Code_Name_D
08-03-2008, 11:13 AM
This last Saturday we had our DFA monthly meeting. And at the end of that meeting, I had an enlightening, if not disturbing conversation with out of our members who happens to be a real estate-agent. Or more accurately I should say used to be an agent. According to him, over the past three weeks, the local real-estate market has totally crashed. 100% of the deals in processing that were to close in the last three weeks have fallen through, brining his income to zero. He was even forced to get a job to make ends meet. And he tells me that every agent in the central Kansas area is in the same boat.
First, a little background into the problem, or at least as I understand it. For the past twenty years, the banking system has evolved a zero down payment system, where barrowers would place the full amount of the house on the loan. To help facilitate this were a number of government programs that step in and finance the first 10% of the loan. When I bought my house, I had access to three such programs. One was through the Veterans Associations, one was through the FHA, and a third threw a state mirror of the FHA, but in the end I didn’t qualify for any of these. Which was just as well for I had already saved up my 10% and did not need the assistance. In the end however, the bank discouraged my 10% and agreed to a 5% down payment instead. Which also suited me well because this freed up money for a few new appliances that I would need for the new house. But I was probably a rare exception.
Especially with the economic down turn, attempting to save up $10,000 for a down payment is nearly impossible, even for wealthy households. The problem is that the banking system has been so rigged against savings that even if you had money, you were more likely to invest $10,000 rather than try to hold it in a passbook savings account. Typical households simply do not have this sort of liquidity, so banks have come to depend on zero deposit loan programs.
Well, apparently these have come to a stop. Why has yet to be explained. With without zero down, nothing is getting financed. But he was not entirely sure this was the complete story because even 10% down payment loans also seemed to be falling through. Why this is he also didn’t know.
He tells me that the only thing that has sold in the past three weeks are some cheaper in-town used houses. Your typical home in the core area of Wichita usually run about $40,000, so these loans are easer to finance than one for $140.000 in the suburbs.
This news doesn’t surprise me, all though it did surprise me that it overtook Wichita with some speed. For the past six months, Wichita, and indeed much of Kansas seems to be spared much of the mortgage crises, for waves of foreclosures. In fact he looked into this for me and came up with some answers why. Homes in the mid-west were not over-valued. In other words, there was no real-estate bubble here.
This made for some rather odd political realities. In Wichita, the economy is not in the doldrums as it is in LA, which takes a lot of the heat off the Republicans like T-Heart who become the new neo-come economic bulwarks. And while the economy is a huge natural issue for the nation, it barely registers here. Of course I suspect that this is about to change – radically.
Kansas also seems to have been spared many of the fiscal black magic such as ARMs and other exotic mortgages. I have long suspected that this may have to do with state regulations – but have not been able to prove this. My friend also looked into this and came up with a novel new theory – marketing, or more accurately the lack of it. The larger banks were probably more interested in extracting large profits from the growth areas of the nation, but largely overlooked areas in the Midwest where a bubble market did not take hold. As a result, they simply did not solicit the branch offices here to begin pushing non-traditional loans, sort of corruption fly-over.
As a result, the mid-west market was actually rather healthy. Even new home sales were still strong. All though a contractor I know said that they may have been too strong as developers flooded the area looking to take advantage of greener pastures. But housing construction too has come to a complete halt as well, giving him his first days off in several years.
What dose this mean?
I suspect that this is more evidence that Fanny & Freddy are not any where near as healthy as we have been told. While I don’t know for sure, I suspect that many government programs such as FHA and VA home buyers assistance programs are financed through Fanny & Freddy. When the money well goes dry, FHA and VA loans are the first to turn to dust, stopping the zero down payment practice that markets have evolved too.
This also seems to be in keeping with Fanny & Freddy rush to the Fed for help, in turn prompting the Fed to call congress for help in their name. This also gives more weight to the prediction that the recent Mortgage Bill signed by Bush last weak was not as we are told, to “re-assure investors” that Fanny & Freddy will be bailed out “if” something goes wrong, but to set up the bail-out itself.
This is the fiscal melt down that has been feared for over a decade. It’s finally happening.
First, a little background into the problem, or at least as I understand it. For the past twenty years, the banking system has evolved a zero down payment system, where barrowers would place the full amount of the house on the loan. To help facilitate this were a number of government programs that step in and finance the first 10% of the loan. When I bought my house, I had access to three such programs. One was through the Veterans Associations, one was through the FHA, and a third threw a state mirror of the FHA, but in the end I didn’t qualify for any of these. Which was just as well for I had already saved up my 10% and did not need the assistance. In the end however, the bank discouraged my 10% and agreed to a 5% down payment instead. Which also suited me well because this freed up money for a few new appliances that I would need for the new house. But I was probably a rare exception.
Especially with the economic down turn, attempting to save up $10,000 for a down payment is nearly impossible, even for wealthy households. The problem is that the banking system has been so rigged against savings that even if you had money, you were more likely to invest $10,000 rather than try to hold it in a passbook savings account. Typical households simply do not have this sort of liquidity, so banks have come to depend on zero deposit loan programs.
Well, apparently these have come to a stop. Why has yet to be explained. With without zero down, nothing is getting financed. But he was not entirely sure this was the complete story because even 10% down payment loans also seemed to be falling through. Why this is he also didn’t know.
He tells me that the only thing that has sold in the past three weeks are some cheaper in-town used houses. Your typical home in the core area of Wichita usually run about $40,000, so these loans are easer to finance than one for $140.000 in the suburbs.
This news doesn’t surprise me, all though it did surprise me that it overtook Wichita with some speed. For the past six months, Wichita, and indeed much of Kansas seems to be spared much of the mortgage crises, for waves of foreclosures. In fact he looked into this for me and came up with some answers why. Homes in the mid-west were not over-valued. In other words, there was no real-estate bubble here.
This made for some rather odd political realities. In Wichita, the economy is not in the doldrums as it is in LA, which takes a lot of the heat off the Republicans like T-Heart who become the new neo-come economic bulwarks. And while the economy is a huge natural issue for the nation, it barely registers here. Of course I suspect that this is about to change – radically.
Kansas also seems to have been spared many of the fiscal black magic such as ARMs and other exotic mortgages. I have long suspected that this may have to do with state regulations – but have not been able to prove this. My friend also looked into this and came up with a novel new theory – marketing, or more accurately the lack of it. The larger banks were probably more interested in extracting large profits from the growth areas of the nation, but largely overlooked areas in the Midwest where a bubble market did not take hold. As a result, they simply did not solicit the branch offices here to begin pushing non-traditional loans, sort of corruption fly-over.
As a result, the mid-west market was actually rather healthy. Even new home sales were still strong. All though a contractor I know said that they may have been too strong as developers flooded the area looking to take advantage of greener pastures. But housing construction too has come to a complete halt as well, giving him his first days off in several years.
What dose this mean?
I suspect that this is more evidence that Fanny & Freddy are not any where near as healthy as we have been told. While I don’t know for sure, I suspect that many government programs such as FHA and VA home buyers assistance programs are financed through Fanny & Freddy. When the money well goes dry, FHA and VA loans are the first to turn to dust, stopping the zero down payment practice that markets have evolved too.
This also seems to be in keeping with Fanny & Freddy rush to the Fed for help, in turn prompting the Fed to call congress for help in their name. This also gives more weight to the prediction that the recent Mortgage Bill signed by Bush last weak was not as we are told, to “re-assure investors” that Fanny & Freddy will be bailed out “if” something goes wrong, but to set up the bail-out itself.
This is the fiscal melt down that has been feared for over a decade. It’s finally happening.