What'll they call subprime loans next time around?

By
Real Estate Agent with 1st Action Real Estate

Lower conforming loan limits back to 2007 levels? Whose bright idea was that?

Another cluster **** from a government reeling from one uninformed decision to the next. It seems every time you turn around someone from the administration is bemoaning the state of housing in the country today. Housing has pulled us out of 6 of the last 8 recessions - why not this one? 

Why? Because Washington says one thing and does the complete opposite. Or one branch does one thing while another branch acts to negate the first (see: PACE Program). Is it any wonder confidence is at record lows? If you people are going to screw up, at least do it consistently so we can move forward with confidence that you'll continue to screw up the same way - we can deal with that. It's the multiple levels of screw-ups and misdirection that has us lost.

For those of you that live in the middle of the country, I know it makes no difference. It's not your fight. But at least get out of the way for those of us that do have a dog in the fight, OK?

Here's a primer - prior to 2007  GSE loan limits were low. Even though we were in higher cost California, for our county it was about $355,000. Some very high cost areas got 115% of the median price of the market up to $417,000 and some areas as high as $525,000. Problem was, in 2005 - 2007 the median price for a home in our state was approaching $600,000. In our little backwater, medians were in the low $500,000's for 2 years. That meant that anybody coming to our area COULD NOT GET a conforming loan for even a median price home. They were increasingly pushed into the jumbo market with higher fees, tighter qualifying and higher interest rates. Use of FHA and GSE backed mortgages plummeted from as high as 55% to around 7% by mid-2007. 

But where there's a problem, there's also an opportunity so lenders came up with ways to address people's inability to get conforming loans by inventing a whole new category of loans - the exotics. And it worked so well, they kept inventing new features. Can't qualify for an Alt A or subprime, how about if we ask for '0' down? No? How about interest only for 3 years? Still don't qualify? How about if we just tell you how much you need to make in order to qualify and then you tell us you make that much? Better?

And the GSE's saw their market share falling even more and the geniuses on Capitol Hill saw that that was bad so just as things started to implode they made a corrective move to increase conforming loan limits. Had they done that 3 or 4 years earlier while maintaining the relative quality of the loan qualification process, we would not be in the trouble we are today.

Now many of the same geniuses who got us into the problem are charged with getting us back out. And they look at the higher loan limits and see that very few people are using that higher limit today. Duh. So their conclusion is not that they tanked the market, but that the higher limits must no longer be needed. And many Republicans are against the higher loan limits because they see this as a way to 'reduce governments stake in housing'. Great time to be worried about this, ya schmendrakes. Why not just drive that stake right into the heart of the market while you're fiddly-farting around trying to make us believe you actually have principles.  

YOU DULLARDS! First of all, you are absolutely killing any nascent move-up market that may be starting to percolate. In my area we're down from $500,000 to $355,000 as a conforming cap and sales of $400,000 - $600,000 homes, which were damnably slow to begin with have dried up completely. 

It is true that it has not impacted the broader base of our business because our median price has fallen from the mid-$500's to the high $200's or low $300's. But what about when the market snaps back? And it will. It always does. Even Obama can't kill the innate drive for the American Dream of Homeownership. So what happens in my little market, or the broader California market, or the other 593 higher cost counties in 42 states when the median price again creeps over that cap? 

Well, lenders are working on a solution to that even as we speak. The only question is - what are they going to call sub-prime next time? That name's probably played out.

Of course that's just my opinion. I could be wrong.  
 

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Comments 25 New Comment

Ambassador
437,374
Paul McFadden
Mortgage Loan Officer, Bellevue Washington Home Lo
Alaska USA Federal Credit Union

Gene: Thanks for the post. I know that Congress is talking about raising the loan limits again. They let them expire as you know. The rest of the market is going to take a while to come back. The other piece of good news is they may let people refinance if their loan was done before 2009 and they are upside down. Of course, they need to be currrent on their payments. All of this takes time. I was talking with a realtor yesterday and she heard there is still up to 5 years worth of shadow inventory out there. If that's the case, a normal market is a ways off. The good news is the market will turn and those of us still in the business will reap the rewards. Thanks!

October 25, 2011 09:15 AM
Rainmaker
1,116,635
Richie Alan Naggar Author PEARLS SERIES of books
on LIFE and LOVE plus Real Estate too!
People first then business! Ran Right Realty Riverside, Ca

In a important realm such as Real Estate, we should not practice trial and error, but precise business...The government does not know what it is doing and becomes part of the problem before long...That's SOP

October 25, 2011 10:16 AM
Rainer
117,183
Linda Piper
Planatek Financial, Inc.

Gene:

Well said.  It should be a requirement that anyone who authors legislation designed to regulate the business we're in should serve a year's intership actually LEARNING how the business REALLY works.  Only then will a legislator be truly prepared to author legislation that makes sense...

Thank you for your post - entertaining as well as thought provoking.

Linda

 

October 25, 2011 10:27 AM
Rainmaker
271,087
Ken Cook
Writer For Hire
Digital Content Creator

You're pretty much right. We can keep beating the "it was the CRA rewrite that started it all" but that's water under the bridge. The problem, and you know this, is politicians are just people. Some of them are brilliant, many are complete dumbasses and most are corrupt - at least to the point of doing anything they can regardless of outcome just to get elected again. It's not about doing what is right for the country any more. It's all about doing what each individual representative can do to hang on to that seat for the rest of their lives because it transforms them from sh*tty people to magnificently wealthy.

Barrack Obama is a socialist shill who could not care less about you, the housing industry and capitalism and evidently a majority of voters are just that stupid.

Next ...

October 25, 2011 10:37 AM
Rainmaker
224,999
Gene Wunderlich
Realtor & Legislative Liaison
1st Action Real Estate

Always good to hear from you Ken.

I think one of the points many of you have made is that the government is really incompetent to deal with these issues yet they proceed to do so anyway with all the incumbent unintended consequences. We have snapped back too far in response to this crisis with regulations and requirements that severely limit the opportunity for even well qualified people to purchase a home. The incidence of foreclosure is not statistically different for buyers with 0 down, 3% down or 20% down. It's how you qualify the buyer that you're giving the loans to.

Gary - actually Murrieta had a ton of owner occupied homes that were actually owner occupied, We were/are still a hotbed for fraudulent activity but that was a minor part of our market back then. Our biggest problems came from 2 sources - between 2001 and 2006 we were the fastest appreciating area in the country at 155%. As a result people were rushing to get into the game and those that came later bought way more than they should have. Lenders (and Realtors) knew there was no way in hell these people could afford that home but rigged the books to get them in - BECAUSE THEY WERE MAKING MONEY. As soon as the market hiccuped theses buyers were the first to get hosed off. Then there were all the people who had owned homes for awhile and decided to take advantage of their equity build-up every 6 months and ATM'd every nickel out of the place and more. They were the 2nd round to get hosed off.

Now we're stuck with some of the truly unfortunate that could hang on for awhile but not forever, and the strategic foreclosure folks, and those who know they can live payment-free for 1 - 3 years before the bank comes after them. This distressed market will be with us at least into 2015 according to most prophets and most of what the government has done has only served to stretch out this period rather than address the issues and stabilize the market.

October 25, 2011 04:32 PM
Rainmaker
224,999

Gene Wunderlich

Realtor & Legislative Liaison
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