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| Articles By Lawrence Roberts |
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Interest-only and negative amortization payments cannot go on forever. At some point, the loan balance must be paid in full. For all adjustable rate mortgages, there is a mandatory recast after a fixed period of time where the loan reverts to a convention(read
entire article)
View : 191 Times
Category : Mortgage
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The loan reset issue is not confined to those who bought late in the bubble rally of the Great Housing Bubble. Many borrowers are homeowners who refinanced to take advantage of more favorable loan terms. Most loans originated in the later stages of the bu(read
entire article)
View : 149 Times
Category : Real Estate
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Affordability is a measure of people's ability to raise money to obtain real estate. It is often represented as an index that compares the cost to finance a median house price to the percentage of the general population with the income to support this hou(read
entire article)
View : 147 Times
Category : Real Estate
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One can argue that structured finance creates greater efficiency in our financial system because capital is freed to pursue other objectives. Although, it can also be argued, as Warren Buffet has, that derivatives, the product of structured finance, are "(read
entire article)
View : 160 Times
Category : Investing
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As a society, we have created a system that strongly encourages a borrow-and-spend mentality. Saving in all its forms are punished while borrowing is strongly subsidized and encouraged. The credit orgy of the 00s saw this system taken to its ultimate extr(read
entire article)
View : 159 Times
Category : Real Estate
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As a society, we have created a system that strongly encourages a borrow-and-spend mentality. Saving in all its forms are punished while borrowing is strongly subsidized and encouraged. The credit orgy of the 00s saw this system taken to its ultimate extr(read
entire article)
View : 159 Times
Category : Real Estate
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A house should not be viewed as an investment. When investments go bad, it causes financial hardship and anguish. When the bad financial investment is a family home it ruins everything. The joyous memories that are supposed to be associated with a person'(read
entire article)
View : 139 Times
Category : Real Estate
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When prices rise faster than their wages, people can obtain less real estate with their income. The natural fear under these circumstances is to buy whatever is available before there is nothing desirable available in a particular price range. This fear o(read
entire article)
View : 158 Times
Category : Real Estate
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Speculation is a battle. The forces of greed and fear drive the financial markets, and the speculator attempts to profit from these moves. Speculation is not investment, although most do not understand the distinction. Speculation is the battle of the ind(read
entire article)
View : 143 Times
Category : Real Estate
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Investor confidence in the market for CDOs and all mortgages was shaken during the decline of the Great Housing Bubble, and rightly so. Investors were losing huge sums, and nobody clearly understood why. There was a widespread belief these losses were cau(read
entire article)
View : 164 Times
Category : Real Estate
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Exotic loan financing terms took over mortgage finance in the Great Housing Bubble. As people using these loan programs began to default in large numbers, exotic loan programs all but disappeared. This left the 30-year, fixed-rate, conventionally amortize(read
entire article)
View : 153 Times
Category : Mortgage
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So what happens when you give poor people money? They spend it. The stories of people who won the lottery and managed to spend themselves into bankruptcy a few years later are classic examples of the pathology of the beliefs of spenders. A great many Cali(read
entire article)
View : 136 Times
Category : Real Estate
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A fixed-rate conventionally-amortized mortgage is the least risky kind of mortgage obligation. If borrowers can make their payment, a payment that will not change over time, they can keep their home. At the end of a predefined term, the original funds hav(read
entire article)
View : 160 Times
Category : Mortgage
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Credit rating and analysis of collateralized debt obligations and all structured finance products are integral to the smooth function of the secondary market for mortgage loans. A credit rating agency is a company that analyzes issuers of debt and debt-li(read
entire article)
View : 149 Times
Category : Real Estate
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The debt-to-income ratio is a measure of how far buyers are "stretching" to buy real estate. Buyers have historically committed larger sums to purchase real estate when prices are rising in order to capture the appreciation of rising prices. Conversely, b(read
entire article)
View : 154 Times
Category : Real Estate
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It seems lenders forget basic facts about lending every so often and create a new financial bubble. Perhaps they succumb to the pressure of the investment community or their own shareholders, or perhaps they just start believing their own "innovation" mar(read
entire article)
View : 155 Times
Category : Mortgage
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There needs to be an open discussion of the goal of maximizing home ownership. Owning a home has become synonymous with the American Dream. Every Presidential administration has had the expansion of home ownership as one of its goals. The tax code is stru(read
entire article)
View : 137 Times
Category : Real Estate
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There are 3 main categories of loans: Conventional, Interest-Only, and Negative Amortization. The distinction between these loans is how the amount of principal is impacted by monthly payments. Conventional loans pay off the debt, interest only loans neit(read
entire article)
View : 155 Times
Category : Mortgage
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The conventional wisdom in California real estate is that you buy a home, and when it appreciates, you sell it and move up to a better home. There is some truth to this idea, but not in the way most people think.(read
entire article)
View : 130 Times
Category : Real Estate
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Downpayments are required again thanks to the credit crunch. Many people thought 100% financing would be made available forever. They were mistaken. One-hundred percent financing will never return because it exposes lenders to too much risk.(read
entire article)
View : 157 Times
Category : Mortgage
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The efficient markets theory is the idea that speculative asset prices always incorporate the best information about fundamental values and that prices change only because new information enters the market and investors act in an appropriate, rational man(read
entire article)
View : 143 Times
Category : Real Estate
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Realtors are agents of sellers, and it is not uncommon for them to exaggerate the income and appreciation potential of a given property to help sell it. It is a realtor's job to obtain the highest possible sale price for a piece of real estate. The most c(read
entire article)
View : 147 Times
Category : Real Estate
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In early October 2008, the Congress passed and the President signed the Emergency Economic Stabilization Act of 2008. The purpose of the bill was "to restore liquidity and stability to the U.S. financial system and to ensure the economic well-being of Ame(read
entire article)
View : 138 Times
Category : Real Estate
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Over the last 60 years since World War II ended, a number of experimental loan programs have been attempted. These include interest-only loans, adjustable rate loans, and negative amortization loans among others. It is this group of loans that has consist(read
entire article)
View : 155 Times
Category : Mortgage
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There are a number of factors that will influence the timing and the depth of the price decline. There are a number of psychological factors and technical factors in play.(read
entire article)
View : 142 Times
Category : Real Estate
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Realtors are agents of sellers. It is their job to obtain the highest possible sale price for a piece of real estate. The most common ploy realtors use it to attempt to create a sense of urgency in a buyer. In a seller's market, prices are rising, and buy(read
entire article)
View : 146 Times
Category : Real Estate
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When the lending industry developed exotic loan products, they touted them as "innovation," and they sold these toxins far and wide. Since these loans achieved the highest default rates ever recorded, it is apparent the "innovations" of the bubble rally w(read
entire article)
View : 160 Times
Category : Mortgage
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Commodities are items of value and uniform quality produced in large quantities and sold in an open market. Although every residential real estate property is unique, these properties became uniformly desired by investors because all real estate prices ro(read
entire article)
View : 161 Times
Category : Real Estate
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During the Great Housing Bubble, many speculators tried to make money through trading houses. The vast majority of these traders were not professionals but amateurs who thought they could be professionals. Most amateurs ended up losing money because they(read
entire article)
View : 154 Times
Category : Real Estate
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When house prices stopped their dizzying ascent in the Great Housing Bubble, many speculators found themselves with large monthly debt service costs and no income to offset expenses. Many chose to quit paying their mortgage obligations and allowed the pro(read
entire article)
View : 137 Times
Category : Real Estate
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There are a number of fallacies about residential real estate that either affirm the belief in perpetually rising prices or minimize the fears of a price decline. These fallacies generally revolve around a perceived shortage of housing or a belief that th(read
entire article)
View : 144 Times
Category : Real Estate
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The fundamental value of all housing prices is equivalent rents. Rents define the fundamental value of real estate because rental is a direct proxy for ownership; both rental and ownership provide for possession of property. Most people believe comparable(read
entire article)
View : 159 Times
Category : Real Estate
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Every homebuyer operating in the deflation of the Great Housing Bubble needs to consider what loan terms will be available in the future. At some point, most buyers become sellers. The future buyer will likely need to borrow most of the money necessary to(read
entire article)
View : 148 Times
Category : Real Estate
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Changing your mind on a stock purchase is relatively easy. Stocks are very liquid, and transaction costs are very low. However, changing your mind about a real estate transaction is not so easy. Real estate is very illiquid in a declining market, and the(read
entire article)
View : 133 Times
Category : Real Estate
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Volatility in real estate prices is not new to California. During the 1970s, real estate prices detached from typical valuations of three-times yearly income seen in the rest of the country. Once residents realized they could push up prices in their real(read
entire article)
View : 145 Times
Category : Real Estate
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A key factor impacting the fundamental value of housing and thereby the bottom is interest rates. Higher interest rates would devastate residential real estate markets. When interest rates go up, the amounts borrowed go down assuming a consistent payment.(read
entire article)
View : 165 Times
Category : Real Estate
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Many people who purchase real estate have no idea what equity is, what creates it, what destroys it, and what to do with it. People who purchase real estate use the phrase "building equity" to describe the overall increase in equity over time. However, it(read
entire article)
View : 158 Times
Category : Real Estate
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Most homeowners do not save money for major improvements and required maintenance, and these homeowners often take out home equity lines of credit as a method of mortgage equity withdrawal to fund home improvement projects. The logic here is that renovati(read
entire article)
View : 157 Times
Category : Mortgage
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When a borrower takes out a home loan, the interest is tax deductible up to a certain amount. For borrowers in the highest marginal tax bracket, the savings can be significant, and this can make a dramatic difference in the true cost of ownership. However(read
entire article)
View : 154 Times
Category : Investing
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When lenders develop new loan programs, they assume borrowers are sophisticated enough to understand the product and disciplined enough to use them properly. Both assumptions are bad, and these bad assumptions caused lenders and investors to lose a great(read
entire article)
View : 150 Times
Category : Mortgage
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Profiting from house price appreciation requires getting more money from the sale of a property than was originally paid for it and not having that profit cancelled out by moving costs, transaction fees, and a large spreads between the cost of ownership a(read
entire article)
View : 149 Times
Category : Real Estate
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The first of the numerous bailout programs was "Hope Now" introduced in October of 2007. As the name suggests, Hope Now was sold to the general public as a reason for them to hang on and continue making crushing payments for as long as possible. It was a(read
entire article)
View : 149 Times
Category : Real Estate
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In every asset bubble people will claim the prices are supported by fundamentals even at the peak of the mania. During the Great Housing Bubble, people believed everyone was making two-times their actual income, and that the unstable loan programs develop(read
entire article)
View : 154 Times
Category : Investing
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Despite the difficulty in market forecasting, many who have examined the residential real estate market point to continued declines through 2009 and beyond. The most likely scenario has resale residential real estate markets bottoming in 2011 at prices 30(read
entire article)
View : 193 Times
Category : Real Estate
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In late July 2008, Congress passed and the President signed the Housing and Economic Recovery Act of 2008 that included the following provisions: Federal Housing Finance Regulatory Reform Act of 2008, HOPE for Homeowners Act of 2008, and the Foreclosure P(read
entire article)
View : 151 Times
Category : Real Estate
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One of the more interesting phenomena observed during the bubble was the perpetuation of denial with rumors of homeowner bailouts. The bailout rumors were false hopes provided by the government to allow homeowners in hopeless situations a brief respite be(read
entire article)
View : 151 Times
Category : Real Estate
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Prices went up a large amount during the Great Housing Bubble, but what makes this price increase a bubble? To answer this question it is necessary to accurately measure price levels and review historic measures of affordability to establish these price l(read
entire article)
View : 141 Times
Category : Real Estate
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Why should anyone care about financial bubbles in general and the housing bubble in particular? The first and most obvious reason is that the financial fallout is stressful. Many people lost a great deal of money. Beyond that, the housing bubble had enorm(read
entire article)
View : 151 Times
Category : Real Estate
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The Great Housing Bubble was inflated by a massive expansion of credit and the influx of capital into residential mortgages. The expansion of credit took four forms: lower interest rates, lowering or eliminating qualification requirements, different amort(read
entire article)
View : 149 Times
Category : Mortgage
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Markets are the collective actions of individuals, and the psychology of the markets can be broken down to the psychology of the individual participants who make it up. When price levels in a financial market collapse, most people lose money. Any loss has(read
entire article)
View : 135 Times
Category : Real Estate
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The foremost problem resulting from the deflation of the Great Housing Bubble was the imperilment of our banking and financial system. The bailouts emanating from Congress have mostly focused on keeping the banking system solvent. Considering most institu(read
entire article)
View : 158 Times
Category : Real Estate
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Financial markets are driven by fear and greed: two basic human emotions. Rationality and careful analysis are not responsible for, or predictive of, current or future price levels in markets exhibiting bubble pricing as the emotions of buyers and sellers(read
entire article)
View : 139 Times
Category : Real Estate
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What is a Cultural Pathology? There are certain beliefs if widely held and acted upon by a group of people leads inevitably to collective suffering and personal destruction. The housing bubble was a form of cultural pathology. It spawned a number of belie(read
entire article)
View : 150 Times
Category : Real Estate
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The last line of defense for the housing bulls is the fallacy of pent-up demand. Belief in this fallacy relies on people's inability to distinguish between desire and demand. Most people want a house. About 65% of Americans own their homes, but probably 9(read
entire article)
View : 138 Times
Category : Real Estate
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Most market participants focus on price action. The price-to-price feedback mechanism largely responsible for bubble market behavior gathers its strength from an awareness of market pricing, and the widespread belief that short-term, past price performanc(read
entire article)
View : 155 Times
Category : Real Estate
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One method used to evaluation residential real estate prices is the price-to-income ratio. Since people borrow the vast majority of the funds necessary to purchase residential real estate, and this borrowing must be financed from current income, the ratio(read
entire article)
View : 157 Times
Category : Real Estate
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Comparative rent is the primary method of evaluating the fundamental value of any property. The price-to-rent ratio links the cost of ownership with the cost of rental. This link is direct because possession of property can be obtained by either method. T(read
entire article)
View : 164 Times
Category : Real Estate
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As a speculative investment, residential real estate has the potential to make or lose vast sums of money due to the impact of financial leverage (debt). Houses are typically leveraged at 80% of their value. During the Great Housing Bubble, this leverage(read
entire article)
View : 145 Times
Category : Real Estate
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When contemplating purchasing a home, one should examine all of the costs of ownership to budget properly for the expenses they will face. Most people simply focus on the payment, and soon after they purchase, they realize that the true cost of ownership(read
entire article)
View : 142 Times
Category : Real Estate
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The market value of an individual lot is equal to the revenue it could generate when a residential housing unit is built on it minus the cost of creating that revenue (construction cost, marketing, profit, and other costs). Sales revenue will largely be d(read
entire article)
View : 144 Times
Category : Real Estate
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The Federal Reserve under Ben Bernanke began aggressively lowering interest rates at the end of 2007 in response to the severe economic downturn caused by the collapse of house prices and the related difficulties falling house prices had on the banks and(read
entire article)
View : 157 Times
Category : Real Estate
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Anyone that can manage their payments should consider trying to hold on, even if the house value has dropped well below their purchase price. There are still a great many overextended homeowners and speculators who cannot possibly manage their payments, a(read
entire article)
View : 153 Times
Category : Real Estate
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Financial markets are fickle monsters. Whichever way the herd moves the market will go the other direction. During the Great Housing Bubble rally, prices were pushed up the herd mentality. As prices rose, more and more people were convinced prices would c(read
entire article)
View : 143 Times
Category : Real Estate
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House prices historically have outpaced inflation by 0.7% nationally. In a normal market, this is the only appreciation homeowners obtain. This appreciation is caused by wage inflation translating into higher housing payments and the ability of borrowers(read
entire article)
View : 162 Times
Category : Real Estate
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Each time the general public creates an asset bubble, they believe the rally in prices is justifiable by fundamentals. When proven methods of valuation demonstrate otherwise, people invent new ones with the caveat, "it is different this time." It never is(read
entire article)
View : 156 Times
Category : Real Estate
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When a borrower cannot repay a loan, the lender may or may not be able to sue the borrower to collect any shortfall. The key difference is whether or not the loan is classified as a recourse loan or a non-recourse loan. If the loan is recourse, meaning th(read
entire article)
View : 155 Times
Category : Mortgage
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Realtors are agents of sellers. It is their job to obtain the highest possible sale price for a piece of real estate. By law they cannot misrepresent any facts about the property, but when it comes to opinions about the investment potential of the proper(read
entire article)
View : 162 Times
Category : Real Estate
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As with any illness, the recovery is often plagued by symptoms of the disease and unwanted side effects. The recovery from the Great Housing Bubble will be no exception. The main problems will be experienced by those who bought at peak prices and did not(read
entire article)
View : 146 Times
Category : Real Estate
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The fluctuation in mortgage interest rates has implications for when it the best time to buy and the best time to refinance a home mortgage. It is a popular misconception that low interest rates make for a good buying opportunity. It is not. Buy when inte(read
entire article)
View : 157 Times
Category : Real Estate
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There is risk of loss in any investment. Investors in residential mortgages do not necessarily lose money when a borrower defaults. In the event of a default, a property will be auctioned at foreclosure, and the investor is paid out of proceeds from the s(read
entire article)
View : 148 Times
Category : Mortgage
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Much of the money homeowners borrowed fueled consumer spending and reinforced poor financial management techniques. It was common during the bubble rally for people to run up enormous credit card bills then refinance every year and pay them off. It is foo(read
entire article)
View : 156 Times
Category : Mortgage
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Mortgage Equity Withdrawal or MEW is the process of obtaining cash through refinancing residential real estate using the accumulated equity as collateral for the loan. This is a cultural pathology because it is not sustainable. Many people became addicted(read
entire article)
View : 148 Times
Category : Mortgage
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Mortgage interest rates are the single-most important factor determining the borrowing power of a potential house buyer. When rates are very low, a borrower can service a large amount of debt with a relatively small payment, and when interest rates are ve(read
entire article)
View : 156 Times
Category : Mortgage
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Mortgage interest rates are determined in an open market and are subject to the forces of supply and demand. These rates are the sum of three main components: riskless rate of return, risk premium, and inflation expectation. The Great Housing Bubble was c(read
entire article)
View : 166 Times
Category : Mortgage
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The options market is a speculator's paradise. Buying and selling options contracts requires a knowledge of how they work and what gives them value. During the Great Housing Bubble, residential mortgages took on the characteristics of options contracts. T(read
entire article)
View : 135 Times
Category : Mortgage
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The negotiating abilities of buyers and sellers and the overall market environment greatly impact the profits from real estate. Sellers almost universally believe their properties are worth more than the market will bear. People become emotionally attache(read
entire article)
View : 146 Times
Category : Real Estate
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In 2007 and 2008, house prices declined nationally for the first time since the Great Depression. From 2002 to 2006, there was a massive Ponzi Scheme of ever-increasing debt that fueled the Great Housing Bubble. People bought in to this Ponzi Scheme becau(read
entire article)
View : 136 Times
Category : Real Estate
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The next big psychological change to impact housing will be a change in homebuyer's relationship with debt. When prices were going up, and nobody thought they were going to have to pay the debt off themselves, people borrowed all they could. Once prices s(read
entire article)
View : 148 Times
Category : Mortgage
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The economic problems caused by asset price bubbles often lead to personal problems in the wake of the deflating bubble. Statistics about unemployment, foreclosure and bankruptcy are impersonal. The events that result in any one of these outcomes was anyt(read
entire article)
View : 153 Times
Category : Real Estate
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The Negative Amortization mortgage (aka, Option ARM or Neg Am) is the riskiest loan imaginable. It has all the risks of an interest-only, adjustable-rate mortgage, but with the added risk of an increasing loan balance. Using this loan, there is the risk o(read
entire article)
View : 158 Times
Category : Mortgage
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There is often a precipitating factor causing the initial price rally that pushes prices above their supported fundamental values. A bubble rally is usually kicked off by some exogenous event, but it may occur simply because prices have been rising and in(read
entire article)
View : 140 Times
Category : Real Estate
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The most egregious examples of predatory lending occurred when interest-only loan products where offered to subprime borrowers whose income only qualified them to make the initial minimum payment (assuming the borrower actually had this income). This loan(read
entire article)
View : 164 Times
Category : Mortgage
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There is no perfect measure for any broad financial market activity, and real estate markets are one of the most difficult to measure accurately. There are a number of methods for measuring prices and price changes in residential real estate markets. Thes(read
entire article)
View : 142 Times
Category : Real Estate
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Price-to-income ratios represent the amount borrowed relative to the incomes of the borrower. There are many variables that impact house prices, and some of the variability in prices over time can be attributed to changes in these variables; however, sinc(read
entire article)
View : 138 Times
Category : Real Estate
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Just as stocks have price-to-earnings ratios (PE Ratios) used to establish relative value, houses have a price-to-rent ratio to establish relative value. Rent is the income or potential earnings a property can produce. It does not matter if the property i(read
entire article)
View : 140 Times
Category : Investing
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Price-to-rent ratios represent the cost of a dwelling unit relative to the cost of a comparable dwelling unit. This ratio is also subject to the same variability exhibited by the price-to-income ratio. This is not surprising considering rent is generally(read
entire article)
View : 150 Times
Category : Real Estate
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The two true real estate investor types, Rent Savers and Cashflow Investors, move in to a market and create a bottom when comparative rents come into alignment with the total cost of ownership. Rent Savers enter the market and begin purchasing real estate(read
entire article)
View : 137 Times
Category : Investing
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Borrowers are broadly categorized by the characteristics of their payment history as reflected in their FICO score. FICO risk scores are developed and maintained by the Fair Isaac Corporation utilizing a proprietary predictive model based on an analysis o(read
entire article)
View : 163 Times
Category : Mortgage
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When a bubble in a financial market pops, it does not explode in spectacular fashion like a soap bubble; it is more comparable to a breached levee which releases water slowly at first. Once the financial levee is ruptured, the equity reservoir loses money(read
entire article)
View : 136 Times
Category : Real Estate
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There are a number of fallacies about residential real estate that either affirm the belief in perpetually rising prices or minimize the fears of a price decline. These fallacies generally revolve around a perceived shortage of housing or a belief that th(read
entire article)
View : 163 Times
Category : Real Estate
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Owner-occupied residential real estate is viewed by many people as a good investment. Realtors often use this idea as part of their sales pitch. This view is fallacious and it is one of the beliefs responsible for creating an asset price bubble. To unders(read
entire article)
View : 155 Times
Category : Real Estate
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The mantra of the National Association of Realtors is "real estate only goes up." This economic fallacy fosters the belief in future price increases and the limited risk of buying real estate. In 2006, prices in many markets began to fall. By 2008, the r(read
entire article)
View : 154 Times
Category : Real Estate
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Despite the huge price spike in the final two years of the Great Housing Bubble caused by wild speculation, most speculators will lose a great deal of money. They will buy when prices are high, and they will sell when prices are low. The causes are rooted(read
entire article)
View : 148 Times
Category : Investing
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The regulatory solution proposed herein is simple, yet far reaching. It comes in two parts, the first is to limit the amount lenders can loan to borrowers with a rather unique enforcement mechanism, and the second is to increase the penalties for borrower(read
entire article)
View : 145 Times
Category : Real Estate
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Renting versus owning is both an intellectual, financial decision and an emotional decision. The financial decision is first and foremost an analysis of the comparative cost of renting versus owning. It makes no sense to pay more than rental equivalence t(read
entire article)
View : 165 Times
Category : Real Estate
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There are three methods of appraising the resale value of residential real estate: the comparative-sales approach, the cost approach, and the income approach. The comparative-sales approach uses recent sales of similar properties in the market because com(read
entire article)
View : 140 Times
Category : Real Estate
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The United States Department of Labor Bureau of Labor Statistics measures the Rent of primary residence (rent) and Owners' equivalent rent of primary residence (rental equivalence). They make this distinction because a house has both a consumptive purpose(read
entire article)
View : 135 Times
Category : Investing
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The real estate market can be visualized as a massive pyramid. There are very few multi-million dollar properties at the top of the pyramid, and a large number of relatively inexpensive entry-level properties forming the base. Like any structure, if the f(read
entire article)
View : 148 Times
Category : Real Estate
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One of the major failings of the credit markets in the Great Housing Bubble was the failure to take a holistic view and evaluate the systemic risks involved. A standard credit analysis reviews various risk parameters and attempts to rate the impact of eac(read
entire article)
View : 142 Times
Category : Investing
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The initial equity in a home is equal to a purchaser's downpayment. If a buyer pays cash for a home, all equity is initial equity. There is an opportunity cost associated with downpayment money. This cost should be considered when someone considers buying(read
entire article)
View : 152 Times
Category : Real Estate
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People who purchase real estate use the phrase "building equity" to describe the overall increase in equity over time. However, most people think in terms of capturing speculative equity, the equity gained from other speculators bidding up prices. Everyon(read
entire article)
View : 139 Times
Category : Investing
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One unique phenomenon of the Great Housing Bubble was the utilization of stated-income loans, also known as "liar loans" because most people were not truthful when stating their income. When house prices were going up, greed motivated many people to buy h(read
entire article)
View : 141 Times
Category : Mortgage
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One of the most egregious practices of the Great Housing Bubble was the fabrication of income by borrowers that was facilitated and promoted by originating lenders. Stated-income loan programs were widespread, and they were the cause of much of the uncert(read
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View : 163 Times
Category : Real Estate
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Conventional wisdom (or market spin) was that the risk of default from subprime would not spill over into Alt-A and Prime loans. This argument was made because these two categories have historically had low default rates. Of course, this argument ignored(read
entire article)
View : 155 Times
Category : Real Estate
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The first sign of trouble for the housing market was the implosion of subprime in early 2007. Subprime borrowers stopped paying back the loans they were given due to loan resets and payment recasts. These defaults lead to foreclosures. During the bust, th(read
entire article)
View : 159 Times
Category : Real Estate
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Like a Phoenix rising from the ashes, Subprime lending will make a comeback. Lenders focus on the three Cs: Creditworthiness, Capacity, and Collateral. Creditworthiness is measured by one's FICO score, Capacity is based on one's income, and Collateral is(read
entire article)
View : 143 Times
Category : Real Estate
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The investment value of a property can only be measured against other investment opportunities available to an investor. If investors can earn 4.5% by investing in government treasuries, they will demand a higher return to invest in an asset as volatile a(read
entire article)
View : 150 Times
Category : Real Estate
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There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. The transition from the fear stage to the capitulation stage is caused by the infectious belief that the rally is(read
entire article)
View : 147 Times
Category : Real Estate
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The solution to preventing future bubbles in the residential real estate market lies in the market for collateralized debt obligations and conforming loans insured by the government sponsored entities (GSEs). The GSEs created the secondary mortgage market(read
entire article)
View : 138 Times
Category : Real Estate
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Loan standards vary over time as the credit cycle loosens and tightens. Many borrowers in the bubble rally were qualified with low credit scores, very high combined-loan-to-values, high debt-to-income ratios, and little or no income verification. When the(read
entire article)
View : 135 Times
Category : Real Estate
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There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. From a perspective of market psychology, it is difficult to tell when the capitulation stage ends and the despair(read
entire article)
View : 146 Times
Category : Real Estate
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There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. At the beginning of the enthusiasm stage of a financial bubble, prices are already inflated, so there is cautious(read
entire article)
View : 142 Times
Category : Real Estate
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There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. The most important change in the market in the fear stage is caused by the belief that the rally is over. Price r(read
entire article)
View : 147 Times
Category : Real Estate
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Who is responsible for the Great Housing Bubble? It is one thing to identify who or what caused the bubble, but it is another to assign responsibility and blame. Borrowers, lenders, investors, and the FED are all responsible; it is only a matter of degree(read
entire article)
View : 203 Times
Category : Real Estate
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There are many identifiable stages in a financial mania. These include: enthusiasm, greed, delusion, denial, fear, capitulation, and despair. In the greed stage of a financial bubble, the bullish sentiment reaches a feverish pitch and prices rise very rap(read
entire article)
View : 138 Times
Category : Real Estate
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The Option ARM is one of the most complicated loan programs ever developed. It was heralded as an innovation because it allowed people greater control over their monthly payments, and it provided greater affordability in the early years of the mortgage. I(read
entire article)
View : 138 Times
Category : Real Estate
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The course of a financial market, particularly the real estate market, is a long and winding road full of twists and turns and unexpected outcomes. It was certainly foreseeable that banks and builders might fail and the GSEs might need to be bailed out, b(read
entire article)
View : 136 Times
Category : Real Estate
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Debt subsidies, in particular the home mortgage interest deduction, are seen as a great benefit to home ownership. The benefit is widely overestimated and misunderstood.(read
entire article)
View : 167 Times
Category : Real Estate
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The Great Housing Bubble was not really about housing; it was about credit. Most financial bubbles are the result of an expansion of credit, and the Great Housing Bubble was no exception. Housing just happened to be the asset class into which this capital(read
entire article)
View : 144 Times
Category : Real Estate
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People have not fully grasped the changes that will result from the deflation of The Great Housing Bubble. There are many historic parallels with the closest being The Great Depression. When the stock market bubble of the 1920s began to deflate in late 19(read
entire article)
View : 150 Times
Category : Investing
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Residential housing does have a cash-saving value, if financed with a fixed rate mortgage. Over time, the growth in income and rents increases the cost of housing for renters. The inflation of housing costs for renters is greatly lessened for homeowners u(read
entire article)
View : 139 Times
Category : Real Estate
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The interest-only, adjustable-rate mortgage (IO ARM) became popular early in the Great Housing Bubble. When fixed-rate mortgage payments were too large for buyers to afford, they turned to IO ARMs as an affordability product. Unfortunately, these mortgage(read
entire article)
View : 159 Times
Category : Mortgage
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The difficult problem with affordable housing is how to provide it without making it unaffordable. Finance is not the answer. We all want affordable housing. There are numerous government programs designed to provide low-cost rental and ownership properti(read
entire article)
View : 151 Times
Category : Mortgage
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Lending during the Great Housing Bubble was too messy. There were too many loan programs. Since real estate always goes up, and since people want immediate access to this appreciation to spend it like income, a new loan product which readily provides this(read
entire article)
View : 135 Times
Category : Real Estate
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One of the unique characteristics of the Great Housing Bubble was the large increase in market participation among women, sometimes single women and sometimes as married women buying property on their own.(read
entire article)
View : 147 Times
Category : Real Estate
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The realtor spin about "pent up demand" is complete nonsense. There is probably a lot of pent up desire for housing, but demand is measured in dollars, and there is a major lack of demand with the absence of lender funds, and a large and growing "pent up(read
entire article)
View : 150 Times
Category : Real Estate
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Collateralized debt obligations (CDOs) are asset-backed securities formed from bundles of residential mortgages. These structures provided the capital delivery mechanism that helped inflate the Great Housing Bubble. CDOs are merely a tool. If used appropr(read
entire article)
View : 147 Times
Category : Investing
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The supply curve is the opposite of the demand curve: sellers will make very few units available at low prices, and sellers will make a great many available at higher prices. Wherever these two curves meet is where supply and demand are in balance and mar(read
entire article)
View : 140 Times
Category : Real Estate
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All market pricing is a function of supply and demand. One of the reasons many house price bubbles get started is due to a temporary shortage of housing units. This is a particular problem in California because the entitlement process is slow and cumberso(read
entire article)
View : 167 Times
Category : Real Estate
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Prior to the Great Housing Bubble, house price declines had only been associated with economic downturns and increases in unemployment. As people lost jobs, they lost their ability to make house payments, and many lost their homes in foreclosure. Unemploy(read
entire article)
View : 149 Times
Category : Real Estate
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The valuation of land used for residential housing is mysterious and often misunderstood. The valuation of lots and raw land requires a detailed knowledge of construction and marketing costs as well as a good estimate of the sales price of the final produ(read
entire article)
View : 153 Times
Category : Real Estate
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The Great Housing Bubble can be visualized with a simple thought experiment. Imagine a room with 100 people representing the pool of subprime borrowers. These are new entrants to the market. They were previously unable to buy due to bad credit, lack of sa(read
entire article)
View : 264 Times
Category : Real Estate
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There are two types of true real estate investors: Rent Savers and Cashflow Investors. These two groups will enter a real estate market without regard to future appreciation because either the cash savings or the positive cashflow warrant the purchase pri(read
entire article)
View : 138 Times
Category : Investing
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Foreclosure is the forced sale of a property owned by the borrower in order to satisfy the debt(s) secured by the property. Foreclosure laws are complex, and they vary from state to state. There are no federal laws governing foreclosures. The borrower is(read
entire article)
View : 136 Times
Category : Real Estate
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Structured finance is an innovation of the finance industry on Wall Street. It is a method of redistributing risk based on complex legal and corporate entities such as corporations, limited liability companies or some other kind of legal entity capable of(read
entire article)
View : 144 Times
Category : Investing
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A negative amortization loan is any loan where the monthly payment does not cover the monthly interest expense. Interest-only or conventionally amortizing loans do not have this feature, and the monthly payments are based on the interest rate charged and/(read
entire article)
View : 147 Times
Category : Mortgage
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House prices became very elevated relative to fundamentals of income and rent. Since these fundamentals underpin the housing market, prices will continue to fall until they come into alignment with historic norms.(read
entire article)
View : 139 Times
Category : Real Estate
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The Federal Home Loan Mortgage Corporation, also known as Freddie Mac, was created by Congress in 1970 to make possible a secondary mortgage market to provide greater liquidity to banks and other lending institutions to facilitate home mortgage lending. T(read
entire article)
View : 135 Times
Category : Real Estate
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It all starts in the housing market. Realtors peddle fantasies of unlimited wealth that leads to people wanting to overpay for houses. The desire for real estate at any cost provides an opportunity for lenders and mortgage brokers to make huge origination(read
entire article)
View : 135 Times
Category : Real Estate
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There is a great deal of price volatility in California. There are significant periods of time where house prices will appreciate faster than incomes increase. This is purely the result of irrational exuberance. Prices cannot rise faster than incomes on a(read
entire article)
View : 139 Times
Category : Real Estate
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