No Money Down

Today’s media pick is this article — Government Mortgage Program Fuels Risks — if only for the chart porn:




Government Mortgage Program Fuels Risks (free WSJ)
FHA Struggles To Eliminate Loans For Zero Down
WSJ, June 24, 2008


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  1. dimitris commented on Jun 24

    yo’ money down.

  2. Mysticdog commented on Jun 24

    So the message is that people who need to get outside money to finance the downpayment on their house have higher deliquincies. Wow. Who could have expected that?

    A better chart might be labled “So what?”. It looks like 85% of the people who needed those programs were able to keep their payments steady. That’s pretty amazing, when you think about it. Does that say something about the unnecessarily high barrier of entry to owning a home? How many people does that represent having a better quality of life and net worth because of those programs?

    Worth it. More programs like that, please.

  3. VJ commented on Jun 24

    (Switching to the Other Disaster)

    Interesting. Perhaps this is a bigger bugaboo than everybody had thought:

    STEPHANIE DHUE: Lawmakers worry speculators are driving oil prices higher. The House subcommittee on investigation and oversight found investors now account for the majority of holdings of oil futures contracts. In fact, just 30 percent of contracts are now held by firms that plan to take delivery of oil. That compares with 63 percent in 2000. That trend has Subcommittee Chairman Bart Stupak trying to connect the dots.

    REP. BART STUPAK, (D) MICHIGAN: Is it a coincidence that investment banks have tripled the number of futures contracts they are buying at the same time that oil prices are skyrocketing?

    DHUE: No coincidence, a panel of energy analysts told lawmakers. Oppenheimer’s Fadel Gheit says without speculators, the price would be between $45 and $65 a barrel.

    FADEL GHEIT, SR. OIL ANALYST, OPPENHEIMER & CO.: The world has not changed significantly over the last few years to justify $140 and then you have people predicting $200 oil. If we don’t do anything about it, their prediction will come true.

    DHUE: Hedge fund manager Michael Masters says limiting positions held by pension funds, investment banks and other speculative players could reduce prices by 30 to 50 percent.



  4. ssm commented on Jun 24

    I used to do contract work for a company that did these ‘grants’ (computer maintenance) and nobody there would admit that the default rates were higher for ‘grantees’.

    This is what happens when bad laws are penned. If the market were left to do the work then the required down payment would be automatically adjusted depending on how many flakes were in the economy.

    The people that ran this ‘non-profit’ were making a bundle of money serving on the board and such and doing next to nothing.

    Shut ’em down. We all get to pay these costs.

  5. surferdude commented on Jun 24

    Mysticdog says — A better chart might be labled “So what?”. It looks like 85% of the people who needed those programs were able to keep their payments steady. That’s pretty amazing, when you think about it.

    the only problem is that we do not how accurate the 85% figure is. this is a best case as fha requires/penalizes servicers that do not perform loss mitigation on these loans. so the blemished percentage is much higher. also, loss rates of this magnitude cannot be borne by anyone except the US taxpayer. this would quickly put any levered entity out of buisness. would this be accepatble paper to be held by a bond mutual fund — i think not.

    also, there are negative externalities to the program. usually these loans get concentrated in certain neighborhoods. when the defaults happen, what do you think occurs to the home value of the 85% that are supposedly performing. guess what, they get stuck. the DPA program greatly benefits home builders wanting to sell shoddy low-end housing and the executives of the so-called charities that reap six-figure incomes off the backs of taxpayers.

    this program needs to end immediately.

  6. DonKei commented on Jun 24

    This is precisely the type of no-money-down, non-recourse lending that got Bear Stearns, Lehman, Citi, et al, in trouble.

    The Journal, however, makes it appear that a “down payment assistance” loan is actually that. It assumes that these non-profit agencies are actually providing the down payment assistance. Nothing could be further from the truth.

    The way the down payment assistance works is that the seller pays a fee to the non-profit that is large enough to cover the down payment assistance being given the buyer, along with money to pay the non-profit’s fee of about $600 (at least that was about the amount of their fee when I would occasionally do them).

    It essentially is a fraud on the taxpayers. The sales price is inflated to cover the fee to the non-profit. The government, through the vehicle of the FHA, is left holding the bag on a home for which the borrower has no skin in the game, at a price inflated to cover the down payment assistance. The FHA has a supposedly strict rule against the sellers providing their own down payment assistance, but gets around that requirement by use of the non-profits. The non-profits are effectively nothing more than money launderers. The whole business–from the seller to the buyer to the non-profit–is an overt conspiracy to circumvent FHA rules and get government mortgage backing where the clear intent of the congress in its legislation authorizing the FHA prohibits seller-financed down payments.

    This is just more evidence of the complete nationalization of the residential mortgage market, and is another good reason the dollar is doomed. You just can’t keep printing dollars to then destroy them, and value destruction is what these loans are all about.

  7. dwkunkel commented on Jun 24

    I’m currently priced out of the Ferrari market. Where’s the government assistance program to help me become a Ferrari owner?

  8. Mary commented on Jun 24

    Surferdude makes some good points, implicating CRA mandates, targeted markets, and HUD. But the FRB is the missing link between HUD and DAP grantors, I think. The WSJ of course alludes to nonprofits outmaneuvering Congress and unnamed “regulatory agencies,” with the understanding that “public-private” partnerships are responsible for a new construction and commercial subprime lending growth over the past 15 years.

    Speaking in 1998 at the National Association of Home Builders (NAHB) Construction Forecast Conference, Laurence Meyer, an FRB governor and a director of Neighborhood Reinvestment Corporation (NRC) highlighted the accomplishments of NHSA secondary marketing and NeighborWorks network of nonprofit financial services for consumer borrowers.

    “The last day of 1997 marked the end of a 60-month NeighborWorks Campaign for Home Ownership. The campaign initially set out with a goal of producing 10,000 new homeowners and providing $650 million in investment. In fact, the program delivered 16,000 new home owners and a total investment of 1.1 billion dollars. Ninety-five percent of those buying homes were first-time buyers; 60% were minorities; and 42% were women. We hear so often of government programs that are poorly designed, inefficiently implemented and ineffective in achieving their goals. While I admit to being somewhat biased, I believe that affordable housing programs have been very successful in delivering stability for families and hope for communities.”

    Doubtless the “campaign” continued apace, as HUD –throughout the Bush admin– bled fixed-rate FHA prospects into the adjustable-rate “free” market.

    Each of the FRB banks continue to promote NeighborWorks projects within their regions. Now clearly much more of NeighborWorks assistance to consumers today involves avoiding foreclosure.

    While business journalists give more attention to incentives offered by brokers and sellers, I wonder what proportion of DAP funding derives from HUD grants to developers.

  9. VennData commented on Jun 24

    Why weren’t the residential RE speculators of 2005 as vilified as the oil speculators or 2008?

    Why are they going after Einhorn and the Bear Sterns short buts when it comes to oil they’re going after the longs?

    Why not have some of those RE specs stand up in front of Congress and just explain the dangers involved?

    Where are they testifiers who are short oil? (Someone had to have sold those longs their futures, they are the ones who are short.)

    So, why not just get the FHA to provide margin to the oil shorts?

  10. JH commented on Jun 24


    It’s interesting how everyone seems to have an opinion on why oil should go down, and it doesn’t.

    I’ll be interested to see what people say if oil prices don’t go down with reduced speculation.

    they probably won’t remember saying it.

  11. wunsacon commented on Jun 24

    Thanks to people finally changing behavior, oil prices were probably going to plateau and quite possibly decrease ANYWAY. Taking ANY action now seems like quite the opportunity to look good to the voters.

    And that’s bad. Why? Because it teaches the wrong lesson to the electorate (especially the left-wing): if we can just take care of those “greedy speculators”, our energy problems won’t be as bad.

    Also in the “opportunism” bucket: how ’bout that Florida Gov. serving as “buyer of last resort” for rapidly depreciating land in the Everglades? Since the market for development lots in Florida will be dead for quite a few years, this looks like a “great” opportunity for some shareholders to unload their cr@p onto taxpayers. And, at the same time, a Republican politician gets to add “eco cred” to his resume. I doubt that deal is on the up-and-up.

  12. Todd commented on Jun 24

    How can anyone’s response be ”so what?” to a program that essentially makes homeowners out of people who clearly can’t afford to be homeowners? That’s exactly why we have landed in the mess we are in !!

    In the name of perpetuating the American Dream at any cost, the US economy has become a total house of cards. Simply put, there are plenty of Americans who never should become homeowners. Trying to change that fact eventually puts the whole system at risk. Better to have homebuilders like D.H. Horton go out of business. It’s creative destruction at work. A better managed, better capitalized company will come along and take it’s place.

  13. Mike in NOLA commented on Jun 24

    In related news, the Senate is about to approve the housing bailout bill the will provide $300B to get lenders off the hook after their practices tanked the economy. Of course, the loans being refinanced will be the worst and the people will eventually default anyway, sticking us with the bill. This must by why the SKF went down today even in the face of more bad housing news. Dodd, et al can’t be shamed out of it.

    Senate seen approving housing rescue bill

  14. VJ commented on Jun 25


    Sorry, I posted that as I was on my way out the door yesterday afternoon.

    Well, I had assumed the “speculators did it” was a load, right along with the short supply, excess demand nonsense, but I gotta admit, discovering that less than a third of current contracts will take delivery, with more than double that in 2000, was an eyeopener.

    No, I’ve not fallen into the camp that blames it all on speculators, as there is a clear case of intentional reduction in gasoline production, but 70% of the contracts never taking delivery is certainly significant.

  15. Mysticdog commented on Jun 25

    “How can anyone’s response be ”so what?” to a program that essentially makes homeowners out of people who clearly can’t afford to be homeowners?”

    Again, because 85% of the beneficiaries ARE able to afford it. Before the speculation bubble, the difference between owning a reasonably sized house and renting an apartment were not far apart in most markets. It was only a $100 a month difference when I switch from a mid level apartment to mid level house – we could only afford it because of a veterans admin program that let us buy it with no money down.

    It has always been the huge downpayment costs that have kept so many from owning a home. At least until the speculators started driving up prices 15% a year.

    How many hundreds of thousands of families could create a better life for themselves? Sure, there will always be defaults, and probably more than people with the capability to save for a down payment, but that is why it should be a government program. It job is not to be profitable, it is to serve the people of the country better, especially where the market fails to do so (you do accept the possiblility that the free market doesn’t always serve the interests of people, customers or communities, right?). More homeowners are better for the economy over all, better for the community as more people are invested owners in it, better for crime rates, and better for quality of life.

    Worth it.

  16. Mysticdog commented on Jun 25

    And if you read the article, most of the defaults are completely due to ARM’s resets. The percentage increase is not different from regular mortgages.

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