The Collected Works of Author and Blogger Larry Roberts

Housing bailouts and false hopes Government programs ostensibly designed to benefit homeowners were really intended to bail out the banks. In April of 2008, I wrote a post about the psychology behind the various government programs designed to help banks kick the can until conditions got better. In the five years that transpired since, their efforts went from frantic, to desperate, to sublimely ridiculous. Each step along the way, the sheeple were strung along and enticed to make a few more mortgage payments in what will prove an ultimately futile effort to benefit from occupying a property they can’t afford. Over the years, others picked up on the nonsense. This in 2011 from US Congressional Representative Patrick McHenry: How Homeowners…[READ MORE]

Mortgage debt-to-income ratios determine how much potential homebuyers can borrow Anyone considering buying a house needs to understand debt-to-income ratios because these measures of a borrower’s capacity to repay the debt is fundamental to mortgage underwriting. Debt-to-income ratios are concerned with monthly income. These are not measures of total debt or total income, only the monthly payments on debt compared to monthly gross income. Notice also that the benchmark is monthly gross income, not take-home pay. The monthly gross income standard is important because tax policy can pose problems for borrowers with high debt-to-income ratios because after paying their mortgage and their taxes, they don’t have much left over to live a life. Strangely, lower income borrowers can often endure…[READ MORE]

The real reason MLS inventory is so low Many housing analysts suggest the lack of inventory is because potential sellers are concerned they can’t find another home to buy. This is a red herring. The real reason is the lack of move-up equity. Back in 2012, I postulated that homeowners would list their homes as soon as prices reached near-peak levels when they could get out without completing a short sale. After watching prices inflate to peak levels and the listings failed to materialize, I concluded that the lack of equity to complete a move-up is what kept supply from coming to market. Loan modifications kept homes off the market to facilitate the recovery. As these loan modifications expired, some…[READ MORE]

Why did lenders modify so many loans during the housing bust? Unilaterally modifying home mortgages was a necessary step to ensure banks survived the housing bust. Ostensibly, homeowners and lenders agreed to the price of money (interest rate and payment) when the promissory note was signed. Unfortunately, during the housing bubble, the terms of these notes were onerous, and many borrowers faced excessive monthly housing costs while simultaneously facing declining house prices and the elimination of their equity. With no equity, little hope of future equity, and rising payments, many borrowers opted to strategically default — and lenders worried that more would follow. Banks were still exposed to $1 trillion in unsecured mortgage debt when housing collapsed. The threat of strategic…[READ MORE]

Large down payments stabilize the housing market Large down payments shut many borrowers out of the housing market — many unreliable ones — which is why large down payments make housing so stable. It’s also why many rally against it. Down payments form the bedrock of the housing market. Large down payments serve the interests of homeowners and politicians by preserving homeownership, lowering volatility in the market, and reducing the risk to our financial system. The primary people who oppose large down payments profit from short-term boosts in transaction volumes and higher prices, realtors and originate-to-sell lenders. Left-wing housing advocates also view large down payments as a barrier to putting unqualified borrowers into houses — of course, they fail to acknowledge…[READ MORE]

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