Dec 192014
 
Debt Default: Necessary deleveraging and a lack of HELOC abuse is keeping the economy down

In the short term, a lack of consumer spending is keeping the economy down. Of course, everyone looking for a quick fix decries the lack of consumer spending and blames the consumer for our woes. It isn’t the consumer’s fault they were given too much debt during the housing bubble…. – Necessary deleveraging and a lack of HELOC abuse is keeping the economy down


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Dec 192014
 
OCHN: Speculating on negative cashflow properties is for losers

Most real estate investors are really speculators betting on appreciation. It’s a strategy destined to be a loser.

Real estate investors during the housing bubble put their money to work on faith. There is no logical reason to believe house prices only go up. In fact, there have been two… – Speculating on negative cashflow properties is for losers


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Dec 192014
 
Housing Market: Should the government back new subprime mortgages?

The government needs to get out of housing finance. The losses at the GSEs apporach $150 billion, and the FHA needs its own bailout. These are losses all of us who didn’t participate in the madness get to pay. And as long as the government continues to back 90% or more of loans for… – Should the government back new subprime mortgages?


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Dec 182014
 
Real Estate Loan: Home Mortgage Borrowers Are Not That Sophisticated

Whenever lenders start loaning people money with total debt-to-income ratios over 36% people will default. Whenever lenders start loaning more than 80% of the purchase price, people can sink underwater and when they do, they will default. This is not new. It happened in the early 90s; it… – Home Mortgage Borrowers Are Not That Sophisticated


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Dec 182014
 
OCHN: Lender's fear of strategic default will prevent future housing bubbles

Borrowers have moral responsibility to default on loans where the payment on an amortizing mortgage exceeds the cost of a comparable rental.

The fear of strategic default is a necessary deterrent to foolish lending. Without it, lenders are emboldened to make all manner of bad loans because they… – Lender’s fear of strategic default will prevent future housing bubbles


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Dec 172014
 
Housing Forecast: Responsible Home Owners Are Hurt by Irresponsible Loan Owners

Lenders and borrowers dance with disaster. Borrowers have the lead in the amend-pretend-extend fandango, but as the economy improves, along with lender balance sheets, lenders will take the lead. As the default shuffle plays out, wallflowers who chose not to cha-chaare wilting under the economic … – Responsible Home Owners Are Hurt by Irresponsible Loan Owners

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Dec 172014
 
OCHN: Foreclosure and eviction from the American Dream

Is foreclosure the end of the American Dream, or is it a fresh start and an opportunity for redemption?

I manage a number of properties in Las Vegas, and when I acquired them, I often had to evict the former owners who squatted their after the foreclosure. Some foreclosure and eviction cases… – Foreclosure and eviction from the American Dream


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Dec 172014
 
Bubble News: Flip That House… Not!

During the Great Housing Bubble, many speculators tried to make money through trading houses. The vast majority of these traders were not professionals but amateurs who thought they could be professionals. Most amateurs ended up losing money because they did not understand what it takes to be… – Flip That House… Not!

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Dec 162014
 
Mortgage Refinance: The Housing Bubble was a Credit Bubble

The Great Housing Bubble was not really about housing; it was about credit. Most financial bubbles are the result of an expansion of credit, and the Great Housing Bubble was no exception. Housing just happened to be the asset class into which this capital flowed. It could have been stocks or… – The Housing Bubble was a Credit Bubble


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Dec 162014
 
Mortgage Foreclosure: The Affordability Limit in Residential Real Estate Markets

Affordability is the ultimate limit of any asset bubble. If prices are so high that no buyer can afford them, there are no transactions and thereby no market. The fear of many buyers in a financial mania is that prices will remain elevated to the absolute limit of affordability permanently…. – The Affordability Limit in Residential Real Estate Markets


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Dec 162014
 
OCHN: Mortgage equity withdrawal should be heavily regulated

 In order to prevent foreclosures and theft of taxpayer money through bailouts, mortgage equity withdrawal should be limited and regulated.

I don’t like government paternalism. When Ronald Reagan came to power and began our 25 year experiment with government deregulation, I thought it was … – Mortgage equity withdrawal should be heavily regulated


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Dec 162014
 
Debt-to-income ratios must be limited to prevent housing bubbles

In The Great Housing Bubble, I wrote about how we could prevent the next housing bubble: Loans for the purchase or refinance of residential real estate secured by a mortgage and recorded in the public record are limited by the following parameters based on the borrower’s documented income and general indebtedness and the appraised value of the property at the time of sale or refinance: All payments must be calculated based on a 30-year fixed-rate conventionally-amortizing mortgage regardless of the loan program used. Negative amortization is not permitted. The total debt-to-income ratio for the mortgage loan payment, taxes and insurance [Read More…]

Dec 152014
 
USA Foreclosure: The housing bears are rightfully frustrated

House prices are rising rapidly, and the conditions creating this rally will persist for the foreseeable future. Prices will continue to rise until affordability becomes a limitation, or cloud inventory makes its way to the market, and even then prices will continue to rise, just less rapidly… – The housing bears are rightfully frustrated


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Dec 152014
 
Fix the Housing Market: Let Home Prices Fall

I was sitting in a meeting not long ago with a group of homebuilding industry insiders. During our discussions, the topic of future home prices came up, and I was astounded to hear the assembled group say they wanted to see the market props removed so that house prices could fall to a level that … – Fix the Housing Market: Let Home Prices Fall

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Dec 152014
 
OCHN: How to run a personal Ponzi scheme with mortgage debt

In its simplest form, a personal Ponzi scheme is borrowing money to pay debt service: acquiring new debt to pay old debt. It’s a path to disaster.

What does it mean to run a personal Ponzi scheme? Aren’t Ponzi schemes the advanced financial management crime of sophisticated money… – How to run a personal Ponzi scheme with mortgage debt


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Dec 142014
 
Loan Mod Default: Loan modification re-defaults were very high

Whenever I make a prediction that goes against the conventional wisdom, I take the risk of looking the fool. On those occasions when I am right, it’s very satisfying. Even though I know I shouldn’t, internally, I enjoy a silent I-told-you-so. Almost four years ago now, lenders… – Loan modification re-defaults were very high


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Dec 142014
 
USA Housing: Mortgage rates move higher, housing less affordable

The recent sudden spike in mortgage interest rates shows no signs of abating; in fact, it is getting much worse. The yield on a 10-year Treasury has moved up from about 1.7% in May to 2.7% today. Since mortgage interest rates and 10-year Treasury rates correspond strongly (they are competing… – Mortgage rates move higher, housing less affordable


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Dec 132014
 
Ponzi Debt: Do You Understand the three Categories of Borrowers – Prime, Alt-A and Subprime?

Borrowers are broadly categorized by the characteristics of their payment history as reflected in their FICO score. FICO risk scores are developed and maintained by the Fair Isaac Corporation utilizing a proprietary predictive model based on an analysis of consumer profiles and credit… – Do You Understand the three Categories of Borrowers – Prime, Alt-A and Subprime?


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Dec 132014
 
RE Ruin: Economic Problems Resulting From the Great Housing Bubble

The foremost problem resulting from the deflation of the Great Housing Bubble was the imperilment of our banking and financial system. The Great Depression was precipitated by the collapse of margin trading and the subsequent decline of the stock market beginning in 1929; however, this decline… – Economic Problems Resulting From the Great Housing Bubble

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Dec 122014
 
Debt Default: We have strong economy because some people rent

In the 1990’s and early 2,000’s it was the policy of the US government to increase home ownership rates and endorse the general idea that everyone should own a home. It wasn’t even framed as a right or left issue since both Presidents Clinton and Bush pushed this 100% home… – We have strong economy because some people rent


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