Inman News has a very interesting… I guess one would have to call it an Op/Ed or News Analysis on the Washington Post’s story on HUD Secretary Jackson’s last day:
An article in last Sunday’s Post deserves credit for attempting to go beyond the allegations of cronyism that forced Jackson to resign, and taking a deeper look at the role HUD policies may have played in the housing downturn. Unfortunately, the article doesn’t deliver on that promise.
The Post claims that because Jackson “pushed for legislation that would make it easier for federally backed lenders to make mortgage loans to risky borrowers who put less money down,” he will be “remembered as a Cabinet secretary so committed to carrying out President Bush’s goal of increasing homeownership that he encouraged policies that threatened to exacerbate the mortgage crisis.”
Matt Carter does go on to explain some of the political shenanigans that went on in wa-wa land (aka, Washington DC, which is like la-la land, aka, Hollywood, in that they both indulge in fantasies, but different in the personal attractiveness factor) and basically debunks the WaPo story. The entire thing is worth a detailed read, especially if you’re interested in legal and political issues in real estate.
I thought it interesting, however, that there were two assumptions made in the story.
First, Matt assumes good faith on the part of the Washington Post.
What’s ironic about the Post’s story is that the Bush administration (and Republicans in general) usually come under fire from housing advocates for attempting to limit the government’s role in lending — especially when it comes to Fannie and Freddie, which during the housing boom were hobbled by caps on their portfolios and requirements to maintain additional capital (those limitations were imposed in the wake of management and accounting scandals that forced both companies to restate several years of earnings). Some critics say the limits on FHA, Fannie and Freddie were one reason “private label” lenders — many employing much looser underwriting criteria — were able to boost their market share so dramatically during the boom.
To claim that the administration’s lone attempt to expand a government-backed loan guarantee program “threatened to exacerbate the mortgage crisis” suggests a lack of awareness of the changes that took place in the lending industry during the housing boom, or the motives for expanding FHA loan guarantee programs.
Matt — maybe it’s not a “lack of awareness” but willful ignorance? Or worse still, perhaps the WaPo simply doesn’t care about inconvenient things like the truth. I think he actually means to suggest it, but is politely refraining from calling a spade a spade. I have no such restraints, polite or otherwise. Washington Post’s story is nothing more than a politically motivated hit piece on the Bush Administration written by left-wing editors and writers in an attempt to lay the blame for the current pain in the real estate market at the feet of the White House by any possible means.
It’s a shame, but that is the state of the “news” media in this country today. When people like Ron Peltier of HomeServices and Alex Perriello of Realogy talk about the relentlessly negative media environment for real estate, there is some truth to their complaints.
As Matt Carter himself reports in another article on Inman, fact is that this whole ‘subprime’ thing may have been much ado about nothing:
According to the latest economic letter from the Federal Reserve Bank of San Francisco, it’s likely ARM loans have higher delinquency rates than fixed-rate loans not because of the payment shock associated with interest rate resets, but because the people who took them out had higher risk characteristics.
And later in the article:
The flip side of Yellen’s analysis is that markets that weren’t subject to lots of speculation are in better shape to weather the storm. PMI’s latest risk index shows a reduced risk of price declines in markets that didn’t see steep run-ups in prices during the housing boom.
Huh. And here we are, thinking all this time that the reason why the housing market is in the tank is because of irresponsible bankers and mortgage brokers selling these DANGEROUS subprime loans to poor unsuspecting consumers. Turns out, mortgages have less to do with delinquencies than the price fluctuation brought on by speculation? Whodathunk reading the New York Times or Washington Post?
About those poor unsuspecting consumers… that’s the second assumption Matt makes. He writes at the end of his excellent analysis:
HUD estimates the simplified disclosures will help consumers save $8.35 billion a year. Had those disclosures been in place during the frenzied buying of the housing boom, many buyers who got into homes by taking out loans they didn’t understand might have instead gone with more affordable mortgages — or not taken out a loan at all. (Emphasis mine)
Why do we continue to believe that the problem was buyers who “didn’t understand”? Why do we persist in the assumption that these delinquent buyers were tricked, fooled, bamboozled into buying million dollar homes on $35K a year incomes? Maybe these buyers understood perfectly well that they were taking an enormous gamble but simply didn’t care; maybe they all thought they’d get out before the market crashed and make a few tens of thousands of dollars for nothing. Maybe they fell into the trap that every bubble-economy fool falls into: the Greater Fool theory. Maybe they’re not poor unsuspecting victims after all, but simply gamblers without morals or ethics or sense of personal responsibility.
That would, after all, fit the profile of “higher risk characteristics”.
People are walking away from houses not because the loan terms got so damn onerous, but because their gamble didn’t pay off. That’s the only possible interpretation of the San Francisco Fed report. ARM or 30-year fixed, makes no difference — the rapid rise, then rapid fall, in housing prices does. Those are the facts.
The responsible buyers, the ones who didn’t feel like speculating on real estate, who weren’t “flipping condos” and dreaming of making big bucks on No Money Down deals, they’re still buying in this market. They were buying at the height of the boom too — but they didn’t go pouring everything into $2M condos on $50K a year. They behaved like rational adults, rational consumers. And they continue to do so.
Are there innocent victims? Meh… I suppose… but it would have to be one hell of a story involving either a health crisis or unemployment to pass the smell test if someone bought a house they simply could not afford a mere two years later.
As for the Washington Post and the rest of their comrade-in-arms in the media… should we see a Democrat elected to the White House in the fall, I think we’ll suddenly find that the editors will discover hitherto unseen silver linings in the real estate cloud. The sun will break through the dark clouds, and wonder of wonders, we may come to learn that WaPo and NYT begin to see a ray of hope, a brighter tomorrow.
Even then, making assumptions about their “lack of awareness” would be a step too far in the direction of naivete.