The Collected Works of Author and Blogger Larry Roberts

Archive for 2013

Lenders prefer to underwrite loans and pass the risk to others thus avoiding consequences for shoddy work. Housing advocates want unqualified borrowers to receive loans even if many borrowers won't repay them. Both lenders and housing advocates agree that the Dodd-Frank financial reform law blocks their agenda, so they formed a coalition to lobby the agencies responsible for implementing this law. These responsible agencies capitulated to the coalition in an example regulatory capture. Wikipedia defines Regulatory Capture this way: Regulatory capture is a form of political corruption that occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with…[READ MORE]

Stories about foreign buyers circulate periodically in the mainstream media. The plot is always the same: foreign buyers loaded with cash are buying houses as an investment. The nationality changes from time to time, but the narrative is always the same, and the implied urgency to buy before a foreigner buys your dream home is always present as well. In October of 2010, I published Foreign Buyers Rush to Catch Falling Knives. In August of 2013, the OC Register published Foreign investors buying homes in O.C. And today's featured article is another in that genre. One statistic is consistent in these articles; foreign buyers represent between 5% and 7% of the housing market. These stories imply the number of foreign…[READ MORE]

Traditionally, mom and pop investors owned and managed single-family homes as an investment. Large institutions stuck with large apartment complexes, which were easier to manage. When house prices fell due to the housing bust, cash returns on single-family homes increased so much that it was wiser for institutions to buy homes earning 6% or more instead of buying apartments where they might earn 4% or less. Thus, institutional buyers entered the housing market with billions of dollars and helped form a bottom in house prices. The rising tide of prices caused by institutional buying did not lift all boats. These buyers followed strict deal underwriting criteria that focused their efforts on specific property types in certain areas. If an area…[READ MORE]

The Great Park in Irvine will end up with 4,606 more houses than originally approved, and it will lose 410,000 in commercial space. As a result, FivePoint Communities will receive a tremendous windfall, perhaps even enough to compensate for dramatically overpaying for the property at the peak of the housing bubble. Irvine City Councilman Jeff Lalloway extorted FivePoint for several last-minute financial concessions to compensate for Irvine’s Great Park boondoggle that blew $200 million. FivePoint stood to profit hundreds of millions from the approval of more homes, so they were happy to oblige Mr. Lalloway's requests. In the end, the reflating housing bubble bailed out bad decisions from both parties over the last ten years. Great Park go-ahead: Developer's plan…[READ MORE]

[dfads params='groups=165&limit=1']I expressed the view that new mortgage regulations will prevent future housing bubbles. These new qualified mortgage regulations forbade the measures lenders employed to inflate previous housing bubbles. One of these restrictions caps debt-to-income ratios at 43% of gross income. While this rule contains an interesting loophole (See: The 43% DTI cap strongly favors those with no consumer debt), this loophole fails to penetrate the rigid ceiling on affordability imposed by the 43% DTI cap on gross income and other ability-to-repay rules. If lenders are unable to find "innovative" ways of circumventing this cap, then future housing markets will be very interest rate sensitive. Small changes in a borrower's debt-to-income ratio make a huge difference in the amount financed…[READ MORE]

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