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BlueHorseshoe
Registered: Oct 2002
Posts: 1631 |
12-24-04 08:17 AM
Quote from billgates:
Paradoxically, this is what actually happens.
700k/year legal immigrants + twice that much illegal ones are coming to US each year. Any one of them needs a shelter. Putting 3 persons in a house, at $200k average house price, we arrive at $140B/year net money influx - enough to finance about a quarter of current account deficit !
Add to this massive investment by non-residents into American real estate, and you will see that houses are actually most important exporting industry.
Except that immigrants are not slapping down 200G cash for their house. They are buying w/ interest only, ARM mortgages. In other words, borrowing from your Grandma and Grandpa (thank you Fannie Mae!) so that they will have reliable income in their later years and you won't have to support them.
Yikes!
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risktaker
Registered: May 2004
Posts: 2353 |
12-24-04 08:38 AM
Getting off topic here a bit, I see the latest generation of immigrants as *very* different from previous generations.
Go to many community colleges and you'll see what I mean. Many are studying with tuition paid by your tax dollars. Others are receiving free housing for 3-4 years (entire families) . IOW, unlike previous generations of immigrants who contributed their labor from the minute they arrived, today, they suck up resources for 3-4 years and then compete for your jobs. I have nothing against immigrants, but the system somehow makes them want to be "permanent students".
Oh, and this is interesting. 10-20 years ago, thousands of home construction guys (framers, builders, mostly white, american) gave up on home construction because they could not support their families since the work was not dependable (laid off every 3-4 years for extended periods). Anyway, today, in most of California at least, the vast majority of houses are built by Hispanics. And these guys are *very* hard workers. I saw them working on Christmas and New Year's day last year building brand new subdivisions
Quote from BlueHorseshoe:
Except that immigrants are not slapping down 200G cash for their house. They are buying w/ interest only, ARM mortgages. In other words, borrowing from your Grandma and Grandpa (thank you Fannie Mae!) so that they will have reliable income in their later years and you won't have to support them.
Yikes!
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onewaypockets
Registered: Aug 2003
Posts: 1012 |
12-25-04 06:07 AM
"Home (equity) For The Holidays
Todd Stein & Steven McIntyre
The Texas Hedge Report
December 24, 2004
Oh, there's no place like home for the holidays – unless you take a look at the mind-numbing amounts of home equity (which took years to build) being pulled out almost instantaneously to speculate on stocks. According to a December 9th Wall Street Journal story, “homeowners are pulling money out of their property at greater rates than ever. From 2001 through the first half of 2002, 11% of total funds obtained from mortgage refinancings were used for stock-market and other financial investments. That is up from less than 2% during a previously studied period.” The average sum that people are pulling from their home to use for investments was $24,000, up from “relatively small amounts” in the earlier period. The $24,000 plowed into investments topped the averages for nearly all the other categories for which people used proceeds, including home improvement!
The Journal article went on to deliver one of our favorite quotes of all time, “In a brochure distributed at Merrill’s annual meeting this year, it states: ‘You may think of your mortgage as a way to buy a house. At Merrill Lynch, we see it as way to build your wealth’.” So let’s think about this for a minute – the way to get rich is to take on debt? Then take those proceeds from levering up and speculate on overpriced (likely tech) stocks?
It appears that only a collapsing dollar (and the subsequent much higher rates that it will spawn) will kill the average American’s appetite to live beyond his means. Like a moth to a flame, the U.S. consumer cannot stop himself from spending and will behave rationally only when market forces dictate that he must. The most severe consumer recession since the Great Depression will likely accompany a monumental collapse in housing and autos not to mention a significant weakening throughout the economy. A perfect storm is brewing and we find it laughable that many in press talk positively about the weakening dollar given the chain reaction it is likely to set off. The idea that a country can stem its currency decline anytime it wants when it has such massive imbalances like the U.S. is ludicrous.
Likewise, a weakening dollar and the current account deficit are not the self-healing miracles that most economists would have you believe. So far we have really only seen a correction in non-Asian currencies. The largest imbalances are with our Asian trading partners and stem from our insatiable appetite for their low cost goods. A fifteen, thirty, or even fifty percent decline in the U.S. dollar will not be enough to make us competitive with labor costs that our often 1/10th of what we can offer domestically. Only by a dramatic pull-back in U.S. consumption of Asian goods (resulting from the U.S. consumer being forced to fix his debt-laden balance sheet in the midst of higher rates) will the consumption imbalances begin to correct themselves. Santa’s gift for Christmas may come in the form of massive dollar devaluation. Our readers are aware of this and many have been wise enough to keep their savings in something other than dollars."
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Pabst
Registered: Dec 2001
Posts: 5419 |
12-25-04 07:23 AM
Quote from onewaypockets:
"Home (equity) For The Holidays
Likewise, a weakening dollar and the current account deficit are not the self-healing miracles that most economists would have you believe. So far we have really only seen a correction in non-Asian currencies. The largest imbalances are with our Asian trading partners and stem from our insatiable appetite for their low cost goods. A fifteen, thirty, or even fifty percent decline in the U.S. dollar will not be enough to make us competitive with labor costs that our often 1/10th of what we can offer domestically. Only by a dramatic pull-back in U.S. consumption of Asian goods (resulting from the U.S. consumer being forced to fix his debt-laden balance sheet in the midst of higher rates) will the consumption imbalances begin to correct themselves. Santa’s gift for Christmas may come in the form of massive dollar devaluation. Our readers are aware of this and many have been wise enough to keep their savings in something other than dollars."
Like a lot of discussion on this thread: the thesis may be right but the conclusion is wrong. If I believed that a massive dollar devaluation lies ahead than I want to be a massive borrower today as I can payback to-morrow with cheaper dollars. What will burst the asset bubble is not dollar weakness or even the perhaps correspondingly higher interest rates, but dollar strength. Home owners would be beneficiaries of a dollar collapse. If you had Argentinean type currency problems in the U.S. (which will never happen) then a studio apartment would sell for 7 million dollars. Of course your monthly electric bill might be 100k too. But the point is being long dollar denominated assets and leveraged to the hilt is MUCH preferable to being merely long cash.
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onewaypockets
Registered: Aug 2003
Posts: 1012 |
12-26-04 01:38 AM
"With stated-income mortgages, some may blur truth to get into a home - and get in over their heads
By Andrew LePage -- Bee Staff Writer
Robyn DeLong was in a jam.
The self-employed real estate agent was eager to refinance two fourplexes she owns in Sacramento's Oak Park neighborhood to lower her monthly mortgage payments, which the rents weren't covering. Difficulties documenting her commission-based income with tax documents meant she didn't qualify for conventional financing. Her loan consultant offered a solution: With her relatively high credit score, DeLong qualified for a "stated-income" mortgage, for which the lender would simply take her word for her income. No need for verification.
"Thank God they had stated income," said DeLong, who lowered her monthly mortgage payments from $2,200 to $1,300 by switching to "interest-only" home loans.
In Sacramento and across the country, the marketing and use of stated-income mortgages have exploded this year. Some mortgage brokerages in Sacramento and elsewhere in California report that stated-income loans now represent as much as 40 percent of their home purchase business.
These and other newfangled loans, which allow people to borrow more than with traditional financing, have helped keep the housing market in the Sacramento region humming despite price run-ups of 20 percent or more in the last year.
Lending experts say the growth in stated-income loans stems partly from the swelling ranks of the self-employed and others - such as those relying on commissions, tips or bonuses - who find it difficult to easily document their full income, often because of tax-related complexities. For a borrower with the necessary good credit, stated income is a blessing that sometimes costs little or nothing extra.
But the trend is also raising concerns that a growing number of desperate buyers are fudging their incomes to qualify to buy homes.
Stated-income loans have been around for more than a decade, but more recently have been made available to wage and salary workers who have pay stubs and W-2 tax forms but still choose to just "state" their income. Lenders are also now allowing borrowers to combine stated income with other relatively risky loan programs such as zero-down, interest-only and adjustable-rate loans, a practice that economists say makes the housing market more vulnerable to any economic shock.
"It's not that the stated income in and of itself is a problem," said Vicky Henderson, a Vitek Mortgage Group loan consultant in Sacramento. "It's the combination of risk factors: high loan to value, interest-only, an adjustable rate, modest cash reserves ... ."
Some in the mortgage and home sales industries say that as prices keep soaring, more borrowers are stretching the truth about their income to stretch financially into houses they couldn't otherwise afford. They include first-time and move-up buyers as well as rookie speculators expecting to "flip" homes within a year.
"Stated income wasn't invented to allow borrowers to misrepresent their income. Does it happen? Yeah, that's the unfortunate part of it," said Bruce Van Patten, vice president of CTX Mortgage in Sacramento. "The intent was to make the process for people with good credit that much smoother."
Although lenders don't verify borrowers' income with stated-income loans, they do typically verify their employment and are supposed to check to ensure that the income stated is reasonable for the profession. They'll often check to make sure a self-employed borrower has a business or professional license or has advertised his services.
Buyers who lie about income to get a bigger mortgage are more likely to default on their loan if they suffer financial distress, such as a job loss or divorce.
Housing analyst John Schleimer said he wasn't trying to be funny - though some people laughed - when he asked a recent gathering of hundreds of Sacramento real estate professionals whether sales of $500,000-plus homes to stated-income borrowers seemed sustainable.
"I'm hearing about more of it and I'm concerned," said Schleimer, president of Roseville-based Market Perspectives. "I think there might be a lot of homes that come back on the market if there's devaluation and people start losing jobs and can't make the payment."
More homes on the market probably would mean less price appreciation, and if more borrowers default then lenders will make it harder for buyers to borrow.
"With low interest rates and financing programs, right now the ability to borrow money is the easiest it's ever been," Van Patten said. "If and when the market changes, then underwriting standards will tighten up."
Lenders say they feel comfortable offering stated-income mortgages because they're convinced that a good credit score is the best indication of the likelihood borrowers will pay off their debts on time. Also, some stated-income loans require at least a 5 percent or 10 percent down payment.
The loans typically require at least a decent credit score of about 620. Depending on that score and other factors, such as down payment size, the loan might entail a fee or higher interest rate, perhaps half a percentage point. In some cases, those with great credit and adequate cash reserves don't pay anything extra for a stated-income loan.
Many stated-income mortgages fall into a varied group of home loans known as "Alt-A," meaning they're alternatives to other grade A loans made to borrowers with good credit. For a variety of reasons, Alt-A loans don't conform to the lending guidelines of mortgage purchasing giants Fannie Mae and Freddie Mac.
In the first 10 months of this year, investors bought $122 billion worth of Alt-A mortgages, up 64.4 percent from the total for all of last year, reports Inside Mortgage Finance, a Bethesda, Md.-based newsletter. This year's purchases were up 128 percent from all of 2002.
Many in the lending community defend stated-income loans as a consumer-friendly innovation that shouldn't be judged based on the dishonest actions of what they say are a few.
"Most of the time these products are used responsibly ... and have helped a lot of people get into houses," said Jesse Passafiume, an executive with Roseville-based American Pacific Mortgage. "It's unfortunate there are a couple of bad apples that have abused it because, honestly, it is fairly easy to abuse."
Passafiume, president of the Sacramento chapter of the statewide mortgage brokers association, said it's consumers' responsibility not to overextend themselves, but loan officers should help them set limits.
The mortgage industry is full of neophyte loan officers in the wake of the long refinancing boom, veteran brokers point out, and some are desperate for business.
"Professionals in the industry are explaining things to borrowers but the people just trying to make a loan or real estate commission are saying, 'Here's a loan program, here's your payment,' without thinking about where the borrowers will be in three to five years," Van Patten said.
Real estate agent DeLong said more of her clients are choosing stated-income loans. She's not aware of any of them lying about their income, she said, but it wouldn't surprise her if some buyers are.
"In the climate we have, where people are trying to qualify for homes priced above where they technically qualify ... they may be tempted to fudge," she said. "That's not something the lender or the Realtor are necessarily privy to, nor do we want to be."
Putting a positive spin on a loan application
Here are some of the most common ways borrowers are reportedly stretching the truth:
* They apply under their own name alone, perhaps because a spouse has poor credit, but then add all or a portion of the spouse's income to their own.
* They state an income that assumes they will receive nonguaranteed raises, bonuses or commissions.
* They simply make up an income that enables them to borrow as much as they need, hoping the lender doesn't question it.
Mortgage industry officials say borrowers are obligated to give their own current income.
"It's not wishful thinking and it's not what's happened two or three years ago," said Ted Grose, director of consumer research for the California Association of Mortgage Brokers. "It's what your income is right now."
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goldbrick
Registered: Dec 2004
Posts: 1 |
12-26-04 03:31 PM
Everywhere you look, there's talk about a real estate bubble. Richard Russell refers to the rule of 10, where if annual rent income doesn't equal 10% of the property value, the property is overvalued.
If rates skyrocket (something triggered by our Asian buddies dumping their US paper), interest rates will soar, driving ARM loans and new origination payments through the roof, making housing less affordable, killing property values, and popping this so called bubble.
The problem I have with this is that everyone's been talking about it for so long, the concept of the real estate bubble is so mainstream, that I honestly believe that most of these suckers out there will lose money betting on a real estate bubble bursting.
My opinion, the US dollar will be devalued so much that the real estate bubble will never "burst", persay. The bubble will burst in terms of a 500K house today being worth maybe 250K in todays dollars several years from now, but the dollar value will remain constant.
Gold, silver and uranium mining shares, that's the next Asset Class Du Jour, hands down. These plays hold their value, even if catastrophe doesn't strike, and the fundamentals support them, unlike the majority of the stock, bond, and real estate markets.
Check out articles/links here:
http://www.marginalthoughts.com/
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