The Collected Works of Author and Blogger Larry Roberts

Archive for April, 2013

My hero, Ed DeMarco, is on his way out as head of the FHFA that runs Fannie Mae and Freddie Mac, the GSEs. Ed DeMarco is a tragic figure who showed how difficult it is in Washington to do the right thing (see: Head of GSEs Edward DeMarco faces replacement, unfortunately). His actions in looking out for the best interests of taxpayers put him in the firing line of pandering politicians on both sides of the aisle. The left assailed him for refusing to give free money to loan owners. His opposition to principal reduction prevented politicians from buying votes with taxpayer money. The right wanted him removed because he vigorously pursued banks for buy-backs on the bad loans they…[READ MORE]

Is buying based on a low monthly payment a good idea? In the past with toxic financing products fouling the market, many buyers used affordability products to borrow much more than they could reasonably afford. Those are the same people who are currently underwater clinging to their loan modifications hoping that prices rise so they can sell before their payments go back up. In general, buying based solely on monthly payment is a path to destruction. However, in today's housing market, the monthly payment affordability is based on stable 30-year fixed-rate mortgages. Those loans won't blow up in the future putting the owner in financial distress. The near record low interest rates we currently enjoy makes the reflated bubble prices…[READ MORE]

It's a difficult time to be a housing bear. The chorus of cheerleaders in the financial media are keen to report on the supposed strength in housing, and locally prices are going straight up. Given those realities, are the rantings and ravings of housing bears just noise to be ignored? Mark Hanson, an independent housing market analyst,  correctly and accurately predicted the crash in housing. He is one of the last remaining housing bears. Let's take a careful look at the well-reasoned positions of housing bears and see if there is any merit to their concerns. California Housing Still Bouncing Along the Bottom by Mark Hanson - April 6th, 2013, 4:00pm Major housing market headwinds create flat to negative 2013…[READ MORE]

Economists say there is no free lunch. Apparently, those economists don't work at the federal reserve. Interest rates are near record lows, and the federal reserve has been printing money to buy $40 billion a month in mortgage-backed securities to reduce mortgage rates further and provide direct stimulus to the housing market. The reason they're doing this is simple, Banks are still exposed to $1 trillion in unsecured mortgage debt, and if the federal reserve doesn't make house prices go up to restore collateral backing to underwater borrowers, the too-big-to-fail banks will fail. Whatever misgivings many critics may have of federal reserve policy, the policy makers at the federal reserve don't feel they have  other options. They must make house prices…[READ MORE]

Is the 30-year fixed rate mortgage is just too risky of a product? Banks don't like it because it creates asset-liability mismatch. It's become a risky product for taxpayers because the mortgage underwriting process has become too easy and the risky loans are backed by the government, and the Ponzi type borrowers have taken advantage of the situation. The 30-year fixed-rate mortgage is government-sponsored product. In fact, it was the first affordability product, but it had underwriting requirements that reduce the risk to the lender and added stability to the banking system. The three simple underwriting requirements made this loan the bedrock of our housing market for over 60 years: A 20% down payment requirement A through credit check with…[READ MORE]

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