Housing Bubble 2 courtesy of the Feds again

[Bolas 5]

http://finance.yahoo.com/real-estate/article/112677/new-homes-for-dollar-down-moneywatch?mod=realestate-buy

Developer Offers New Homes for $1 Down

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According to The Daily's report, the developer stands to lose nothing as they receive the full purchase price, regardless of the buyer's ability to continue making mortgage payments. This risk in this scenario is assumed by two government programs (in other words, you the taxpayer) that guarantee the loans for those who want a house but lack the cash for a standard down payment and closing costs.

Here's a crazy thought, get rid of or change the rules on these programs so they can't be exploited like this.

If a bank/investment bank was willing to provide the loans (and not just sell them to Fannie/Freddie) I'd have no issue.

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[DougH 270]

There shouldn't be fully financed real estate loans, especially for your primary dwelling. If you couldn't save the 20% it casts real doubt on your ability to handle any type of bump in the road without foreclosing.

"The restraining order says you're only allowed to touch me in freefall"
=P

[airdvr 200]

This has nothing to do with the financing. The developer is simply letting someone contract on the home for $1 down. The developer is probably facing some sort of hard timeline on these homes and has to do something. The financing end will still have to meet the down payment requirements.

Jeez...you guys must have skipped marketing.

Please don't dent the planet.

Destinations by Roxanne

[Belgian_Draft 0]

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There shouldn't be fully financed real estate loans, especially for your primary dwelling. If you couldn't save the 20% it casts real doubt on your ability to handle any type of bump in the road without foreclosing.

Imagine a young person who just left University with a large chunk of debt in student loans. Now add in a modest loan for a decent used car, living expenses, sending mom & pop a few bucks a month to help them out, etc. Now tack on a lease on an average apartment where they most likely live alone. Fo most people on an entry level college grad job there isn't much left over to save. It may take them 5-10 years to get rid of enough debt to start saving for your 20% down payment, then another 5-10 years to have the money saved up.
There is nothing wrong with a 0 down loan as long as the home is valued at the amount loaned, and the borrower is capable of making the payments. Where problems arise is when lenders start loaning out funds to people unable to repay or have a bad track record on repayment.
I personally know people who are giving up a lot to pay off their mortgage even though the home is no longer vlued anywhere near what they owe on it, and I know a couple cowards who are fully capable of making their payments but chose instead to walk away and allow the bank to foreclose just because they didn't want to continue paying on a devalued home.
20% down? Sure, in some cases. But 0% down can be perfectly acceptable in many cases as well.

HAMMER:
Originally employed as a weapon of war, the hammer nowadays is used as a
kind of divining rod to locate the most expensive parts adjacent the
object we are trying to hit.

[Bolas 5]

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This has nothing to do with the financing. The developer is simply letting someone contract on the home for $1 down. The developer is probably facing some sort of hard timeline on these homes and has to do something. The financing end will still have to meet the down payment requirements.

Jeez...you guys must have skipped marketing.

So the government is not backing these loans like the article stated? Do you have any proof of that?

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[Bolas 5]

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There shouldn't be fully financed real estate loans, especially for your primary dwelling. If you couldn't save the 20% it casts real doubt on your ability to handle any type of bump in the road without foreclosing.

Imagine a young person who just left University with a large chunk of debt in student loans. Now add in a modest loan for a decent used car, living expenses, sending mom & pop a few bucks a month to help them out, etc. Now tack on a lease on an average apartment where they most likely live alone. Fo most people on an entry level college grad job there isn't much left over to save. It may take them 5-10 years to get rid of enough debt to start saving for your 20% down payment, then another 5-10 years to have the money saved up.
There is nothing wrong with a 0 down loan as long as the home is valued at the amount loaned, and the borrower is capable of making the payments. Where problems arise is when lenders start loaning out funds to people unable to repay or have a bad track record on repayment.
I personally know people who are giving up a lot to pay off their mortgage even though the home is no longer vlued anywhere near what they owe on it, and I know a couple cowards who are fully capable of making their payments but chose instead to walk away and allow the bank to foreclose just because they didn't want to continue paying on a devalued home.

20% down? Sure, in some cases. But 0% down can be perfectly acceptable in many cases as well.

As stated above, I'd be fine with it if a bank was holding the loans or selling them to another bank. Sluffing off potentially bad loans on the government is where I draw the line.

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[airdvr 200]

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Jeez...you guys must have skipped marketing.

So the government is not backing these loans like the article stated? Do you have any proof of that?

FHA loans are government backed. They require a minimum 3.5% down payment. Nothing's changed. No one will ever buy a house with $1 down.

We require a $500 deposit to build someone a new home. This builder is simply waiving the required deposit amount to contract to purchase the home. The builder is not financing the home.

Please don't dent the planet.

Destinations by Roxanne

[Bolas 5]

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Jeez...you guys must have skipped marketing.

So the government is not backing these loans like the article stated? Do you have any proof of that?

FHA loans are government backed. They require a minimum 3.5% down payment. Nothing's changed. No one will ever buy a house with $1 down.

We require a $500 deposit to build someone a new home. This builder is simply waiving the required deposit amount to contract to purchase the home. The builder is not financing the home.

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The deal provides for two different mortgages. The first comes courtesy of the Federal Housing Authority, which services a mortgage for 96.5 percent of the purchase price. The second involves a smaller federally insured loan covering some or all of the down payment and closing costs.

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[airdvr 200]

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Jeez...you guys must have skipped marketing.

So the government is not backing these loans like the article stated? Do you have any proof of that?

FHA loans are government backed. They require a minimum 3.5% down payment. Nothing's changed. No one will ever buy a house with $1 down.

We require a $500 deposit to build someone a new home. This builder is simply waiving the required deposit amount to contract to purchase the home. The builder is not financing the home.

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The deal provides for two different mortgages. The first comes courtesy of the Federal Housing Authority, which services a mortgage for 96.5 percent of the purchase price. The second involves a smaller federally insured loan covering some or all of the down payment and closing costs.

I stand corrected. This is a very, very rare type of loan. This is not the same thing as what happened in 2005. To qualify for this extremely rare type of setup you have to be solid-gold creditworthy. It's still just a case of marketing trying to get people off the fence. 99% won't qualify but hey, you got them in your office considering the possibilities.

On a side note: do you guys feel the same about $0 down VA loans?

Please don't dent the planet.

Destinations by Roxanne

[DrewEckhardt 0]

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Imagine a young person who just left University with a large chunk of debt in student loans.

Before the government involved itself in maximizing banking and education industry profits via a credit supply increase with loans, loan guarantees, and legislation providing special treatment of student loans in bankruptcy the money available for higher education limited prices to what kids could pay with a part time job or their parents could support with a blue collar salary.

It took government help to jack the price of education up at 4X the rate of inflation.

A similar credit supply increase was responsible for inflation adjusted housing prices doubling their long term trend.

[QUOTE]
There is nothing wrong with a 0 down loan as long as the home is valued at the amount loaned, and the borrower is capable of making the payments.
[/QUOTE]

With zero down mortgages are 3X more likely to default (http://www.thetruthaboutmortgage.com/zero-down-mortgages-three-times-more-likely-to-default-than-those-with-10-percent-down/) than with 10% and prices still having 20-30% to drop nationally (http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/) to reach the expected trend line (obviously there are some places which are much more inflated and others which are under-valued by historical standards) those mortgages carry a higher risk and than more conventional loans.

I don't mind having those increased risks (borne by increased interest rates) around as long as governments, government sponsored enterprises, and therefore the tax payers aren't on the hook when the loans go belly up.

With the GSEs owning or guaranteeing nearly 75% of conventional mortgages and banks owning more deemed "too big to fail" that seems unlikely.

[airdvr 200]

http://www.imdb.com/title/tt1645089/

Bet you would enjoy this picture...

Please don't dent the planet.

Destinations by Roxanne

[Bolas 5]

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This is not the same thing as what happened in 2005. To qualify for this extremely rare type of setup you have to be solid-gold creditworthy.

If it's so low risk why aren't banks offering it? Seems it would be a great source of new clients.

So currently they have to be solid gold creditworthy, What to say the standards aren't going to be forged or change to include more?

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On a side note: do you guys feel the same about $0 down VA loans?

Completely different as those are/were gov't employees.

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[kallend 1,793]

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This is not the same thing as what happened in 2005. To qualify for this extremely rare type of setup you have to be solid-gold creditworthy.

If it's so low risk why aren't banks offering it? Seems it would be a great source of new clients.

So currently they have to be solid gold creditworthy, What to say the standards aren't going to be forged or change to include more?

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On a side note: do you guys feel the same about $0 down VA loans?

Completely different as those are/were gov't employees.

So being a former govt. employee makes you more credit worthy? Can you explain?

...

The only sure way to survive a canopy collision is not to have one.

[Bolas 5]

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This is not the same thing as what happened in 2005. To qualify for this extremely rare type of setup you have to be solid-gold creditworthy.

If it's so low risk why aren't banks offering it? Seems it would be a great source of new clients.

So currently they have to be solid gold creditworthy, What to say the standards aren't going to be forged or change to include more?

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On a side note: do you guys feel the same about $0 down VA loans?

Completely different as those are/were gov't employees.

So being a former govt. employee makes you more credit worthy? Can you explain?

It's not a matter of credit worthiness, more of it being a controlled scope.
* It's much more limited.
* Also know at least one piece of their work history wasn't forged.
* While it's a loan, it's an employee/former employee benefit much like many companies offer.

Should a large number of forclosures occur, because of this, I'd still expect them to raise the requirements.

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[wsd 0]

Do you have a problem with VA loans?

You could have one too if you bothered to serve.

[billvon 2,673]

>Housing Bubble 2 courtesy of the Feds

Hmm. Home prices are very low here. We just got a great deal on a home. Where are you where you are seeing huge price increases?

[Bolas 5]

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>Housing Bubble 2 courtesy of the Feds

Hmm. Home prices are very low here. We just got a great deal on a home. Where are you where you are seeing huge price increases?

Were you able to put $0 down?

If the Feds keep supporting these sorts of programs, they're not going to be far off.

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[billvon 2,673]

>Were you able to put $0 down?

Effectively, yes. Got a mortgage from a reputable company and covered the down payment with another loan from a federally-insured institution (our original mortgage holder.)

Which, BTW, is what they did.

[airdvr 200]

As of this morning a 2nd bubble will be alot less likely...

If you are buying / building a new home and you either have a home to sell that hasn't sold yet OR are keeping the existing home as a second home OR as a rental, the following rules now apply:

1. If the LoanToValue on the OLD home is 75% or less (appraisal needs done), the borrower needs 2 months or reserves for both the old home AND the new home!!!

2. If the LTV on the OLD home is > 75% (appraisal needs done), the borrower needs 6 months or reserves for both the old home AND the new home!!!

So many existing homes have < 25% equity these days. For example, if the payment on the old home is $800 and the new home will be $1100, the borrower will need $11,400 money left over after the loan closes or else they do not qualify!!!!! Very tough.

Rule changes like these, although they look good on paper will further stifle the recovery.

Please don't dent the planet.

Destinations by Roxanne

[Bolas 5]

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As of this morning a 2nd bubble will be alot less likely...

If you are buying / building a new home and you either have a home to sell that hasn't sold yet OR are keeping the existing home as a second home OR as a rental, the following rules now apply:

1. If the LoanToValue on the OLD home is 75% or less (appraisal needs done), the borrower needs 2 months or reserves for both the old home AND the new home!!!

2. If the LTV on the OLD home is > 75% (appraisal needs done), the borrower needs 6 months or reserves for both the old home AND the new home!!!

So many existing homes have < 25% equity these days. For example, if the payment on the old home is $800 and the new home will be $1100, the borrower will need $11,400 money left over after the loan closes or else they do not qualify!!!!! Very tough.

Rule changes like these, although they look good on paper will further stifle the recovery.

Have the rules changed similarly for first time buyers?

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[airdvr 200]

These are non-FHA loans but backed by Fannie Mae. FHA guidelines changed on April 18th raising the premium for Private Mortgage Insurance and lowering the Debt To Income ratios to around 41%.

The jury's still out but a bubble is not the concern. More like a dead cat bounce. One of the keys to a recovery is new housing starts for the simple fact of how many people are put to work building a new home. The government missed the mark last spring when they offered tax credits to anyone who bought a home. When you buy an existing home you put 2 or 3 people to work.

http://www.builderonline.com/builder-pulse/if-it-looks-like-a-double-dip--why-not-call-it-that--here-s-a-reason.aspx?cid=NWBD110509002

Please don't dent the planet.

Destinations by Roxanne

[Bolas 5]

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Now, we can definitely call this a double dip, but it's important to remember that it's a self-imposed double dip. The home buyer credit essentially prolonged the housing market's agony. Instead of allowing the market to hit its inevitable bottom, the program propped up home buyer demand for a period of time. But once that support was withdrawn, the market continued back down its inevitable path.

Perhaps without the credit, the U.S. housing market would have already hit its bottom and would now be in the process of a slow recovery. But now, as other parts of the economy improve, housing is hurting again. That makes the broader recovery even more difficult.

Funny how the more the gov't tries to help, the more damage it does.

Remember Cash for Clunkers and the huge car sales drop afterwards?

Stupidity if left untreated is self-correcting
If ya can't be good, look good, if that fails, make 'em laugh.

[DrewEckhardt 0]

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Rule changes like these, although they look good on paper will further stifle the recovery.

No. Rule changes like these will just limit sales at unsustainable prices and help us recover to the historic situation of near-zero inflation adjusted home price increases since 1945. Although people like to talk about what a bargain homes are now that the national average is 33% down from the peak and suggest we need a "recovery" back to the peak they're ignoring the fact that we're still 25% above the long term trend line with furthur decreases needed for a recovery.

Housing prices cannot increase faster than household income, either because household income is directly paying the mortgage or household income is paying the rent which needs to be high enough for the capital costs to make sense.

Household income is not increasing in real dollars.

[airdvr 200]

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Rule changes like these, although they look good on paper will further stifle the recovery.

No. Rule changes like these will just limit sales at unsustainable prices and help us recover to the historic situation of near-zero inflation adjusted home price increases since 1945. Although people like to talk about what a bargain homes are now that the national average is 33% down from the peak and suggest we need a "recovery" back to the peak they're ignoring the fact that we're still 25% above the long term trend line with furthur decreases needed for a recovery.

Housing prices cannot increase faster than household income, either because household income is directly paying the mortgage or household income is paying the rent which needs to be high enough for the capital costs to make sense.

Household income is not increasing in real dollars.

True but you're ignoring a fact of life that isn't going away anytime soon. Tons of folks bought in the 2004-2007 range when things were booming. They are now a best case scenario of no equity, and worst case underwater. We need prices to recover somewhat or the economy will continue to sputter. Over the past 3 years our uncle has repeatedly intejected himself in attempts ot jump start the economy with miserable results. Too big to fail has become too stupid to know any better.

Please don't dent the planet.

Destinations by Roxanne

[DrewEckhardt 0]

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True but you're ignoring a fact of life that isn't going away anytime soon. Tons of folks bought in the 2004-2007 range when things were booming.

Tons more kids are growing up, leaving home, and forming households.

I think it's more fair to have a country where those children have the same opportunity to buy affordable homes as the preceding three generations than to cut the losses of people who were able and willing to commit to larger mortgages than were required historically over 2004-2007.

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We need prices to recover somewhat or the economy will continue to sputter.

We need lower prices still. Less money funneled to the banking industry in the form of mortgage interest means more money to spend on services and consumer goods

The economy recovered fine when the 1970s and 1980s housing bubbles reverted to the mean and doing the same this time won't be the reason the economy remains stalled.

A drop to one of the previous bubbles' peaks (which we remain above, with home prices higher than they've ever been since 1890 (eighteen ninety is not a typo) apart from the current bubble) would be a nice start.