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Houses, Mortgages and Foreclosures - Oh My!

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Game-Changing Houses: As the U.S. economy has shifted away from manufacturing, I always thought that building trades were a relatively safe place to be. There have been many attempts to automate home construction with kits, prefabs and factory-built homes. None have gained a substantial market share nor generated much mainstream interest.

My parents built a summer home at the New Jersey shore in 1957. It was a 1,000 sq.ft. ranch-style house purchased from United States Steel Homes Inc. The pre-fabbed kits were produced at the former Gunnison Housing Corp. plant and shipped to the construction site, where they were quickly assembled by a factory-authorized crew. Our house was bolted together and roofed atop the already-completed foundation in less than a day. We did have to have connection work done by local plumbers and electricians. My dad opted to install the factory-supplied hardwood floors ourselves - a backbreaking job. I still remember sweating my 14 year-old butt off as his helper.

U.S. Steel homes were moderately priced, very well-built and were available with a variety of add-on options and upgrades. Our beach house had factory-stained pine-paneled walls throughout so that interior painting was unnecessary. After a 30 year run, U.S. Steel got out of the kit house biz in 1974.

My assumptions about the relative job security of carpenters, framers and the like may not be valid much longer. Technology has brought an entirely new way to quickly erect homes, eliminating traditional labor-intensive construction methods.

Behrokh Khoshnevis, an engineering professor at the University of Southern California, has figured out a way to build housing with a giant 3D printer. The apparatus, instead of being the size of your typical laser printer, would actually be somewhat bigger than the house it would build through a concrete layering system called Contour Crafting.

"The professor explained the process in a speech at the TEDx conference, where he demonstrated how the machine laid down a concrete foundation, put up walls, even inserted wiring and plumbing - eventually constructing an entire building in less than a day. "All that's left to add are doors and windows. Robotics could even be used to add details like tiles, says the professor."

Economics professor Mark Perry has written, "The 3D printing revolution has just begun. We can expect hundreds and probably thousands of more examples like this in the future, as this amazing, innovative, game-changing technology revolutionizes manufacturing, construction, and our entire world." (posted 8-24-12, permalink)

Housing Crisis Explained In Three Sentences: In 1989, only 1 in 230 homebuyers bought a house with a down payment of 3% or less. In 2003, the ratio was 1 in 7. By 2007, it was 1 in 3. (posted 4-30-12, permalink)

Caution: Idealists At Work. Mark Perry has written that "the political obsession with affordable housing caused a lot of the problems in the real estate and mortgage industries, and led to the financial meltdown."

He quoted Ed Pinto from the American Enterprise Institute: "In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that 'Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership (including Countrywide) should work collaboratively to reduce home buyer downpayment requirements.'"

In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.

In June 2010, Sheila Bair, chair of the Federal Deposit Insurance Corporation, remarked, "The financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices."

If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred. (posted 11-30-10, permalink)

Meanwhile, On The Home Front: The median value of a single-family dwelling dropped 4.3% to $179,900 in the third quarter, compared with last year.

That's 25% below their peak in June 2006. During the Great Depression of the 1930s, home values dropped about 26% over a five-year period.

Foreclosures continued at a rapid clip, with "1.2 out of every 1,000 homeowners nationwide losing their homes to foreclosure in September. Additionally, more than a quarter of all homes sold in September were sold for a loss."

In Clark County (WA), the housing market experienced a triple punch last month, with a dramatic drop in home sales (down 43% form a year ago), a decrease in sale prices (the median dropped to $198,500 - a drop of 2% compared with last October) and a brickload of new foreclosures - 527 county-wide - an 82% rise over the same month last year and a 21% jump from the September 2010.

This represents a very large excavation hole of Not Good. In the good 'ol days of October 2006, there were 711 homes sold at a median price of $265,000, with only 64 foreclosures in Clark County that month. (posted 11-11-10, permalink)

car blogNo Slacker Left Behind: The latest Obama proposal aids the unemployed, requiring that mortgage lenders temporarily slash required payments for job-seeking, unemployed homeowners.

Lenders would have to temporarily cap payments at no more than 31% of the borrower's income.

The plan also alleviates payments on "underwater" mortgages, where homeowners owe more on a house than it is worth.

If you are someone who has lived prudently and kept to your budget, the Obama Administration considers you a sucker and is laughing at you. (posted 3-29-10, permalink)

Deadbeats Rising: Capital One's U.S. credit-card defaults rose again in January. The annualized net charge-off rate - debts the company believes it will never collect - rose to 10.41% in January from 10.14% in December. During 2006, the charge-off rate was down in the 3-4% range.

Capital One is the third-largest U.S. issuer of Visa-branded credit cards, and the fifth-largest issuer of MasterCards.

In related news ... (more >>>) (posted 2-17-10)

joe sherlock housing blogFlatlining: Former Wall Streeter and financial analyst Bruce Krasting has written, "I was talking to a friend who is a contractor. He's been in business for a long time and has a good reputation. Renovations, additions, a custom built house now and then were his specialty.

In the good times he had three crews working full time and a payroll of $20 grand a week. The good times are over. I asked him how is business was going. His response, 'It stinks.'"

There's a lot more to Bruce's article as he goes from a micro to a macro look at the U.S. economy. He forecasts that "the economic recovery for the next few years will be anemic at best."

His story hit home with me. Literally. In the past seven years, we've spent almost $160,000 in major home repairs and improvements. (None were financed.) We felt that it was money well spent, making our domicile more pleasant and/or making it easier to sell someday.

In 2009, we've spent nothing. And have no plans to do so in 2010 either. Yes, there are additional ... (more >>>) (posted 12-4-09)

Danger! Danger! The commercial real estate market is continuing to tank; this has very serious implications for the U.S. economy.

John Carney has written, "In a pattern familiar from the housing crisis, the value of commercial real estate has been plunging while the volume of distressed commercial real-estate loans is rapidly rising. The problems in commercial real estate could slam financial institutions, especially smaller regional and community banks, with billions of dollars in new losses. That, in turn, could snuff out whatever chances we have of a sustained economic recovery."

Commercial real estate prices have fallen 33% this year and 45% from their peak. Depending on whom you ask, 55-66% of commercial mortgages are underwater. About half of all commercial mortgages sit on the balance sheets of smaller banks; the massive number of bank failures this year is significantly attributable to losses from commercial real estate.

How did this happen? ... (more >>>) (posted 12-2-09)

Sherlock auto blogMore Doom & Gloom: Clark County Washington's jobless rate was estimated at 13.7% in October, up from a revised 12.4% in September and 7.1% in October 2008. Clark's unemployment rate is aggravated by the rough economy in Oregon, where October's statewide unemployment rate was 11.3%.

The Mortgage Bankers Association reports a record 14.4% of U.S. mortgage loans were either one payment delinquent or in the foreclosure process in Q3 2009. This is an increase from 13.2% in Q2 2009.

Furthermore, The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%. (At 65%, Nevada is the worst state, followed by Arizona, Florida, Michigan and California. In Washington and Oregon, about 15% of homeowners are underwater.) Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value. (posted 11-25-09, permalink)

Rule Of Thumb: For many years (30 that I know of), there was a rule in the real estate business: You can't buy a house priced at more than 2.5 times your annual income. Sometimes, if you had a really secure job, exceptionally good credit and/or a larger-than-normal down payment, lending institutions would go to 3.0. This changed in the late 1990s. The magic ratio grew every year, peaking at 5.0 (nationally), an unbelievable number.

California was vulnerable to foreclosures because the median value of owner-occupied housing in 2007 was 8.3 times the median family income, while the 2007 national average was only 3.2 times higher than median family income (in 2000, it was lower still at 2.4). California had only 10% of the nation's housing units but it had 34% of foreclosures in 2008. Almost 90% of all troubled mortgages and foreclosures are concentrated in California, Florida, Nevada and Arizona.

5.0? 8.3?! No wonder the housing market crashed. (posted 3-2-09, permalink)

A Modest Proposal: President Obama unveiled his home foreclosure plan a $75 billion, three-part plan to halt the soaring rate of mortgage foreclosures nationwide. The plan seeks to encourage refinancing of homes now worth less than their mortgages and provides incentives for lenders to lower the debt load on struggling homeowners, cutting mortgage payments for as many as 9 million of them.

I have a problem with this. Those "rescue funds" are - ultimately - taxpayer money. This program should not be shouldered alone by the many honest, upstanding homeowners who meet their mortgage obligations as well as those who have no mortgage.

My proposed addition to Obama's plan is this: anyone who draws on government help to meet their mortgage obligations or reduce their debt must give up an equal amount of Social Security. Here's how it would work: every $15,000 of help will cost you a year's worth of Social Security payouts. If you need $120,000 worth of assistance (the maximum amount under my program), you would have to defer your Social Security benefit payments for eight years.

Sherlock automotive bloggingIf you were normally eligible for SS at age 67, you'd have to wait until age 75 to collect benefits. Every SS variation would be deferred by those eight years - early SS, disability SS, etc. Medicare eligibility would also be deferred by eight years.

This would strengthen Social Security, reduce its future obligations, decrease the future burden of Medicare and therefore, help all U.S. taxpayers. And punish those who were financially reckless.

Seems only fair.

Rick Santelli of CNBC understands: "The government is promoting bad behavior ... do we really want to subsidize the losers' mortgages? This is America! How many of you people want to pay for your neighbor's mortgage? President Obama, are you listening? How about we all stop paying our mortgage! It's a moral hazard."

And: "You know, Cuba used to have mansions and a relatively decent economy. They moved from the individual to the collective. Now, they're driving '54 Chevys, maybe the last great car to come out of Detroit." (posted 2-20-09, permalink)

Mortgage Mess: Ever since the Community Reinvestment Act of 1977 (enacted by a Democrat-controlled Congress and signed into law by Jimmy Carter), banks have been required to make loans to minorities in low-income areas, even if the clients can't make down payments, don't have good credit histories or even employment histories. This was the beginning of government interference in the free market process. Then came Fannie Mae and Freddie Mac.

John McCain has said, "There are certainly plenty of places to point fingers, and it may be hard to pinpoint the original event that set it all in motion. But let me give you an educated guess. The financial crisis we're living through today started with the corruption and manipulation of our home mortgage system. At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac."

And: "Two years ago, I called for reform of this corruption at Fannie Mae and Freddie Mac. Congress did nothing. The Administration did nothing. Senator Obama did nothing, and actually profited from this system of abuse and scandal. While Fannie and Freddie were working to keep Congress away from their house of cards, Senator Obama was taking their money. He got more, in fact, than any other member of Congress, except for the Democratic chairmen of the committee that oversees them. And while Fannie Mae was betraying the public trust, somehow its former CEO had managed to gain my opponent's trust to the point that Senator Obama actually put him in charge of his vice presidential search."

There's more here.

Restricting free markets usually comes back to bite ya. (posted 9-22-08, permalink)

Shouldn't He Know Better? Conventional wisdom is that, when rates are low, you lock in the longest mortgage length at the lowest fixed rate possible.

So why then would Democratic Senator Christopher Dodd sign up for two large 30-year mortgage refinances at a rate which adjusts after the first five years?

And shouldn't a 64 year-old man have his mortgages paid off or close to paid off by now? Especially since his latest wife, Jackie M. Clegg, brings lots of money from her high-powered consulting firm and her directorships at several large corporations.

Furthermore, isn't it scary that the Chairman of the Senate Banking Committee would have two adjustable-rate mortgages? You would think he would know better. And his wife, too. After all, she used to be Chief Operating Officer of the Export-Import Bank of the United States.

And isn't it strange that Dodd is cosponsor of the Dodd-Shelby housing bailout bill, which David C. John of the Heritage Foundation describes as "essentially a government buyout of problem mortgages disguised as a refinancing plan"? Dodd's buddies run Countrywide - holder of his mortgages and the biggest mortgage lender in the country - which has, as John writes, "a lot of problem mortgages on its books right now, and Dodd-Shelby would be a massive subsidy for the company. I'd call that a pretty serious conflict of interest."

No one has ever accused Senator Dodd of being stupid. Hmmmmm. Maybe there's another part of Dodd's Countrywide deal from that we don't know about. It's stuff like this that makes regular Americans like me distrust Congress. (posted 6-17-08, permalink)

Why We Need Less Government: The local newspaper has reported: "The VHA (Vancouver Housing Authority), established during World War II to provide housing for Vancouver shipyard workers, owns more than 1,000 public housing units in Clark County (WA) and provides subsidies for low-income people living in an additional 2,100 private-market units. Its assets are valued at $166 million."

So, a quasi-government agency, set up to provide emergency services during a war that ended more than 60 years ago for a wartime shipyard which has been gone for many decades is still around and spending money.

Why should you care? Because it's your money being spent - much of the funding for this operation comes from ... (more >>>) (posted 6-1-06)

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