Gretchen Morgenson and Michael Hiltzik explain the foreclosure settlement

I was so excited.  I thought the almost-nationwide foreclosure settlement between the five big banks and the states would provide relief for underwater homeowners.  I thought it might be an end to short sales as we've come to know and love them.  But no. 

New York Times business columnist Gretchen Morgenson bursts the bubble here. (BTW, Gretchen is really readable -- she makes even the most arcane, convoluted financial stuff very easy to understand. Really.)  Here are a few quotes:

"There’s no doubt that the banks are happy with this deal. You would be, too, if your bill for lying to courts and end-running the law came to less than $2,000 per loan file."

And "For most homeowners, it will barely move the needle. Forgiving $17 billion in principal “is a drop in the ocean ... given that close to 11 million borrowers are underwater on their loans to the tune of $700 billion in total.”

Michael Hitlzik from the Los Angeles Times is my other favorite financial columnist (along with David Lazarus) and his column from today's LAT is here. Some quotes:

"I believe the technical term for all this is "big whoop." The provisions mostly require mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud. The rest is pretty much out of the best-practices manual of customer service, which benefits both the customer and the institution."

And "In the words of business consultant...Yves Smith, "We've now set a price for forgeries and fabricating documents. It's $2,000 per loan." She observes, quite properly, that the payoff is a minuscule fraction of the costs these practices have imposed on borrowers, the court system and the economy."

Whew. So much for thinking that things were going to change -- silly me.  Thanks, Gretchen and Michael.

Working without pay, right or wrong??

Image via CrunchBaseI recently read an article that was published in the New York Times today about how more real estate interns that are working for no pay.  This is a topic up for discussion across many different fields of industry, but I had never heard it brought up with real estate interns.  You can read the full article here: http://www.nytimes.com/2012/02/07/nyregion/unpaid-interns-enter-the-world-of-real-estate.html

Let me know what you think of it.  Do you think real estate interns deserve some sort of compensation besides experience?  If so, what would it be? If no, how should they expect to pay their bills without going into extreme debt?  I'm trying to answer these questions myself!

Sunday a.m. newspaper reading with New York Times' Gretchen Morgenson

Today's Sunday a.m. reading comes to us courtesy of the NY Times and their stellar regular columnist, Gretchen Morgenson.  Her article is entitled Some Bankers Never Learn and it's about the (new, not-so-improved) rise of risky low-down loans. Title and above should link. Ms. Morgenson talks about the Dodd-Frank bill and what it would mean to the mortgage market.  My favorite quote: "Basically, Wall Street would have to eat a bit of its own cooking."  The columnist comes out squarely on the side of requiring all mortgage loans to have 20% down.

Although it sounds great in theory, and I love Morgenson to pieces, I need to differ with her on this.  Where are people supposed to get that 20%?  Considering the economic client of the last few years, how would it be possible for any middle-class person to have saved that much unless they happen to be employed in a very few select industries? Or have tapped the Bank of Mom and Dad? Yes, zero-down loans are risky -- but can't we compromise and go with 5% down loans?  Unless we want to see our markets tank again?

IMO, the L.A. Times is back! At least the biz section, anyway

Many of us were dismayed when the L.A. Times began to cut back on its editorial staff and pages a few years ago.  Personally, I missed the separate LAT real estate section and the L.A. Land blog, especially when the editor was the outstanding Peter Viles.  I turned to Calculated Risk and Gretchen Morgenson of the New York Times for my real estate and business news. Caveat: while I don’t have a really sophisticated understanding of all things finance, I do try to keep up with the news, especially about banking, lending and real estate.

But regular business columnists David Lazarus and Michael Hiltzik have changed my mind about the quality of the L.A. Times’ business reporting.  Both are outstanding writers and produce business news columns that are informative, topical and easy to follow for us regular folks.  I’ll never give up reading NYT’s Gretchen, and this isn't a smackdown, but Lazarus and Hiltzik make reading the L.A. Times biz section an educational pleasure once again.

Fannie Mae and Freddie Mac: hasta la vista, baby!

Fannie Mae and Freddie Mac have provided mortgage "liquidity" for the past few decades. While they are not government programs, they are government-sponsoredprograms, and had to be bailed out by the tax payers when the housing crunch hit.

Now, there are plans to eliminate or reduce Fannie and Freddie over the next few years. There are also plans for the government to get out of the mortgage-guarantee biz entirely, except in times of a financial crisis. (Which I don't get; how would that be different than what we have now? But I'm not an economist.) See G. Morgenson's NY Times article here; Calculatedrisk.blogspot.com also has a good analysis.

Here's my take on how this will affect housing markets (hint: not good). Disclaimer: I'm not an economist, and could likely be very wrong. But every analysis I've read says that it will be harder to buy a home. So here goes with my personal analysis:
Winners/losers:
1. Taxpayers/taxpayers. Taxpayers may no longer be on the hook for bailing out Fannie and Freddie. But many taxpayers will no longer be able to buy a home and hence take advantage of the mortgage interest deduction.
2. Banks/banks. This will definitely put more power over the housing market into the hands of the banks. Banks will have to deal with less government interference. And they still may have a back-stop during financial crises. However, fewer people will be able to afford homes and after all, the banks don't make money unless buyers borrow money.
3. Landlords and landlords Less home sales mean more home renters, which is good for landlords. However, it will be harder to sell rental properties.
Now, for the losers/losers:
4. Home buyers, home sellers and Realtors: If you're a home buyer, you'll need a bigger down payment. If you're a home seller, fewer able buyers may translate to lower prices. And if you're a Realtor (hey, I can add some self-interest here) you'll be looking at less transactions all the way around.
If you think I'm wrong (and I hope I am), I'd love to know your opinion and your reasons.