How Many Ways Do I Disagree with Alan Greenspan?
by Tom on July 31, 2008
in Education, Market Musings
I heard a comparison tonight between Alan Greenspan and Brett Favre. The connection? Neither one of them likes being out of the spotlight. Greenspan did an interview and I’m entitling this review, “How Many Ways Do I Disagree with Alan?” Here goes….
1. House prices.
Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are “nowhere near the bottom” and the resulting market turmoil isn’t showing signs of abating.
How does he know that prices are no where near the bottom? And how can he make such blanket statements? No one who knows anything about the housing market would make the same claims about Florida, California and Michigan as they would about Texas and other places. Check out the graphic here.
2. Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, are a “major accident waiting to happen,” Greenspan said. `
An Accident Waiting To Happen? What is he thinking? Fannie and Freddie are probably some of the most closely watched financial institutions today. Aren’t they the ones who just had a major bill passed by Congress to keep them stable? And now he says that they are an accident waiting to happen?
3.`The solution” is the “nationalization” of the companies, he said.
Nationalization is the answer? So, the Maestro suddenly knows the answer for all of the problems at Fannie and Freddie? Paulson and Bernanke and their staff are spending hours and hours and hours working to make sure that Fannie and Freddie stay stable and operating and suddenly the retired (get that, retired?) Greenspan knows all the answers?
4. eventual sale back to the market as “five or 10 separate entities,” he said.
5 or 10 entities? Fannie, Freddie, Frieda, Frank, Fernando and Faye? Why do the markets keep listening to him? He should be working on his golf game, not riling up the markets to make himself feel important.
5. Policy makers also need to reconcile slowing economic growth with rising prices, he said. The U.S. faces “a very substantial change in the balance between growth and inflation.”
Okay, what does it matter that he brings that up? Is he trying to “be the boss” and send a message to Ben and Hank how to do things? My 7 year old has “issues” with trying to be the boss and tell others what to do.
6. Still, Greenspan said he was “uncomfortable” with aspects of the Bear Stearns Cos. rescue.
Okay, who wasn’t uncomfortable with the Bear Stearns rescue? I mean, really, anyone who knows that we were literally hours away from a financial meltdown and the Fed had to engineer in a weekend what normally takes months would be “uncomfortable” with it.
The news people need to stop asking Greenspan for his opinions. Greenspan needs to realize that he had his time in the sun and it’s over. He’s attempting to grab more of the limelight and it’s disruptive, manipulative and not good for the economy or the country.
What do you think?
Tom Vanderwell
More on DPA’s
by Tom on July 31, 2008
in Market Musings
I just got this letter e-mailed to me this afternoon (a few more comments after the letter)
Dear Valued Clients,
Well I hate to say it but we are in for another crazy couple of months. I am sorry that it has taken me awhile to put together an update, but until yesterday we didn’t know a lot of concrete information. Now we have a little more info to share with everyone. This email is lengthy, but hopefully will help.
As you may know the president passed the bank bailout bill yesterday morning. The provision in this bill regarding DPA stipulates that the buyer must have “credit approval” before Oct 1 to qualify for DPA programs. After October 1, DPA will no longer be allowed. This means two things:
First we are not dead yet and we don’t plan on rolling over. The house of representatives continues to indicate that they will take up a renewed effort in the next few months to put together a bill that will re-instate DPA and a form of risk based pricing that will lower the overall risk to the Mortgage Insurance fund. Every indication says that this new DPA bill will come before October 1.
Here are quotes from my two new favorite members of congress, Maxine Waters and Barney Franks…
“We did not get the Seller Funded DPA program but my Subcommittee on Housing will start immediately to work on this legislation that we can come back in a few months with a stand alone piece of legislation to do what needs to be done. This is an important Program. This program has helped over 730,000 homeowners between 2000-2007. It is extremely important to helping those who can afford to pay the mortgage every month that cannot afford the down payment to get into the home. It works! it works well and it needs to be understood. We need to put in the Law and do it correctly!
Barney Franks Committee Chairman (who issued the compromise to get downpayment assistance removed from HR 3221): Immediately followed Maxine and said, “We were able to postpone the deadline for DPA until Oct. 1, there was also an issue on Risk Based Pricing. I believe we will have both of those resolved in a more flexible way before Oct. 1st so that Seller Financing and risk based pricing appropriately done will not go out of existence”.
Second, everyone needs to know that we will continue to fund transactions as long as underwriting departments will accept them, even if it is in to next year. You will begin getting letters from lenders saying that they will not accept DPA after October 1, but remember we have fought these battles before and won!
On a more exciting note, we want to officially welcome xxxxx to our team. Many of you know he worked for Ameridream for quite some time and as our biggest competitor. In recent months he has seen some business decisions by Ameridream that he feels create a serious conflict of interest with the lenders he has worked with for so long. Because of this he decided to come on board with us and xxxxxx. He has been one of the best DPA reps in the country, (definitely kept us working and on our toes) and so we feel VERY lucky to have him. If any of you were sharing deals between us as reps we are asking you now to send all of your business to xxxxxxx. The Preferred Program will continue to fight to keep DPA alive and will never make any business decisions that would jeopardize our relationships with such great customers.
I can’t say enough how much your support and continued business has meant to us over the last 7 years. I hope we can continue to offer our product to you and your homebuyers for years to come. Please email or call me with any questions. Tiffany is also there to help. We will update you as soon as we get more info.
Thanks,
Okay, Tom here again with a couple of thoughts:
1. Seller funded downpayments have shown to be significantly riskier loans than those wher the buyer put some of their own money down on the house.
2. They talk about “risk based pricing” for the DPA loans. I believe that if someone were to accurately account for the additional losses in these loans and then assess the appropriate risk based pricing adjustments to them (meaning higher rates), the rates would be so much higher that they wouldn’t even be feasible.
But I think the main “issue” that I have with these is that by calling them grants from an organization when in reality it’s the seller’s money is that it’s not right. If you read Paul Jackson’s article about mortgage servicers not being social insitutions, this fits right into that if you ask me.
I’ve never down a DPA loan and I have no intention of doing so. These are, if you ask me, substantially different than loans where the buyer is getting a grant from a neighborhood association. That money doesn’t come from the seller.
As Jeff Brown says, “Do the Right Thing No Matter What.“ I don’t believe that these are the right thing and I believe that the way this letter is written shows that.
What do you think?
Tom Vanderwell
More on DPA’s
by Tom on July 31, 2008
in Market Musings
I just got this letter e-mailed to me this afternoon (a few more comments after the letter)
Dear Valued Clients,
Well I hate to say it but we are in for another crazy couple of months. I am sorry that it has taken me awhile to put together an update, but until yesterday we didn’t know a lot of concrete information. Now we have a little more info to share with everyone. This email is lengthy, but hopefully will help.
As you may know the president passed the bank bailout bill yesterday morning. The provision in this bill regarding DPA stipulates that the buyer must have “credit approval” before Oct 1 to qualify for DPA programs. After October 1, DPA will no longer be allowed. This means two things:
First we are not dead yet and we don’t plan on rolling over. The house of representatives continues to indicate that they will take up a renewed effort in the next few months to put together a bill that will re-instate DPA and a form of risk based pricing that will lower the overall risk to the Mortgage Insurance fund. Every indication says that this new DPA bill will come before October 1.
Here are quotes from my two new favorite members of congress, Maxine Waters and Barney Franks…
“We did not get the Seller Funded DPA program but my Subcommittee on Housing will start immediately to work on this legislation that we can come back in a few months with a stand alone piece of legislation to do what needs to be done. This is an important Program. This program has helped over 730,000 homeowners between 2000-2007. It is extremely important to helping those who can afford to pay the mortgage every month that cannot afford the down payment to get into the home. It works! it works well and it needs to be understood. We need to put in the Law and do it correctly!
Barney Franks Committee Chairman (who issued the compromise to get downpayment assistance removed from HR 3221): Immediately followed Maxine and said, “We were able to postpone the deadline for DPA until Oct. 1, there was also an issue on Risk Based Pricing. I believe we will have both of those resolved in a more flexible way before Oct. 1st so that Seller Financing and risk based pricing appropriately done will not go out of existence”.
Second, everyone needs to know that we will continue to fund transactions as long as underwriting departments will accept them, even if it is in to next year. You will begin getting letters from lenders saying that they will not accept DPA after October 1, but remember we have fought these battles before and won!
On a more exciting note, we want to officially welcome xxxxx to our team. Many of you know he worked for Ameridream for quite some time and as our biggest competitor. In recent months he has seen some business decisions by Ameridream that he feels create a serious conflict of interest with the lenders he has worked with for so long. Because of this he decided to come on board with us and xxxxxx. He has been one of the best DPA reps in the country, (definitely kept us working and on our toes) and so we feel VERY lucky to have him. If any of you were sharing deals between us as reps we are asking you now to send all of your business to xxxxxxx. The Preferred Program will continue to fight to keep DPA alive and will never make any business decisions that would jeopardize our relationships with such great customers.
I can’t say enough how much your support and continued business has meant to us over the last 7 years. I hope we can continue to offer our product to you and your homebuyers for years to come. Please email or call me with any questions. Tiffany is also there to help. We will update you as soon as we get more info.
Thanks,
Okay, Tom here again with a couple of thoughts:
1. Seller funded downpayments have shown to be significantly riskier loans than those wher the buyer put some of their own money down on the house.
2. They talk about “risk based pricing” for the DPA loans. I believe that if someone were to accurately account for the additional losses in these loans and then assess the appropriate risk based pricing adjustments to them (meaning higher rates), the rates would be so much higher that they wouldn’t even be feasible.
But I think the main “issue” that I have with these is that by calling them grants from an organization when in reality it’s the seller’s money is that it’s not right. If you read Paul Jackson’s article about mortgage servicers not being social insitutions, this fits right into that if you ask me.
I’ve never down a DPA loan and I have no intention of doing so. These are, if you ask me, substantially different than loans where the buyer is getting a grant from a neighborhood association. That money doesn’t come from the seller.
As Jeff Brown says, “Do the Right Thing No Matter What.“ I don’t believe that these are the right thing and I believe that the way this letter is written shows that.
What do you think?
Tom Vanderwell
GDP growth picks up in second quarter – Jul. 31, 2008
by Tom on July 31, 2008
in Market Musings
The gross domestic product, the broad measure of the nation’s economic activity, grew at an annual rate of 1.9% in the three months ended in June. That’s up from a revised 0.9% growth rate in the first quarter.
Even with much stronger growth, the reading was weaker than expected, as economists surveyed by Briefing.com had forecast growth of 2.3%.
GDP growth picks up in second quarter – Jul. 31, 2008.
How much of the increase was due to the stimulus checks? My gut feeling is that a LOT of it was. We’ll have to see how the third and fourth quarters play out with that…..
Also…..
So, going in to tomorrow’s jobs report we have the ADP report that was better than expected and we have these two reports that are weaker than expected.
Going to be interesting….
Call or e-mail me if you want to talk about it.
Tom Vanderwell
Deutsche Bank profit falls 64% on mortgage losses – Jul. 31, 2008
Deutsche Bank profit falls 64%
Deutsche Bank profit falls 64% on mortgage losses – Jul. 31, 2008.
If the history of the last few weeks repeats itself, Deutsche Bank’s stock is going to go up today.
Why? I have no good answer to that question….
What do you think?
Tom Vanderwell
Housing Bill: Change to Home Sale Tax Exclusion Rule
by Tom on July 31, 2008
in Education, Market Musings
Once again, hats off to Calculated Risk for doing the due diligence and reading the whole new housing bill. Here’s an example of the “fine print” that others might have missed: (More comments below)
Under the new rule, the owner only gets a percentage of the exclusion based on a ratio of how long the property is their primary residence divided by how long they owned the property. This prevents people from moving into vacation homes or rental units for two years and then obtaining the entire exclusion.
Calculated Risk: Housing Bill: Change to Home Sale Tax Exclusion Rule.
So what does that mean? For most people who only own one home, nothing much. But if you have a cottage and a house, and at retirement, sell the house and move into the cottage and then a few years later, sell the cottage and go condo (or whatever). It’s going to affect your tax liability then. Please consult your tax advisor for more details (I’m not an accountant and I don’t even play one on TV!)
Tom Vanderwell
Sometimes a picture is worth a thousand words…..
by Tom on July 30, 2008
in house prices
Year over Year House Price Changes
Housing Bill that passed today…..
by Tom on July 30, 2008
in Market Musings
“The tax credit is the best stimulative measure,” NAHB President Sandy Dunn said in a press release. “It will increase housing demand, get home buyers back into the marketplace and fight falling home prices, which threaten the economy as a whole.”
FHA changes make housing bill a ‘mixed bag’ | Inman News.
I ask you, would a $7500 interest free loan that needs to be paid back over the next 15 years be enough of a difference to get you to get off the fence and buy a new house? Would it?
I don’t know if it would for me, that’s why I’m asking…..
Tom
Also, this was in that article….
Housing Secretary Steve Preston, who’s unhappy that Congress has placed a one-year moratorium on the use of “risk based” premium pricing for FHA loan guarantees.
Okay, while I can see that it would make FHA loans cheaper for those with less than good credit, I ask you, if Fannie and Freddie aren’t making any money, and I don’t believe FHA is doing all that well either, why are we taking away their ability to adequately assess risk reward ratios on poorer credit files?
That seems to me like it will hurt the health of FHA which will be bad in the long run for the housing market?
Got to love our government, don’t you?
Viewpoint: The Battle for Mortgage Banking : Housing Wire
by Tom on July 30, 2008
in Market Musings, Mortgage Matters, Uncategorized
Paul Jackson at Housing Wire hits another home run in this detailed analysis of the House Financial Services Committee hearing last Friday. It goes into some pretty intense detail (a lot of which doesn’t even make sense to me, but I’ve copied the “main point” as I see it. More comments after the quote:
Returning back to the idea of what makes a good servicer: it isn’t doing whatever it takes to keep a borrower in their home, merely because someone believes that social goals require it. Good servicing is doing what is needed to prudently protect investors’ interests, enabling the continued flow of capital from lender to borrower — and that’s nothing new. It also tends to entail staying in business.
Viewpoint: The Battle for Mortgage Banking : Housing Wire.
Okay, here’s the short view of what that means:
1. The consumer action groups are saying, “It’s the right thing to try to keep as many people in their homes as possible. Anyone who forecloses on a homeowner is evil!”
2. The mortgage servicers need to be saying, “It’s the right thing to try to protect our investors’ interests and we really aren’t a social action program.
Mortgage lending is on the verge of becoming a governmentally run social action institution and it shouldn’t be. Yes it’s a good thing to help people buy houses, I’ve done it for 20 years. But, like I’ve said many times over the years:
“Contrary to popular opinion, banks are not charity organizations. We do want our money back eventually.”
What do you think?
Tom
Subprime Lending Not to Blame For Credit Mess, Says Study : Housing Wire
by Tom on July 30, 2008
in Market Musings, Uncategorized
Instead, the study argues that the considerable 2003 pullback of government-sponsored financial service corporations Fannie Mae (FNM: 12.21 +5.26%) and Freddie Mac (FRE: 8.73 +3.68%) from the mortgage credit market and their subsequent replacement by aggressive, private mortgage securities issuers in late 2003 had a significant impact on home prices and was more responsible than subprime lending for the drastic price runup that peaked in early 2006.
The researchers also determined that interest rates did not significantly affect house prices. The finding defies conventional wisdom that ties interest rates directly to the monthly cost of housing and assumes an effect on purchase prices.
“These findings help us understand that the government can have a major role in affecting the mortgage and housing markets,” Vandell said. “It’s important policymakers consider this influence when they attempt to shape the markets in the future.”
And, in other words, Fannie Mae and Freddie Mac may yet matter more to our mortgage markets than some in the industry might otherwise want to admit.
Subprime Lending Not to Blame For Credit Mess, Says Study : Housing Wire.
So, if this study is to be believed:
1. It’s not a subprime problem, it’s a government regulation problem. One more reason to start walking down the road of getting Fannie and Freddie out of the government’s hands over the next 10 years.
2. If it’s not a subprime problem, it’s a greed problem on Wall St. wanting too much for too little. We need to teach those who don’t know our business what to watch for.
3. Interest rates don’t impact house prices. I’d love to know how they figured that out, but it’s a really intriguing theory.
What do you think?
Tom Vanderwell
