Keepin' It Real Estate: Subprime Lending Is Back With a Vengeance
By Andrew Jeffery May 08, 2009 9:10 am
Getting to the "bottom" of the housing market.
But this time, reckless financial innovation isn’t being hatched on Wall Street. Instead, state governments are angling to “monetize” first-time homebuyer tax credits so borrowers can purchase homes with little or no money down.
If this sounds eerily similar to the type of lending practices that got us into this mess, well, it should.
The federal government, as part of the recently passed economic stimulus package, will refund first-time homebuyers up to $8,000 if they meet certain eligibility requirements. The program is frequently cited as one of the myriad reasons a bottom in the housing market is imminent.
Critics, however, argue that rebates don't end up in a buyer’s pockets until his or her 2009 tax returns are filed - even though rebates are credits, not just deductions.
Homebuilders like Pulte Home (PHM), Lennar (LEN) and KB Home (KBH), along with their lobbying arm, the National Association of Homebuilders, have thrown their full weight behind the rebate program, but say it still doesn't go far enough.
In an effort to boost home buying -- even for marginally qualified borrowers -- a number of states are finding creative ways to advance the tax credit to buyers on the day they get their new keys, rather than having to wait for next year's refund check. This allows buyers to pay for things like closing costs, mortgage points - or even the down payment.
States are employing schemes whereby they offer prospective buyers low or no-interest loans for the amount of the tax credit, due upon of receipt of their money from Uncle Sam. If the borrower doesn’t make good, the loan becomes a junior lien on the property, with an interest rate that is far from usurious - usually just a bit over the prime lending rate.
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2009-05-08 09:21:28
The ghost of Christmas past
I guess I shouldn't be surprised. After all, denial in all its forms should be expected when someone (or thing) doesn't wish to see the writing on the wall.
If the Federal Reserve and the US government seem to think more of what doesn't work will work, why should states think otherwise?
The tale of the Pied Piper taken to the nth level.
If the Federal Reserve and the US government seem to think more of what doesn't work will work, why should states think otherwise?
The tale of the Pied Piper taken to the nth level.
2009-05-08 09:27:17
Back in the saddle again...
Great read! I use to "underwrite" slime mortgages...(slime=sub-prime)before it went up in smoke. Funny stuff. People already behind 60+ days want to refi with 26k out. So their payment goes from $3400/mo to $4600/mo. I wasnt born yesterday but I did learn >,<,= in grade school. You can't afford the first one, the second one is affordable?
It's a free-for-all and still going on.
Crazy as it seems, it simply drives me nuts that people buy houses when they can't even afford the house if I were to give them a free loan!
Housing is bottoming? Hardly. It will not bottom until it's affordable again. I can't agree more, if you can't afford a house, don't buy it. There is so much more than a mortgage to pay when owning a house. My real estate taxes went up a Grand this year.
This housing "bottom" is actually the first bounce up from the first big decline. Much like the markets and the first big decline from 2000, it bounces. This is what the housing market is going through.
I want with all of my heart to be optimistic. I take pills, classes, pray, beg, plead, work-out...I do it all and I can't shake the fake feeling this market gives me.
I did well last year sticking to my guns. I can't change horses in mid-stream.
This article shows how the Dr. Obama fixes a broken wrist....he doesn't set it in a cast but rather some R&R in your bed for a week and it will be fine.
Then you wake up 6 months from now with a forearm that looks like the elephant man!
You don't fix it right the first time it will come back to haunt you undoubtedly.
word
It's a free-for-all and still going on.
Crazy as it seems, it simply drives me nuts that people buy houses when they can't even afford the house if I were to give them a free loan!
Housing is bottoming? Hardly. It will not bottom until it's affordable again. I can't agree more, if you can't afford a house, don't buy it. There is so much more than a mortgage to pay when owning a house. My real estate taxes went up a Grand this year.
This housing "bottom" is actually the first bounce up from the first big decline. Much like the markets and the first big decline from 2000, it bounces. This is what the housing market is going through.
I want with all of my heart to be optimistic. I take pills, classes, pray, beg, plead, work-out...I do it all and I can't shake the fake feeling this market gives me.
I did well last year sticking to my guns. I can't change horses in mid-stream.
This article shows how the Dr. Obama fixes a broken wrist....he doesn't set it in a cast but rather some R&R in your bed for a week and it will be fine.
Then you wake up 6 months from now with a forearm that looks like the elephant man!
You don't fix it right the first time it will come back to haunt you undoubtedly.
word
2009-05-08 10:03:03
Subprime
By allowing home prices to fall to a reasonable multiple of income,more buyers would come to the market.Instead,we have the ongoing foolish behavior of lenders, that is, rolling in $5K into the loan for closing costs ,along with the Gov't incentives of tax credits and mortgage interest deduction.I would like to see a tax incentive for hoarding gold and mandated guarantees that the gov't cannot confiscate it.
2009-05-08 10:30:32
No Choice
Maybe they don't have a choice. The flawed system of property taxes (residential and business) is a major revenue source at the local level. Its desperation to push the problem out and "hope" for a miracle.
2009-05-08 11:43:58
No Choice
This is a great point. Instead of making the hard choices required to reign in spending, some states are resorting to duct tape and bubble gum to prop up their property tax base.
2009-05-08 11:55:48
Government guarantee
me too! And I'd believe such guarantees when they suspend gun control laws.
2009-05-08 13:37:30
All aboard?
Great article
Quite a few poster have hit on the motivation for the governments who are closer to the local level to encourage such bad practices. In a word REVENUES which are derived from assessed values are going down and they see the best solution to keep the boat from sinking is to put some chewing gum over the crack in the bottom of the boat and send the SS Bubble Blower out on another cruise. If the federal government will provide the gum so much the better.
How did this kind of "don't fix the problem; fix the symptom" thought process, come to be thought of as normal in this country?
Quite a few poster have hit on the motivation for the governments who are closer to the local level to encourage such bad practices. In a word REVENUES which are derived from assessed values are going down and they see the best solution to keep the boat from sinking is to put some chewing gum over the crack in the bottom of the boat and send the SS Bubble Blower out on another cruise. If the federal government will provide the gum so much the better.
How did this kind of "don't fix the problem; fix the symptom" thought process, come to be thought of as normal in this country?
2009-05-09 06:27:57
No Choice
Local govts are going to raise the property taxes by 20% in Arizona.
How since values are declining???
The mil rate of course
We have out of control govt on all levels - city, county, state, federal
I've calculated that TAXES account for nearly 70% of all spending
how?? sales tax, tags for the vehicles, gas tax, insurance, property tax, personnel property tax for business - they add it to price, SSI/Medicare - twice, unemployment tax, workmens comp insurance - yes it is a tax, and then don't forget all those UTILITIES are taxed, cable, professionals fees include hidden taxes, inspection fees - for existing structures with no improvements - done in the name of SAFETY
so yes MARTHA WE ARE TAXED TO *%*$ and back
of course remember to give caesar what is caesar and to GOD our soul
How since values are declining???
The mil rate of course
We have out of control govt on all levels - city, county, state, federal
I've calculated that TAXES account for nearly 70% of all spending
how?? sales tax, tags for the vehicles, gas tax, insurance, property tax, personnel property tax for business - they add it to price, SSI/Medicare - twice, unemployment tax, workmens comp insurance - yes it is a tax, and then don't forget all those UTILITIES are taxed, cable, professionals fees include hidden taxes, inspection fees - for existing structures with no improvements - done in the name of SAFETY
so yes MARTHA WE ARE TAXED TO *%*$ and back
of course remember to give caesar what is caesar and to GOD our soul
2009-05-09 12:22:04
No Choice
Niels,
It only makes sense to this if the government wants to eventually own all these homes. If the "buyers" cannot afford the down payment, how are they going to afford the mortgage? If they cannot afford the mortgage, how are they going to afford the property taxes? Do the state and federal government want to pick up all of these houses through tax forfeitures? Because that seems exactly where we are headed. Foreclosures are marching higher again now that the banks have ended the moratorium, so how is this going to work? The states need real property taxes? Do they seriously think they are going to get that out of THESE "buyers"? Can't get blood from a stone.
It only makes sense to this if the government wants to eventually own all these homes. If the "buyers" cannot afford the down payment, how are they going to afford the mortgage? If they cannot afford the mortgage, how are they going to afford the property taxes? Do the state and federal government want to pick up all of these houses through tax forfeitures? Because that seems exactly where we are headed. Foreclosures are marching higher again now that the banks have ended the moratorium, so how is this going to work? The states need real property taxes? Do they seriously think they are going to get that out of THESE "buyers"? Can't get blood from a stone.
2009-05-09 12:43:45
around half of would-be first-time buyers in his state “cannot save enough money for the down payment and closing costs
I wish stupidity, denial and debt were an ETF because that is where I would invest ALL my money. It is the one area where we as a country still seem to excel!
Why is no one asking the question 'what happens when interest rates rise?'
We couldn't construct a better house of cards if we worked for the Bicycle Playing Card Company and manufactured a deck of nothing but Jokers!
2009-05-09 16:05:29
Stupidity, Denial, Debt as ETF
that was funny (ok I know serious issue, but still funny).
...at some point, they'll run out of money, won't be able to sell additional bonds, or people will just move. It wouldn't be the first time.
...at some point, they'll run out of money, won't be able to sell additional bonds, or people will just move. It wouldn't be the first time.
2009-05-11 13:01:17
"Critics, however, argue that rebates don't end up in a buyer's pockets until his or her 2009 tax returns are filed - even though rebates are credits, not just deductions."
Who are these critics? Have they read the statutes? Those who qualify for this credit have several options available to them to access the money. They can amend their 2008 tax return and claim it
They can adjust their withholdings in 2009 to access the credit money.
Or they can wait until 2009 and claim it on their return.
How these yahoos at the State and Local level ever get elected is beyond me. Lets create new gov't programs to augment other gov't programs that don't need any augmenting because you can get they money now if you'll just amend your 2008 return!
Wake up people...the gov't is not the answer for everything. Do a little work on your own for a change. And if you're going to criticize something at least read what you're going to be critical of.
Who are these critics? Have they read the statutes? Those who qualify for this credit have several options available to them to access the money. They can amend their 2008 tax return and claim it
They can adjust their withholdings in 2009 to access the credit money.
Or they can wait until 2009 and claim it on their return.
How these yahoos at the State and Local level ever get elected is beyond me. Lets create new gov't programs to augment other gov't programs that don't need any augmenting because you can get they money now if you'll just amend your 2008 return!
Wake up people...the gov't is not the answer for everything. Do a little work on your own for a change. And if you're going to criticize something at least read what you're going to be critical of.
2009-11-23 19:47:43
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