tag:blogger.com,1999:blog-1110014885778996459.post6546680929875710446..comments2024-03-28T08:45:53.564-07:00Comments on Idiosyncratic Whisk: Housing Tax Policy, A Series: Part 8 - The crisis didn't happen the way you think it happened.Kevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-1110014885778996459.post-6618256269607000132016-09-29T04:55:26.889-07:002016-09-29T04:55:26.889-07:00Read your blog its really informative and helpful ...Read your blog its really informative and helpful keep updating with newer post on <a href="https://www.hdfc.com/home-loan-emi-calculator" rel="nofollow">emi loan calculator</a>Anonymoushttps://www.blogger.com/profile/07875203279258036603noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-29541266059904001792016-01-27T18:01:48.034-07:002016-01-27T18:01:48.034-07:00The real problem with home ownership is not so muc...The real problem with home ownership is not so much predatory loaning as it is poor borrowing habits by consumers. I don't want to say that people don't have the right to own a home, but should anyone ever try to own something that will come with a nearly endless debt for many years?<br /><br /><a href="https://ethicaprivatewealth.wordpress.com/2015/12/08/the-benefits-of-working-with-a-mortgage-broker-in-the-sunshine-coast/" rel="nofollow">Henry Hansen @ Ethica Private Wealth Specialists</a>Henry Hansenhttps://www.blogger.com/profile/06599955054146736992noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-67389347071981578462016-01-02T09:48:38.715-07:002016-01-02T09:48:38.715-07:0064 percent to 69 percent was not a marginal change...64 percent to 69 percent was not a marginal change because it was centered in a few bubble states where it actually drove prices up. And securitization allowed the easy money. And securitization was permitted because the risk of MBSs was mispriced. BAC said the Fed does mispricing and I believe you have to include the housing bubble. And no, the CRA was not the main culprit. The private mortgage pools were the main culprit, and bogus AAA rated mortgages. That bubble was real, Kevin. Sorry, that history won't be rewritten. This most important chart proves the private sector goosed the real bubble until late 2007, when LIBOR went wild. Gary Andersonhttp://www.examplesofglobalization.com/p/housing-bubbles-most-important-chart.htmlnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-10989665501653740342015-07-15T23:29:06.685-07:002015-07-15T23:29:06.685-07:00DDNC, yes, I believe they were wrong. It's co...DDNC, yes, I believe they were wrong. It's complicated, though. I wouldn't disagree with the idea that there was a "bubble" in AAA rated securities, but I've become more sanguine even about that as I have looked at this issue. I'm up to about 44 parts in the series now. If you are reading in order, or have just come aboard here at part 8, please check out the rest. As I have looked at the data, my conception of what happened has changed - generally away from the conventional viewpoint. The data is in defiance of practically everything we think we know.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-73258817309215879832015-07-15T20:57:48.933-07:002015-07-15T20:57:48.933-07:00Keven,
All of this detail is interesting, but wer...Keven,<br /><br />All of this detail is interesting, but were the reports that sub-prime mortgages that multiplied with Fannie and Freddie snapping them up as the bubble inflated, and those sub-primes being the "toxic asset" that popped the housing bubble-were those reports wrong?DevilDocNowCivhttps://www.blogger.com/profile/14870687818172520625noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-1050210013091967412015-02-21T15:17:38.177-07:002015-02-21T15:17:38.177-07:00sorry - first sentence "your facts" , no...sorry - first sentence "your facts" , not "our facts"Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-70931640077306893362015-02-21T15:16:03.464-07:002015-02-21T15:16:03.464-07:00Dave, thanks for the thoughtful input. All of our...Dave, thanks for the thoughtful input. All of our facts from this comment and the comment above are reasonable. I agree with you about all the problems with how the CRA was utilized and the dangers it created. But, while I agree that it was a potential problem, in the end, I have come to the idea that, in fact, it was not a necessary nor sufficient cause of the collapse.<br /><br />One point, from the post, is that this stuff had been going on since the mid-1990s. (It accelerated in the 2000's, but given the very low real interest rates and low inflation, homes should have been increasing in nominal value and more households should have been buyers.) The 64% level of ownership is a very long term baseline, so I don't think we should have expected ownership rates to fall. So, something up to 5% of increased ownership could be related to CRA. But, as I point out, the vast majority of this happened before 2004. And, nobody who bought a house before late 2003 has ever seen home prices fall below their purchase price. I agree that very low down payments could be a problem, but they weren't a problem for any but a very few marginal buyers after 2003.<br /><br />The CRA narrative is very compelling, hypothetically, so it is tempting to accept it, but I just don't think the data bear it out.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-33316954216027892032015-02-21T13:29:44.277-07:002015-02-21T13:29:44.277-07:00To assign any casual effect to CRA loans, with res...<i>To assign any casual effect to CRA loans, with respect to the housing bubble and its collapse, one would have to look at these loans specifically</i><br /><br />No, that doesn't really follow. Banks could meet CRA obligations by buying subprime MBS from mortgage companies that were not themselves subject to CRA.<br /><br />It's true there might have been lax lending standards and a crisis without the CRA, but CRA existed to make them more lax.<br /><br />From the link below:<br /><br />"A study put out by the Treasury Department in 2000 found that the CRA was encouraging the mortgage servicers to provide loans to low-income borrowers, in part because the CRA loans had been so successful.<br /><br />What about "No Money Down" Mortgages? Were they required by the CRA?<br />Actually, yes they were. The regulators charged with enforcing the CRA praised the lowering of down payments and even their elimination. They told banks that lending standards that exceeded that of regulators would be considered evidence of unfair lending. This effectively meant that no money down mortgages were required. A Treasury Department study published in 2000 found that the CRA had successfully lowered down payments not just for CRA loans, but for all mortgages.<br /><br />Explain the shift in loan to value away from the traditional lending requirement of 80%.<br />Again, the regulators told banks that much higher LTVs was an appropriate way to meet the CRA obligations. <br /><br />What about the elimination of payment history? How about income requirements?<br />Regulators instructed banks to consider alternatives to traditional credit histories because CRA targeted borrowers often lacked traditional credit histories. The banks were expected to become creative, to consider other indicators of reliability. <br /><br />Similarly, banks were expected by regulators to relax income requirements. Day labors and others often lack reportable income. Stated-income was a way of resolving the gap between actual income of borrowers and reported income. The problem, of course, comes when the con-artists and liars come into the game.<br />..<br />The government pushed for greater mortgage securitization in an effort to increase CRA lending. At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of “affordable” mortgages.<br />...<br />Finally, the Clinton adminstration threatened to subject the mortgage companies to the CRA if they didn't comply voluntarily. They promptly agreed to increase their CRA-type lending in order to escape the kind of public scrutiny that comes with official CRA regulated status."<br />Davehttps://www.blogger.com/profile/11877699517690934530noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-70873169210075554642015-02-21T13:12:31.663-07:002015-02-21T13:12:31.663-07:001 seems fatally flawed by the unknowability of the...1 seems fatally flawed by the unknowability of the counterfactual "no CRA" homeownership rate at any point in time, and the obviousness of the fact looser lending standards increase borrowing.<br /><br />The CRA was a major cause of the problems -- a necessary, if not sufficient precursor to the collapse. They spread looser lending standards throughout the industry. Borrowers reacted rationally. Recession shook out the weak hands. People who bought mispriced the risk got burned. The effect was large enough to bury major players.<br /><br />The definitive summary of exactly how and why: http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6<br /><br />Davehttps://www.blogger.com/profile/11877699517690934530noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-8690089722188606742015-02-20T16:06:15.310-07:002015-02-20T16:06:15.310-07:00Thanks for the information, Charlie.Thanks for the information, Charlie.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-56696833033836898162015-02-20T16:00:45.494-07:002015-02-20T16:00:45.494-07:00Making loans in designated census tracts was not t...Making loans in designated census tracts was not the only criteria for banks to pass their CRA test. Some banks made no, or minimal, loans in CRA tracts and were still able to pass their CRA test. <br /><br />Countrywide was involved in quasi CRA lending long before it became a bank and was required to do so, and long before it became involved in subprime lending.<br /><br />All CRA loans required full and verifiable documentation of the borrower's income, assets and credit worthiness. However, some of the documentation and sources of income and assets did meet FNMA/FHLMC guidelines for so called A paper. Therefore, many of these CRA loans were held in portfolio - they were not sold on the secondary market. Some were made to fit bond pools issued by cities, counties and states, and were either funded by issuing entity or funded by the bank and sold to the issuing entity. <br /><br />To assign any casual effect to CRA loans, with respect to the housing bubble and its collapse, one would have to look at these loans specifically and not conflate them with subprime or so called alt-A loans. I do not believe anyone has done this.Charlie Curriehttps://www.blogger.com/profile/16770483116956256534noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-70065603723099504442015-02-20T14:04:16.937-07:002015-02-20T14:04:16.937-07:00Anon,
The flippers making prices more efficient, n...Anon,<br />The flippers making prices more efficient, not less. Speculators generally become more active when market frictions cause delays in price discovery. The idea that speculators are a sign of a bubble is a colloquialism that comes out of the fact that one of the frictions in the marketplace is mental benchmarking by buyers and sellers when prices are rapidly changing. This error is also what leads people to think that the Fed is being accommodative when it begins to lower interest rates.<br /><br />The momentum effect is one of the more enduring pricing anomalies, even in highly liquid equity markets, because price discovery tends to lag intrinsic value rather than overshoot.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-78723304405254795072015-02-20T13:48:21.519-07:002015-02-20T13:48:21.519-07:00A possible cause of price increases without home o...A possible cause of price increases without home ownership increases: flipping. I'm not sure it's a sufficient explanation for widespread (ie. national) market effects. But, you might expect a surge in flipping to follow an initial run-up in prices (whether driven by increasing homeownership or not).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-84735450053333834722015-02-20T11:35:07.798-07:002015-02-20T11:35:07.798-07:00The important question is who comprised the "...The important question is who comprised the "excess" 5.4% of homeownership.<br /><br />1. Undoubtedly, those in the upper part of the FICO distribution are underrepresented in the 5.4%. Instead, these were primarily sub-prime and Alt-A borrowers.<br /><br />2. When you look at statistics across the entire mortgage population it will necessarily wash out what is happening with the 5.4%. As it happened, there was no tipping point across the entire mortgage industry...it occurred in stages. Looking just at the subprime sector, by Oct. 2007 the actual monthly default rate, not just a delinquency rate, exceeded the previous high in the subprime sector (November 2000) and was accelerating higher. Alt-A remained manageable a little longer, only inflecting up the exponential curve in about Mar 2008 and surpassing the previous subprime default high in August 2008. Prime never inflected...it was just a slow and steady clime.<br /><br />3. Home prices don't need to increase from a specific price level for them to be unaffordable at certain percentiles of the population. Everything is at the margin. At the point of the 5.4%, they were likely previously out of the market for a reason...insufficient income (to simplify). This is why one of the primary underwriting defects on subprime and alt-a loans is misstated income and DTI.<br /><br />4. As part of Clinton's implementation of CRA and his initiative on homeownership, he sent his hit teams to all the big banks and threatened red-lining suits unless they made certain levels of loans to "underrepresented" populations, i.e. minorities. I'm not clear on the correlation between skin pigmentation and default rates, but I'm thinking it's not an economically valid underwriting criteria.Bamssynoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-34552626646319498992015-02-19T10:59:58.653-07:002015-02-19T10:59:58.653-07:00Home prices begin to diverge from historical trend...Home prices begin to diverge from historical trend in late '96 to early 1997, approximately two years sooner than the point you've identified in your post (keep in mind the new trend through collapse appears to be exponential). Given that the change in home ownership rates occurs in late '94 to early '95, this gives us a two-year lag between average home prices as reflected in the Index, and the rightward shift in demand.<br /><br />This is not, to me, an implausible lag, considering the various structural hurdles between realizing the effects in a massive, national index like the CS-HPI and upstream changes in the dyanmics of the indexed market. It takes time to clear properties, and home prices tend to be sticky.<br /><br />I interpret your figure 1 as buying a 5% increase in the homeownership rate by doubling home prices and nearly breaking the financial economy. Will need more time to digest the balance of the post.Glennnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-55202494598581330922015-02-18T21:04:40.147-07:002015-02-18T21:04:40.147-07:00I'm totally with you, Patrick. I think we sho...I'm totally with you, Patrick. I think we should reduce barriers to homeownership, but CRA is not the ideal way to do it. I agree that WAMU, Countrywide, etc. and HUD were engaged in a mutual enterprise that was creating risky mortgages. I'm willing to believe that all 5% of the new homeowners were due to the subprime push.<br /><br />But, what's interesting is it doesn't really show up in the numbers. There is no price appreciation in the 1990's. There is no increase in leverage coming out of those initiatives in 92, 94, and 95. But, there is a sharp increase in homeownership starting in 94, which I think was probably the most important change in CRA, regarding the push up in owners.<br /><br />I think a lot of it comes down to scale. We hear a lot of big numbers about what was happening, but those numbers have to be put into context. By the 2000s, there were maybe 1 million extra subprime sales a year, compared to normal. That's a big part of the sales market. But, for the whole period, it really only adds up to about 5% of total households. So, let's say that the entire 5% of new owners were subprime, on the margin. I'll buy that. But, those are going to tend to be smaller homes. So, in terms of the housing market and the bank balance sheets, we're looking at more like 2-3% of the housing market, in $ terms. And, even if 1/4 of them end up defaulting, now your down to less than 1% of the housing market. I just think it doesn't scale up to enough of an issue to be the overriding factor.<br /><br />I think when you scale it out, the sub-prime issue can be blamed for that little movement up in delinquencies from 1 1/2% to 2% in 2006 and early 2007. But that isn't nearly as large an issue as everything else.<br /><br />Now, in the counterfactual, where the Fed moves rates back down to 4% in 2006 and lets the money supply expand a little bit, then I think we might end up with a much better economy, but with more of a subprime problem, because now those ARMs that were sold at a 1% FFR are resetting at 4%. But in that case, I think the problem is more compartmentalized among the subprime households, and we see some minor adjustments in housing without the massive collapse. The subprime issue isn't going to cause $4 million homes in Silicon Valley to lose half their value.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-75184419771761843912015-02-18T17:19:48.926-07:002015-02-18T17:19:48.926-07:00'The first culprit in this step of the plot is...'The first culprit in this step of the plot is the new Community Reinvestment Act of 1994 that is said to have pressured expanding banks to make more loans to marginalized neighborhoods.' <br /><br />The CRA, around since the Carter Administration, was amended in 1995. It was preceded by the GSE Act of 1992 and the HUD Best Practices Initiative of the new Clinton Administration in '93-94.<br /><br />The criticism isn't that these changes led to more lending in marginal neighborhoods, but that they changed the underwriting standards of all home loans. I.e. increased leverage.Patrick R. Sullivanhttp://hisstoryisbunk.blogspot.com/noreply@blogger.com