How the Federal Gov't is Ruining the Housing Industry

Today the Commerce Department came out with their New Housing Sales numbers for January.

The article sites "a lack of demand because buyers don't have access to credit" as a result of unemployment.

Obviously if you don't have a job you can't get a loan, but not having access to credit isn't a result of unemployment it’s a result of over-regulation.

There are still plenty of buyers in the marketplace. The real problem is that by and large Banks simply aren't making loans. And for the loans they are making, the process has become so difficult, so mired in red tape and frankly, fear, that many have simply left the marketplace altogether (both consumers and Real Estate and Mortgage professionals; I have personally observed this for 2 years now. It’s truly maddening to try and get a deal done these days). And no amount of “bail out” money is going to loosen the credit strings. Not with the monstrosity known as the Dodd-Frank Wall Street Reform Act stifling the entire industry.

The Gov't regulations rammed through by the Pelosi/Reid Congress and signed by President Obama, have had the affect of bringing the Real Estate and Mortgage Business to a virtual standstill. In their attempt to "regulate" the "reasons" for the financial crisis, they have not only NOT solved the real problem, but in fact made things worse. Like all Big Gov't intervention, they have attempted to solve a problem they created, by mis-assigning its cause and then targeting that wrong cause with further regulation.

What am I talking about ? Well...The crash was not initially caused by Wall Street and the Junk Securities they were selling as AAA investments, but by the Gov't itself, meddling in the housing and mortgage markets in the first place. Specifically the CRA and Barney Frank!

Granted CMO/CDO bundlers and traders, Moody's, Fitch and Standards and Poors are all culpable and I am certainly not excusing the fraud and collusion that existed in rating mortgage backed securities, backed by sub-prime JUNK paper, as AAA (a crime by the way that no-one has yet to be held accountable for). But that wasn't the earlier beginning of the problem. It started with the notion that Banks MUST make loans to people who can't afford them. An Unequivocal overreach of Gov't regulation and violation of the very fundamentals of a free market, all in the name of “social justice” (the idea that owning a home is a “right” instead of a privilege).

If the Real Estate and Mortgage Markets were truly run by Free Market principals none of this would have ever happened. Why? Because the free market would never have allowed such high credit risk borrowers if not forced to!

If the free market wanted (wants) sub-prime loan products, and there is a market for them, then the free market will create and regulate them. If some Banks want to take the risk, and that risk is honestly and accurately rated, then the market itself (in this case the secondary mortgage market), will value them (and their risk), buy them, and voila, we have a market.

But that’s not what happened. The Gov’t regulations (mentioned above) forced Banks to create loan products for borrowers they knew couldn’t qualify in the private free market industry of risk to reward (profit) actuaries. And once created there needed to be somewhere to put this paper.

Wall Street, in an attempt to solve the problem of what to do with this junk, bundled and sold these as securities with FALSE risk assessments. Frankly I’m not sure they could have done anything else. Again I don’t condone what happened but I ask the question “What were the Banks supposed to do once they were forced to write this paper”?. They needed an exit strategy. They wouldn’t hold such paper on their own accord, its risk was too high. Clearly Wall Street had a problem. What to do with this junk. The real Fraud here isn't that they bundled and sold these loans but the fraudulent risk assessments placed on these securities in the first place. Perhaps that too was an unavoidable expedient. But whether you come down against Wall Street Traders or the Rating Agencies, it is clear to me that it is Gov’t overreaching regulations based on abstract ideology that CAUSED the problem.

So what do they do? Pass more regulation of course. The very person that helped create the regulations sparking the crisis in the first place has now co-sponsored and helped push through an even more overreaching law, targeting the WRONG WHY's further destroying the Housing Market.

Here's a clue Barney...LOOK IN THE MIRROR, and RESIGN. PLEASE......

New Year's Resolutions

It's that time again when we take stock in where we've been and where we are going.

Last year was the best since 2006 for me and to be honest I am grateful.

I spent most of the year renting homes in my backyard.

Sales are still slow and even though I have 20 homes under contract, they are all but 1 short sales and the banks in this country are still reeling.

Some are starting to streamline their processes and getting some semblance of order in their loss mitigation departments.

Others are still wearing a blindfold and stumbling in the dark.

The key (and a very hard lesson to learn for a Type A personality) is PATIENCE.

I hope you had a great 2010. And I wish you a 2011 of prosperity.

My Resolutions Are:

1. Stay on Purpose.
2. Remember it isn't personal
3. Even the worst, most obstructive person you have to deal with is still a person. treat them with some dignity.
4. Have fun, life isn't that serious :)
5. Above all, flourish and prosper.

Shadow Inventory and the Housing Market

I know people hate those that "toot their own horn", hell I usually do too.

But I simply can't resist...(and am taking my horn out of its case right now) :)

Last year I posted this blog entry about the shadow inventory in this country. I even posted a solution almost two months prior (and now nearly a year old).

It may not be the perfect solution, but at least it addressed the core issue.

With this being said, I just came across this article in today's Barron's, the preeminent weekly of Wall Street.

According to the article: "The so-called shadow inventory of residential properties on the market jumped 10% in August, the most recent month for which data are available, to 2.1 million units, CoreLogic reported Monday...The latest month's data represented an increase from 1.9 million units a year earlier, equal to five months' supply.

The visible supply of properties listed was flat, at 4.2 million units, in August but because the slower pace of sales, this represented 15 months' supply, up from 11 months' a year earlier. All told, the visible and shadow supply totaled 6.3 million units, or 23 months' supply at the current sales pace, up from 6.1 million a year earlier, or 17 months' supply back then. In other words, we're falling farther behind."

Wow.

I'm sure I speak for many in the Real Estate and Mortgage industries when I voice my utter frustration at the Olympic FAIL that is the Government "solutions" to the housing crisis.

Rather than confront the problem, and really look, we have seen two years of ad hoc "solutions" meant to do nothing but keep the current house of cards propped up.

From the chaos at the major banks with their foreclosure procedures and document disasters, to the current investigation (finally) of MERS (Mortgage Electronic Registration System) the Government seems to be years behind.

It will be very interesting to see what comes of the current investigations.

Stay tuned folks, this is just starting to get interesting.

An Interesting Turn of Events

Today Fannie and Freddie took a bold move. They are holding the major banks accountable. According to the Washington Post "Fannie and Freddie have threatened to penalize thousands of lenders if they fail to rapidly fix the way they seize the homes of borrowers who missed their payments, according to letters sent by the firms to lenders".

The interesting thing is this IS the free market checks and balances WORKING. Who else has the clout and power to take on the corrupt banking industry.

Hats off to Fannie and Freddie.

Put those Ethics in!

The Latest Deal. Lennar spends $740 million on real estate

Very Good Article.

My feelings about Bank of America!

Here is some interesting news from one of the largest banks in the country. I can personally attest to the nightmare of doing short sales with them. Deadlines routinely missed, employees that really don't care. One of my good friends and clients just lost their $8000 tax credit because it took B of A 9 months (that's right), 9 MONTHS to process paperwork.

There are millions of people out of work and the bank took billions from the tax payers and they can't either hire enough people, or otherwise make it go right to get a deal done in 9 months?

Anyway I find it interesting that they now have to "freeze foreclosures" to do an internal audit of their foreclosure process to make sure there were no errors. But of course it only applies to current foreclosures so they can “amend all affidavits in foreclosure cases that have not yet gone to judgment.” This of course begs the question what about the thousands that may have been erroneously kicked out of their homes already?.

Anyway here is the article. Enjoy!

Sobering News. Existing-home sales plunge 27.2% Inventory of unsold homes jumps to 11-year high

The National Association of Realtors said existing-home sales fell to a seasonally adjusted annual rate of 3.83 million in July from 5.26 million the month before. Sales of single-family homes fell to the lowest rate in 15 years.

Rest of the Article Here.