Under pressure from real estate industry lobbyists, government regulators completely cave in and allow banks to underwrite bad loans with no risk retention. In what can only be described as a complete abdication of responsibility, government regulators will allow banks to underwrite no-money down loans without retaining the mandated 5% risk retention on their books. The last vestige of hope for a stable real estate market was set aside so lenders can make more money by putting unstable and unqualified borrowers into loans they shouldn't be given -- and taxpayers will likely pick up the tab when these loans go bad. The 5% risk retention provision is part of the Dodd-Frank financial reform bill. It's designed to force lenders to…[READ MORE]

Americans have too much mortgage debt, student loan debt, credit card debt, but the only solutions offered by Washington create even more debt. It's un-American for banks to lose money. American banks are rarely forced to write down a bad loans by regulators, and legislators bail out banks when they get in financial trouble. Our legislators suffer from the collective delusion that what's good for the banks is good for America; in reality, the opposite is generally true. Right now, what's good for the banks is preserving the book value of loans even when the market value is considerably lower. Regulators allow bankers to post whatever value they see fit based on their "sophisticated" financial models, preventing bankers from recognizing…[READ MORE]

Two professors suggest modifying standard terms of home mortgages to allow lower payments in a recession in exchange for upside appreciation. Would it work? Are there any circumstances under which homebuyers would be willing to share in the upside on a home purchase? Last year I wrote about the concept of equity share as an option for housing bears. In that program, an investor puts up half the down payment in exchange for half the net profit at sale. Anyone who believes house prices will not rise would strongly consider such a deal because someone else ties up their money in the property rather than the buyer. Today's post concerns another idea two professors came up with to entice borrowers…[READ MORE]

During the spring selling season, house prices are up slightly while the cost of ownership and rents are unchanged. Over the last few months of the prime selling season, many market pundits lamented the lack of sales, but most continued to point to year-over-year gains as a positive sign for the housing market. The recent drop in mortgage interest rates has allowed borrowers to increase their leverage on flat incomes, so buyers have been able to raise their bids slightly during this spring selling season; however, since job creation is weak and wages are stagnant, sales volumes are low, and the cost of ownership is practically unchanged; rents are also unchanged. Over the last nine months, the median resale prices…[READ MORE]

Falling mortgage interest rates allow people to borrow more and pay more, but the economy must create high-paying jobs to revive the housing market. Real estate demand has two components: purchasing power, and total number of qualified buyers. Low mortgage rates increases the buying power of the majority who use financing, so low rates tend to make prices rise; however, low rates do nothing to increase the size of the buyer pool to improve sales volumes. Our current economic environment, the weak job and wage growth hobbles housing; thus transaction volumes are very low, despite low mortgage rates. By the beginning of next month, mortgage interest rates will be lower year-over-year. Ever since mortgage rates rose abruptly last May and…[READ MORE]