Wall Street's Candidate//Romney: Likes to fire people//Disses 45 million Americans.

O_Nation: Its good you want my opinion. It's some evidence that you want to learn from someone who knows more than you.

Lets go to one of your hare brained comments first....about Fannie/Freddie backing 90% of mortgages currently.

While you paint that in some sort of attack against government involvement...the simple facts are as follows:

A. Large scale backers of private mortgages are scarce if not non existent. There might not be a mortgage market at all if there weren't entities such as Fannie or Freddie currently.
B. If there were only private sources available, the low cost 30 year mortgage would most certainly not exist. Plain and simple. Mortgages would be incredibly shorter in term in general across the board making monthly mortgage payments significantly higher.

Of course that could crush the housing market and screw up the economy. Helluva idea O_Nation: bin laden would be proud of you.

Alternatively we could see ample usage of all sorts of trick and crazed mortgage opportunities with variable rate loans, interest only loans, no downpayments....you know all the favorite stuff your hero business scum bags used to create the recession in the first place.

Theory is nice. Real life is serious. Frankly, theoretically it would be nice to untangle the government from mortgage guarantees. I'd suggest rather than go whole hog...do a lot of experimentation to find out what seems to work all around wherein the market can maintain viability, mortgages are affordable with out being crazy risky and that rather large element of the economy is not further tanked by a radical Right Wing theory.

As to other actions after seeing 2 large financially induced major recessions with this one being the mother of all recessions and the one around 1990 where I lived in it first hand....I'd step back and look hard at debt!!!! Overabundance of debt carried in the conumer and business worlds is the root of both these recessions. Both recessions arose through bubbles in debt. If one was a financial analyst focusing on debt and debt coverage and measuring it against historical patterns one would have seen the crises coming in both cases.

So from the top I'd have some element in the Fed's oversee and manipulate the liquidity spigot when it comes to real estate loans//who is making them, how they are performing overall, and what is the status of the debt markets as it impacts financial institutions within the US.

After all large responsible businesses do this all the time. Families do this. Its responsible debt management. Its utter common sense. The main reason we aren't doing this is because of a combination of financial interests and a political philosophy that paints any action by government as worse than Lucifer.

If you want more lessons in strict business operations you can contact me, O_Nation. I won't charge you too much.

 

Methinks that, judging by his avatar, he believes he is a great oracle with the ability to solve every situation easily and pass on his judgment with a simple statement. Amusing and harmless.

 

Earl, the demographics of the ones shown is not racist if that happens to be the ones that said the things that were so indefensible that they later conveniently not only pretended they hadnt held the position, but accused the other side.

It seems hard to avoid including pelosi, not because shes female, but because she was the speaker of the house.

Franks sexual orientation is less likely a reason for his inclusion than the fact that he led the defense of an institution that history proved was not anywhere close to being as riskless as he painted it... And yes, when a legislator stridently and erroneously defends an institution while sleeping with a leader of that institution, it would be a pertinent factor regardless of the sex of the players involved. Gay wasnt a factor. A factually challenged defense would have been suspect in nature had that relationship been heterosexual too.

To test that, imagine a Republican that leads a committee overseeing the oil industry declared the Exxon Valdez to be the most environmentally sound ship afloat right before it created the greatest environmental catastrophe to that date... AND he was sleeping with the bodacious babe serving as first mate... Would we point the camera his way when discussing that catastrophe... And would we be doing so simply because he was heterosexual?

The blacks that were filmed praising Rains competency and integrity were likely chosen because they praised the competency and integrity of a guy that leveraged the organization into a very dangerous position... One that ignored the sound investment strategy you indicated using yourself. That rapid growth based on unsafe practices was a factor in the crash. The guys were targets because of what they said, not the color of their skin.

Bottom line, the Dems just cant expect the camera to only be pointed at old straight white guys even if the show worthy of note is being played out by a different set of players. I dont support targeting anyone based on race / sex/ sexual orientation... And for the very same reason i refuse to turn the camera away from someone based on those same factors. Equality means no special treatment either against OR in their favor.

That leads to one factor that played a part in the crash. I was married to a mortgage underwriter. I KNOW the federal government made very clear threats to lenders that failed to meet certain quotas on minority lending. That may have been very well intentioned, but the road to hell is paved with good intentions.

The law of unintended consequenceskicked in, and lenders were under pressure of massive fines if they didnt make a certain number of minority loans. This resulted in underwriters being pressured to ignore guidelines and in cases i witnessed... To ignore outright fraud in order to meet quotas. It also empowered some less than creditworthy buyers to threaten charges of racism and redlining to get loans that should never have been granted.

The risky lending programs were by no means limited to low income buyers though. I saw expensive properties sold with zero down and interest-only loans with a balloon note. That is a recipe for foreclosure unless housing values rose significantly and rapidly. The simple transaction costs couldnt be covered if they had to sell before a fair increase in value. The existence of programs like that was a travesty of sound lending practice.

My explanation of the crash is by no means racially biased. The players came in all colors and social classes. The enabling power behind the mess was the trio at the root... The guys on capitol hill, the fanny n freddy execs, and the big lenders like Angelo Mozillo of Countrywide and his ilk. That triad provided the vehicle that crashed... And a large section of the populace willingly climbed aboard for the ride.

Nobody was forced to take on debt they couldnt afford, and many fought hard to get the loans they defaulted on later. The ensuing crash took down even those that took on loans that would have been fairly safe had not the foreclosures taken home vslues off at the knees. There are many culpable players, but Wall Steet was basically just the last of many to hop onto a vehicle already headed for a crash.

 

@Rob: I respect you. I liked the piece you wrote back in 2008. I know you and I had real significant real estate experience. If you say your wife was pressured by the government I believe you. But how did she hear it. Was she the one who took the pressure or did it come down through the company. I don't doubt the government asserts pressure. Cripes. I've been in business for years. Its common place in the business world. When you are hammering deals, policies, negotiating stuff...there is pressure to bear.

I reviewed the video. First time I had seen it.

During the first view...2-3 minutes in...I saw one after another Black Democrat being cited. WTF??? Seriously. That was my impression. I aint black...and its not like I'm overly sensitive to that stuff.

But if that wasn't choreographed for effect than what is. I think there is a subtle racial element to that video put together by someone with a serious political bent.

I seriously don't understand the attacks, still to this day on Pelosi. Hey everyone ...she aint in charge. If you want a dem with some kick go to Reid. The Dems control the Senate. So my question is why does the GOP cherry pick on a woman.

Finally the video goes after Franks.

line em up:

blacks, a woman, a gay. I have a hard time taking that thing seriously when I see a line up of minorities that take abuse from the hard Right GOP.

On the Congressional Hearings side...I've witnessed 3 of those....and watched I think 3 over the years on TV/CNN. Its sort of show. The politicians know they are on TV as does everyone else. There is a lot of posturing. After seeing a bunch of them I think a lot of CNN televised house hearings have denigrated into pure political grandstanding for the public and nothing else.

Jesus F Christ. Newt Gingrich invented that in the early 1980's when he was the first guy making speeches into an empty house chamber that was being filmed. At first it generated pure unadulterated disgust by the experienced members of Congress. It was outlandish showboating. Now its common place. Its a small part of the degradation of our political system....politics as Hollywood.

I wasn't in the residential business in the 2000's. I referenced earlier I got a whiff of it from someone I knew from a mortgage office. Just listening to her and the amazingly huge and easy money they were making...it smelled bad. I know the industry too well to know that it was going ugly and dirty.

I also worked directly with lenders and with heavyweight serious buyers over the years. Wall Street has a singular passion and its money. Its often ugly and it often turns dirty. They are not the only ones.

All those financial institutions that set up Independent Mortgage Companies that were thoroughly unregulated. Then it turns out they made the majority of the shittiest loans. I'm sorry...other than allowing massive freedom to the financial world...how are politicians responsible.

Frankly, you guys conveniently ignore something else. When the bubble was occurring with the residential markets...Mr. George Bush the 2nd was in office, the GOP ran both houses of Congress and Bush was pushing a policy of expanding home ownership:

Mr GOP, George Bush...head of a government with a GOP president, Senate, and House pushed for expanding minority home ownership by 5.5 million!!!!! http://archives.hud.gov/news/2002/pr02-071.cfm

That is 2002. When the bubble was beginning to develop.

I don't know....that Hollywood video choreographer might stand to redo that video. He might want to include a Straight White Guy from Texas, who likes baseball as one of the targets of his attack.

 

Gee Earl. I ask you a simple question, and you write me a book. Lets address your one sentence answer to my simple question before picking the rest of it apart. I asked:

What regulation needs to be fixed?​

You answer with:

I'd have some element in the Fed's oversee and manipulate the liquidity spigot when it comes to real estate loans//who is making them, how they are performing overall, and what is the status of the debt markets as it impacts financial institutions within the US.​

You'll have to forgive me, cuz I ain't had me much ejumucation, but your answer doesn't seem to answer the question.How would you have the the Feds control liquidity of the loan market? What would you change?

When you get done answering that, provide the why. Why would having the federal government control the availibility of mortgage loans be a good thing? I'm sure you are aware that the availability of loans and the interest rates attached to those loans has a direct impact on the valuation of every property in the market. If the fed was not already artificially holding down the bond rate, we would be seeing a MUCH larger correction in housing prices, and more buyers would be entering the market.


Lets start with the one fact we agree on here. Fannie and Freddie underwrite more than 90% of the mortgages in the country. Why? Because the federal government guarantees all their loans at no additional cost. These are supposedly private institutions, whose executives have received millions of dollars worth of bonueses through this recession at the very same time their companies continue to be gifted BILLIONS of taxpayer dollars to make up for lost value in loans. As a result, we see EVERY LAST LOAN ISSUER underwriting to Fannie and Freddie standards. Why? Because Fannie and Freddie are a sure shot to be the eventual purchasers of EVERY LAST MORTGAGE being issued.

Voila. Defacto monopoly. I don't know how this can come as a suprise to you, given your experience in the industry, but no-doc and lo-doc loan products serviced a large and thriving section of our economy, prior to their abuse during the mortgage bubble. Namely, small business owners. These are people who are not paid on a W2, with standard and conforming tax paperwork filled out on a form 1040ez. Now that Fannie and Freddie OWN the US mortgage industry, something they were never designed to do, small business owners are F'd because the loan products designed for them are not viable to Fannie and Freddie.


I recently moved a large portion of my cash on hand from the bank I've been with for 20 years to Ally Financial(Formerly known as GMAC). Why? Because Ally pays 1% on cash, where as my previous bank pays .05%. Now, my cash is held by GMAC, which is 72% owned by the US government, thanks to Obama. How is this relevant? Simple. GMAC, as a private lender, can offer 1% return on cash because they have the unlimited slush fund of the US Treasury keeping them liquid. Their competitors cant. Given enough time, GMAC will suck up more and more customers like me because they are offering a product nobody in the private market can compete with. One day, perhaps we will be having a discussion as to why GMAC owns 90% of the private banking business, and you will forward some lame excuse like you did with Fannie and Freddie, and say "There are no large scale private lenders who are interested in that business". Well duh. No sh*t sherlock. Who the hell is going to get into a business where your competitors are underwritten by a bottomless pit of cash, whether or not they make a profit.

You'll have to forgive my tone, but I am STUNNED that you have the sack to try and sell this crap as a good thing. Monopolies are NEVER a good thing, whether we are talking about banking, mortgage lending, or Health care. Just because your monopoly is run by your "altruistic" friends in the government does NOT make it any better.

 

This is fun O_Nation: I can see you haven't had much education. More reason for me to tutor you. I see where you are earning more interest income. Finally you can afford my rates. Congrats.

I did give you an answer on the why. I guess you need more education.

The why answer is simply that 2 major recessions in the past 2 decades both occurred because of explosions in the real estate debt markets. Too many un performing mortgage debts. Isn't that simple enough for you.

Now as to the how. I sort of touched on that with regard to trying to find a mechanism to replacing government guarantees on residential mortgages.

Experiment with different programs. I'm not a legislator. I'm a business person. I'm not a professional economist.

I like experiments. They work in business all the time. Even the government does test programs.

Pretty simple.

Frankly, mister Right Wing Political Provocateur..why don't you propose how to move the mortgage industry out of the government guarantee business...and keep it incredibly active and busy...(lord knows our economy needs that--unless of course you want to seriously increase unemployment by forcing it to tank). Also keep mortgage loans affordable and make the market liquid enough that people who used to be able to afford buying a home can still do so.

These days...because of tighter lending requirements that isn't the case.

Oh...and BTW: If your solution suggests every house go to market immediately and Fannie/Freddie guarantees vanish...and market will take care of everything. You are feeding a lot of people a disaster....as values crash like they've never crashed before.

Go ahead.

 

@Earlpearl: That has to be the wordiest way of saying, "I haven't a clue how to legislate mortgage liquidity" I have ever seen. If you haven't a clue as to how to do it, why recommend it?

So, by your logic, if a debt market segment gets hot enough to potentially cause a crash, the only solution is to have the federal government step in and say yes or no to every loan made? Why is it liberals think more government intervention is the only solution to every problem. Incredible.

There are many answers to that question, but here is a simple two word answer.

Margin call.

Loans would guarantee themselves. Of course you'd have to do away with the B.S. no equity/3.5% loans being issued by the FHA to allow enough of a buffer to prevent foreclosure at the close of escrow, but such a scheme would move the risk from the federal government to the homeowner and the lender. This practice has served the stock market well for decades.

Please. We already have federal requirements for our banks regarding cash on hand for deposits. Mortgage lenders should face similar requirements to deal with market fluctuations.

It sounds like your goal is really to have an environment where property prices go up for ever or, if they do go down, nobody takes a loss except the government. Click your heels together three times dorthy.

 

And there is a typical Right Wing twisting of not only what I said...but it shows either the lack of education you yourself admitted to, or a simple determination to ignore what I've posted now and in the past, let alone a stubbornness to learn by experience.

I have many times posted an incredibly great set of data showing how a real estate bubble occurs, and it explained it. You obviously can't read, or refuse to do so. I'll post it again. maybe you'll get it around the 5th time around....

http://www.fairfaxcountyeda.org/sites/default/files/publications/my11rer.pdf

here are some simple instructions (again)

1. Go to page 2
2. Look at the graph.
3. Look above the graph to the years and add the new inventory from year to year.
4. Take a look at 1984. See how vacancy rose to 10%???
5. At that point...tighten lending requirements. Isn't that simple? Everyone does that. Nobody has to review every loan. Seriously O_nation...don't make a simplistic comment like...."margin calls" and not expect that there can be other simple 2-3 word other responses...rather than come up with your solution which is typical Right Wingish...go attack the government.

6. When vacancy rates drop...loosen lending requirements.

S.I.M.P.L.E

Very simplistic response...and it completely ignored any perspective on maintaining an active market.

First: How are you going to apply margin calls and when? Is it going to be like a stock....when the stock price drops....you have to put in more money? How will that be determined? Can margin calls be generated at any time at any place and who sets the rules? Can the lender call for cash at any moment at his whim or fancy? That would be a freakin disaster!!!!!!!! Does a borrower have a mechanism to dispute margin calls?

Frankly there is no reference to how that would affect mortgage structures. Every economist I've read has suggested that removing the govt. guarantees kills the 30 year mortgage and probably moves them to about 10 years. While interest rates on 10 year mortgages are lower than on 30 yr mortgages the payments end up going through the roof.

Check it out. I have.

That dramatic change would tank the existing mortgage market and further destroy the residential markets. Nice call. very bin laden of you.

That is fundamentally what my suggestion does with regard to lending institutions. When risk elements get out of hand....it would result in lending institutions being forced to slow down.

Again, if you are capable of graph reading and connecting dots you would see that. If you can't read graphs and connect dots...I'm afraid I can't train you no matter how much you would want to pay me.

First, O_Nation I suspect you meant to spell Dorothy and reference the Wizard of Oz. If I have to teach you spelling it will cost more.

It would be nice if prices go up forever. It won't occur. The fundamentals of real estate are a function of demand and supply typically. On a residential basis its the reason why regions of the nation where population growth has been flat for a long time or went into reverse did not experience huge price escalations. Take a look at Buffalo, NY, a bunch of Rust Belt Cities, Pittsburgh. Very little population growth, either flat or negative over many many years. Similarly they didn't experience real estate price booms over the decades.

Actually pricing on office buildings per sq foot over the 1980's from that graph were pretty flat. The reason of course was that vacancy rates rose and rents went down. Frankly, if lending had been controlled somewhat or there was a different barrier to development there would have been much lower vacancy, higher rents and prices would have gone up. The reasons the market collapsed were that the vacancy rates were high and the rents didn't cover loans.

Geesh...and all I'm trying to do is create a framework for responsibility. Guess you don't like that. How Newtish of you!!!!

 

Perhaps you are simply unable to detect self deprecating satire. Just a thought.

So you are suggesting tightening Residential lending requirements based on Commercial vacancies? I hope you can appreciate how silly that is. Even on the commercial side, your plan would innundate lenders with a fickle and changing set of compliance rules. I suppose that is one way to create more jobs, though I can hardly see it being good for the industry. More bureaucrats. Excuse me while I put a gun in my mouth.

Did I not prequalify my answer by saying there are many options?

Now that is humorous. Because my solution doesn't create a brandnew government agency and billions in new government spending and taxes, it "attacks the government"? I suppose by that definition, I am attacking the government right now by not pushing for more government jobs and taxes. Ridiculous.

LoL. The government reassesses every property in the nation every year, for tax purposes. Sometimes they reassess it's value if you pull building permits. Everytime the value gets reassessed, a margin call can be applied. Of course the owner can always inject more cash to keep his loan in the black.

As I said, it is only one possible solution. Ending the implied federal guarantee to lenders would be another. If they want insurance, let them pay for it. We made PMI for borrowers, why not apply those rules to lenders?

Thats funny. Every bank lobbyist tells me the same thing.

Oh no! Without the government running everything, the whole world will come crashing down! Only the government can save us and protect us! Kids to fat? Call the government. Kids to skinny? Call the government. Smoke too much? Call the government. Health problems? call the government. Money problems? call the government. Job problems? Call the government. Education problems? Call the government. Problem with your neighbor? call the government. Don't know what to do with your life? call the government. Having a hard time finding a date? call the government.

Sorry, I can't pay you this week. I gave your job back to the illegal mexican who used to occupy it, and the yard looks much nicer for it.

Yah, I think you'll need to lean on those other "barriers to development". After all, cash developers might do the same thing, creating a glut of supply, and wrecking the market for those who borrowed to enter. We just need to find a way to block people from spending their money how they want to.

 

I'll admit to having not read the posts AFTER Earls reply to me, but just looked in for a minute and there's a bokk from there to here. Actually its one of the better discussions i've seen in here in the last year, so i'll catchup later. Anyway, my apologies if i hit something thats already covered for lack of catching the ones in between yet.


A lotta blame to go around...
I'm aware of who was in office, but yes, that's a valid point. Just as I dont except any portion of my native RE industry from culpability in the crash, I dont consider either party blameless in the crash. There were a number of people in both parties that were effectively on the payroll of the mortgage lobby or Fanny/Freddie or accepting below market loans, but the ones that stayed bought the best seemed to be DNC heavy.

That said theres a lot of blame to go around, and notwithstanding some attempts, the problem was not fixed and blew up like a firecracker. I ripped both sides on my blog when they started talking bailout. See http://robjonesforpresident.com/2008/10/01/note-to-dc-what-part-of-no-was-confusing/ and again a few blogs posts later here http://robjonesforpresident.com/2008/10/01/note-to-dc-what-part-of-no-was-confusing/

Thats just a portion, but you get the idea.



Barney Franks
I hold Franks especially guilty for reasons that have nothing to do with his sexual orientation. When people DID attempt to rein in Franklin Raines crew... Not only did Franks run interference, he was the head of the committee that should have caught it instead of defended it. Add to that there are videos available of him saying things at the time and then later claiming he never held that position and its just everything a politician shouldnt be about.

The lack of integrity and the conflicts of interest just make him a one man microcrosm of whats screwed up in DC.

Nancy Pelosi
I can put a finger on exactly when she went from someone I wasnt fond of to someone I seriously detested. That would be the day she berated the GOP guys in the house for not being willing to pass that $700 billion stimulus package.

I'd already sent emails to every representative I had in DC telling them I would never vote for them again if they passed that package. [i havent voted for the dumb sunsabitches since then, either]. Sure enough members of the GOP did finally vote for it, after she and Franks had a field day making fun of them for not playing along.

Subsequent to that time she has referred to that bailout derisively as "the Bush bailout". Apparently she had nothing to do with it... Which is odd because she was Speaker, so they had a majority at that point.

See "Another Bailout": http://robjonesforpresident.com/2009/02/15/another-bailout/

So yeah... Now I wouldnt piss on her head if it caught fire. Just flat-ass cant stand her... But I do have a reason.

 

1% interest? Wow, with our 4% government-guaranteed bank interest (up to a million dollars) there's another business idea I will probably pass over. Putting US money in my bank account. Who wants to earn 3% on their money? Send me some. Higher interest (up to 5%) for longer-term deposits now available!

 

@Rob: I think its good also. One small reason is that I keep offering to tutor O_Nation. I told him I wouldn't charge him much but he's pretty cheap when it comes to education...seems like he's spending a lot on illegal Mexican's though who work his lawn while he just keyboards away mouthing off a bit, sort of like Newt's Toot's. Lots to say...little knowlege.

@O_Nation:

Seriously man, you need some of that tutoring:

hey hold off will ya. You haven't even taken any lessons yet...and more importantly you haven't paid me. With that kind of depressive attitude I'm going to have you pre pay for a package of 10 of them first.

No that is not the case. See that is why you need the tutoring. First off in the US different jurisdictions tax properties; could be your state, your city, county, sometimes two jurisdictions tax properties. Not all jurisdictions assess properties every year. Get it straight or take my classes!!!!

Did you do that? fill out a questionnaire? Who did you get set up? Larry Craig

Now that really shows your lack of knowledge. The number and volume of cash developers is dramatically minute. Tiny. There is no way in hell what you suggest could occur.

That is like a "fly me to the moon" toot by Newt. Absurd. You really need that learnin. I promise you no matter what whacko nuttiness you come up I won't make you sit in the corner with a dunce cap.

Have a good weekend folks. watch the superbowl. root for the Giants.

 

I will admit to not reading much after O's post. Not out of a lack of interest mind you, but I just don't have the time. But I really like the above quote for this reason:

I've been doing corporate consulting for over ten years now and there is something I learned really early on and it is this - you don't add new projects onto the system until AFTER you have fixed the existing systems. It's the old 'don't pour new wine into old skins' bit. For example, adding more oversight and regulations would be a joke because they would be ignored just like existing regulations are being ignored. Fix the regulatory mechanism, THEN add more regulations. Bernie Madoff proved that from 1992 to 2000 both parties allowed lobbyists to bully them to a point where the SEC has no teeth. It is filled with accountants that are only concerned with making sure the paperwork is filled out properly.

As I see it, and excuse me for looking at this too simply,
1. if a mortgage lender is going to turn around and sell a mortgage, then they have no financial interest in the stability of that mortgage.
2. If a financial instrument changes hands without a 3rd party monitoring it (NYSE, NASDAQ, etc), that is called gambling.

 

Pathetic isnt it? I do a lot of banking in central america, and the interest rates, on US dollars, all exceed 3%, even more for local currencies. Unfortunately, by the time you get done with international wire transfer fees, you have to be dealing with fairly large sums of money to make it pan out, and the extra scrutiny by the IRS is always unwelcome.

@Earlpearl: Jesus man. You've completely devolved into trolling. I find it curious that, rather than address the issue of how your liquidity spigot would deal with cash buyers, you simply dismissed the idea of cash buyers as unrealistic. In 2009, many of the investors I worked with in Central America took up buying 5-10 homes at a time for cash, 33 cents on the dollar. That has slowed a bit, but the REO and auction market is still dominated by cash buyers, and that is no small percentage of the market. Given the fact that a) fewer people can qualify for homes due to tightened lending requirements and declining salaries, and b) all those people still need a place to live which has actually caused the rental market to rise in price, it isn't too hard to imagine a world in which the billions of dollars of private wealth sitting on the sidelines could move into the real estate market on a cash basis.

 

Extensive experience has shown that to be true and also an element in the equation for the financial fiasco that was caused by the mortgage/wall street bubble.

When a financial institution regularly packages mortgages its made and sells them to outside investors...it no longer has any skin in the game...no financial interest in the health of the mortgage. Why make a responsible loan? Instead make fast ones, and sell them quickly. Take the fees, become a fee machine...make them and sell them. If you can make crappier loans faster and sell them fast...you lose any interest in making responsible loans.

I'm not sure that is the whole story. There are other parts. One the loans were packaged into big groups for sale. One of the next key elements were ratings by the rating companies. We saw that the rating companies gave these packages of mortgages far better ratings than they deserved. It also appears that the ratings companies, who get paid by the financial institutions involved in the sales...were unduly compromised by their clients. That was a sick whole in the process.

2ndly I'm not a bank reviewer. There are lots of them...but not enough to monitor EVERY LOAN. They don't do that. They review volumes of loans and results. They may look at a sample of specific loans. Its the same thing private audit firms. Generally that type of review works...in fact the vast majority of times. I doubt we want or can afford a level of bureaurocracy/oversight that would involve every single loan being reviewed every time.

@Corwin: I was looking at the specifics of your 2nd comment with the references to the stock exchanges...NYSE and NASDAQ.....hm....I'm not sure that is the place where review of a financial instrument or stock or bond is truly done. Those are the exchanges...where financial items get bought and sold.

I think the reviews are available elsewhere and done before. The primary ratings companies fell down on the job with regard to all those residential mortgage backed bonds that got sold. Standard &Poors, Moody's, Fitch and others deeply underperformed with regard to rating those bonds and clearly contributed to the enormous financial mess.

 

@O_Nation:

I wish you'd get your story straight: Back here you were speaking about all cash developers

Then 5 posts later you switch to all cash buyers

Look the all cash market is incredibly Tiny relative to the size of the real estate market in the US.

Despite your anecdotal comments here is some info (slightly dated) on the size of the US residential markets: Its enormous:

http://www.worldpropertychannel.com...ondo-sales-worst-real-estate-markets-3601.php

total value of the US residential market: Around $20 trillion
total value of US residential mortgages: Around $10 trillion

Sizes of some of the largest markets in value:

Philadephia $390 billion
Miami: $380 billion
Phoenix: $203 billion
Seattle: $349 billion
Tampa (ooh a small one with good deals --oooh we can dominate) $148 billion!!!
Los Angeles: $1.7 trillion

Look: whether you meant developers or buyers, were referring to commercial or residential properties....all cash players are never going to be anything but a teeny part of the market.

All in all, I'm going to go back at what I first said: When it comes to real estate, I'd put overall tighter limits on it...and I'd oversee it from a federal perspective;

Now actually its being done...and has been in place over the last 3 years...though its coming from the lender side...not the federal side. Lenders are not making loans!!!!! After blowing the markets out with loans loans loans....in the glory years of the early to mid 2000's...now lenders are not making loans.

In my plan...the feds don't review every loan. Nobody in their right mind would consider that. Too much bureaucracy. STUPID!!!! Review potential problem loans in potential problem areas. When it gets to big...Tighten the domestic lending spigots. You can do it a lot of ways on a macro basis without much bureaucracy. Cripes the Fed does things like this all the time with interest rates.

Meanwhile...get your facts and story down.

 

Lets be honest. There are very few residential developers now except for very specific niche markets, more specifically, apartments. A friend of mine had a consultant from Goldman come in a few months back and according to them, there is still 850 billion dollars in shadow inventory sitting out there. Who in their right mind builds new houses with that much shadow inventory? Answer: Nobody. But developers are building apartments. Why? Because people need a place to live when they cant afford to rent a home. Welcome to the Obama recovery.

On topic, buyers are buyers, be they developers, investors, or owner occupants. I can appreciate what a small percentage of the market cash buyers are in a normal market, but we are not in a normal market. Anything priced at market value is languishing on the market for at least 3 months, until it is removed, downpriced, and relisted to languish for another three months on the market that adjusted down 2.5% in that 3 months.

That isn't to say properties aren't moving. Properties in California are moving like hotcakes right now, if they are 8-15% under market. Auctions, REOs, short sales. On an anecdotal basis, I've seen five offers written in the last two months on REOs that lost out to bidders paying with cash. I would guess that cash transactions are making up a much larger percentage of completed sales than ever in the past.

That isn't true. Lenders are making conforming loans like they are going out of style. Even jumbo loans are moving briskly, so long as you have a healthy salary on a W2.

The stated-income/low doc market, on the other hand, is all but gone. At 50-60% LTV, 6 months in cash reserves, and an extra 1.25% in interest, the 70% of America that works for, or operates a small business or works on a 1099 is basically F'd, and that is a LOT of buyers to take out of the market. It also paints a VERY clear picture of what direction lenders feel the US property market is going. Hell, if they thought the market would even remain stable, a 75% LTV loan would be worth making if only to foreclose on it and pocket the difference. That is not to say there is not a political element to no-doc/lo-doc lending right now. Every lender who even steps foot in that territory right now seems to be taking the risk of a political crucifiction for reintroducing the "liar loans" that got us here. Nobody seems to care about the fact those "liar loans" were around for decades prior to the housing bubble.

Yah that sounds great. It sounds like Obama telling me things are getting better. High on sunshine blown up the ass, low on actual useful information.

Most major mortgage companies put in automated underwriting software more than a decade ago. Why? Because they like to look at the data in exactly the way you describe. The crap gets sorted from the cream, risk gets assessed and managed. Companies like CountryWide and the rest didn't do the Cherynobyl style removal of the safety checks and risk management that keeps any company afloat all on their own. They must have been under the impression, at least to some extent, that their exposure was covered, and my guess is a lot of the implied guarantees and pressure started with our friends in government. Never takes long to convert a program to help the poor into a casino, does it.

The whole market managed to chug along nicely, with it's normal ups and downs, for decades prior to this event. It would seem that addressing the specific causes of this particular event would make a lot more sense than adding a whole new level of government bureaucracy to the lending market. It reminds me of what I see in the Fast and Furious congressional hearings on CSPAN. We have all these people from the ATF and the Justice department, caught with their asses in the wind, selling thousands of guns to criminals, and all they can say is, "See! This highlights the need for tighter gun laws!". To me, it says leave the gun laws as they are and incarcerate the people who thought they were above the law. A specific solution to a specific problem. Start with Eric Holder.

 

The ratings companies are paid by the company selling the loans, right? That means the ratings companies have no financial interest in giving crappy ratings to crappy loans.

@Earl, you and I had discussed self-regulatory mechanisms. I'm a big fan of them. Excuse my ignorance, but why can't the system be set up so that the buyers pay the ratings companies? Sellers become legally obligated to submit loan packages to a central exchange which distributes the packages to all ratings companies. Buyers pay the ratings company for their ratings on the loan packages.

Sellers will balk at this process because it takes the power away from them. Buyers should love the process. The lobbyists can battle it out. But politicians on both sides should love it because it will increase the size of government. Sure, Repub's will complain it makes government bigger and Dem's will scream it's unfair to minorities, but secretly both will love it for the same reasons.

Well, I used them as examples. But to my mind, if paper is passing where there is a probability that one will make money while one will lose money and there is no oversight, then a bet is being made.

I have in mind Bill Clinton's famous warning: "If a system can be gamed, it will"

 

Corwin: I'm certainly not an expert on the ratings companies. But if you read through all the literature on the past financial crisis, the rating companies failed miserably when it came to rating the huge volume of privately generated collateralized mortage debt instruments that got aggregated, packaged, and resold. There were lots of crappy mortgages within them, and when the real estate market tipped downward the crappy no downpayment, adjustable rate loans, with no documented income...etc etc... (all the crappy mortgages)....they were the loans that collapsed first. All those big packaged investments went south in a hurry...screwing up the financial system. Those problems were magnified by further complex financial actions.

Simply they were packages with base crappy mortgage loans. How did they get rated so high???

All those packages of loans got high ratings.

I'm not going to suggest how it should get fixed...but that part of the system screwed up!!!!! Supposedly there is a fire wall between the payers to the credit rating businesses and the ratings mechanisms themselves.

It obviously broke down, and there was testimony about it...wherein that was acknowledged.

The system was gamed...in that regard.

Look ratings are critical. They are like audited statements. Within this world of sophisticated financial statements they create some realm of belief and honesty.

I know we need stuff like rating systems...I'm just not going to go there. Somebody needs to oversee how it operates...but right now figuring out is above my pay scale.

 

You got half that half right. I'm not well studied on the aftermath, but it would seem ratings companies would face tremendous civil liability for getting their scores so terribly wrong.

Now THAT is the most accurate thing I've ever seen you put to print. In fact, I am so pleased you've decided to be honest, I am going to once again fire my illegal Mexican yard maintenance guy! Congratulations! You got your job back!