Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

wsj.com

Post reply on HN
Print view View original

121–130 of 194 posts

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#121

Post by jdmichal »

jholman wrote: post #93
John23832 wrote: post #58

Earlier quoted context omitted.

> I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." I think we can amicably disagree. I'm not in the "fuck Wall St." camp. I understand what it is supposed to do and the value it is supposed to provide. > Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable? Yes.…

> I'll go ahead and say this. Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment. I'll go ahead and say this. My home is certainly an investment. I allocated some capital to some real property, and this real property generates value for me every day, which I might have purchased otherwise (indeed, would have been nearly forced to). Because of the ability of…

Everyone is born short housing. Buying your first house is covering a short position. Renting instead of buying is maintaining a short position. Buying your second house is taking a long position.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#122

Post by smallnamespace »

John23832 wrote: post #10

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. If I don't have a consis…

Marx and other classical economic thinkers speculatively connected the fall in the rate of profit to increases in inequality and long-run economic cycles [1].

Essentially, the idea is that since the rate of profit exceeds the rate of growth, rent seekers (capital holders) tend to get richer and richer and own more and more of the wealth. This impoverishes all other parts of the economy and starves it of resources, causing the rate of profit (return on capital) to start declining.

The end result is usually a prolonged crisis of some sort which causes the destruction of large amounts of capital, 'resetting' the economy again so the cycle can repeat anew.

For some reason this idea has been rejected by the mainstream for the last 70 years or so, but I think some people are starting to take it up again.

[1] https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#123

Post by jcranmer »

Spellman wrote: post #90
NikolaNovak wrote: post #84

Earlier quoted context omitted.

Can you elaborate on the homeowners considering their home an investment - and why they shouldn't? I've moved from Europe to Canada 20 years ago, and I'm still coming up against it all the time - I consider home/condo a utility, a bill paid for purpose; it can go up, but it can also go down. EVERYbody around me thinks I'm crazy and that houses are #1 best investment ever.

Because, at least in the US, except for the '08 crash housing has ALWAYS gone up. Historical Graph: http://www.calculatedriskblog.com/2017/01/corelogic-house-pr... Now, it hasn't (and hadn't) gone up as quickly as the stock exchange, but it typically is a safe place to park your equity and let it grow. And especially during the height of the bubble and currently, it's growing in value rather quickly, so people (perha…

One of the principle causes of the '08 crash was that financiers thought they found a free lunch: there's no way a geographically-diverse portfolio of real estate could crash in value, right?

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#124

Post by jdmichal »

SubuSS wrote: post #86
John23832 wrote: post #58

Earlier quoted context omitted.

> I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." I think we can amicably disagree. I'm not in the "fuck Wall St." camp. I understand what it is supposed to do and the value it is supposed to provide. > Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable? Yes.…

>Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment. Can you expand a bit more on this? Usually it might not directly turn into an investment, but it does act as a 'savings vehicle' in many cases. For example when I moved to US a long time ago, the choice was between a 1200 rent and a 1600 mortgage (assuming I put a down of 25k or so). At that point it felt…

Everyone is born short housing. Buying your first house is covering a short position. Renting instead of buying is maintaining a short position. Buying your second house is taking a long position.

(Copied directly from my other post in this thread [0], though if you do a search I've said the same thing several times.)

[0] https://news.ycombinator.com/item?id=13376763

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#125

Post by mrbabbage »

roymurdock wrote: post #23
John23832 wrote: post #10

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. If I don't have a consis…

> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her. Th…

> I don't know the exact details of her situation, but it seems like perhaps the correct decision would have been to sell the house and move to a smaller, more efficient house if the current house is too expensive to maintain given the number of occupants and their age/level of income. I'm 24 and currently rent half a large house in the suburbs from a single guy in his 60s who needs the extra income to maintain the house which he bought when he had a larger family.

In California, this can be difficult to impossible due to Prop 13, a voter initiative from the 1970s that caps the rate at which property taxes rise.

Doing some back-of-the-envelope math, given that Inglewood has a median house price of about $450,000 [1], if Ms White were to move to a median house in Inglewood (probably a much smaller house since she has a five bedroom right now), her new property tax bill would probably be about $5220 [2], compared to the $1215 she's currently paying. This isn't quite as high as her property tax bill post PACE loan, but it's pretty close.

In other words, Ms White can't really move; it would wreck her cash flow nearly as bad as this PACE loan.

The flip side of this story is that Inglewood's (and the rest of CA's) home values are probably inflated due to Prop 13 -- lots of people like Ms White become trapped in their homes due to the massive property tax increase they would realize by selling and moving, which reduces the supply of available homes, driving up the price of those that do sell.

In a sane world without property tax caps, Ms White and other landowners wouldn't be insulated from rising property values and probably would have worked with their government to temper rising property values with new housing units. Inglewood (city of about 100,000) only added a meager 1000 units of new housing [3] in the 13 years to 2012.

[1] http://www.zillow.com/inglewood-ca/home-values/

[2] property tax rate of 1.16%, which is probably about right -- in CA there's typically a 1% county assessment baseline plus any bond assessments.

[3] http://www.southbaycities.org/sites/default/files/city_profi...

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#126

Post by drspacemonkey »

roymurdock wrote: post #39
John23832 wrote: post #29

Earlier quoted context omitted.

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table. Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/…

>There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table.

You've kind of hit on a huge part of the problem - there's WAY more than 2 sides. Thanks to swaps, derivatives, and bonds, the originator isn't on the hook if the borrower defaults. The originator isn't even holding the loan anymore. They've bundled it up and sold it off to a 3rd party who never bothers to check if the loans are any good, because THEY bundle it up and sell it off ASAP to a 4th party. Repeat ad nauseum.

End result is that nobody in the chain is ever incentivized to actually check if the borrower can afford the loan they've been given. On one side, you've got a giant billion-dollar industry who whose best interests are served by issuing as many loans issued as without concern for the long-term consequences. On the other, you have the borrower. As we learned from the 2008 crisis, putting all the pressure solely on the borrower to think of the long-term consequences is not only unfair, it's dangerous to everyone.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#127

Post by albedoa »

MaysonL wrote: post #105

Note that the headline is (perhaps intentionally) misleading: it wasn't a subprime crisis.[0] [0] http://www.cbsnews.com/news/heres-what-really-caused-housing...

The main study and previous evidence being cited here says that it wasn't disproportionately low-income loans that caused the financial crisis:

> Taken together, the evidence in the paper suggests that there was no decoupling of mortgage growth from income growth where unsustainable credit was flowing disproportionally to poor people.

It was still a subprime crisis if the crisis was caused by unsustainable credit received by those who would not otherwise have had access to it.

They are saying it was not the Community Reinvestment Act (CRA) that caused the crisis, as the contributing loans were not subject to CRA legislation.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#129

Post by djrogers »

blurbleblurble wrote: post #36
naspinski wrote: post #28

As a real estate investor, I lick my chops when I see news like this. But as a human being it's so terrible to see happen over and over again. Watch "The Big Short" if you haven't - everything will crash again.

So when are you and your fellow investors gonna stick to being human beings? This game has gone on long enough. We're talking about peoples' lives. We're talking about an entire generation of people who can't afford to buy houses because the generation before them gave in to bad credit. We're talking about entire generations of people who are going into a personal debt based economy of fear and coercion. Is that the…

Unless you think the GP is causing these types of problems, this attitude is entirely unwarranted. Investors buying on a down market soften crashes by providing an infusion of capital when the market indicates it's needed.

If real estate investors took the moral stand you seem to be suggesting here, who exactly would be buying a home from a distressed homeowner? What money would be floating around to cover short sales and prevent foreclosures?

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#130

Post by dwaltrip »

blurbleblurble wrote: post #36
naspinski wrote: post #28

As a real estate investor, I lick my chops when I see news like this. But as a human being it's so terrible to see happen over and over again. Watch "The Big Short" if you haven't - everything will crash again.

So when are you and your fellow investors gonna stick to being human beings? This game has gone on long enough. We're talking about peoples' lives. We're talking about an entire generation of people who can't afford to buy houses because the generation before them gave in to bad credit. We're talking about entire generations of people who are going into a personal debt based economy of fear and coercion. Is that the…

Don't expect people to not act human. Instead, update the system to incentivize the desired outcomes, given the current peculiarities of human nature.
Post reply on HN