An Insider's View of the Real Estate Train Wreck

An Insider's View of the Real Estate Train Wreck

For all intents and purposes, the United States home mortgage market has been nationalized without anybody noticing. Last September, reportedly over 95% of all new loans for single-family homes in the U.S. were made with federal assistance, either through Fannie Mae and the implied guarantee, or Freddie Mac, or through the FHA.

If it's true that most of the financing in the single-family home market is being facilitated by government guarantees, that should make everybody very, very concerned. If government support goes away, and it will go away, where will that leave the home market? It leaves you with a catastrophe, because private lenders for single-family homes are nervous. Lenders that are still lending are reverting to 75% to 80% loan to value. But that doesn't help a homeowner whose property is worth less than the mortgage. So when the supply of government-facilitated loans dries up, it's going to put the home market in a very, very bad place.

Why am I so certain that the federal government will have to cut back on its lending? Because most of the financing is done via the bond market, through Ginnie Mae or other government agencies. And the numbers are so big that eventually the bond market is going to gag on the government-sponsored paper.

The public doesn't have any idea of the scale of the guarantees the government is taking on through Fannie, Freddie, and FHA. It's huge. If people understood what the federal government has done and subjected the taxpayers to, there would be a public outrage. But you can't get people to focus on it, and it's very esoteric, it's very hard to understand. But it's not something the bond market won't notice. The government can't keep doing what it has been doing to support mortgage lending without pushing interest rates way up.

More....

Pretty scary stuff.



[edit on 11-2-2010 by loam]

Not a single comment?

My timing must really be off.

What this guy says is pretty chilling. I'm hard pressed to dispute what he claims. Obviously, we are still on this slow moving train wreck.



[edit on 11-2-2010 by loam]

Good read.

Seems like there are tough times ahead of us but hopefully in the future all will be better.

It's hard to think about the long run, but we have to. No one prevails if all we think about is 5 minutes ahead of us.

Thanks for bringing this to our attention

Its a very good take on the situation, unfortunately there are so many many new and exciting problems that old boring problems have become passe'. The effects of a Greek soveriegn debt default are so much more abstract and the ramifications so uncomprehendible its much more interesting than the collapse of US housing. Let us not forget about commercial real estate that will need to be refinanced in the next couple of years, YAWN. but what will happen if the Euro collapses? now that is interesting!!

If i haven't made my point i will explain by a long, informed paper on international.....SQUIRREL...nevermind, nothing to see hear

It's a fascinating article -- especially with the focus on commerical real estate. But no mention of deriatives? What about the cross over between investment banks and savings and loans? I think Doug Henwood has this issue nailed -- the international dynamic has to be considered -- as Japan's banking system was mentioned -- but considering how much Japan owns U.S. treasury bonds while dependent on U.S. oil and exporting to the U.S. Similar scenarios with Germany and China -- it seems the real issue is a global class of investment banks leveraging currency differentials against wage differentials. Production in the U.S. may have increased by purchasing power of consumers has plummeted since the global investor class has no direct incentive to actually increase local wages. It's better for the working class to just develop local economies using local currencies, as Madison WI and Ithaca NY have developed. Local farms and local housing cooperatives and food cooperatives are the back bone of the local currency system.

reply to post by loam

you know with weapons of mass distraction such as tiger woods, Sarah Palin, and many others, the public is too enchanted by what they are told on the tube.

if you thought 2008 was bad, just wait until the commercial real estate bursts... all hell will break loose by then. but do you think the public would notice? yea, they will, until the tube distracts them with another scandal, or more Iran bashing, or whatever. who knows, but i would put my money on the fact that the public wont do anything about it!

Originally posted by loam

Not a single comment?

My timing must really be off.

What this guy says is pretty chilling. I'm hard pressed to dispute what he claims. Obviously, we are still on this slow moving train wreck.



[edit on 11-2-2010 by loam]

They tried their best to keep it away from us all until the dam burst.

Realised that the victims would include all nations that have moved away from picking coconuts for a living unless a quick fix (however imperfect or temporary or futile in the long term) is made.

What they have bought is time...... It is how they use this time to right the economic fundamentals that bothers me.....

Doesn't seem like much is being done to stop this runaway train. We all know what's coming. It's like watching a bad accident.

We have very well educated people running things they know exactly what they are not doing. Who knows maybe the real estate meltdown itself is a distraction for something else. Keep the people busy with survival.

Unfortunately those who bought into the artificially inflated market will be the ones taking the fall. Certainly this was always the plan. It's criminal the way they have manipulated the working man as well as the economy. The bailout money should have been used for job creation.