Rick Snider
TheRickSniderReport.com

What percentage of loans are sub-prime?

Now, with a negative savings rate for the past 2 years, inflation, flat incomes and a not so great economy……I have to wonder, just how many folks have $80k lying around?

“Paulson also announced that Fannie Mae and Freddie Mac, the mortgage giants seized by the government earlier this month, would buy more mortgages to support the housing and mortgage market.”

How many of those mortgages are in foreclosure? How many more of those toxic mortgages can we expect to see on the MLS?

Either the government will write down the loss and the “homeowner” will keep the house or, will the government actually foreclose and put the home on the MLS?

If the government writes down the loss, for example, if the home was purchased at $400K and the home is now worth $300K, how will that loss be reported? After all, that $400k price range neighborhood/home is now no longer $400k.

So I ask the real estate professionals:
How will this loss be indicated on the MLS? The tax records?

Prices at 4x income un-affordable? perhaps, but they shouldn’t be. You’re thinking of the conventional wisdom (home price should be 3x income), correct? That 3x figure is where people should be limiting the top of their range. That number is 3x mortgage cost, not home cost. Put 25% down, and you’ve got that 3x mortgage. Also, that’s based off of a 7.5% interest rate, and going rates at the moment are 5.75%. Again, super low rates can and will skew that figure.

I still find it amazing that after the fall of Freddie/Fannie, Lehman, AIG, Merrill Lynch, IndyMac, and the implosion hundreds of other lenders, that people look to bailouts as indications of, or the possibility for stabilization.

Not once have I noticed anyone in the REI mention fundamentals, and based any thoughts of stability on historic indicators such as affordability, income, or rent ratio. Hardly anyone has mentioned that prices at 4x income are by in large, unaffordable.

Home prices have been propped up by toxic mortgages and loose lending. That should be painfully obvious by now. Will these bailouts cause the return of those lending practices? Will these bailouts inject the needed income to home buyers to allow them to be able to afford a home?

Bail them out. Bail ‘em all out. But if people can not afford to make the mortgage payment, the market will not be stable.

1) Homeowners trying to renegotiate their notes to avoid foreclosure will find more flexibility due to lower rates (we’re down 1/4 point since the announcement, and we’ve got room to drop).

2) Rate drops may make it sensible to re-fi and drop one’s monthly payment (Note that I’m talking about straight refinancing here, not cashing out).

3) Owners looking to sell may find a RE sales market improvement due to increased liquidity in the mortgage market

4) If (BIG IF HERE) the move stabilizes and sales improve, owners may be within sight of the bottom of the market here. This means that we may see less declining market situations and more “stagnant market” situations, i.e.- the price isn’t rising, but it ain’t dropping, either.

You’re right, regardless of whether they collapsed or not, you’re still going to have to make a mortgage payment to someone who’s holding the note. What we’ve got here is the possibility of stabilization, albeit at the cost of the federal taxpayer. In short it means your tax dollars are helping bail out other people’s mistakes.