"What is really behind the mushrooming rate of mortgage foreclosures since 2007?" asked Professor Stan Liebowitz of the University of Texas, Dallas on the op-ed page of the Wall Street Journal. His answer might have seemed revelatory to someone utterly bereft of common sense. After studying a huge national data base, he said the evidence "strongly suggests that the single most important factor is whether the homeowner has negative equity in a house."
Duh. That's like saying, "What is really behind the poverty rate? Evidence strong suggests that the most single important factor is a lack of money."
Think about it for 10 seconds. If you can't afford your mortgage payments and you have positive equity, you either refinance or sell your house. If you have negative equity, you don't have those options, so the lender forecloses. In key markets in California, Florida, Nevada and Arizona, home prices have fallen about 50% since their 2006 peaks.
It's an old and familiar stunt. Professor Liebowitz knocks down the proverbial straw man in order to justify his unsupported claim, or as he puts it, "This means that most government policies being discussed to remedy woes in the housing market are misdirected."
Professor Liebowitz' intent was not to explain or to analyze, but to confuse. First he confuses readers as to the causes (e.g. subprime securitizations, liar's loans) with the effects (e.g. negative equity) of the real estate bubble. Then he gets to his real point, which is to trash the Democrats.
What policies are being misdirected?
Although the government is throwing money -- almost $2 trillion and counting -- at the mortgage markets with the intent of stabilizing house prices, its methods are poorly targeted. While Federal Reserve actions have succeeded in reducing mortgage interest rates, low interest rates induce refinancings more than they do home purchases.
To be sure, refinancings may put money in peoples' pockets, but it is home purchases that directly impact house prices. Nevertheless, housing prices are likely to stop falling fairly soon with or without government policies. That's because current prices are approaching their long-term, inflation-adjusted pre-bubble level. These pre-bubble prices appeared to be a long-term equilibrium, meaning that prices would be expected to return to those levels once the government's efforts to artificially increase homeownership receded. Unfortunately, recent attempts by politicians such as Barney Frank (D., Mass.) to again artificially increase homeownership levels might delay this return to sustainable equilibrium prices."
How is Professor Liebowitz disingenuous? Let's count the ways:
1. With regard to the Fed's low interest rate policy, he insinuates some false distinction between stimulating the housing market and stimulating the overall economy, which has been teetering on the brink of disaster for a while now.
2. He suggests that housing prices are likely to stop falling fairly soon with or without government policies. But he has no real evidence to back up his claim. About one in three homeowners in California has negative equity. If all those homeowners walked away, market prices would spiral further downward in a state with rising unemployment and a paralyzing fiscal crisis.
3. All of this sets up the hit-and-run smear, wherein Liebowitz calls Barney Frank's efforts to arrest the downward spiral in the mortgage markets as an attempt "to again artificially increase homeownership levels [that] might delay this return to sustainable equilibrium prices."
But here's the kicker:
Other government policies are likely to be even less effective in reducing foreclosures. The Obama administration's 'Making Homes Affordable' plan focuses on having the government help lower obligation ratios (the share of income devoted to house payments) down to 31% from levels somewhat above 38%. But my analysis finds that mortgages having such obligation ratios at closing did not later experience high foreclosure rates. This suggests that reducing these ratios is not likely to significantly improve the foreclosure problem"
Once again, Liebowitz tries to confuse his readers as to cause and effect. He claims that 38% obligation levels do not correlate to high foreclosure rates. But the "Making Homes Affordable" plan was not created to lower obligation ratios. It's extended only homeowners who are at serious risk of foreclosure, either because they have negative home equity or because they have suffered some documented economic hardship.
Don't be surprised if Liebowitz, the director of the Center for the Analysis of Property Rights and Innovation, starts making the rounds on the right wing talk show circuit.
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What I meant to say is this: However, what he fails to include in his argument is why the homes are underwater in the first place.
OR
However, what he leaves out of his argument is why the homes are underwater in the first place.
Sorry to confuse. I had a brain meld while I was typing and didn't catch it before it posted. My bad.
; ~)
Yes homeowners are walking away from negative equity, etc, however he doesn't adress the ARM's which were provided to borrowers who would clearly not be able to keep up with payments once the mortgaged adjusted, be it from actual income, or if 1 or both lost thier jobs or got sick and was unable to work. This is a FACT of the whole mortgage mess and if anyone thinks different, come to Florida and I'll show you how many people were given ARMs because they really, really wanted that house and figured, I'll re-finance before it adjusts. Then boom! Lost job, prices dropped, got sick, got in a car wreck and can't refinance the house. The arm adjusts, homeowner can't keep up with the payments, walks away.
I think the point the author was trying to make is that people who CAN afford their payments if they tightened up but don't want to because they have negative equity. They don't see it as 'worth it' so they walk away. Of course we know that if you can't afford it, you foreclose either way frankly because nobody is buying homes in this market and banks aren't refinancin
Even 10 to 20% down loans = Negative territory after a 40% to 60% decline in most markets.
Wall Street = NO concern or care where the mortgages for their derivative
Wall Street = needed "SURE FAIL with TRICKS and TRAPS" Mortgage FODDER to make into Sure Fail Derivative
Banks + Hedge Funds = Placed Massive Casino Bets the Mortgage Derivative
Banks + Hedge Funds = Sat back and collected on their Manufactur
There are many out there seeing themselves 70k in negative equity who are choosing foreclosur
FHA looks back two years at a foreclosur
The Wall Street Journal trying to make political hay from this is of course entirely predictabl
Less than 5% of foreclosur
I think it's crap. It seems to me that the only way to get to that number is to use some obscenely narrow definition of what is a CRA loan.
I did these loans for a living. I know a little bit about them, and there were a ton of them.
How do you expect to have your writings taken seriously? So one man caused "part" of the meltdown? The one guy who happens to be a democrat? And you're sure no republican was involved? Where were they when they ran the govt in 06? Here's the problem with your opinion. You could at least spread the blame around a little starting with the mirror and both parties. No one would argue with that. But this parlor game of "blameever
isn't that a contradict
and ,no, the article does not state anywhere that keeping housing prices inflated is good..
it talks about Liebowitz efforts to confuse/du
While you are at it, could you please tell me what the "real" value of a house is? And when a house is "undervalu
Sub-prime = small or zero down loan
Even 10 to 20% down loans = Negative territory after a 40% to 60% decline in most markets.
Wall Street = NO care where the mortgages for their derivative
Wall Street = needed "SURE FAIL with TRICKS and TRAPS" Mortgage FODDER to make into Sure Fail Derivative
Banks + Hedge Funds = Placed Massive Casino Bets the Mortgage Derivative
Banks + Hedge Funds = Sat back and collected on their Manufactur
Finale = everything imploded in on Banks and A1G and then Main Street footed the $14 Trillion bill
Wall Street Greed and Corruption = Rewarded By Geithner/P
Wall Street GAMED the Failure of America's Housing!
This is a PURE and SIMPLE FELONY CHARGE!
__________
It was a relatively simple scheme with many accomplice
1. Mortgage servicing subsidiari
2. I-banks targeted certain mortgage REITs for servicing fraud which were then listed in ABX series of 20 REITs which changed every 6 months.
3. Then their traders using this insider informatio
4. Despite toothless FTC settlement
"Moderates verus liberals"
Moderates is now the term refering to right wing Democrats. Implying that liberals or not moderate WHICH BY ANY OBJECTIVE STANDARD THEY ARE..
Yesterday NPR had an entire psychologi
Failing to point out that precise definition
Tried to redefine it and acted on their new definition
(AND LOGICAL) equivelanc