patrick.net

I'm curious that there doesn't seem to be an uproar over Fannie Mae changing their rules about downpayments in declining areas. Anybody read the WSJ article? The NAR and NAHB were key lobbyists to alter the guideline.

Fannie Is Poised to Scrap Policy Over Down Payments
By JAMES R. HAGERTY
May 16, 2008; Page A3

Fannie Mae is expected to announce Friday that it is scrapping a policy requiring higher down payments on home mortgages in areas where house prices are falling.

The change comes in response to protests from vital political allies of the government-sponsored provider of funding for mortgages, including the National Association of Realtors, the National Association of Home Builders and organizations that promote affordable housing for low-income people.

Those various groups have said the policy is hurting an already feeble housing market by shutting out too many potential buyers.

The current policy, adopted in December and now due to end June 1, limits loan amounts in areas with declining home prices, including most of the densely populated parts of the country.

For instance, if a loan program normally allows people to borrow up to 100% of the estimated property value, the maximum is cut to 95% in "declining markets."

Under the new policy that is taking effect next month, Fannie will have the same maximum loan percentages across the country for people purchasing single-family homes that they intend to occupy, according to people familiar with the plan.

For borrowers approved by Fannie's automated underwriting program, the maximum generally will be 97%. For those approved by other means, the maximum will be 95%. (Fannie also has some loan programs, typically offered through state or local housing agencies or nonprofit groups, that allow certain borrowers to make no down payment.)

Fannie is expected to continue to have variable down-payment requirements on mortgages considered riskier, such as those used to buy investment or vacation homes.

Fannie and its main rival, Freddie Mac, own or guarantee the bulk of U.S. home mortgages and so set nationwide standards for lenders. Freddie also has a policy requiring higher down payments in declining markets. But Freddie earlier this month said it wouldn't require lenders to drop below 95% of the estimated value.

In a letter to the Realtors last week, Freddie also said that it is applying the policy flexibly. For instance, if appraisers can demonstrate that home prices in a given neighborhood are stable or rising even though values are falling in the wider metropolitan area, the declining-markets policy doesn't apply.

By softening the down-payment policies, Fannie and Freddie are taking more risks.

Borrowers who put just 3% to 5% down in many areas are likely to find within a year that they owe more than the homes are worth because prices have fallen, a situation known as being underwater.

In some cases, deeply underwater borrowers are choosing to walk away from their homes rather than trying to find a way to keep on paying, Patricia Cook, Freddie's chief business officer, told analysts this week.

But Fannie officials have argued that they have tightened lending standards in other ways -- for instance, insisting on higher credit scores for people who make small down payments -- to reduce default risk. Officials have also argued that underwater borrowers don't necessarily choose to walk away.

The concessions from Fannie and Freddie illustrate the conflicting pressures that they are facing. Many critics say they are taking far too many risks, increasing the danger that taxpayers may end up having to bail them out.

But politicians and the housing industry are pushing them to do more to prop up the housing market.

In a recent letter sent to Fannie and Freddie, the Realtors reminded the companies that the trade group in recent years helped them fend off Bush administration attempts to impose tighter regulatory constraints.

Fannie and Freddie may need the Realtors' lobbying support in the weeks ahead as Congress seeks to give final approval to long stalled legislation designed to improve regulation of the two companies.

Brand
does going from 95% to 97% really make that much of a difference?

justme - I have also noticed that quite a few are selling for about 5 % under asking price - which used to NEVER happen - however, it is still taking too long for my liking!

>>apparently not for Chindians:

>>http://sify.com/news/fullstory.php?id=14653636

Not sure about the Chinese, but Indians are not dependent on H1B anymore. Check out the little brother of H1B, the L1 Visa, which is basically a giant backdoor (as big as the Fed window if not bigger) where there is no labor clearance, no quota, no prevailing wage requirement, and it is a "blanket" visa.

So an Indian sweatshop can (and they do) get a 1000 of those visas in a jiffy. And get this - the dependents (L2) get a work permit. Since being an H1 dependent (H4) does not allow the spouses to work, even the Indians prefer L1 over H1. They get paid less, but hey the wifey can work too.

With the independence, ease, cheapness, unlimited availability and flexibility of L1, who needs H1B. Google it, plenty of people are p*ssed about L1 abuse.

justme :

I am no expert when it comes to this crazy and fantastic language. So I will be more verbose than that single word. :-)

Jimbo is our resident "Bay-area-is-so-so-special" guy. I love this area too, hence I am stuck here :-) (by choice). But I am willing to see both sides. As much as I know about the great employment opportunities here I also know first hand how stretched these seemingly upper middle class folks are.

This area is not infallible. We might not see the real effects of this madness for some time. We have yet to see the effect of higher interest rates in the Fortress because higher interest rates have not happened. We have yet to see the effects of entire paycheck going to the mortgage company, because no significant job recession has happened.

Who knows what happens in future ? We will see. It's too early to call one side wrong. That's it. That's what I meant.

Here are some predictions from before you used to post:

Peter P predicted a 40-50% downturn in Santa Clara and San Mateo home prices.

OK. So we are reusing the old tactic now ?

The bears got it wrong. They predicted X% decline and got only Y%. What a bunch of stupid doomers !

Let's not mention that the bulls predicted that the gains are permanent. From Garry Watts (15% in the bag) to Toll CEO who said that prices will appreciate forever and our children will not be able to afford houses and will have to live with their parents.

But they were not talking about Bay Area. And especially the newly rezoned bay area. I am glad we got rid of Morgan Hill and Dublin out of this perfect area. Oh, even that San Jose with 2 years of inventory is kicked out. Good riddance. Including the white collar pockets like Evergreen where inventory is reaching 600 as we speak. So what if they have a good school and newer houses ! It's freaking 10 miles from Great America Parkway and the offices of Silicon Valley icons. Who wants to commute 10 miles ? And those Rivermark condos that still haven't completely sold for last 2+ years - next to the same iconic offices ? Oh common, that's condos, who cares !

The real thing to remember is bears got it wrong. They said X% and got only Y% . And BTW, nothing in Marina - let's be clear on that.

The bulls didn't even get the direction right, let alone the extent. They said Bay Area prices never go down. Not in this area. Everyone wants to live here. People make too much money here. But that's them other bulls. Not Jimbo, who's prediction was spot on.

The bears may turn out to be wrong. But the bulls are already "wornger" by an incomparable magnitude.

The bulls didn’t even get the direction right, let alone the extent. They said Bay Area prices never go down

I am pretty sure that is called the "beating the Straw Man to death" argument. Can you even find one poster who, non-facetiously, stated that "Bay Area prices never go down?"

Okay, maybe Marina Prime did that, or at least insinuated that. But he was a troll from the start.

Jimbo :

I don't think you are able to comprehend. Not just this time, but even our past exchanges were similar. You just don't seem to get what I am saying or you purposely avoid inconvenient questions. So stop whining about straw-man arguments.

No matter what I point out, you always find a flimsy reason to dismiss it. For example, bulls who were making confident predictions are now dismissed as trolls ? I am pretty sure everyone here has heard "BA prices never go down" in their real life from people around them. And you want me to search the archives and find you a link ? Give me a break.

But you ignored the more important point of my post. Let me repeat it.

Bears as of now are definitely wrong about the extent of the downturn in many areas - including the Fortress. But the bulls didn't even get the direction correct.

Of course you are not one of "those" bulls. But do you have anything to say to above ? Or the way you redefined bay area (by eliminating San Ramon/Dublin) - you are now going to redefine the bulls ?

If people put enough qualifiers around what they said in the past, no one will ever be proven wrong.

Bears as of now are definitely wrong about the extent of the downturn in many areas - including the Fortress. But the bulls didn’t even get the direction correct.

No, I certainly agree with you there. In general, I think it is pointless to have an "Amen chorus" but if that is what you are looking for, here it is:

Hallelujah Amen! Sing it out brother!

It is nice to be vindicated, especially after trying to stop my father and father-in-law from committing financial suicide and failing. At least my little brother listened to me a bit and diversified into the stock market. But unless prices drop a bunch more in my neighborhood, it is not really going to have much of an impact on my life, since I still can't afford the bigger house I want.

One other thing:

I am pretty sure everyone here has heard “BA prices never go down” in their real life from people around them.

I know that I certainly have never heard anyone say such thing. If someone said this, they would have to colossally ignorant of history, since prices have declined at least three times in the Bay Area during last 50 years, most recently during the early 90s. And these are just the nominal declines.

But unless prices drop a bunch more in my neighborhood, it is not really going to have much of an impact on my life, since I still can’t afford the bigger house I want.
My wife was at the playground and a couple was leaving to checkout a 2bed/1bath bungalow for $700k -- WTF. While the marginal areas are getting foreclosures and the price drops (think near Oakland border), they are still putting something in the water in Fortress [insert your favorite Bay Area region]. Enough for me to give a second thought to selling...

I found this video from CNN rather disturbing, on several levels. We are now seeing parking lots in middle class CA reserved specifically for, and filling up with, people sleeping in their SUV's. A modern day version of the Joads and the beginnings of the new American depression taking shape.

Incarnated as mobile homes, if this trend continues, our Exxon Mobil Detroit cabal induced SUV fleet may actually help in offsetting foreclosure induced rental demand. Maybe a bit of a stretch, but those empty retail parking lots and oil gobbling monsters may be put to a new use.

http://money.cnn.com/video/#/video/news/2008/05/15/news.gutierrez.parking.cnnmoney

Agreed original thread topic is tin foil, but here is a recent supporting piece on cash starved state governments being a little over aggressive in their seizure of "abandoned property".

It appears that safe deposit boxes are getting drilled and emptied. And the State government of California appears particularly out of bounds.

http://abcnews.go.com/print?id=4832471

nvr,

Interesting stuff. Did you also see the recent article (?WSJ) discussing the idea gaining traction to "infill" some of these vast parking lots used for suburban corporate campuses with housing. The idea is that this would reduce commuting, add character to a soulless landscape, and best of all, much of the infrastructure (electricity, plumbing, etc) are already in place.

Seems like an idea even Kunstler would approve of.

On Federal Reserve, we need some sort of revolution like French Revolution ... otherwise situation is unlikely to change. Infalationary loot will continue to go on. We are being bought with our own money and we can not do anything.

We are not the French. If we want to emulate the French, let's start with the cuisine.

We should only accept peaceful, market-driven changes.

Maybe a food revolution. I thought the organic food movement is going already.