I Have Several Questions for Mortgage and Real Estate Experts…
I’ve been doing some thinking, and I have several questions for the real estate and mortgage experts. Â Iâ€™m fairly new to all this… so please forgive me if these questions seem really basic…
1. The following sentence appeared this past weekend in the LA Times in an article that featured â€śexpertsâ€ť discussing when Californiaâ€™s real estate market might start to â€ścome backâ€ť.
â€śAlthough Californiaâ€™s housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.â€ť
My first question isâ€¦ isnâ€™t that one of the dumbest sentences ever written? Â I mean, to me that sentence says that the â€śfree fallâ€ť never ended, it was just placed on pause as a result of the tax incentive, and once that tax incentive ended, the free fall simply continued. Â Just like the auto sales market after Cash-4-Clunkers came to an end, no?
And, why are we all pretending thereâ€™s a real estate â€śmarketâ€ť in the first place?
I mean, the only people selling are those who have to, and the only buyers are looking to steal something. Â The only lender is the U.S. Government through Fannie, Freddie or FHAâ€¦ there are no securitizations to speak ofâ€¦ and the average credit score for a Fannie Mae loan is 763 for the last two years. Â There are millions living in homes they havenâ€™t made payments for over a year, and thereâ€™s a shadow inventory large enough to keep the entire continent of Africa in the shade.
Housing is still in free fall, it just doesnâ€™t fall in a straight line, and with the foreclosure crisis ongoing and nothing in place to stop it, itâ€™s certain to both continue and worsen. Â So, why are we pretending thereâ€™s a real estate â€śmarketâ€ť let alone asking when the real estate market might â€ścome backâ€ť?
There is no â€śmarket,â€ť right? Â We really donâ€™t know how low prices have already gone down to, because if the foreclosures were on the market or if banks were actually kicking all the people out that havenâ€™t made payments for a year, theyâ€™d be much lower than they are today, right? Â And there are no loans, right? Â I mean there are government loans, but with an average credit score for Fannie of 763â€¦ and thatâ€™s AVERAGEâ€¦ I mean, come on now.
And how couldÂ â€śthe expiration of tax credits call into question the sustainability of the recovery?â€ť That means it wasnâ€™t really a RECOVERY, right? Â I mean, if the expiration of tax credits destroy a countryâ€™s economic recovery, it wasnâ€™t really recovering, right?
Oh, and maybe Iâ€™m missing something here, but since there are really only government loan programs, what about all the homes that were $2 million and up, or even $1 million or up. Â Are we just selling those to cash buyers, or those with 50% down with 900 credit scores?
And besidesâ€¦ why would a lender want to lend into this market, I meanâ€¦ letâ€™s say we owned a bankâ€¦ would we want to lend a million bucks out at a low interest rate for a long period of time, secured by an asset certain to depreciate, to someone who might lose their job or see their income fall significantly? Â Seriously? Â Who would want to do that?
And just how many people are there out there who have perfect credit, tons of cash to put down, who donâ€™t already own the house they want, and arenâ€™t already underwaterâ€¦ who arenâ€™t worried about losing their job or the house depreciating in the next few years?
2. A whole cadre of so-called experts keep forecasting how many foreclosures are coming, and they keep extending their forecasts out, and saying things like: Weâ€™ll have 4 million foreclosures next year and then five million the year after that, and so the foreclosure crisis will be with us until 2013.
Assuming they are right in whatever numbers their forecasting, or even if theyâ€™re notâ€¦ why would it stop after 2013â€¦ or ever, for that matter? Â I meanâ€¦ donâ€™t foreclosures lower the values of homes down the street? Â So, wouldnâ€™t the last million foreclosures cause another 10 million people to be underwater, or further underwaterâ€¦ and wouldnâ€™t that lead to more foreclosures?
I understand why the foreclosure crisis started, and although we did have a housing bubble pop and people love to blame it on that bubble popping, it was and is really the credit crisis that set hosing into its free fall. Â It was July 10, 2007 when Standard & Poors and Moodyâ€™s did something they had never done beforeâ€¦ they announced that they were downgrading the ratings on 1,032 bond issues from AAA to A and even BBB.
It only affected less than 1% of the bond issues, but overnight investors freaked out and dumped their bonds because they thoughtâ€¦ if you botched those ratings what about the other 5 trillion in bonds out there?
That day the secondary market froze because no one would buy mortgage backed securities because no one trusted the ratings anymore, and with no secondary market, banks started hoarding cash. Â The availability of loans would soon evaporate and the Fed started their emergency lending programs to try to keep liquidity goingâ€¦ to no avail.
All of a sudden there were no mortgages and prices, which were already falling because of the bubble that was being deflated by rising rates, started to fall off a cliff. Â The Fed started lowering rates but it was too late. Â There were no loans, so the low rates didnâ€™t matterâ€¦ sound familiar?
So, now we have a free fallâ€¦ although as I said prices wonâ€™t fall in a straight line downâ€¦ but the further down they go the more foreclosures, right? Â Because when people are underwater and they have to moveâ€¦ itâ€™s more than likely a foreclosureâ€¦ I know, it could be a short sale, but really now. Â And then the foreclosures breed more foreclosures, right?
And the lower property values fall, the less we all spend, so the less companies sell and the more people get laid offâ€¦ which leads to even more foreclosures. Â So, why would it just end? Â Would someone ring a bell and say thatâ€™s it and thatâ€™s all? Â I mean, I know eventually theyâ€™ll stopâ€¦ once the housing market has burned to the ground, but why would they stop before then?
Am I missing something here?
3. Whatâ€™s a â€śjobless recovery?â€ť Â We recover economically, but people donâ€™t have jobs? Â How does that work out exactly? Â I mean, weâ€™ve got like 40 million people out of work in this country and that number is growing. Â From what I’ve read, we need to produce between 125,000 and 165,000 jobs every month just to keep up with our population and immigration, so if we lost 11,000 jobs in November, doesnâ€™t that mean that weâ€™re a lot further behind than just the 11,000 jobs lost?
How do we recover economically as a country with 40 million people that donâ€™t have jobs?
People say this isnâ€™t the Great Depression because they donâ€™t see people standing in soup lines, but isnâ€™t the reason we donâ€™t have people standing in soup lines is because weâ€™ve got 43 million Americans on food stamps? Â I mean, we didnâ€™t have food stamps during the 1930s, right? Â If we did, we probably wouldnâ€™t have had all those soup lines either, right? Â In 2005, we only had 11 million people on food stamps, so isnâ€™t that number growing kindaâ€™ fast?
Is that all part of the jobless recoveryâ€¦ is it a foodless recovery too?
4. Last one for nowâ€¦ So, am I missing somethingâ€¦ do we even have a program on the drawing board that might turn any of this around? Â I mean, is there some federal program theyâ€™ve cooked up secretly that theyâ€™re going to spring on us that has a shot at creating jobs or stopping foreclosures? Â I try to keep up but perhaps Iâ€™ve missed somethingâ€¦ whatâ€™s the name of the program thatâ€™s in place or thatâ€™s being voted on in Congress that has even a small chance of reversing these trends of joblessness, falling home prices?
And what about the broken credit markets that have made the U.S. Government into the only lender in this country? Â Is there a program in place thatâ€™s trying to fix that? Â In fact, what are we doing to fix anything? Â I must have lost track and I canâ€™t seem to find anything online either.
I know what a smashing success HAMP has been, but Iâ€™m not trying to split hairs or even criticize the administrationâ€¦ I just donâ€™t remember hearing about any other wonky acronyms for programs that are in the process of fixing things. Â Are we working on any? Â Am I going to wake up one day and hear an announcement that things are better becauseâ€¦ why?
Will the economy just fix itself? Â It doesnâ€™t seem to have worked that way in Japan, ever since their housing bubble popped in 1990. Â I read that property values in Japan today are 60% of where they were in 1990 when their bubble deflated. Â Thatâ€™s twenty years agoâ€¦ they tried economic stimuli and quantitative easingsâ€¦ and all the same stuff weâ€™ve triedâ€¦ and their economy didnâ€™t fix itselfâ€¦ why will ours?
And shouldnâ€™t our politicians look more worried than they do now? Â Why are they all so calm that they can sit around debating the reforming of health care reform, and the like? Â Why arenâ€™t they proposing some sort of program that might not work, but at least sounds like it could? Â I mean, the Dems just got their butts kicked in the mid-termsâ€¦ why arenâ€™t they at least pretending to be doing something? Â I mean, besides extending tax cuts and unemployment benefits?
Is it just me, or do our elected representatives now look like they think they work for some corporation and donâ€™t really report to us anymore? Â Like theyâ€™ll decide what they want to work on and it doesnâ€™t really matter what we want them to doâ€¦ theyâ€™ll just decide on their own?
Like they want a raise, so they vote themselves one and itâ€™s late a night and thatâ€™s that. Â Why do they think that wayâ€¦ we still vote for them, donâ€™t we? Â When did they stop caring about us? Â I must have been busy and not paying attentionâ€¦ was it the year that â€śspaghettiâ€ť became â€śpasta,â€ť and â€śsherbetâ€ť became â€śsorbet?â€ť Â â€™Cause I do think I missed a lot that year, whenever it was.
So, in conclusionâ€¦
Well, thatâ€™s all Iâ€™ve got for nowâ€¦ I really appreciate anyoneâ€™s help solving any of these issuesâ€¦ itâ€™s probably just meâ€¦ like my mother always said, Iâ€™d forget my head if it werenâ€™t attached to my neck. Â And Iâ€™m probably just overlooking some simple thing that will make it all fall into place. Â Thatâ€™s it, right? Â Iâ€™m being an idiot and theyâ€™ve really got a plan.
I just donâ€™t understand how things work, economically speakingâ€¦ right? Â Because Iâ€™d be okay with an evil planâ€¦ as long as I knew someone had a plan.
I hear some people saying that thereâ€™s some sort of evil plan at work, but seeâ€¦ the thing isâ€¦ Iâ€™m having a hard time seeing whoâ€™s winning here. Â And with so many people losingâ€¦ shouldnâ€™t someone be winningâ€¦ I mean, besides a few hundred bankers who have won the lottery a hundred times over? Â Are we hoping to pay them enough that theyâ€™ll buy all of the houses? Â Like 300 fat-cats will show up and buy 40 million homes all of a suddenâ€¦ that canâ€™t be right, can it?
A little help would be very much appreciated because franklyâ€¦ although I used to think of myself as a fairly bright guyâ€¦ Iâ€™m completely stumped.
Thanks in advance for your helpâ€¦