Larry Roberts real estate writing blog: May 2014

Saturday, May 31, 2014

Ponzi Debt: Structured Finance 101

Structured Finance Structured finance is an innovation of the finance industry on Wall Street. It is a method of redistributing risk based on complex legal and corporate entities such as corporations, limited liability companies or some other kind of legal entity capable of entering into...
Structured Finance 101

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Real Estate Ruin: Interest Rates and House Prices

Mortgage interest rates are determined in an open market and are subject to the forces of supply and demand. These rates are the sum of three main components: riskless rate of return, risk premium, and inflation expectation. The Great Housing Bubble was characterized by historic lows in the...
Interest Rates and House Prices

OCHN: Developers profit from the poor through affordable housing programs

Affordable housing programs are intended to provide good homes to low wage earners; instead, they provide government handouts to developers.

Russ Wetherill, May 31, 2014
If there’s one thing I can’t stand…
[full-disclosure: there’s actually a lot of things I tolerate, but don’t really like very ...
Developers profit from the poor through affordable housing programs

Friday, May 30, 2014

Debt Default: Strategic defaulters recommended others walk away too

Most people are cautious by nature waiting for others to pioneer new places, new ideas, and new patterns of behavior. People will observe the results of pioneering behavior, and if the pioneers are rewarded and recommend what they did to others, the herd will follow. If the pioneers are...
Strategic defaulters recommended others walk away too

Housing Market: The California Social Contract

Satire is often more revealing than detailed explanations. The pathology of a collection of beliefs becomes apparent when the natural end result of a group of people acting on those beliefs is an absurd contradiction and an obviously unsustainable state. The following is a satirical essay...
The California Social Contract

OCHN: No house is worth dieing for

The US foreclosure crisis contributed to the nation’s jump in suicides, independent of other economic factors associated with the Great Recession.

People form attachments to many things, and these attachments are the source of most suffering. I recently lost a $300 laser distance finder I...
No house is worth dieing for

Thursday, May 29, 2014

Loan Mod Default: Rising down payments and loan costs hindered the housing recovery

Besides credit qualification barriers due to low FICO scores, there are two barriers to originating more loans and selling more houses to owner occupants: (1) insufficient down payment, and (2) increasing loan costs. The FHA still originates loans at 3.5% down, and the credit barriers are...
Rising down payments and loan costs hindered the housing recovery

Ponzi Debt: The distinction between good debt and evil debt

I make no secret of my disdain for the behavior of bankers during the housing bubble. I’m not so extreme that I consider all borrowing and lending to be evil; however, I draw a clear distinction between what I consider good debt, useful for economic efficiency, and bad debt, useless and...
The distinction between good debt and evil debt

Loan Mod Default: Defaulting on your home now includes automatic enrollment into a loan modification program

The desire to push defaulting homes into shadow inventory and keep them off the market is manifesting itself into new programs. Let’s briefly review, remember when banks didn’t want borrowers to default and when the borrower defaulted, banks had very strict guidelines to get out ...
Defaulting on your home now includes automatic enrollment into a loan modification program

Loan Mod Default: HAMP loan modifications will become permanent housing subsidies

HAMP loans were bundled into mortgage-backed security pools purchased by the federal reserve with printed money, making foreclosure politically impossible. Borrowers were granted loan modifications either through HAMP or through a private program. Most borrowers don’t realize the loan...
HAMP loan modifications will become permanent housing subsidies

Debt Default: Americans are increasingly foolish with debt

After 30 years of falling interest rates, Americans have become addicted to cheap credit and personal Ponzi schemes. People have learned they can take on large debts, consolidate them at lower and lower interest rates, and service that debt with a portion of their income. It’s a bit like...
Americans are increasingly foolish with debt

Real Estate Loan: Delinquent mortgage squatters: the legacy of the housing bubble

Strategic default is often the wisest course of action for a family to take. Lenders are hoping to escape disaster while borrowers and attorneys partner to leave their mark on lender’s balance sheets. In the future, the threat of strategic default should make lenders more reluctant to make...
Delinquent mortgage squatters: the legacy of the housing bubble

OCHN: Home sales are up for the top 1%, the bottom 99%, not so much

The housing recovery benefits the top 1% who have the cash and the credit to complete the sale. The other 99% continue to struggle.

The rich get richer, or so they say. It’s the rich who have the cash for a down payment and the good credit to qualify for a mortgage, so the one segment of...
Home sales are up for the top 1%, the bottom 99%, not so much

Wednesday, May 28, 2014

Debt Default: Think you want consumer debt? Think again...

Warning! Don’t read today’s post if you have a weak stomach or a strong affinity for consumer debt. This is your only warning. Hang on, Alice, as we bolt through the rabbit hole on an adventure to financial Wonderland. Come with me on a fantastic journey to the Great Lakes to s...
Think you want consumer debt? Think again...

Debt Default: Strategic mortgage default has become common and accepted

Attitudes toward strategic default are changing. Last December I flatly stated, Strategic mortgage default will become common and accepted in 2011. Many of those who chose not to strategically default make this choice because they believe making the payment is a moral obligation — an...
Strategic mortgage default has become common and accepted

Debt Default: Lenders ambush newly solvent borrowers seeking old bad debts

For people who purchased properties in California, a non-recourse state, and never refinanced, lenders cannot come after them seeking to recoup their losses on a foreclosure. For those who live in recourse states, or California loanowners who refinanced, the situation is quite different. Lenders...
Lenders ambush newly solvent borrowers seeking old bad debts

Housing Forecast: Accelerated default, what strategic default really is

People form strong attachments to their homes. Walking away is never a decision they take lightly. We can discuss the pros and cons and come up with our own beliefs and attitudes about it, but the turnover of our housing stock caused by the housing crash will be very painful for those who go...
Accelerated default, what strategic default really is

Real Estate Loan: The minimum down payment should be at least 10%

The Dodd-Frank financial reform law required bureaucrats to draft rules for qualified residential mortgages. Loans that conform to the standards defined can be sold into the secondary mortgage market without restriction. Loans that do not conform require the lender to retain 5% of the capital...
The minimum down payment should be at least 10%

Real Estate Loan: The resurection of dead mortgage programs

The financial innovations that lead to the 2008 financial crisis return with the prospect of inflating another painful housing bubble and crash. By Jacobim Mugatu, May 21, 2014 Proverbs 26: 11 As a dog returns to its own vomit, so fools repeat their folly It was inevitable. Cajoled by the real...
The resurection of dead mortgage programs

Mortgage Refinance: Delinquent jumbo mortgage loans pollute mortgage lender balance sheets

The good news in the mainstream media is that delinquency rates are down year-over-year. Of course, they ignore the fact that delinquencies have flatlined since the settlement agreement in February 2012 because that fact doesn’t fit with their optimism bias. The delinquency rate is a...
Delinquent jumbo mortgage loans pollute mortgage lender balance sheets

Housing Bubble: The economy of the 00s: a Ponzi scheme based on housing debt

The headline of today’s post is not news to anyone who reads this blog very often, but for many, including some academic economists, this basic understanding comes only after years of study of the aftermath. Perhaps I expect too much of academics. They are supposed to be very smart people,...
The economy of the 00s: a Ponzi scheme based on housing debt

OCHN: Large real estate investor purchases steeply decline in California

Large real estate investors in California reject higher prices and stagnant rents and dramatically slow their purchases over the last 18 months.

Sales are slow across the country, but particularly in California, because prices are too high. When prices were low enough that investors could...
Large real estate investor purchases steeply decline in California

Tuesday, May 27, 2014

Mortgage Foreclosure: Bring Back Paternalism in the Mortgage Market

I do not like government paternalism. When Ronald Reagan came to power and began our 25 year experiment with government deregulation, I thought it was a good idea. It used to really annoy me when I would see paternalistic politicians who believed they knew what was good for me and for society,...
Bring Back Paternalism in the Mortgage Market

San Diego Housing: Strategic default spread like a virus in 2011

One of the great advances which has come from the internet is the quick dissemination of useful information. In short, secrets don’t remain secret very long. Lenders don’t want borrowers to know that their friends and neighbors have stopped paying their mortgages, and their lives...
Strategic default spread like a virus in 2011

OCHN: 9.7 million loanowners carry out-of-the-money options gambling on bubble reflation

Negative equity is making ordinary homeowners into speculators in the options market, each betting on the continued reflation of the old housing bubble.

An option contract provides the contract holder the option to force the contract writer to either buy or sell a particular asset at a given...
9.7 million loanowners carry out-of-the-money options gambling on bubble reflation