Comments on: Malkin-Channeling Mortgage Market Musings http://www.bizzyblog.com/2007/12/12/couldnt-help-but-notice-121207-mortgage-market-musings/ The Business End of the Blogosphere Sun, 23 Nov 2008 11:45:09 +0000 http://wordpress.org/?v=2.5 By: TBlumer http://www.bizzyblog.com/2007/12/12/couldnt-help-but-notice-121207-mortgage-market-musings/#comment-118902 TBlumer Wed, 12 Dec 2007 17:00:35 +0000 http://www.bizzyblog.com/2007/12/12/couldnt-help-but-notice-121207-mortgage-market-musings/#comment-118902 dscott -- - Unfortunately, ARMs were used to "qualify" people for loans they couldn't qualify for using a fixed-rate payment, not as a 3-5 year money saving tactic. BOTH parties (lender and borrower) should have known that; the claims of current ignorance by borrowers ring very hollow. Your point about illegals is unfortunately valid (it was definitely true in SW Ohio). In terms of external/govt. causes, the two "corporations" that are really companies with an implicit government fallback -- Fannie Mae and Freddie Mac -- lowered the credit-score approval thresholds for conventional and subprimes in 2004/2005 to the point where you could get a conventional if you should have been a subprime, and you could get a subprime if you had a pulse. I don't know why they did this, but given their sacred cow status in congress and the background of many in their management, I have my suspicions. I think there's a place for spec building, but it requires a prudent lending market and intelligent borrowers and lenders. dscott —
- Unfortunately, ARMs were used to “qualify” people for loans they couldn’t qualify for using a fixed-rate payment, not as a 3-5 year money saving tactic. BOTH parties (lender and borrower) should have known that; the claims of current ignorance by borrowers ring very hollow.

Your point about illegals is unfortunately valid (it was definitely true in SW Ohio).

In terms of external/govt. causes, the two “corporations” that are really companies with an implicit government fallback — Fannie Mae and Freddie Mac — lowered the credit-score approval thresholds for conventional and subprimes in 2004/2005 to the point where you could get a conventional if you should have been a subprime, and you could get a subprime if you had a pulse. I don’t know why they did this, but given their sacred cow status in congress and the background of many in their management, I have my suspicions.

I think there’s a place for spec building, but it requires a prudent lending market and intelligent borrowers and lenders.

]]> By: dscott http://www.bizzyblog.com/2007/12/12/couldnt-help-but-notice-121207-mortgage-market-musings/#comment-118900 dscott Wed, 12 Dec 2007 16:07:33 +0000 http://www.bizzyblog.com/2007/12/12/couldnt-help-but-notice-121207-mortgage-market-musings/#comment-118900 Ordinarily, I would say exactly the same thing on an individual basis, "suck it up", however, there are mitigating factors that could make the situation really bad for all of us. When someone takes the ARM route for a mortgage, what they are really saying is "I'm not going to live in this house for more than 3 to 5 years", the average American household is very transitory. The problem here is liquidity in the housing market, on top of all of these people who were given loans on questionable income to debt ratios. That means ordinarily a foreclosure would not be necessary, they would put the house up for sale and within 2 to 3 months the financial problem is resolved because the house is sold before problems with the loan ensues. Because it now takes way too long to sell a house, those people can't get out in time and thus end in foreclosure. Why can't they sell their homes? Because builders put up too many houses on speculation and they were given free reign to do so by the banks. In addition, builders did not have any secondary restraint on labor because of the failure of government to secure the borders. The home construction industry was filled with illegal labor thus allowing builders to build way more houses than they ordinarily could thus ratcheting up unsold housing inventories. Bottom line is you can't have both speculative building and easy credit at the same time otherwise you get a glut, it's one or the other, not both. I have been trying to sell a condo for two years with no success. Had the banks and builders shown restraint in the first place, we wouldn't be in this situation. IMO, no builder should be given a loan to build any house without first having a buyer signing on the dotted line. The speculative building of houses at this point has come to an end due to the banks finally substancially pulling out of the mortgage business. The problem now is, the excess inventory has got to be sold off, and banks are now being too tight in making new loans which means buyers and sellers are hindered in making transactions, so in the meantime the rest of us are screwed. My point is government caused the problem in the first place by it's failures (lending & illegals) and thus government is responsible to fix the problem they caused. If we let the market sort it out at this point, all the rest of us (who were living within our means) will get burned in the process, you do remember the S&L debacle with all that commercial property dumped on the market at once? Ordinarily, I would say exactly the same thing on an individual basis, “suck it up”, however, there are mitigating factors that could make the situation really bad for all of us. When someone takes the ARM route for a mortgage, what they are really saying is “I’m not going to live in this house for more than 3 to 5 years”, the average American household is very transitory. The problem here is liquidity in the housing market, on top of all of these people who were given loans on questionable income to debt ratios. That means ordinarily a foreclosure would not be necessary, they would put the house up for sale and within 2 to 3 months the financial problem is resolved because the house is sold before problems with the loan ensues. Because it now takes way too long to sell a house, those people can’t get out in time and thus end in foreclosure.

Why can’t they sell their homes? Because builders put up too many houses on speculation and they were given free reign to do so by the banks. In addition, builders did not have any secondary restraint on labor because of the failure of government to secure the borders. The home construction industry was filled with illegal labor thus allowing builders to build way more houses than they ordinarily could thus ratcheting up unsold housing inventories. Bottom line is you can’t have both speculative building and easy credit at the same time otherwise you get a glut, it’s one or the other, not both.

I have been trying to sell a condo for two years with no success. Had the banks and builders shown restraint in the first place, we wouldn’t be in this situation. IMO, no builder should be given a loan to build any house without first having a buyer signing on the dotted line. The speculative building of houses at this point has come to an end due to the banks finally substancially pulling out of the mortgage business. The problem now is, the excess inventory has got to be sold off, and banks are now being too tight in making new loans which means buyers and sellers are hindered in making transactions, so in the meantime the rest of us are screwed.

My point is government caused the problem in the first place by it’s failures (lending & illegals) and thus government is responsible to fix the problem they caused. If we let the market sort it out at this point, all the rest of us (who were living within our means) will get burned in the process, you do remember the S&L debacle with all that commercial property dumped on the market at once?

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