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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
It’s not bad enough that the housing market more and more looks like it’s a bubble. Now the New York Post’s Editorial Board says that President Barack Obama is planning to leave the country with quite a unique going-away present by the time he leaves office: another housing crisis.
Now, the NY Post isn’t the Wall Street Journal. Not even close. But I was really happy to see that someone, somewhere, was finally addressing this.
They stated that the Obama administration is doing its best to give the nation another mortgage meltdown.
Because, the Post noted, Team Obama is pushing mortgage lenders to offer home loans to folks with shaky credit, setting up conditions for another housing-market collapse.
Haven’t we heard this tune before?
Seriously - wasn’t the last one bad enough?
Credit scores of approved borrowers, for example, have been trending down, even as their debt levels have grown.
And even though that’s happening, the Federal Housing Administration and government-sponsored “independent” lenders Fannie Mae and Freddie Mac have been demanding lower credit standards — just as the feds did starting under President Bill Clinton, in pursuit of the same “affordable housing” goal.
The crazy thing is, some borrowers need only to put 3% down to get a Fannie Mae loan — even if the down payment is a gift. Fannie also has started up a new subprime lending program.
This would be comical if it wasn’t so unbelievable. I mean, we know exactly why the market crashed last time. And it’s like they’re using the exact same playbook now and expecting a different result.
The Office of the Comptroller of the Currency recently warned that mortgage underwriting standards have slipped and now reflect “broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.”
History repeating itself?
Doesn’t it make sense that – just like we saw LAST time, when the economy and housing prices turn south again, a lot of these loans will go bad?
But, as usual, one of the nation's “prominent central bankers” disagrees with the Post's view of the housing market.
New York Fed President William Dudley said the housing market should remain on a “solid trajectory” for the rest of the year.
He said that:
“Both new and existing home sales have flattened since the middle of last year,” and that “indicators of real business investment spending point to continued softness. In contrast, manufacturing production—which had been a particular weak spot of the U.S. economy in 2015—rose in the first two months of this year.”
“I continue to anticipate that consumption and housing activity will expand at a moderate pace this year,” Dudley said. “Continued job and wage gains, combined with still-low energy prices, should sustain real disposable income growth and support consumer spending. The housing market should remain on a solid trajectory, supported by rising employment and low mortgage rates.”
The question, as always, is who do you believe? Personally, I take anything anyone that the Fed says with more than just a grain of salt. I mean, they’ve been so reliable in the past, haven’t they?
The Post stated that the good news is, if there is any if we repeat the scenario, that it probably won’t cause another global financial crisis, because the banks largely learned their lesson on that front back in 2008.
But they also noted that the bad news, as usual, is that the taxpayers will likely wind up on the hook. Directly or indirectly, Uncle Sam has been responsible for insuring at least 80% of new mortgages since 2008.
President Obama loves to cite “the definition of insanity” as “doing the same thing over and over again and expecting a different result.”
Which prompts the Post to ask the question: Is he expecting these disastrous mortgage policies to bring a different result this time?
What’s your take?
Do you agree with the Fed or the Post? Share below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.