Paper Economy: hillary clinton

Showing posts with label hillary clinton. Show all posts

Tuesday, May 08, 2007

Pants On Fire!

Now that the National Association of Realtors Chief Economist David Lereah is soon to be history, let’s draw a bead on some of the other less-than-accurate, bullish-cheerleading paid-quacks out there spinning fantastic stories of housing’s future strength and riches.

Barry “Advocate of NO Housing Bubble” Habib

The CEO of the mortgage information service, The Mortgage Market Guide, Habib is frequently featured on CNBC as a mortgage expert who is well suited to advise homebuyers.

Of all the “experts” featured on CNBC’s bullish airwaves, Habib would handily win any competition for the most outlandish and self-serving statements, forecasts and recommendations.

In past CNCB segments, Barry has:

Congratulated those who have chosen ARM loans and suggested that if rate resets concern you “cut back on a few lattes”
Encouraged homebuyers to borrow as much as $200K more than they needed for their purchase in order to “invest” the money outside of housing for even higher returns.
Challenged the notion that fixed rate loans are the best option for homebuyers.
Suggested that interest only loans were “OK” for homebuyers and that ARM loans are “screaming bargains” while Option ARMS were “a great tool” for some buyers.
Suggested that you should “forget what the bank says” and allocate up to 50% of after-tax income to servicing your mortgage debt burden.
Suggested that homebuyers should not be overly concerned about the inverted yield curve as it is “not a great indicator” for upcoming recessions.
Suggested that the US population will double in the next 50 years providing significant demand for housing.

Harvard’s Joint Center for Housing Studies

This center, directed by Nicholas Retsinas, last year published a widely reported paper entitled “The State of The Nations Housing: 2006” that very clearly concluded that that outlook for residential housing was positive.

“Over the longer term, the outlook for housing markets is favorable. With household growth accelerating and second-home demand climbing, the number of conventional homes completed and manufactured homes placed in the coming decade should easily exceed the 18.1 million units added from 1995 to 2004. In addition, improvements in the mortgage finance system over the past several years, together with stricter inventory management in the home building industry, will help to dampen boom-bust cycles in the future. As a result, housing production should average more than two million units annually over the next ten years.”

Unfortunately for the average media consumer, it was not widely reported that the Joint Center for Housing Studies and the report itself was funded by such notable real estate insiders as The National Association of Realtors, The Nation Association of Home Builders, Fannie Mae, and Freddie Mac.

As for Retsinas, he has appeared frequently on sources such as PBS’s Newshour and CNBC and generally presents a somewhat balanced, possibly a tad too optimistic outlook while seemingly conscience of maintaining his credibility.

The “Bubble? What Housing Bubble?” Smiths

This married couple, Gary and Margaret Hwang Smith, two professors of economics at Pomona College in Claremont California last year published a widely reported paper (featured prominently by the New York Times in a article entitled “Some New Math on Homes”) that suggested that not only were many areas formally purported to be exhibiting signs of bubbles NOT bubbles, they were “screaming bargains”.

The Smiths, who have recently purchased a nearly million dollar home near their collage in Claremont also provide professional services for those who need financial coaching in order to “bring forth their best life”.

Their paper initially takes fairly sound position of using present and future rental income to calculate a “net present value” of a given home.

But then, unfortunately, the paper goes to great lengths in an attempt to justify recent prices by making overly optimistic assumptions as well as including some truly fuzzy logic.

For example, the Simth’s assist the cash flow derived from rental income with additional value derived from “non-financial factors”, such as a desire for privacy.

That’s about where the papers leaves reality and enters the realm of shameless spin and wishful thinking.

Remember, the problem with all of these “experts” is not that the average homebuyer turns to them to determine whether or not to make a home purchase.

In all likeliness, the average homebuyer has never even heard of any of these characters, even the NAR’s Lereah.

The issue here is that the lazy traditional media and overly optimistic and bullish business media take the reports, releases, and statements of these people and their respective groups and recast them into simple news blurbs that, being only loosely bound to reality, sow the seeds of widespread misinformation.

That being said, for a year now things have looked so bad that, try as they might, real estate industry shills have found it increasingly difficult to present overly optimistic information while simultaneously maintaining credibility.

Nevertheless, it’s important to remember, even celebrate, their contributions to inflating the single greatest housing bubble the country has ever seen, for at the very lest, we should remember next cycle to take every forecast with a grain of salt.

Friday, April 20, 2007

Pork and Circus!

The House Committee on Financial Services, chaired by Massachusetts Congressman Barney Frank [D-MA], yesterday held a hearing to discuss the current FHA modernization effort.

Although a bill with the same objective passed the House by an overwhelming majority last year, a new bill (H.R. 1852) has now been introduced that would essentially expand the modifications to FHA including those of the last bill plus provisions to establish a new Mutual Mortgage Insurance Fund.

To date, the FHA operates out of a National Housing Acts “General Insurance Fund” which was established in 1965 to serve as a “as a revolving fund for carrying out all the insurance provisions”.

It appears that this new fund is creating some contention as its full purpose seems unclear and has been interpreted by some Republicans as an attempt by Democratic lawmakers to funnel surplus money out of FHA for use elsewhere.

“Now it looks like we are going down the road of another extortion of an organization for money for purposes other than for what that organization is proposed and chartered to do… creating other funds and taking money out of FHA when we’re embarking down a road of a new program I think is a very dangerous precedent.” said Representative Randy Neugebaue [R-TX].

To that, Representative Frank quickly followed up “I’ve worked with my friend from Texas on a lot of issues and there are a lot of areas where this committee can cooperate across party lines but nowhere have the difference between the parties been made more clear then in his last statement when he described as an effort by the gentle woman from California and myself as an effort to provide more funding for affordable housing as quote extortion unquote.”

There is, in fact, an additional provision found in the bill entitled “Use of FHA Savings for Affordable Housing Grant Fund” that would allow for “only for grants to provide affordable rental housing and affordable homeownership opportunities for low-income families.”

Later in the hearing, Brian D. Montgomery, Assistant Secretary for Housing, addressed the committee to share his outlook on the proposed changes which include the elimination of the a down payment as a qualification for an FHA insured mortgage.

“This year, as we all know, we have two bills pending before this committee. Both bills would raise loan limits in high cost areas. They would eliminate FHA’s antiquated down payment requirements. And they would allow, to varying degrees, risk-based pricing to occur and eliminate the burdensome cap on reverse mortgages.”

When asked about his take on the new housing insurance fund, Montgomery added “I, speaking for FHA, have IT system requirements, as the worlds largest mortgage insurance company, I would like to be able to have the ability to get staff, professional staff that would allow us to carry out our mission, especially in a reformed FHA. To be able to pay them similar to how other government agencies are. So speaking selfishly for FHA I could use those funds to help do some of what I just articulated.”

In an odd line of questioning, Representative Emanuel Cleaver, Democrat from Missouri seems to confuse the business of Fannie/Freddie GSE’s to that of FHA, “In your testimony, when you talked about the drop in the FHA share of the market in Chairwoman Waters district, that just is mind-boggling. What I would like to ask.. find out from you, is Freddie Mac has said that hey are going to buy up to $20 billion dollars in subprime mortgages, you can’t compete with the giants, but is that a way… a possibility for you to beef up your portfolio? Is it possible for FHA to buy any of the subprime mortgages?”

To that Montgomery responds “Thank you sir and as I have mentioned here on Tuesday in the subprime hearing, we are helping subprime borrowers today … with a reformed, modernized FHA, there’s no doubt in my mind we can assist many more. That’s not to say we are going to throw open the barn door so to speak, we have to protect the solvency of the Mutual Mortgage Insurance Fund so many of these families would still have to go through our eligibility and underwriting criteria.”

Cleaver further adds “There’s a lot of discussion going on about Freddie Mac and Fannie Mae and the size of their portfolio. And it seems to me that the best way to reduce that portfolio, to bring it in to some kind of normality, would be for FHA increase in its share of the market.”

Later, Representative Al Green [D-TX] asks Montgomery “Do you consider yourself, in terms of positioning, are you positioned somewhere between prim and subprime... is that a fair statement?”

To be fair, it seems many of the representatives appeared to have confused FHA’s role as an agency that works in concert with private lenders, originators and brokers, to insure loans while generating income only from mortgage insurance premiums paid by FHA borrowers, with that of the GSEs by whom loans are purchased, held or sold to the secondary market.

Later a panel of real estate industry “experts” from organizations such as the National Association of Realtors, the Mortgage Bankers Association, and the National association of Home Builders convened to add their take on the FHA changes.

The hearing can be viewed in its entirety now on BNN!

Monday, April 16, 2007

FHA In The 21st Century

In 2006, Congress attempted to revamp the Federal Housing Administration (FHA) in an effort to modernize its service.

At the time, it was argued that certain limits defined for FHA operations by the National Housing Act were outdated and thereby causing the prevalence of FHA insured loans to decline dramatically nationally, with an especially striking fall-off in high cost areas.

In the House of Representatives, a bill sponsored by Representative Patrick Tiberi [R-OH] entitled “FHA Manufactured Housing Loan Modernization Act of 2006” (H.R. 4804) was passed by an overwhelming margin with 412 Ayes to 4 Nays (16 Present/Not Voting) on July 25 2006.

In the Senate, an identical bill sponsored by James Talent [R-MO], Sen. George Allen [R-VA], Sen. Lincoln Chafee [R-RI] titled “Expanding American Homeownership Act of 2006” (S. 3535) was introduced on June 19 2006 but was not proceeded with in all likeliness due to changing priorities preceding the election that would inevitably see all of its primary sponsors defeated.

It’s important to note that ALL of the above mentioned Congressmen, House and Senate, were supported in their respective 2006 races by the National Association of Realtors Political Action Committee (RPAC), the nations largest PAC.

So, it appeared that at the end of 2006 the Senate bill was dead in the water and likely to stay that way as the Democrat-laden 110th congress focused on other objectives.

Then, toward the end of March 2007, coming on the heels of the subprime meltdown, Senator Hillary Clinton picked up the baton and began to run.

Revitalized and reintroduced as the “21st Century Housing Act” (S. 947), FHA “modernization” is back on the table and this time seems likely to be swiftly passed.

In a press release Senator Clinton stated the following:

"With the meltdown in the subprime housing market, it is clear that there needs to be a real alternative for more working families who want to achieve the dream of home ownership without having to jeopardize their financial futures with a risky mortgage product, … Modernizing the FHA will be an effective way of providing that alternative and I will press in the Senate to take this long overdue step for our families,"

Additionally, Clinton included the following statement from National Association of Realtors President Pat Vredevoogd Combs: “This legislation will strengthen FHA and make it a viable alternative to some of the riskier products that have been marketed to homebuyers,"

It’s important to keep in mind that FHA insures loans through a traditional insurance fund approach collecting both an upfront and annual premiums from the homebuyers.

By lowering current qualifying standards, Congress would allow more loans to meet the criteria needed to be federally insured.

The homebuyer has to pay an additional premium, but because the loan is insured, it will come with a better rate and be more available especially for buyers who would have otherwise been unable to get a loan.

It’s also important to note that throughout the funds history it has vacillated between being self-sustaining and costless to running deficits and costing taxpayers.

The changes now proposed include allowing for 50 amortizing loans, allowing zero down payment, allowing loans that are 100% either the areas median home price or 100% the current conforming limit, and changing the premium fees.

Additionally, although the maximum premium fees have increased, there is inserted text that appears to suggest that the Secretary (of HUD) is able to create new initiatives at any time and even possibly waive premiums for some borrowers.

Given the unprecedented boom seen in the nations housing markets and now the equally impressive bust, it seems imprudent to be endorsing any program that may serve to assist “homebuyers” in stretching to afford dramatically overvalued homes.

It seems now more than ever there should be a moratorium on Congressional tinkering allowing home prices to come back into line with the fundamentals (income, rents, etc.) that traditionally underpin them.

The only reason FHA currently appears to be defunct is that home values swelled well far beyond the range of FHA’s mandate but as we all now know, the bubble swelling is over.

It was only a little over 5 years ago that the FHA program was being heralded for it’s financial soundness and surpluses so much so that administrators slashed premiums and fee schedules.

The primary changes to the existing National Housing Act are as follows:

Increases the maximum limit for mortgage maturity term from 35 years to 50 years of amortization.
Decreases the minimum down payment on a home from 3% to 0%.
For single family homes, increases the eligibility limit to 100% (from 95%) median home price or 100% (from 87%) of the current conforming loan limit
Allows for more flexibility in determining the up-front insurance premium based on a percentage of the loan principle and the discretion of the program as well as increasing the maximum premium to 3% from of loan principle from the prior 2.25%.
Increases the annual premium maximum from .5% to 1% of the remaining insured principle balance.
Increases the eligibility limit for multi-family home purchases.
Increases the capital ratio of the insurance fund from 2% to 3%.

As usual, let Senator Clinton know what your take is on this topic by emailing her office or if you agree with the sentiment, simply email a link to this post.