Larry Roberts real estate writing blog: September 2014

Tuesday, September 30, 2014

Mortgage Refinance: What will a long-term rise in interest rates do to home prices?

Everyone has an opinion on how rising mortgage rates will impact housing. Most of what you read in the mainstream media is wishful thinking from those who want to inspire buyer confidence in an uncertain market. The words of Pollyannas doesn’t educate anyone, but it does give people who...
What will a long-term rise in interest rates do to home prices?

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Mortgage Foreclosure: With house prices rising, the value of lots and raw land is skyrocketing

The valuation of land used for residential housing is mysterious and often misunderstood. The valuation of lots and raw land requires a detailed knowledge of construction and marketing costs as well as a good estimate of the sales price of the final product: a residential housing unit. In short,...
With house prices rising, the value of lots and raw land is skyrocketing

OCHN: High loan costs cause FHA originations to plunge

FHA loan originations are plunging because high borrowing costs turn off potential buyers, and risks of put-backs make lenders reluctant.

The biggest barrier to first-time homebuyers is saving for a down payment. As a result, most first-time homebuyers turn to the FHA because the FHA only ...
High loan costs cause FHA originations to plunge

Monday, September 29, 2014

USA Foreclosure: Homebuyers were income-challenged, wealth-challenged, and debt-constrained

Affordability in many markets is at record highs. Even here locally, houses are more affordable on a monthly payment basis than any time in the last decade. Yet, houses are not selling. Why is that? Income growth is stagnant due to the weak economy and job picture, the housing wealth of the...
Homebuyers were income-challenged, wealth-challenged, and debt-constrained

OCHN: What will the next housing bust be like?

Based on the moral hazard from lessons learned from the last housing bust, future housing declines will experience very, very low sales volumes.

What lesson did lenders learn from the painful losses from the housing bust?
Did they learn they shouldn’t peddle toxic mortgages? Nope.
Did...
What will the next housing bust be like?

Sunday, September 28, 2014

Loan Mod Default: Principal forgiveness coupled with equity recapture avoids moral hazard

Millions of people are underwater on their mortgages, and many of those borrowers have payments straining their ability to pay. The favorite solution of pandering lefties is to simply forgive the debt and lower the borrower’s payments. Of course, the solution would bankrupt the banks and...
Principal forgiveness coupled with equity recapture avoids moral hazard

USA Housing: realtors: house price gains unsustainable

Resale prices of used houses in Orange County are rising rapidly. The weakest city in my monthly report was La Palma that has only risen 3.3% year-over-year. On the other end of the spectrum, Dana Point is up a whopping 19.5%! More than half the cities in Orange County are up more than 10%. When...
realtors: house price gains unsustainable

Saturday, September 27, 2014

Ponzi Debt: The "wealth effect" is the most dangerous euphemism in economics

Economists look for correlations to infer causations for macro-economic events. Unfortunately, most macro economists fail to look at the individual incentives, the micro reasons, some events occur. What’s even more amazing, or amusing, is how much effort and study they put in to trying to...
The "wealth effect" is the most dangerous euphemism in economics

Friday, September 26, 2014

Debt Default: What really prompts borrowers to accelerate their default?

Strategic default: the abandonment of mortgage and property. A financial explosion. Most buyers of property were seeking riches from appreciation. They all enjoyed the synchronized movements of the market when everyone was clamoring for more property. Trees don’t grow to the sky, and no ...
What really prompts borrowers to accelerate their default?

Housing Market: Delinquent jumbo loans in Coastal California pollute bank 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 loans in Coastal California pollute bank balance sheets

OCHN: Home ownership with no mortgage is the best retirement plan

The best savings and investment plan for a stress-free retirement involves paying off a home mortgage.

Four years ago when I was raising money for the Las Vegas venture, I gave presentations on why I believed cashflow-positive rental houses were a good investment. One of the primary reasons was ...
Home ownership with no mortgage is the best retirement plan

Thursday, September 25, 2014

Real Estate Loan: Lenders peddle five-year teaser rates on toxic mortgages

Lenders want to pass interest-rate risk on to unsuspecting borrowers while working within the confines of the new qualified mortgage rules. Although some borrowers claim to understand the risks, if their bets prove wrong, most will petition for bailouts, and they have every reason to expect to...
Lenders peddle five-year teaser rates on toxic mortgages

OCHN: People who lost their homes in foreclosure moved in next door

Rather than exacerbating a problem with homelessness or creating a mass migration, most people who lost homes in foreclosure stayed in their neighborhoods.

What happens to people who lose their house in foreclosure? Do they end up homeless and destitute? Do they resort to a life of crime or...
People who lost their homes in foreclosure moved in next door

Wednesday, September 24, 2014

OCHN: Will subprime mortgage lending 2.0 be a disaster?

Some form of subprime mortgage lending will return. Will subprime 2.0 be a disaster to rival the Great Recession and Housing Bubble?

Subprime lending as an industry barely existed prior to 1994. There were few lenders willing to loan to people with poor credit, and there was no secondary market ...
Will subprime mortgage lending 2.0 be a disaster?

Tuesday, September 23, 2014

Mortgage Refinance: Bank"s attitude toward struggling loanowners toughening as prices rise

In any negotiation the options of the parties determines the strength of their bargaining position. Ordinarily, when a lender and a borrower execute a promissory note and a mortgage agreement, the lender has most of the power, which is why they determine the terms of the agreement. The only...
Bank"s attitude toward struggling loanowners toughening as prices rise

San Diego Housing: Distressed properties harm neighborhood values, not foreclosures

Conventional wisdom is that foreclosures reduce neighborhood values. It turns out, that isn’t the case. It’s easy to see why people come to this erroneous conclusion. Properties that go through foreclosure often sell for less than recent comparable sales, particularly after the peak of the hou...
Distressed properties harm neighborhood values, not foreclosures

Mortgage Foreclosure: Renter"s guide to preparing for home ownership

I have been accused of being “old school” because I never embraced the innovations in real estate finance that inflated the housing bubble. In 2006 preparing for home ownership only required finding a house and signing a few loan documents. It’s a lot more difficult today. Now...
Renter"s guide to preparing for home ownership

OCHN: OC Housing News clarifies the rent versus buy decision

The updated OCHN rating system helps buyers evaluate each property on the MLS for its ownership value relative to renting.

Rental parity is a simple idea, as many of life’s most powerful concepts are. Rental Parity is the point where rent is equal to the monthly cost of ownership. When...
OC Housing News clarifies the rent versus buy decision

Monday, September 22, 2014

USA Foreclosure: Robosigner David J. Stern"s law license terminated

David J. Stern, the infamous robo-signer, lost his law license. He walks away with the $58 million he earned from selling his law firm in 2010. Delinquent mortgage squatters in Florida will still lose their homes. Nobody symbolizes the foreclosure purge like David J. Stern, the former owner of...
Robosigner David J. Stern"s law license terminated

OCHN: Housing market update: rents up, prices up, sales down

A slowly improving economy and tight inventory for both rentals and resale homes drives up rents and prices while harming home sales rates.

The housing market broke out of it’s yearlong flatline condition over the last few months.The spring rally pushed prices higher, driven mostly by...
Housing market update: rents up, prices up, sales down

Sunday, September 21, 2014

Loan Mod Default: Do lenders care about keeping delinquent borrowers in their homes?

Lenders only care about borrowers making payments, not borrowers continuing to live in houses purchased with the lender’s loan money. Many borrowers and housing advocates suffer the delusion that lenders act out of compassion when borrowers become delinquent. Borrowers and activists...
Do lenders care about keeping delinquent borrowers in their homes?

USA Housing: More than 25% of foreclosure review funds went to grossly overpaid consultants

Crony capitalism has replaced free markets in America. We instituted too-big-to-fail banks during the Great Recession partly because the financial interests have become so powerful in Washington that nobody dared suggest we let these behemoths fail and let the bonuses of incompetent bankers...
More than 25% of foreclosure review funds went to grossly overpaid consultants

Saturday, September 20, 2014

Ponzi Debt: The California Social Contract (redux)

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 (redux)

Friday, September 19, 2014

Debt Default: Strategic default is moral imperative to prevent future housing bubbles

The fear of strategic default is a necessary deterrent to foolish lending. Without it, lenders are emboldened to make all manner of bad loans because they believe they will get paid back. Lenders will make nearly any loan if they believe they will get their money back with interest. It’s...
Strategic default is moral imperative to prevent future housing bubbles

Housing Market: Sappy letters to sellers return in tight supply market

One of the most ridiculous features of the housing bubble rally was when buyers would write emotional letters to sellers to try to make their offers stand out in the crowd. In 2004 in particular as the Option ARM permitted buyers to raise their bids to ridiculous levels, competing bids well over...
Sappy letters to sellers return in tight supply market