Housing Links II

Mortgage Bubble:


Note how the bulk of mortgage credit growth in the bubble era (early-to-mid ’00s) came from banks & private-labels, not Frannie.

Housing Overvaluation:



Why the Community Reinvestment Act didn’t cause the housing crisishttp://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm

http://www.federalreserve.gov/newsevents/speech/20081203_analysis.pdf (102 KB pdf)

Note that the “CRA caused the housing/subprime/financial crisis has been discounted by, inter alia, Arnold Kling (hardly a friend of regulation) as well as Lawrence White (a longtime CRA critic).

Shared Appreciation Mortgages:


Housing Bust & Worker Mobility:



As Clive Cook noted, this is arguably a byproduct of our overemphasis on homeownership.  If our economy depends on worker mobility for productivity, we might want to emphasize renting to a greater extent.

Demolition solution for the housing crashhttp://online.wsj.com/article/SB121737434767195077.html?mod=todays_columnists

Demolishing unsalvageable houses actually would reduce externalities from housing squatters, crack houses, etc.  However, I would only support this policy if the price paid by the government for relevant properties was set at the land value of each property – i.e., the price of the house would be set at zero, as it ought to be, if it were truly fit only for demolition.  I expect this isn’t quite what advocates of buy-and-demolish have in mind – they’d prefer that the government pay an arbitrary, inflated value for the houses in question, in order to bail out homeowners/lenders/investors/whatever at taxpayer expense, and _then_ demolish them.

Competent Subprime:


Mortgage Disclosure:


Deflating Housing:



Kling on Mortgages:




He really like 30-yr fixed rates, with 20% down-payments.

Homeownership subsidies done right:



I still don’t much care for subsidizing homeownership, but if we’re determined to do this, let’s at least avoid encouraging overindebtedness & eroding underwriting standards like we did this time around.

Danish Mortgage Banking:

IMF overview:  http://imf.org/external/pubs/ft/scr/2007/cr07123.pdf (301 KB pdf)

Nykredit overview:  http://www.oecd.org/dataoecd/32/27/1844403.pdf (110 KB pdf)

Longer Nykredit overview:  http://www.nykredit.dk/marketsdk/ressourcer/dokumenter/pdf/NYKR_DanishCoveredBonds_WWW.pdf (1.2 MB pdf)

BIS overview:  http://www.bis.org/publ/qtrpdf/r_qt0403h.pdf (172 KB pdf)

Danish Central Bank Overview:  http://www.brf.dk/C1256A8000376E8E/alldocs/DOCJWIK-5L7F44

Risk Management:  http://www.brf.dk/C1256A8000376E8E/alldocs/DOCJWIK-5LUANB

History:  http://www.brf.dk/C1256A8000376E8E/alldocs/DOCJWIK-5KYKGT

Soros Endorsement:  http://online.wsj.com/article/SB122360660328622015.html

Economist Endorsement:  http://www.economist.com/finance/displaystory.cfm?story_id=12855447&fsrc=rss

Methinks we’d be better off copying Denmark’s mortgage system instead of sticking with our current securitization-based model.  Covered bonds would still permit capital markets to finance mortgage lending, while the absence of a middleman (e.g., Frannie) obviates the principal-agent problem inherent in securitization.

Note also the date on the Economist story – Danish mortgage financiers seem to be weathering the current financial crisis just fine.  More than can be said for US securitizers.

Deflating Housing:


I have my quibbles with Baker’s plan, but at least it’s less annoying than most homeowner bailouts.  I don’t much care for own-to-rent except as part of a bankruptcy (for moral hazard reasons – I’d prefer that there be a price attached to what would otherwise be a free lunch), and with limited tenure (e.g., 5 yrs) for the former homeowner (moral hazard again – a right of indefinite tenancy is a bit too much like ownership (better, to some extent, since you don’t have to pay taxes or maintenance costs)). But what’s most notable is how Baker – seemingly alone among those proposing homeowner bailouts – not only recognizes housing’s continued overvaluation, but also addresses the possibility that his bailout (like any other which entails “halting foreclosures”) will necessarily short-circuit the price-deflation mechanism associated with foreclosures, and (therefore) proposes an alternative method of permitting housing deflation to continue.

New Urbanism & Housing Costshttp://seattletimes.nwsource.com/html/businesstechnology/2004181704_eicher14.html

Zoning and the Housing Bubble:



Housing Crash Upside:


So foreclosure not only punishes foolish buyers who (via purchases of overvalued housing) contributed to the housing bubble; it also benefits those prudent renters who (by their absence from the housing market) did not so contribute.

FHA Risks:




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