Archive for category Real Estate
Barney Frank, a Reformed Crap Shooter?
Posted by Tom in Centrally Managed Economy, Deficit, Democrats, Financial Crisis, Financial Policy, Real Estate on January 22, 2010
I got all excited when I read this morning’s headline to the effect that Barney Frank would recommend replacing Fannie Mae and Freddie Mac. (Bloomberg January 22nd article here.) Recall that Barney was the Democrat arguing to “roll the dice” with Fannie and its foray into subprime loans. As it turned out this gambling with your tax money was a proximate cause of the financial debacle we are still feeling the effects of.
Well my excitement lasted about a nanosecond. “We’re going to look at the whole question of housing finance…sorting our the function of promoting liquidity in the market and also the secondary market in general but then also doing some kind of subsidy for affordability.” Frank continued, “I don’t know anybody who thinks Fannie and Freddie should continue!”
In other words we’re going to create a whole new government home finance scheme! To bring Fannie and Freddie “on budget” following the recent $291 Billion Fannie-Freddie bailout would cost another $99 Billion according to the CBO. Looks like our $1.4 Trillion 2009 deficit will only go up! A federal debt increase follows as sure as night follows day! (WSJ January 22nd article here.)
When will these socialists learn that government has no role in housing finance? This is not a proper function of government. The market can best handle capital allocation decisions, including home financing. The government has proven it can’t handle them, over and over again. Our children and grandchildren will suffer as a result!
Tom Motherway
Christmas Eve Time Bomb
Posted by Tom in Centrally Managed Economy, Deficit, Financial Policy, Real Estate, Statism on January 5, 2010
With Santa’s sleigh on course from the North Pole and Christmas spirits high, Obama’s Treasury Secretary removed the $400 Billion capital limit on Fannie/Freddie, effectively nationalizing the residential mortgage market.
Fannie Mae and Freddie Mac are GSEs, government sponsored enterprises, creatures of Roosevelt-Johnson forays to provide mortgages to low-income borrowers; they now have private ownership but public backing. In good times shareholders profit, in bad times taxpayers suffer, but the suffering is hidden because the support is off budget. With the Greenspan/Bernanke excess free money setting the stage, Fannie and Freddie plunged into the subprime market creating a gigantic international bubble which recently exploded. Recall Barney Frank’s “rolling the dice” on their subprime expansion. Both companies are under federal conservatorship, but now the taxpayers have issued a blank check, no limits—Fannie and Freddie can now roll the dice without restraint. And rolling dice they are by modifying mortgages to prevent foreclosures. Of course most of these fail:
So we have a perfect example of the leftist government at work interfering with the market. In this case the very gambling which caused the subprime bubble is being used to re-inflate the bubble. This results in bloated home values and bad assets on the balance sheets of the banks–foreclosures which should happen are forestalled. But the real gift to the taxpayers is the black hole of bad assets on the books of the GSEs. These understate the already gigantic deficit and translate into another layer on the unsustainable mountain of debt which will bury our future generations.
So we should thank our sneaky Santas for what the WSJ calls the “Christmas Eve taxpayer massacre” delivered on the light news day.
Tom Motherway
Are These Guys Nuts?
Posted by Tom in Centrally Managed Economy, Deficit, Economics, Real Estate on December 2, 2009
Yesterday’s Reno Gazette-Journal front page shouted: “Mortgage industry pressed.” Turns out that the geniuses at the White House say the at-risk borrowers aren’t getting enough help. So, what are they going to do? Well, by golly, starting this week they are sending “three-person SWAT teams” to monitor the eight largest companies’ work and requesting ”twice-daily” reports on their progress!
OK, let’s say your 10 AM report shows that you are working on 10 Home Affordable Modification Program mortgages and that 8 of those HAMPs have potential. At your 3 PM meeting with the local SWAT team unfortunately 2 of the 8 potential HAMPs failed to make the third payment, or better yet, failed to get the paper work complete. Will the SWAT team then take out its SWAT weapons?
And what has the SWAT team done between the two meetings? How much of our money will the SWAT team receive in compensation for their hazardous duty on the team? Are they new hires, if not, what would they otherwise be doing? And, is that necessary?!
Finally, what is the purpose of all this? According to yesterday’s WSJ, HAMP would be a success if a large portion of trial mortgages in relief qualify for the permanent principal reduction and if the re-default rate on modified mortgages remains low. If HAMP fails, particularly because of the lenders-fearing the SWAT teams-become lax in approving the deals, it could still leave a large number of underwater mortgages ticking in the system! Sound familiar?
I can hear Barney Frank saying, “I want to roll the dice” on Fannie and Freddie!
But never fear at the other end of the spectrum the FHA which ostensibly wants tougher rules on mortgage lenders is propping up loans and extending its support of traditional real estate to upper-class buyers, that would be buyers in Speaker Pelosi’s own San Francisco. Those poor entitled liberals had no FHA supported loans two years ago, now the government is guaranteeing six mortgages a week!
And this largess even surprised its beneficiaries: Mike Rowland a 27-year old who with friends bought a million dollar duplex with little money down said, “It was kind of crazy we could get this big a loan!” Crazy…indeed!
John Stossel, a brilliant columnist at Real Clear Politics nails it in today’s post, Stop Insuring Mortgages. “Home ownership, all else equal, is a good thing. But when government lumbers into the market and subsidizes folly, that’s a very bad thing.” Seems we’re stuck with “very bad.” Japan was too, for the “lost decade!”
To cap things off, today’s WSJ reports that the FHA is short of capital and is looking for ways to boost reserves!
You know, it’s OK if Barney Frank wants to gamble with his own money, but in fact he’s gambling with yours! Taxpayers, get your checkbooks out…oh, and tell your great-grandchildren to get theirs out as well!
Tom Motherway