The Collected Works of Author and Blogger Larry Roberts

Archive for 2015

Securitizing liar loans will work out well for early adopters, but as these loans proliferate, they destabilize the market and lead to disaster. If at first you don't succeed, try, try again. Then quit. There's no point in being a damn fool about it. W. C. Fields Were liar loans an innovation we should revisit? Is there a good way to underwrite loans without verifying whether or not the borrower can repay it? Personally, I don't think so. When lenders underwrite new loans, one of the fundamental tasks they perform is determining whether or not the borrower can repay; therefore, allowing borrowers to simply state their income with no verification is an abdication of an underwriter’s responsibility. Stated-income loans (aka…[READ MORE]

The housing market can't absorb a sudden or large increase in mortgage rates without major declines in sales and perhaps even decreases in prices. In response to the housing bubble and bust, Congress passed the Dodd-Frank financial reform. These new mortgage regulations will prevent future housing bubbles by effectively banning destabilizing loan products with interest-only and negative amortization features because those loan programs enabled buyers to greatly inflate house prices from stable levels set by wages and mortgage rates. The toxic loan products banned by Dodd-Frank were invented to solve the problem of affordability. In a stable housing market, the equilibrium price is the highest price consumers can finance, so under pressure to complete more deals, lenders seek ways to…[READ MORE]

House prices in Irvine, California, reached the peak of the housing bubble, providing equity and relieving many underwater homeowners. The federal reserve in conjunction with government officials reflated the housing bubble to restore collateral backing to lender’s bad loans. Whether or not this is a good idea depends on your perspective. If you’re a renter whose tax dollars are being diverted toward this endeavor, these efforts are not particularly welcome. Renters receive no benefit from this intervention, and the resulting high home prices make it more costly for renters to become homeowners, so it’s a double whammy. If you’re a homeowner, it’s a very welcome government intervention. It costs homeowners nothing, and they get all the benefits. Whether or not…[READ MORE]

The real thieves of the housing bubble weren't the big players, the real thieves were the family next door. People are basically honest and will do the right thing if given the chance. However, people are also opportunistic, and if encouraged and enabled to steal, many ordinarily good people will go down the wrong path. Lenders led many astray. During the housing bubble, lenders were desperate to loan money in what they thought were low-risk, high yielding investments. The advertising to entice homeowners to become loanowners was both effective and too-good-to-be-true. The housing bubble turned many good people into thieves. Most were petty thieves who merely gamed the system to get free money. This same group now feels completely justified…[READ MORE]

Historically, properties in this market sell at a 0.6% premium. Today's discount is 2.4%. This market is 3.0% undervalued. Median home price is $594,000 with a rental parity value of $609,300. This market's discount is $15,300. Monthly payment affordability has been worsening over the last 4 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $384/SF to $385/SF. Resale prices have been rising for 7 month(s). Over the last 12 months, resale prices rose 3.3% indicating a longer term upward price trend. Median rental rates increased $30 last month from $2,707 to $2,737. The current capitalization rate (rent/price) is 4.4%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

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