Mortgage Mania 26 - …And Henry Giveth Again

November 25, 2008

You would have to be living under a rock to have missed this today, so here is a newsflash for all you subterranian dwellers. Henry Paulson’s latest bailout plan now consists of borrowing $800 Billion from The Fed to buy up mortgage assets, consumer credit card debt and car loans.

In his article, “Fed bets $800 billion on consumers“ on CNNMoney today, writer Chris Isidore shares Uncle Henry’s latest plans:

“The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses.

The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.

One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.

The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer.

In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.”

Hmmm, buying mortgage backed securities . . . wasn’t that how TARP was sold to Congress in the first place? The idea of the US Government buying up toxic mortgage assets in an attempt to get the three remaining solvent banks to start underwriting mortgages is enough to get any red-blooded Realtor’s blood pumping again. If this restarts the housing market, let’s all be sure to thank the lobbyists working for NAR, and remember them on our Christmas lists.

The Fed goes the original plan one better by setting aside $200 Billion to buy securities backed by auto loan and credit card debt. Hmmm, let me see if I get this straight . . .

The idea behind mortgage backed securities was that they were safe because they were backed by the houses those mortgages were written against, and the logic was that those were APPRECIATING assets. This worked great until housing prices started falling, and the underlying assets were worth LESS than the loans on them.

A car drops 20% in value the minute you drive it off the lot, so you are already upside down on the loan if you put down less than 20%. The car ads are all touting $0 down, so let’s assume that most buyers today are putting down less than 20%. So . . . is this Groundhog Day?

Don’t get me started on buying credit card debt . . .

This is another reason I don’t work in the Treasury Department. That, and that pesky question about blog articles that would embarrass the President.

You can read the full text of the article HERE.

Thanks for reading . . .

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Written by Chris Iverson, Realtor · Filed Under * Type of Content, Consumer | 7 Comments 

A Housing Rebound? - Looking for the bounce

July 23, 2008

CNN Money is a favorite consumer source for news and sensationalism about issues affecting us financially. A friend uses it as his homepage, and sent me this article on indications that the housing market is pulling out of its downward spiral. Judging by the commentary on the Yahoo news service that picked it up, most people think it is another self-serving article written by real estate agents who want to further dupe consumers into buying homes and further leveraging them selves with unnecessary debt. There, I said it, so you can save your comments.

Here in Sillycon Valley, we are continuing to see variations on the Tale of Two Cities theme, with markets like Palo Alto and Menlo Park holding up strongly (click the links to see current market data), while prices in parts of Sunnyvale and San Jose have fallen off a cliff this year. We won’t mention Sacramento, because it’s not nice to kick ‘em when they’re down.

So, the key leading indicators for monitoring the health of your local housing market are:

  1. Is the housing stock shrinking?
  2. Are home prices falling at a slower pace?
  3. Is it cheaper to rent than own?
  4. Are houses becoming more affordable (relative to local incomes)?

Locally, we are still kind of bumping along. The current housing stock in Palo Alto is up slightly, but that isn’t unusually during the late Summer. If the trend continues through Fall, it may signal a trend.

Home prices have been stable here, so that is tough to measure, though the multiple-offer / overbid madness is definitely a rarity these days.

Depending on how you measure it, it’s still cheaper to rent than own, but tell that to my clients who were tossed into the housing market when the rental property was sold and they received a 60 day notice from the new owner.

Houses here are still unaffordable, but take a look at the chart at the bottom of the page and compare San Jose and San Francisco. It may be a good time to get into San Jose, especially if you understand foreclosures and short sales. If not, contact 3Oceans contributor Bart Marchioni, aka Mr. Short Sale.

Remember, real estate is local, and be careful what you read on the internet.

Thanks for reading . . .

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Written by Chris Iverson, Realtor · Filed Under Articles, Buy vs. rent, Buyer and seller tips, Buyers, Consumer, For buyers, Mortgage, Mortgages, Real estate | 1 Comment