But on the plus side, foreclosures are slowing – down 8% in November, which is very encouraging.

An interesting case with far-reaching implications –

“It’s one of the great open questions” in property law, said D. Benjamin Barros, a law professor at Widener University who edits a blog on such topics. The importance of the issue of whether a judicial decision “can eliminate important property rights and leave the owner without a remedy” will only increase with the growing number of public-private disputes over waterfront property, he said.

The liberals¹ among my colleagues will most likely have some strong qualms with the very idea of limiting equity, but I find it hard to believe that the intelligent ones among them could argue with the intention of creating perpetually affordable housing.  The simplified argument is this:  by sharing equity between the lender and homeowner, a price ceiling is created and housing prices are kept low.  The equity that is retained by the lender is leveraged to offer shared-equity opportunities on another property, and so on.  Housing is thus kept affordable for lower income households.

The question that screams out at me is whether or not shared equity can escape the pitfalls of its cousin, rent control – but I’ll save that for future posts when I’ve done more research.

Here’s a WaPo article on shared equity by the venerable Mr. Rourke O’Brien, a good friend of GGB, and his colleague David Newville of The New America Foundation.  Mr. O’Brien and Mr. Newville’s article is considerably shorter than the NHI document above and provides a succinct explanation on just what exactly “shared equity” means and does.

¹ Economic liberals, that is – the default position of any self-respecting real estate agent, which I am not.  Self-respecting.

Does this mean that Congress will soon be shoveling more billions into the FHA? Possibly. But it’s important to understand the precise nature of the FHA’s predicament. Whereas Fannie and Freddie are in the business of securitizing mortgages, the FHA insures them directly. Borrowers of modest means can get houses with as little as 3.5 percent down; if they default, the FHA pays off the lender from accumulated insurance premiums. During the bubble, subprime firms “served” anyone with a remotely plausible ability to borrow, and the FHA’s market share waned. The FHA tried to compete by accepting down payments supplied by sellers to borrowers via nonprofit organizations. These were, in effect, loans of very poor quality that required no down payment, and they have been defaulting in bunches. The FHA says that, without these clunkers in its portfolio, the agency could meet the statutory capital requirements today.

Even Academy Award winners are suffering from financial woes this recession. Actor Nicolas Cage lost two homes in New Orleans worth a total of $6.8 million in a foreclosure auction Thursday.

The article says that Cage alleges that he got screwed by his former business manager.  This bit of information makes CNN’s attribution of this to the recession ridiculous; if you’re going to create absurd syllogistic fallacies, you might as well make it interesting:

the economy is in recession;
Nic Cage has financial problems:
therefore, Nic Cage is in recession

or:

the economy is in recession;
Nic Cage has financial problems:
therefore, Nic Cage caused the recession

In fact, this news has nothing to do with the recession or the real estate market.  IMDB reports five projects in production for Cage for 2010, in addition to four films from 2009 for chrissakes.  The real news here is the fact that yet another trusted financial advisor was a shyster.

Let that be a lesson to you, keep an eye on your money.  Even if someone else manages the day-to-day, you’ve got to pay attention: require and read periodic reports.  That’s common sense, I would think (but then again I gave up assuming things were “common sense” a long time ago).

I’m kinda kidding about the horrible actor thing, he was good in Leaving Las Vegas and Raising Arizona. Everything else was crap, though.

Importantly,  he suggests that underwriting standards (particularly FHA) need to change for the market to legitimately recover, specifically advocating an increase to up to 10% down payments required.  “80/20″² loans  were at the heart of the sub-prime mortgage crisis – a return to significant down payments creates more stable mortgages³, and thus more stable housing and loan markets.

Questions remain, though:  is this Tax Credit just a band-aid on a gunshot wound?  What happens when it is allowed to expire?  Or are we just hoping that, by the time it does expire, the economy has righted itself enough that an un-propped housing market will sustain itself?

¹ Realogy is the parent company of such brokerages as Coldwell Banker and Century 21, among others.

² 80/20 loan:  80% first mortgage, 20% second mortgage that acts as “down payment.”  The logic for this instead of just a 100% first mortgage is that having an 80% “loan to value” ratio on the first mortgage allows the home buyer to avoid having to pay mortgage insurance.

³ With the house 100% financed (or close to)  in 80/20 and even 80/15 loans, (the thinking is that) the homeowner has a much easier time walking away and allowing foreclosure than someone who put $20k+ down. Thus, the higher down payment makes it a more stable and less risky loan.