Discussion Topic |
|
This thread has been locked |
TradIsGood
Chalkless climber
the Gunks end of the country
|
|
|
Topic Author's Original Post - Feb 25, 2009 - 06:46pm PT
|
Finger-pointing threads get tiresome. So let's say we can just put all the legacy/toxic stuff away and not worry about how it works, since it will all fix itself in at most 7 years anyway.
You get to play legislator/regulator with a clean slate.
Draw up the rules to make the housing market work on the financial side on every new mortgage written. Consider the tax side as well.
|
|
TradIsGood
Chalkless climber
the Gunks end of the country
|
|
|
Topic Author's Reply - Feb 25, 2009 - 06:55pm PT
|
Fattie, that is a start. What about the rest of the underwriting standards? How about packaging into securities?
Regulation of who can buy or sell securities? What about mortgage brokers - regulated today in almost no states. Texas does, not sure who else, but "almost nobody" is close.
|
|
TradIsGood
Chalkless climber
the Gunks end of the country
|
|
|
Topic Author's Reply - Feb 25, 2009 - 07:23pm PT
|
CMO's are math-modeled. In order to get the AAA ratings, they have to be capable of meeting the scheduled payments subject to the rating agencies' depression housing scenarios. That means that they were over-collateralized by the originator to the extent necessary to get the required ratings against the harshest expected economic cycle.
The loans all had to meet underwriting criteria consistent with that population cohort. Not sure what they came up with for sub-prime and no income verification loans. Presumably they were tighter than conventional SF, but I have not looked into this.
|
|
bluering
Trad climber
Santa Clara, Ca.
|
|
|
Feb 25, 2009 - 07:35pm PT
|
I'd say at least 15% down, maybe 20.
|
|
bluering
Trad climber
Santa Clara, Ca.
|
|
|
Feb 25, 2009 - 07:43pm PT
|
WTF is a CDO and CMO...c'mon keep it readable.
|
|
TradIsGood
Chalkless climber
the Gunks end of the country
|
|
|
Topic Author's Reply - Feb 25, 2009 - 07:45pm PT
|
Collateralized Mortgage Obligation and Collateralized Debt Obligation.
You can start at wikipedia on them...
BTW. Fattie, you could check it out to. The special purpose entity owns the mortgages, not the investors in the CMO.
|
|
Gene
climber
|
|
|
Feb 25, 2009 - 07:46pm PT
|
Get rid of non-recourse loans.
The difference between the net proceeds of a short sale and mortgage balance should be imputed income to the borrower just like it was before Bush tweaked that provision of the tax code.
gm
|
|
Mungeclimber
Trad climber
sorry, just posting out loud.
|
|
|
Feb 25, 2009 - 07:50pm PT
|
call those securities insurance, but instead regulate it like insurance?
not sure what the impact would be.
thoughts?
|
|
rockermike
Mountain climber
|
|
|
Feb 25, 2009 - 07:51pm PT
|
traditionally mortgages were at 25% down I believe - and that's going to make people think thrice before handing over that kind of change. And no more than 25% of household income to make payments. Yes, some wont qualify but fewer bidders mean more normal pricing. Maybe eliminate the mortgage interest write-off too. People should be buying a place to live, not making a tax fueled speculative investment. Definitely get the ARMs out (or at least with significant caps) and fully amortizing.
|
|
Gene
climber
|
|
|
Feb 25, 2009 - 07:55pm PT
|
Rockermike,
Do you really think that mortgage interest as a deduct is a big factor in speculation or even a factor in buying owner occupied housing? I guess many people do, but for the life of me I have never figured out what sense it makes to pay a $buck$ in interest to save $0.20 to 0.35 in taxes.
gm
|
|
rockermike
Mountain climber
|
|
|
Feb 25, 2009 - 08:04pm PT
|
I don't really know what the link is between tax exempt interest and speculation. But as a non-home owner I resent it when a certain group gets special treatment. ha
I do think prices would go down with stricter lending standards and less ownership benefits. And I think that would be a good thing.
|
|
stevep
Boulder climber
Salt Lake, UT
|
|
|
Feb 25, 2009 - 08:06pm PT
|
I'm more with Fattrad on the 10%, good credit score and income proof.
20-25% is pretty big money in CA housing prices. Not going to be alot of new buyers if you've got to come up with $100K to put down. Either that or prices are going to need to continue to fall.
More regulation/licensing/auditing of brokers and appraisers.
Not against securitization per se, but there definitely should be limits, and limits on how leveraged things can get.
|
|
TradIsGood
Chalkless climber
the Gunks end of the country
|
|
|
Topic Author's Reply - Feb 25, 2009 - 08:13pm PT
|
80% is the conforming loan to value ratio that Freddie and Fannie have always used. Loans with higher LTVs (lower down payments) represent more risk that the house price might decline below the mortgage balance (risk to lender). So with LTVs above 80% generally the mortage seller (home buyer) must pay for primary mortgage insurance which is paid as a percentage of the outstanding principal balance.
Until the recent bubble 80% has almost always been safe for the lender (investor) (i.e. the owner of the home still had some equity in his home).
With the experience of the last two years I would recommend that 80% be retained. Jumbo mortgages might even be lower, since there is a smaller market for them.
|
|
klk
Trad climber
cali
|
|
|
Feb 25, 2009 - 08:14pm PT
|
"Mortgage interest deduction was started to promote homeownership and in theory a stable society."
Well, sort of. The heavy cultural investment in home ownership goes back deep into US history and our traditional loathing of large landed estates and love of small yeoman farmers. Unfortunately, small yeoman farmers are now rare antiques.
Home ownership is virtually mandatory because it essentially represents one's retirement and healthcare rolled into one.
|
|
TGT
Social climber
So Cal
|
|
|
Feb 25, 2009 - 08:22pm PT
|
You make a loan, you own it!
till it's paid of!
No secondary markets!
No dumping the risk on the unsuspecting!
Now that would mean no FHA as we know it now. It could continue in its original form as an insurance product.
This would all automaticaly lead to,10% down, 650 FICO, only fully amortizing loans, no adjustable rates.
That wouldn't make Barney Frank happy.
|
|
TradIsGood
Chalkless climber
the Gunks end of the country
|
|
|
Topic Author's Reply - Feb 25, 2009 - 08:23pm PT
|
An ARM represents payment risk to a home buyer.
But it also makes it more acceptable to a lender who depends upon deposits or other interest rate sensitive liabilities to purchase them. If interest rates go up, the funding base for a fixed rate loan could all pull their money and invest in mutual funds or higher rate CDs, leaving the lender unable to repay depositors.
See Savings and Loan Crisis of the 1980s. This is exactly what happened, resulting in approximately $150 billion in losses absorbed by the taxpayer when 3/4 of the industry was wiped out.
ARMs offer the lender to raise the rate on the mortgage when he has to pay a higher rate to entice savers to deposit their savings.
Take away ARMs and you take bank and thrift direct lending completely out of the market.
|
|
TradIsGood
Chalkless climber
the Gunks end of the country
|
|
|
Topic Author's Reply - Feb 25, 2009 - 08:24pm PT
|
TGT, who will make the loans? Where will they get the money to make the loans?
|
|
TGT
Social climber
So Cal
|
|
|
Feb 25, 2009 - 08:25pm PT
|
The same place they did 30 years ago when it mostly worked that way.
|
|
TradIsGood
Chalkless climber
the Gunks end of the country
|
|
|
Topic Author's Reply - Feb 25, 2009 - 08:27pm PT
|
See post 20. The 30 years ago idea did not work!
|
|
TGT
Social climber
So Cal
|
|
|
Feb 25, 2009 - 10:22pm PT
|
When did I mention ARM's?
My point was what has ensued is a system wherer the originator of the loan bears no risk. In the mess we are in now pensioners in northern Europe bought loans that they believed were secured by the American dream when what they were actualy buying was a NINJA loan from a non citizen borower with a matricula consolar card for id and no means or intent to pay it back. (extreme case, but you get the drift)
America with the insistence of certain congress critters and Freddie and Fanny's cooperation defrauded the world!
If the originator of the loan bore the risk we wouldn't be in the mess we are now. Most of the worst of those loans wouldn't have ever been made.
|
|
|
SuperTopo on the Web
|
Let us know!