Here's a riddle for you: What can you buy at record low prices, that you can't buy at record low prices? Answer: A home. That's right, despite interest rates not seen in nearly 50 years, home sales in the U.S. are sluggish at best. How can that be? Simple really. Most home sales are dependent on mortgage financing, but getting that financing can be a real challenge. Yes, home loan interest rates are at record lows, with some lenders advertising rates as low as 3.25%. But actually obtaining a home loan is another matter altogether. IF you have near perfect credit, and IF you have a substantial downpayment, and IF you have fully-documented income, and IF you've never been late on a mortgage payment ... and that's a lot of 'IFs' ... you'll still likely be 'put through the ringer' to nail down that elusive home loan. The bottom line ... home loans are not easy to get. But you'll rarely hear that mentioned in any of the 'rosy' pictures of a robust, rebounding housing market being painted by the media.
You can now add MetLife Home Loans to the growing list of lenders who are exiting the mortgage-lending business. MetLife's move will cost over 4,000 jobs. The Royal Bank Of Scotland just announced some 3,500 job cuts in its investment-banking division, but that's Europe, and the European financial crisis doesn't affect us cozy and comfortable Americans, right?
The fact is that the majority of home loans being made these days are sold to either Fannie Mae or Freddie Mac, the two massive GSEs that have cost U.S. taxpayers over $ 150 BILLION ... that's 150,000,000,000 DOLLARS! That's a lot of dollars. Fannie Mae CEO Michael Williams recently resigned his position at the mortgage giant. Several former Fannie Mae and Freddie Mac executives are under investigation by the very government that is now conservator to them. That means that the government is essentially investigating itself. How can that be? Another good question. Not too long ago, Rep. Barney Frank, among others, was quite vociferous in his quest to expand home ownership and thereby, mortgage lending. Lenders were only too happy to assist in this movement, lending to almost anyone on almost anything. No documented income? No problem. No downpayment? No problem. Marginal credit history? No problem. Need a home loan? No problem. So-called 'liar loans' were there for the asking. Wall Street bankers scooped up all they could get, bundled them into securities, leveraged them to outrageous multiples, and then sold them like so many bags of peanuts at the ballpark. Turns out that many of these subprime loans are now worth 'peanuts.'
Investor lawsuits are popping up like blemishes on a teenager's face. But unlike those unsightly pimples, the lawsuits aren't going away so quickly. Unfortunately for would-be homebuyers, part of the fallout from the subprime debacle is the toughest mortgage underwriting standards in decades. The whole mess is a conundrum worthy of Sherlock Holmes himself. But I doubt he'd take on the case. Complex murder mysteries are easier to solve, and with a lot fewer suspects.
How long this horribly out-of-balance housing market will last is anybody's guess. Seems that everyone has an opinion about how this mess came about and how long it will take to resolve. Perhaps the most surprising aspect of the current housing and mortgage crisis is the radical polarization of 'expert' opinions given the same set of facts. But then, unlike a juicy murder mystery, even the so-called 'facts' are in serious question. What are the facts? Well, it depends upon whom you ask. Oh there is no shortage of 'numbers:' Housing starts, new home sales contracts, mortgage delinquencies, mortgage defaults, completed foreclosures, REO inventory, 'shadow' inventory, housing supply, and on and on. John Burns, the San Diego-based housing industry consultant, publishes a comprehensive report that covers many aspects of the industry. Recently, he 'defended' his firm's 'optimistic' outlook on the housing industry. Seems that a lot of people questioned, if not outright challenged, his take on the state of the housing industry. Burns' reports are both credible and fact-filled, but ultimately they are just more opinions ... of which there are many. Some more erudite than others, but opinions just the same.
Facts, it appears, are not just 'facts' any more. They're subject to endless rounds of media 'spin' and other manipulations by so-called experts. Almost any 'fact' can be countered with a different 'fact.' Economists, investment 'gurus,' media analysts and political pundits alike all spout their own sets of 'facts' and weave them into complex webs that serve to support their own particular opinions. The naysayers and pessimists appear to be in the minority. Business channel anchors and analysts 'lick their chops' at the opportunity to 'devour' any guest that takes an even moderately dim view of our 'growing' economy. And for those rare on-air guests that dare to embrace a "doomsday' scenario on housing, or the economy in general ... well, the movie 'Jaws' comes to mind.
But then again, that's just my opinion.
(Second in a series of articles on the REO industry written by Philip Wegener)
