Tag: Foreclosure

The Bubble Reinflates

This is mildly disconcerting. Megan Mcardle describes bidding wars breaking out over houses in DC. One house had over a hundred offers and prices are heading into the stratosphere again.

I’m not familiar with DC, but I am interested in the general question of whether we are we in danger of another housing bubble. Interest rates are ridiculously low, which tends to drive up housing prices (people who are spending less on debt service can afford more principle). We still have active federal programs to forestall foreclosures and help people refinance. DC, specifically, has had an effective moratorium on foreclosures.

I’m not ready to be alarmed yet. The broader measures of real estate show national real estate prices hovering near pre-bubble levels. But it would be just like us to not learn the lesson of the 2000’s. And just like the government to make it possible.

(In other mortgage news, a study has indicated that the Community Reinvestment Act was a huge contributor to the financial crisis. CRA-covered loans ramped up to $6 trillion in the bubble. I would take this with some salt — low interest rates contributed as did pressure from above to create loan for CDS’s and CDO’s: the instruments that brought the major banks to their knees. But we’re getting to the point where it’s simply untenable to pretend that the CRA played no role in what happened. Not that this will stop people from pretending it didn’t.)

The Least Surprising Mortgage Story

You remember the Tobacco settlement, don’t you? Based on dubious claims that smoking costs the states healthcare money, 46 states entered into an agreement that (1) froze the market for cigarettes in favor of a cartel existing companies; (2) took hundreds of billions from those companies, which they simply passed on as price hikes to the captive market; (3) paid lawyers tens of millions of dollars; (4) poured money into states ostensibly for healthcare and anti-smoking initiatives that, in the end, went into the same ratholes all other taxes went to.

We’re seeing the same script play out with the mortgage bubble. The big banks are more powerful and have a bigger market share than before. They’ve paid lots of money to various governments, and

Hundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps.

In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nation’s biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the state’s debts.

The money was part of a national settlement valued at $25 billion and negotiated with five big banks over abuses in their mortgage and foreclosure processes.

Fifteen states, so far, have admitted they will use all or most of the settlement money like general revenue. This is being justified as “economic development”.

Is anyone surprised? Is anyone at all shocked that state governments took one look at the mortgage industry and said, to paraphrase what Dave Barry said about the Tobacco Settlement: “You’re making billions by selling mortgages to people who can’t afford them and then selling the securities to investors the Feds bail out. We want a piece of that action!”

Really, the only thing missing is warning labels on mortgage documents. I’m sure they’re working on that.