The more things change, the more they stay the same- Alphonse Karr
I’ve been writing and/or speaking about the need for major mortgage reform and the industry’s pending demise for well over 3 years. There’s really little left for me to say or bitch about. Most of all that was wrong with the industry has been eradicated. Really? Really.
Jay Thompson wrote a post awhile back about some of President Elect Barack (Barry) Obama’s proposed policy changes for, about and around the real estate and mortgage industries. Apart from writing a resourceful article, Jay made the insightful statement:
There are some fundamental laws of economics that will lead to a correction of the mess we’re in.
I couldn’t agree more…Case in point.
Mortgage Industry (c)1998:
- FHA underwritten loans were the primary mortgage source for first time home buyers and borrowers who had less than perfect or limited credit.
- Fannie Mae and Freddie Mac maintained the bulk of the rest of the mortgage market.
- A borrower needed good credit and at least a 3%-5% down payment (or equity) to secure a mortgage. Better credit and/or more money down (or real equity) yielded better terms.
- Borrowers had to prove they had a job and income sufficient enough to ::wait for it:: MAKE THE PAYMENTS.
The overall industry was manageable enough in size to effectively counter against greed and other grievous practices.
(c)2000 – 2007
- Wall Street begins mass commoditization of Mortgage Backed Securities, literally creating a new market that overtakes Fannie, Freddie and FHA as the largest loan class sectors of the mortgage industry.
- No Income, No Asset, No Job mortgage programs…Free Money!…becomes the rage of the housing industry’s.
- There is next to NO regulation and a once stable industry is lit with the fire of open market volitility.
2008 going forward…see: Mortgage Industry (c)1998.
As I commented on Jay’s post:
The irony of it all is that the crap that’s hitting the fan right now (’toxic’ mortgage backed securities) is what kept the economy rolling a few years ago…we’re blessed and cursed with short term memories.
Many people danced with the devil and now he’s hung them out to dry…
I think President Elect Obama’s plans are admirable and should soften the blow for many homeowners but the market will eventually, innately shake itself out…100% NINJA loans and the lenders who provided the pitchforks that everyone stuck themselves with are already gone…now its time to clean up the mess from one epic party with one epic hangover.
For what it’s worth, I’m of the opinion that blame ought to be shared pretty evenly for the ‘mortgage mess’ between bank, broker and consumer.
Everyone from the top down was proliferating the ‘American Dream of Home Ownership’ and using your home like an ATM machine was almost as common as using an ATM machine. Most consumers simply wanted to know one thing…how much home they could afford or cash could they take out right there, right then…all other rhyme or reason be damned.
During the housing boom the rest of the economy was sucking sh*t through a straw much like it is today. Without Wall Street creating these now ‘toxic mortgage assets’ we were likely headed into a similar economic situation that we are faced with today.
If consumers didn’t have access to all the new debt (or wealth as it used to be referred to) that the housing boom provided, would we have already gone through what we’re facing today? Maybe things wouldn’t be this bad as the housing bubble *pop* has exacerbated the situation..? In any case, the mortgage industry moved back from ‘crazy’ to sensible.
As an aside, the recent ramblings regarding the Fed possibly buying down mortgage rates into the 4.5% range makes for nice press, yet the underwriting requirements to qualify for such rates and programs are such that a relatively small % of homeowners, prospective and/or existing, will actually qualify.
The 720 credit score, 80% LTV, full income documentable borrower isn’t the demographic in economic peril, on the verge of losing their home.
Give them cake, watch them eat, then vomit…
Many Americans are ‘anti-government’, we like to claim we’re a country of Capitalist’s preferring to keep Big Brother and his Socialist agendas separated from our daily lives as much as possible, until the sh*t hits the fan. Then, hypocritically enough, we blame our government for not protecting or helping us out enough.
Let me rhetorically ask: ‘What if ‘Government’ stepped into the middle of the housing boom and proposed to start regulating lending like they are now retroactively implementing? Its plausible to believe that this could have helped millions of homeowners avert the pains of foreclosure and resulting economic stress. However, the money consumers were borrowing and spending during the housing boom fueled our economy to historic highs. So let me fare to answer stated question: Effing Anarchy.
Can you imagine the Administration and the policy makers of that time standing up and telling Wall Street as well as the American public that they were going to implement new legislation that effectively didn’t allow many ‘qualified’ borrowers to qualify anymore? Heh.
Now that were in the midst of an economic ‘crisis’ and the welfare line is growing with entire industries changing their cries from ‘Stay out!’ to ‘Bailout!’.
The solution resides in letting our economic woes naturally diffuse toward equilibrium instead of throwing good money after bad and catalyzing a cataclysm. There is no quick and fast solution and knee jerk reactions end up kicking someone in the crotch. Let our collective minds work through problems instead of trying for the quick fix. There are no magic bullets. We’re transitioning from fast and loose to slower and tighter, from historic economic highs into a historic economic correction.
We need sound thoughtful guidance from progressive, ethical and transparent leaders from government, public and private sectors to steer us out of this current state of uber-volatility. 80% of the people in this country cannot handle marginal volatility much less the category 5 economic hurricane that’s come ashore.
Here’s hoping the government and private sectors don’t create more temporary paper-remedies that have had disastrous effects like the toxic MBS free money giveaway party of 2002-2007. Not capitulating to the bloated auto industry’s request for a hand-out without a thoughtful, practical plan in place…possibly even forcing them into a Chapter 11 reorganization…is a positive sign-IMO
These are going to be relatively painful times compared to recent history but we will pull through it. America remains the most innovative country in the world, second to no one, we can think and work our way through these challenging times…we just can’t continue to get high on our own ether or we will pass out.
Is the real estate industry endorsing Carson’s nomination to HUD?
(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?
NAR strongly backs Dr. Carson’s nomination
When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”
At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?
The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.
In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…
Job openings hit 14-year high, signaling economic improvement
The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.
Job openings hit a high point
To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.
The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.
Good news, bad news, depending on your profession
That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.
Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.
If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.
If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.
Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.
Gas prices are down, so are gas taxes about to go up?
Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.
Gas taxes and your bottom line
Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.
Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.
Supporters and opponents are polar opposites
Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.
Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.
While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.
The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.
Is a gas tax politically plausible?
Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”
Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”
Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.
Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.
“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”
Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.
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