housing industry

Lessons from the Auto Bailout Controversy

This past week, the US Senate failed to concur with the House of Representatives in passing a bailout package for the nation’s large domestic automakers. This bailout had the support of the Democratic leadership in Congress as well as the Bush White House. Already, doomsayers are bemoaning this lack of financial infusion from an already depleted federal budget. However, I applaud this decision as a victory for principle over pragmatism. Hoping that conservatives will learn from this effort to continue enlarging government, consider some lessons from the bailout controversy.

How long until the next housing crisis?

John Stossel explains why that politicians may be too optimistic about the economy:

Obama advisor Larry Summers told my former ABC colleagues that “everyone agrees the recession is over.”

It’s possible. But I doubt it.

Sure, the vast Bush/Obama spending blew some air back into the housing bubble. But politicians’ delusion that they can control the economy does more harm than good. Home prices that by now might have found a sound floor — a foundation for growth — instead float on a sea of subsidies.

The March 15 issue of Forbes summarizes the Fed’s house of cards:

The FHA has a $45 billion cushion to cover $757 billion in home-loan guarantees. This is just one part of the federal government’s investment in housing. Another is the bailout of Fannie Mae and Freddie Mac… a third is the Federal Reserve’s purchase of mortgage securities ($1.25 trillion).

How much will the FHA cost taxpayers? Officially, nothing. FHA officers have told Congress they don’t believe they’ll need a bailout. (Fannie and Freddie said the same.)

CEO Franklin Raines promised, “it is private capital that is at risk, not the taxpayer’s…. We do not receive a nickel of federal money.”

The Next Foreclosure Crisis Is On Its Way

Twin stories today in The Washington Post and The New York Times detail two different reasons that the foreclosure crisis, and most likely the economic troubles we’ve had for more than a year now, is far from over.

First, the Post reports on an expected coming wave coming wave of defaults by homeowners with so-called option adjustable rate mortgages:

The housing market faces the prospect of a new round of foreclosures as hundreds of thousands of risky home loans known as option adjustable-rate mortgages reset to significantly higher payments that could force borrowers to fall behind, according to a report released Tuesday by Fitch Ratings.

About 70 percent of the $189 billion in outstanding option ARMs will reset by 2011, the report said, which would be another setback to a teetering housing market still struggling to recover from the mortgage meltdown that precipitated the financial crisis.

Option ARMs make up only 1.3 percent of percent of outstanding mortgages and were used by a far smaller segment of the population than subprime mortgages, according to First American CoreLogic, so the fallout from the resets should not be as devastating. But the unraveling of the option ARMs could be felt for years.

“It does tell you there’s going to be continued front-page news about high levels of foreclosures as these loans continue to struggle,” said Paul Miller, an analyst at FBR Capital Markets.

Time to Reevaluate the Concept of Mortgages

We all know that one of the major causes of the current economic situation is the decline of home values and the subsequent turmoil this reigns upon the financial system. I’m not going to quote any numbers here or research. If you want to read more details, then go read this.

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