of them. They were a 100% funded tax payer scam before and just because they have been totally taken over buy the gov. doesn't reduce the risk to the housing market or the tax payer.
-------------------------------------------------------
> Bill Wrote:
> --------------------------------------------------
> -----
> > You neglect to mention a bigger piece of the
> > puzzle, namely the reduction of lenders who
> Exactly!!! and who was mandated to buy a majority
> of those risky loans...Fannie and Freddie making
> them the scapegoat in this housing debacle
That is exactly why these GSE's should go. Phase them out or what ever just get the fuck rid of them. They were a 100% funded tax payer scam before and just because they have been totally taken over buy the gov. doesn't reduce the risk to the housing market or the tax payer.