I think all roads lead to where we are headed– the only question is how fast we will get there.

With no government intervention, we will see the situation you describe. On the other hand, even with loan workouts, we will see the same thing- only perhaps a bit slower.

Supply and demand are driving the prices down. This in turn drives forclosures- it is not the other way around. Consequently fighting forclosures doesn’t address the underlying problem, so home prices will continue to collapse, which will continue to hurt financial markets.

“Reversion to the mean” is unavoidable.

Sadly, I suspect that as our government officials counsel their own family members, I have to believe they pass out different advice.

In the current economic climate, the best advice an individual could have would be to save for a rainy day, be conservative in their optional purchases and avoid unneccesarily expensive housing. Buying a house is for those who can afford the risk.

What are Americans being encouraged to do though? Keep spending, keep buying housing- take our tax refund and SPEND it. This is supposedly in the name of helping the little guy out.

This kind of “help” doesn’t seem helpful to me.

Thank you for sharing your “real world” experience. It does sound like you are in a better position than most potential buyers, so it goes to show how tough lending is now.

That’s one of the reasons I think prices will continue to fall– the lower prices are, the easier it will be to come up with that 10%.

Best of luck with your housing!

In fact, the Dems in DC are busy sucking up donations from the finanial services industry right now, so forget about reform in the next 3 to 5 years. No one is talking about making the people who profited off this mess pay for it with taxes, or pay us back the bail out money.

Where are the torches and pitchforks, Igor? I say bring a few of our troops out of Iraq and let’s invade Bermuda, the Caymans, etc. Probably five hundred marines could do that in a weekend without killing a soul. Freeze those bank accounts and take every penny that can’t be accounted for legally. And throw every tax evader in the clink for a LONG time, so they’ll think twice about claiming their filthy lucre. Now THAT’s an invasion that could pay for itself 1000 times over!

There are downpayment assistance programs that you may be able to utilize such as AmeriDream or Nehemiah which are national programs run by non-profits. I would also talk to a lender in the area where you plan to live. Local lenders and Realtors are more in tune with their state and county home buyer’s assistance programs.

You can’t bailout the lenders without “bailing out” the little guy. The difficulty being that most of the bailouts I’ve seen work out better for the lender than the borrower.

There’s a bunch of folks in overpriced housing who’d be better off in lower priced housing- but that’s a shift that plays havoc with the mortgage market. Keeping folks in their overpriced homes hardly “saves” them, but that is the bill of goods we’re being sold– and a lot of borrowers believe it.

There was an article in the LA Times about greater focus on “bailing out the little guy”. I expect to see a lot more of this as well.

Wizeone,

I find your misplaced worry about taxpayer bailouts somewhat offensive. I don’t know what country or planet you live on (Planet Faux News, maybe), but the government in the USA never bails out the little guy. In this case you have the govt bailing out the lifeboats of the fat cats. The little folks will be lucky to get a mildewed life vest and some advice about punching sharks on the nose and swimming away from the sinking ship ASAP.

Over the weekend I called DiTech for a starting point about loans on a new house. The guy on the other end of the line told me that it is now pretty much impossible to get 100% financing. The DiTech guy said that I would need at least 10% down, and that at least 5% of the money must have been in an account for at least three months (Mae and Mack rules).

We are going to be buying a house in the Billings MT area, and my wife and I would like to live in a certain elementary school district (we have two young girls). The cheapest home that we could find in that district with 4 bedrooms is around 300K. That would require a 30K down payment and 15K in my bank account Another problem we are having is that there are no rental properties (I mean zero) in the right school district.

I am about to have a fairly substantial jump in my salary, have no debt, and an excellent credit rating. I light of all this, I will not be able to get a loan for a new house. I will probably have to go to Billings and stay in a short term rental for a few months in order to get enough money in a bank account so that I can buy a house.

The reason I tell this story is to indicate that wall street may have solved its illiquidity problem they are failing to pass the buck. If my wife and I are not able to get a loan then I don’t see how most other people can qualify for a loan when they are just starting out (especially in smaller communities that have more limited options with respect to the rental market). Anyhow, I know I have left out a lot of important details and there are many more options than just DiTech…but this is the only the beginning of my experience. I find it a little disconcerting that after seventeen years of education being fiscally responsible enough to pay off my student loans that I will not qualify for loan that I could easily afford.

The Fed may not be out of bullets, but it’s hard to bring down an elephant with a pea shooter. I heard Bernanke say that they were fighting asset deflation, and I don’t see how that’s a battle that can be won- or that is worth doing if they could.

There are too many homes, and the prices are still out of line with historical norms. The only way I see to fight that would be to bulldoze the silly things, other than that nature is going to have to take it’s course.

Supply and demand dictate that home prices will fall, and that is going to hurt the balance sheet of the lenders– that will have to be delt with, it can’t be prevented.

I do concur that the government can’t just stay on the sidelines but they need to avoid unintended consequences– they could make a bad situation worse.

Imagine if after Katrina, the government had taken the stance, “This has been a horrible tragedy– we will spend the money and do what it takes to make sure that hurricanes will never happen in this country again.”

“Hurricane prevention” can’t happen and would be money badly spent. Early detection, preparedness and victim assistance makes more sense.

I worry that the Fed is in “hurricane prevention mode”. I hope Bernanke has “The Serenity Prayer” tacked up somewhere:

GOD, grant me the serenity

to accept the things
I cannot change,
Courage to change the

things I can, and the
wisdom to know the difference.

http://calculatedrisk.blogspot.com/2008/03/delong-sounds-alarm.html

I agree that the Fed is not out of bullets yet. But it’s darned close.

An important note is that Bove’s comments were limited to investment bank counterparty risk and did not address the overall mortgage failures. He did not say that happy times are hear again, just that illiquidity has dropped to managable levels. Again, I disagree with him, but it is hard to tell since nobody really knows.

Thanks for the translation. This is very scary and just goes to show that the fed is going to keep bailing out Wall Street until everything collapses.

Eye of the hurricane, definitely.
The big money really tells a story. When folks are scared of what’s happening (the big money, the smart money, not the retail investor), they go out of stocks, and into cash and Treasuries. When this happens, the percent yield on Treasuries drops.
Treasury yields are at their lowest since The Depression…. around .05 percent or so.
The spread on Treasuries vs. the LIBOR (London interbank lending rate) also foretells further nastiness.
http://krugman.blogs.nytimes.com/2008/03/14/my-friend-ted/

Eye of the storm. Buy your plywood, batteries, and fuel. Here comes another wave.

Banks have hit the point where they don’t trust each other, and where they have come to the conclusion that loaning money for mortgages is risky.

Lenders have to maintain so much capital against losses, and that limits the amount of money they can lend. The prudent thing to do when losses are high is to raise the capital requirements to make sure that a lender stays solvent- but F&F just had their capital requirements reduced.

It has also been shown that a lot of the higher priced loans, the “jumbos” were taken out by people who couldn’t afford them. When lending standards tighten, there are fewer buyers in this market, and more expensive loans are riskier- but F&F are now allowed to take on more of these loans.

In a nutshell, in a world where the private sector has come to conclusion that the mortgage market is a risky one, the government has decided to let F&F take on a lot of additional risk. As Roubini points out, they aren’t really in shape to do it.

F&F have an “implicit” guarantee from the U.S. government- everyone assumes that the government will bail them out if they get in over their heads- but it is only implied- there is not an “explicit” guarantee.

I believe that without government intervention, the market solution would have been for interest rates to raise- that rewards lenders for the risk they take on. Rather than doing that, F&F are taking on the risk, but don’t have the capital or additional revenue from higher interest rates to cover it.

In short, the risk is still out there, and it is huge. The Fed averted disaster for the moment, but it remains to be seen if there solution won’t cause more difficulties than the problem.