Why the Worst is Yet to Come.

[Tom_Mi]

What then? Massive write-downs of principal? Probably. Again, sounds good, but those banks will not be shut out. I can see a new class of government bond. The Housing 2010 Bond Class, set to mature in, say, 10-15-20 year increments. Let's kick the problem a little FURTHER down the road, shall we? And just in time to look good for election year.
-dmc

Dmc,
I've posted this idea before, but it seldom gets any comment. I'd appreciate your thoughts..My idea rests on the govt tweaking their own FHA lending requirements.

First some facts:
-We want the market valuations to reset without the economy going to the tank.
-Foreclosures are the only way the valuations can reset (thanks, banks)
-Most foreclosures are due to jobs/moves/inability to sell...not the negligence you'd see in a rising market.
-The Govt simply cannot change the way banks handle foreclosures.

So I suggest the following.
-LET the banks continue to foreclose.
-Turn those re-established homeowners into buyers ASAP. How?
. -Remove ALL BK/Foreclosure waiting periods if:
.......income recovered
.......debt removed (bk PREFERRED, not ostracised)
.......FICO 690+
.......20% (or so) cash down (strict limits, non-gifts etc)

How does this help? We shoot ourselves in the foot by pushing good people out of the marketplace simply because of illness or job change. Let them move and get them paying again! All those NEW mortgage payments are 95% interest. That cash can offest paper losses by banks. The homeowner has cash equity and a lower valuation -- he'll work hard to protect that.

Changing the FHA requirements affect underwriting everywhere. I think the banks will lend by these new rules without a mandate.

[backtoschool]

Dmc,
I've posted this idea before, but it seldom gets any comment. I'd appreciate your thoughts..My idea rests on the govt tweaking their own FHA lending requirements.

First some facts:
-We want the market valuations to reset without the economy going to the tank.
-Foreclosures are the only way the valuations can reset (thanks, banks)
-Most foreclosures are due to jobs/moves/inability to sell...not the negligence you'd see in a rising market.
-The Govt simply cannot change the way banks handle foreclosures.

So I suggest the following.
-LET the banks continue to foreclose.
-Turn those re-established homeowners into buyers ASAP. How?
. -Remove ALL BK/Foreclosure waiting periods if:
.......income recovered
.......debt removed (bk PREFERRED, not ostracised)
.......FICO 690+
.......20% (or so) cash down (strict limits, non-gifts etc)

How does this help? We shoot ourselves in the foot by pushing good people out of the marketplace simply because of illness or job change. Let them move and get them paying again! All those NEW mortgage payments are 95% interest. That cash can offest paper losses by banks. The homeowner has cash equity and a lower valuation -- he'll work hard to protect that.

Changing the FHA requirements affect underwriting everywhere. I think the banks will lend by these new rules without a mandate.

This is an interesting idea, but the vast majority of people who foreclose on their homes and/or declare bankruptcy are not going to have 20% to put down on a house and a 690+ fico. You can change the underwriting requirements for fha, but you cannot change the scoring model for fico or the saving ability of the average family that has just foreclosed on their house. I do not think the new underwriting requirements would solve the problem because I do not think that a statistically significant number of people who foreclose on their homes would meet the new requirements.

[Tom_Mi]

Thanks Backtoschool. I guess my suggestion wouldn't make things any worse then...and my perspective is Michigan, where people are leaving for jobs elsewhere and their former homes sit empty.

I was discharged in April (TU fico 540) and in December hit 690. My wife went to work and we'll have about 30k by next fall. Not everyone can save like that, but if a lot can...why keep them out of the housing market for 3 years? What life lesson are we being 'taught' during that period...don't get sick?

[DeadManCrawling]

Hi Tom,

I think your idea could be PART of a solution, possibly. But it opens up other concerns, too. I concur with BtS regarding the status of most people who are recently BK'd. Not many would be in a position to buy that quickly, and I suspect even fewer have paid attention to FICO. Going forward, that would change if something like this were publicized, but the net benefit may not be felt for years.

Also, I would see a rush to file, so people can legally and legitimately dump their upside down house. A gov't reassurance that you WILL have another home in 2 years or less would probably cause the foreclosure rate to explode in the short term. Now, this is exactly what we probably NEED, but it seems to be the one thing government and lenders are trying desperately to avoid. The whole mission, so far, has been to "halt or slow" the rate of foreclosure. So, this sort of proposal has merit, in my eyes, but only for a few people in the immediate market. The larger effect would take a couple years, and I sincerely think we don't have that long, one way or another.

Best,
-dmc

[momisery]

I totally agree that the government will simply devalue the currency to remove the debt. This is already happening, the plummeting value of the dollar is no accident. It is our way of eliminating our debt to China


Well,if they lower everyones income that could work. But here in MO they simply never raised it to the level it is every place else. Then they kept housing down, and increased everything else. You have to lower everything, for that to work, and I don't see that happening myself. Just look at the talks today, those idiots on wallstreet think they are worth it even after the huge failures and us bailing them out. They set policy, so the only incomes that will be going down will be the whole working class, but not true for the huge incomes you know the kind that get the 7-8 figure bonus on top of wages..

[WhatMoney]

You guys need an antidote to all your doom and gloom...



Chapter 1 Getting the Right Perspective:
http://media.wiley.com/product_data/...047023833X.pdf

Videos:
2010 Outlook - Dow 13,000
The Recession Is Over
http://www.ftportfolios.com/Commenta...onomic_outlook

[DeadManCrawling]

Hi WhatMoney,

All I can say, after reading your links is:

I desperately hope you are right and I (we) are dead wrong.

That would be the best gift in history.

Best,

-dmc

[WhatMoney]

I desperately hope you are right and I (we) are dead wrong.

Well, it's Brian Wesbury, aka Mr. Sunshine's views, not mine.
I don't see where the jobs are coming from myself - he says rebuilding inventory will cause more hiring, pent up demand for new cars and houses. "A Sellers Market in housing by this summer." Mr. Sunshine for sure.

More of his thoughts in this CNN interview:
http://money.cnn.com/2009/12/28/news...nd_a/index.htm

[JRScott]

Without manufacturing we can't make enough jobs for our population.

At this point it costs to much to employ such people in the United States which is why the jobs have been going overseas.

If we are to see long term manufacturing job growth we must lower that cost, which means folks will have to learn to do with less in general. We need to lower the corporate taxes and increase import tariffs. Unions need to realize that it is to expensive to pay their current packages and if they want to save their jobs need to be willing to accept lower wages and less benefits to keep these companies in the United States. We the consumer need to realize that we have to pay higher prices to ensure we employ our neighbors and friends.

[MSbklawyer]

We the consumer need to realize that we have to pay higher prices to ensure we employ our neighbors and friends.

But what if I don't want to employ my neighbors and friends? What if I want to buy what I perceive to be a higher quality product at a better price from a non-domestic company? I want a Honda, not a Ford, because I want to get 500,000 miles out of my car instead of 80,000. What business does the government or anyone else have telling me where I can spend my money and which products I can choose?

[backtoschool]

Until we retrain and "redeploy" our manufacturing employee base, we will have high unemployment in this country which will be an impediment to economic growth.

The stock market right now is in a bubble and reflects the reality of unlimited government guarantees to banks, not the reality of diminishing american housing returns. Sooner or later, (I think sooner) the market will have to reflect the reality of the job market and the housing market. When the crash in US home prices resumes (or continues), the market crash will come along with it.

Currently there are over 7 million homeowners not paying their mortgage. Only a small percentage of that 7 million homeowners are being reflected in the foreclosures. (the 7 million figure represents the shadow inventory we have been discussing here, plus the millions of people who are 60 days late or more but have not foreclosed yet) As DMC and others have said with the option ARMS resetting this year, that should trigger the next wave of foreclosures and defaults which should start housing plummeting again.

I just wanted to re-summarize the original slant of this thread to emphasize that it's housing that is going to set us back into a downward spiral, not manufacturing jobs, which are long gone and will never be coming back, no matter what we are willing to pay for consumer goods.

[Tom_Mi]

Perhaps we need to think more about the phrase:
"It costs too much to manufacture here in the USA".

It didn't cost too much the first 100 years, and beyond the auto companies no factory people were making huge sums. It's become TOO EASY to buy things made by slaves in the 3rd world. Until we make it hard to buy imports (like foreign countries do to US) it's going to get worse and worse.

[JRScott]

But what if I don't want to employ my neighbors and friends? What if I want to buy what I perceive to be a higher quality product at a better price from a non-domestic company? I want a Honda, not a Ford, because I want to get 500,000 miles out of my car instead of 80,000. What business does the government or anyone else have telling me where I can spend my money and which products I can choose?

Then we will continue to shed jobs and yours could be one of them. Remember our society is the most consumer spending run economy in the world. Without jobs that economy is not sustainable.

Don't get me wrong with what I said above short term their would be a severe contraction as raised import tariffs would make goods more expensive and it would take time for US manufacturers to set up new lower cost contracts and get manufacturing again.

[JRScott]

Perhaps we need to think more about the phrase:
"It costs too much to manufacture here in the USA".

It didn't cost too much the first 100 years, and beyond the auto companies no factory people were making huge sums. It's become TOO EASY to buy things made by slaves in the 3rd world. Until we make it hard to buy imports (like foreign countries do to US) it's going to get worse and worse.

Exactly

[JRScott]

Until we retrain and "redeploy" our manufacturing employee base, we will have high unemployment in this country which will be an impediment to economic growth.

The stock market right now is in a bubble and reflects the reality of unlimited government guarantees to banks, not the reality of diminishing american housing returns. Sooner or later, (I think sooner) the market will have to reflect the reality of the job market and the housing market. When the crash in US home prices resumes (or continues), the market crash will come along with it.

Currently there are over 7 million homeowners not paying their mortgage. Only a small percentage of that 7 million homeowners are being reflected in the foreclosures. (the 7 million figure represents the shadow inventory we have been discussing here, plus the millions of people who are 60 days late or more but have not foreclosed yet) As DMC and others have said with the option ARMS resetting this year, that should trigger the next wave of foreclosures and defaults which should start housing plummeting again.

I just wanted to re-summarize the original slant of this thread to emphasize that it's housing that is going to set us back into a downward spiral, not manufacturing jobs, which are long gone and will never be coming back, no matter what we are willing to pay for consumer goods.

Without jobs you'll never recover.