Friday, March 02, 2012

Reader's Comment on Fannie Mae Shenanigans

Here is a comment from an anonymous writer to my blog (see post from February 11). Although it is anecdotal, the general validity of what is going on, has come to my attention from several other sources. This gentleman took the time to write, and unfortunately, the remarks section of my blog gets passed over by a majority of viewers. So here it is, in case you missed it.

Anonymous Feb 29th “In Obama’s Plan to save the homeowner.”
Due to job transfer, I'm trying to buy a house in Oregon (Portland metro). Fannie/Freddie/et. al. are trying to "stabilize" prices by offering homes above market and refusing to negotiate. To lure in buyers, they offer 0% down, no closing costs, no appraisal loans. Sound familiar? HAFA short sales dictate price, but pay the seller cash to move out and offer deed in lieu if the short sale doesn't work out. And Fannie/Freddie/et. al. don't disclose serious defects. I tried to buy a Fannie home - turned out to be in a flood plain - no disclosure. So the house goes in and out of contract, with Fannie hoping to find the sucker who doesn't discover the flood plain. If they wait 'til summer, when the waters recede until next winter, they'll probably get their wish. Kicking the can, indeed.

Meanwhile, Realtors are back to their old games. Every property "has an offer coming in," and agents swear that most houses sell within 2 days of list unless they're seriously defective. Half the inventory is short sales. There's another 100% of current inventory somewhere in the foreclosure process.

The risk in a low-rate environment is that buyers generally buy on payment - when rates rise, payments have to rise or prices have to fall. 4% mortgages are far below historic norms. We are creating a new generation of underwater homeowners, with NAR collecting their 6% tip as the housing Titanic takes on water. Low rates are a godsend if you're going to stay put for 30 years, but the average homeowner will be short-selling in 7 years when rates revert to normal and salaries haven't kept pace with rising rates and inflated home prices. How long can the 3% loan keep the ship afloat? I am actually hearing agents repeat 2006 asking prices (so high that houses didn't sell even in the greed bubble of 2006!) and saying "look what a bargain it is now!" Are buyers still that stupid?

Here is a Previous Post of mine, from a few years back, that shows that the predatory animal (Fannie Mae) hasn't lost its touch! Buyer beware. They are going to give you the deal of a century----the one that nobody else wanted!

A hat tip to the anonymous author.


Anonymous said...

I wouldn't buy a house now. Homes will be worth 50% less than they are right now in another 5-10 years (the rate of drop is unpredictable due to government and Fed Reserve interference). You can bet valuations will just continue to drop slowly but surely and maybe every once in a while there will be a steep drop within a short time period.

I know mortgage payments are getting closer and closer to rent payments which prompts people to buy houses rather than "throw away" their money on rent. Soon it will be twice as cheap to pay a mortgage than rent. But that's if you can qualify for a loan.

Who is gonna buy all of this inventory out there and the other 8 million or so foreclosures that are being held back? Not many qualify.

The government and banks won't let prices fall too fast so that the banks' balance sheets don't collapse due to asset devaluation.

Most of the big banks don't have much to worry about home loans. It's the commercial and construction loans that will hurt them. Most of the home loans have all been packaged up and sold to institutions and big investors all over the world. Those investments will collapse and be valued at pennies on the dollar eventually.

It all depends on how long the "extend and pretend" goes on.

Sackerson said...

I agree with Anon above that houses are still overpriced in real terms, though I'm thinking about the UK where I live. Employment less certain (and continuing competition in wage terms, from abroad), food and energy costs rising, likely increases in overall taxation...

Anon says "I know mortgage payments are getting closer and closer to rent payments..." but of course, as in the Depression, rents can go down, too, and then mortgage payments will be left high and dry again.

Anonymous said...

"Homes will be worth 50% less than they are right now"
In some areas, perhaps.

New Oregonian said...

I'm the person relocating to Oregon. It helps that we're doing a corporate relocation, so our transaction costs going in are $0. I'm hedging a couple ways. One, room for a garden, just in case food costs go nuts. Two, space for a 2nd residence or a convenient way to rent part of the home. Three, room for a home business. I'm looking for something we could afford on our retirement savings, so we're not homeless if the economy heaves again and tosses out our jobs.

We're not buying blindly, which is part of why it's been tough to find the right home. Yes, prices may well go lower, but since we're making a long-term decision here, the numbers tend to flow together (for example, higher rates would improve our savings returns while reducing our home equity).

Gmac said...

Adjustable rates can be riskier if the rates rise dramatically and if the buyer isn't able to make the payments. Fixed rates mortgages are generally much safer.