Friday, April 27, 2007

Affordable Housing Bond <> Bail-out

I know this is old news and other bloggers have already covered it, but I find it so dang ironic and so it's been nagging at me.

Basically, because California is unlikely to receive any Federal money to bail out screwed borrowers due to our extremely high housing costs, Ted Lieu and others on the California Banking and Finance committee have decided it would be a swell idea to use part of the Affordable Housing Bond (Proposition 1C, approved by voters last November) to fund a bail-out.

You already know my opinion, for what it's worth, about a bail-out in general (here, here, and here). But I seriously doubt that such a bail-out is what the voters had in mind vis "affordability" when they approved the bond measure. If California assembly members are really interested in affordable housing in California, then bailing out debtors is exactly the wrong thing to do as it will only help to keep prices ridiculously high; more affordable housing would be created if there were no bail-outs at all. Just give the market time to re-establish balance and force prices back down to levels justified by the fundamentals, and then we will have a more affordable housing situation again which would be good for families, communities, businesses, and the state as a whole.

I much prefer Senator Machado's alternative idea (SB385), at least if it has teeth:
...require state agencies that license lenders to operate in California to follow more-stringent loan approval guidelines issued by federal agencies in autumn.

Machado said subprime lending practices should be scrutinized in the future, but stopped short of agreeing with Lieu that the state should create funds to help restructure mortgage loans.
I'm all in favor of doing everything that can be done to prevent a repeat of the insanely loose and, in some cases, "predatory" lending. But bail-outs are not how you fix the problem; they just keep the problem in existence and encourage it to recur in the future.

And I am not alone. Here is a comment left over at the very good Southern California Real Estate Bubble Crash blog that includes a phone number that you can call to express your opinion (I called it and it does indeed lead to Ted Lieu's office):
“TED LIU (CA assemblyman) and others on the California banking and finance committee passed a proposal Monday to use money from the Affordable Housing Bond to bail out homeowners who were “victims” of “predatory” financing and can’t make their mortgage payments. CALL Ted Liu’s office, talk to Tiffany or Mark, 916-319-2053, and call every assemblyman on the appropriations committee (that’s where it goes to a vote next), and call your local state assemblyman, tell them you don’t want your hard-earned tax dollars going to bail out buyers who overpaid and didn’t read their loan documents, tell them the affordable housing bond money was to be used for affordable housing not for bailouts, call or don’t complain when it happens!”
Or write a letter and send it to these people. Better yet, do both.


Anonymous said...

Marinite.. Thanks for the info and phone on the Cal Assemblyman to call on this bailout baloney. I'll be sure to call today..

Absolutely no way on a bailout!!! It is exactly the wrong thing to do, but I would not be surprised if it passes given the ego's tied to real estate in this state.

I think we can put overextended people or FB's into six general groups (of course, the allstars out there fall into several (or all) of these groups):

1. Those who are HELOC consumption knuckleheads.
2. Those who wanted to be like Betty and Bob Jones, but were too late to the ballgame.
3. Those who's ARMs are resetting higher than they can keep up.
4. Those who's income has changed due to a job loss or similar.
5. Those little Trumpies who stretched themselves to buy that 3rd or 4th (or more) investment property.
6. Those who were (truly) taken advange of and lied to by a member of their RE team (lender, Realator etc).

I believe the people that (really) fall in category 6 above is very, very, very small in comparison to the other categories. I also don't believe many people fall into Cat 4 either given the broader economy is still okay (Note to all, this is the category that will bring prices down the fastest and is just over the horizon in my opinion).

So, if a bailout were to occur and target these groups (4 and 6), I don't believe it will have much impact at all.

I also don't believe our politicians understand the real negative impact this bubble has had on our communities and our future. All the fricken focus is on the buck, so it is perceived to be good. Just amaaaaaaazing..


Miss Jenn said...

This is OUTRAGEOUS!!!! It angers me soooo much that my family and I have been trying to buy a house in Marin for YEARS and have NOT gone the IRRESPONSIBLE route of over-extending ourselves to do it. I will FLAT OUT refuse to support those who were lame enough to get themselves into trouble. What happened to a free-market economy. What hypocrits!

Larry said...

Although I rarely agree with your reader's comments, I did think about all the people who claim to not realize that their payments would adjust (upwards) after the initial fixed period. My conclusion: I don't believe them. Why? Because, everyone sees what their projected payments will be in their 3-day Docs on the "Truth in Lending Disclosure Statement" page that arrives in the mail when you apply.
You also see it again later along with your Fixed/Adjustable Rate Rider. And, at closing.
They don't need a bailout (for having low rent for a year), they need an affordable apartment and an education.

Anonymous said...

James... I agree completely.. the free market helped get us into this mess and the free market can sure as hell get us out of it.. let it all crumble. My advice is to save that cash because it will be king again as this country and all these FB's face the right side of their balance sheets.

Larry.. I find a conspicuous absence of real debate from people like you on any RE blog, including this one. I wonder why that is ? Could it be that RE machine has no good argument to support the current (pathetic) state of their industry and the incredibly ridiculous housing prices that they helped fuel. Perhaps, just perhaps, the two are related ? Or do you believe this is just a minor anomaly ?

I’m sure I’m not alone in saying that I find great comfort in the notion that those who helped fuel this ridiculous bubble now are caught with their little greedy hands SLAMMED SHUT in the cookie jar.

3 pages of open houses on the IJ today.. hmmmmm never seen that one before..

35-40% housing haircut in Marin
50+% housing haircut elsewhere..

Bank on it..


Lisa said...

"3 pages of open houses on the IJ today.. hmmmmm never seen that one before.. "

And those are just the houses that were OPEN this weekend.

And regarding the six general groups of FB's, I would hope that laws are already on the books to protect #6. But absolutely, no one else on that list deserves any help, unless the lender wants to give it.

Larry said...

Matt asked, "Larry.. I find a conspicuous absence of real debate from people like you on any RE blog, including this one. I wonder why that is?"

Matt, it's because most people, like you, don't know what they are talking about.
Come back to me when you are able to seperate "housing" out of Real Estate in your thinking. Housing is just one of 5 major sectors of real estate and I take the blog owner's word that Marin County's housing prices are too high.
It has little to do with what strip centers are selling for in Mesa or hotels in Colorado.

Anonymous said...

Oh Larry, that's a relief that the RE industry is alive and well. I guess commercial real estate and raw land is the next bubble then. Well, frankly, you should lay your bets. I, on the other hand, see this as another failed attempt by a failed industry to hype a few more asset classes.

In my opinion, raw land and commercial real estate has also been artificially inflated as a result of this housing bubble. Granted, not as much, but it's inflated all right. 3/4 of this economy is based on consumer spending, which feed those Mesa strip centers and Colorado hotels. Your assumption that housing will not spill (or has not already spilled) over to these other markets is extremely nieve.

Want proof of forecasted cutbacks in consumer spending, take a look at the stock performance over the last 6 months for Marinemax (HZO) (rec boating) or Harley (HOG). The only think holding Harley up at the moment is foreign sales. Not enough HELOC cap left in this country I guess.

So, I conclude, it would appear you don't know what your talking about..


Anonymous said...

Why should Our Betters in Sacramento care what the common rabble think about "this bailout baloney"?

Specially-drawn one-party districts.
Incumbent re-election rate of 100%.