Sunday Open Thread
This is your open thread for today. Please post random links and off-topic discussions here.
After giving it some more thought, I think I may only post a new "open thread" once every few days, or after the comments reach 100 or something like that. Feel free to share your thoughts on the best frequency for open threads in this open thread.
48 comments:
Ok, I have to ask a layman's economics/finance question. Please be gentle if it's stupid. ;)
So it seems to me that one of the primary sources of the current housing bubble are the so-called "suicide loans" -- ARMs or IOs sometimes with teaser rates, apparetly being offered even to those with terrible credit ratings, often to people who don't understand the terms and/or can't afford the reset. Sounds like bad business for the banks to me, but what do I know? It also seems to me that one key to ending this bubble is for this practice to stop. So my question is, what's going to force the banks to stop this practice? Government intervention? High interest rates? Sheer number of foreclusores? Or will it stop at all? Are the banks making money on these suicide loans? Will we ever see the old lending standards again?
The banks or lenders sell the loans on the open market or to a GSE (Fannie Mae, Freddie Mac). Their risk is minimal, if non-existant.
The FED can institute what is called Regulation X (yes, it really is called that), which states the minimum down payment and payback periods for mortgages. Right now, it is not active, but if it were to become active, you would see 20% down payments and the end to 50 year mortgages.
The housing market would crater overnight.
There is no adult supervision, which is why people are acting like a bunch of drunk college kids.
I'll try to track down some more specific info tomorrow.
So, short of Regulation X being instituted, there's no reason for banks to not offer these loans to anyone that walks in the door. Lovely. Why would Fannie/Freddie be willing to buy these loans if they are so risky? Somebody has to "pay the bill" when they default, right? I assume it's more than just the person taking out the loan.
New Orleans market rebounds faster than anticipated.
This article waits until the end to point out the speculators are taking a huge risk. It also points out that construction costs are up 20%. One of those factors that's often ignored in discussing house price increases. And the increase in construction costs is real (my wife's company is raising their prices 5% due to an increase in materials costs - with a 10% decrease in profit margins).
I'd also disagree with the assertion that the primary source of the housing bubble are "suicide loans". First, from what I've read only 30% of people in the last 5 years got ARMs, and not all those are true "suicide loans" (0 percent down, Interest Only or "option" mortgages). That means that 70% of the people who have participated in deals that have inflated the price of housing have done so with fixed rate loans at historically low prices. And some percentage of the ARMs have been refinanced to fixed rate mortgages, or are owned by people who will be moving before the mortgage adjusts (many people own a home for only 5-7 years). I suspect that much to the chagrin of bubble believers, the suicide loans are a smaller percentage than predicted. Doesn't mean everyone will come out ahead, it just means that, IMHO, suicide loans won't be the primary cause of an across-the-board housing collapse.
All that said, whoever is on a suicide loan (interest only, no equity, ARM, option-payments) is probably screwed. They were probably screwed before too, with much credit card debt at really high rates, since they're often the people with the worst credit. Now their situation is even worse, because the new bankruptcy laws have made personal bankruptcy more difficult to obtain. These people also often have debt due to healthcare related costs, which they can often ill-afford to pay.
I'd agree that the really lax lending standards (actual suicide loans and sub-prime credit card lending) is approaching what I would call "usury". I would definitely like to see a tightening of that, but only if the poorest are given some way to help themselves into homes and out of the cycle of payday loans, etc. After reading "Nickel and Dimed" by Barbara Ehrenrich it's clear to me that most poor people don't end up screwed because they're buying big-screen TVs or fancy cars. They're just trying to get by, and they can't.
Fannie Mae was commissioned by Congress to provide a secondary market for lenders to sell mortgages. This keeps replenishing money into the local lending markets, which ultimately short-circuits a valuable feedback mechanism for the real estate market.
FNM bundles a bunch of these mortgages and sells them as "mortgage backed securities," which many believe (in error, btw) are backed by full faith and credit of Uncle Sugar. Now, lenders don't have to fully vett borrowers, because they are out of their risk in very short order. The risk is passed to the GSE.
Fannie had some multi-billion dollar accounting irregularities, which have been swept under the rug to keep the whole charade going. Anytime Congress wants to reign in the GSEs, they threaten that middle class homeownership will suffer.
Franklin Delano Raines, the former CEO of Fannie, escaped the Ken Lay treatment for his running of Fannie. My guess is that it had much to do with the subject matter of Shelby Steel's new book.
Either way, Fannie is a major grenade rolling around the floor of the housing market.
Are the banks making money on these suicide loans?
Absolutely. Banks can make money in all sorts of situations where people default on loans. Insurance companies are similar - they make money on the "float" and do modeling to make sure they're charging enough to cover anticipated payouts. Doesn't always work (Katrina), but Warren Buffet's done pretty good with the insurance and re-insurance markets over the long term. I'm sure banks run fairly complex risk analysis scenarios, and even with the defaults, they come out ahead.
Also, at least historically, defaults are lowed on housing loans (when compared to credit cards and other loans). People will do almost anything to stave off foreclosure, which tends to mean the bank gets another couple years of payments. And if they're all interest, it's all profit. Then they can either sell the house on the foreclosure market (worst-case) or the homeowner sells at a personal loss but the bank only loses a little (difference in selling price vs. total mortgage).
A Libertarian might say the system is working. If people are "too stupid" to understand the consequences of getting the "suicide loan", then they pay the price. And if banks lose money on these deals, no one should bail them out.
I definitely believe that some sort of regulation is necessary. If left to their own banks would gladly keep people in virtual "debtor's prisons" for life. Again, I'd call that usury and it should be outlawed for the good of society.
Musings on the origins of the CA Equity Locust
Ah California, home of convertibles, wine, beautiful beaches, hot babes, and the best climate in the country.
Unfortunately the “California Dream” that originally brought many to CA has been its own undoing as the population swelled, freeways became parking lots, mountains were eliminated by smog, crime soared, and property values/taxes shot up. And then there was the invasion from south of the border.
All of this “pressure” caused people to consider leaving the beloved “good life”. The basic “gotta get out of here” urge was implanted in many.
Then the stock market crashed, 9/11 happened, and the groundwork was laid for the “perfect storm” in RE and the birth of several new “species”.
Suddenly the only “safe” investment was RE. Investment clubs sprang up fueled by books (Rich Flipper, Poor Renter) and TV ads (”anyone can make tons of money just buying and selling RE with no money down!”). This gave rise to the first new species called “flipper”.
Pretty soon EVERYTHING in the country was being bought up flippers. This huge demand for “investment properties” drove prices up. Way up.
The FED kept lowering rates. And the banks chipped in with sub-prime suicide loans. Appraisers were bought. RE commissions rocketed. City property tax collections put city budgets into the black. It was a big party. And house prices had nowhere to go but to the moon.
Suddenly those disgruntled Californians had homes worth 2 or 3 times what they thought they were worth just a few years ago. And all these equity-rich folks decided it was a good time to get out. And it was.
So they sold and pocketed enormous gains giving birth to the second new species, the dreaded “CA equity locust”. They took wing and flew in great black clouds to Phoenix, Florida, Oregon, Washington, Idaho, New England. No place was safe from infestation. And wherever they landed they drove up prices in all their “target areas” and spawned the third new species, the lesser nonCA equity locust.
And who enabled all these CA ELs to take wing? FBs who bought at the top thru “creative financing”.
CA EL: Would you like to buy my POS for top dollar?
FB: Sure, but I can’t afford it
Bank: Let me help
CA EL: Thanx for funding my early retirement…….ciao
FB: Now I can live the “California Dream”
And they all lived happily ever after?
Well not really.
The CA EL bought at “the top” and eventually saw most of the CA equity eroded
The FB was just that
The bank no longer exists
There are a lot fewer RE agents and appraisers
The cities frittered the tax money away and are now back in the red
Moral of the story….to be continued.
One of the things people are overlooking is that the ARM reset isn't going to affect 100% of the people with an ARM. Some people are more than capable of paying their mortgage even with the increase, or more likely, they'll refinance into a 30-year fix or what not. Yes, some people were strapped on day 1 of their payment and there is no way they can handle an increase, but there are plenty of people who will adjust their budgets and move on.
Not all ARMs are suicide loans. ARMs make a lot of sense if you know what you are doing. I grant you that many people (Over 50% seems a little far reaching) don't understand them or were lied/misled. A properly financed 5/1 ARM for someone who plans to move in less than 5 years is much better than a fixed (or at least it was 2-3 years ago - now the ARMs rates and fixed rates are too close).
However, you guys don't want to admit that. To you, the ARM reset is going to affect every single ARM holder and every single ARM will end in foreclosure.
So, to answer the question:
Banks make plenty of money from ARMs and IO for 2 reasons:
1) Some people are financially educated and understand them
2) Banks know that their loan will be the absolute last loan the borrow defaults on. People will skip credit card, car, student loans, etc. But they will do anything possible to avoid missing a mortgage payment.
It is a numbers game. The percentage of defaults on any given mortgage program is far less than the money to be made.
Thanks for the info, guys. Makes things a little clearer for me regarding the current housing market. I lean heavily toward libertarianism myself and definitely think people are responsible for understanding things before they sign up or pay the price. But Fannie/Freddie buying up the loans on behalf of the government, and essentially letting the banks off the hook, doesn't seem right to me. The banks should have to live with their decision too IMO, otherwise how will they ever stop giving out rediculous loans if they don't pay the price of their action? I agree it's not the bank's responsibility to only sell me what I can afford -- that's my responsibility -- but it's not the government's responsibility to buy up anything the banks are able to buy signers for.
Anyway, that's the ideal world. Back to reality. Sounds like we're stuck with people getting these loans and buying up houses they can't afford until either they decide it's not worth it, or the government reigns them in. If it wasn't one of the factors keeping housing prices high IMO, I wouldn't care either way. If people are stupid enough to sign a massive loan for something they can never hope to pay back, they'll learn an expensive lesson. Unfortunately, this done in large numbers affects us all.
Anyone have any good strategies for buying at this time? I'm sure your reaction will be "Rent for 2-3 years", but that's not an option. I'm hoping you guys can offer some good thoughts on buying at this time?
I figured with 50% of the listing being reduced from month to month, we shouldn't be making an offer on anything in the first 2 weeks and certainly not at list price. Sure a couple of houses may sell, but it seems like 1 in 2 houses will end up selling for less so why not wait for that seller to realize he is over priced and offer under list price.
Any other ideas? Oh, any my loan is going to be properly financed (20% down, 30-year fixed) so no IO or zero down for me.
However, you guys don't want to admit that. To you, the ARM reset is going to affect every single ARM holder and every single ARM will end in foreclosure.
Anon 10:46 (I thought anon posting wasn't allowed?),
I, for one, never said all ARMS are suicide loans. The term as I use it means an ARM or IO that is suicide for the borrower, i.e. they are in way over their head and can never hope to pay it back or qualify for a fixed rate. Of course all ARMs or IOs don't qualify as a suicide loan, and I never said they did. It depends on the borrower's situation.
As I said above:
ARMs or IOs sometimes with teaser rates, apparetly being offered even to those with terrible credit ratings, often to people who don't understand the terms and/or can't afford the reset.
LakeHills... My reply took your statements in conjunction with the various ARM Reset statements being made on the blog. You are right. Your post did highlight the fact that there is a difference.
Anon 10:53,
No passing judgement here. You know your situation and finances way better than someone else ever could. I won't presume to judge you.
Where are you planning to buy? I was out in the Preston area last weekend and prices were a lot cheaper out there compared to Bellevue/Redmond, but some of the neighborhoods were a bit sketchy. Prices in Lake Hills are running around $400-450k for a 4bd/2ba, which is quite an increase from just a few years ago, and are even more as you move north into Redmond. They are selling pretty quickly still, however.
What do you guys think about the PMI Market Risk thing? I don't know much about PMI (other than that's what second mortgages avoid) to know if this is a reliable or self-serving report, but it ranks Seattle very low on the risk index for RE market.
Deflation Guy,
I'll give you a gold star for your comments. That is exactly what is right in our path.
When I say it, people think I'm off my meds. So, it is nice to have another voice on the fourm saying the same thing.
I'm an inflation guy, as I think that is where we are headded, but the RE market will be lost in a defaltionary spiral
Deflation Guy...agree 100% with your deflation scenario. Everyone says hyperinflation but I also see deflation.
Inflation in commodities and finished goods
Deflation in assets and incomes
deflation guy & eleua -
I am with you completely. Thanks for posting your explanatory summaries; they're excellent. Keep up the posts.
Deflationguy,
Between your post and the ANON 1016:58 post, the two of you summed up about 95% of what you are seeing in the PNW housing bubble and the associated risk.
This isn't going to have a happy ending for anyone that is not a BK lawyer.
The history of the past 25 years is essentially of inflation in assets and incomes, while at the same time we had deflation in commodities and finished goods. That is in the process of inverting, and it is going to suck.
The inflation question is really quite simple. Inflation or deflation is determined by the ratio of available capital to productivity. This is why the Fed has so much control over inflation - they control the capital spigot.
There have been two scenarios suggested above:
A) Hyperinflation. This can only happen when productivity and capital supply are negatively correlated. As the gap between capital and productivity widens, it causes less productivity. This tends to happen in economies where there are too many people getting paid to perform negative productivity.
This scenario is unlikely when applied to a housing crash. Falling asset prices decrease the availability of capital. This only causes inflation if foreign debt/asset holders flee dollars so fast that the net supply of dollars continues to rise. And this only causes severe inflation when productivity is directly harmed. One could argue that a real estate collapse could destroy productivity in the REIC.
B) Deflationary recession. If housing prices fall, decreasing the supply of dollars, and productivity stays the same, then there will be fewer dollars to buy the same goods. This causes a recession (or depression) if the cycle becomes self-reinforcing (if productivity swings more severely in the same direction as capital supply).
Personally, I'd say housing drops of the kind predicted on this blog would very likely lead to deflation, not hyperinflation. The Fed can easily prevent the latter by tightening credit as much as it takes. And sooner or later the supply of dollars will run out. Prices would have nowhere to go but down.
Correction to my last - I meant that a deflationary cycle happens when productivity falls less severely than capital supply. In other words, when productivity holds steady (or rises) in the face of falling prices.
To you, the ARM reset is going to affect every single ARM holder and every single ARM will end in foreclosure.
From talking to my friends working in escrow, ARMS are being used by every type of borrower. I'm not so worried about the moderately wealthy buyers using ARMS to speculate. The problem is with the subprime and first time buyers being qualified on the minimum payment, rather than the expected adjusted payment.
A few of the well qualifid buyers using ARMS will end up in trouble - but not enough to make a difference. The subprime borrowers? Well, there's a reason they're considered subprime.
Anon 10:53-
Definitely don't jump on new listings as it's true there are many that begin price reducing within a couple of weeks.
I'd also suggest you go to the county website and see how much stuff is actually selling for in your neighborhood of choice.
http://www5.metrokc.gov/reports/property_report.asp
Just plunk in street address of property at the above site.
In many neighborhoods, stuff is selling below asking (by 10's of thousands of dollars), even after price reductions.
Definitely don't jump on new listings as it's true there are many that begin price reducing within a couple of weeks.
I second this advice. This was true even back in 2002. I also don't buy the hype that homes that have sat on the market a little while are to be avoided.
We bought a home in 2002 below asking price, after it was already reduced once (we ended up something like $50k below her original asking price). It just needed a lot of cosmetic work, and not everyone is interested in that. It was perfect for us, as we're pretty particular and I like not having to pay for others who have "pre-decorated" the place.
You do have to be patient. We looked at homes for 6 months and passed up a couple of "move-in" condition homes that we thought were priced too high, or had some other flaw (busy street, etc.).
To be fair, the woman who sold us our home had owned it for over 30 years and she still made a ton of money (moved to a small cabin in a less-pricey state).
Sorry - last comment was me. Wasn't trying to be anonymous.
Anon 12:20-
Frankly, I don't know what to think of the PMI risk list.
It lists Seattle and Phoenix in the low risk category - they're just a few % points apart.
And everyone agrees that Phoenix is one of the "ground zero" bubble spots.
So how they come up with their assessment is beyond me.
I found another old article with some inventory #s. This one is from 1986:
MORTGAGES UNDER 10% SET OFF A SCRAMBLE
Sam Roberson, executive vice president of the Seattle King County Board of Realtors, said the housing inventory in King and Snohomish counties has dropped from 25,000 units in mid-1985 to 19,000-20,000 today.
King and Snohomish Inventory today: 11,257
So we have half the inventory of the "hot" market of 1986. And substantially more population. And they described a market with 20,000 homes for sale as a sellers market...wonder what they'd think of the market today? Half the inventory, more buyers, and lower interest rates.
After looking at some of these historical #s, it seems pretty clear to me that we are nowhere near a balanced market. It's still a very strong sellers market. We'd need over double the inventory to reach the hot market of 1986. What would it take for a crash, triple the inventory?
oops, should have posted on this open thread instead of the other one on Rents. If interested, see the other posts I made on the "Rents Rising" thread.
S-Crow
Since this is an open thread - Here's an interesting treatise on why DVDs will fail (written in 1996).
I'm not arguing the situations are entirely comparable, but one can have all sorts of good/solid reasons to support an argument and still be terribly wrong - either failing to take into account other, unknown factors or simply being wrong about the "trend" your initial suppositions point to.
jscricket-
You have just stated the obvious! The question is which side are you going to put your money on?
Different strokes for different folks.
Marinite, over at the Marin HB Blog, just made a graph of the number of price reductions on a monthly basis for Marin County.
Just like Seattle, it's been climbing all year, Marin now up to 37, 39 % something like that.
He wonders why realtors have not been free with this info.
So do I.
Prospective homebuyers, do your reseach.
The last shoe has dropped on cable news.
CNBC's been reporting on housing's shaky future since last Fall, when I first started looking. CNN and MSNBC started in the winter.
Been waiting for FOX news to start.
Today they started. Apparently, they've been getting a lot of emails from people who Heloced out and now in difficulty.
They interviewed a guy fom Bankrate.com.
Watch for FOX to start reporting on the housing bust in the next few weeks.
re. Heloc's, the news caster asked the guy from Bankrate:
"Are we going to, as a group, look back on this and say 'Wow, that was the stupidest thing we've ever done as Americans.' "?
You have just stated the obvious! The question is which side are you going to put your money on?
Neither.
I own a home purchased in 2002 and am not selling it. I've also got a fixed rate mortgage, because of the risk of rising interest rates. However, Clearly I don't believe the bears enough to move my family into a rental (there are also non-financial reasons this doesn't make sense for me). I don't plan on moving in the next 5 years either, but I suppose it's a possibility. I'm not afraid enough to think this is the highest price my house will ever get to sell it now.
I am also not selling this home and "trading up" with my equity or investing in any second properties. And I caution friends not to buy real estate now, especially if they're going to move in the next 5 years. If I were to move out-of-state, I'd probably rent for a while. So I'm not overly bullish.
I would actually say that people like me, who have owned their homes for 4-5+ years with reasonable mortgages are actually "on the sidelines" of this whole debate. It is the bears (not buying because they believe prices will go down) and the bulls (paying top dollar at current prices, getting IO ARMs, etc.) that are the ones with the most risk exposure.
To me the signs do not point clearly towards continued appreciation or the type of crash you keep predicting (30%+).
More importantly, I don't think the DVD article "states the obvious". I owned a LD player back in the early 90s and distinctly remember all the anti-DVD sentiment, much of which I agreed with. The logic seemed unassailable, and came from numerous experts. Nearly all the major AV magazines were bearish on DVDs chances (the CE industry was bullish, of course). The arguments and facts we relied on back then turned out to factually wrong in some cases (consumers weren't bothered by DVDs lack of recordability) and, more often, turned out to be unimportant (there were economic factors for places like Sony, Blockbuster and the studios that drove DVD adoption).
My argument is not that bulls are right and bears are wrong, but that both sides can be right about the current statistics and still totally wrong about why things end up where they will.
This is what I've never understood about the whole debate:
Why would a current homeowner who bought more than a couple years ago and didn't withdraw equity, likes their home, etc. be concerned about falling/rising prices.
Even more curious about those homeowners whose mortgages are close to being paid off and still riveted on the bubble.
I really understand those who bought recently under shaky circumstances or took out new mortgages/helocs on their nearly-paid -for- homes.
But for the content/secure homeowner, why do you care?
Insights anyone?
Are they interested in the bubble as far as it effects the greater economy or what?
Piggy-back loans being scrutinized by Wall street.
see article at Northern New Jersey Bubble blog.
Question: If you KNEW that RE prices would increase by 10% for the next five years, how much money would you put into buying a house?
Answer: Easy. As much as you possibly could (absent a better investment vehicle). If you could get 90% leverage on that investment, and you had $50K down, your $50K would increase to $298K, after RE fees. Without consideration of iterest and paydown, that is a 43% ROI - not bad for your average moron. This explains the massive 'speculative premium' that now is paid for RE
OK, now....
Question #2: If you KNEW that RE would go down by 10% per year, for 5 years, how much would you pay for a house?
Answer: Easy. As little as possible. Under the same scenario (but using 20% down, if you could find someone with 20% to put down), that same $500K house would be worth $274K, after RE fees. Your $100K was gone after the second year, and the three years following would require you to bring an additional $176K to the closing, just to unload your house.
You lose $226K on a $50K investment. That is a 450% loss over 5 years.
So, how much money are we going to be putting toward RE when the investment paradigm changes?
Correction:
That was a $225K loss on a $100K investment, which was only a 225% loss over 5 years, but a $225K loss, nonetheless...
Sorry about that.
Jcricket, sounds like you're in a good position. Good for you! If I was in the same position, I'd be watching from the sidelines as well. I can't say I disagree with any of what you posted. For myself, I am in the game since I want to buy in a year or two, and I am bearish beacuse I think the economic fundamentals are off. You are aboslutely correct that no one really knows what will happen, and I could be completely wrong. It's all just predictions.
SPD, the only reason I can think of for owners who don't plan to sell to be interested (other than curiosity) would be for property taxes. Rising home values does affect them that way.
Why the interest in the bubble for homeowners?
A) Intellectual curiosity
B) My long-term financial planning
C) I like to argue
D) All of the above
I pick D.
Property taxes doesn't figure into it, at least not in WA. Because of the property tax cap initiative sponsored by Tim Eyman, overall property tax collections can only increase 1%. Of course, that's the county's overall total increase. It doesn't mean individual property taxes can't go up or down more than 1% in a year. Anyone in WA who owns a house will notice that taxes can and do go up or down without (at least the appearance) of any connection to actual real world house values.
In the case of my neighborhood the land/house values inverted (e.g. 250/500k to 500k/250k) this past year. Resulted in my taxes dropping 1% this year. Yet the median price increased like 20%. That makes no sense.
I'm betting it's the county playing some kind of game that gets them to the 1% maximum increase while distributing the tax burden more "broadly" (less complaints about skyrocketing rates from individuals).
Deflation Guy-
As someone with a background in finance, I would be interested in hearing your ideas in deflation.
Be as long winded as you can/want to be!
Weird, but the more I read this blog, and the stories, the more I question the lurid alarmist scenarios of some of its more 'demonstrative' commenters.
I must have missed a discussion here of the macro aspects of the bubble. Some markets are hot right now, others aren't. If we're in a bubble, and the big uptick in market prices makes me suspect we are indeed in one, wouldn't the hottest markets, where the prices have doubled in five years fall by a greater percentage than where the prices have doubled in ten?
Areas currently going through a revitalization project, after years of stalled and stymied development plans I just don't see plummeting by the same percentage areas like Green Lake, Queen Anne or Ballard would. Especially when those areas have very tight inventory, and correctly/reasonably priced houses sell within three days: $395000 3 bedroom 1 bath languishes for seven months before purchase at $340K; 4 bedroom 2 bath priced at $379K on same block gets snapped up.
I think the people who aren't in RE for the flipping or the speculating, but rather just want to buy a home they're willing to invest in and live in for the long term will find the right values if they're prepared to enter a neighborhood in the early stages of gentrification, and not wait for a really hot neighborhood to come down in value.
Also, the California refugees I know have been mostly retirees who can make their Social Security money stretch farther here, and can see their NW resident children more frequently. I suspect most baby boomers, when they retire, are going to take their money and relocate to cheaper places, be they soggy and grey like ours, or blistering hot and dry like Bullhead City, AZ.
I used to think that my family was a poverty case, until I realized that we bought our house for three times our gross income, and we could still buy our house for three times our current gross income. We're not priced out of our neighborhood yet, but we're not in the suburban planned McMansion development with his and her Lincoln Escalades area either, as it appears many buyers (except us) can afford.
Thanks for describing your understanding of deflation as caused by an end to the love affair with credit.
It's the first time I've heard it described thus and it makes a lot of sense to me.
As a cash lover/horder ( and a credit hater to boot!), of course I'm hoping for defaltion.
There's a definite anti- deflation bias out there though, as though it's something evil that needs to be avoided at all costs.
I guess that's why your interpretation is appealing. It makes it sound like all that would need to happen is for people to get sick and tired of being in debt and the spiral would kick off.
Thanks for the link too.
Hey Eleua-
So what's this regulation X?
How long has it been around and has the Fed ever used it? If so, under what circumstances?
Thanks
Whoah, you can do better than 5 % on a 6 month CD right now.
And when you want out, all you gotta do is call the bank.
SPD,
Regarding Reg X...
I was involved in a thread on another forum a few months back, and the subject matter was the FED having control over the lending standards on mortgages.
They could set minimum payback periods, and minimum down payments. The purpose was to keep the banks solvent, as that is the FED's primary responsibility.
In theory, an unregulated banking industry would eventually engage in reckless behavior, and some adult supervision would be necessary to prevent irresponsible loans.
Well, as you can probably deduce, no such adult supervision is available in the US banking system. The nightmare scenario is happening right before our eyes, with all the suicide loans. Minimum payments are non-existant, and I keep hearing about 40 and 50 year loans on the radio.
Here is a long-winded, legalese site that I found that deals with loan originations and secondary markets. It may be buried somewhere in this site.
If I find a better source, I'll try to find you on the forum.
I will also submit that the subject-matter experts on that thread (I was a lurker, not a contributer) may have the reference wrong, or were completely full of B-S.
It sure sounded good.
The FED can institute what is called Regulation X (yes, it really is called that), which states the minimum down payment and payback periods for mortgages. Right now, it is not active, but if it were to become active, you would see 20% down payments and the end to 50 year mortgages.
I'd like to extend and revise my remarks of 9Jul06 1205PDT...
Strike above paragraph.
Insert the following:
I was involved with a thread on another fourm several months ago, where the subject matter was the FED's authority to reign in banks and mortgage lending practices. According to the thread principles, the FED may set minimum payback periods and minimum down payments for loans that fall under US Title 24, section 3500 (Regulation X).
Currently, there seems to be a curious and insane lack of oversight by the very institution that is charged with ensuring the solvency of the US banking and lending system. 50 year mortgages and 0-down payments, and no borrower vetting seem to be the rule, rather than the exception.
Fannie Mae, and their $8.9B (that's billion with a B) "oops," seems to be indicitive of a pattern of malfeasance by the nation's top financial regulators.
Just how does someone misplace $9,000,000,000? Why isn't someone at the head of Fannie spending his time taking long, hot showers until the wee hours of the morning, with Bubba, the prison rapist?
Mr. Speaker, I yield back the balance of my time.
Maybe it's typical of a capitalist republic to be financially irresponsible. Or maybe Andy Fastow was training U.S. government accountants.
The largest agency, the Department of Defense, has failed to comply with the requirement for audited financial statements since the requirement went into effect in the mid-1990’s and has reported significant unsupported adjustments to balance its books. In fiscal 1999, DOD reported $2.3 trillion of undocumentable adjustments to balance its books. In fiscal 2000, DOD reported $1.1 trillion of undocumentable adjustments to balance its books. For fiscal 2001, DOD declined to report the amount of undocumentable adjustments used to balance its books.
When a taxpayer fails an IRS audit, the government makes sure it gets complete information about the taxpayer's money, and then it makes sure it gets the money – if need be it simply steps in and takes the money by attaching salaries or seizing assets. And, the taxpayer may be indicted, prosecuted and imprisoned. The US government is required by law to conform to the same standard, but this is not taken seriously. American citizens continue as if nothing is wrong, buying government securities, paying their taxes, and using US currency. The voters that aren't watching "Diagnosis: Murder" on election night continue to reelect representatives who take no action to enforce the law in the government agencies or the US Treasury, and who continue to appropriate funds to those agencies.
From 2001 to 2004, the mean and median income for households FELL for households where the head of household was no more than 44 years old. (Source: Federal Reserve's Survey of Consumer Finances 2004)
As our jobs, skills and manufacturing base are moved abroad, Americans are left with our rising consumer, mortgage and government debt without a way to service it. This shifts the fundamental power from the citizens to the people and institutions that control financial credit and capital.
Maybe I need to go to a citizenship class to learn why people think this is good fiscal government. People don't want their civil rights anymore, and they don't want their money either.
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