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Posts Tagged ‘Mortgages’

Government Pursues Bad Mortgage Policies with Veterans

Posted by Steve Markowitz on July 17, 2015

Various policies and practices led to the 2008 financial meltdown that nearly took down the world’s economic order.  Many were related to the inappropriate use of debt.

Beginning in the mid-1990s, the Federal Reserve began aggressively using low interest rate policies to offset economic downturns.  This included the Asian markets’ turmoil in the late 1990s, the Datacom and Dot com busts, as well as the economic downturn caused by 9/11.  While these low interest rate policies offered short-term benefits, in the long term they created significantly damage to the economy.

Downturns are a necessary part of economic cycles.  They are often caused when supply and demand of goods and/or services go out of balance.  During downturns excess goods and services are sold off and depressed prices, which ultimately leads to rebalancing supply and demand and then economic growth as more goods and services are required.

The low interest rate Fed policies, along with governmental bailouts, led to huge imbalances including the housing bubble.  With historically low interest rates and lax lending practices, housing prices appreciated on an unsustainable path.  Then, when appreciation turned to depreciation, millions could no longer pay their mortgages leading to the collapse of 2008.

Under typical conditions an economic calamity as encountered in 2008 suffices to “teach” a generation to avoid unsound economic practices.  However, these are not normal times. After 2008 Federal Reserve and central banks doubled down on the low interest rate policies.  While they tempered the effect of the meltdown in the short term, there are responsible for the lackluster recovery, the slowest since the Great Depression.

Pied PiperThe American government often uses interest rate policies to implement social manipulation pursued by Progressives.  The 2008 housing bubble was fed by the government promoting mortgages to income brackets that could not afford to make the monthly payments.  Millions then lost their homes and any equity in them. They would have then better served not purchasing the houses in the first place, but were cajoled into doing so by governmental intervention.  However, even this lesson has not been learned.

Once again the government is promoting imprudent mortgage policies, this time to veterans.  The company NewDay USA promotes as a benefit in one of the headings on its website newdayusa.com states: We’re a Different Kind of Lender.  As a Veteran, You Can Borrow Up to 100% of the Value of Your Home, Not Just 80%.”  NewDay USA goes on to say: ”With up to 100% of your home’s value available, including mortgage balance, you could qualify for thousands of dollars more from NewDay USA.”

NewDay USA could not make this offer without the backing and support of the US government.  This crony capitalism not only benefits the stakeholders at NewDay USA, but also places at risk their customers, veterans who served their country.  It is imprudent for any homeowner to not have at least 20% equity in their home.  This equity cushion not only helps ensure that their mortgage payments will be set at a reasonable level given their income, but it will make it more likely that their homes’ value will remain above the market price during inevitable downturns.

Some politicians back imprudent policies with good intentions, but little understanding of economics; the fools.  Others promote such policies for less benign reasons including crony capitalism; the greedy.  Neither serve the country well.

New Day

Posted in Debt, Governmental Intervention | Tagged: , , | Leave a Comment »

Federal Housing Administration to Run Out of Reserves in 2012

Posted by Steve Markowitz on February 14, 2012

The Wall Street Journal reported that the Federal Housing Administration (FHA) will run out of reserves this year for the first time in its 78 year history.  Since the FHA has budget authority, it can go directly to the U.S. Treasury for funds without making a request of the Congress.  This is another example of government spending of the People’s money without Constitutional authority.

The FHA was established by the US government during the 1930’s to help facilitate homeownership in America.  This agency does not make housing loans, but instead insures lenders who make them.  Since the housing meltdown, the FHA has had its charter substantially expanded, insuring borrowers who only can afford down payments of even less than 5%.  While this type of intervention may have initially propped up the housing market in recent years, its easy and risky mortgages is cajoling buyers into making an economic decisions.  Specifically, it offers incentives to low-income buyers to purchase homes that are likely to continue depreciating some years.  This not only puts at risk the FHA’s (the People’s) money, but the underwater houses are a long-term financial burden for buyers.

Instead of recognizing the growing problem at  the FHA, President Obama is again attempting to expanded its charter.  Earlier this year the President proposed allowing underwater homeowners to refinance their mortgages through the FHA.  This will place additional risks on the taxpayers since many of the refinanced homes will continue dropping in value with their mortgages ultimately becoming the responsibility of the U.S. Treasury.

People who cannot afford to pay their mortgages and whose home values are significantly underwater need to get out from under this financial burden and that will only occur by walking away from the homes, as distasteful as this is.  The banks and government agencies that made the inappropriate loans need to eat those losses now so that the housing market can bottom and a true recovery can began.  These losses to the banks and government agencies will also be a strong incentive to not repeat similar errors in the future.  It also ensures that those that made the bad loans pay the price, not the bulk of Americans who stayed clear of imprudent financial behavior.

The problem with the housing market is an imbalance between supply and demand.  Any government intervention merely prolongs the downturn as they do not address the imbalances.  In fact they end up creating even more imbalances.  Adding insult to injury, the FHA has become an important player in the mortgage and housing markets in recent years.  When this agency ultimately retrenches in the housing market, as it ultimately must, its negative consequences on the economy will be huge, likely requiring an even large bailouts.

The FHA is another example of a failing governmental agency.  While many private companies run into economic challenges and some even fail, their failure should be viewed as the market’s cleansing of inefficiency.  While such occurrences are unhappy for the failed companies’ owners and employees, it is a healthy process for the overall economy.  This reality was understood by Americans until we started down the slippery slope of bailouts that began before the Obama came to power.  With these bailouts increasing in frequency and scope, it is easy to see that the path is unsustainable.  However, like an addictive drug, stopping the juice is a painful process and politicians are willing to offer the medicine.  The patient will have to get a lot sicker before appropriate treatment will be implemented.  That day of reckoning is coming.

Posted in Bailouts, Housing Market | Tagged: , , , , | Leave a Comment »

Housing Market Damaged by Ongoing Governmental Interventions

Posted by Steve Markowitz on February 9, 2012

Federal and state officials today announced a $26 billion settlement with five of the country’s largest home finance providers.  The settlement relates to problems with home foreclosures that have been referred to as “robosigning.”  As part of the settlement, the government indicated there will be relief offered about 5% of the homeowners underwater who owe more on the mortgages than the homes are currently worth.

In announcing the settlement, government officials bragged about its benefits that include punishment for the lenders and benefits for homeowners hurt by the housing market downturn.  Both benefits are dubious at best.  First, the penalties to be paid by the banks will be charged to their shareholders, not the employees responsible for the problematic actions.  In addition, those who had their houses repossessed inappropriately will get about $2,000, a very minor benefit. In addition, any benefits underwater homeowners receive in refinancing houses will only be an artificial incentive to stay in the dwellings whose value will fall further hurting their savings long into the future.  Such homeowners would be better served giving these houses back to the banks and forcing them to eat the losses. This would be appropriate punishment two banks who made inappropriate loans in the first place.  This is the type of punishment free markets are supposed to and out, not those dictated by government

The settlement is yet another supposedly plan by the government to help revive the housing market.  Like the previous programs, this intervention will increase the length of the housing downturn.  Inherent in any governmental economic intervention is the belief that bureaucrats and politicians understand the many complex interactions of a dynamic economy better than the free market.  It also demands belief in a “free lunch” whereas the government actions will only have positive effects.  Neither axiom is correct.

The housing downturn is going into its fourth year and is at the heart of the worldwide recession caused by the financial meltdown in 2008.  Before attempting corrective steps, governments must have an understanding of how the economy got into this morbid state.

Economic cycles affecting the housing market have occurred throughout history.  However, the current downturn is the worst in since the Great Depression of the 1930s.  As this Blog has proffered previously, the United States government shares culpability in this downturn and its extent.

In the 1934 the US government began intervening in the housing market with the creation of the Federal Housing Authority (FHA).  The FHA became a backstop for mortgages in order to lower the cost of borrowing and promote homeownership.  The government’s policy of promoting homeownership created the mistaken belief by consumers that home prices always increase making them good investments.  However, home prices increase only as long as demand outpaces supply (basic Econ 101).  An oversupply decreases prices, as occurred in 2007 that occurred because of changing demographics and other governmental interventions.

Fast forward a few decades.  Progressives pushed the FHA’s charter even further.  In 1977 Congress passed the Community Reinvestment Act promoting homeownership to lower income levels, i.e. people who could not afford the mortgages.  In the 1990’s Congress pressured Fannie Mae and Freddie Mac to offer loans to even higher risk buyers to promote more housing.  These interventions increased more demand for housing inflating home prices.

Adding to the housing bubble creation, former Fed Chairman Alan Greenspan and later President George W. Bush pushed interest rates artificially low each time the economy hiccupped.  It also further breached the moral hazard by seemingly indicating that the government through low interest rates can and will resolve any future market disruptions.  The rest is history, as they say.

Remarkably, with the repeated failures of governmental market interventions, the government has doubled down on this same bet with more interventions.  The negative consequences include a lengthening of the housing downturn and more problems to come.

Since his election, President Obama and other Progressive politicians have offered various programs to “fix” America’s housing downturn.  They all failed because they stopped the markets from correcting the imbalances in supply and demand.  Had these interventions not occurred, while initially housing problems would have been greater, it is likely that we would now be in recovery instead of the ongoing housing downturn.  At the appropriate prices as determined by the markets, investors would be buying houses for ownership and four income properties and prices would be on the rise.  This self-correcting process will not even begin until a bottom in the housing market is reached, something that cannot occur until the government gets out of the way.

The low interest rate policies inflicted on economy by the Federal Reserve’s (Fed) will have even more negative consequences.  This policy is flawed on many levels starting with the mistaken belief that the heart of the lengthy economic downturn is a problem of liquidity.  In fact, the problem is one of solvency and cheap money cannot resolve this issue.

Given the complexity of our economy it is not possible to accurately predict the negative consequences that will occur due to the low interest rate policies of the Fed.  However, we can expect more and larger bubbles as investors attempt to improve their returns during a time when they should focus on asset preservation.

Also, it is likely that the Fed’s low interest rate policy will prolong and deepen the housing downturn, inflicting long-term problems on an important part of the American economy.  Not only are current homebuyers obtaining mortgages at historically low rates, but so too are those refinancing existing mortgages.  It does not take a great imagination to understand that when mortgage rates ultimately jump back up from rates of about 3.5% to the historic norm of about 7.5%, , the cost of buying a home with a new mortgage will increase significantly.  This will reduce future housing sales as well as construction of new homes leading to a long-term and ongoing downturn in the housing market.

The law of supply and demand is infallible in the long term.  Progressives have spent trillions and offered massive failed interventions to again prove this reality.  Until governments stop the interventions and get out of the way, the economy cannot begin real recovery.

Posted in Governmental Intervention, Housing Market | Tagged: , , , , , , , , , , , , , , , , , | Leave a Comment »

Employment Figures Prove Failure of Obama Policies and Keynesian Economics

Posted by Steve Markowitz on July 10, 2011

June’s employment figures released on Friday and were dismal.  While some pundits were surprised by the increase in the unemployment rate, those in the real business world were not.  First, the raw figures:

  • Only 18,000 jobs were created in June, the worst since September, 2010.
  • Private employment rose by 57,000 while government payrolls decreased by 39,000.
  • May’s jobs figure was revised downward by 29,000 jobs and April’s went down by 15,000.
  • Total unemployed is now over 14 million, and that does not count the underemployed.
  • The unemployment rate increased to 9.2%.

The numbers tell the story, period.  President Obama’s uneconomic policies that revolved around bailouts, Stimulus spending, and other market interventions have failed.  The failure is more grotesque when compared to the numbers included in the sales-pitch the Obama Administration made to the American people when promoting the Stimulus Package and other interventions.  That $787 billion Package was sold under the pretense that without it, the U.S. unemployment rate would exceed 8%.  All that money was spent and the rate spiked to over 10%.  Two years later it is 9.2% and rising.  Below is the infamous chart the Obama Administration used to sell the Stimulus Package.  The addition of the actual unemployment numbers in the red dots was added by e21.

The employment projections made by the Administration’s economic advisors with impeccable credentials in government and academia were flat out wrong.  These academics did not understand the real issue behind the 2008 economic meltdown, i.e. the excessive debt, or the effects of their junk science interventions.  In the business world these folks would have been fired long ago.  However, in the “Alice in Wonderland” world of government, they jumped ship when their policies failed, received a government pension and returned to academia to teach the next generation of economists.  Yikes!

Unfortunately there are more headwinds that will negatively impact future economic reports.  Three significant ones include:

End of QE2Quantitative Easing (QE) is in essence the Federal Reserve (Fed) buying U.S. Treasury bonds using money that they print.  If that sounds like alchemy, it is.  The Fed has supposedly stopped QE in June, which will have contractive effect on the economy going forward.

End of the Stimulus – While the Stimulus spending failed to positively impact the economy in the medium to long run, it had a short term simulative effect.  That effect is now winding down and given the current deficits, it is unlikely Congress will approve similar deficit spending.  This will be a contractive force on the economy.

State and Municipal Government Cutbacks – The prolonged economic downturn has significantly reduced tax revenues for states and municipalities.  This is forcing them to reduce expenses leading to increased unemployment of governmental employees; again a contractive force.

*********

The underlining cause of the lengthy economic downturn is excessive debt.  In the private sector this debt became excessive by a combination of miscues that included:

  • The U.S. government intervening in the housing market, promoting home ownership without regard for a buyer’s ability to afford a home.  This creeping intervention started in 1977 with the Community Reinvestment Act.  It continued with the government changing the charters of Fannie Mae and Freddie Mac from lending to social engineering.   When housing prices declined, this made a huge number of home owners underwater causing many to walk away from their mortgages, further placing downward pressure on housing values, the largest asset in most households.
  • The credit markets were distorted by the U.S. government’s promoting artificially low interest rates.  This cheap money helped create bubbles that popped, with the largest one being the housing market.  Each time a bubble popped or the economy headed for a downturn, the government and Fed went back to the same old elixir; lowering lending rates.  These interventions and cheap money stopped the economy from rebalancing supply and demand for an extended period and ultimately led to even larger bubbles.  Supply and demand remains out of balance in many sectors of the economy, a major reason for the length of this downturn.
  • The low interest polices meant savers received very low returns for safe investments.  That led to riskier investment behavior as investors searched for improvements on the meager returns.  This also led to a great pool of finds eager to invest in the CDO’s (Collateralized Debt Obligations) offered by the large investment banks.  These CDO’s fed the housing bubble.  Eager lenders make bad decisions and lost billions when the housing market collapsed.  Investment banks including Lehman failed and other banks required government bailouts to survive.

The excessive debt in the private sector was never allowed to unwind by the painful, but necessary, controls in free market; supply and demand.  Instead, the government moved the private sector’s debt to the public’s (taxpayers) balance sheet through bailouts and other interventions.  As a result, the markets have not rebalanced.  In addition, the government intervened in the employment market, for example, by increasing unemployment benefits.  This kept the cost of employment at a level not sustainable in the weaker economy.  Finally, the government intervened once again in the housing market by offering tax credits to buyers last year and this year slowing down the foreclosures process.

While the government’s interventions can be sold to the public as seemingly being humanitarian on their face, they actually are not.  These programs do not create real wealth or economic growth.  The interventions will only prolong the downturn and make the Country as a whole poorer.  Ultimately the markets will have their way as they always do.  It is this reality that the Obama Administration’s economic team either does not understand or chooses to ignore.  It is this reality that resulted in the dismal employment figures long after the recession supposedly ended.

This posting focuses on the failed economic policies of the Obama team and the Left since they control the White House, Senate, and controlled the Congress until earlier this year.  However, the Bush Administration and Right are not blameless.  It was George W. Bush and the Republican Congress that approved the initial and ill-advised bailouts of the large banks.  They also ran deficits that while meager Obama standards, set a tone for spending the next generation’s money.

Currently, the Republicans have rightfully pushed back on government spending and the ongoing debate on increasing the debt ceiling.  However, they have been silent on the effects on the economy should the belt-tightening polices be implemented.  While the Country must cut its spending to remain solvent, in the short-term these policies are contractive and will lead to pain for the Country as a whole.  In keeping with Washington’s lame view that the American people are too dumb to hear the truth, the Republicans tell just half the storey.

Economic problems caused by excessive debt cannot be resolved with still more debt no more than a drug addiction can be cured with more of the drugs.  American society as a whole benefited from the orgy of deficit spending and related ill-advised economic policies of the past two decades.  American society as a whole will need to be part of the solution and share in the pain required to rebalance supply and demand.  In a democracy, this means solutions that are not totally palatable to any one group or party.

Any workable solution to America’s complex and huge debt problems will require solutions of simplicity to keep special interests from attempting to protect their own at the expense of others.  An example of such simplicity is a balanced budget agreement to insure that the knuckleheads in Washington can never again create this type of fiscal mess.  Another example is a simplified tax code that lowers aggregate tax rates, but eliminates all loopholes and deductions to insure that the knuckleheads in Washington cannot pick winners and losers through the tax code.

Finally, a combination of substantial spending cuts and some revenue increases will be required, with much greater emphasis placed on spending cuts.  This, coupled with the simplified tax code and balanced budget, will insure that America’s fiscal house will be brought back into order.

It is no longer a question as to if austerity will be brought to America to fix its fiscal house.  The only question is whether it will be implemented by a plan that the People create or one that is forced on the Country by the unforgiving hand of the bond markets.

The video below brings the to dismal science of economics into the modern tone of rap.   Much more interesting than this Post’s modest attempts at putting the economic choices into perspective.

Posted in Debt, Deficits, economics | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a Comment »

The Second Mortgage Conundrum

Posted by Steve Markowitz on June 7, 2011

Last week we posted an article titled “Home Prices Double Dip According to Case Shiller” with the National Index showing prices tumbling another 4.2% in the first quarter of 2011.  This resulted in total prices falling 34% since 2006.

The federal government has spent tens of billions in a failed attempt to prop up housing prices.  This effort was doomed to fail from the beginning because of governmental blinders used in creating subsidies, bailouts and special tax breaks involved with this effort.  These blinders keep the government from seeing the complex economic inter-relationships at play in the housing market.

Today the Wall Street Journal published a story about one of the key problems affecting the housing market.  Of the home owners that have second mortgages, a staggering 38% are now underwater meaning that they owe more on the houses than they are worth, compared to only 18% of borrowers being under water that didn’t take on home equity loans.  The chart shows the extent of the problem and it boils down to two words: excessive debt.  Until this debt unwound, .i.e. paid down, any governmental intervention is throwing good money away after bad.

In addition, according to the Journal second mortgages place commercial banks at greater risk than primary mortgages.  Unlike primary mortgages that are often collateralized and sold off to investors, home equity loans are typically held by commercial banks that now have about 75% of the $950 billion in home-equity loans outstanding.  Given the amount of home owners under water, these banks are at risk for requiring large additional right downs (losses).

The housing market is and will remain problematic for the overall economy until the excess inventory is sold off.  This requires more home buyers to enter the market, something which will not occur until buyers believe house values have stopped falling.  The government’s intervention efforts have slowed down the process of allowing the housing market to find its bottom and this has prolonged of the housing slump.

The government needs to get out of the economy’s way so that it can right itself.  Wasting additional billions will only make the problems worse.

 

Posted in Debt, Housing Market | Tagged: , , , , , | 1 Comment »

Cracks in European Unity Growing

Posted by Steve Markowitz on June 2, 2011

While many Western economies continue being stressed from the 2008 worldwide financial meltdown, Europe has unique problems, some of which are self-inflicted.  The source of these problems can be traced to the creation of the European Union (EU) and its common currency, the Euro.

The EU and Euro were created in an attempt to emulate the economic size and political power of the United States.  While noble goals, Progressives put the EU together without considering the most basic economic laws, i.e. supply and demand.  This was at best foolish.  These laws are now working to correct the EU’s mistakes in a painful manner.

Like much of the West, most European countries are floating in excess debt.  The huge debt has made Greece insolvent and threatens to do the same to Ireland, Portugal and Spain.  However, with the Euro the only reasonable mechanism for economic correction between European countries was dismantled.

Prior to the implementation of the Euro, Greece had its own currency, the Drachma.  Should they have taken on too much debt, the Drachma would have deprecated not only putting a tax on all Greeks for their sloppy finances, but also making Greek exports cheaper.  With lower prices, Greece could have exported more to pay off debts to other countries.  However, with the Euro, the only available answer is forced austerity, which is not palatable to Greeks who have been rioting in protest.

This week the European Central Bank (ECB) ratcheted up take of austerity.  Its president, Jean-Claude Trichet, called for tougher fiscal intervention suggesting “giving euro-area authorities a much deeper and authoritative say in the formation of the county’s economic policies if these go harmfully astray.”  In addition Trichet suggested that EU authorities be given “the right to veto some national economic-policy decisions“.  Translation; European countries could be forced to give up sovereignty under certain circumstances.

Trichet’s comments were not taken kindly by some EU countries, the weaker ones.  Slovakia’s Finance Minister Ivan Miklos quickly voiced opposition stating: “We’re certainly against abandoning our independent fiscal policy-making“.  That response is not a surprise given Europe’s history of starting wars over less significant issues.

Much of the long-term economic problems that the world currently faces have their origins in governmental meddling in economies.  In the United States, more recent interventions included using Fannie Mae and Freddie Mac to promote social polices instead of having them act as rational mortgage lenders.  This significantly promoted the housing bubble.  Also, the Fed pushed interest rates to artificially low levels incentivizing more risky investing behavior throughout the world.  European governments made similar ill-advised interventions and also added additional interventions through the economically unnatural Euro.

Instead of learning from past errors, some Western countries are doubling down on failed policies with still more economic interventions.  They are not only doomed to fail, but will prolong the downturn as they create additional market imbalances.

Posted in Euro, European Union, Greece | Tagged: , , , , , , , , , , , , , , | 1 Comment »

Home Prices’ Double Dip According to Case-Schiller

Posted by Steve Markowitz on May 31, 2011

The S&P Case-Shiller national home price index was just released and it’s not pretty.  For the first quarter of 2011, the average home price dropped 4.2% and reached a new low for the post bubble period.  This is the third quarter in a row that the index dropped with prices now down over 32% from their 2006 peak.  David Blitzer of Standard and Poor’s said of this latest report: “This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation“.

The report confirms that the Obama Administration’s $8,000 tax credit for home buyers in 2009/10 was a total failure, wasting over $17 billion of taxpayer money.  This, like any governmental market intervention, is doomed to fail because it was based on the disproven premise that politicians and bureaucrats can manage supply and demand better than the market.

Not only did the Obama Administration’s home tax credit fail to improve the housing market, it likely made it worse.  First, it incentivized buyers to purchase homes that are now worth less than when they purchased them last year.  Yes, many are already underwater with their mortgages.  In addition, the tax credit temporarily slowed the housing prices decline, which lengthens the overall downturn by increasing the time it takes for a bottom in prices to occur.  Only after a bottom occurs can there be a real and sustainable market recovery.

For the Progressives out there, do not fret.  Failure never seems to stop your Washington compatriots from the willingness to double down on a bet and repeat the same failures.

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Government Again Pushing Loans to those than Cannot Afford Them

Posted by Steve Markowitz on May 12, 2011

There are various reasons behind the housing bubble and subsequent collapse that led to the largest financial crisis since the Great Depression.  Those on the Left often focus blame on greed and Wall Street banks.  While these issues played roles in the collapse, the United States government also helped sow the seeds for the meltdown.

Given the Progressives view that government can cure all societal issues, they conveniently ignore the role government played in housing boom and bust.  For example, in 1977 Congress passed and President Jimmy Carter signed the Community Reinvestment Act (CRA).  This Act required banks to make loans and mortgages in all the areas that they serve.  Progressives used this law to further their social goals that included giving more people the ability to obtain mortgages, irrespective of their ability to afford or repay them.

In addition, Congress pressured Fannie Mae and Freddie Mac to lower lending standards in support of the government’s social goals.  This artificially increased the housing demand, as well as housing prices.  Then, when the market went very soft, this guaranteed that many home owners would be underwater and unable to continue paying their mortgages.  This led to a downward spiral of foreclosures and declines in housing prices that continues to this day.

Now the Obama Administration is at it again.  Since the subprime mortgage meltdown, loans to low-income people and those geographic areas in which they reside have substantially decreased.   This is a natural free-market occurrence during a market downturn given that lending institutions tighten up standards.  This is a good thing that helps insure that those who cannot afford mortgages do not get them, especially during a time when housing prices are dropping.  This not only protects banks from making bad loans, but also protects individuals from buying depreciating homes that they cannot afford.

Progrssives, however, do not let economic realities interfere with their social agendas.  As they often do, they explain economic realities in terms of social injustices.  In the case of mortgage lending during the current downturn, they see racism.

Business Week has reported that the Federal Reserve cited Midwest BankCentre of St. Louis, MO for a practice known as “redlining”.  During the depression, the Federal Housing Administration (FHA) drew maps with red ink to delineate neighborhoods considered too risky for lending, often areas with high African-American populations.  Congress has since banned this practice.  Since Midwest BankCentre is located in a white suburb, as they have for 100 years, they have been cited for not issuing home mortgages or opening branches in minority dominated areas.

The Justice Department’s Thomas E. Perez stated the government’s position: “We are using every tool in our arsenal to combat lending discrimination.”  What a lame statement.  Banks are in the business of loaning money and making a profit, period!  They care not who the money goes to or what color their skin might be.

We are not even three years post the economic implosion caused by subprime mortgage mess, a problem caused in part by the government’s meddling in the economy to promote social programs.  The housing market is still in a tailspin with prices dropping.  Now, the Obama Administration is once again meddling in the housing market to promote the same social agenda.  Repeating the same failed policies and expecting defect results is truly insanity.

Posted in Governmental Intervention, Housing Market, Racism | Tagged: , , , , , , , , , , , , , , , , | Leave a Comment »

Housing Values Continue Dropping

Posted by Steve Markowitz on May 11, 2011

The economic news on the housing front continues to be bad.  For the first quarter of 2011, house values dropped 3%, the steepest quarterly decline since 2008 indicating that the housing market has not yet hit bottom.  To make matters worse, Zillow.com reports that 30% of homeowners with mortgages owe more than the homes are worth.

When the financial meltdown hit accelerating a decline in the housing market, the government made matters worse with various market interventions.  The worst step was a $8,000 in tax credit, an attempt by the government to bailout the housing market.  While this intervention gave a short-lived boost to the market, once the rebates ended an accelerated drop followed that continues to this day, as indicated in the Zillow chart.

According to Zillow’s chief economist, Stan Humphries, “We expected December and January to be bad” but February and March declines were “really staggering,” indicating “a reflection of the true underlying demand, which is now apparent because most of the tax credit is out of the system, and it’s being completely overwhelmed by supply.”  As a trained economist, Mr. Humphries should not have been surprised since pricing in the long-run is always “a reflection of the true underlying demand”, as taught in Econ 101.  The fact that some economics no longer understand this most basic principal of supply and demand indicates how poor Progressive economics education has become at the university level.

While President Obama cannot be faulted for the bubble and financial meltdown that led to the steep housing decline, he is responsible for wasting billions of taxpayer money on a failed attempt to prop up the market.  In addition, the interventions have prolonged the housing downturn by delaying its finding of a bottom.  Until prices fall far enough to allow demand to catch up with supply, housing values will continue to fall.  This most basic law of economics will not be denied.

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