How to Stop the Drop in Home Values?

[mookiemookie]

Originally Posted by Osmium Steele

You are on the right track, just keep digging. It does not begin, nor end, with Wall Street. The private securitizers were a symptom, not a cause.

Of course they were a cause. A huge one. Lack of oversight from regulators like the SEC and the Fed enabled garbage like Alt-A's, Low doc/no doc/NINJA loans to be made without any repercussions on the lender making the loan. The "lend to securitize" business model was how they operated - they made the high commission subprime loans and flipped them to the Street to be packaged up and stamped with a AAA credit rating from the ratings agencies. Why would the lender care if the loan paid or didn't? It was off their books.

Combined with completely asleep at the wheel regulators, the lend to securitize model is one of the largest cause of the financial crisis.

[Osmium Steele]

Everything you stated is accurate. What you left out was the securities were created in response to lenders accumulating the bad paper, not before. They were structured to get the loans off the books and help the lenders remain profitable. Thus, they were a symptom.

Now, why would lenders knowingly make increasingly large numbers of subprime loans, killing profitability, prior to having a way to unload them? Fannie and Freddie largely stopped taking sub-prime loans around this time.

Keep digging.

[AVGWarhawk]

Originally Posted by Armistead

Didn't we already try this by giving Banks large bailouts so they could rework loans, even though most did nothing but invest it as they pleased since there were no regulations or guidelines to how they used the money.

Banks are sitting on trillions in unused homes, if Chase bank alone flooded the markets with all the foreclosed homes they have at once it would drive prices down even more. The banks don't really care, the taxpayer already paid the cost of the home for them, it's just a double dip when they can sell them.

The banks are not lending unless your credit is stellar. And, yes, home values have dropped due to foreclosed homes going dirt cheap. Currently, my family would like a larger home. Normal stepping stones of home purchase for most is start small and go larger over time via selling the current home at a profit/down payment for the next. Currently, we are on the threshold of breaking even or at a small loss if we sold our home. This means we would have to save up with a down payment for our next home just as if we were starting all over again.

[AVGWarhawk]

Originally Posted by magicstix

You can't stop the drop in home values. They're dropping because they were overvalued in the first place...

Good point and I agree. Then again, a item is only worth what someone is willing to pay.

[AVGWarhawk]

Originally Posted by August

Besides I seem to recall a lot of complaining just a few years ago about the lack of affordable housing. Surely this drop in house values will do a lot to address this...

The affordable housing issue was addressed by Fannie Mae and Freddie Mac at behest of the government. We see where that got us. They made it affordable on paper. Reality was something much different.

[mookiemookie]

Originally Posted by Osmium Steele

Everything you stated is accurate. What you left out was the securities were created in response to lenders accumulating the bad paper, not before. They were structured to get the loans off the books and help the lenders remain profitable. Thus, they were a symptom.

Now, why would lenders knowingly make increasingly large numbers of subprime loans, killing profitability, prior to having a way to unload them? Fannie and Freddie largely stopped taking sub-prime loans around this time.

Keep digging.

If you're trying to get at the "blame CRA" argument, know that it's been absolutely obliterated.

And the data doesn't bear out your assertion:

Origination rates didn't increase exponentially until after 2001:



However securitization rates remained fairly stable prior to that in the early years of the runup (97-03) except for the dip after LTCM and the Asian crisis.




If what you said was true, you would have seen high origination rates pre-2003, and then increasing securitization rates. That's just not the case.

You have to ask yourself what happened in 2001 to cause the acceleration in issuance? The Fed lowered rates to 1% and kept them there - money was dirt cheap and that fueled speculation. Asset managers scrambled for yield anywhere they could get it (look at the yields on emerging market debt from 2000 through about 2008 for another asset class that saw a pop due to this), and the demand for AAA rated subprime ABS with huge spreads was just what the doctor ordered.

[mookiemookie]

Originally Posted by AVGWarhawk

The affordable housing issue was addressed by Fannie Mae and Freddie Mac at behest of the government. We see where that got us. They made it affordable on paper. Reality was something much different.

FNMA seemed to work just fine for 70 years before the crisis.

[AVGWarhawk]

Originally Posted by mookiemookie

FNMA seemed to work just fine for 70 years before the crisis.

Yes, until a demanded to make affordable housing available to everyone. Reduce down payment. Create interest only loans. Sub-prime. Before all of this down payments were a substantial amount. Upwards of 11% or higher. So, a 200k home you would require $22,000 down at 11%. Fair chunk of change to save. For most unobtainable. So again, drop down payment. Be extremely creative with loans. Toss in the new found credit card extravaganza as a result of getting home loan credit...bingo...in the money pit. Foreclosure, housing crisis.

It is evident the creative loan making, reducing requirements for a substantial loan and some folks just not reading what they were signing made the bubble bust.

[mookiemookie]

Originally Posted by AVGWarhawk

Toss in the new found credit card extravaganza as a result of getting home loan credit...bingo...in the money pit.

Oh, no no, we sold the home equity line of credit as a smarter alternative to a credit card. My favorite line to use was "why pay 15-20% on a credit card, when you could open a home equity line of credit and pay 5%?" It worked well.

But to use the Nuremburg defense, I was young and stupid then and only doing what they told us to do. Now I'm no longer as young, but still stupid.

[AVGWarhawk]

Originally Posted by mookiemookie

Oh, no no, we sold the home equity line of credit as a smarter alternative to a credit card. My favorite line to use was "why pay 15-20% on a credit card, when you could open a home equity line of credit and pay 5%?" It worked well.

But to use the Nuremburg defense, I was young and stupid then and only doing what they told us to do. Now I'm no longer as young, but still stupid.

Truth be told Mookie, in 1989 I got a home loan on my first home. I had to fork over $13,000. I was provided a loan that was called ARM. A stupid adjustable rate loan. As you said, Nuremburg, young and dumb. I signed not really fully understanding the loan terms. Within 12 months the loan "adjusted" to a higher interest rate and mortgage went up a additional $175.00/month. I learned quickly/the hardway and refinanced to a conventional loan even quicker. For me, I was in a position to do that. For the others, not so much and the bubble bursts. As far as home equity, God love my mother, she always said you cannot live off your home equity. Do not refinance repeatedly looking to pay off bills. People did just that, refinanced several times. Or, some got second mortgages!

[mookiemookie]

Originally Posted by AVGWarhawk

Truth be told Mookie, in 1989 I got a home loan on my first home. I had to fork over $13,000. I was provided a loan that was called ARM. A stupid adjustable rate loan. As you said, Nuremburg, young and dumb. I signed not really fully understanding the loan terms. Within 12 months the loan "adjusted" to a higher interest rate and mortgage went up a additional $175.00/month. I learned quickly/the hardway and refinanced to a conventional loan even quicker. For me, I was in a position to do that. For the others, not so much and the bubble bursts. As far as home equity, God love my mother, she always said you cannot live off your home equity. Do not refinance repeatedly looking to pay off bills. People did just that, refinanced several times. Or, some got second mortgages!

Yup. They put a lot of pressure on us to offer every single person who came across our desk a loan of some sort. Refi this, refi that. I feel like in some small way I contributed to the whole crisis.

In most places, you'd get paid more for selling an ARM. That's probably why your loan officer got you to do that. The old "screw your customer" routine.

[AVGWarhawk]

Originally Posted by mookiemookie

Yup. They put a lot of pressure on us to offer every single person who came across our desk a loan of some sort. Refi this, refi that. I feel like in some small way I contributed to the whole crisis.

In most places, you'd get paid more for selling an ARM. That's probably why your loan officer got you to do that. The old "screw your customer" routine.

The ARM loan was offered for the reduced monthly payment that would conveniently work with my GROSS income. Never mind actual take home pay, expenses like eating not taken into consideration. As far as the pressure, it was to keep the numbers up and providing affordable housing for all no matter what it took or how you manipulated the numbers. Loan created and sold off 2 weeks later. Sweet deal for the banks I say. Until the floor came out underneath them.

So, you were an integral part of the collapse and degradation of society as we know it?

[mookiemookie]

Originally Posted by AVGWarhawk

So, you were an integral part of the collapse and degradation of society as we know it?

Shocking that I'd have a hand in screwing something up bigtime, isn't it?

[AVGWarhawk]

Originally Posted by mookiemookie

Shocking that I'd have a hand in screwing something up bigtime, isn't it?

Distressing.