1. Wee Little Status Update

    For those three or four folks who may be wondering what’s happened at this here money blog, well, the answer is: Not much.

    If I had any gripping tales of financial abandon to tell, I’d do it. I scan the news every couple of days to see what’s going on in the world of personal finance; certainly nothing life-changing has popped up. (Well, ObamaCare is about to kick in. That ought to be good for a few million laughs. Or tears.)

    The Federal Reserve is still doing its best to ensure that “saving” remains a four-letter word, that savers must be well and duly punished, and that stock markets cannot be allowed to drop more than a few percent at a clip. Nothing new there. This is what happens when you have an economy that “grows” only when debt expands and risk-asset prices rise. No “growth” if people/entities/governments don’t keep taking on more and more debt and risk. What could possibly go wrong?

    On the personal front, our family savings got about $20k lighter in September. That’s what getting a new roof, new siding and windows throughout, and gutter installation will do to you. Until this month, the largest check I’d ever written was for our home central A/C system back in 2007. I can tell you that the A/C payment felt like a sneeze compared to the exterior repairs. However, we had well more than enough liquid savings to cover it, and I’m mighty thankful for that. (‘Tis also nice to pull up in your driveway each day after work and NOT cringe at the outward appearance of your home. The old homestead looks pretty nice now, if I do say so myself.)

    And that’s my little roundup, for now. Back to your regularly-scheduled nap, kids!



  2. We Learn Nothing

    Yes, it’s a current article:

    Herald Tribune: Admin Aims to Increase Loans for Homes

    From the story:

    President Barack Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

    In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

    I should probably just stop reading the news altogether. Everything I read just about sends me over the edge these days.

    We (deliberately) learn nothing.



  3. Here We Go Again

    Not going to be much intro to this one. I’ll just repeat here the old adage: “If you can’t tell who the sucker at the table is, then it’s you.”

    LA Times: FHA Gives Defaulters Another Chance

    Unsurprisingly, it seems the FHA is bankrolling (well, guaranteeing) lots of “rebound buyers” in this latest round of home-buying hysterics. What’s a “rebound buyer,” you ask? Well, it’s gals and guys like Hermes Maldonado:

    After two foreclosures and two bankruptcies, Hermes Maldonado is as surprised as anyone that he’s getting a third shot at homeownership.

    The 61-year-old machine operator at a plastics factory bought a $170,000 house in Moreno Valley this summer that boasts laminate-wood floors and squeaky clean appliances. He got the four-bedroom, two-story house despite a pockmarked credit history.

    The last time he owned a home, Maldonado refinanced four times and took on a second mortgage. He put a Cadillac and Mercedes-Benz C300W in the driveway and racked up about $45,000 in credit card bills and other debts. His debt-fueled lifestyle ended only when he was forced into bankruptcy.

    His reentry into homeownership three years later came courtesy of the Federal Housing Administration. The agency has become a major source of cash for so-called rebound buyers — a burgeoning crop of homeowners with past defaults who otherwise would be shut out of the market.

    Good thing the nastiness of 2008 was all Wall Street’s fault, huh? What would we EVER do without government agencies like the FHA around, making things all better?

    Oh, and there is one more completely-unrelated story which I’d like to share:

    NY Times: FHA Audit Said to Show Low Reserves

    So, yeah … cruise on over to these two stories. And try to hold down your lunch.



  4. House Prices Suffer From Student-Loan Debt (But Colleges Seem Happy)

    For today’s “LOL” moment, I proudly present to you:

    Businessweek: Student Debt Is Stifling House Prices

    It’s pretty darn comedic when you think about it: A pharmacist earning $125k/year, and carrying $100k in student loans, is miffed that she can’t — for some unfathomable reason — go out and buy a home. Like, yesterday.

    Roshell Schenck has a Ph.D. in pharmacy and earns $125,000 a year. Yet, because she has more than $110,000 in student loan debt, counselors have told her she can’t qualify for a mortgage. “I’d love to buy and can afford to buy,” says the 28-year-old graduate of Lake Erie College of Osteopathic Medicine in Erie, Pa. With lenders scrutinizing college loans more closely than in previous years, it’s almost impossible for borrowers such as Schenck to get approved for mortgages. “My debt is crushing my chances of purchasing a home.”

    Roshell, say hello to my esteemed colleague, the Law of Unintended Consequences. Kinda crazy, isn’t it, how these days, the debt you’re already carrying seems to matter again? And, darn the bad luck, it’s mattering just when you’d really like to borrow even more! Ain’t that a kick in the pants!

    It’s not that I don’t have some sympathy for grads like Ms. Schenck. The situation she finds herself in — making a really nice income in a good field, but unable to qualify for a home loan due to six digits of student-loan debt around her neck — isn’t entirely of her own doing. After all, the government and our university system forced her to take out those loans—

    Okay, never mind. It IS entirely of her own doing.

    Look: She’s fortunate to be making the money she is. I mean, I would love to have an income like that.

    But only if there’s not $100k+ of debt attached to it.

    But She Wants It Now

    By my reckoning, Ms. Schenck makes enough money that paying back those student loans should be no biggie, in the grand scheme of things. A few years of scrimping, saving, and consistent four- and five-digit extra payments toward those loans, and she’ll be in fine shape.

    Admittedly, though, this concept works only if she goes all Dave Ramsey on it, and can manage to not play “Keep up with the Joneses” as regards her spending habits. (Yes, that dreaded disease which ravages so many of the high-earning types, like doctors, lawyers, pharmacists, and so on. Lots of money comes in the door, sure … and even more of it goes out. Wouldn’t want to not “look the part.” Heavens, no.)

    Back to the article:

    Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they’re able to land a job in a market with an unemployment rate of 9 percent for 25- to 34-year-olds. Dubbing it a “student loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys (NACBA) warned on Feb. 7 about the effects of rising student debt on recent graduates, parents who co-signed their loans, and older Americans who’ve gone back to school for job training.

    Well, the good news is that borrowing of federally-subsidized student-loan dollars shows no signs of abating. So colleges will remain free to increase tuition at will, year after year, with no danger of “decreased financial resources” or anything outlandish like that out there to slow things down.

    “Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call.

    Absolutely preposterous, says I. How great of a country can we be, really, when our citizens’ past borrowing proclivities keep us from borrowing skads more now, right at the time when we most need it? Pffft.

    I don’t know who came up with this silly idea that “Today’s choices create those of tomorrow,” but I don’t like it. And it seems like Ms. Schenck doesn’t, either. Since when should debt limit our choices? I mean, really.

    Someone should just, like, do something.



  5. Which Decade Is He Referring To?

    Aside from the scalding melodrama of the headline, I found this to be a pretty interesting piece:

    Fiscal Times: This Rule Could Kill the Housing Market

    The gist of the article centers on a chunk of the recently-enacted Dodd-Frank legislation — a chunk which contains the onerous requirement that lenders must maintain on their balance sheets some share of the risk of mortgages they sell off to investors.

    Oh, the horror. Mortgage lenders retaining a sliver of the mortgage risk they create? Dear Lord, what legislative insanity will we birth next?

    No, really. While I tend to come down against Big Government most of the time, given what happened in 2008 and 2009, I’m pretty content with mortgage lenders being required to balance-sheet some risk from the mortgages they create. To me, this sounds like a burden our esteemed megabanks worked exceptionally hard to earn during those heady years of the mid-2000s.

    But get a load of this choice bit of idiocy:

    Even frequent critics of lender practices, such as the National Community Reinvestment Coalition and the National Consumer Law Center, have joined bankers and bank lobbyists in calling for regulators to rethink the rule.

    “The proposal as introduced will literally erase a decade of accomplishment in defining what is a responsible loan,” said David Berenbaum, chief program officer with the Coalition, an advocacy group for community organizations that support affordable housing and equal access to credit. “It is going to narrow the range of loans that lenders are willing to originate to the point that only consumers with the best credit scores—meaning white and affluent consumers—are going to get loans.”

    Say what? A “decade of accomplishment in defining what is a responsible loan?” Can this guy be serious? Or is his definition of “accomplishment” just far, far different from mine?

    I’m thinking it’s the latter.



  6. Thinking of Strategically Defaulting?

    Well, you’ll be happy to know that the guys behind FICO are watching you:

    USA Today: Study: Underwater Homeowners Are Credit Savvy

    I’m not sure why a study was needed to figure any of this out, because it seems fairly obvious that “strategic defaulters” aren’t your typical Joe and Jane Sixpack. The very word “strategic” sort of implies that, yes?

    Ah well. Fair Isaac just wants to cover all the angles, I guess.



  7. Survey: Americans Want Mortgage Subsidies

    Fun new survey data out from Rasmussen, regarding Americans and how they currently feel about government participation in the mortgage market:

    Rasmussen: Mortgage Survey

    See the glaring disconnect in the first two items? If fifty-six percent of Americans think the government should stay “altogether” out of the mortgage market, but seventy-nine percent want the mortgage-interest deduction to continue, then an awful lot of people have an awfully shallow view of what “government participation” means.

    If you don’t think that the mortgage-interest deduction amounts to a subsidy for homeowners, and therefore, is the very essence of “government participation” in the market, then you’re nuts. Take away that deduction, and see what happens to home prices. Mortgage qualification standards are based upon that federal tax deduction being there, effectively “helping” people make their house payments. If the deduction were to go away, qualification standards would necessarily tighten. Joe and Jane Sixpack wouldn’t be able to qualify for as high a mortgage payment as they could previously, as more of their gross income would now be going to taxes. Thus, over time, home prices would decline.

    For this survey to mean much, someone really ought to define “altogether.” Because to me, that’d mean the dissolution of Fannie, Freddie, and the FHA, as well as the removal of the mortgage-interest tax deduction. But that wasn’t what the Rasmussen respondents inferred, or were told. Obviously.

    What an idea, huh? Get rid of Fannie, Freddie, the FHA — who between them control 90 percent of the mortgage market these days — and the sacrosanct mortgage-interest deduction. You want to talk about a full-on house price collapse? That’d do it!



  8. Home (Free) on the Range

    You want stimulus? Well, how ’bout the chance to go almost 15 months without a house payment?

    Thanks to cottony-soft (and FedGov encouraged) accounting standards, banks are loathe to foreclose on underwater properties. As a bank, realizing five- and six-digit losses is no fun. It tends to leave ouchies on your balance sheet, and more importantly, has a negative effect on management bonuses.

    Cause, meet effect:

    Defaulted borrowers were spending an average of 469 days in their home after ceasing to make payments as of July 31, so the financial attraction of strategic defaults increases.

    Four hundred days with no house payment? A fellow could save up quite a stash in his piggy bank, going that long without sending a check to the mortgage company.

    In any case, that tantalizing little snippet comes from an article at AmericanBanker.com.

    And speaking of homeowner savings, just imagine all the dutiful home care and maintenance being performed by all these “living free for now” borrowers — borrowers who know that one day the bank will be coming to throw their La-Z-Boy on the lawn and Master Lock all the doors. The question isn’t if, but when.

    Oh, I’m sure that leaky roof will get fixed. Any day now.

    Yes, indeed. Delaying foreclosures (most econ-types refer to it as “extend and pretend”) with schemes like relaxed accounting standards and FedGov-initiated can-kickings (HAMP much?) should work out just fine.



  9. DTIs of HAMP Modification Recipients

    Because I have become very much a financial hardass in my old age, I’ve been against FedGov’s HAMP program from Day One. (To show that I am an Equal Opportunity Hardass, I am virulently against taxpayer funds going to banks or other corporate entities, as well.)

    Still, I keep up with HAMP results (or lack thereof) because train wrecks this large are just hard to ignore. And also because watching FedGov throw piles of good money after bad is better entertainment than most primetime TV (which isn’t saying much).

    So here we go with the July batch of HAMP results:

    Financialstability.gov: HAMP Servicer Report — July 2010

    In particular, I’d like to call reader attention to a chart on page three:

    Aside from the inherent irony in finding numbers like this at a site called “financialstability.gov,” and ignoring the brazen injustice done by allowing any U.S. dot-gov entity to even use said domain, you have to be amazed — really amazed — at the financial condition of HAMPsters at large.

    With Numbers This Bad…

    What we see here is that for folks who’ve had their mortgages modified via HAMP, the median debt-to-income (DTI) ratios are downright scary.

    Think about this: The median back-end DTI for successful HAMP applicants, before their mortgages were modified, was almost 80 percent.

    After mod, the median back-end DTI is still almost 64 percent.

    So, at the median, having 64 percent of their pre-tax income going to debt payments is an improvement.

    And since part of HAMP qualification is supposed to focus on whether or not the borrower actually has a shot at staying in the house, presumably making payments to the bank from now until pigs fly, then you have to wonder just how bad the non-approved applicants’ DTIs are. (Almost half of the people who’ve applied to HAMP have been bounced from the program, for various reasons.)

    If having a 60+ percent back-end DTI after a modification is seen as “affordable,” then I probably don’t want to what “unaffordable” is.

    Yeah. Mortgage modifications or not, these are still defaults looking for a place to happen.

    Get Ya Some

    I’d step up to the trough and request a modification for myself — hey, who doesn’t want a “more affordable” mortgage PLUS the opportunity to stick somebody else with the bill? — but somehow I doubt that my front- and back-end DTIs of roughly ten percent would allow me to qualify for any sweet HAMP action. (Since I have no non-mortgage debt, both of my DTIs are equal.)

    Darn the bad luck, anyway. Savers and responsible folk? Shut out from reaping taxpayer largesse once again.

    Instead, we just get to pay for it.



  10. Still Paying Your Mortgage as Agreed?

    Then you’re the sucker. (Assuming you haven’t already figured that out.)

    SF Chronicle: “Bill Would Shield Homeowners’ Credit Ratings”

    From the article:

    A bill introduced on Thursday by U.S. Rep. Jackie Speier, D-Hillsborough, would shield homeowner credit ratings after a loan modification.

    “To play by the rules, modify your loan and then have it as a blemish on your credit report is just flabbergasting; it adds insult to injury,” said Speier. “The credit system should not punish responsible homeowners who modify their mortgage payments to keep their homes.”

    There are lots of things I’d like to say to Speier, but none of them are nice. So, in the interest of keeping this a family show, I will refrain.

    I will just state here that, in my opinion, the only freedom this country strives for any longer is the freedom from responsibility.