Posted: Fri Mar 28, 2008 8:50 am Post subject: Re: Government takes over US mortgage industry
Fannie Mae and Freddie Mac, the U.S. government-chartered mortgage companies, may raise as much as $20 billion in capital as part of an agreement that allows them to buy more debt securities, their regulator said. ...
"There's no specific number,'' [James Lockhart, director of the Office of Federal Housing Enterprise Oversight] said. ``There was a range of numbers. The best way is to say it's significant.'' The amount raised will be ``much more'' than the $5.9 billion of capital released by reducing the cushion, Lockhart said. ...
"The two enterprises have effectively become the mortgage market at this point,'' Lockhart said. ``Effectively they have become the lender of first, last and every resort.'' Bloomberg _________________ One of these now am I too, a fugitive from the gods and a wanderer, at the mercy of raging Strife.
--Empedocles
Posted: Thu Jun 12, 2008 3:14 pm Post subject: Why the trauma about falling house prices?
Seeing so many business news items lately in magazines and the net about this issue. You'd think th roof was caving in. But, its not all bad.
First off, if you own a house, sure you are expecting it to go up in value, but only over time. What harm are a few dips along the way? Everybody knows that real estate has its dips as well as its peaks. I bought a new house in 1987, and saw it drop in value about 17% between 1989 and 1995. While it made me wish at times I had waited, or sold out in 1989, my prime reason to buy a house was to live in it, not flip it. So, I got what I bargained for, a place to live at a defined cost.
And, a good thing about prices dropping is that some younger workers can afford them.
So, a price drop really does not hurt you, except your pride, if you already have a home and it can help you if you do not.
Posted: Thu Jun 12, 2008 3:26 pm Post subject: Re: Why the trauma about falling house prices?
Unless the home is used as collateral for a line of credit or a business loan, which is a common practice. Many small business owners will use homes as collateral on loans for their businesses, so, a drop in home values hurts them a lot, may mean their business goes down.
Joined: Sep 03, 2007 Posts: 620 Location: Sunny Virginia, USA
Posted: Thu Jun 12, 2008 3:44 pm Post subject: Re: Why the trauma about falling house prices?
Plus home loan laws fall under state law, and since I live in Virginia, I have nothing to worry about as long as I pay my mortage. However, I'm told in some states if the house value goes below the loan value then the bank can call the loan due. Further, as mentioned, if you're using your house as collateral on another loan and it's value falls below the loan value, again, you're sunk.
Finally, the problem is not that home prices are falling, the problem is that the interest rates have soared on adjustable rate mortages and people can not meet their obligations. The reason this happened is that the market cooled and it was no longer a seller's market. Thus, we had a two prong problem. First, foolish people purchasing at historically low interest rates using an adjustable rate mortgage (ARM) and believing the rates would not go up. Second, people buying and selling homes at a haphazard rate which in effect caused a situation not unlike musical chairs. The market cooled (the music stopped) and a lot of people got stuck with a long term investment that they did not want nor could they afford.
Moral: Caveat emptor. _________________ When somebody makes a statement you don't understand, don't tell him he's crazy. Ask him what he means. -- Otto Harkaman, Space Viking
Posted: Thu Jun 12, 2008 3:44 pm Post subject: Re: Why the trauma about falling house prices?
Denny, do some research.
Most people who bought homes in the last 3 years with little or no money down are upside down on their mortgage.
They can't move for a job relocation.
They can't sell for any reason, really.
They are making payments on a loan they can't afford.
Lots of pain. _________________ Massive Human Dieoff must occur as a result of Peak Oil. Many more than half will die. It will occur everywhere, including where you live. If you fail to recognize this, then your odds of living move toward the "going to die" group.
Posted: Thu Jun 12, 2008 3:53 pm Post subject: Re: Why the trauma about falling house prices?
Cashmere wrote:
Denny, do some research.
Most people who bought homes in the last 3 years with little or no money down are upside down on their mortgage.
They can't move for a job relocation.
They can't sell for any reason, really.
They are making payments on a loan they can't afford.
Lots of pain.
Well, if houses generally are going down in price, and you need to move, then it would seem you could sell your house at less than you paid but buy a similar house with the proceeds elsewhere as long as you are not moving to a high home price area. If you were transferred originally by your employer, they generally will absorb the loss on the home value with some haggling, if they really want you to move elsewhere that badly. They cover this under employee relocation plans.
As for not being able to afford the loan, then it would seem the buyers were taking some outlandish risks in the first place, as you should not exceed 30% of your income in mortage payments.
Frankly, except for my sense of pride, it does no good for my house price to increase, it puts no money in my pocket.
Posted: Thu Jun 12, 2008 4:04 pm Post subject: Re: Why the trauma about falling house prices?
The media always pushes hard for welfare expansion & now there's $310 billion of mortgage relief on the table. They're going to milk the mortgage crisis for all it's worth. _________________ People first, then things, then dollars.
There will be enslavement, cannibalism, & zombie invasions.
Joined: Apr 03, 2004 Posts: 6555 Location: My Grandkids' Farm
Posted: Thu Jun 12, 2008 4:09 pm Post subject: Re: Why the trauma about falling house prices?
Why the trauma?
First, because younger folks were convinced RE appreciates in a straight line forever and it never has - ever.
Second, deregulation and under enforcement allowed people who should have never been given a loan to get one with historically hinkey terms and qualifications and the result is we now have the highest homeownership ever - not to mention a very high percentage of mortgages approaching default.
Third, the housing market is way overbuilt now due to the easy credit policy noted above - which I'm thinking was an outgrowth of the "Get Over The DotComs" in the first instance and then "We are at war but don't worry; Just Shop!" mentality.
I stand to be corrected by Seahorse or other qualified poster. _________________ Make a plan and work it:
Joined: Sep 04, 2005 Posts: 396 Location: central MA, USA
Posted: Thu Jun 12, 2008 5:17 pm Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
Well, if houses generally are going down in price, and you need to move, then it would seem you could sell your house at less than you paid but buy a similar house with the proceeds
If you're upside-down now on the mortgage, what proceeds?
Posted: Thu Jun 12, 2008 6:08 pm Post subject: Re: Why the trauma about falling house prices?
FoolYap wrote:
Denny wrote:
Well, if houses generally are going down in price, and you need to move, then it would seem you could sell your house at less than you paid but buy a similar house with the proceeds
If you're upside-down now on the mortgage, what proceeds?
You beat me to it. What a strange comment.
What we are seeing a lot of in the DC area is people trying to make "short sales", when you actually owe more on your mortgage than the house is worth. People who bought in 2005 for $550K, and now are trying to sell for $375K and have the bank "forgive" the rest of their loan. But by some realtor's accounts, only about 5% of the time are these offers accepted. So the house goes into foreclosure.
Posted: Thu Jun 12, 2008 7:34 pm Post subject: Re: Why the trauma about falling house prices?
I am sorry, I guess this term "upside down" is alien to me.
My point is if you sell your house bought at $400K for $300K and buy another at $300K elsewhere you are in the same predicament, not worse, except for transaction fees.
Posted: Thu Jun 12, 2008 7:58 pm Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
So, a price drop really does not hurt you, except your pride, if you already have a home and it can help you if you do not.
It actually helps the majority of us in my area that don't plan on selling in the short term since we pay lower property taxes after fighting our assessments.
Some of my properties are worth double or triple what they were worth ten tears ago, which is a negative thing from a property tax perspective.
Pride? I'm proud not to have a mortgage. I believe only 35 or 40 percent of local homeowners actually own their homes.
As you mentioned, the lower values in some areas has allowed the younger first time homebuyers in some areas to get into a home at a reasonable cost. Same applies to people trading up, buying or building new.
Joined: Oct 15, 2004 Posts: 2196 Location: Arkansas
Posted: Thu Jun 12, 2008 8:13 pm Post subject: Re: Why the trauma about falling house prices?
Quote:
My point is if you sell your house bought at $400K for $300K and buy another at $300K elsewhere you are in the same predicament, not worse, except for transaction fees.
Denny, there is a lot you aren't understanding. You cannot sell your house for $100k less than its worth, bc the bank that loaned you $400k to buy it will not release its mortgage unless its paid in full. So, where are you going to get the $100k to pay off the bank. You owe $400k that has to be paid.
Further, this housing crisis has moved beyond a homeowner's problem, its now a bank problem. Many homeowners are either walking away from the houses bc they can't pay or filing bankruptcy. In either case, the bank takes the house back and now has a bad loan on its book. This bad loan now means the bank must sell the house and take a hit. When the bank takes a hit, it means less money available to make new additional loans. The problem begins feeding on itself after awhile making itself worse. This is how the last great depression started. Whether we end in the same place, I don't know. But, our current situation is has similarities to the Great Depression.
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