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  • #31
    Re: Housing Bubble Correction

    Originally posted by FRED View Post
    Received this today...
    I know, I know, but none of us buy "real" houses, we buy "nominal" ones.

    As an interested party (hopefully there are others) could you guys do something with nominal price bottom projections. That would really be helpful to those of us that sat through the housing bubble and are now trying to determine how much more carnage we have to go through before prices are "nominally" attractive vs income. For us would-be owners, that is the heart of the issue, and something that you could serve the community very well with.

    Nominal Housing bottom guess based on C/S top 20 metros? Can I get a second?

    Please Fred, Bart, EJ, Finster, give it a go.

    Thanks

    (and thanks too, to the unnamed contributer for their inputs as well);)

    Comment


    • #32
      Re: Housing Bubble Correction

      http://www.bloomberg.com/apps/news?p...kGHASRZ8&pos=4


      Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6% (Update1)
      Share Business ExchangeTwitterFacebook| Email | Print | A A A
      By Jody Shenn

      Feb. 8 (Bloomberg) -- U.S. prime jumbo mortgages at least 60 days late backing securities reached 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.

      “The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said today in a statement. The rate almost tripled in 2009, Fitch said.

      Soured debt across loans backing so-called non-agency securities ballooned last year amid new defaults caused by slumps in home prices and employment, and as the federal government pushed loan servicers to consider debt modifications and states moved to slow foreclosures, reducing property liquidations after borrowers stopped paying.

      The share of borrowers current the previous month and that then turned delinquent fell to 1.2 percent in the month covered by January bond reports, down from 1.3 percent as of December reports, Fitch said. The jumbo sector of the non-agency market was the only one in which so-called roll rates -- or the amount of loans turning delinquent -- rose from a year ago, according to the statement.

      Jumbo home loans are larger than government-supported mortgage companies Fannie Mae or Freddie Mac can finance. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas.
      Greg

      Comment


      • #33
        Re: Housing Bubble Correction

        Originally posted by BiscayneSunrise View Post
        http://www.bloomberg.com/apps/news?p...kGHASRZ8&pos=4


        Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6% (Update1)
        Share Business ExchangeTwitterFacebook| Email | Print | A A A
        By Jody Shenn

        Feb. 8 (Bloomberg) -- U.S. prime jumbo mortgages at least 60 days late backing securities reached 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.

        “The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said today in a statement. The rate almost tripled in 2009, Fitch said.

        Soured debt across loans backing so-called non-agency securities ballooned last year amid new defaults caused by slumps in home prices and employment, and as the federal government pushed loan servicers to consider debt modifications and states moved to slow foreclosures, reducing property liquidations after borrowers stopped paying.

        The share of borrowers current the previous month and that then turned delinquent fell to 1.2 percent in the month covered by January bond reports, down from 1.3 percent as of December reports, Fitch said. The jumbo sector of the non-agency market was the only one in which so-called roll rates -- or the amount of loans turning delinquent -- rose from a year ago, according to the statement.

        Jumbo home loans are larger than government-supported mortgage companies Fannie Mae or Freddie Mac can finance. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas.
        Jumbos have really been hung out to dry. In a mortgage market that is almost completely government (agency) funded, jumbos get stuck with higher LTV and much higher interest rates because the mortgages can't be resold to the agencies. In my area, where the $417k limit is probably also the median mortgage amount, the homes below $550k sell really well, while the more expensive ones sit on the market, the buyers unable to get financing.

        I think they should remove the limit entirely and allow Fannie to buy mortgages with <80% LTV based on a thorough, conservative appraisal. Why are they refi'ing underwater loans at 125% LTV, while people with actual savings, income and good credit can't get financing with 20% down?

        -Jimmy

        Comment


        • #34
          Re: Housing Bubble Correction

          Originally posted by BiscayneSunrise View Post
          http://www.bloomberg.com/apps/news?p...kGHASRZ8&pos=4

          Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6%
          Took me two years to sell a deep waterfront even while pricing it at least 10% below comps. During that time rents I collected dropped from $3500 to $2500/mth and the taxing authority was slow to reduce their assessment, even though I took them to kangaroo kourt. I got all of two offers the entire time (only the second one came with a deposit) and that just $50k below the "best" offer. All told, I finally sold 48% below peak bubble (4.81% annual return, not horrible for a depression sale, I suppose). Yet that before jumbo trouble in paradise.

          I just did a survey of the area, about a year since. I picked eight at random from realtor.com. These properties have about 25% more waterfront than the one I sold and they include one with an ICW (Intracoastal Waterway) view (mine was on a turning basin), one point ICW property and one inside point (ie. at least 150 feet of waterfront for point lots). The houses were both new and teardowns (in this area a teardown is perfectly liveable but often replaced upon sale).

          When I sold, there was only one preforeclosure in our area. Now there are 7 distressed properties in the immediate area of about 200 homes and plenty more in the surrounding areas along the ICW, particularly north of me where there's at least 50 on the water within just 50 blocks. There was only a scattering there when I sold.

          What I found of today's prices: The askings now are about 23% less than my sold for. Assuming they get 10% on average under their asking, they'd sell at 30% less than I got per square foot, just one year hence.

          Here's one of the stunners. This house is on a point lot in the Sanctuary, a gated, guarded Boca Raton waterfront community with cameras even on their canals. http://tinyurl.com/y9yrxg3

          Asking $2,495,000 for 8,551 sq ft with about 190 feet of dockage just one canal over from the ICW. That's $291/sq ft of house. Even while watching the crash. Even being in the crash. I never would have thought those homes would crash harder than mine.

          To give you a better idea of that area, this house http://tinyurl.com/yf5klcf on the canal next to the previous one was asking $23 and change when mine was for sale (for, yikes, considerably less).

          Meanwhile, if I though I was losing my ass when I got only $350/sq ft for my dump, then this guy must think he's losing his large instestine (3.85% annual return). (Note: county shows a 2007 value--our market popped right after Wilma put our lights out in 2005--of $3,750,000 and sillyzillow thinks it peaked at $5.23mm).

          I'll note also that many if not most of the homes which were for sale when I first tried selling 3 years ago are still waiting for their buyers. So much for paradise. Life was better before the bubble.

          If you want to have fun with watching the jumbo mortgaged homes crash, I've been amusing myself with realtytrac and some of the pricier Fort Lauderdale waterfronts, particularly Harbor Beach in 33316 (as I've a landlocked house not there but north of downtown I'm considering selling). About a year ago there was hardly a single distressed home there. But as of this writing there are 23 affluent yet distressed homes. Paradise lost.

          Comment


          • #35
            Re: Housing Bubble Correction

            centsless,

            Paradise Lost, indeed. A friend of mine calls the area from Harbour Beach, through Rio Vista, Colee Hammock and parts of Victoria Park up to Sunrise Blvd. the "Golden Square". Same thing with Coral Ridge and parts of Boca. It was areas like that where one could have expected to have some immunity from any downturn. Given the great crash, owning a high end home in S Florida, especially waterfront, is a pretty big liability.


            I know the Sanctuary. They even have gates and guards posted at the entrance to their canals which I didn't think you could do since the ICW is federal water. I guess the Sanctuary was supposed to have a double meaning. Not so. Perhaps, just the opposite.

            I saw the link you posted. $17M Wow. In my mind, there are only 2 or 3 neighborhoods in Boca worth spending money on, Royal Palm, Spanish River Estates, Sun & Surf,at the high end, and at the medium range, Camino Gardens or Riviera.

            A brief look out at Weston shows a neighborhood I am familiar with in Weston Hills Country Club priced between 550 & 700K. At the peak, these homes were going for $1.4M. I even heard of a home in the Windmill Ranches section of Weston is now going for 650K, down from $6M!!!. That is second hand info from a realtor friend. I have not confirmed that, though. An awful lot of people out there are in serious straits now.

            I know a few people who bought a year ago thinking there were getting great deals and they are starting to get a sinking feeling.
            Last edited by BiscayneSunrise; 02-13-10, 01:09 PM.
            Greg

            Comment


            • #36
              Re: Housing Bubble Correction

              To $650k from $6m. I had no ideal so much value could be destroyed so quickly. What an expensive lesson this has been. Of course I'd have preferred such lesson earlier in life, when I had more time to make up for my past centslessness.

              As to the Sanctuary, actually the canals are not gated, that's just rumor. They did have cameras mounted at one time, however (probably still do), &, of course, the underwater mine field, I believe.

              Two other homes there asking more than $10m. Here's one of the others. http://tinyurl.com/y9x5f34

              There's a few places in town where you can spend that kind of cash like on Lake Boca http://tinyurl.com/ya2dfsw where I drove with my cousin yesterday on our way back from the garlic festival at Old School Square in Delray. I think there was one house on the lake which was not for sale. I decided all the others must have been friends of Madeoff.

              And then of course there's always Highland Beach, the promised land, where you can pick up one of these on the cheap http://tinyurl.com/ye2h7df

              It's all quite insane; completely beyond my limited comprehension.

              Comment


              • #37
                Re: Housing Bubble Correction

                This thread reminds me of a conversation with a friend this past week. His dad is going out to Vegas to buy up a condo which was "worth around $1m" and now is going for $250k. He figures he can buy it cheap and flip it in few years. (My guess is it's one of those City Center condos)

                I didn't have the energy or desire to tell him those days are gone. Instead I asked what the monthly condo fee was and he said $900. I think he realized when he said it how outrageous that sounded. Then he offered up that his dad can only lease it out 50% of the time. Again, I didn't say anything but I'm sure he could see from my face how nuts I thought it all was.

                Some fools still think this is all a bad dream and the buying opportunity of a lifetime.

                Comment


                • #38
                  Re: Housing Bubble Correction

                  Originally posted by CanuckinTX View Post
                  This thread reminds me of a conversation with a friend this past week. His dad is going out to Vegas to buy up a condo which was "worth around $1m" and now is going for $250k. He figures he can buy it cheap and flip it in few years. (My guess is it's one of those City Center condos)

                  I didn't have the energy or desire to tell him those days are gone. Instead I asked what the monthly condo fee was and he said $900. I think he realized when he said it how outrageous that sounded. Then he offered up that his dad can only lease it out 50% of the time. Again, I didn't say anything but I'm sure he could see from my face how nuts I thought it all was.

                  Some fools still think this is all a bad dream and the buying opportunity of a lifetime.
                  And that is why the market is still trending down. Every time someone mentions the low prices (relative to the top) I ask them to factor in association fees, property tax and insurance. All of a sudden the deals look much less enticing.

                  Now that the mindset is shifting back to home ownership as a place to live only and as an expense not an investment, housing prices will take an inverse relationship to taxes and insurance, kind of like a bond. The higher the taxes, the lower the property value.
                  Greg

                  Comment


                  • #39
                    Re: Housing Bubble Correction

                    Originally posted by centsless View Post
                    To $650k from $6m. I had no ideal so much value could be destroyed so quickly.

                    It's all quite insane; completely beyond my limited comprehension.
                    I was able to confirm that pricing with a second realtor friend who concentrates on that area of Weston. It was, indeed, listed at 6.5M during the peak. Part of the reason for the dramatically lower price is that the house has been abandoned and needs quite a bit of cosmetic work. I am going to try to find a link for the listing.

                    For those unfamiliar with Weston and Windmill Ranches, it is a planned city of around 50,000 in the far western suburbs of Broward County, Florida (Fort Lauderdale) It was designed to attract affluent residents from Miami seeking to escape the hustle of Dade County. It was built on Everglades swamp land. Each neighborhood is gated and highly insular. It is popular with local professional athletes, corporate transferees from out of town and wealth South Americans seeking to protect themselves from thuggish Marxist dictators. It's nickname is "Weston-zuela".

                    For most of the residents, it is the quintessential town of McMansions way out in the exurbs with people over extended in order to have the "good life". Property values there are down about 50% on average. many Weston residents I know moved there to have a safer environment for their kids and better schools. Now they are empty nesters and are can't move back to the beach or downtown areas.

                    http://www.westonfl.org/
                    Greg

                    Comment


                    • #40
                      Re: Housing Bubble Correction

                      Originally posted by BiscayneSunrise View Post
                      For those unfamiliar with Weston and Windmill Ranches... It is popular with local professional athletes, corporate transferees from out of town and wealth South Americans seeking to protect themselves from thuggish Marxist dictators. It's nickname is "Weston-zuela".
                      Here's Marino's

                      http://southflorida.blockshopper.com..._Weston_estate

                      Looks like he bought the vacant acreage for $370,000 in 1994 & built a 16,680 sq ft home in 1997. County appraises the property at $5.4mm.

                      And his neighbor's listing http://www.realtor.com/realestateand...109927100?mp=1 which is about 7,000 feet larger for $3+mm less. I guess this one would have more bang for the buck.

                      Very few resales here as it is a new area. Found this one http://www.realtor.com/realestateand...116316015?mp=1 asking $2.1mm. Last sold in 1999 for $1.26mm.

                      Here's another http://www.realtor.com/realestateand...114553199?mp=1 which sold in 2004 for 1.4mm and in 1997 for $842,500. So the asking price of $2.5mm seems quite the premium to live next to where Marino used to live, assuming, of course, that Dan sells for more than twice the county's appraisal.

                      Comment


                      • #41
                        Re: Housing Bubble Correction

                        Thanks for the listings. Even though those listings don't specify, I believe they are all in Windmill Ranches. Heartbreakingly beautiful and even more heart breaking to hear the personal stories of people out there in Weston. So many people want to move from there but no buyers. Sad.

                        Had a conversation yesterday with a friend whose partner specialized in high end water front property. First, in the Hamptons, then here in south Florida. There were two takeaways:

                        1) At the extreme low end of crummy little condos in western Broward prices have come up from the bottom. From $20,000 to $30,000. Remember, at the peak these were going for about $150K. What is interesting is that banks are letting them go and starting the minimum bid extremely low to get a buyers frenzy going at auction. Same as how taking a reserve off when bidding stalls to stimulate more bids; bidders know the asset will sell and don't want to lose out. If they start the min. bid too high, bidders just don't bother.

                        2) There is virtually no retail business at the high end here right now. Buyers smell blood and are either putting in bids where they believe prices will eventually bottom or are just waiting for the market to come to them. Banks are still holding tens of thousands of foreclosed properties back here south Florida.
                        Greg

                        Comment


                        • #42
                          Re: Housing Bubble Correction

                          Ya, that's Windmill. Realtor.com shows nothing sold there recently. The 1/2 mil $ & under smaller houses on smaller lots across Post Road are fetching about $150/sq ft of house and the swampland upon which they are built, apparently, is free.

                          As to nothing selling? Not shocked. Here's some listings on vacant waterfront land there (waterfront not meaning boating canals but drainage, just to keep that in perspective).

                          Here's an ~1.5 acre-lot asking ~$1.5mm http://www.realtor.com/realestateand...114799741?mp=1

                          and here's 3.5 asking 3.1, but there are some demolition costs http://www.realtor.com/realestateand...112872323?mp=1

                          So lets say they sell for $1mm per acre just for a nice round number.

                          As Marino paid $370k for 4.3 acres in 1994 and with the land now selling at the above price, that's an annualized return of 16.56% in the middle of the Great Recession. Very nice if you can get it. Since he's asking $13.5mm for the entire weekend Superbowl getaway, that leaves $9.2mm for the house or a construction cost of $551/sq ft for someone to replicate that on land untouched by fame. Even if you could justify $400/sq ft for gold plated toilets, who's gonna want to pay a 30% premium for fame?

                          Realtors are very good with selling prestige when prices are on the rise and idiots are looking for one extra thing that they can spend money on. This house is one block closer to the beach, that house has 10 ft more waterfront, the typical blah blah blah$. But those days are not these. In these days in this market, location location location doesn't mean crap crap crap.

                          Now here's the only recent sales in Dan's subdivision as shown in Zillow.

                          Sold 06/09/2009: $1,850,000
                          3465 Windmill Ranch Rd, Weston, FL 33331

                          A 7337-sq-ft house which sold for $1.3mm in 1999 & $1.81mm in Feb 2005 (which was pretty much right before our bubble peak as everything shut down after Wilma put our lights out.)

                          Sold 05/04/2009: $3,900,000
                          2760 Paddock Rd, Weston, FL 33331

                          This is a 13,826 sq ft waterfront house built in 2009. The property sold for $1,625,000 in 2005 and for $930,000 in 2001. Even at that bubble price for the land and assuming they'd get the very same price for it today (according to the above example), that leaves the price for the property minus the land at $164/sq ft of house with two sides on water in the same subdivision and just blocks away from Marino who's asking $551/sq ft of house (plus a nice profit on that land).

                          Comment


                          • #43
                            Re: Housing Bubble Correction

                            http://www.nytimes.com/2010/07/09/bu...me&ref=general


                            LOS ALTOS, Calif. — No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.




                            A home in foreclosure in Los Altos, Calif., a city where the median home price is $1.5 million.

                            Peter DaSilva for The New York Times


                            The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

                            Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

                            More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

                            By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

                            Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

                            “The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

                            Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

                            Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

                            The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago — like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.

                            In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

                            “I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

                            The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.

                            Here in Los Altos, where the median home price of $1.5 million makes it one of the most exclusive towns in the country, several houses scheduled for auction were still occupied this week. The people who answered the door were reluctant to explain their circumstances in any detail.

                            At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

                            At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

                            Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

                            Fannie Mae and Freddie Mac, the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

                            In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities


                            he CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.
                            Multimedia



                            The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

                            With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

                            “Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

                            Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

                            “I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

                            The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

                            “They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

                            The CoreLogic data measures serious delinquencies, which means the borrower has missed at least three payments in a row. At that point, lenders traditionally file a notice of default and the house enters the official foreclosure process.

                            In the current environment, however, notices of default are down for all types of loans as lenders work with owners in various modification programs. Even so, owners in some of the more expensive neighborhoods in and around San Francisco are beginning to head for the exit, according to data compiled by MDA DataQuick.

                            In Los Altos, Los Altos Hills and the most expensive neighborhood in adjoining Mountain View, defaults in the first five months of this year edged up to 16, from 15 in the same period in 2009 and four in 2008.

                            The East Bay suburb of Orinda had eight notices of default for million-dollar properties, up from five in the same period last year. On Nob Hill in San Francisco, there were four, up from one. The Marina neighborhood had four, up from two.

                            The vast majority of owners in these upscale communities are still paying the mortgage, of course. But they appear to be cutting back in other ways. The once-thriving Los Altos downtown is pocked with more than a dozen empty storefronts in a six-block stretch.

                            But this is still Silicon Valley, where failure can always be considered a prelude to success.

                            In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

                            His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

                            “I’m going to be downsizing,” he said.

                            The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”
                            Greg

                            Comment


                            • #44
                              Re: Housing Bubble Correction

                              Given the very strong likelihood of less federal subsidies for housing, prices will drift further down.


                              Redwood: Government support of mortgage market 'not sustainable
                              by JON PRIOR

                              http://www.housingwire.com/2011/08/1...ot-sustainable

                              Thursday, August 11th, 2011, 5:45 pm
                              Redwood Trust (RWT: 12.41 +2.82%), the only issuer of a private-label, mortgage-backed security since the financial meltdown in 2008, said the housing industry is benefiting from the government's continued support of the market — for now.

                              Through Fannie Mae, Freddie Mac and Ginnie Mae, the government finances more than 95% of the mortgages currently being written in the U.S. When Congress comes back from recess in September, it will have a chance to begin unwinding its lifeline. The conforming loan limits, or the maximum amount of a loan that can be guaranteed by Fannie, Freddie or insured by the Federal Housing Administration, expires Oct. 1.

                              Already the industry is pushing its support of a bill in the House and another in the Senate to extend these limits. Other reforms remain on the distant horizon, including the reform of Fannie and Freddie.

                              In its second-quarter earnings report, Redwood said as long as these conditions persist, opportunities for private investors to fund more loans remains "subdued." Even more, Redwood said, the government support cannot continue much longer.

                              "Many real estate agents, homebuilders and banks appear to benefit from such a status quo. Our strategic outlook, however, is that over time the current outsized role of government support for the $9.6 trillion residential mortgage market is simply not sustainable, especially in light of the painfully heated debates throughout 2011 over raising the $14.3 trillion federal debt ceiling," Redwood said.

                              Since the financial collapse in 2008, Redwood closed on the only RMBS deal in 2010, issued another in March 2011 and early this year said they planned to issue two more by the end of the year.

                              "We believe it is probable that the loan-limit reduction occurs as scheduled," Redwood said. "However, we expect pro-status quo forces to continue advocating against this reduction up to the point it is scheduled to occur, perpetuating an element of uncertainty to the existing timeline for reform."

                              Indeed, both the National Association of Realtors and the Mortgage Bankers Association, two of the most influential trade groups in the industry, recently threw their weight behind extending the loan limits. They claim the still struggling market continues to rely on such support.

                              Redwood admitted "a steady stream of bad news" from recent economic trends, the looming debt ceiling fight, the crisis in Europe and the end of the Federal Reserve's second quantitative easing program all turned investors away from riskier bets in MBS.

                              Still, Redwood said eventually the private market will have to make a come back again.

                              "As the government eventually and gradually withdraws support for mortgage financing, we believe private capital (outside of banks) will be called upon to step in and fill the void," Redwood said.

                              Write to Jon Prior.

                              Follow him on Twitter @JonAPrior.
                              Greg

                              Comment


                              • #45
                                Re: Housing Bubble Correction

                                Originally posted by BiscayneSunrise View Post
                                Given the very strong likelihood of less federal subsidies for housing, prices will drift further down.
                                As much as I would like to believe that the government and the Federal Reserve will give up on trying to reflate housing prices, this seems like wishful thinking to me. You have the following forces all desperately trying to reflate the housing bubble:
                                • The Federal Reserve, which is keeping rates low to lower mortgage rates (which tend to inflate housing prices)
                                • Christine Lagarde of the IMF is talking about the U.S. need to arrest housing price declines
                                • The Obama administration is talking about doing something to allow people to refinance at the current low rates. Evidently, these people cannot currently refinance either due to being underwater on their mortgages or being lousy credit risks. If these refis occur, it is in all likelihood that the mortgages will be guaranteed by the government.
                                • The NAR and other private interests will continue lobbying Congress to throw more good money after bad in the housing market.
                                • The FHA continues to make very large loans ($600,000+) when it is supposed to be a lending program for financially disadvantaged people.

                                Housing prices will decline, I'm relatively certain. However, it's just going to take longer for things to hit bottom with all the false demand being generated.

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