Freddie Mac. Betting against home owners.

Dittohead not! said:

Banks don't build houses.

If it cost the builder 80K to build the house, and the builder sold it for 200K, who gets the additional $120? Is that all profit to he bank? Of course not.

First, there's the cost of the property, then there are the various and sundry fees and taxes on builders. After that, the builder, not the bank, keeps a profit, if all goes well. The bank loans out the entire $200K less whatever down payment the buyer has. During the housing bubble, that down payment wasn't much.

So, if the house is now in default and is worth $100K, the bank has lost the other $100K.

Click to expand...

Not to mention that they 120k that the builder factored into his margin pays for the salaries of his team, equipment rental and maintenance. A years worth of property taxes. Taxes on his business. Not sure if you know this, but the town is going to want their cut from permitting fees. I know 120k sounds nice, but that is not a great margin when you look at all the contractors real expenses.

apdst said:

Because no one has the 20% down payment that has been made legally mandatory by the Frank-Dodd bill.

The government is, "helping", us again.

Click to expand...

There is no such requirement. There was talk about lowering the reserves the banks must keep on loans that had at least a 20% down payment but I'm not sure that it ever went anywhere.

KevinKohler said:

The issue with those empty houses is greed, though. They WOULD sell...if the banks would move on them. Have you tried to BUY a short sale? Banks drag their feet, because they are making less profit on them. Essentially, they make the buying process as hard and tricky...and expensive...as possible, in order to try to NOT sell them...to hang onto them till the market starts making a comeback. Of course, they are legally REQUIRED to have them available for sale...but there are no rules on just how miserable they can make the entire process.

Click to expand...

It's more than that. BTW, yes I attempted a short sale. Right after the crash I was watching the market for vacation rentals. The market for these fell like a rock in some places. I put an offer in on one in Florida. After 3-4 delays, I quit. A guy I work with was doing the same on one in Myrtle Beach. (we figured we could swap a week with each other). Basically they were vacation rentals. He gave up also.

Let's look at some FACTS. No one is buying these houses at their CURRENT price, which is STILL bloated from the housing bubble. A house in a normal neighborhood, and 1/8th of an acre, that cost less than 1K to build back in 1953...should NOT be priced at over 200K today. That's a bubble price...and yet, that's what banks are asking for some of these houses, and MORE. So, they are not selling them. Which suits them just fine. A bank is losing nothing on the house by not selling, aside from some property taxes. Compound that issue with the fact that the banks are ALSO the ones that issue the loans, and have made that process damn near impossible for anyone making LESS than 80K a year (you need a WHOPPING 20% of the sale price of the house up front, and an average credit score of over 750)...and then mix in the fact that MOST of these houses are "middle class" houses....which, in CT, means anywhere from 150K to 350K, and you know what you get? The people that can afford to buy houses are also wealthy enough to buy the houses that AREN'T sitting in foreclosure...and the people that WOULD buy the houses that ARE sitting in foreclosures and short sales, can't qualify for the loans...what do you get?

Now, in NORMAL economics, when you have a product that is priced too high, and then fails to sell...you REDUCE the price, or go belly up. But not so with housing, because who owns them? Banks. And banks don't have to worry about going belly up, do they?

Click to expand...

Right, banks don't want to expose that their claimed $750 million in assets are actually only worth $300 million and they are actually in very poor financial shape.

Heh...Conservatives should be cheering. Government is acting like the Private Sector!

iliveonramen said:

Heh...Conservatives should be cheering. Government is acting like the Private Sector!

Click to expand...

Not that we are going to make any difference here, stuff like this never helps.

1Perry said:

Not that we are going to make any difference here, stuff like this never helps.

Click to expand...

It was a joke! I'm as outraged as the next guy. I'm sure it's going to be handled because they are already receiving letters from Congress on the subject. I'm sure the Prez or Congress will swoop in and kick some ass.

MaggieD said:

If a bank loans $300,000 to buy a house and has to liquidate it at $200,000 plus expenses, the bank that made the loan loses $100,000 plus expenses. What the house cost to build in the 1950's is immaterial. Your completely wrong here.

Click to expand...

The bank is issuing a loan to buy a house that the bank OWNS.

Dittohead not! said:

Banks don't build houses.

If it cost the builder 80K to build the house, and the builder sold it for 200K, who gets the additional $120? Is that all profit to he bank? Of course not.

First, there's the cost of the property, then there are the various and sundry fees and taxes on builders. After that, the builder, not the bank, keeps a profit, if all goes well. The bank loans out the entire $200K less whatever down payment the buyer has. During the housing bubble, that down payment wasn't much.

So, if the house is now in default and is worth $100K, the bank has lost the other $100K.

Click to expand...

Builders don't own the house...they are simply hired to build it. That's why they are called contractors. Now, yes, there is a company that owns the house...in the US, there are about 5 major ones...but for the purposes of this debate, we can forget about those...there are 800,000 foreclosed homes in the US...bank owned. Of those, some 240K are owned by Freddie, aka, John Q tax payer. The other 560K or so are by "private" banks...of all of these, nearly 3/4 of them are NOT new homes. Meaning, they are homes that have had at least 2 owners in their history. Another 3/5s of those were houses previously sold in short sales, or foreclosures. Not sure the numbers exactly, but my realator was talking to me about it the other day, at LENGTH. Most of all of these homes were purchased with FHA loans...and most of THOSE were bank owned when purchased. See what I mean? The bank already owned them...

Blue_State said:

In developed areas of New England, that formula does not represent reality. We are experiencing real losses here.

Click to expand...

Most of the houses for sale in CT are from the 50s and 60s. The banks have LOOOOOONG since recouped any loses possible on these homes, by selling them, selling them again, and then selling them again.

KevinKohler said:

The bank is issuing a loan to buy a house that the bank OWNS.

Click to expand...

Well, I'll try one more time...then just agree to disagree.

The Smith family buys a house for $320,000. They put $20,000 down. The bank loans them the $300,000 and that money gets paid to the Jones family (the sellers). The bank is now out $300,000 and has a lien on the house. The Smith family lets the house go into foreclosure after two months because the bottom fell out of the real estate market (just as an easy example). The bank is still out $300,000. Yes, they own the home. But the home is only worth $200,000 now. The bank is out $100,000 right out of the box.

Blue_State said:

Not to mention that they 120k that the builder factored into his margin pays for the salaries of his team, equipment rental and maintenance. A years worth of property taxes. Taxes on his business. Not sure if you know this, but the town is going to want their cut from permitting fees. I know 120k sounds nice, but that is not a great margin when you look at all the contractors real expenses.

Click to expand...

In CT, you're average house, materials and labor, costs 50-70K to build, excluding such ritzy areas as Greenwhich, etc. Add another 10-20K for the property, which was likely sold to them by a BANK, and you're in for 100K. Property taxes, depending on area, would be about 6-8 grand per year, depending on how idiotic the inspector is. Again, we're talking about the typical home, here, not some McMansion. Business taxes are just an expense of being IN business...houses being built or no. And besides, they only get paid when the business gets paid. Permits are a bitch, I'll grant you that. You have to have a permit for anything, in CT. All said, though, still not as grim as some folks make it out to be.

What is HURTING the folks that build houses is the fact that we don't NEED any more houses built.

MaggieD said:

Well, I'll try one more time...then just agree to disagree.

The Smith family buys a house for $320,000. They put $20,000 down. The bank loans them the $300,000 and that money gets paid to the Jones family (the sellers). The bank is now out $300,000 and has a lien on the house. The Smith family lets the house go into foreclosure after two months because the bottom fell out of the real estate market (just as an easy example). The bank is still out $300,000. Yes, they own the home. But the home is only worth $200,000 now. The bank is out $100,000 right out of the box.

Click to expand...

Right. I agree with this scenario. But this is not the scenario we are facing today. Not a lot of houses being sold like this. What we have are a lot of houses that were sold by individuals, to companies, who then sold back to other individuals. Oft times, a seller doesn't wish to wait that long before they can "get on with their life"...so they sell their house to a company. Voila. Now they have the money they need for a down payment on another house, can move, etc. And don't have to worry about taxes or anything else hanging over their head, from the old home. These realestate companies then turn around and "flip" that house, for a profit. Oh, and by and by, some of the realestate companies provided their own financing (now illegal), or had contracts with other mortgage companies (still legal). In other words, they flipped the house, which means the recouped the potential loss of buying it from, say, the Jones family...and since they are the lender, or are in business with the one that is lending, they stand to lose little if the new family forecloses...because they get the house back, plus they get to keep whatever was already paid down on the loan, plus the loan payments that were made. No net loss, only a loss in POTENTIAL profit.

That's how it was explained to me, anyway.


Then, to add insult to injury, these mortgage companies, who already sold and repossessed the house once, sat on them for the past couple years, and then "donated" them to the state, at least in CT...so they could get a nice, 200K tax cut for the year. And of course, CT bulldozed the houses...

KevinKohler said:

99% of the time, I am inclined to agree with this, but you can't just sit back and say that we aren't in slightly extraordinary times, no? Most folks having trouble now bought within their means...but unbeknownst to them, there was a crash looming that would result in them being unemployed, and in their home value going below the purchase value by over 150%.

Click to expand...

We weren’t in extraordinary times when these people bought these homes. Look, I do feel bad for a lot of peeps who bought houses who were caught up in the fury, and bought houses because they thought they could make a killing on them in the market. That being said, people with bad credit were being foolish and signing contracts for really insane financing terms, against their better judgement. This was a great failure of government and financial institutions, but people who have bad credit need to take a look at what they are signing up for. They were suckered into a disaster of their own making.

I did not favor the bailouts of the banking industry and the auto makers AT ALL. I opposed vehemently letting bad businesses succeed. I would rather have bailed out homeowners than businesses by a long shot. That being said, our government needs big businesses much more than it needs homeowners. We have already taken on much more federal debt than we can afford.

KevinKohler said:

.

I'm not saying this to say, hey, look at me, I'm awesome...I'm saying this to say that it's not simple apathy, lazyness, or lack of marketable skill sets that are keeping people unemployed in todays current economic climate. So, how did I end up unemployed? The business I worked for went out of business. You ask that question enough, and I'll promise you THAT is the answer you're gonna GET, in many cases. That, or the business shrunk, downsized, etc. Yes, SOME people bought too much house. SOME people took loans they really shouldn't have. But I think you'll find that the majority are people who took a loan within their means, and then lost their jobs. Through NO fault of their own. Those jobs were lost as a direct result of the housing market crisis, and the resulting recession. Should these people be the ones that have to pay for the mistakes of an administration YOU and everyone else helped into power? Should THEY be the ones that have to pay for the dishonest, scandalous, greedy business practices that caused this mess?

Click to expand...

Don’t point your finger at me and the rest of us who did not support anything that was happening in DC when all the **** hit the fan. We could see it coming for several years leading up to it. Point your finger at lawmakers who thought social engineering was an appropriate business model for success, lawmakers who implicitly supported all the bull**** that happened by holding financing institutions hostage with FDIC status.

No sane business would ever have given credit to the non-credit-worthy without an implied guarantee by our government that it would be taken care of.

MaggieD said:

Well, I'll try one more time...then just agree to disagree.

The Smith family buys a house for $320,000. They put $20,000 down. The bank loans them the $300,000 and that money gets paid to the Jones family (the sellers). The bank is now out $300,000 and has a lien on the house. The Smith family lets the house go into foreclosure after two months because the bottom fell out of the real estate market (just as an easy example). The bank is still out $300,000. Yes, they own the home. But the home is only worth $200,000 now. The bank is out $100,000 right out of the box.

Click to expand...

Indeed. It would have been far wiser to work with the homeowner and keep him in the house.

MaggieD said:

Well, I'll try one more time...then just agree to disagree.

The Smith family buys a house for $320,000. They put $20,000 down. The bank loans them the $300,000 and that money gets paid to the Jones family (the sellers). The bank is now out $300,000 and has a lien on the house. The Smith family lets the house go into foreclosure after two months because the bottom fell out of the real estate market (just as an easy example). The bank is still out $300,000. Yes, they own the home. But the home is only worth $200,000 now. The bank is out $100,000 right out of the box.

Click to expand...

They don't care Maggie....they feel like they lose the battle but win the war in that scenario. The feel that going through and changing the terms of mortgages would cause a moral hazard (*cough* *cough* bailouts to banks that would fail without tax payers) and create a precendent or idea that if the housing market collapses the banks should take the loss. They want the remorgating or foreclosure to be as painful as possible as a deterrent. They also aren't worried about short term losses because they virtually have unlimited capital access possible to them.

It will take the government to force this to happen. Banks will drag their feet on this if given the choice.

Dittohead not! said:

The Frank-Dodd bill mandates a 20% down?

Click to expand...

That's right. Ya'll wanted more regulation. Well, you got it.

But the local builder is advertising 0% on houses they seem to be having trouble selling for some reason. How can they do that?

Click to expand...

The interest rate and the down payment are two different animals. I bet he want get off the couch without a check for 20%.

KevinKohler said:

But they DIDN'T lose that money. Your typical, single family, middle classer type house costs between 50-70K to build, depending on state. That's total, materials, labor, etc. Add another...what, 10-20K for property, TOPS, and you got a house that costs the bank UNDER 100K. And they went and SOLD it for 250-300K. ...

Click to expand...

It isn't the banks who are selling the houses. It's banks who lend the money for people to buy houses from other people. The banks make the interest paid, and they own the house if you default.

lizzie said:

It isn't the banks who are selling the houses. It's banks who lend the money for people to buy houses from other people. The banks make the interest paid, and they own the house if you default.

Click to expand...

Not just the interest. If a house that sold for $200,000 and is now worth only $70,000, and the bank has it, there's more than interest there.

MaggieD said:

That's not right. Please show a link on that. 20% down payments are mandatory. It's being discussed as a rule change, along with other draconian rule changes...most likely won't happen.

Click to expand...

That's right. It's being discussed. No one is going to issue a loan, that may be in violation of the law later down the line.

Something that is in the bill and isn't being discussed, is the ban on high risk loans. By now, alot of people have crappy credit scores, especially if they're fixing to get foreclosed on.

Will Mandate for 20% Down Hurt Homebuyers? - TheStreet

The bank makes a knowingly risky loan for 300K in an inflated market. The home owner ends up losing the home two years later and the home is not valued at 200K. The bank liquidates it for 80% FMV = 160K
They are out 140K. They file a claim on the PMI insurance that went with the loan and recoupe the loss. This is what is happening frequently now and threatening to collapse the economy further. It is also part of the reason it is now so difficult to get a home loan. PMI companies are taking this catastrophe on the chin. It is why the fed is talking about more QE
to prop up the housing market. Most of the QE won't go to banks. It will go to PMI companies. This is strictly my opinion based on the high numbers of investigations going on now. Investigators are going through original loan applications in an attempt to find nefarious activity, or numbers which should have raised a red flag, yet did not. Other offenders in the quagmire are loan modification scams which did indeed trigger a high percentage of foreclosures. In some cases, even the big banks themselves had a hand in the outcome of foreclosure by telling home owners to pay a lesser amount monthly while the
modification process was being done. Eventually, telling the home owners they failed to modify the loan, and informing the home owners they now owed all the back short payments & penalties.
Banks, concerned greatly on the stability of PMI companies future, had motivation to help push home owners into foreclosure
sooner rather than later. The investigations in progress now are intended to find what should have been cause for concern on the original loan, the intent being that the PMI company can deny the claim, and or negotiate a lower settlement on the claim. The entire situation, all of it, goes back to greed on behalf of the banks, brokers, and people who knowingly took out loans they probably could not afford long term, naively believing home prices would continue rising rapidly indefinately.
I'm not an expert on this. And maybe I am off base here. But much of the above is fact in regard to the PMI claims and current investigations underway.

Regards

apdst said:

That's right. It's being discussed. No one is going to issue a loan, that may be in violation of the law later down the line.

Something that is in the bill and isn't being discussed, is the ban on high risk loans. By now, alot of people have crappy credit scores, especially if they're fixing to get foreclosed on.

Will Mandate for 20% Down Hurt Homebuyers? - TheStreet

Click to expand...

Nonsense. I'm a Realtor. My clients with good credit scores are getting financing with 10% down all the time. If that passes, big if, there is absolutely no way on God's green earth it would be retroactive.

lizzie said:

We weren’t in extraordinary times when these people bought these homes. Look, I do feel bad for a lot of peeps who bought houses who were caught up in the fury, and bought houses because they thought they could make a killing on them in the market. That being said, people with bad credit were being foolish and signing contracts for really insane financing terms, against their better judgement. This was a great failure of government and financial institutions, but people who have bad credit need to take a look at what they are signing up for. They were suckered into a disaster of their own making.

I did not favor the bailouts of the banking industry and the auto makers AT ALL. I opposed vehemently letting bad businesses succeed. I would rather have bailed out homeowners than businesses by a long shot. That being said, our government needs big businesses much more than it needs homeowners. We have already taken on much more federal debt than we can afford.



Don’t point your finger at me and the rest of us who did not support anything that was happening in DC when all the **** hit the fan. We could see it coming for several years leading up to it. Point your finger at lawmakers who thought social engineering was an appropriate business model for success, lawmakers who implicitly supported all the bull**** that happened by holding financing institutions hostage with FDIC status.

No sane business would ever have given credit to the non-credit-worthy without an implied guarantee by our government that it would be taken care of.

Click to expand...

We're all implicitly responsible, though. We all live here, we all pay the taxes, we all FUND this machine.

MaggieD said:

Nonsense. I'm a Realtor. My clients with good credit scores are getting financing with 10% down all the time. If that passes, big if, there is absolutely no way on God's green earth it would be retroactive.

Click to expand...

Well, my credit scores range in the high 700s, and Bank of America wanted 20% down, said it was mandatory. Why Bank of America? Because I've been a customer of their for years, and I wanted to get around having to go the FHA rout because of the difficulty finding a ready to move in house, in CT, in my price range.

Sorry about you being a Realtor. I know it's hard times for you guys right now.

KevinKohler said:

Well, my credit scores range in the high 700s, and Bank of America wanted 20% down, said it was mandatory. Why Bank of America? Because I've been a customer of their for years, and I wanted to get around having to go the FHA rout because of the difficulty finding a ready to move in house, in CT, in my price range.

Sorry about you being a Realtor. I know it's hard times for you guys right now.

Click to expand...

My daughter bought a house earlier in the year with nothing down. I'm sure her score isn't a high as yours.