"Buy now, foreclose later"

[Nords]

Bill Fleckenstein says it's over. You have to wade through a bunch of "I told you so" and "Alan Greenspan is evil personified" crap but his perception of overextended homeowners mortgage payers seems right on.

Here's an especially interesting factoid: "Homebuilders across the country, including Dominion Homes, have found a way around a Federal law barring sellers from giving money directly to buyers for a down payment. They route the money through charities such as the Nehemiah Corp. of America, a faith-based group in California. Nehemiah provides down payments for both existing and new homes, and its relationship with Dominion is the largest of its kind in central Ohio between a builder and charity.
"Nehemiah uses a loophole in federal regulations that allows charities to provide the 3% down payment required to qualify for Federal Housing Administration mortgages. An uncounted number of copycats have followed, leading to an explosion of 'zero-down' loans. Federal authorities do not regulate or track such organizations."

If it's over in Columbus, OH, it'll be over everywhere in the next year. But it looks like you can get a really cheap home there!

 

[JPatrick]

Yup looks like it may be over in Columbus, and while you are shopping  in Ohio you might check out Toledo for a bargain in some areas also.

This bit from the article-----------------------
Meanwhile, the Alonsos were given a low estimate for property taxes, and when they got their first payment notice, the tax increase really stung: "'I about croaked,' said Mrs. Alonso." Of course, increasing property taxes hurt their neighbors, too. As of a month ago, 10% of the houses in the Galloway Ridge development, were either in foreclosure or had gone through foreclosure.
--------------------------------------------------------------------------------------
Low balling the taxes is a common practice in areas where property taxes are sky high (like Taxes, I mean Texas).  While there is no excuse for doing it, there is no excuse for buyers to get stung by it.  You can look that stuff up, but it is easy to overlook given  the excitement of the moment. 

 

[wabmester]

I love Fleck, but his track record is that he is right, but waay early. Like 4 years early.

HUD has changed their foreclosure guidelines, so you're likely to see many fewer government agency foreclosures. And most lenders sell their loans and they get bundled into CMOs, so why would they care about defaults? People who buy CMOs will be left holding the bag.

 

[wabmester]

Hmm, nobody wants to argue with me? OK, I'll argue with myself.

But wab, most of those CMO's are government-backed.

You're right, so that means the tax payer will be left holding the bag. Who in the goverment is responsible for seeing that the risks of capitalism are not shunted to the tax payers? That's what I want to know.

 

[rmark]

No money down adjustable rate mortgages both allow marginal buyers to purchase plus run up the price of the home, since most people buy as much house as their payments allow. Rising rates will push some into foreclosure.

 

[brewer12345]

Hmm, nobody wants to argue with me?   OK, I'll argue with myself. 

But wab, most of those CMO's are government-backed.

You're right, so that means the tax payer will be left holding the bag.    Who in the goverment is responsible for seeing that the risks of capitalism are not shunted to the tax payers?  That's what I want to know.

I think the real question is where the downside risk rests. Undoubtedly, an awful lot of it rests with Fannie, Freddie and Ginnie. However, there is a lot of "private label" MBS out there, and a lot of banks, etc. hold whole loans (i.e. not sold and securitized). So who really owns the risk (besides the taxpayer)? My guess:

- Many of the banks, especially mortgage banks and some of the dumber portfolio lenders
- Mortgage insurers, since they are generally in the first loss position
- Whoever holds HELOCs (banks and MBS investors, mostly)
- Hedge funds who own equity and junior tranches of private label MBS
- Probably some mutual funds and pension funds


More to the point, if the housing sector gets whacked, it wil have nasty effects on sonsumer spending as a whole. After all , what an awful lot of this debt has been spent on is consumer crap.

 

[Mr._johngalt]

After all , what an awful lot of this debt has been spent on is consumer crap.

A lot of that "crap" you speak of is the "mother's milk" of the US economy.

JG

 

[brewer12345]

A lot of that "crap" you speak of is the "mother's milk" of the US economy.

JG

Exactly my point. If the flow of funds from increasing mortgage debt dries up, so will a fair amount of the "mother's milk".

 

[tryan]

Of the 1/2 dozen properties I've sold in the last 5 years I can remember 1 buyer putting 3% down to close the deal. Granted it was borrowed from a relative ... but it was still cash. All the rest were 0% down or worst (cash back).

Haven't heard of the charity thing until this article. Most were 80 / 20 loans with the same lender.

We live in interesting times!

 

[Andre1969]

I'm wondering if I'm starting to see signs of the real estate bubble bursting, or at least leveling off, in my area? My next-door neighbor had been trying to sell her house now for over a year, on and off again, but at the end of August decided to take it off the market and just stay put. Up the street there's a house for sale. Hasn't been on the market for long, but the price has steadily dropped, from $350K to $345K to $340K. It's nothing fancy, just a small 3 br/2ba cape cod on 1/2 acre with a 1 car garage. Kinda old too, built in 1942. I've also seen a few other houses that seem like they've been on the market for a relatively long time.

Every once in awhile, I'll check the real estate listings for my old neighborhood where I sold my condo. I got $185K for mine, last Novermber. Earlier in the year I saw similar units on the market for $245-$250K and was thinking that people have lost their minds! Now a couple similar units are listed for around $235-239K, so they've eased back a bit.

 

[SteveR]

Things here in Happy Valley are still on the way up. There is a huge building boom in residential housing and the prices in these areas go up 5% ever few weeks. Demand is still very high. In my area the averge selling prices keep going up and up and houses seem to sell within a month or less. We want to downsize from our McMansion in a couple of years but can't do it now for many reasons. I am willing to bet when I do it will be in the middle of a downturn.

Even the area my cabin is in has gone up 30% in the past couple of years. The RE agents are crying for stuff to sell. We are not selling since this is our "vacation" home and we will be spending a lot of time there after RE. But, it is tempting.

 

[Brat]

My brother and son both sold their homes in the last 6 weeks in the same neighborhood (not CA).  One was on the market for 6 weeks, the other 7.  Each were originally listed at pie-in-the-sky, and then backed off a bit about 3 weeks later.  The pull back generated more interest and offers were received within 2 weeks.  

I think folks in the market nailed down their mortgage rate and are under pressure to execute.  Once those lock downs expire I think buyers will take their time and home prices will stagnate for a while.

Upward pressure on home prices will be driven in part by the difference between the # of buyers and sellers, and the ability of buyers to pay the mortgage/taxes.  I am seeing homes in what were regarded as less desirable neighborhoods turning over and updated.