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Irvine Housing Blog

Irvine Housing Blog

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Key players in the political debate on housing finance

Posted: 14 Jan 2011 02:29 AM PST

New faces in the political landscape will decide the fate of Fannie Mae and Freddie Mac.

Irvine Home Address ... 24 BULL Run Irvine, CA 92620
Resale Home Price ...... $749,900

The Broken clock is a comfort
It helps me sleep tonight
Maybe it can stop tomorrow
From stealing all my time
And I am here still waiting
Though I still have my doubts
I am damaged at best
Like you've already figured out

Lifehouse -- Broken  

Back in 2009, I posed the question: Who will fix the System? The balance of power in Washington shifted in the last election. A new debate over the future of the GSEs and the housing market is just beginning. Let's take a fresh look at the gentlemen who will be deciding the fate of the housing market. 

Obviously, those guys didn't get it done. Who's next?

Factbox: Key players in the debate on housing finance

Wed Jan 5, 2011 4:31pm EST -- Reporting by Corbett B. Daly; Editing by Leslie Adler

{To avoid giving you pages of italics to read, the remainder is from the article}

(Reuters) - The Obama administration is set to unveil its proposal for an overhauled system of U.S. housing finance by the end of this month.

The administration's plan will just be a starting point. Congress is expected to debate the issue thoroughly before making changes to the current system, centered around ailing mortgage finance giants Fannie Mae and Freddie Mac.

Differing views on the merits of the current system among Republican and Democrats suggest the debate will be lively.

The following is a list of some of the key players in the debate:


U.S. Treasury Secretary Timothy Geithner:

Geithner, a former president of the New York Federal Reserve Bank, played a key role orchestrating bank bailouts during the financial crisis

He also was instrumental in the administration's push for sweeping Wall Street reforms last year, which did not address Fannie Mae and Freddie Mac. The mortgage finance companies have received more than $150 billion in direct taxpayer support since being placed in a government conservatorship in 2008.

At an event on the future of housing finance last August, Geithner sketched out some basic tenets of the administration's likely approach, but offered no details.

"It is not tenable to leave in place the system we have today. We will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support," he said.

"I believe there is a strong case to be made for a carefully designed guarantee in a reformed system with the objective of providing a measure of stability in access to mortgage finance even in future economic downturns."

Treasury Undersecretary Jeffrey Goldstein:

Goldstein is a former private equity executive tasked with being the administration's liaison to Wall Street. Goldstein has kept a low profile since taking office in 2010, though housing finance reform is expected to be a key component of his portfolio. In a July blog post on the White House website, Goldstein stressed "the vital importance" of the housing market to "our country's future," but steered clear of any specifics.

Federal Housing Administration Commissioner David Stevens:

Stevens is a former executive with Long and Foster, the largest independently held residential real estate company in the United States, and has worked in top positions at Wells Fargo and Freddie Mac. Stevens is credited with shoring up the finances of the FHA by hiring the agency's first chief risk officer and tightening lending standards. Loans backed by the FHA account for close to 20 percent of new mortgage originations. Stevens wants to reduce the FHA's role in the mortgage market from those elevated levels.

Treasury counselor Gene Sperling

Sperling is currently a counselor to Geithner, but is in the running to be named as President Barack Obama's chief White House economic adviser, a post he held in the 1990s under President Bill Clinton. Sperling is known as a capable coordinator for economic policy. He spent a significant amount of his time at Treasury on initiatives aimed at boosting small business lending, though the programs had limited success.

House Financial Services Committee Chairman Spencer Bachus:

The soft-spoken Alabama Republican is quite a change, in both style and substance, from his predecessor, the outspoken liberal Barney Frank. Bachus believes the United States needs to be weaned from its reliance on government funding of mortgages. "What we now have is an addiction to government funding of mortgages," Bachus told Reuters late last year. He has also said the two firms should be in "liquidation," not "conservatorship."

House Republican Conference Chairman Jeb Hensarling:

Hensarling, from Texas, is a conservative Republican who has been a vocal critic not only of Fannie Mae and Freddie Mac, but of any government support for the U.S. housing market. He holds the No. 4 Republican leadership post in the House of Representatives.

"Fannie and Freddie were not born of a competitive marketplace, but in a government laboratory. They were allowed to exploit their implicit government guarantee to take on enormous risks. These two entities expose the taxpayer to unlimited risk and will likely end up receiving the mother of all bailouts," Hensarling said in a statement on his website.

Rep. Scott Garrett, chairman of the House Financial Services subcommittee on capital markets and government-sponsored enterprises:

Garrett, a New Jersey conservative Republican, this year takes the helm of the subcommittee responsible for oversight of Fannie Mae and Freddie Mac. He wants to wind down the firms within two years, a more radical position than even many of his Republican colleagues hold.

Senate Banking Committee Chairman Tim Johnson:

The Democratic lawyer from bank-friendly South Dakota is more conservative than his predecessor, Christopher Dodd, who retired last year. Johnson underwent brain surgery in 2006 and came away healthy, but with impeded speech. He has recovered and was present through the all-night talks leading to passage of the Dodd-Frank revamp of Wall Street regulation. Johnson is expected to take a go-slow approach to Fannie Mae and Freddie Mac, holding a number of hearings to gain a thorough understanding of their complexity before putting forth any specific Senate proposals. Keywords: USA HOUSING/PLAYERS

Senate Banking Committee top Republican Richard Shelby:

Another conservative Republican, Shelby has been a vocal critic of Fannie Mae and Freddie Mac. Late last year, he blocked Obama's pick to be the regulator of the two government-sponsored enterprises. Shelby accused the nominee, North Carolina's commissioner of banks, Joseph Smith, of being a "tool" of the Obama administration who would throw government money at the mortgage market and send the bill to taxpayers.

Fannie, Freddie acting regulator Edward DeMarco:

DeMarco is a career civil servant who has been acting director of the Federal Housing Finance Agency since August 2009. He had been expected to be replaced by Smith, but with the nomination blocked, he could stay in the acting role for some time. DeMarco is very focused on limiting taxpayer losses from Fannie Mae and Freddie Mac and has the power to exert substantial influence over how the two firms conduct their business.

House Financial Services Committee top Democrat Barney Frank:

Frank, a key architect of the financial regulation law that bears his name, lost the gavel of the House Financial Services Committee when Republicans took control of the House. However, as the panel's top Democrat on the key House committee responsible for Fannie Mae and Freddie Mac, he is likely to still wield considerable influence. He is a key ally of the Obama administration.

Frank has said the GSEs should be "abolished" in "current form" and a new housing finance system should be created. At the same time, he has stressed the importance of developing a new system before shutting the two firms down. "You can't really tear down the old jail until you've built the new one," he has said.

{End of article}

I know this stuff is a bit wonkish, but it is good information to know. We will see these guys pontificate in debates over the next 18 months on the fate of the GSEs. Don't underestimate the importance of the GSEs to the housing market. Most middle-class mortgages are GSE insured. High wage earners often borrow from a jumbo loan lender because their loans exceed the $729,750 loan limit at the GSEs and FHA.

Whatever happens to the GSEs matters to Irvine.

If they are dismantled, and if the home mortgage interest deduction is scaled back, the cost of borrowing will rise and the amounts borrowed will go down. That will put continued pressures on pricing. House price increases require greater borrowing, and with interest rates and other costs working against borrowing, house prices will likely stagnate for a very long time as these subsidies unwind.

Japan had more than 20 years of real estate deflation. What if we had 20 years of real estate stagnation?

Don't worry. We will probably print enough money to create all kinds of inflation including wage inflation. That will put house prices back on a steady upward march in 2 to 5 years. Hopefully, in order to save house prices, you aren't paying $14 per gallon for gas and gold is selling for $3,200 an ounce. My guess is Bernanke will error on the side of over-printing.

It was a great bull run

I do feel a hint of jealousy when I see homeowners like today's. They bought at the bottom of the last real estate recession on 7/31/1997 and paid $283,000 for this house. They borrowed $226,400. A few months later they borrowed $28,000 of their equity, probably to do some necessary renovations. On 9/10/2001 they had $247,000 in debt in a new first mortgage. The refinanced two more times, but the final mortgage is for $238,500 which puts them near their entry point.

They did not borrow anything extra when given plenty of opportunities.

Great job.

I can't give them an A because their mortgage balance is larger than when they started. I am giving them a B instead of a C because I believe the increase was a modest renovation cost. After their mortgage increased initially, it went downward to where it is now.

When they sell this house at bubblish prices, they stand to get a check from escrow for nearly $450,000.

Wouldn't that be a cool check to cash?

These owners obtained significant wealth advantage from fortuitous timing in the housing market. They missed the peak for maximum sale, but with their diligence to pay down the mortgage and the huge run up in prices, they get the pot of gold. 

We have seen plenty go the other way....

They passed on all temptations and diligently paid down their mortgage at a time when everyone else was seeking ways to maximize borrowing to obtain free money to spend.

How did they do it?

Irvine Home Address ... 24 BULL Run Irvine, CA 92620    

Resale Home Price ... $749,900

Home Purchase Price … $255,000
Home Purchase Date .... 9/10/1993

Net Gain (Loss) .......... $449,906
Percent Change .......... 176.4%
Annual Appreciation … 6.2%

Cost of Ownership
$749,900 .......... Asking Price
$149,980 .......... 20% Down Conventional
4.86% ............... Mortgage Interest Rate
$599,920 .......... 30-Year Mortgage
$152,809 .......... Income Requirement

$3,169 .......... Monthly Mortgage Payment

$650 .......... Property Tax
$0 .......... Special Taxes and Levies (Mello Roos)
$125 .......... Homeowners Insurance
$0 .......... Homeowners Association Fees
$3,944 .......... Monthly Cash Outlays

-$770 .......... Tax Savings (% of Interest and Property Tax)
-$740 .......... Equity Hidden in Payment
$280 .......... Lost Income to Down Payment (net of taxes)
$94 .......... Maintenance and Replacement Reserves
$2,808 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$7,499 .......... Furnishing and Move In @1%
$7,499 .......... Closing Costs @1%
$5,999 ............ Interest Points @1% of Loan
$149,980 .......... Down Payment
$170,977 .......... Total Cash Costs
$43,000 ............ Emergency Cash Reserves
$213,977 .......... Total Savings Needed

Property Details for 24 BULL Run Irvine, CA 92620
Beds: 4
Baths: 1 full 2 part baths
Home size: 2,190 sq ft
($342 / sq ft)
Lot Size: 5,400 sq ft
Year Built: 1979
Days on Market: 7
Listing Updated: 40546
MLS Number: S642830
Property Type: Single Family, Residential
Community: Northwood
Tract: Ch
AWESOME REMODEL....NO STONE LEFT UNTURNED! Walk into this home and feel the rich, warm welcome! Remodel just completed includes gourmet kitchen with granite counters, rich, dark wood cabinetry, gas cooktop, electric oven, microwave/convection oven and roll out center island. All baths have been remodeled with granite counters, new sinks, faucets, lighting, etc. Walk behind wet bar in family room for entertaining features granite counter too. Great floorplan with breakfast nook and large family room off of kitchen. Rich wood and tile floors, chair rails, crown molding, wainscotting, custom paint and more. Master bedroom has walls of bookshelves and storage space with walk in closet, master bathroom with granite counters, double sinks and more. Very private backyard with tons of color, potting shed, patio area AND secluded spa with sitting area. All of this and Northwood High School too!!!

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

real estate home sales


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