Sunday, May 22, 2005

Congress Searching For Ways To Lower Standards

Not everyone is worried about risky loans being made to marginal borrowers. Congress is trying to figure out how to get even more people on the gallows, er, ladder. "For some first-time home buyers, it is a tougher hurdle than coming up with the down payment. These buyers are what lenders call 'unscoreables,' or they have such 'thin' credit files, their credit scores are abysmally low."

"Congress took up this issue for the first time May 12, when a House committee conducted a hearing on ways to identify and use alternative data that might help gauge underserved consumers' creditworthiness. Rep. Michael Castle estimated that '35 million to 50 million people' in this country 'may not have a full credit reporting history', or they may have none at all. Yet large numbers of those consumers pay their bills on time and should be treated as solid credit candidates."

After explaining several methods of finding credit history where it doesn't exist, the writer concludes, "Tools are available. Those who truly want to provide home loans to credit-worthy borrowers need only give them a try."


At 3:00 PM, Anonymous Anonymous said...

Those people have no business owning a home. All the Congress want is a fresh supply of slaves to continue building the grand pyramid of housing bubble.

The promotion of homeownership is this "underserved" group is at best a misguided effort, if not an outright conspiracy.

At 3:17 PM, Anonymous Anonymous said...

3:00 -- you could well be right. What I can't figure out is how long these Congressmen think the shell game can last. I think many of them are smart -- but also shrewd, unethical, sneaky, manipulative and (this is a redundancy) they care only about their own power and reelection. They are plenty smart enough to know pyramids cannot last indefinitely. Perhaps they just want to buy enough time to figure out a clever way to blame someone else.

At 3:26 PM, Anonymous Anonymous said...

A couple of weeks ago Dubya gave a speech to the Homebuilders and RE industry. He asked them for their support on his Social Security privatization plan. I am sure part of the deal would be to keep the RE bubble going as long as possible. If the RE bubble blows up before the 2006 election, the Democrats could take back the congress and then begin investigations. There is enough scandal circulating around 9/11. Afghanistan and Iraq that Bush could face impeachment.

Instead, even if Greenspan steps down in early 2006 as planned, expect Dubya to appoint a complete hack like Glenn Hubbard
as Fed Chairman. Rumor is Hubbard has the
inside track for the appointment. That way the cheap money will keep flowing until Fall 2006.

At 4:08 PM, Anonymous Anonymous said...

I doubt they can keep the bubble until Fall 2006 because SoCal is already experiencing a top. We have local RE markets but a national debt/banking system. If San Diego, a well-watched boomtown, pops it will send a financial shockware to the rest of the country faster than Greenspan can say "measured pace".

At 5:33 PM, Anonymous Anonymous said...

What's the scoop on Glenn Hubbard?

At 5:59 PM, Anonymous Anonymous said...

One thing I like about this blog is that it is normally politically neutral.

Bush-bashing Democrats should remember that it was Bill Clinton who changed the once in a lifetime residential RE $500K CGT exemption to a once every two years $500K CGT exemption thereby inflating the housing bubble back in 1998.

Also remember that the GSEs, Fannie and Freddie, are huge donors to the Democratic party - and Democratic congressmen frequently try to obstruct regulation of these entities. Only now has the Republican majority in Congress seemed strong enough to overcome these Democratic lackies of the GSEs.

Of course, the Republicans and the Fed also contributed to the housing bubble but let's not pretend that the Democrats are any less guilty.

At 6:00 PM, Anonymous semper fubar said...

Ah yes, Congressman Mike Castle. R-DE. (Or should I say R-MBNA?) Let's see ... what's his latest pet legislation, of which he was a sponsor? Why yes, that would be the bankruptcy bill. Otherwise known as the MBNA Relief Act of 2005.

Gee, I wonder why he'd be so anxious to lower credit standards for new homeowners? Part of the Republicans' "ownership society" plan no doubt. They'll be the owners, and you'll be owned.

At 6:05 PM, Anonymous Anonymous said...

Agreed. All of the politicians are guilty. And we will try to minimize such references to them, accordingly.

At 6:09 PM, Anonymous Anonymous said...

Since it is a slow night, would someone please tell me the definition of a "troll?" I am assuming it is someone who has a specific, potent agenda that is just about totally unrelated to the topic of the blog to which they post. Is that correct? Also, is there a site at which we can learn these terms? I'm new to this stuff. Thanks. Chip

At 6:34 PM, Anonymous Anonymous said...

A troll is someone who posts for the sole purpose of getting attention without adding value to the discussion.

I think there was an earlier discussion on the topic in this blog.

At 7:05 PM, Anonymous Cody said...

The sad truth is that both political parties cater to the whims of homeowners who, as we are constantly reminded, now make up 70% of the population. That is a voting block that encompasses both genders, all ages and races, etc And that's why our convoluted tax code, which favors homeowners to an obscene degree, will never be fixed.

For me, personally, the point of purchasing a home is to eventually own it so you can live somewhere cheaply in your later years (when your income will be curtailed.) Gov't tax policies and the flood of easy credit over the last few years have turned my theory on its head. :-) It seems the primary reason to own a home is to make a quick buck.

And, sadly, too many people will be unable to eventually own their homes simply because they are trapped in predatory financing schemes. How nice that our incompetent Congress is determined to expand their ranks! Well, they'll get a few more votes from the 'ownership society', I guess.

Thanks for posting these articles, Ben. This blog is an eye-opening experience.

At 7:16 PM, Anonymous Anonymous said...

Anonymous 5:59.
You said you like "bipartisan" comments on this blog and at the same time you made unnessasarily political comment.
And let simplify this. People who think that politician have unlimited power over the economic forces are mistaken. It is rather US Banking system Masters who influence the economy more than politicians.
But in this bubble scenerio it is like someone, even possibly very strong, holding 2 big canisters full of water. Stronger he is, longer he will hold. But no chance forever.
Same with this bubble. They can try to prolong, but ultimately it is not up them to decide how long it can be. Market forces are stronger then them.
So any attemp, to predict who decide for how long to keep that bubble, must fell.
I dont know when, but I know nobody can control that bubble. They started it, but now the market forces will decide when the bubble will burst.
Even with the attempt to organize the burst and publicize the bubble, these 77% of population who, according to to Gallup never heard about any talk about bubble, will still be buying.
And any attempt to accomodate potential buyers will work as long as there will be any buyer left.
So dont even think predicting the timing, based on political issues. It is worthless attempt. Just sit back, observe, learn and protect your family.
Mike C., Chicago

At 9:47 PM, Anonymous JJ said...

I agree with you Mike, provided that the laws hold up. One nightmare scenario is that all this is en-route to a centrally owned society (i.e. communism). Don't get me wrong, the communist _ideal_ is one thing, but as practiced by real humans, it would fortend the effective end of civilization as we have come to love it.

Starting with the Renaissance, we have been able to pursue our own destinies and intellectual goals (in the West). Don't get me wrong, this wasn't ideal either - it sure helped a lot if you were rich. But enough famous scientists, artists, musician, etc were spawned from anonymity during the era that I believe it really was a shift in the future direction of man.

Now, remember that man is the most predatory animal on earth. Simple Hawk and Dove game theory suggests that the few hawks will accumulate power in a society of doves (ok, you hardcore mathematicians, it's an oversimplification, but I believe there is some relevance). By the time of the Renaissance, bureaucracy and central control had a lot of practice around the world. Public policy in the U.S. and, to increasing degrees the entire earth, seems to my eyes to be evolving us into a modern prison. It's downright "matrix" in it's own way.

Imagine you create the illusion of wealth in real estate (hey, the Fed just had to lower ONE little number - the result was quite predictable), get people to buy at outrageous prices, hang a giant Sword of Damocles (read, credit) over as many heads as possible, and then pull the rug out. You then have them by the *ahem*. To what end, one might ask. I hope we don't find out, because I'm pretty sure it will not be for our benefit. And the responsible amongst us, who don't get sucked in? Well, the powerful don't like company, so it will always be a struggle for us. Our wealth and influence will diminish to whatever extent they can engineer.

Again, this is just a "nightmare scenario" (I have many). I'm not saying this is fact, just my musings. That said, I do like to keep things simple in my mind. If I see Congress moving to scoop people into an insane program, I have to ask myself "What's in it for Congress?." Ockham's razor (aka the law of parsimony, or KISS, keep it simple stupid) applies to politics and social engineering just as it does elsewhere. Anyway, again, nightmare scenario, blah blah blah.

Either way, trouble brews. MikeC, your last point is most crucial. We must all protect our families, and those of us with integrity must stand together in reason. It's the only way to fight this kind of madness in the long run.


At 10:07 PM, Blogger goleta said...


I know lots of young home owners are not happy with the high home price caused by the easy credit. Most young couples who bought home 5 to 10 years ago tend to be prudent and bought only home they thought sufficient for one or two kids at most. Now, as their families grow, a 3-bedrrom SFH is no longer sufficient.
Their $300K home has doubled or tripled to $750K, but a slightly bigger home with 4 bedrooms that used to be less than $400K now cost more than $900K. If they upgrade to a 4-bedroom home, their property tax would triple due to Prop 13 in California. If they sell their current home, they get $500K back after paying the mortgage off and the closing cost.

Now if they use that $500K as down payment for the $900K home. They would need a $400K mortgage, which almost doubles their current mortgage.

How many families can afford triple property tax and double mortgage when they have more kids coming or growing up that takes more money away? If those politicians think they can get home owners' vote by keep the price high, then they are dead wrong! Without the bubble, an upgrade would have only cost young home owners 20 to 30% increase in property tax and mortgage payment. But now it's triple and double!

At 10:31 PM, Anonymous edumicator said...

(A troll is someone who posts for the sole purpose of getting attention without adding value to the discussion.)

Trolls commonly pose as "devil's advocates", taking contrary positions to the general thrust of the discussion in order to create acrimony and chaos.

They are primarily male, ages 15-29. They use the word "dude" frequently.

At 10:45 PM, Anonymous Anonymous said...

Here's a good article from Wikipedia about trolls and trolling. It's actually kind of scary how much information is in here...

At 5:52 AM, Anonymous Anonymous said...

For various reasons, I have no credit history (it's blank), no verifiable income (I'm self employed), but substantial assets. Out of curiousity, I stopped into a Countrywide office to see if I could get a $250K mortgage for the property I rent. I expected them to say no way.

To my surprise, they said if I can document 3 accounts where I've made 12 consecutive monthly payments, this would "construct" a sufficient credit history. To my greater surprise, they weren't even interested in verifying my substantial assets. And the rate was very good.

The impression I got is that they really don't care because they know they can sell the mortgage quickly (to FNM?).

At 6:40 AM, Anonymous Anonymous said...

6:34, 10:31, 10:45 – thank you for the definition of a troll. The Wickipedia entry is, as you said, incredibly comprehensive. Chip

At 8:55 AM, Anonymous Loren said...

With respect to Congress:

Never attribute to malice what can be explained by ignorance.

As a head of a growing family who has owned houses for 9 years now I can also say that this housing bubble is for the birds. Congress is getting no praise from me for trying to take away my ability to support my family without burdening them with unnecessary debt. Even rent is driven up by this mess - property tax and property price appreciation do trickle down to rents.

At 10:07 PM, Anonymous Anonymous said...

Even rent is driven up by this mess - property tax and property price appreciation do trickle down to rents.

Only to the extent that the rental market (which in some sense is the real housing market) will bear. Rents in the Bay Area are actually down in nominal dollars since the dot-com collapse, even as house purchase prices have skyrocketed. Rents are more or less flat these days in San Diego and Orange County - not sure about LA.

At 8:11 AM, Blogger AsgardRagnarok said...

That Wikipedia entry on trolling was...mind-numbing. Great stuff though.


Post a Comment

<< Home