Tag Archives: Housing

Affordable Housing – Durham, NC

Affordable Housing

I’ve said time and time again that I don’t begrudge the Liberal her intentions – noble to be sure.  Rather, I begrudge her policies:

Residents said 85 to 100 affordable apartments should be put on the site, and many held up signs expressing frustration with the high cost of living downtown, where rents often top $1,000 a month.

The reason rents are so high is that supply hasn’t been able too keep up with demand.  And the reason for THAT is almost always restrictive zoning laws.

If we allow builders  more flexibility is how and what they build, the more building that will take place allowing housing costs to come down.

See Houston vs San Francisco.

According to Stan Humphries, chief economist of Zillow, local regulations are at the root of the supply problem. “Zoning, parking minimums — these inadvertently drive up the fixed cost,” Humphries said at the Atlantic’s summit on the economy.

And when fixed costs go up, builders have an incentive to create more expensive housing, he said.

“That’s why places like Houston don’t have the same housing crisis that San Francisco does,” he said. San Francisco is known for its strict building rules, while Houston doesn’t have a zoning code at all.

Econ 101 – though you may not find that offered in a “Comparative Arts” major.

Housing Bubble – Who Created It

Housing Bubble

Last year I posted on who I thought created the housing bubble:

There is no doubt that the housing crisis was caused by government policy.  Bad actors everywhere?  Sure.  But at the root of it all the was the government’s desire – by both parties – to increase home ownership in America.  And specifically for the poor and minorities.

There has yet to be evidence produced that would cause me to change my mind.  There is absolutely no question whatsoever that the administrations of Presidents going back to Jimmy Carter pursued the goal of home ownership in America – most specifically in the poor and minority populations.

The flip side to the “government created the bubble” is the “Wall Street’s greed created the bubble.”  The most vocal in my circle has been Scott Erb over at World inn Motion here and here:

The housing bubble and subsequent crisis was created by the big banks who were able to pull off the equivalent of a high stakes ponzi scheme and get away with it.

I’ve been going back and forth with Scott, and other wrong minded individuals about this as if it were a binary proposition.  Meaning that the answer was either I was right or “they” were right.

I’ve come to a different conclusion.  Namely, that while the government certainly was the trigger of the events that led to the crash, the whole thing still had to be set in motion with the people who would make and then sell the loans.

Consider – the government requires banks increase lending to people who have no hope of repaying those loans.  It stands to reason that the banks then go and meet the requirements.  This doesn’t change the fact that they were incented to make those loans and create the vehicles which facilitated those activities.

What might it take to create the case that this is the case?

  1. A bubble existed
  2. That government policy favored or desired homeowner ship among the poor and minority populations.
  3. That the government created conditions that either incented or required banks to increase these risky loans.
  4. That government assisted in this practice

If government passes a law that creates a disincentive to hire or retain employees, and then business reacts by firing or not hiring people it is BOTH true that government created the conditions that led to reduced employment AND that business acted out those policies – both Scott and I might be correct.

Wall Street may have enacted the policies but did so only due to government involvement.

Housing Crisis – Data Point

Housing BubbleThere is no doubt that the housing crisis was caused by government policy.  Bad actors everywhere?  Sure.  But at the root of it all the was the government’s desire – by both parties – to increase home ownership in America.  And specifically for the poor and minorities.

With that in mind:

There is no doubt what really happened. Between 1997 and 2007, HUD’s affordable-housing policies under two administrations built an enormous mortgage bubble—nine times as large as any bubble in modern history—and when this bubble collapsed, it caused a 30%-40% decline in housing prices. This left homeowners who had limited financial resources and no equity in their houses unable to refinance or sell, causing an unprecedented number of mortgage defaults. Shocked by these numbers, investors fled mortgage-backed securities, making them useless for short-term financing by financial institutions like Lehman. The result was a panic and a financial crisis.


As I mentioned, there were guilty actors everywhere. Everyone from the appraiser who fudge the home value to the banker who pressured lending agents to companies that engaged in fraud – guilty all.

But it was the government, through the agencies Freddie and Fannie that drove the whole failure.


HUD was still at it in 2004, stating that “Millions of Americans with less than perfect credit or who cannot meet some of the tougher underwriting requirements of the prime market . . . rely on subprime lenders for access to mortgage financing. If the GSEs reach deeper into the subprime market, more borrowers will benefit from the advantages that greater stability and standardization create.”

That statement is all you need to understand why, in 2008, 74% of the subprime mortgages outstanding in the U.S. financial system were on the books of government agencies, particularly Fannie and Freddie.



Watch How They Defend ‘Em

Fan and Fred

In a move so surprising I had to check THREE times that I wasn’t reading The Onion.  Obama is proposing to kaput Fanny and Freddie:

(Reuters) – President Barack Obama will propose overhauling the U.S. mortgage finance system in a speech on Tuesday, weighing in on a tangled and polarizing problem that was central to the devastating financial crisis in 2007-2009 and that continues to slow the economic recovery, the White House said.

Just another big government program in the waiting, right?  Hardly:

Obama will propose eliminating mortgage finance entities Fannie Mae and Freddie Mac over time, replacing them with a system in which the private market buys home loans from lenders and repackages them as securities for investors, senior administration officials said.


Obama is suggesting that we demolish the government agencies and replace them with private market systems?  But I thought that the practice of repackaging mortgages was immoral and the root of all evil?

The mortgage securitization process is deemed essential to the smooth flow of capital to housing markets and the availability of credit.

What has happened?  I thought that it was evil Wall Street that brought down fire and brimstone upon us all?  It was Wall Street bankers that took mortgages, packaged them and the resold them.  Right?

The two enterprises don’t directly make loans, but buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors.

But how much influence do they really have?

Fannie and Freddie currently own or guarantee half of all U.S. mortgages and back nearly 90 percent of new ones.

Blink.  Blink.

Holy shit that’s a lot of loans.

It’s long overdue, to be sure, that Fannie and Freddie are shut down and the government stop its subsidizing of loans to folks who have no hope of paying them back.  For me, this just reinforces the fact that the government policies and agencies were the primary driving force behind the housing collapse.

Now, to see who may or may not be right, watch who approves of this approach and watch who does not approve of it.  The first democrat that defends Fannie and Freddie is the first to be guilty of those policies I have been criticizing this whole time.  And the first republican who opposes the President is the most guilty of simply opposing every idea he has.


The Birth Of The Next Housing Crisis – Day One?


I’m not sure that we’ll have another housing bubble burst soon, or even in my lifetime.  But I’m sure that if we do, the genesis of that bubble will begin like this:

 The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

The best of intentions, to be sure.  But the beginnings of a potential housing contagion.

And let’s not forget the associated racist dog whistle that accompanies these efforts:

“If you were going to tell people in low-income and moderate-income communities and communities of color there was a housing recovery, they would look at you as if you had two heads,” said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing organization. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”

And like past bad behavior, this time around the language surrounding the policy sounds good:

“I think the ability of newly formed households, which are more likely to have lower incomes or weaker credit scores, to access the mortgage market will make a big difference in the shape of the recovery,” Duke said last month. “Economic improvement will cause household formation to increase, but if credit is hard to get, these will be rental rather than owner-occupied households.”

It’s a free stimulus!

However, to be fair, if this is Day One, then Day Zero occurred a long time ago:

Deciding which borrowers get loans might seem like something that should be left up to the private market. But since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans, according to the industry publication Inside Mortgage Finance. It has done so primarily through the Federal Housing Administration, which is part of the executive branch, and taxpayer-backed mortgage giants Fannie Mae and Freddie Mac, run by an independent regulator.

It’s the same song that got us into this mess, this is just a new stanza.



More Occupy Raleigh Cuteness

This afternoon Occupy Raleigh #Occupied a house that had been foreclosed on where the former owner had maintained residence.

Many were arrested.

The usual story applies.

What struck me were these two comments:

Todd Warren, an Occupy organizer from Greensboro, said the group thinks Nikki Shelton is one of more than 10 families in the neighborhood who face illegal foreclosure. The protesters say they’ve uncovered “evidence of robo-signing,” the practice where mortgage servicers sign documents without reading them.

“Housing is a human right,” Warren said. “We’re not going to let people be put out of their homes while banks make record profit.”

To be honest, if the families are being evicted from their homes illegally, I support holding the banks accountable.  But the idea that “housing is a human right” is patently absurd.  There can be nothing that is a human right that requires another man do anything in order to secure that right.

And then this statement:

Shelton, who was not among those arrested Monday, stood solemnly in the sun outside her former home during the protest.

“This is my civil right to fight to get my home back,” she said. “It’s not us who are the ones doing anything against the law.”

It’s her civil right to get her home back.  A home that she hasn’t been able to pay for.  A home, that since 2007, she hasn’t paid for, is hers.  And that denying her that home is somehow denying her civil rights.


Capitalism And Greed

With all the talk about corporate greed and abuse and the failings of capitalism, I think it’s important to point out that not everything done in the name of wealth accumulation is “good and great” to the capitalist.  There still is the explicit expectation that law and order rule the day.  That contracts are acknowledged.  That there be enforcement of those contracts.  That property rights exist.  And again, that the protection of those rights is guaranteed by the state.

There are bad actors in capitalism.

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Case-Shiller Home Price Indices: January 2012

Case-Shiller publishes a home price index on the last Tuesday of the month.  The index measures the price of a three-month moving average and is published with a two month lag.  In January, the report is showing the index for home prices in November 2011.

November saw a continuation of the softening of housing prices.  In only 3 of 20 markets measured did the prices rise, fully 17 of 20 saw a decline.  This continues a trend that started roughly in early summer 2010.

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Government Regulations: Costing Jobs

I have long held the position that incentives matter.  Further, I hold that government cannot completely control all reactions to incentives.  That is, when a government body imposes regulations upon a population with the desire to guide correct action, the government body cannot anticipate all reasonable reactions.

Incentives matter.

And so, in an effort to regulate mortgage originators, the government is forcing corporations to leave that segment of the business:

MetLife, the nation’s largest life insurer, announced Tuesday that it would close its home mortgage-origination operation, costing the company at least $90 million. Most of the 4,300 employees at the unit will lose their jobs.

“The majority will no longer have a position,” said John Calagna, a spokesman for MetLife. Most of the workers at the business are based in Irving, Tex., Mr. Calagna said.

MetLife said in October that it was seeking a buyer for its mortgage unit after announcing plans to sell deposit-gathering operations to reduce federal oversight. The company reached a deal last month to sell about $7.5 billion of its bank’s deposits to General Electric.

The Federal Reserve, which oversees MetLife because of its size and banking operations, rejected its plan last year to raise its dividend and resume share buybacks.

Because of the Federal Government and the regulations it imposes, MetLife will now shed 4,300 jobs.

To be clear:  Government regulations cost the economy 4,300 jobs.  No outsourcing.  No downsizing.  No automation.  No nothing.  Pure and simple regulation avoidance.

And for added enjoyment, the NYT article goes on to mention the dollar amount that this will cost MetLife:

MetLife will continue to service current home-loan clients and offer reverse mortgages, the company said. The wind-down may cost as much as $110 million, according to the statement.

In addition to shedding 4,300 jobs, MetLife is WILLINGLY taking an action that will cost it $110 million dollars.  The cost of the regulation is AT LEAST $110 million!  AT LEAST!

Is there any legitimate argument that can be made that this administration is building an environment conducive to business and the free market?



Fannie And Freddie CEOs Charged With Fraud

I have long held the belief that Fannie and Freddie were leading charge when it came to the housing boom and then bust.  Certainly there were other actors with fault viably assigned, but Fannie and Freddie were the agencies that led the way.

So hearing that they are being charged with fraud is a bit of vindication:

The Securities and Exchange Commission today brought civil fraud charges against six former top executives at Fannie Mae and Freddie Mac, saying they misled the government and taxpayers about risky subprime loans the mortgage giants held when the housing bubble bust.

And for what are they accused of:

“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, SEC’s enforcement director. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk.”

And to what extent?

According to the lawsuit, Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books, or just 0.2 percent of its portfolio. The SEC says that Fannie actually had about $43 billion worth of products targeted to borrowers with weak credit, or 11 percent of its holdings.

Mudd told a congressional panel in March 2007 that Fannie’s subprime business represented less than “2 percent of our book.” He also said the company held subprime mortgages “very carefully.”

Freddie told investors in 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books. The SEC says its holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008.

In a May 2007 speech in New York, Syron said Freddie had “basically no subprime exposure,” according to the suit.


And how big of a player are they in the market today?

Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and then sell them to investors around the world. The two own or guarantee about half of U.S. mortgages, or nearly 31 million loans.

Half.  The two agencies own or guarantee HALF of ALL the mortgages in the US.

And they lied.