patrick.net

People, you're forgetting a few things. Not only are there not that many potential buyers who will qualify for conforming loans at higher limits (as SIBA said), but there's another huge factor this BAILOUT doesn't address. Most of the forced selling, foreclosures, and the like are occuring before ARMs have even reset. These sellers who are creating downward price pressure on homes will not be helped one bit by the government's cockamanie proposal. And on top of that, say the government were stupid enough to "encourage" looser lending standards ala 2000-2005. What bank will be willing to take on yet more toxic mortgage crap after all these writedowns? They'll still be busy trying to pawn off the crap they already have on their books to FNM and FRE. Finally, say FNM and FRE are mandated to accept looser lending standards - in the short term, this will grease the mortgage market, but given how near-insolvent FNM and FRE already are, taking on this extra crap will likely be the final push that puts the GSEs into complete insolvency once it all blows up on them.

In some sick way, I'd love to see that, just to see what our brainiac leaders come up with to deal with it.

and HARM, Welcome to the Bay Area. Be sure to stop by your local government office to pick up your standard-issue Prius, iphone, bluetooth headset, "Keep Tahoe Blue" bumper sticker, and NIMBY attitude.

@HARM, Welcome and ditto what skibum said at 12:43.

Mercury in SF Bay is a problem, for real. The New Almaden mine near what's now San Jose was one of the top producers in the world:

http://en.wikipedia.org/wiki/Almaden_Valley,_San_Jose,_California

coretexity,

Yes, the payday and nigh on a week recession certainly was harrowing wasn't it? I agree, the prepaid VISA cards would be a stroke of genius!

But the increase in the GSE limit _will_ gum up price declines in the Bay Area. Mark my words. This is for both fundamental and psychological reasons:

* It gives wait-it-out sellers hope for a quicker, stronger rebound and further reduces inventories and/or prolongs wishing-price listings within that price-band. I'm not talking about the sub-$1mm homes for sale in working/middle class neighborhoods. Those are doomed to chase down the market. I'm talking about the upper-ish neighborhoods of +$1mm homeowners, a lot of which can hold out for many months or longer (by hook or by crook).

* It gives agents something to sell. Agents love Fed rate cuts, government bailouts and things like GSE limits not so much because they really have a direct effect, but because they give them something to sell. And agents have a shitload to sell all the sudden. Almost enough to whip up a little bit of buyer-fear in certain quarters. I've already heard from 1 agent we talked to a while back, who called yesterday evening with a "you know, now's your chance; better jump on it before it's too late and prices come back this spring!"

Don't be surprised if we start hearing about isolated bounces in prime areas. I expect said bounce to last only a few weeks, but we'll get a rush of postings here resuming the ridiculing and sneering at us "bubbleheads". You know, "ha ha, you ''loosers''* are still renting and paying for your landlords mortgages, and we're still all getting rich!".

* this time [SIC] ala Casey

For Immediate Release
January 24, 2008

STATEMENT OF OFHEO DIRECTOR JAMES B. LOCKHART ON CONFORMING LOAN LIMIT INCREASE

We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs’ regulator has all the necessary safety and soundness tools.

Yesterday Chairman Dodd talked about moving a GSE reform bill early this year. We are ready to work with him and the Senate Banking Committee. We will also be working with Fannie Mae and Freddie Mac to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place.

###

OFHEO's mission is to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae and Freddie Mac.

PermaRenter,

(At least ONE guy gets it!)

Here's another example of why a bailout is in the interest of the powers that be:

Citadel buys Etrade's bad mortgages for 27% of face value ("27 cents on the dollar"). Now, Citadel and similar hedge funds are of course planning to make a huge profit on this type of transactions. And how do we that? By lobbying Congress to up the allowable Jumbo Loan size by 75% abd prop up rthe market, so that FBs can re-fi (maybe) and the mortgages rise in value.

God, I hate the corporate welfare in this country.

Randy H,

Thanks for taking the time to explain that vague sense of dread I had in the pit of my stomach. I'm much better now thank you.

justme,

To be fair Citadel took the plunge prior...

That's why I'm a fan of "riding out defaults". I know it isn't popular but a lot of say... high yield managers boast "we've never had a default" but took 27 cents on the dollar (vice 80) after dealing with the fallout.

Was the Investopedia link any help at all? I was hoping Peter P would chime in. In order to be proficient at option/future trading you have to walk, talk and LIVE it!

I am a house flipper. My definition of flipping is buying at a discount, rehabbing, and then selling at market value. I am not a speculator, i.e. someone who buys at retail, sits on it, and HOPES or artificially inseminates appreciation before selling it.

I work with a lot of people who would have foreclosed on their homes if I hadn't helped them. One couple couldn't even read, had a 5th grade education, and yet they were sold a house with a complex ARM. The houses I buy are in horrible condition, and bringing down the value of the neighbors homes.

Before you recommend punishing house "flippers", ask yourself this one question: When was the last time you stopped a foreclosure, or fixed up your neighbors house?

So, the idiots in the MSM finally realize that hey, maybe there's a downside to cutting the Fed rate indiscriminately:

http://money.cnn.com/2008/01/24/news/economy/barr_interest.fortune/index.htm?postversion=2008012511

Gee, if there were no downside, would you think we'd just leave the rate at zero, hand out cash hand-over-fist, and be done with it? What a bunch of maroons!

Before you recommend punishing house “flippers”, ask yourself this one question: When was the last time you stopped a foreclosure, or fixed up your neighbors house?

Well everyone, let's take a moment to pause and give thanks to CLB207 and all the altruistic flippers out there. We salute you!

***********

I will say that my problem with flipped homes is that the rehabbing is usually done on time constraint, cheaping out with materials, and almost always in a taste I don't like. So whenever I go to an open house that was clearly "flipped," I will essentially immediately cross it off my list.

Randy H,

>>Almost enough to whip up a little bit of buyer-fear in certain quarters.

How do we fight back? We need a full court press against the REIC, starting with the realtwhores. I've said before that the realtors are much more to blame than the mortgage brokers when it comes to creating the bubble, but they are playing it smart and laying low while blaming the whole debacle on the mortgage brokers and others in the REIC chain.

In my opinion. we need to go for the kill and finish off NAR for good while we have the momentum,. How do we do it? I think some good Congressional investigations would be an excellent starting point.

DinOR,

Yes, thank you. I've been over at the CBOE website to look at futures, but I still haven't found a quotable ticker symbol that will tell me the essence of the current state of S&P (say) futures. If Peter P or anyone one else knows I'm all ears.

Citadel: Sure, they took the plunge before the bailout deal was publicized, but I think they got the inside track on knowing what was going on behind the scenes.

CLB207 A "Real" Financial Hero...

That's funny because my definition of "flipping" is keeping current on the payments for 24 months, cutting the lawn when the wife makes a "big issue" out of it and selling at a HUGE profit!

Why go to all THAT trouble?

justme,

That may well be true but I don't want to go spreading rumors about people and circumstances I really don't know. I hope they DO make a killing!

try: www.888Options.com

They seem to have quotes for everything.

Skibum - thank you. There are a lot of crooked people out there who give legitimate investors a bad name. The houses I buy are normally overlooked by the average buyer - as you say, if a house is obviously flipped, you would cross it off your list. Most people would also automatically cross an unrehabbed house of their list - especially with the overstock of houses in excellent condition.
And as for whether a house is "obviously" flipped, those guys aren't doing a very good job of rehabbing, and won't be in business for very long.

P.S. And as for punishing those with multiple houses as the recommendation at the top of the page suggests, who would be willing to rent out a room in your house to a family who just got foreclosed upon, and can't get into an apartment complex because of the credit check??? There will be thousands of them out there.

DinOR - I can smell the sarcasm. At least I hope that was sarcasm when you are suggesting that you will be able to just sit, and make appreciation. The days of double digit appreciation are well behind. Sure, there are still pockets of appreciating land value, however even in those areas you have to wonder. Using the traditional affordability index, in which houses were bought at only 3 times the annual income - you can still see huge inflation in even modest neighborhoods. Just look at the average income compared to the average house price. I think if nothing else, this recession will bring banks back to more traditional lending standards - and thus un-inflate house prices.

CLB,

I have a good friend of mine that joined the service just so he wouldn't have to sell washing machines for the rest of his life at "dad's" appliance store. When he got out (late 80's) the economy.... sucked. So, he became a "rennovation guy" (that's what we called them at the time) and has been doing it ever since.

It just grinds me down to see how many have quit their day jobs to engage in this really without knowing what they're doing. My buddy hates them too b/c they drove sellers to asking prices that basically only allowed for "making wages". Still and all you have GOT to see youtube's "Real Financial Heros". It's freakin' hysterical.

Randy H Says:
But the increase in the GSE limit _will_ gum up price declines in the Bay Area. Mark my words. This is for both fundamental and psychological reasons:

I agree with your reasoning, but it looks like buyer sentiment has already taken a big hit. From what I hear from realtors, bids at 95-98% of asking are the norm now. Besides, the inventory is already climbing fast and raising the limit will not make borrower _qualification_ on DTI and LTV any easier soon. So, despite the higher GSE cap, the actual willing & able buyer-pool on the ground will probably stay thin.

You may well be right, this may give sellers enough room to hold out till buyers can be forced to put their neck on the block again. However, it does not seem to me a guaranteed outcome.

I believe the next move in this bait and switch will be to relax the DTI/LTV requirements, followed by a tax-funded bailout of Fannie/Freddie, so finally the banks can offload crap to the taxpayer... but at least for now, the qualifying standards seem to still be applicable.

Didn't your buddy quit his day job to do this full time?

I am not sure what you mean by "making wages". If by that, you mean drove prices down - that is a good thing. I don't think anyone here would argue that prices aren't horribly inflated, and in need of a correction. Often times, I and my colleagues provide that, because we always price our houses for a quick sale i.e. less than the average asking prices in that neighborhood.

I pitched in and tried to keep the front yard cleaned up at a foreclosure around the corner from me. The FB took off and let things just go - he even took the garden hoses with him. I bought a cheapie hose at Wallyworld and at least kept the shrubs and trees alive all last summer.

Hey there are some realtors who see the big picture:
www.idahostatesman.com/273/story/275032.html
"Langford said his real estate agent has been after the couple to drop their price to $205,000. "He said that if we'd drop it to $200,000 it would probably sell tomorrow," Langford said."

These idiots let their house sit on the market since Feb. 07 because they won't drop $20K. They are underwater but still refuse to face reality. And the guy's career? He's a FINANCIAL ADVISOR. :(

P.s. Those clips are pretty hilarious!

Not financial advisor advice. :)

@justme

I'm not much of a believer or advocate of organized movements. At least not when they are the equivalent of tilting at windmills. In practical terms, we are just a bunch of bloggers with a set of strong convictions and a lot of logic and data on our side. But we are also a distinct minority, and not a particularly persuasive one. Of late we don't even seem to agree much among ourselves and we're usually represented by the fringe elements who sit around all day wishing as hard as they can for another Great Depression.

Sadly, about all we can do is keep on talking. And keep on rubbing the hypocrites noses in their own piles of dung. And not forgetting to try our best to live our own lives even if we are trapped on this ship of fools. But mutiny is out of the question. Remember how history has treated those who declare truths which others don't want to or aren't ready to hear.

skibum Says:

> I will say that my problem with flipped homes is that
> the rehabbing is usually done on time constraint,
> cheaping out with materials, and almost always in a
> taste I don’t like. So whenever I go to an open house
> that was clearly “flipped,” I will essentially immediately
> cross it off my list.

Then CLB207 Says:

> There are a lot of crooked people out there who give
> legitimate investors a bad name. The houses I buy are
> normally overlooked by the average buyer - as you say,
> if a house is obviously flipped, you would cross it off your
> list. Most people would also automatically cross an
> unrehabbed house of their list - especially with the overstock
> of houses in excellent condition.

I don’t consider anyone that actually renovates a home before reselling a “flipper”, but I agree with skibum and would probably cross a home off my list if it was just renovated to resell. It is not possible to buy a home, do a high quality renovation and sell at a profit just like it is not possible to buy a used car sell at a profit after doing a high quality restoration. A friend just paid $225K for a Porsche 356 that the previous owner bought for $100K and restored for $400K. Back in college I bought an sold a few VW Bugs that I bought for a couple hundred dollars and sold for $2K after a $99 Earl Schieb paint job and installing some Scherbas $39 seat covers and some other minor work…

RE: Flippers

When most people say "flipper" they aren't talking about a legitimate investor/renovation business. Renovators who operate legit biz's are enhancing the value of the homes they buy and sell. Most people are talking about the wantrepreneurs who have no idea what they're doing and yet have fallen ass backwards onto piles of money up until about 18 months ago or so, when the music suddenly stopped.

In liquid markets like commodity markets or stock markets, flippers (day traders) arguably add some value by providing short-term liquidity. But real estate is entirely illiquid, and speculation of any type harms the price discovery mechanism while adding no real liquidity. These behaviors are destructive (economically destroy real wealth), as we are witnessing this very moment before our very eyes.

Insofar as "preventing foreclosures", whether by a flipper dressing up a home enough to squeeze a little extra premium out of the price -- enough to save the distressed home debtor; or by government bailouts: these things do extreme damage to the health of the market and economy over the longer term. For every foreclosure we "save" today there will be three, four or more later. This is because we are denying the purging of "bad bets" from the books, as it were. Witness Japan's past couple decades as a real world example.

You may say "bad bets? these are real people who are losing everything!" Yes, bad bets. Something allowed, encouraged, even tricked those people into their current situations. Others are just unlucky. But the processes that led to this point in the first place will never be corrected so long as we continue to redistribute wealth away from those who chose differently.

In order to be proficient at option/future trading you have to walk, talk and LIVE it!

Sadly, the only way to learn options/futures is to lose money trading them. Seriously.

Beginner's luck is very dangerous in this area.

Not any kind of advice

The houses I am buying are not Porches, but I absolutely disagree you with you that it is impossible to buy, do a quality rehab, and sell for a profit.

Recent Ex.: Bought a house that the homeowners were very behind in their mortgage, had no means to get it up to date, nor wanted to continue to make payments on. They sold it to me subject to the existing financing, plus a small profit to help them get started again. The house was a total wreck. I would be happy to share the before and after pictures. Total cost to buy it, get loan back up to date, and rehab it: $44,000. We just got an offer to buy it for $72,500, minus $2,200 cash back towards the buyers down payment, after it has been on the market for 2 months. It is now a home I would be happy to live in, and the next buyer is getting a good deal .
Just a recent example. Not getting rich on that deal, however it is just one example of being able to buy at enough of a discount to rehab, and sell for a profit. We are not in the business of making exotic restorations - just bringing it back to the quality of the average home or better in that neighborhood.

Sorry, that comment was for FormerAptBroker.

Randy H - I hear what you are saying about a market correction. I am as much a believer in the need of a market correction as anyone here. However, at what point do these properties get brought back into general society. Just as you say that "saving a foreclosure" takes wealth away from those that are not foreclosing - how about the smart homeowners who live next to a foreclosure, who are seeing their property values lower, even though they did everything right? And at what point do we allow that foreclosure property back into society? Do we just ignore it, until after the Bank dumps it? Do we wait years before allowing it to be cleansed of the stink of foreclosure before buying it again?
What I am not doing is rewarding homeowners who are in this situation, nor am I subsidizing their lifestyles. They are getting just enough to move out and move on - if anything at all if there is no room in the deal for it, such as in a short sale.

P.s. If they get booted out of their home with nothing to fall back on, gets who foots the bill... the taxpayer, when they apply for government assistance.

CLB207

I have no issue with the market doing as it will. If the bank, investor and owner benefit from a short sale, all the better.

But I take extreme issue with:
how about the smart homeowners who live next to a foreclosure, who are seeing their property values lower, even though they did everything right?

Firstly, those owners aren't losing _anything_ unless they took some action to realize their "gains" by, say, cashing out some of their equity or otherwise borrowing against it. A common misperception, fueled by the real estate industry, is that if your home goes up by $100K you are $100K richer. No. You are only $100K richer when you sell for $100K gain. Until then, it is all unrealized. On paper.

I used to own Webvan stock worth nearly $250K. Trust me. I'm not $250K richer for it today.

Secondly, there is harm done to those who continue to make prudent choices by refusing to buy houses which are overpriced by all historic standards and by all affordability metrics. Just because someone finds yet another way to manufacture another fool doesn't mean anyone has been rewarded. All that's happened is you've put another fool into an unaffordable home, and you've denied a prudent family who's biding their time, saving, ensuring their own self sufficiency, that house at a reasonable, sustainable price.

Like gravity, fundamentals will bring bubble-prices back to regressive mean. All the rest is just the expenditure of a lot of fuel in an attempt to fight gravity. And I, in my current personal bias, do not wish for a soft landing. My family has made the harder choices and I don't wish a prolonged punishment for having made taken the saner path.

By the way, I agree with FABs analysis. I am extremely skeptical that short-hold renovators can make economic (true) profits in the current environment. Given transactional costs, labor costs, taxation (direct and non-avoided), financing costs, and opportunity costs/risks, it is fairly unbelievable that one is making a profit in excess of a fairly low-income, low-risk day job. Unless you're in the browning grain-belt or rust belt of the Midwest and you can also produce rental income.

The only reason these folks tended to make any money over the past few years was:

1. Abnormally low cost of financing.
2. Misreading/miscalculation of costs of risk.
3. Euphoric market conditions causing anomalous gains.
4. Violating loan covenants and/or cheating on taxes.

If someone wants to flip I say let him do it. Should we waste time on educating people?

Folks, don't forget the best part of raising the GSE limits and its effects on Used Home Salespersons -- it is temporary. Imagine, now you'll have to put up with your local Used Home Salesperson (and friends) telling you to take advantage of the opportunity before the rates expire (there not going to last forever!) And about those rates...
NEW YORK, Jan 25 (Reuters) - A key element of the stimulus package aimed at jump-starting the ailing U.S. housing market may have the unintended consequence of raising mortgage rates, said analysts studying the plan....

Increasing the eligible loans to $729,750 from $417,000 would change the characteristics of mortgage-backed securities, leading traders to exact a premium for increased interest-rate risk.

HARM, welcome. What are you doing in South Bay, do you have a job there?
And just to clarify, Citizen HARM will be residing in the East Bay (well, Walnut Creek, unless we can convince him to find his dream Craftsman near BART in Rockridge -- or West Oakland!)

Secondly, there is harm done to those who continue to make prudent choices by refusing to buy houses which are overpriced by all historic standards and by all affordability metrics. Just because someone finds yet another way to manufacture another fool doesn’t mean anyone has been rewarded. All that’s happened is you’ve put another fool into an unaffordable home, and you’ve denied a prudent family who’s biding their time, saving, ensuring their own self sufficiency, that house at a reasonable, sustainable price.

Like gravity, fundamentals will bring bubble-prices back to regressive mean. All the rest is just the expenditure of a lot of fuel in an attempt to fight gravity. And I, in my current personal bias, do not wish for a soft landing. My family has made the harder choices and I don’t wish a prolonged punishment for having made taken the saner path.

Amen. And thank God Randy H is back. :mrgreen:

RE: Rehhabber vs. Flipper, this is how I see it:

Rehabber = Professional, ethical, value-adding contractor/carpenter, white-hat, "good" guy. Generally works hourly by contract rate, or per job estimate to rehab someone else's house. Generally does not buy and sell the house himself, because --as FAB & Randy pointed out-- short-hold honest/ethical renovators can rarely make money in a "normal" non-bubble market, because the total cost of renovations (parts + labor) can rarely be recouped at a 1:1 basis, much less a profit, unless you have an army of slave labor and a pile of free materials.

Flipper = Person who buys and sells properties on a short-term basis, while adding little if any real value to the property. Ex: Casey Serin, David Crisp, etc. Profits obtained either by bubble markets, or by (much harder) locating properties that are selling for far below market value.