Freddie Mac CEO: Home Price Drops Only 1/3 Done
source: Bloomberg
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It's only one man's opinion, but Freddie Mac Chief Executive Office Richard Syron had some rather astounding comments to analysts today:
- HOME PRICE DROPS "ONLY" ONE THIRD DONE
- WE'RE IN A 100-YEAR STORM IN HOUSING
- US IS IN WORST HOUSING MARKET IN A CENTURY
- APARTMENT'S ROLE IN HOUSING TO BE "MUCH BIGGER"
The most controversial thing Syron was picked up in a Bloomberg report: Federal Rules Let Too Many Poor People Buy Houses, Syron Says.
That is rather inartfully expressed. What I think (or at least hope) he meant was that too many people -- Home owners formerly known as renters -- bought houses they simply could not afford.
Here's the excerpt:
"Freddie Mac Chief Executive Office Richard Syron said he's urging changes in federal rules that enabled too many low- and moderate-income Americans to buy houses they can't afford.
It's "perverse'' that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged "to put people into homes that they end up losing,'' Syron said at a meeting with analysts and investors in New York.
Syron said in an interview that officials at the Department of Housing and Urban Development seem receptive to his suggestions that they change the affordable-housing goals for his McLean, Virginia-based company and Washington-based Fannie Mae.
The goals, which were last updated in 2005, require that a certain amount of the housing units that Fannie Mae and Freddie Mac finance through their overall business and certain sub- segments meet affordable-housing needs."
Hmmm, maybe he and I are referring to different things after all!
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Source:
Federal Rules Let Too Many Poor People Buy Houses, Syron Says
Jody Shenn
Bloomberg, March 12 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRGiT9IV3UC0
Wednesday, March 12, 2008 | 03:18 PM | Permalink
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Comments
Bob Shiller's chart of 116 years of US home values pretty much confirms all this.
Bottom = 2013.
Posted by: Pool Shark | Mar 12, 2008 3:24:30 PM
BR, remind Jody next time you see her that this title is accurate only if by "poor" she means "Americans."
It really frosts me to see the non-stop avoidance of this economic fact. Even if the families in question have two sustainable incomes, they were pushed into a home they couldn't afford... and they wouldn't have defaulted had they stuck to 36% DTI!
Posted by: Unsympathetic | Mar 12, 2008 3:37:50 PM
Well, there are lots of empty affordable houses now, especially in Detroit. More to come all across the country.
Posted by: Lars | Mar 12, 2008 3:44:28 PM
Now foreigners will have something tangible to buy with all those extra dollars. Time to set up that international real estate business...
Posted by: Camille | Mar 12, 2008 3:49:14 PM
This is huge. So much depends on price and the MBS the Fed is taking in is right in the midst of another 2/3rds drop in values.
Posted by: Stuart | Mar 12, 2008 3:57:29 PM
Boy, I can't believe the Great Spitzer Schadenfreude Bounce of 2008 was so short-lived. Certainly there has to be more juice in it than what we've seen today.
Posted by: bluestatedon | Mar 12, 2008 4:00:02 PM
too many people -- Home owners formerly known as renters -- bought houses they simply could not afford
yea but
it gave loggers and miners, building material factories, construction crews, banks, mortgage companies, real estate agents, tax appraisers
a reason to GO TO WORK
Posted by: Greg0658 | Mar 12, 2008 4:00:33 PM
Actually, I found the "inartfully" expressed thought to be refreshingly candid. I think artful finance is what got us here. Enough with it.
Posted by: dukeb | Mar 12, 2008 4:00:39 PM
A return to underwriting standards of old will truly kill the housing market. Imagine, a borrower needing good credit AND 20% down. How many first time buyers have $50,000 available for a down payment? Frankly, I'm excited about the possibility of cheap housing again.
Posted by: Mike M | Mar 12, 2008 4:09:05 PM
Syron says: put your hands on your head, put your hands on your hips...
Syron says: put your hands on your wallet
Posted by: Darkness | Mar 12, 2008 4:10:45 PM
Interesting, more headaches coming (?):
“Insured depositors are the wards of FDIC. Before August, FDIC would have had significant priority on the assets of a failed bank, selling off that bank’s assets to pay insured depositors. Unsecured commercial paper holders, bond investors, stockholders, and other creditors could only take what was left. The exodus of debt investors from the funding of mortgage originators like Countrywide and their replacement by FHL Banks at the head of the queue fundamentally changes this order. FDIC now only gets its pickings after the FHL Banks and the additional $200 billion in financing they have provided. This makes it more likely that, in the case of multiple bank failures, FDIC will not get a large enough slice of the pie to pay off insured depositors.”
http://www.mises.org/story/2772
Posted by: Jay | Mar 12, 2008 4:13:58 PM
I don't buy his argument that Freddie and Fannie had too much exposure to these low income loan programs in the past. Most of Freddie/Fannies exposure comes from prime loans which were a much easier target for fraud and broker abuse. These low-income programs were typically full doc and DTI could never go above 40-42% which in the scheme of things wasn't that bad, prime could easily go up to 50% or higher. Also remember that most of these low-income loans had loan limits based on the geographical area and the median house price in that area which were set by Fannie and Freddie. These values were typically on the low end of the actual values in the market. For example, California was topped out around $330k and Texas maybe $150k.
So these loans were typically better documented and the loan exposure itself was less since the homes being bought were typically small loan values (less then $150k)
I suspect this is an attempt to get congress to change their requirements as with the looming recession their fear is that these will be the first mortgages to be hit hard(er). Its not that they are bad loans when they are made, these people did qualify , its that when the shit hits the fan they are not going have the reserves to keep the payments going if they lose a job. In a capital flow sense, this would just be another burden to the already hardpressed freddie and fannie.
Whether or not this is the real reason, who knows but I smell something fishy and I think its just a diversionary tactic to cover a bigger problem... perhaps maybe flaws with their risk assessment and desktop underwriting program...
Posted by: Franks | Mar 12, 2008 4:17:35 PM
I want a bloomberg terminal :( How can I get one? :P
Posted by: Dave | Mar 12, 2008 4:20:07 PM
one thing I know.
third party financing of product prices like that which has occurred in both home and health provider markets (via health insurance) insurance leads to wildly growing prices in those sectors.(it's happened in the car market as well as financing has gotten ridiculous there as well.)
The housing sector has now reached the point of collapse trigger and soon the health provider pmarket will too as no one can afford health insurance either - therefore health insurance and then provider markets will collapse - the big health companies dependent on ridiculous compensation for health costs will collapse and - welcome back to the $20 house call by a nice doctor who actually cared about your health.
Frankly if we made health insurance and home financing and car financing illegal we would have realistically priced products in those areas and we would have scalable homes. You would build your home the old fashion way - one room at a time as you needed to expand.
You would have health care that used methods that were effective AND cheap rather than have the deck stacked toward the most profitable but not necessarily most effective methods like today.
And you wouldn't pay $5000 for a car paint job on a new car.
www.vivzizi.com
Posted by: george Watson | Mar 12, 2008 4:24:05 PM
Just cough up $25,000 a year, Dave.
Posted by: Mike M | Mar 12, 2008 4:24:09 PM
A side effect is that the lower income folks newly owning their homes are likely most vulnerable to job loss.
As renters, they'd be better able to move to find a new job, but now they're stuck with a house.
Posted by: Estragon | Mar 12, 2008 4:28:38 PM
Nah -- its about $1600/mo
Only $18k!
Posted by: Barry Ritholtz | Mar 12, 2008 4:38:24 PM
Yes, but:
Stocks Fall a Day After Huge Rally- AP
Wall Street's euphoria over a $200 billion plan from the Federal Reserve turned to caution Wednesday, leading stocks to retreat a day after their biggest rally in more than five years.
So there.
Posted by: Douglas Watts | Mar 12, 2008 4:40:55 PM
Bull, Bears, and Stags, Stockmarketeers, are a bunch of animals.
Posted by: Old Ari | Mar 12, 2008 5:09:48 PM
"require that a certain amount of the housing units that Fannie Mae and Freddie Mac finance through their overall business and certain sub- segments meet affordable-housing needs."
That's true. What's the definition of a "housing unit"? If it includes multi-family structures and it was targeted at the people who most needed its affordability wouldn't that satisy thier requirement. Why make riskier single party home loans to those who for whatever reason, appear less likely to be good for it?
Posted by: Pat G. | Mar 12, 2008 5:11:29 PM
APARTMENT'S ROLE IN HOUSING TO BE "MUCH BIGGER" -what does this mean? Can you expand on this point?
Posted by: Terry Sanford | Mar 12, 2008 5:23:48 PM
1600/mth? Thats a mortgage on 250,000 or a mortgage on 2 closets in NYC
Posted by: UrbanDigs | Mar 12, 2008 5:25:05 PM
OFF TOPIC
Check this out Barry.....
Spitzer at his new job.... Very Funny....
http://www.comedycentral.com/motherload/?lnk=v&ml_video=86026
Best Regards,
Econolicious
Posted by: ECONOMISTA NON GRATA | Mar 12, 2008 5:38:23 PM
As I was watching so many really huge houses being built in recent years, it seemed ironic that what was intended to be so opulent would eventually wind up being lived in by much larger numbers of much less wealthy people.
I had no idea that that would come so soon but the logic is very strong.
Posted by: Jessica | Mar 12, 2008 5:50:04 PM
It looks like Mr. Syron has sobered up. Where was this caution during the go-go housing binge days? These are new data points? It's obvious that market losses lead to some self-regulation. Alas, Uncle Ben believes that propping up asset prices, and their peddlers, is the Fed's new mandate.
Posted by: njdoc | Mar 12, 2008 5:55:28 PM
