>>But the most troublesome sign is that credit standards are falling in an effort to keep people buying. An early sign of any bubble is when lenders start to use ploys they wouldn't dream of indulging in normal times. For example, mortgage lenders are now offering interest-only loans for up to 15 years before principle repayment starts, and they are permitting higher and higher loan-to-value contracts.
There's no doubt that some of this high-energy lending has been made possible by innovations in housing finance. Chief among them is the securitization of mortgages: Lenders who originate mortgage loans can spread their risk by selling loans to institutions, private banks and those government-sponsored institutions known as Fannie Mae and Freddie Mac, who, in turn, pool them and sell them to investors.
But securitization has also created dangers. The loan originators, who have incentive to value houses at the maximum possible, know that they are going to lay off the risk. So they tend to choose appraisers who are known to assess value on the, um, high side. And, as these columns have noted, Fannie and Freddie are themselves worthy of greater scrutiny, as they grow at rapid rates and in the process concentrate ever more of the nation's housing risk into two large, taxpayer supported entities (we won't call them "savings and loans").
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and the ploys appear to be getting worse...i watched housing secretary Menendez being interviewed last night and he was touting the admin's next proposal to spur home purchasing for low income buyers by expanding on the American Dream Down Payment Fund....
(from a Menendez speech)
"The "American Dream Down Payment Fund" provides $200 million to match down payment assistance, helping more than 130,000 low-income families overcome the single greatest obstacle to homeownership. President Bush also proposes a tax credit to support the rehabilitation or construction of at least 100,000 homes for low-income families over the next five years. The Administration will seek authority to offer low-income families new adjustable-rate mortgages that protect new homebuyers from dramatic changes in market rates until they can establish an economic foothold.
The American Homeownership and Economic Opportunity Act of 2000 provided low-income families the ability to use rental vouchers for down payment on a home. President Bush proposes to make this provision permanent and not subject to appropriations, enabling the Department to help more low-income families become homeowners. This builds on the existing authority to use vouchers for mortgage payments.
Finding affordable and decent housing continues to be a problem for many Americans. Almost five million very low-income renter households have "worst case needs" for rental housing. While this number represents an eight percent decline from 1997 to 1999, it is still unacceptable. " |
