Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, March 16, 2007

Ok, All You Kids, Party's Over ! Get Offa My Lawn!!

Greenspan sounds like somebody's dad, chasing everybody out of the driveway after a Prom party. A Prom party that he supplied the keg for. Now he's gonna let them all drive themselves home and if anything happens , hey, it's not his fault, it's the prices not the loans!!.

Greenspan said the housing downturn appeared to stem more from the recent stagnation in housing prices after years of appreciation than from a decline in mortgage quality but said he was not downplaying problems in so-called subprime loans.

Here's a little advice from Mr. G just three short years ago.

Greenspan recommended that the home-owning public take a good hard look at switching from fixed-rate mortgages, under whose terms payments stay the same no matter what interest rates do, to adjustable rate mortgages (ARMs), where payments fluctuate along with interest rates--which, right now, makes close to zero sense

And oh why oh why did Mr. G have this to say??

It is tempting to ask what stake the chairman might have in trying to convince millions of people to do something so contrary to their own interest. One theory floated by Fed-watchers is that the chairman is trying to help out his classic institutional constituency, the big banks, which hold trillions of dollars in fixed-rate mortgage paper. There may be something to that theory, but there is almost certainly a deeper and more important motive behind this curious advice. Quite simply, Greenspan is trying to keep a wobbly and fragile recovery alive--and using mortgage refinancing to do it.

Sometimes it's enlightening to jump in the Wayback Machine and take a look in the rearview mirror. There's a lot of interesting looking roadkill back there in the tailights. Like this story from the WaPo just a short year ago.

Beverly Wilmore is bracing for the tuition bills about to start rolling in after her 19-year-old daughter starts at Towson University this week. But she's not too worried -- she figures she and her husband can borrow against their four-bedroom Gaithersburg home, which has appreciated from $250,000 when they bought it in 2000 to about $400,000 now.

And as the home's value rose, two years ago the Wilmores refinanced their mortgage, cutting their monthly home-loan payments by hundreds of dollars, she recalled.

Like many families who caught the housing boom, the Wilmores now have more debt than before they bought their home, but they also are wealthier. "I'm thankful for the low interest rate," said Wilmore, 42, a special-education teacher.

The Wilmores are among the millions of Americans who have prospered during Alan Greenspan's 18 years as chairman of the Federal Reserve. They lived through nearly two decades of generally stable economic growth with low inflation, low unemployment and modest interest rates. Under Greenspan's watch, the economy thrived despite stock market crashes, international financial crises, terrorist attacks, wars and other shocks. No wonder, as Greenspan prepares to retire next week, economists have lauded him as the greatest central banker ever.

I wonder if the Wilmores still feel that way? Hopefully, they didn't get into too much trouble. Greenspan wasn't too worried back then though, even if other economists had some questions.

Greenspan didn't define "excess," but economists see troubling possibilities: A sudden reversal in housing prices could trigger a recession if consumers cut back on spending and households have trouble paying their mortgages. The trade gap could swell to a point that forces a sharp fall in the dollar and surge in interest rates, also causing a recession.

Even without a crisis, the debt load will weigh on the economy simply because of the interest to be paid on it, which leaves less money to spend on other things and prevents living standards from rising as fast as they would otherwise, some analysts believe.

So what does Mr. G. have to say for himself today? Just a couple of paragraphs back he was saying it was housing price inflation that was responsible for all the trouble and not those nutso loans he was telling everyone to get. NOW, I see this Think he's worried yet?

Even though he didn't mention the "R" word Thursday, Greenspan's predictions were unsettling.

On housing, he said "if prices go down from here, I think we're going to have problems that could spill over to other areas." Specifically, he was referring to the subprime mortgage market further affecting other segments of the market and economy.

On Thursday, subprime mortgage problems continued to plague lenders. H&R Block said its third-quarter loss, which was reported Feb. 22, at $44.7 million, had grown to $60.3 million due to a sharp decline in the value of its mortgage business.

Greenspan said he found it "remarkable" that consumer spending has not gone down along with home values, considering how much consumers borrowed in home equity in recent years. "I'm puzzled," he said.

He's puzzled?? Wonder how he feels about a Federal Bailout of everyone who listened to him, or maybe a Class Action Lawsuit over his advice......or maybe that's why shares in the Subprime Lenders, (the ones who aren't being subpoenaed) rose today.. Maybe they know something we don't. Maybe they know that Federal Help is on the way.


At 3/16/2007 01:29:00 PM , Anonymous tom stone said...

Hey,why pay rent...much easier to buy,no pesky first and last to come up with,a 620 credit score is fine...and no one cares about your job or income,no problemo bro.actual case.620 fico,nina loan,105%ltv,$800k purchase price,total out of pocket cost $250 for the appraisal,may '06.

At 3/16/2007 03:44:00 PM , Blogger Athena said...

Greenscam! Why doesn't that guy STFU already? Whatdah#ll?

At 3/16/2007 04:59:00 PM , Blogger moonvalley said...

Yikes, that makes me want to blow my brains out! NO FAIR!!!!!


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