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Opening Arguments

Here we go again

Even without Christina Romer there, Washington will still be the center of stupidity:

If you want to know why us libertarian types are skeptical of the government's ability to prevent housing market bubbles, well, I give you Exhibit 9,824:  the government's new $1000 down housing program.

No, really.  The government has apparently decided, in its infinite wisdom, that what the American economy really needs is more homebuyers with no equity.

[. . .]

It's true that this particular program is small--I don't think the economy is going to be brought to its knees by several hundred houses.  The important thing, however, is that this is how the government thinks about housing

Pretty much how the government thinks about everything, isn't it?

Posted in: Uncategorized


john b. kalb
Fri, 08/06/2010 - 11:48am

Leo - Just what present part of our government THINKS about anything that they do?????

tim zank
Fri, 08/06/2010 - 12:05pm

Here's a great real life example of how we ended up with a housing bubble. For years in Steuben County (and all over Indiana) we sold 1st time homebuyers scores of 3 bedroom 2 bath manufactured 1500 sq ranches on 1 or two acres for right around $99k. The payment was about the same as rent, and they had their piece of the American dream.

Trouble is, they all financed with a zero down FhA, the actual down payment of 3.5 to 6% came from the seller. That meant inflating the sales price by that percentage to recoup the sellers costs, so you've got 99k + 5k= $104k. Add to that another 6k in brokerage fees, and another 6k in lender "closing" costs (rolled into the loan) and you've got a 99k house and they just walked out of closing owing about $116k on. Keep in mind it had to appraise around $118k to $120k...So the happy new home owner is already about $16k upside down and the appraisal wasn't accurate either.
Because debt to income was no problem on FHA loans, you had folks realistically obligated to about 50% of their net income...now add in property taxes, utilities, insurance, and the obligatory riding mower for that acre, a couple of new cars at zero down (taxes financed too) a washer and dryer at zero down, some furniture to fill the place up at zero down, toss in a new baby, and VOILA! Suddenly you are one repair away from a financial disaster.

Obviously, these were the primary 1st wave of foreclosures all selling eventually in the 50k-60k range with your tax dollars picking up the difference (the banks were protected by fannie freddie etc)...

What we're seeing now (around here anyway) is that same basic scenario simply moving up the dollar amount ladder, and the government just keeps throwing more and more goofy incentives with different names to re-sell those houses but using the exact same basics. FHA zero down went away, and up popped USDA "rural development" zero down loans, etc etc etc...

Being in the business, obviously these short sighted incentives move some product for me, but the long term effect is going to be disastrous. The government needs to get the he&& out of the housing and auto business and let the market bottom out once and for all or it will never stabilize and your tax dollars will keep paying for it, forever.

We haven't seen the bottom yet, and won't for some time.

Fri, 08/06/2010 - 4:58pm

If you'd bothered to read the story instead of Leo's excerpt, you would have noticed that the homes are modest and the buyers are required to have unusually good credit histories. I doubt that these loans are any more dangerous than average. Nobody's selling mansions to hobos.

tim zank
Fri, 08/06/2010 - 7:22pm

Littlejohn, I did read it.

As recent history has proved, high credit scores don't always accurately predict ability to repay.

Long time employment (jobs) don't often last (surprise).

Ask any banker offering a loan that ISN'T GUARUNTEED (cosigned) by the feds what they want?????

MONEY DOWN. Equity in the transaction. By offering zero down to anyone, you are inviting disaster. And especially when the "modest" house is $100k to buy, but the buyer owes $110k the day AFTER closing, and the real value is about $80k (because if you hadn't noticed prices are still falling, not going up)