Amidst all the happy talk about the housing industry from the “This is not a Bubble” to “Everything is wonderful” every time we get new figures about how the median price of a house nationwide is up again, I saw this headline: Is It Time To Short The Home Builders?
“FHA requirements are down to a 520 FICO (credit score) and you only have to put 3.5 percent down; that’s sub-prime lending, and we’re not in the sub-prime lending business,” said Kevin Watters, CEO of Chase Mortgage Banking.”
Chase Mortgage and the largest mortgage lender, Wells Fargo and not lowering their standards and it is making realtors unhappy. The biggest source of “sub-prime lending is coming from small independent mortgage lenders.
After the housing debacle of 2007-2009, “…instead of forcing loans upon those who cannot afford them, the agencies should be tearing up their loan applications, advise (potential home buyers) to practice austerity, save up some money, and clean up their household balance sheets, rather than think about buying a house on margin.” After all how many payments do you have to skip to “earn” a 520 FICO score?
Another item that does not sit well if you are bullish on housing is the number of families that are priced out of the housing market. Rents are a huge percentage of yearly income and home ownership is creeping up to 30% of income, which is above lending standards. Soon, we will have an affordability crisis resulting in more than one family sharing a single home.
Noted author Bethany McLean wrote, “Shaky Ground,” about the critical condition of Fannie Mae and Freddie Mac. McClean describes the government’s profit-taking a prime example of political dysfunction.
“Here we are seven years after the financial crisis and these two are still supported by a lifeline from the U.S. Treasury,” said McLean. “Basically the U.S. government has decided to sweep all their profits and use them as a little slush fund for budget deficit reduction. They have no capital, none, and this despite the critical purpose they serve of guaranteeing most Americans’ mortgages.”
“The government has an addiction to GSE’s profits,” said McLean. But if they suffer a loss, they will need to draw from taxpayers. We are talking a massive systemic problem in the works.”
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