The Collected Works of Author and Blogger Larry Roberts

Archive for November, 2013

For most of the last forty years, Orange County house prices relative to income or rent has been higher than most of the rest of the nation. Price inflation in OC is caused the growth restrictions due to the passage of CEQA in 1970, superior income and job growth, and old-fashioned kool aid intoxication. Ever since the 1970s, house prices relative to rent have been so high that it's rare for owners to be cashflow positive. In other words, absent home price appreciation, it generally makes more sense to rent. However, Orange County has been anything but absent home price appreciation. In fact, house prices in many areas are ten times or more than they were forty years ago. This…[READ MORE]

ARM's, option ARM's, negative amortization loans, and interest only loans were going to cause a wave of defaults as these affordability products where going to reset and/or recast.  This was the grim prediction after 2008.  However, due to programs like HARP which modified these loans into...well affordability products part 2, these homes weren't sold by the banks.  In addition, the Federal Reserve through it's ZIRP and QE programs pushed mortgages rates to their recent ultra lows which allowed the new affordability products part 2 to have lowest possible rates.  However, in the past few months mortgage rates have increased which has caused number of refinances to drop. Home equity lines due for reset may be looming financial disaster Some borrowers…[READ MORE]

Look out coastal California! The loan limits are going to drop. The acting director of the GSEs, Edward DeMarco, openly lamented how the government guarantee of GSE loans inflates house prices, and he plans to move ahead with his program of gradually lowering conforming loan limits. Will lower conforming limits price buyers out, force sellers to reduce price, or cause sales volumes to plummet? (See: How will a reduced loan limit impact Coastal California?) DeMarco's comments came from a speech where he discusses the problems with the GSEs and makes note of the selective amnesia GSE supporters are exhibiting. DeMarco: People Are Forgetting Why Fannie, Freddie Failed By Nick Timiraos -- November 8, 2013, 1:44 PM Fannie Mae and Freddie…[READ MORE]

For house prices to go down, the market requires must-sell inventory from sellers who will take whatever the market will bear. Desperate sellers will lower their prices and accept less than recent comparable sales prices in order to close the deal. Many housing bears during the bubble predicted the toxic loans of the era would blow up causing many foreclosures and distressed sales which would push prices lower. The scenario played out just as bears said it would from 2007 to early 2009. In fact the situation got so bad that banking regulators altered accounting rules to reduce pressure on banks to liquidate and remove must-sell inventory from the market. By 2011 lenders changed their foreclosure policies, dried up the…[READ MORE]

I've noticed a meme floating around the bearish blogosphere portraying all securitizations as unstable financial products that should be avoided. I think this is completely wrong. Securitizations got a black eye in the financial crisis of 2008. Many AAA rated securities turned out to be garbage, investors lost billions of dollars, and these bad securities threatened our entire financial system. However, it wasn't the securtizations that were the problem. It was the products inside them and the failure of ratings agencies to properly forecast the risks. The old adage in computer science is garbage in garbage out. The same is true of securtizations. The problem with these complex financial products, particularly the ones created from mortgages, was the quality of…[READ MORE]

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