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The Fedsí Destruction of Our Home Values
Towhall.com ^ | February 21, 2011 | Bruce Bialosky

Posted on 02/21/2011 4:50:18 AM PST by Kaslin

Wall Street did it. Those rotten bankers are at fault. That’s the story we’ve repeatedly heard since 2008, when the bottom started falling out of the housing market. Of course, that’s what all the politicians in Washington wanted us to believe – and since they have the megaphones and no one wants to side with those evil bankers, they’ve been pretty successful. The truth is that the Feds are at the center of this disaster and they are doing their best to perpetuate it.

This is not the first time in recent history that the Feds have destroyed a market at an enormous cost to the taxpayers. You need only go back to the late 1980’s, when the first President Bush’s administration cost us untold billions. Remember junk bonds? After Michael Milken was chased by the Feds, they ordered Savings and Loans to divest themselves of their junk bond portfolios. As principal holders of these assets, they flooded the market, driving prices down and wiping out large portions of the Savings and Loan industry. The feds picked up the tab for the defaulted companies, while a few well-positioned investors made billions. You could not have picked a better plan to decimate the value of financial institutions at taxpayer expense.

This time it’s the home loan market, and it goes back to 1999 during the Clinton Administration. Andrew Cuomo, the Secretary of Housing and Urban Development (HUD), wanted to expand homeownership among the lower-middle class and to inject about $1 trillion into the housing market. Of course, the only way to get the loans into the hands of these individuals was to lower the lending standards.

Bankers and Wall Street types rarely overlook an opportunity to make some extra Franklins. The Feds said they wanted these loans and they were going to underwrite them, so why not make them happy and rake in some fees? Why wouldn’t they write loans to the new standards when Fannie Mae and Freddie Mac were going to assume all the risk? Not a chance they would pass on that. Gradually, the market for these lightly documented loans expanded, and eventually everyone was getting into this easy money game. In 2005 and 2006, you could go to a nail salon and hear discussions about wheeling and dealing in income property – and that was from the manicurists!

Builders kept on building because people kept on buying. More permits were issued and more towers were built along the South Florida coast. The units were selling, so they kept on building until the merry-go-round stopped. The market was predicated on prices continuing to rise, but then people started to realize the obvious: even the heartiest trees don’t grow to the sky. It was a pyramid scheme where the last player got stuck.

Ultimately the market reversed, and housing prices have dropped for the last four years. We have been waiting for the Feds to come up with a plan – a smart plan to end this downward spiral. They came up with politically oriented ideas, like putting foreclosures on hold. Fat lot of good that did-- it just forestalled the inevitable. Some lucky people were able to live in their houses an extra six months for free, and guess who got stuck with that tab?

So here is the Feds’ master plan: Let’s make it almost impossible to get a home loan. What a brilliant scheme – stifle the buying market while it is being flooded with more product. The idea was to not only strengthen lending standards, but make them tougher than anyone can remember! Not only are higher down payments required, but borrowers now have to complete an endless cycle of ridiculous paperwork just to apply for a loan. Remember that the Feds – through Fannie Mae and Freddie Mac – are buying 90% of the loans, so they set the rules.

Last year, I helped several clients who wanted to refinance their homes with low-interest fixed-rate loans. Every one of them called me in hysterics, frustrated and exhausted from the endless requests for documents. One client spent 5 months (yes, that is right) providing paperwork to refinance the same home he has lived in for over 20 years – and he is a W-2 wage earner! Just think if he were self-employed; he might have jumped off his roof instead! If you have anything unconventional in your credit history, you might as well wait out the insanity.

So let’s summarize, in simple terms, what the Feds have done. First, offer financing for outrageously low rates to unqualified borrowers with little or no documentation. Then, when the market turns, smash the hopes of a qualified person getting a loan. The market gets flooded, prices plummet, and more and more people end up with houses worth less than their loan balance, motivating them to walk away from their home, and thereby placing more product on the market. Quite a brilliant plan, don’t you think?

That is our national leadership at work. And you wonder why some people want government out of our lives.


TOPICS: Business/Economy; Editorial
KEYWORDS:

1 posted on 02/21/2011 4:50:20 AM PST by Kaslin
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To: Kaslin

Barney Frank and Chris Dodd have much to answer for...hope Issa’s investigations include their being called.

Wanna bet the MSM ignores?


2 posted on 02/21/2011 4:53:46 AM PST by kjo
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To: Kaslin

New-home sales in 2010 fall to lowest in 47 years - Yahoo! Finance
http://finance.yahoo.com/news/Newhome-sales-in-2010-fall-to-apf-452650344.html?x=0


3 posted on 02/21/2011 4:56:20 AM PST by Ev Reeman
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To: Kaslin

URL:http://apnews.myway.com/article/20110127/D9L0M4603.html


4 posted on 02/21/2011 4:57:21 AM PST by Ev Reeman
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To: Kaslin

Years from now, people will look back at our time and stand in awe of what was done to this country. I consider it willfully evil, because I simply don’t think that people can be so stupid to have done this by accident.


5 posted on 02/21/2011 5:18:19 AM PST by ClearCase_guy
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To: Kaslin
"That is our national leadership at work. And you wonder why some people want government out of our lives.

As a realtor I remember when all these buyers began to flood the market with a boost from hungry mortgage brokers. We were not allowed to even hint to a buyer that they may not be making a good move to get into a house under these terms. (Equal Housing Laws)

Now none of them are in their homes and it's very miserable. Thanks BARNEY!

6 posted on 02/21/2011 5:20:25 AM PST by TPOOH (I wish I could have been Jerry Reed.)
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To: Kaslin

The writer is as big a nut as barney, the market is the market, if the government would get out of the way it would find bottom, but starting another fake market with inflated buyers is stupid. They can meet the qualifications are they cannot. No more bailouts.


7 posted on 02/21/2011 5:22:59 AM PST by org.whodat
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To: Kaslin

First, offer financing for outrageously low rates to unqualified borrowers with little or no documentation.

This is just another example of Leftism - the unprincipled twisting of conscious civilized responsibility to gain power - thus, spin, demoralization, going in the wrong direction, etc.

"Leftism" is not that difficult to characterize, laziness, amorality, ego; but it needs quantities of stupid lazy followers, and quantities of not-so-stupid but power hungry ambitions, ala Obama, Pelosi, Emmanuel, ambitious politicians in general, who can farm and exploit them.

Virtually every presentation of the mass media is "leftist", i.e. twisted, imposed, bigoted. There is a reason for that: it collects money and power from the weak-minded.

Johnny Suntrade

8 posted on 02/21/2011 5:50:19 AM PST by jnsun (The Left: the need to manipulate others because of nothing productive to offer.)
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To: kjo
Rep. Barney Frank denounced financial warnings, saying he had no 'concern about housing.' How dare you oppose suicidal loans to people who can't repay them! The NY Times reported that Fannie Mae and Freddie Mac were 'under heavy assault by the Republicans.'

This Marxist putz belongs in jail.

Fannie Mae to Officially become Penny Stock (FNM)

9 posted on 02/21/2011 5:58:30 AM PST by BobP (The piss-stream media - Never to be watched again in my house)
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To: Kaslin

read later


10 posted on 02/21/2011 6:08:40 AM PST by fightinJAG (TAXPAYERS OF THE WORLD UNITE)
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To: Kaslin

The first thing you need to do in a situation like the mortgage scandal, particularly if you caused the scandal, is to set up a common enemy, one the rank and file will buy. And
guess who that might be, why the dirty bankers of course. Not
to say they are totally blameless, but much less so than Barney and his (every one should own a house) crew. Anyone
with half an eye and half an asshole can follow this scam to
it’s rightful owners and it ain’t Bush.


11 posted on 02/21/2011 6:21:07 AM PST by greyfox (If I were a Democrat I'd be pushing for the fairness doctrine too.)
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To: BobP

Barney Franks is a hard heahed convincing speaker with his head, among other things, up his ass.


12 posted on 02/21/2011 6:28:51 AM PST by greyfox (If I were a Democrat I'd be pushing for the fairness doctrine too.)
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To: BobP

Barney Franks is a hard headed convincing speaker with his head, among other things, up his ass.


13 posted on 02/21/2011 6:29:23 AM PST by greyfox (If I were a Democrat I'd be pushing for the fairness doctrine too.)
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To: Kaslin
The author raises good points here, but I disagree with his basic premise. It wasn't "lower lending standards for people who couldn't afford loans" that destroyed the real estate market at all, thouth that was certainly a factor. In fact, I'd make the case that the real estate market hasn't been "destroyed" at all . . . that it's in perfectly good shape and we're just seeing the natural unraveling of a real estate bubble that never should have been inflated in the first place.

The biggest culprit in the real estate market turmoil isn't low-income borrowers signing loans they couldn't afford. It's the outrageous, inflated prices that were being paid for homes by people who were perfectly capable of affording them -- at the time. And the only way they could "afford" those homes was by heavily leveraging themselves with ridiculous loan-to-value ratios that no responsible bank should have allowed -- and no responsible borrower ever would have accepted.

What these home owners didn't realize was that they never really bought a home at all. They bought a mortgage, and because prices for the mortgages were low (i.e., interest rates were very low and down payment requirements were almost non-existent), they were able (and willing) to take on very large mortgages. Unfortunately, all too many of these folks have ended up with mortgages that exceed the current value of the homes they're living in.

14 posted on 02/21/2011 6:29:27 AM PST by Alberta's Child ("If you touch my junk, I'm gonna have you arrested.")
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To: ClearCase_guy
ding...ding...ding...

CCg, you can see it...but my old 'lil guy' conservative, reflex lever pulling, democrat neighbors think that all of this is because the evil bloodsucker republicans have had too much power over the last couple decades, and have derailed the former messiah, fdr, from fullfilling all the grand 'saftey nets' that they were duped into...

ONLY deliberate evil can be 100% wrong in every decision...basic statistics would tell us even morons would make a correct guess now & again...

15 posted on 02/21/2011 7:00:31 AM PST by Gilbo_3 (Gov is not reason; not eloquent; its force.Like fire,a dangerous servant & master. George Washington)
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To: Alberta's Child

You are blaming the decisions that were made in response to faulty policies by corrupted politicians. The best analysis of the roots of this catastrophe can be found @ AEI by Peter J. Wallison,
http://www.aei.org/googleSearch?query=wallison&start=0&sortBy=relevance


16 posted on 02/21/2011 7:13:21 AM PST by iopscusa (El Vaquero. (SC Lowcountry Cowboy))
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To: TPOOH
I just tried to do a short sale for my client. He refinanced his home of 16 years after a divorce and stayed in the home. His work load is at a standstill, he is a licensed contractor and has not made a mortgage payment for a year. After trying for four months to sell his house for the amount owed to no avail, he is not over extended, we were forced to reduce the price enough to get a buyer.

Wells Fargo agreed to do a short sale, but when presented with 71 pages of information from the seller, the buyer and everyone else my broker, the buyers agent. They came back with a counter $21,000 higher and closing costs on a VA for $2,000 less AND required my seller to sign a promissory note for $8,000!!!

It won't appraise for that nor are the buyers qualified for that amount. They will eventually foreclose after almost two years of no payments, an empty home and tons of inventory on the market. By the time they finally sell it, I guarantee it be for alot less than a willing and able buyer will give them with a 6 week closing.

17 posted on 02/21/2011 12:28:31 PM PST by thirst4truth (The left elected a mouth that is unattached to an eye, brain or muscle.)
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