Desperate Six-percenters Applaud Bail-out

Is anyone really surprised that the organization that argued most vociferously against the idea that there was a housing bubble (wrong, there is), that now is always the best time to buy (wrong), that on a national basis housing has never declined and so won't now (wrong), who, along with their lackeys, changed the way affordability is calculated so that things look more affordable than they really are (just plain wrong), now do an about-face, implicitly acknowledge that a bail-out is needed, and are practically begging for it? Silly you.

Doesn't this make you mad? Are you ready to (peacefully) revolt yet or are you just revolted?

This didn't take long. The National Association of Realtors (NAR) -- you know, the trade group that spends millions lobbying our legislatures in order to ensure those fat, 6% cuts on residential housing sales -- is in favor of President Bush's proposed housing bailout, beginning with Federal Housing Administration changes and including the proposed tax break to be given to debtors whose banks hand them a pile of money in the form of debt forgiveness.

NAR President Pat Combs details the organization's alleged concern for homebuyers here. Of course, the NAR attempts to couch this support not for what it is (an appeal to the government to save its own skin by reinflating the housing bubble that put a Cadillac in every garage and a Rolex on every wrist), but as an appeal to humanity: "Many families who have been making their mortgage payments at the starter rate but were unable to keep them up after the loan reset have been unable to refinance through the FHA ..."

That's true, but it ignores the reasons we got to this tight spot. And foremost among them were years' worth of Realtor press releases touting rising home prices, but also "affordability." The latter was the appealing buzzword for exotic mortgages with teaser rates -- the only thing that made these bubbling assets affordable. The myth about housing always increasing in price is, of course, an old NAR favorite.

By bum-rushing buyers into bidding wars in hot markets (I saw one from the inside, once) and issuing positive spin to gullible mainstream media outlets, the Realtors could create a self-fulfilling prophecy, for a while. But now the roof is on fire, as all of those exotic mortgages threaten to toast the NAR's crop of gullible buyers. Unfortunately for them, an inevitable result of the NAR's getting people to bid up houses and buy with zilch down payments is that far fewer homes and buyers qualify for FHA assistance.

Although the NAR helped make this mess, now that its 6% is on the line, it wants the taxpayers to clean it up. The press release is worth reading if only to see the depths of the NAR's ignorance. It calls for the president and Congress to deliver a dose of medicine that would kill the patient entirely, including raising FHA loan limits and reducing or eliminating cash down payments altogether.

Do these yahoos still not realize why housing is tanking? It's precisely because the loans that many Realtors jawboned people into taking were too big and had too little equity. As a result, the derivatives backed by those loans are, in some cases, all but worthless. Bear Stearns (NYSE: BSC), Goldman Sachs (NYSE: GS), Countrywide Financial (NYSE: CFC), Impac Mortgage Holdings (NYSE: IMH), Accredited Home Lenders (Nasdaq: LEND), not to mention BNP Paribas and dozens of other banks all around the world, can tell you just what happens when no one believes in the quality of the real-estate-backed derivatives, and there's no equity to fall back on: The market for the derivatives disappears, and there's no more money forthcoming to make new loans.

If the NAR gets its way, the people of the U.S. who didn't go out and spend irresponsibly during this housing bubble will be tasked with stepping in to guarantee the bad loans of those who did, spurred by the 6-percenters at the NAR. That might not even be enough to reanimate the dead monster bubble, but it might buy those Realtors a few more months of commissions.

This kind of shameless, pecuniary self-interest should surprise no one. After all, it's tone-deaf real-estate agents who came up with the infamous "Suzanne" advertisement that now serves as the poster child for the triumph of greed, duplicity, and bullying over old-fashioned financial reason.

That the greedy and thoroughly discredited NAR supports these bailout measures ought to be the final proof that they are not in the public interest. For the rest of the no-bailout case, see my comments last Friday.

Remember this from around November, 2006?

Ah, the memories...

Update: The comments of the eFinanceDirectory blog resonated with me:

...the president of the National Association of Realtors applauded Bush's FHA mortgage bailout proposal, and admitted that the Association has been pushing for the bailout since early 2007. If the NAR continues to have their way, taxpayers will be forced to clean up the mess the realtors helped to create.

If you thought that there was nothing else that the NAR could do to discredit themselves further, you were wrong. In a recent press release, NAR president Pat Combs made it clear to everyone that the Association isn't looking out for public interests, but rather, their 6 percent commission check.

The NAR neglects to mention that the proposed changes will also bail out the lenders who thoughtlessly offered exploding ARM loans in the first place. Also not mentioned: when somebody refinances into an FHA guaranteed loan, the risk is transferred to taxpayers. If the newly refinanced borrowers default on their mortgage once again, it will be American taxpayers who eventually pay off the loan.

So, why is it that the NAR is so eager to keep this bubble artificially propped up at the expense of someone else? Why are they so eager to transfer the risk to taxpayers versus the banks who will no doubt keep the easy money train rolling if they can only get out of this mess?

Because, the NAR is the (self-dubbed) 'Voice for Real Estate', not the 'Voice of Reason'. They want to keep those 6 percent commission checks rolling in. The more people pay for a house, the more realtors make in commission. That's why they were so eager to encourage housing as an investment during the boom, and so eager to encourage the bailouts now.