Credit Market Problems and Banks and Investment Banks
Posted on June 25, 2008 - Filed Under Housing Market | Leave a Comment
As long as the real estate market was doing well (home prices rising, borrowers paying their loans) the banks and investment banks that securitized the subprime mortgages did quite well. But when prices of homes stopped rising problems started to arise.
Not all mortgage bonds are alike, so there are many varieties of stories about how [...]
Foreclosure: What happens when people can’t pay their mortgages
Posted on June 25, 2008 - Filed Under Housing Market | Leave a Comment
How much does a lender lose when a homeowner stops paying a mortgage? Approximately half the value of the mortgage, assuming there was no fraud. This essay will sketch out how the foreclosure process works in the normal case and in the less common case of fraud. The argument presented below is a simplification of [...]
Read More..>>Understanding Real Estate Auctions
Posted on June 24, 2008 - Filed Under Housing Market | Leave a Comment
One of the consequences of mortgage defaults is that banks (and other lenders) end up owning properties. Once a bank owns a property it is immediately responsible for all payments associated with the property (taxes, maintenance fees and so forth). Banks have a strong incentive to sell the property as soon as possible. One way [...]
Read More..>>How the Housing Credit Bubble got started
Posted on June 24, 2008 - Filed Under Housing Market | Leave a Comment
The mortgage business was traditionally fairly conservative with a local savings and loan lending to a resident of their community. Bankers typically knew their markets from personal experience and often knew the borrowers personally (see the film It’s a Wonderful Life for the Hollywood version).
The major factor that transformed the housing boom into a credit [...]
Mortgages for those with less than perfect credit
Posted on June 24, 2008 - Filed Under Housing Market | Leave a Comment
The mortgage rate that you pay depends, among other factors, upon your credit score. There are three major credit scoring agencies in the US; the Fair Isaac Corporation (www.myfico.com) compiles these scores and allows consumers to view and track their scores over time.
Credit scores range from 300 to 850; the higher your score, the lower [...]
Overbuilding, or are there too many houses in the US?
Posted on June 24, 2008 - Filed Under Housing Market | Leave a Comment
Story told by an old investor on CNBC (more or less accurate): I was golfing near New York City one day and the caddy knew I was a famous investor. The caddy asked me about the real estate market in San Diego; I asked him why he was so interested. He told me he owned [...]
Read More..>>How are US Homes Financed?
Posted on June 24, 2008 - Filed Under Housing Market | Leave a Comment
A house is a long-lived asset, and there is a different story behind each of the 75 million private houses in the U.S. Because the number of homes is so large, even small problems (in terms of the overall economy) involve millions of homeowners. In this section we will look at the financing of U.S. [...]
Read More..>>What is the Value of the US Housing Stock?
Posted on June 24, 2008 - Filed Under Housing Market | Leave a Comment
One of the recurring problems in analyzing the U.S. housing market is that there is no central registry of houses that would allow a researcher to calculate the value of all houses and examine the mortgages associated with them, analogous to the databases available for public corporations such as Compustat. Instead, housing researchers must gather [...]
Read More..>>How Many Houses are there in the US?
Posted on June 24, 2008 - Filed Under Housing Market | Leave a Comment
The US, a country of around 301 million people has around 125 million houses [all housing data come from the American Housing Survey of the United States, published by the US Department of Housing and Urban Development every two years, most recently in August 2006, available here].
Of these, around 109 million houses are occupied year-round, [...]
Government Policy Toward Homeownership
Posted on June 24, 2008 - Filed Under Housing Market | Leave a Comment
Since the 1920s the US government has encouraged homeownership over renting. Franklin D. Roosevelt said that “a nation of homeowners is unconquerable”. There is a large literature [See article here] that argues that homeownership is associated with substantial economic and social benefits, including more education, less crime and better health. This has resulted in a [...]
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