Government Sponsored Mortgages Go Full Retard: 2008 Redux-Squared
This is a note to me from one of my Short Seller Journal subscribers:
As a 20 year real estate agent, investor and wholesaler in Atlanta, I’d like to add my comment to your analysis. I totally agree that things are not what they seem to be in housing. I despised the NAR [National Association of Realtors] when I was a member because of their “it never rains” housing reports and their confiscatory attitude toward realtor dues and their subversive political activity. I eventually gave up my agent’s license when they started forced PAC contributions in 2010. Edward Pinto of the American Enterprise Institute told me that NAR is spending $55 million a year for lobbying on housing issues. The NAR never met a loan they did not like.
I’ve been working the Atlanta metro housing market since the early 1990’s. I can tell you that this time around is different in that the home buyers I’m seeing in entry level FHA neighborhoods are mostly “minorities” (some are refugees), and virtually every neighborhood in my general area northwest of Atlanta is being sold with 100% financing via USDA loans. There is NO equity in these neighborhoods, and most of the selling prices are as high or higher than 2006-07. The mortgage fees and costs for things like PMI and funding fees are added into the payment along with ever rising tax and insurance payments. The outcome is not going to be pretty.
I do not know when exactly, but at some point, I’m going to make that massive killing in housing stocks that I missed out on in 2009. I knew that crash was coming as early as 2004, from reading mortgage data, but I did not think to short the home builders! This time I won’t miss. Enjoy your work very much.
There you have it. That’s the truth from the trenches. “The NAR never met a loan they did not like.” But guess what? All these 3% to no percent down payment mortgages are being subsidized by you, the taxpayer. Instead of Countrywide originating subprime nuclear waste and dumping it on Wall Street (and into your pension fund), this home finance scatology is being sponsored by the Government through Fannie Mae, Freddie Mac, the FHA, the VHA and the USDA.
Now Quicken – through Taxpayer-sponsored Freddie Mac – is offering 1% down payment mortgages (LINK) that also avoid the use of PMI insurance. The PMI insurance
is was a requirement for low down payment mortgages (below 20%), but the NAR and other PACs successfully lobbied to have this requirement removed. The funds from PMI were put into a trust that was used to help cushion blow when low down payment buyers defaulted. It was a thin layer of protection for the Taxpayer. Now that’s been removed.
Most of the homes being sold to actual buyers are now financed with Taxpayer funded subprime mortgages. If you note in the article about the Quicken product linked above, it references that these are not considered “subprime” mortgages thanks to rule changes. We can call a “nuclear bomb” a “snow cone” instead, but it’s still a nuclear bomb.
When a buyer closes on a low down payment house, the buyer is underwater on the mortgage after netting all the costs that are included. Home prices are not going up as reported by Case Shiller and the Government. Look around at all but the hottest markets and you’ll see a plethora of “price reduced” offerings.
This is going to get ugly again. Interestingly, I run into lot of people who agree with me that what’s coming will be worse than 2008. I reiterated a short on a big homebuilder less than two weeks ago that is down almost 9%. Despite the general upward push in the SPX since mid-Feb, I’ve had several picks that are down double-digits on a percentage basis, including a mortgage company that’s down 15% since late March, a consumer durables stock down 17% since mid-April and an auto seller that’s down over 18% since early June. This is because the Fed is concerned with propping up the Dow and the S&P 500 for propaganda purposes. But individual stock sectors are melting down. The home construction and auto sectors will be a blood-bath.
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