Mail Magazine 24...
Mortgaging our Future
by Michael Becker 
February 7, 2012 

I’ve been around a long time and I’ve seen a bunch of, well, stupid things. But folks, let me tell you, there’s something in the water in Washington DC that causes a complete shutdown of one’s ability to reason or be rational. 

We are facing a crisis. Yawn. And, never one to let a crisis go to waste, the President is proposing to once again pile more debt on the backs of our sons and their ladies. And, if they ever get around to it, our grandchildren. 

It’s the housing crisis. Again. Full disclosure here, I spent about fifteen years as a mortgage banker. The current problem in the housing industry goes back to two events. The first was passage of the Community Redevelopment Act that basically said to banks if you continue to structure your mortgage lending in a way that refuses money to high risk borrowers we (the banking regulators) will destroy you with fines. The second event occurred sometime in the mid-late 90s and was when homeowners woke up one fine day and decided their home was no longer “mama’s nest” but rather, an asset on their personal financial statement. 

The result of those two events was a perfect storm in the housing and banking industry. Bankers, in order to comply with the law, developed a variety of structured loan products designed for people who had previously been considered “high risk” for a variety of reasons, poor credit, fair-to-good credit but an inability to verify income (small business owners primarily), and people who had no money down. As those loan programs were marketed the pool of available house buyers expanded dramatically and demand for housing went up. As demand went up, prices went up because builders were not able to respond to the increase in demand. As prices skyrocketed, house owners (sorry, I refuse to call an asset on your balance sheet a “home”) decided that what had been their home was now either “an investment” or “an ATM. They bought ever more expensive houses with little or no down payment and waited for the appreciation curve to make them rich, after all, as I’ve heard more than one Realtor tell an unsuspecting buyer, “nobody’s making any more land, prices are going up”. 

Which brings us to today. Builders finally caught up with and got ahead of demand about the same time the world discovered what everybody but Chris Dodd, Barney Frank and the idiots from both parties obviously never learned at their high-priced Ivy League universities. Lending money to people who can’t prove that they have a history of repaying their debts AND the current ability to repay them is a recipe for disaster. Massive defaults hit the banking industry and the housing industry went from a skyrocket to a bomb overnight. 

There are huge problems in the housing industry today, no surprise, huh? There are a number of very serious issues impacting the housing market:

Oversupply.

In the major housing markets a healthy supply is about five months of sales listed in the Multiple Listing Service (MLS). Today, MLS is typically running anywhere from ten to fifteen months of sales. On top of that, banks are holding “Real Estate Owned (REO)” of an additional twelve to eighteen months of sales as the resort of foreclosures that have been completed. Add to that mortgages that are in default where Trustee Sales have been delayed because the banks don’t want to add to their inventory, another twelve months of inventory, and then add mortgages in default that borrowers haven’t been issued a notice of default, probably another 24 months inventory. At minimum, there is something on the order of four years of unsold inventory in major markets. 

Underwriting guidelines.

The days of approval for poor or fair credit are over, and if you can’t document your income, you’re not getting a loan approved. This requirement, which is not onerous, has reduced the borrower pool by at least one third vs. the housing boom years. 

Current homeowners under water.

In major housing markets, as many as one-third to one-half of home owners have either no equity or negative equity in their homes. They are not able to sell and cannot move either up or down in the market. 

Given the reality of the marketplace, there is still significant downside in residential housing, perhaps an additional 25% to 30% reduction in values. Government policies are currently attempting to stop the decline in house values but all they’re doing is extending the crisis. 

The President is stepping up with a new program to allow current homeowners to refinance their mortgages as long as they haven’t had a late payment in 12 months, and his proposal will allow them to refinance even if their loan balance is more than the value of their home. This proposal is meeting more than a little resistance in the Congress, even from Senate Democrats. 

Let me be absolutely clear. This proposal will do ABSOLUTELY NOTHING to impact the housing market. It won’t prop up prices and it won’t impact the inventory levels. What it will do is turn houses back into ATM machines by reducing borrowers – who are currently making their payments, reducing their mortgage payments so they can spend the difference on something else. From the Washington Post , here’s what the President said about the situation… 

Obama said: “It is wrong for anyone to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom. I refuse to accept that, and so do the American people.” 

So much for the idea of “moral hazard”. Let’s be clear. We’re not talking about a “safety net”, we’re talking about easing the financial pain of making a bad decision about housing. There’s no help for people who are behind in their payments, only those who are current and can’t refinance because of current lending criteria. 

On top of the already noted foolishness, the President wants to “pay” for this stupidity with additional taxes on banks. 

Republicans, assuming they even have spines of Jell-O, should be able to mount a bipartisan effort to stop this. Please contact your Member of Congress and your Senators. This is simply manifest stupidity. This proposal is nothing but election year pandering that Mr. Obama knows will be nothing more than something that will give him talking points against “evil, greedy Republicans”. 

President Obama, in cahoots with his union thug buddies, is nothing more than a modern day Boss Tweed. He’s using your money to buy the votes of half the nation who don’t pay taxes and buying off every constituency he can identify. In the process, he’s establishing the concept that the purpose of the federal government is to mitigate the consequences of every mediocre or bad decision an individual can make. The noise you hear is that of the founders spinning in their graves. 

Source: LibertyNews 

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