We can agree that credit is tight in the current mortgage climate, right? Even for owner occupants with good credit, it would seem that banks are looking for reasons NOT to extend mortgage loans. Of course, investor leverage through the banks is now an obscure concept altogether.
Meanwhile, we investors bring private money into play and turn vacant house ghost-town neighborhoods back into viability. In a sense, we are the hero of the market plight - the Superman who restores houses from squalor to a role in the local economic dynamic.
Meanwhile, the federal government, via the Federal Housing Administration, wishes to continue its ill-fated proliferation of loans that don't make sense. What's more, as the federal government takes ownership of foreclosed inventory as repossessed by Fannie and Freddie, it then seeks to sell these houses to owner occupants TO THE PRECLUSION OF INVESTORS. In this way, it presents itself as the arch-enemy of Superman the Investor. Gotta love the 15-day lockout to investors on pure rehab inventory - imagine an OO couple pulling up in the driveway of some of these train wrecks and saying, "Oh, honey, this is the one!". What's more, what current loan product justifies the notion of an OO buying a primary residence that is $20K and two months from habitability?
Allow me a moment to pull the argument together, because its broader than just the 15-day owner occ-only FNMA and FHLMC sales that bother me. While noble, on the surface, the attempt by the federal government to restore stability to the housing market by selling to primary residents is fictitious, by and large, at a time when mortgage loans are so difficult to procure. Of course, since banks no longer feel comfortable making questionable loans without federal backing, the FHA remains steady in the wind to offer low-entry product to the same applicants who would be turned away without its gratuitous underwriting. And since so most people could not buy a house without a mortgage loan, FHA-insured lending emerges as the only option.
Didn't the federal government just bail out big bank default on taxpayer dime? Were these loans not the same, or similar product to what is still being promoted through FHA financing? Why is this setup any different, save for forcibly lower overall volume, that the unholy bubble created throughout the 90's and 00's and bursting officially in 2008? As I see it, what had been simply the "real estate bubble" is now the "recovery bubble". Unjustifiable loans are being handed out with the indirect backing of the taxpayer in an effort to "restore" the housing market. While its difficult to adopt this perspective while making money selling homes and closing mortgages, we're headed down an ill-advised path.
Since the government can continue to print money, defer the ever-increasing debt, and add burden to the productive through direct and indirect taxation, it has no true (short term) economic accountability. Most especially, this holds true in non-spotlighted bureaucracies like the FHA.
Mercenarially speaking, a new wave of foreclosures via fresh Fannie and Freddie REO is fodder for profit. Simply serving the role of buying and restoring vacant houses for rent leaves me in gainful position as often as the market spews out the consequence of bad loans. But in a greater sense of justice and enduring economic viability, I want to see the cessation of gratuitous federal lending programs and the natural, non-bailed-out correction to banks and borrowers alike. Oh, so cruel, I know. How could I be so heartless and insensitive? In reality, there is no other path by which to restore normalcy of capitalist processes in our economy. People and institutions must face the manifestations of failed investment to remain consistent with the same principles that have forever been the foundations of American prosperity.
The Invisible Hand, in reality, pays no heed to emotion in its unformulated natural guidance of the markets. So when a massive imposition such as government bailouts interrupts this natural course of events, which has served a capitalist economy for so many productive years, the hand can no longer guide. We are left to the machinations of those in the federal government who took the reins. Needing desperately to be needed, it will not hesitate to perpetuate the cycle of its gravity in the economy, real estate or otherwise. In other words, when we take handouts, it comes from the very hand which caused the bulk of the problem in the first place. "Recovery" under this skewed paradigm cannot be true or viable because of the sand upon which it has been founded.
