The Feds Take Action

The front page story in the New York Times today takes aim squarely at the Feds for allowing the subprime mortgage scandal to unfold, especially after it had been warned about it for years. It is hard to see why lenders were permitted to carry on the way they did, when the fixes now seem so obvious and necessary, as they were back then. 

From the Times:

On Tuesday, under a new chairman, the Federal Reserve will try to make up for lost ground by proposing new restrictions on subprime mortgages, invoking its authority under the 13-year-old Home Ownership Equity and Protection Act. Fed officials are expected to demand that lenders document a person’s income and ability to repay the loan, and they may well restrict practices that make it hard for borrowers to see hidden fees or refinance with cheaper mortgages.

It is an action that people like Mr. Gramlich and Ms. Bair advocated for years with little success. But it will have little impact on many existing subprime lenders, because most have either gone out of business or stopped making subprime loans months ago.

Unfortunately the economy may already be spiraling into a recession, so these fixes come to little and too late. It's a shame.

The Results of a Real Estate Study

There is an interesting article in today's Seattle Post Intelligencer about the results of a real estate study undertaken by Redfin. They compiled data to determine what's the best way to sell a house in this market. Here are the highlights:

TACTICS FOR SELLING A HOME

# Don't shoot too high -- homes priced right to begin with often sell for more than those that have to come down from an unrealistic initial price.

# Price for the Web -- prices just over a certain threshold, such as $350,000, will be excluded from Web searches capped at that amount, cutting potential viewings by as much as 7.1 percent.

# Debut on Friday -- a study showed that listings debuting on Friday got an average of 7.7 percent more visitors in their first week than those hitting the market on Thursday, which was the worst day.

# Stay engaged -- studies show engaged sellers tend to sell their homes faster and for more money than typical sellers.

# Market online -- post listings to sites that do not get automatic feeds from multiple listing services. A study showed each Craigslist posting, for instance, generated 11.9 visits to a listing's Redfin page.

# Don't move -- a study found vacant homes were 9.5 percent more likely to cut their prices than occupied homes.

# Wait to sell until nearby foreclosures are off the market -- a study found a foreclosure cost neighboring sellers an average of $5,000.

Good News in Some Markets

It's not all bad news all the time, it just seems that way. I did find a list of ten housing markets that are still thriving. Too bad none of them are in California, which is where I am. 

Here are the top 10 best performing markets in the country:

1. Wenatchee, Wash.: 15.7 percent
2. Provo-Orem, Utah: 14.35 percent
3. Grand Junction, Colo.: 14.05 percent
4. Ogden-Clearfield, Utah: 13.95 percent
5. Salt Lake City: 13.37 percent
6. Idaho Fall, Idaho: 11.69 percent
7. Austin-Round Rock, Texas: 9.67 percent
8. Beaumont-Port Arthur, Texas: 9.44 percent
9. Asheville, N.C.: 9.44 percent
10. Billings, Mont.: 9.07 percent

It's good to see these markets continue to do well. My colleagues and I often discuss when we think this crisis will end. I had a friend tell me that she saw 30-yr fixed rate mortgages coming down. Those numbers might persuade people to come back into the market. On the other  hand, I do understand why prospective buyers are wary of sinking their savings into a house that might lose value. Still, in the long run, I know this crisis will end, and families will feel safe again buying the home of their dreams.

"Too Little, Too Late, and Too Voluntary"

That's how the NY Times editorial page described the administration's rescue plan for subprime mortgages. Paul Krugman has an excellent analysis in today's paper explaining why this might be the case. The plan does not really rescue very many people who were victims of predatory lending practices, but what it does protect are lenders. Krugman writes:

The Hope Now Alliance plan is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental. And it is does nothing for the victims of predatory lending.
snip
Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value — which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away.

I see that "walking away" may become the the smart choice instead of the last resort. How's that for a plan? 

Anyone Who Could Fog a Mirror

Sometimes a quote just jumps right out at me. This one, for instance, summarizes my own concerns about the rescue plan:

Determining eligibility for a rate freeze based on just a few criteria, as the Bush plan proposes, "is to repeat the same type of underwriting shortcuts that got us here," the analysts wrote, referring to the no-questions-asked frenzy of 2005 and 2006 that gave home loans to almost anyone who could fog a mirror.

From this LA Times article. Will the cure wind up being worse than the illness?

The Plan

I've read a lot of the news articles about the plan. Interestingly the rescue really is not going to help many people, most estimates are perhaps 350,000 out of 1.8 million. The battle now seems to be between those who argue about the stinginess of the plan versus those who believe the chips should just fall where they may. The more I read, it seems this plan may just make everyone angry and not really offer much of a solution to anyone. I'm not sure I know what a good plan would entail, but I have to admit that I like that it doesn't rescue investors and speculators. At least they made that distinction, and it was a good one.

Rescue Plan Part II

It does look like the administration has come to an agreement with lenders to offer relief to some sub-prime borrowers. It's going to take a while to sort all of this out, and there are going to be a lot of people on the other side of the restrictions who are going to be very unhappy about not getting any relief at all. Of course the mortgage crisis meltdown is becoming a political football in the race to primary elections. Suddenly everyone has a plan. From my perspective, there's still going to be pain for a lot of families. There are some people who argue that the market should just sort itself out, while others argue that the government should get involved and assist in making sure there isn't an economy-wrecking meltdown. I'm waiting to read the fine print on the fix.