The Coming FHA Bailout – $360 Billion in loans insured in 2009. 30 percent of home purchases 20 percent of Refinances and 50 percent of new buyers go through FHA Loans.

The Federal Housing Administration (FHA) has picked up a lot of slack from the implosion of the toxic mortgage market.  Today the FHA announced that it would be imposing stricter standards but that isn’t saying much given their current track record.  Delinquencies on FHA insured loans are blowing through every historical benchmark of sustainability.  This wouldn’t be such a big problem if this happened a few years ago when FHA was insuring a tiny part of the market.  That is no longer the case.  In 2009 FHA insured loans backed up $360 billion in loans.  That amounts to 30 percent of all home purchases, 20 percent of all refinances, and a jaw dropping 50 percent of all new buyers.  Without the FHA insuring loans, there would be a very different housing market.  It would be one thing if FHA actually imposed strict guidelines but right now we are heading into another mega bailout because giving loans to people with 3.5 percent down (actually near zero with the tax credit) is simply repeating history.

Take a look at the current delinquency rates:

Over 14 percent of FHA insured loans are now in some stage of delinquency.  This is horrible.  The overall market that is a mess is slightly above 9 percent.  And some FHA backed lenders are pumping out enormous amounts of toxic mortgages that it has caught the eye of regulators.  As we have learned, you must be doing a Bernard Madoff to catch the eye of regulators.  Actually, I take that back, Bernard Madoff flew under the SEC radar for years and only his fund implosion led him to his demise.  This is going to be another major bailout just waiting for us in 2010 something akin to Fannie Mae and Freddie Mac.

FHA insured loans have exploded from 2007 by a factor of four because of the toxic mortgage market disappearing:

So what are they doing to “tighten standards” on FHA insured loans?

“(CNN) The FHA will also require borrowers to have at least a credit score of 580 to qualify for the agency’s 3.5% downpayment program. Those with lower scores will have to pay at least 10%. However, this rule may have little practical effect since Stevens recently said the average borrower score is 693.

The new policy also will reduce the amount of money sellers can provide to homebuyers at closing to 3%, down from 6%, of the home’s price. That change will bring the agency in line with industry standards and remove the incentive to inflate appraisals.”

Bwahahaha!  The OCC OTS would categorize this as follows:

So if this is their metric, it isn’t much of a standard.  This is basically saying as long as you don’t fall into the subprime category, come join the party.  But overall, the average FICO score is actually good for FHA insured loans.  That isn’t the issue.  The problem of course is you have people buying homes with nothing or close to nothing down.  That is the issue.  As we learned [are learning] with Alt-A loans, you can have a solid 800 FICO with an income of $100,000 a year but if you take out a $750,000 mortgage you are destined to fail and your FICO score will quickly plummet overnight.  Instead of increasing the down payment requirement, the FHA is now pushing for higher premiums which will actually hurt homeowners but guess what?  It’ll benefit those making the loans on the front end.  After all, if you require people to put some skin in the game then the market would slow down because we are in a deep recession!  Shouldn’t we focus on fixing the employment problems first before trying to grease the wheels for people to buy homes?  Why don’t we all become real estate agents and mortgage brokers and sell homes to one another?  The fact that they are hiking up premiums only means borrowers are going to pay more for the front end problems and lack of underwriting on a monthly basis.

And these loans are imploding at a quick pace:

The above is a daunting chart to look at.  FHA insured loans were already having problems during the boom times!  And now this is where we are focusing 30 percent of all mortgage volume.  In areas like Southern California, 40 percent of last month’s sales came from FHA insured loans.  This is going to be the next crisis but at this point what qualifies as a crisis?  People don’t seem to care that the banking industry is pretty much sucking the productive economy dry.  Don’t you think that it would be smart to fix the system before we continue to make so many loans through the FHA?  This is just absolute madness.

And a few have said, “but doc, surely people in California are putting a good down payment when buying a home.”  Think again:

Not at all.  The median down payment is 3.5 percent or $9,888 in California.  But with the tax credit, it is the cost of one month of rent.  So we went from toxic no doc pretend Alt-A and option ARM products to virtually no down payment FHA insured loans that basically look at your W-2 and as long as your FICO isn’t subprime, you are good to go.  Banks are squeezing people into loans like an elephant trying to fit into a two piece bikini.  Do you think they actually do a thorough analysis of your overall household budget?  What do they care?  Once the loans are backed by the government it is off their hands.

And that is how perverse our current system has become.  We went from conventional 30 year mortgages with 20 percent down payments to a system where basically checking your W-2 is considered due diligence.  Oh okay, so basically because we aren’t pretending that people working at Wal-Mart make $150,000 a year that somehow we are now practicing prudent lending?  Over 14 percent of all FHA insured loans are now in distress!  They are months away from eating away their “reserve” and going for a bailout.

Take for example the Southern California market.  You have nearly 40 percent of all homes sold last month going through FHA insured loans.  Then, you have roughly 25 percent of purchases with all cash buyers!  There is nothing normal about this market.  From this we can gather the following:

-The vast majority of people are strapped for cash, even for a down payment

-Those cash buyers are thinking they can flip that home to people in the future (for cash flow prices still don’t make sense unless you look at some Inland Empire areas)

People hear what they want to hear.  Someone e-mailed me and stated, “doc, when you decide to buy real estate cows will be flying.”  I’ve actually been buying for years.  Just not in California.  And for roughly one year, I’ve mentioned that it may make sense to buy in the Inland Empire.  Some niche cities in L.A. and OC have also seen prices collapse and you might find some deals there.  Also, some condos are now moving near comparable prices for monthly rents.  But here is the thing.  Those that are in this camp want to buy a prime Santa Monica home for 1970 prices.  Come on now.  That is such an exaggeration and missing the entire market.  The California median price is still down nearly 50 percent and these people are so focused on a tiny market that they miss the overall trend.  Plus, these mid to upper tier markets are going to correct.  This will happen with Alt-A and option ARM issues that will hit in the next few years.  Just because it isn’t happening today doesn’t mean it won’t happen.  The same arguments were made back in 2005, 2006, and even 2007 about whether housing was in a bubble.  Now, you have these people saying, “well X area isn’t Y or Z or etc” but when you look at the underlying issues like shadow inventory for example, the future for these areas looks to be in a challenge.

With FHA insured loans and the fact that they back 4 out of 10 purchases in SoCal, we can safely assume we’ll be seeing a bailout in this industry in 2010.  Keep in mind that this is even more troubling because these are supposedly bread and butter 30 year fixed loans.  So what?  With no job or lost wages it can be a 200 year fixed rate but if you don’t have the monthly nut you don’t have the monthly nut.  You can’t squeeze a mortgage payment out of a turnip.  How about we focus on fixing the economy first before trying to satisfy the banking industry nostalgic desires to bring back the housing bubble?  Every time you hear someone say “we want affordable housing” you can call them a liar because the market is bringing prices back down to what people can realistically afford.  HAMP, FHA insured loans, moratoriums, the Fed artificially lowering mortgage interest rates by buying up $1.25 trillion in mortgage backed securities all create a sort of artificial market.  In fact, it makes homes unaffordable.  The only real winners here are the banks but this is something you probably already know.

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44 Responses to “The Coming FHA Bailout – $360 Billion in loans insured in 2009. 30 percent of home purchases 20 percent of Refinances and 50 percent of new buyers go through FHA Loans.”

  • As a person who was ready and willing to “buy the (predictable) dip” in 2009-2010, but will now have to wait possibly 3 to 5 years more to do so, I am offended beyond words at what the FHA is doing to work against people like me. I am offended that that the same government that I am forced to pay taxes to is and has been working overtime and on overdrive, (with at least temporary success) to prop up the ridiculously high, no, evil home prices that could not exist in a truly free market. Even though very few people today have the wherewithal to save up for a 20% down payment, most are still allowed to participate in the “market” and bid up the prices. It is criminal, and even more so that it is being done by our own government.

  • …and they’re doing it with our childrens’ and grandchildren’s money, which is even more despicable.

  • DHB wrote:

    There is nothing normal about this market. From this we can gather the following:

    -The vast majority of people are strapped for cash, even for a down payment

    -Those cash buyers are thinking they can flip that home to people in the future

    Point 1 may be true, but with the strategic default sub-culture going mainstream, I can see people thinking, “hey, why put real skin in the game when I can just walk away later I get upside down 10%+ or lose my job? I’ll keep my $50-100,000 in the bank and use the $8,000 credit and 3.5% down government gift to get into my dream RHG!”

  • Kid Charlemagne

    I reiterate there are no good choices left. Like any other bogus scheme, you keep up the game or the unwind happens. The middle class is doomed. Like any third-world country, our resources have been diverted from productive entities to crony, criminal ‘banks’ and insurance companies. Average Americans have no idea how this works, so they feel better listening to Fox news and bashing the President.
    We’re so worried about good schools, but having two working parents has probably done more overall damage than than any deficiency schools may have had. Soon we will need Bigamy so there can be three working parents, and maybe an undocumented housekeeper/nanny. Welcome to the next middle-class..

  • Doc,
    Last night I watched the results of the Massachusetts Senate Race and was amazed at how the public voted against the Dems b/c of the health care issue. I started to wonder if the Gov will get the message that the public is furious over the other issues such as FHA, Bank Bailouts, Artificial Low Rates etc… I wonder if the Dems will try to tighten up on all the bogus stimulus they wastefully spend before the Mid Term elections later this year. It was amazing to see how quick the public sentiment changed. And to see the Gov this morning on TV in completed shock b/c they couldn’t understand how public would be so apposed to their Gov Health Plan.

    Love to hear your comments on this

  • Couldn’t agree with you more Doc. I wish someone would do a study that showed how people with 800+ FICO scores and no money down performed vs. people with sub-600 FICO scores that put a full 20% down payment. I think it would show that FICO means next to nothing. The greatest predictor of people paying their mortgage is going to be how much skin they have in the game.

  • I am a single teacher with an income of $73,000. I own 1 home with a mortgage of $346. I have a student loan of $154. I am trying to buy a house right now and will rent out my current house with a positive cash flow of $700 +. I just got a letter of offer for fha of $250,000. The offer with conventional with $30,000 down is $125,000. I am in Sacramento. My credit is perfect. Any comments on this one? I can defiinately afford the mortgage on 250,000. I will not live in an area where the house cost $125,000.

  • So FHA is pretending to tighten lending standards – no surprise here, manage the perception, the lemmings will never notice. More political spin, indicating how entrenched the Gov is with the finance industry. Banks have no skin in the mortgage game – everything is government backed. Conversely, look at the credit card industry – We’ve haven’t seen such a rapid retraction of credit in our lifetime. That’s because credit cards are not backed by the government.
    **
    Also, we learned last blog some of the shenanigans on short sales. Apparently illegal payments outside of the selling price to the second mortgage holder. Sounds like a bribe to me! Out of curiosity, what law makes this practice illegal? Seems like lawsuits should be flying. Why haven’t we heard of any?
    **
    My own short sale story – Went to see a short sale with a buyer’s agent, he had the Realtor’s MLS Printout (that’s the one you don’t get to see, listing commissions, and such). He mentioned that we may need an additional $10k over the offer to pay off the second. I looked over his shoulder and saw it stated on the MLS listing. So anyway, we made a low offer on the property (they had two other offers already). I don’t expect to win the deal, but if not, couldn’t I sue based on the assumption that the person who won exxentially paid a bribe to win the deal? All I would need would be a copy of the MLS Listing, and maybe get a record of the payolla to the second through discovery.
    **
    Does anyone know if it is feasable to sue in such a case? Seems like we have several complicit parties: The Buyer, the Selling Agent, The Second Bank, The First Bank, The Escrow Company, the New Mortgage Holder … Maybe even a few more, such as the Title Insurance Company.
    **
    AnnS – Regarding interest rates, any way to hedge your investment when rates are low other than assumption (it works, but agreed it is problematic), or waiting till rates go up? Maybe that’s the ticket – hedging interest rates. Go short on Ten year treasuries? Can you do such a thing? At least that way, if you build your own hedge, you don’t have to get bank approval to sell. You just pay off the excess due to increasing rates with profits from the short. Seems the biggest issue here is that you need some amount of cash to hedge with. How much would you need to hedge a $800k loan? Anybody have any ideas? Once thing we can be certain of, is that rates will go up eventually.
    **
    I guess one other aspect to this would be how long do you plan to stay in the house, If your not going to move for ten to fifteen years, it might not pay off to hedge. I’m not sure how far out one can hedge anyway.
    **
    The thing I keep coming back to is, there are so many greedy parties out there playing games to take our money, that our only protection is knowledge. We have to arm ourselves with an understanding of how to take the takers.

  • “Feel better listening to Fox news and bashing the president?”
    Well DUH!
    Who do you think is allowing the bullshit to continue?
    Yeah, his name is OBAMA.
    The bastard has done NOTHING to rein in Wall St.
    My God what an obtuse comment.

  • Tim:

    The media has a lot convinced that Ted Kennedy’s (Ted Kennedy!) seat fell to a Playgirl model because of voter’s discontent over the health car bill, but, now that there has been some time to digest this vote, the “exit polls” are showing that this was a “vote the incumbents out” first, and a display of dissatisfaction over Obama’s coddling of the financial industry. Do not underestimate the rage simmering out there about bankers and their thievery. Watch out in November, Barney Frank. (is he coming up for a vote? I hope so.) Although, of course, the irony is that the Republicans will just coddle the bankers even more.

    Personally, and I’m serious about this, I think a major factor in her losing was that little screwup when she called Curt Schilling a Yankee fan. You have to understand how Red Sox Nation loves it’s team to know how that must have shocked a lot of schlumps off their couch and into the voting booth. Bad move on her part. Ted Kennedy is crying into his beer in heaven, with John and Bobby at his side, both wondering who this Curt Schilling fellow is.

  • In the tiny town of Tehachapi CA over 50% of the pending sales in our MLS are HUD properties that FHA loaned money on and went to foreclosure which are now being sold to investors and first time buyers for 60% less than in 2005 & 2006. I am all for raising the bar and requiring all buyers to have a stake in the home they buy so it would not be so easy to walk away. Well now here comes our Mr Govenator with one of the most irresponsible hairbrain scams ever in a State that has no money…Let’s give them $10,000 to buy a house along with the $8,000 the Fed us offering up. Do the math on that one and we will once again have loans with buyers with little to no stake in their loans. What will happen when the prices continue to decline when all the shadow inventory, ALT-A, and Pay Option ARMS come due in 2010 and 2011. You got it, they will buy and bail just like they are now.

  • I get it that there is a overall systemic problem with FHA loans….The big BUT- I actually just put in an offer for a home yesterday under FHA. Let me ask, what else is a first time home buyer suppose to do? Really? Most the people posting including the Dr have money and already have a home.

    I’ll air my situation publicly….I’m 32, single male, college degree, live outside of Sacramento (Auburn), have a credit score of 801 (middle score), rent a house at $1000/month, make 46K/yr, and made an offer for a 720sqft home at 140K (it’s actually the house I rent, the landlady is in foreclosure, so it’s a short sell)

    So, what other choices are there but FHA…..It is really really hard to save 20% of 140K as a renter paying out 12K in rent a year. FHA does have a place out there for people like me, I have the 3.5 down and will be able to afford the mortgage and taxes and but can’t come up with 20%.

    So, because I’m not rich and can’t save 28K I shouldn’t be able to get a home in Placer county at age 32 making 46K a year (I actually got a raise for 2010 and will make 51K this year). FHA has a place.

  • Our current President campaigned on “Change.”
    Once elected, nothing has changed, except for additional bailouts for Wall Street, and banks.
    In the fall elections, the Dems will loose big time. Obama will be a one term Pres.. Just like Jimmy Carter, a likeable person, but incompetant in running the country.

  • My own short sale story – Went to see a short sale with a buyer’s agent, he had the Realtor’s MLS Printout (that’s the one you don’t get to see, listing commissions, and such). He mentioned that we may need an additional $10k over the offer to pay off the second. I looked over his shoulder and saw it stated on the MLS listing. So anyway, we made a low offer on the property (they had two other offers already). I don’t expect to win the deal, but if not, couldn’t I sue based on the assumption that the person who won exxentially paid a bribe to win the deal? All I would need would be a copy of the MLS Listing, and maybe get a record of the payolla to the second through discovery.
    **
    Does anyone know if it is feasable to sue in such a case? Seems like we have several complicit parties: The Buyer, the Selling Agent, The Second Bank, The First Bank, The Escrow Company, the New Mortgage Holder … Maybe even a few more, such as the Title Insurance Company.

    I’m not an attorney but I was a lost an offer in a similar situation a few years ago. My attorney said I had no legal standing since I lost the house to another party. I actually called the guy who bought the house and told him how he had been hoodwinked into spending several grand needlessly but he declined to pursue it. I tried to file an ethics complaint with the local realty board and they would not accept it because it involved fraud, not merely ethics. The local States Attorney would not prosecute, or even investigate. The real estate broker involved was named agent of the year a few months later. The property is now foreclosed, eight years later. The real estate industry is stacked against us……

  • Hi Doc,

    what do you think of the (sh)opportunity in Temecula and Murrieta?

    Do you think these areas are nicely priced now, or have some to go down?

    Will so many REOs and foreclosures there affect the quality of life?

    (you can also send me an email for private opinion)

    I am looking to buy there now, but not sure.

    I am looking to buy in 250-300K range – do you have any better suggestions (anywhere really)?

    thanks much and appreciate you reading this

  • ” Comment by Eric
    January 21st, 2010 at 9:34 am

    I get it that there is a overall systemic problem with FHA loans….The big BUT- I actually just put in an offer for a home yesterday under FHA. Let me ask, what else is a first time home buyer suppose to do? Really? Most the people posting including the Dr have money and already have a home.

    I’ll air my situation publicly….I’m 32, single male, college degree, live outside of Sacramento (Auburn), have a credit score of 801 (middle score), rent a house at $1000/month, make 46K/yr, and made an offer for a 720sqft home at 140K (it’s actually the house I rent, the landlady is in foreclosure, so it’s a short sell)

    So, what other choices are there but FHA…..It is really really hard to save 20% of 140K as a renter paying out 12K in rent a year. FHA does have a place out there for people like me, I have the 3.5 down and will be able to afford the mortgage and taxes and but can’t come up with 20%.

    So, because I’m not rich and can’t save 28K I shouldn’t be able to get a home in Placer county at age 32 making 46K a year (I actually got a raise for 2010 and will make 51K this year). FHA has a place.”

    …DUDE. No.
    FHA is propping up the phony/failing housing market and costing you money. You wouldn’t have to save $28k for a downpayment on your place…it would probably be more like $14k without all the government backstops. You could save that in a couple of years just by setting aside your raise…of course you would have to put off leasing that shiny new Beemer, but that is another story. So you are over-paying for a shack that you won’t be able to pay the note on if you lose your job in California’s terrible economy, and the American taxpayer will be left holding the bag.

    FHA=Cost you more money and more taxes=bad.

  • @Mike M: Ted Kennedy is crying into his beer in heaven, with John and Bobby at his side, both wondering who this Curt Schilling fellow is.

    Hilarious imagery, but not so sure that Ted and Jack are in Heaven….Bobby might have squeaked in.

  • Eric has swallowed the lie that the FHA is good because it “helps” you be able to “afford” a home. But just as WP says, the very act of the FHA allowing any old rif raf to bid on, and buy, a house greatly enlarges the pool of buyers, making houses COST twice what they should if only the most responsible people were allowed to participate. The best thing that could happen is for the FHA to be cut back by 90% and then watch out below!.

  • Comment by WP
    >
    Re: your response to Eric with the “No.
    FHA is propping up the phony/failing housing market and costing you money. You wouldn’t have to save $28k for a downpayment on your place…it would probably be more like $14k without all the government backstops. You could save that in a couple of years just by setting aside your raise…of course you would have to put off leasing that shiny new Beemer, but that is another story. So you are over-paying for a shack that you won’t be able to pay the note on if you lose your job in California’s terrible economy, and the American taxpayer will be left holding the bag. FHA=Cost you more money and more taxes=bad”
    >>
    Hogwash.
    >
    (1) His raise is a lousy $5000. As a single individual, he will have an additional NET income of around $3100. How on earth does that translate to saving $14,000 in a “couple of years”? Try more like 5 (FIVE) years! (And that assumes that his employer does not (a) increase his share of health insurance premiums or (b) jack his deductible and copays.)
    >
    (2) HOw irrational, idiotic and presumptious of you to assume that he leases a “Beemer”! That is rude, vulgar and tacky and completely unsupported by the information at hand. (And if you ever made such a wild assertion in front of a Judge as an attorney, you would rapidly find yourself facing sanctions for making false statements unsupported by the evidence.)
    >
    (3) Lenders do not want 10% down. They now want a minimum of 15% down. So make that not $14000 but $21,000 and 7 years!
    >
    (4) FHA has been 3 1/2% down for decades. Used to be widely used by 1st time buyers and even 2nd time or more buyers. Then the shysters got into the act – no doc, NINJA, piggyback 2nds, etc – and took over the market.
    >
    (5) Loans are defaultng like mad from all lenders/guarantors. Prime loans default rate has accelerated over 60%+ in the past year. In the majority of cases, it has nothing to do with how much they had down (except option ARMS etc). It has to do with drops in income.
    >
    (6) FHA loans can NOT “prop up” the house prices. Prices have to be rationally related to income with to pay the money tab. Period. All the interest rates and all the loan programs around can’t make that fact go away.
    >
    The days of households being able to save 20% down within 2-3 years is so much history. Can’t be done for 80% of the population (those with incomes of less than $85K) in the face of the costs of heathcare, utilities, vehicles, transportation etc.
    >
    In this case Eric can easily afford the monthly payments on his income – estimated around $975 for principal, taxes, insurance and interest – and even afford the upkeep. The only risk for him is whether he might lose his job in the future – and that is always a risk for anyone who is dependent upon earned income to pay their bills.
    >
    BTW, $140,000 for a 720 sq ft house would be a little high here (bubble pricing) but would make sense in an area with higher household incomes which describes CA. (Median here around $44,000 vs national of $53K+/- and CA of $60K+/-.) 720 ft will actually accomodate 2-3 small bedrooms, 1 bath, eat-in kitchen and a small living room. Perfectly adequate for 2-3 people. Hardly a “shack”. Most apartments affordable to the bottom 60% are about that or not all that much larger.
    >
    In Eric’s situation, his purchase makes financial sense and logistical sense. He likes where he lives; he won’t have to move because the landlord loses it in foreclosure; and he can afford the house and will spend the same or less.

  • Good input from everyone….glad I could stimulate a good conversion.

    but AnnS sums up my situation. After taxes, 401K, and HealthCare (which is pretty cheap for a single guy with no history of illness)….I take home about $2800/month. So 1K goes to rent, and then there is the standard set of PG&E, Comcast, Car Insurance (FYI-’02 Toyota 4runner paid off), etc. etc. and whats left is pretty hard to put away in any sizable chunks….So AnnS is quite correct its almost impossible to save up 15-20k.

    As Ann and I figure the rent is slightly more then and mortgage and taxes will be! So this shouldn’t be out of reach, but a large down makes it out of reach.

    So, I can come up with 5k. And I cannot predict if I’ll lose my job, but it is not likely…we have a good client base and are a small company with 5 employees so we’ve hunkered down the last two years and done alright.

    So, if WP and other are correct and FHA is not the way to go…..then what is, saving and living off of mac and cheese for 5 years? Not likely.

    FHA isn’t for everyone and shouldn’t be, but for 1st time buyers with a job and someone looking to be a cheap house FHA is a solid solution. My other option is maybe find a place in the next county over (Nevada County) and get an USDA loan. But coming up with 10-20% is just way too difficult with the current cost of rent across the region.

    Finally, my realtor expects the appraisal price to be closer to 120k or about $160 per sqft….which is reasonable, No? Whats the sq ft price is SoCal?

  • Kid Charlemagne

    Robin, I think you missed my point. Goldman and the cronies are the problem. Fox fair and balanced is always pro-anybody-making a dollar any way they can, and blaming all our problems on the president and the congress. Sure, they are stooges for the banks, by and large, but they are the only chance we have. I heard a Flocks GS appologist explaining why it is fine for criminals to make multi-million dollar bonusus for criminal activities, but didn’t once consider the possiblity of their activities being scrutinized for illegal activity or being bailed out. These guys aren’t geniuses, they are criminals gaming the system and destroying the rest of the world’s economy. Fox has us divert our wrath from the perpetrators to the government. I don’t know that he would, but if OB did stand up to Wall Street, Fox would blame him for preventing GS from making an honest buck and hurting the economy. I don’t know, anyway I look at it we’re f’d…

  • Eric, in reguard to your house. Congraulations!! If you look at your after tax costs, your’ll be saving a lot. Be sure to start itemizing your taxes. The blogers are mad that the gov’t. is holding the real estate prices up. They are right. But I see your point. I will be buying my second house. It is very hard to know when the best time is. Interest rates are super low. Who knows when they will go up. It is clear the govt will continue to stay involved. I believe in the free market. Make sure the house you buy is 1/2 the price it was at the high or close to it. El Dorado county went down over 25% the past year. Best of luck to you and me. Remeber it’s your house and enjoy! Mickey

  • AnnS. Who are you and what’s your background? Over these past few months I’ve become a fan of yours. I like the way you call B.S on so many of the posters here.

  • Households were never able to save the 20% down directly, most started out with FHA or VA loans (recall that in the 1950s VA loans were no money down).
    It typically took family financial help to get a house or you went FHA. Partly the house price discrepancies around the country should make folks ask why would anyone in their right mind live in the LA or Bay Area. Susanville or Eureka might well be ok places to live in CA however.

  • Here’s another thought for you – All of the shenanigans that make it “more affordable” to buy a home, such as FHA, $8k Tax Credit, etc. are really just a way to help banks unload the properties they would otherwise foreclose at a fraction of the cost and stick it to the taxpayer. In otherwords, our traitorous Government knows that the houses purchased under these programs are going to foreclose again, but they don’t care because the goal is for the FHA to bail out the banks by transferring the toxic assets to them. Even worse, the public is being enticed to “drink the cool-aid”. Go ahead, get an FHA, we’ll even give you a tax break. Don’t worry about the defaulting in the near future, we’re taxing you, and printing enough new currency to take care of that problem!
    **
    We need to boot everyone from both parties and put some new blood into the system.

  • Comment by AnnS
    Great response. I totally agree!

    @Eric:
    Congratulations and enjoy your new home! There are many folks who troll this site, and are livid that housing prices in the prime areas of OC and LA haven’t completely collapsed and continue to be propped up by government programs. If prices ever did collapse (and they won’t), they would be the first ones rushing into the market and taking advantage of the FHA program to buy.

    Like the good Doctor said, some in this camp are thinking they’re going to snag a house in Santa Monica at a 1970’s price. Not going to happen folks. Save your yelping for the next big government plan to help stem the tide of foreclosures: loan balance write-offs. They’re coming…
    http://www.nytimes.com/2010/01/22/business/economy/22modify.html?hp

  • Comment by polo
    January 21st, 2010 at 9:05 pm

    AnnS. Who are you and what’s your background? Over these past few months I’ve become a fan of yours. I like the way you call B.S on so many of the posters here.

    __

    Now retired and hanging out in a beachfront village in the middle of a US National Park.. One degree is a multi-disciplinary specialty in the economic, political and social history of the 1930s (means full degree course work in each separate area : econ, history & pol sci). Grad work in administration and management, Then JD. Practiced law for years dealing with small businesses, some real estate, financial transactions, lots of buisness plan involvement with clients that was more management counseling than legal ….too tediously dull for words when one spends most of one’s adult life unsnarling peoples’ muddled personal and business messes, particularly their financial messes. After decades of that, I gave up tact. Took too much time and clients didn’t get the message unless you were shatteringly blunt. (Hubby considers it way too risky to take me to one of his Univ of Chicago reunions – figures I would openly insult their deity, Milt Friedman by laughing at his underlying assumptions or something.)
    >
    Seeing the housing and credit bubbles did not require access to specialized info or esoteric knowledege. All you needed to have was the US Census data info of incomes for a zip code or neighborhood and the MLS listings or the price of cars now vs 30 years. Then just do the math.
    >
    For the past few years I have been doing volunteer budget and nortgage counseling. Spend a lot of time gossipping with my local community bankers (their banks are 5 stars) who get snarky about having something Citi and BOA do not: capital and loans that are not in default! LOL! Still play around with the economic data analysis – have the BLS on autodial. Ran some healthcare policy analysis as to how employers would react for one of the NYT reporters….. Guess my hobbies (except gardening and the beach) are still as dull as my professional life.

  • Yeah, Ted Kennedy gets away with murder in broad daylight and the media basically forgets and paints him a saint. BTW, who was the incumbent in that race? The new spin is that it was anti-incumbent sentiment, but unless the definition of the word changed recently I’m pretty sure Coakley didn’t already hold that seat.
    ***
    On Jasmine St. in Palms district of LA there is a new building selling condos for almost $600k while next door similar apartments rent for $1500 or less. Every apartment complex on that block has a for rent sign and it’d be really difficult to miss that gap of thousands of dollars between rent and mortgage payment. Who is buying and what am I missing?

  • Ahhh, don’t be so fast to assume an FHA bailout. Dodd, Geithner, Summers, Bernanke are out, on their way out or marginalized. Volker is the new sheriff. There may be hope yet…

  • @AnnS
    “(1) His raise is a lousy $5000. As a single individual, he will have an additional NET income of around $3100. How on earth does that translate to saving $14,000 in a “couple of years”? Try more like 5 (FIVE) years! (And that assumes that his employer does not (a) increase his share of health insurance premiums or (b) jack his deductible and copays.)”
    >
    That assumes that is the only money he is able to save, only his raise money.

    “(3) Lenders do not want 10% down. They now want a minimum of 15% down. So make that not $14000 but $21,000 and 7 years!”
    >
    I think WP was suggesting that prices would decline such that the 20% amount would be smaller.
    “(4) FHA has been 3 1/2% down for decades. Used to be widely used by 1st time buyers and even 2nd time or more buyers. Then the shysters got into the act – no doc, NINJA, piggyback 2nds, etc – and took over the market.”
    >
    But FHA loans have now become a much bigger slice of the mortgage market, and I would say they have replaced the access to money and credit left by the other loans you mentioned.

    “(5) Loans are defaultng like mad from all lenders/guarantors. Prime loans default rate has accelerated over 60%+ in the past year. In the majority of cases, it has nothing to do with how much they had down (except option ARMS etc). It has to do with drops in income.”
    >
    But loans with lower down payments do default at a higher rate. I’ve seen multiple articles stating this, but I would love to see a chart. I agree that the biggest factor is income, but down payments are a factor. And I think they will become an even bigger factor if the strategic default rate rises.

    (6) FHA loans can NOT “prop up” the house prices. Prices have to be rationally related to income with to pay the money tab. Period. All the interest rates and all the loan programs around can’t make that fact go away.
    >
    That is simply not true. That is exactly what happened during the bubble, prices weren’t “rationally related to income”, because of the “interest rates and loan programs” that afforded people much more borrowing power.

    “The days of households being able to save 20% down within 2-3 years is so much history. Can’t be done for 80% of the population (those with incomes of less than $85K) in the face of the costs of heathcare, utilities, vehicles, transportation etc.”
    >
    I still think a big part of that is access to easy money and credit has pushed people to over-leverage themselves and pushed prices up out of a reasonable relationship with incomes.

    “In this case Eric can easily afford the monthly payments on his income – estimated around $975 for principal, taxes, insurance and interest – and even afford the upkeep. The only risk for him is whether he might lose his job in the future – and that is always a risk for anyone who is dependent upon earned income to pay their bills.”
    >
    I do agree with this, just not that he couldn’t save 20% especially if his competition for housing was facing the same barrier. I think the amount he is paying is reasonable (less than 3 times his income), but I disagree that it was impossible for him to save 20%. $1000 rent in that area is pretty high, you could easily pay half that sharing a 2bd place, or even less in a cheaper 1bd.

  • What sort of impact with commercial real estate have on the picture presented here?

  • There is some serious talk about actually forgiving the principal of people who bought a house they can not afford. God if that happens, I will be pissed. I rent, live below my means and don’t spend more than I earn. While those who do the exact opposite will benefit.

    This is all a bad dream. I can not believe it is happening before our very own eyes. If it keeps up, then our nation will have bigger problems than the one we are already in.

  • Comment by Socal Realtor

    January 22nd, 2010 at 12:19 am

    RE: Your link to the NY Times article about Fed Administration plan to force banks to reduce principal balances as a means to prevent foreclosures and in particular the final sentences of the article:
    “The banks are kind of in denial that second mortgages aren’t going to get paid in full,” said Professor White of Valparaiso. “Treasury has to find a way to compel the banks to take a hit.”

    How about they just enforce the law or restore the law of mark to market and banks lose the asset to foreclosure. The true hit. It seems to me they want to minimize the hit to banks making it just a slap.

  • Oh AnnS..get off your high legal horse about being sanctioned “if” you were in front of judge.
    We get it, you have some background in law.
    But this is a blog, not a court of law.
    And thankfully, we’re not in front of a judge, unless you fashion yourself to be one of those. Blog police perhaps.
    I for one key on some of Eric’s words like “it’s hard”; “it’s tough”; “difficult”
    Yeah that’s right.,it’s hard to save.
    No matter what you drive, your expenses, your lifestyle – saving is tough.
    But quite possible with the right discipline and sacrifices.
    Oh, too bad and so sad that it might take someone 3 years, 4 years, heaven help us – 5 years or more to save for a house. That’s just not fair is it?
    We want it now – we should have it now.
    Throw your hands in the air and say – it’s just too hard.
    What is wrong with that picture and didn’t we see that movie once?
    Truthfully, no where is it written in a stone tablet that a person making 46K a year in high cost California should or would be able to afford to purchase a home, a car, or even a dog.
    Hate to break the bad news, but 46K a year is quite a low salary in the year of 2010 (again – in California) and if you’re trying to do it alone, as a single person, it’s a real push, after taxes, to afford minimum monthly expenses.

  • They want to save banks and save homeowners, but banks first. That’s why all the real money-giving has been to banks.

    They want to do this on the back of the taxpayers even as the banks use the taxpayers’ money and and taxpayers’ children’s money to backstop FHA, Fannie and Freddie loans to generate money for themselves.

    I voted for Obama, because Bush was pure evil and affront and McCain and Palin gives me the creeps about our country’s future. But I am not going to stand for incompetency and insolvency either. That’s what the Democrats in Massachusetts were saying when they voted for Brown – they weren’t Republican die-hards, they were moderate Democrats and Independents who are tired of the stool of the left and the feces of the right.

    I make 64,000 a year and I still can’t afford a house, only barely a condo.

  • Pretty obvious that MichaelD does not nor ever has run a household with all the attendant expenses on the normal income of the average worker in the US. He merely screams “yes yes they save 20% down or $28000 in a couple years because I SAY so”
    >
    Eric tells us that I was pretty spot on and his take-home pay is $2800 a month. Here is REAL household budget with take-home of $2800 a month
    >
    Rent $1000
    Electric/gas (cooking/ AC/heat/hot water) $215
    Water/sewer $65
    Trash $25
    Phone $75
    ISP/cable (basic level) $90
    >
    SUBTOTAL FOR UTILITIES and HOUSING = $1470
    >
    Household ‘stuff (laundry soap, cleaning supplies, duct tape, printer cartridges, garden hose repair etc etc etc) $65
    Food * $350
    Drycleaning $15 (a raincoat costs $15-20 around here)
    Clothing $75
    Haircuts $25
    >
    SUBTOTAL FOR HOUSEHOLD AND PERSONAL = $530
    >
    Car insurance $120
    Gasoline (15000 miles/year national average at 18 mpg) $200
    Car maintenance ** (oil, tires, muffler etc) $100
    >
    SUBTOTAL FOR TRANPORTATION = $300
    >
    TOTAL = $2300
    >
    Disposable = 2800 – 2300 = $500. This has to cover things like family gifts for Xmas and birthdays, social events with friends, savings in case of a layoff, savings for retirement, a new vehicle in the near future………..
    >
    * Food: Difficult to cook for one person and not be living on canned soup, hot dogs or other simple to prepare dishes. Actually costs more per person if buying for 1 and not 2 or more. Everything is packaged as if cooking for at least 3 people. That means a lot of waste unless one has a nice huge 22 cu ft freezer, makes a dish, splits and freezes part of it; but even that doesn’t stop the amount of waste with things like lettuce or those single onions the size of baseballs. (Whatever happened to normal size veggies and fruit?) Now I run the household with food for 2 adults on $175 –200 a month. Even my grocery stores can’t believe that I do it. On the other hand I am a gourmet cook who cooks from scratch which does not mean box mixes (ask nicely and I will give you the recipes for the low cost Shrimp au vin Nicoise or Maple Cream Mousse with Carmelized Fruit and both of which just won nice 3 digit monetary prizes for me in a cookery contest); I have a 5 x 5 walk-in pantry, a 22 cu ft freezer, buy fresh produce in season and put it (getting real tired of asparagus and raspberries about now) and buy on sale to stock ahead and use lots and lots of coupons. Anyone can do the coupon-sale thing. Very few can cook the way I do.
    >
    ** Eric says his car is a 2002 – now nearly 9 years old. While he won’t have a car pyament at the moment, he will have higher repair bills from $300 to 2000 for things like: radiators, timing belts (personally spent from $600 –1500 fixing that depending upon the make of vehicle), mufflers, shocks and struts, ignition switches, starters, alternators, heaters/AC that quit, etc etc etc.
    >
    Now he will have to replace that vehicle in the next 2 – 5 years. That means that he will need to save some of the $500 after monthly expenses for that. I suspect that where he got the money for his downpayment and closing costs was from saving what had been his car payment after the car was paid off. Figure setting aside $200 for a car.
    >
    Now available every month after all that: $300 or $3600 a year and he has not (1) paid any copays or uncovered medical like dentists or vision or prescriptions, (2) taken a vacation camping in a tent or (3) bought his parents Christmas presents or Mothers’ day flowers. And of course if he still has any student loans……….
    >
    Of course he could skip trying to save any money at all for (a) emergencies such as losing his job or (b) retirement. Then the self-righteous know-it-all-but-actually-know-nothing prigs would scream that he didn’t act “responsibly” about that!!
    >
    Bottom line is that unless one has a household income of minimum $120,000, then the following can not be done:
    (a) saving 10% of gross for retirement
    (b) saving up 6-12 months of living expenses in case of job loss
    (c) having in savings 2-5% of income for household repairs and emergencies
    (d) saving to put 2 kids through college
    (e) buying the median price house (US median – not CA median)
    (f) buying a basic car like a Ford Focus every 10 years
    (g) spend up to 10% of household income for medical care in premiums, deductibles and copays
    >
    I RAN the numbers based upon national averages for utilities, insurance, housing etc; used a Food Stamp budget: and assumed a lot less on things like cars and houses than that income level supposedly can support. Try it yourself. If it pretty impossible to do everything the talking heads (and armchair know-it-alls on the internet) claim everyone should do.
    >
    ______

    Re: Nonsense that low down payments causes defaults (except for Option Arms which are doomed.)
    >
    That is an argument absed upon synchronicity. It is right up there with the dog who was convinced that he caused the daylight to come because he barked at the moon!
    >
    How MUCH they put down doesn’t have squat to do with the FHA loans defaulting. What matters is WHY they can only come up with that much down. (And contrary to the claims of the self-righteous, it is not for a wanting of trying and saving.)
    >
    Why households can only come up with that 3 ½ or 5% down is because they work normal jobs in the US that do not pay 2 or 3 or 4 times what the average worker makes (around $32,000 a year.) The costs of living –see above – are so high anymore that there is simply very little left at the end of the month to stick away. Their budget works but there is no ‘extra’ for saving for a downpayment or even retirement or emergencies. That is simply a fact of life in the US now. Wasn’t that way 30 or 40 years ago when the average priced car cost 27% of the median gross household income. It certainly is now when the average price of a car in the US ($30000) is 56% of the median household income.
    >
    So these households go along just fine and can make their payments once they get the house. The problem comes in from the OUTSIDE in the form of job loss, medical bills, family emergencies (have to pay to bury Grandma since it costs more than she had left in savings or whatever), and, most importantly, relentless rising costs (2.7% from Q4 ’08 till now) but incomes that do not keep up and often fall………….
    >
    These households – probably close to 80% of the US (household incomes under $85,000) are very very vulnerable to the slightest economic stress. They can’t save much so they have little with which to weather a job loss or huge medical bills or a spouse who becomes ill or all kinds of things. Did you know that the data shows that the quickest route to bankruptcy and foreclosure is starting off married with children?
    >
    So to get a home, they use the FHA 3 ½% down. (And if they don’t own a paid-off home when they hit retirement age, the self-righteous know-it-all-but-know-nothing prigs will scream that they should have planned better for retirement and bought a house so they wouldn’t have to pay rent out of their Social Security and meager savings and now can’t afford food or Medicare premiums and copays!!)
    >
    __
    >
    Go here for most recent study on type of loans defaulting and these so-called modifications. See those prime loan defaults going up and up and up……
    http://www.csbs.org/Content/NavigationMenu/Home/SFPWGReport4Jan202010FINAL.pdf
    _>_
    >
    Boywonder: That crack about giving up the Beemer was false and totally uncalled for. It was done solely to rude, nasty and mean – just like you. Saying stupid things to advance an argument only distracts and falsifies the information necessary for any intelligent discussion. Only the inept resort to hurling insults and making things up to argue their point.

  • @PC,
    I share your anger and agree with you. If Obama & the Dems push the for debt/balance reduction off of principle, the midterm elections would turn out the same way the Massachusetts Senate race did. The Republicans could easily exploit and probably will as we get closer to the election.
    I can’t see how Obama would go down that road (debt/balance reduction off of principle) b/c of the huge political implications.

  • The 3.5% downpayment would work, but ONLY with a reasonable DTI ratio. I have always thought that the problem with modern mortgages is not the lack of a large down payment nearly so much as mortgages that are simply too large for the borrower’s income, especially in combination with a large load of car and credit card debt.
    My parents bought their first home in the mid-50s, with a VA loan, no downpayment at all, as did most of the other young marrieds in their subdivision. Defaults and foreclosures were rare among VA and FHA borrowers then, and there was almost no inflation in house prices between 1950 and 1975. What’s the diff between the Post-WW2 era and Modern Times (late 70s through present) with their rampant asset inflation and rising incidence of defaults and foreclosures?
    The difference is the size of the mortgage, and overall debt loads, allowed borrowers; and the attitudes toward debt and default. Prior to 1980, most lending was risk based, based on your ability to pay and likelihood of problems based on your personal history. The approved DTI ratio for mortgages was 2.5 %, and if you were burdened with car and cc debt, it was lower. My mother’s mortgage for a house purchased in 1971 was 1.6 X her income, and she had no other debt, plus a 40% down payment.
    But after 1980, at which time we began to lose manufacturing rapidly and began to depend upon debt creation and asset inflation to drive our economy, the government created incentives for risky lending by setting up Ginnie Mae and the GSAs, while lenders, emboldened by the suddenly louche climate in combination with government backstops to their risk-taking, became very expansive and suddenly, by 1982, the approved “conservative” DTI was 4X your income, and that was allowed even to borrowers burdened with multiple car loans and unsecured credit lines. Defaults began to inch upward, though not enough to be a deterrent to lenders who were making more money than ever. Well, loosen those credit standards some more, and bring on the “creative” financing. ARMs started to become very popular.
    And at last we began to see the really toxic loans that brought the system down. Loans with DTI rations of 5:1, 6:1 and much worse became very commonplace, and of course the only way these loans were doable was by means of option ARM and IO and other “trick” loans tricked to blow up in the borrower’s face. Don’t worry, let’s just write these loans and rake in the huge commissions and fees, for the borrower isn’t worrying about 5 years from now and if it blows up in our faces, the Feds will bail us out. DTI of 10:1, why not, and forget about documentation. If you say you make $200K a year, well that’s what you make, even if you wash dishes for a living.
    No down payment can work, but not DTI ratios of 4, 5, 6, or higher. Stated Income will not work, or pay option ARMS, or IO loans, or the other “creative” trickery that was practiced by big houses safe in the knowledge that their politican flunkies would bail them out upon demand. Get back to reasonable DTIs, AND most of all, start holding borrowers responsible for their debt, and these loans will work.
    An idea: since Sallie Mae student loans are non-dischargeable, perhaps we could also make FHA loans, or those backed by Ginnie, Freddie, and Fannie non-dischargeable also, and publicize this broadly. Make sure home borrowers KNOW that they will be absolutely on the hook for deficiencies if they borrow money from the taxpayers.

  • Here in Florida, a woman down the street passed away last year. The bublle price of the home would have brought 300k. Family wants to move it so they cut the price to about 150k. Lot’s of traffic now. It’s certainly the price, as we all know. Are the fence-sitters making unsolicited offers? Trading stocks they have a bid-ask method that helps resolve value differences. Everyone wants to sell high, but there are a lot of motivated sellers that will probably make a deal if they don’t have to publish their ask price. The last property I sold was without a realtor and it was about 2k all told to make the deal. It was a fixed legal cost and of course the tax stuff, but 0 commission. Prices are too high, but there are buyers and sellers. Skip the middle man and get the deal done.

  • Nobody has a “right” to a house. I think people ignore this, and they approach home ownership from the point of view that “I deserve a house because I am me, and it’s not fair that I can’t get one.” This sense of entitlement is at the root of a lot our societal problems.

    We all make choices in our lives – where we spend our money, which careers we choose, where we decide to live. Certain life choices will make home ownership hard if not impossible. Contrary to popular belief, you can’t have it all.

    With dual income earners competing with single income households, it’s a losing game to own in nicer areas, unless you’re in a field that pays really well (medicine) or you’re well connected (family kicks in for down payment).

  • Ann S…you are obviously a realtor/housing cheerleader.

    1.) How rude of YOU to say his $5000 raise in “LOUSY.” And you are assuming that he living paycheck to paycheck before the raise and saving nothing. Not to mention, that even if he is, what is wrong with saving for 5 years for a down-payment on something? I think the instant gratification era is OVER.

    2.) Relax Ann…my BMW comment was a joke making fun of the “instant gratification/no down-payment/spread out your payments for 40 years and if you can’t pay just walk-away” attitude that has gotten many homeowners and banks into the mess that is the real estate market at this point which I find rude and vulgar. I also find your cheer-leading rude and vulgar and destructive to other people’s financial health. This isn’t a court of law, it is a blog, so I really don’t know why you are talking about judges and sanctions. But since you are, you should really take you own advice.

    3.) Nothing wrong with waiting 7 years to buy something…or 30 years if it doesn’t make financial sense to do so. Not to mention that if everyone needed 15% or 20% down it would diminish the pool of buyers and put further downward pressure on prices and further lower what he needed for a down-payment which would further decrease the size of the realtor and mortgage brokers COMMISH…which is probably why you are so mad.

    4.)FHA, Student Loans, $8000 tax breaks etc. all artificially drive prices up which from what I learned in Economics 101 is not good for anyone…except of course for the people making the loans and Realtors.

    5.) From everything I have read, including this blogs post on 1/25, negative equity (which results from no/low down-payment) is directly related to default…isn’t this obvious? Drop in income? If you had equity in a house and had a drop in income, you would just sell the house. You wouldn’t default. And if everyone has a drop in income then house prices should fall, and not be propped up by low interest rates and programs like FHA.

    6.) Home prices are out of line with income because of low interest rates, liar loans, tax breaks and low/no down payment loans such as those offered by FHA. That is why the housing market is in shambles..

    “The days of households being able to save 20% down within 2-3 years is so much history. Can’t be done for 80% of the population (those with incomes of less than $85K) in the face of the costs of heathcare, utilities, vehicles, transportation etc.”

    You are right. It is history…and it is the FUTURE. The reason why they can’t now is because of no/low downpayments which eventually will lead to default in most cases. The American taxpayer will only allow this to go on for so long.
    >
    “In this case Eric can easily afford the monthly payments on his income – estimated around $975 for principal, taxes, insurance and interest – and even afford the upkeep. The only risk for him is whether he might lose his job in the future – and that is always a risk for anyone who is dependent upon earned income to pay their bills.”

    I agree…he can afford the payment, but he is getting ripped-off with 30 years of interest payments on an over-priced shack that will eventually go down in value when the rest of the air is let out of the bubble. Downplaying the risk of him losing his job in a state where un-employment is 12.5% and rising with a 20 bil budget deficit (hope he doesn’t work for the state) is foolish. And the financial risk he bears in over-paying for a rapidly depreciating commodity outweighs the job-loss scenario.

    >
    “BTW, $140,000 for a 720 sq ft house would be a little high here (bubble pricing) but would make sense in an area with higher household incomes which describes CA. (Median here around $44,000 vs national of $53K+/- and CA of $60K+/-.) 720 ft will actually accomodate 2-3 small bedrooms, 1 bath, eat-in kitchen and a small living room. Perfectly adequate for 2-3 people. Hardly a “shack”. Most apartments affordable to the bottom 60% are about that or not all that much larger.”
    >
    720 sqare feet is a small one bedroom apartment…hope he plans to stay single! 2-3 people? I guess if they get some bunk beds. I’m not trying to be snooty here, I live in small one bedroom myself because I didn’t rush out and blow a bunch of cash on an over-priced bigger place, but it is not very comfortable. I mean…I could live in a tent if I had to, but come on! I don’t know Eric’s market at all, but I would guess that it is going to go down if it is in California.

    “In Eric’s situation, his purchase makes financial sense and logistical sense. He likes where he lives; he won’t have to move because the landlord loses it in foreclosure; and he can afford the house and will spend the same or less”

    I don’t really know Eric’s financial situation, but it seems to me that he could have saved A TON of money by renting another place if they made him move, and waiting for the air to continue to deflate from the housing bubble. Now if he just wanted to buy the place because he liked it or because he wanted to impress his friends or something, that’s cool. But please don’t try to make it out like this make perfect financial sense.

  • PS…Oh and Ann in response to your un-warranted personal attack on me in the above post.
    “(2) HOw irrational, idiotic and presumptious of you to assume that he leases a “Beemer”! That is rude, vulgar and tacky and completely unsupported by the information at hand. (And if you ever made such a wild assertion in front of a Judge as an attorney, you would rapidly find yourself facing sanctions for making false statements unsupported by the evidence.)”

    How irrational, idotic and presumptuous of YOU to not read my post clearly. I didn’t say Eric leased a Beemer. I said he would

    “have to put off leasing that shiny new Beemer,”

    as stated above this was a bit of a joke, but also serious in that you will have to make a few personal sacrifices to set aside some cash for a down-payment. This is not a wild assertion…I asserted nothing. I am not an attorney, and this is not a courtroom. And if it was you would be sanctions (whatever that is) for clearly mis-reading and mis-representing what I clearly wrote above, and well as for making a slimy personal attack on someone who wasn’t even addressing you. Furthermore, as anyone who regularly reads this blog can clearly see, it is YOUR false statements that are clearly unsupported by any FACTS. And as you will see all of the REAL-ATARD cheerleading in the world won’t keep housing prices from falling no matter how many suckers you lure in with your weak theories…so please crawl back under your rock and keep your lame personal attacks to yourself in the future.

  • I made $47K a year and was trying to get a loan to buy this townhome in Los Angeles for $275K. I have $80K for down payment and a credit score of 695. Guess what, I was turned down by Wells Fargo for a loan, the officer told me based on my income and down payment, I shouldn’t buy anything that is over $200K….

    The townhouse is a 2 bedrooms 3 baths with direct 2 car garages attached in a relative good neighbourhood in Los Angeles, but I can’t get a loan to buy it even I have $80K for downpayment…. I don’t understand the logic… If I were the bank, I would loan $195K to someone like me to buy this townhome…. My broker couldn’t believe it…

    Well, banks are run by fools who have no idea what good investment vs bads are. This is why Wall Street are screwed up… What’s the risk to the bank for $195K? Nada!! If I can’t make mortgage payment, which will be cheaper than paying my $1400 a month rent I am paying right now, then what will the bank lose by foreclosing a townhome that can be sold easily for $275K ?

    See, doesn’t this tell you how stupid banks are, no wonder they are losing money and not making… they have no sense about what is risky and what is not! Screw the banks!!!

  • Well it’s almost 4 years later and its coming home to roost. The FHA has come hat in hand to the Obama administration requesting a $1.7B bailout.

    http://www.housingwire.com/articles/27566-fha-bailout-pushes-federal-deficit-to-22b

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