Housing in the Balance
Chuck Ponzi June 4th, 2006
My apologies for the recent hiatus from writing on the blog. If I could find someone qualified and interested in writing for me, I would gladly be letting them do so. A recent addition to my family has made things like sleeping more important than blogging. However, this lack of sleep should nevertheless be short-lived if possible; we have far much more going on in Southern California in other areas to allow that pesky habit too much room.
However, I feel the most relevant news came this last week from a national source; The Associated Press notified us this week after FED minutes were released that Fed Weighed Half-Point Hike at May Meeting.
While our local RE stiffs have been washing us in the river of affordable (cheap) money, this will all be coming to an end soon. Despite warnings, most banks are actually LOWERING lending standards according to the Wall Street Journal. This in the face of tighter recommendations from the FED; it’s only a matter of time before children who are naughty in the face of their elders’ exhortations before they are very strictly compelled to do so. It is also common practice for the FED to be reactionary so we will likely see a pendulum swing as far the opposite direction it has been allowed to swing towards laxness. Higher reserve requirements related to MBS holdings would surely put a sqeeze on the out-of-control money.
Sure, it’s easy to enjoy feeling the wind in your hair on the way down the hill as you dig yourself deeper into debt. Easy money can make even the weakest of economies seem full of gusto… until the easiness ends. Our Orange County economy is precariously supported by the lending industry. Argent, Ameriquest, New Century, Best Funding, and literally hundreds if not thousands of other companies are integral to the local free-wheeling economy. This is the Achilles’ heel of our housing bubble; when the lending stops, so does our local economy. However, when the tide turns and the hill is steeply upward, many find that their inadequate vehicle that so swiftly brought them to the dowside has no strength and falters on the climb.
Banking regulators, meanwhile, are paying closer attention to mortgage lending practices. “Lending standards are continuing to ease,” says Barbara Grunkemeyer, deputy comptroller for credit risk at the Office of the Comptroller of the Currency, which is putting the finishing touches on its annual survey of bank underwriting standards. Federal Reserve surveys of bank loan officers show that lenders have tended to loosen standards since early 2004, following a period of relative tightening. In some cases, lenders have tweaked their offerings by reducing the minimum credit scores needed to qualify for certain loans. Countrywide Financial Corp., for instance, recently cut by 20 points the minimum credit score borrowers with bigger loan amounts need to qualify for one of its popular loan programs. A Countrywide spokeswoman says the change was designed to make the terms of this loan consistent with its other offers.
The continuing loosening of lending standards has helped push the homeownership rate to a record 69 percent of U.S. households. Mortgage delinquencies, meanwhile, have remained low, with just 1.08 percent of residential mortgages in foreclosure proceedings at the end of the first quarter, down from 1.17 percent five years earlier, according to the Mortgage Bankers Association. Low interest rates and rising home prices have helped keep delinquencies down by keeping monthly payments in check and making it easy for borrowers who run into trouble to refinance or sell their homes at a profit.
The other end of this type of lending standards is that it creates the most American of all inventions; the entitlement bias.
The Realty Times feeds us the ongoing bull in realtor speak. Before you read this, I would like to echo my sentiments with the writer of the email except that I would say “The biggest problem is that many families should not be HOMEDEBTORS in the first place.” placing the principal problem with the lending practices, not the actual purchase of a home. Of course, I also believe that it would be great if everyone could afford a Prius, waterfront property, and a Hummer, but I won’t be lending my money to very many people to buy one. Here is the gem:
I wrote a column a couple of weeks ago about the recent IRS vs. Downpayments Assistance mess. It seems that FHA loans with seller-funded down payment assistance via a non-profit have a higher default rate than those without down payment assistance. I got an interesting email as a result, mentioning several things that were wrong with the government getting involved with this issue along with a couple of good points. But one thing that was said to me bothered me big-time.
“Hey David,” said the email, “The biggest problem is that many families should not be homeowners in the first place.” If I was in front of the guy I probably would have punched him in the nose. But I wasn’t so I didn’t. But I did fire back, “Oh really,” I wrote back, “Which families shouldn’t be homeowners? Can you show them to me?”
“I am not going to be the one to tell a family that they have no business buying a home. If they qualify for a loan program and they want to be a homeowner, who am I, or you for that matter, to tell them to forget about it and to go back to their nice little rented apartment?”
Personally, I think everybody should own their own home. Heck, I think they should own two if they can afford it. And I think it’s snobbery for anyone to tell someone else that they have no business owning a home.
You see, the root of the problem is that some (in fact, many) are becoming homeowners on the backs of taxpayers. For every “gift” that comes tax free to a new homeowner, our collective tax burden grows. Favoring one taxpayer over another is the opposite of Fair Housing, it is in fact Unfair Housing. Promoting homeownership at all costs is like promoting any other activity at all costs; the costs often become too great to bear for all others. Because many of these “beneficiaries” are actually too weak financially to even save for a down payment, their weakness shows when the weather of actual homedebtorship rains down on them. The statement that they should not be homeowners is one of relative importance. Because people who do not pay their bills (including taxes) are a social burden, there are truly people who should not be required to pay a mortgage because they create an unnecessary social burden with no appreciable benefit other than a government statistic.
However, if all people would pay their bills on time and live within their means, I would wholeheartedly agree with Dave; the fact that they don’t is evidenced by our current lending madness.
