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Author Topic: U.S. Mortgages / Housing Bubble  (Read 1281 times)
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jnc
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KB 10522


« on: February 10, 2012, 04:26:30 PM »

{Looked for a bit, and couldn't find an existing thread, so here's one for this...}

From an interesting story 'Foreclosures to Climb in U.S. Before Bank Deal Helps Housing Market Heal', about how foreclosure rates are likely to spike up after the just-announced so-called 'mortgage relief' settlement:

"The agreement will direct $17 billion to writing down debt to buffer about 1
million homeowners from foreclosure. About 11 million U.S. homeowners have
negative equity, or owe more on their mortgages than their homes are worth
...
U.S. homeowners have $750 billion in negative equity
"

Yeah, $17 billion (a number that sounds big to the average clueless voter) is really going to put a bit dent in a $750 billion problem (although, to be fair, if they can work through the foreclosures, the market may improve and reduce the size of that overhang).

But it gets better:

"Investors are likely to buy many of the foreclosed homes that come on the market to take advantage of low prices and demand for rentals, Zandi said. About 21 percent of home sales in December were investor purchases, according to the National Association of Realtors.
Private equity funds including Los Angeles-based Oaktree Capital Management LP and New York-based GTIS Partners announced plans in January to buy $2.5 billion of foreclosed single-family homes to manage as rentals, focusing on states with the highest number of foreclosures, such as California, Florida and Nevada.
'There's pretty strong investor demand, particularly in some markets where prices have overshot', Zandi said. 'They've gone well below what you'd expect given incomes and rents.'
"

I love it.

An attempt to increase the home ownership levels winds up, some years later, in... increasing the number of homes owned by wealthy investors, after the attempt at do-gooding craters the market to the point where "prices have [undershot]", creating an opportunity for the rich to get richer.

The Law of Unintended Consequences strikes again...

Noel
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eastend
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« Reply #1 on: February 10, 2012, 05:47:42 PM »

yeah lets all ignore the American get rich quick dream that leveraged people up to the hilt in an environment of lassiez faire banking regulation shall we Noel?
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« Reply #2 on: February 10, 2012, 07:48:32 PM »

yeah lets all ignore the American get rich quick dream that leveraged people up to the hilt in an environment of lassiez faire banking regulation

Without more data this will be an inconclusive discussion, but let me just point out four things:

- Securitization of mortgages had been going on for quite a few years before crappy tranches started to appear, so securitization of mortgages per se was not the problem.

- Most of the bad mortgage securities came from slicing and dicing crappy mortgages - but the crappy mortgages had to exist (which happened out there in Main Street) before they could be sliced and diced (which happened on Wall Street).

- Many of those crappy mortgages were sold off to Fannie and Freddie - and without those government-backed/associated institutions buying up those crappy mortgages, allowing the originators to churn their money into more, a lot less crappy mortgages would have been created.

- However we got here, we're here, and throwing $17 billion (big a number as it is) at a $750 billion problem is not going to make much of an impact, no matter how much the politicians spin it.

There is no one single cause for the housing bubble, and surely greed and sleaziness were part of the reason it all happened - along with too much cheap money sloshing around the world, both from investors, and central banks - but a government-backed push to expand the number of people who own homes was also indubitably part of it.

End result? A smaller share of Americans own homes now than when the whole process started.

Noel
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« Reply #3 on: February 10, 2012, 07:59:59 PM »

FWIW, even without our own mortgage crisis, a smaller percentage of Bermudians own their own homes today than they did 15 years ago too.

Nice to see that our government is competing toe to toe with the US in a race to the bottom in this one area.
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