patrick.net

It seems that conforming loan interest rates are going up. Perhaps the bailout is actually harmful to most homeowners/home-buyers in non-bubble areas?

This makes sense because the injection of toxic waste into a "protected" loan pool will only poison that pool. The financial market is not stupid.

Harm, your graphics are awesome!

Wow! I just noticed that. Excellent! Is that a NASA B52?

Definitely can happen, and from the recent links is happening. It is just being masked by packaging these loans to the federally guaranteed programs.

I was looking for the small cutout in the wing for the X15 tail fin to clear. Must be a different plane.

Could it be the X-43 mothership?

Oh crap, has the mothership arrived?

Perhaps Ben is Goldfinger reincarnated?

@Malcolm,

Thanks, but I cannot take credit for that --just a link to bullnotbull.com. Patrick suspended all custom graphics-uploading about 6 months ago due to spam issues.

Can I get a verification here? The emblem on B-52's hat looks like it belongs to Her Majesty's Royal Australian Navy?

That or a meter-maid from Toronto?

Phase 3? I'm predicting... June, July at the latest. My MB buddies are already telling me things are "loosening up" and that it's easier to get marginal buyers qualified. They'll have to work closely though w/ the PMI crowd so it doesn't look any more conflicted than it already is!

"Perhaps Ben is Goldfinger reincarnated?" LOL!

Let's see... tropical climate and leather bomber jacket coupled with that devil-may-care attitude? I'm thinking Tales of the Golden Monkey!

Obviously if Phase 3 happens, Phase 4 will follow. But I still have hope Phase 3 will not happen. After all, isn't their regulator (Lockard?) repeatedly on record that he wont stand for it? Now if he resigns.....Besides, if phase 3 is in the bag, why is BoA circulating that plan to bail them out with $750 billion? Its existence tells me nothings in the bag so they're exploring all options.

Maybe I'm just an idiot to think like this because on the other hand, if phase 3 isn't planned, what's the use of raising the limits?

Question: if GSE standards are loosened, it has to be only for existing loans right? I mean they can't possibly continue to provide ninja loans like it's 2005? So all it does is extract more money from current owners who will thus be given incentive to not walk away (inflation will eventually "catch them up " i.e. nominal values steady/flat for years). If that's the case sales will still stay very low right? And there's your silver lining: realtors are still screwed :-)

OT

Crazy times in which we live. Wapo today: Class actions close from mortgage holders against banks close to precedent.

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/26/AR2008022603351.html?hpid=sec-business

A federal appeals court is nearing a decision on a battle between Chevy Chase Bank and a Wisconsin couple that could for the first time enable homeowners across the country to band together in class-action lawsuits against mortgage firms and get their loans canceled.

Door Could Open To Class Actions.

The case is alarming Wall Street's biggest banks, which could bear the hefty cost of reimbursing all mortgage interest, closing costs and broker fees to groups of homeowners who uncover even minor mistakes in their loan documents.

After a federal judge in Milwaukee ruled last year that the Wisconsin couple had been deceived and other borrowers could join their suit, Chevy Chase Bank appealed to the circuit court in Chicago. Kevin Demet, the lawyer for the plaintiffs, said a decision by the appeals court is imminent, though others involved in the case said it could be a matter of weeks.

"It's one of the most important cases for the mortgage industry right now," said Louis Pizante, chief executive of Mavent, which provides consumer protection law services to major lenders. "The case was somewhat interesting a couple years ago when it started, but its ramifications and impact have completely changed given the current environment."

Dozens of class-action homeowner lawsuits have been filed in California and elsewhere against the nation's largest banks. The success of these claims could turn on the decision in the Chevy Chase case.

In its court filings, Chevy Chase said it would be "irreparably harmed" if the class-action lawsuits are allowed. About 7,000 borrowers have received loans from the bank similar to that of the Wisconsin plaintiffs.

"It's critical for the industry because if you allow class actions . . . in theory you could have thousands of people in a class and you could have enormous amounts of damages for the industry," said Thomas H. McCormick, vice president and general counsel for Chevy Chase.

The law states that even a minuscule violation by a lender can lead to a mortgage cancellation, or rescission. For example, if the annual percentage rate calculation is off by one-eighth of a percent between preliminary and final loan documents or if a monthly payment schedule does not conform precisely to federal guidelines, some borrowers could get a refund for all they have paid to live in their homes for years. They would have to pay back the entire amount of the loan, but they could then seek a new mortgage on better terms.

According to the inspector general for the Federal Deposit Insurance Corp., 83 percent of federally supervised banks that issued loans at the height of the housing boom in 2005 have been cited for "significant compliance violations."

OT

OMG, this is absolutely nuts. 28% personal property tax increase. This local tax hammer about to come down all over the country from these local gov's unable to cut back spending enough after the boom is going to be crushing.

From today's Wapo:

Prince William County Executive Craig S. Gerhart proposed yesterday a budget for the coming fiscal year that calls for a 28 percent increase in the property tax rate to cover a shortfall and to pay for public safety programs, including a crackdown on illegal immigration.

Unless you are planning to buy your next house with cash, you should wish that our mortgage industry remains largely intact.

OMG, this is absolutely nuts. 28% personal property tax increase. This local tax hammer about to come down all over the country from these local gov’s unable to cut back spending enough after the boom is going to be crushing.

This is why I actually agree in principle with anti-tax pioneers that brought us Prop 13.

The tax beast MUST be contained.

Cash would be A-ok for me: Unlike ~95% of the public, I actually *have* some.

NVR,

That movement has been quietly afoot for sometime. I was VERY surprised to see it surface in such legitimate channels? There-is-a-man.... (lives in OR as a matter of fact) that has specialized in "mortgage elimination" for years. As it turns out, on these very legals grounds!

I've brought up the topic on the bubble blogs from time to time and even here they've been pretty much rejected as baseless. (Little did we know?) In the past whenever I Googled it, invariably among the first hits were stern warnings from various AG's assuring the reader they would be liable for EVERY PENNY and then some, and face criminal charges for fraud! I'll watch this one closely.

Once again:

Here’s my main beef with Prop. 13:

a) It’s not really about “saving grandma from eviction”, the way it was sold to the public 30 years ago. It’s all about providing a perpetual tax shelter for big business and for a select group of fortunate-born wealthy Boomers and their lazy, greedy Trustafarian spawn, who disproportionately benefit from it.

b) It’s a form of discriminatory taxation that –despite what the Supreme Court said– clearly violates the “equal protection” clause of the Constitution. Age discrimination is no better than race or gender discrimination. If you’re going to lower taxes for one group of people, why not lower it for everyone?

I would be in favor of the following:

–Eliminating property taxes altogether (better no tax than one that taxes me to death, so my scumbag Boomer/Trustafarian neighbors and CEOs can continue to fund their lavish lifestyles).

–Expanding Prop 13’s 1978 tax-basis to EVERYONE who buys a home –not just the Birth Lottery winners.

You’ll notice that *neither* of these proposals would RAISE taxes one cent for anyone now benefitting from Prop. 13, and the former would actually LOWER taxes for them. But you’ll never get a Boomer or Trustafarian to go along with either one, becuase it’s never really been about “lower taxes”. It’s really all about “I got mine, so F**k you!” It’s really about keeping privileged tax benefits for the lucky few, not about helping out the rest of us Hoi Polloi.

NVR,

Yeah, but isn't Prince William one of the wealthiest counties in the country? Probably wouldn't go over so well elsewhere?

Instead of eliminating property taxes, I agree with ol' Henry George that a land-value tax should be the only tax. Here's the argument:

* Most wealth is land.
* No one creates land (except perhaps in Holland).
* Collecting rent on land is merely sponging off of the increased productivity of dense communities, without giving anything back.
* Homelessness and poverty are the result of city land monopolization by the rich.
* It's impossible to hide land, so tax collection is easy.
* Taxing income and sales is bad, because it discourages commerce.
* Taxing building value is also counterproductive. You want good buildings and maintenance. Tax only the land value.

DinOR,

Prince William is actually not exceptionally wealthy comparative to the suburbs of washington dc. Its an outlier, traditionally a 45 min - 1 hour commute into DC. IBM was a major employer, making chips and submarine stuff there for awhile. New chip plant there, and some DHS and spook stuff going on, but its well below median wealth measures compared to Fairfax, Arlington, Loudoun, Alexandria counties.

Its the first county in the country, I believe, to allow local LE officers to check immigration status of everyone they encounter in a violation situation, and then begin deportation proceedings. The county had an enormous Latin community (cheapest county to live in this area). Backlash resulted in this policy, the Latino's are bugging out and leaving blight, foreclosures, and crashing property values in their wake. Its a mess there man. I'm pleased with the results of this ridiculous policy decimating their tax base.

No, this is not a county that can afford this one at all, already largest value declines in NOVA prior 12 months. Every county in NOVA is facing a serious budget crisis, this increase will be close to the norm.

Cash would be A-ok for me: Unlike ~95% of the public, I actually *have* some.

That would benefit downsizing boomers and foreigners much more so.

I tend to think that when tax revenue is being slashed it is time to cut services. Raising tax does no good. It will only chase people away, further decimating the tax base.

"Tax only the land value"

That's why I'm buying a f@cking houseboat! :)

I'll take delivery in Oregon (no sales tax) and plunk it down in Lake Mead, NV (no INCOME tax) where I will promptly declare that I own no land!

(It's all part of my plan to stick it to da' man!)

Clarification relative to Prince William County tax increase:

A 28% tax rate increase will result in an effective 8% increase in the actual tax bill. I was unclear in earlier post.

The county's official numbers indicate a 16% drop in property values in 2007, just fyi.

NVR,

My bad. It's just that often they're mentioned in the same breath.

That would benefit downsizing boomers and foreigners much more so.

How so? If I pay $150k cash for the same 3Bdm/2Ba ranch (what it *should* sell for in a NINJA/neg-am-free market) vs. $750k (+30 years of interest & tax) using a NINJA-ARM, the seller takes an 80% price hit, and I get a no-interest, no-PMI house at a very low cost basis.

Looks like a win-win for me, and lose-lose for Mr. Boomer. What's not to like?

If I pay $150k cash for the same 3Bdm/2Ba ranch (what it *should* sell for in a NINJA/neg-am-free market) vs. $750k (+30 years of interest & tax) using a NINJA-ARM, the seller takes an 80% price hit, and I get a no-interest, no-PMI house at a very low cost basis.

A 750K house may drop to 350K in a no-mortgage environment. 150K is a bit of a stretch, unless there are other significant economic shocks (e.g. waves of bank failures) at play.

NVR,

I also noticed that the couple mentioned in the WaPo article had a 5.75% FIXED RATE mortgage (but w/ kids in college!!) felt that was 'too high' and jumped at the chance to gorge on a 1.95% ARM! "It seemed like a godsend". Yeah, you're right, under 6% for the first time since Sputnik is pretty abusive?

I suppose there are things we could be willing to look past (as this was in 2004 before toxicity was widely known) but what did they THINK was going to happen? That aside I hope they do get their case heard.

A 750K house may drop to 350K in a no-mortgage environment

You're kidding here, right? $350k would still represent a 6-7x multiple of median CA HH incomes, which is *still* higher than the long-term historical average of around 5x. And we're talking what prices might theoretically be in the complete absence of mortgage lending. Without loans, prices would have to crash to levels supported *only* by buyer incomes and savings.

Without loans, prices would have to crash to levels supported *only* by buyer incomes and savings.

If I have to bet:

2M will drop to 1.5M
1M will drop to 600K
750K will drop to 350K
500K will drop to 200K
400K will drop to 100K

(NOT FINANCIAL FORECAST. NOT INVESTMENT ADVICE.)

Without mortgage, the low-end will be decimated, but the higher-end will come out relatively fine.

Don't forget that even without mortgage, people can still rent.

The lower-end will still be partially supported by cash buy-to-let investments.

"Instead of eliminating property taxes, I agree with ol’ Henry George that a land-value tax should be the only tax"

Even better... instead of taxing based off the value of that land, come up with a flat rate for a square foot. How could you get more fair than that?

Sounds good but then the guy with the quarter of an acre on the beach pays the same property tax as the guy living in the desert.

What is everyone's gut feel for the future of mortgage interest rates? Seems like their slipping upward even while the Fed is lowering.

If Bernake somehow stimulates the economy a little bit, what is the likelihood he will start raising the rate like mad to combat inflation?

Seems like alot of the price drops in housing could be moot for buyers sitting on the sidelines waiting for the bottom. By then the rates could be significantly higher. A 5% hike in rates would take away about 50% buying power. 50% seems to be the biggest drop I've seen predicted for housing (by Schiller), and only in certain markets. And a 5% hike up in rates seems likely in the next 5 years unless our government decides to make the dollar toilet paper.

Any thoughts?

Peter P,

I don't know if your "model" is BA specific but we've already seen huge price plunges in I.E and SAC etc. and that's WITH... "something" of a mortgage market.

Well, many here have said lowering the rates was not going to do anything for the lending business or to stabalize home prices. Seems that was the correct prediction. Government backed loans will continue to be cheap, with the increased risk unsecured loans and mortgages/TDs will become more expensive. The market will determine the risk premium built into the rates. Some subsidized rates, like dealer financed car loans will probably drop as an incentive to keep the production lines running. It is going to be an interesting time where we can all make a lot of money if we figure out the directions things are going.

I don’t know if your “model” is BA specific

It is mostly BS specific. :)

Yeah, it is a guesstimate about the Bay Area.