The Collected Works of Author and Blogger Larry Roberts

Archive for September, 2013

The success lenders enjoy in reflating the housing bubble is remarkable. Since they stopped foreclosing on delinquent mortgage squatters and focused their efforts on can-kicking, lenders managed to dry up the MLS inventory and force prices to rise 20% to 40% in a very short period of time. This will enable many previously underwater borrowers to sell without a short sale, which ultimately prevents another bank loss. Further, higher prices will increase the lender's recovery amount when they do foreclose on the most committed squatters. The success of lenders efforts is not without concerns. Back in May I discussed the 10 biggest obstacles to reflating the housing bubble. Today, we revisit that topic with an overview from the Wall Street…[READ MORE]

The headline of today's post is not news to anyone who reads this blog very often, but for many, including some academic economists, this basic understanding comes only after years of study of the aftermath. Perhaps I expect too much of academics. They are supposed to be very smart people, or we wouldn't entrust them with the education of future generations, but sometimes the lack of common sense is truly remarkable. Today's featured article appeared in the latest addition of Capital Ideas, a publication of the Booth School of Business at the University of Chicago. I will translate the lofty academic language of the author into common sense terms, not to assist you in understanding it, but to assist other…[READ MORE]

The Dodd-Frank financial reform law required bureaucrats to draft rules for qualified residential mortgages. Loans that conform to the standards defined can be sold into the secondary mortgage market without restriction. Loans that do not conform require the lender to retain 5% of the capital risk on their own balance sheet. Fortunately, this is not the only protection in the system preventing lenders from originating bad loans and passing the risk off to others. All securitized mortgages have put-back provisions that allow the servicers to force the originating lender to buy back the loan if the borrower defaults. However, for a loan to be put-back to the lender, there must be defects in underwriting, and if the underwriting standards are…[READ MORE]

It's not a secret that loanowners, especially if they have little or no equity, have been able to squat in their homes without paying their mortgages.  The FHFA through Fannie, Freddie, FHA has been encouraging the banks to refinance these loans through an alphabet soup of government sponsored programs.   In addition to these programs, Federal Reserve has pushed mortgage rates lower to encourage these defaulters to modified their loans instead of abandoning their homes in default.   The affect has been keeping these loanowners in their homes and thereby their homes off the market.  Without these efforts the banks have foreclosed on these defaulted mortgages and these homes would flood the market, pushing home prices lower.  The end result…[READ MORE]

During the 00's many countries inflated massive housing bubbles. The readers of this blog are well acquainted with the issues surrounding the US housing bubble, but Spain, Great Britain, and Ireland, among others also inflated painfully deflating housing bubbles. Norway inflated a housing bubble during this period, but after a brief pullback, they went on to inflate an even larger and more potentially damaging one. As strange as this may sound, I believe the root cause of this enormous problem is good governance and sound fiscal management. Unlike nearly every other government, Norway has managed its budget and resources well. Norway has massive oil reserves in the North Sea, and they have been carefully saving and investing the taxes they…[READ MORE]

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