The Anna Maria Island Sun Newspaper


Vol. 16 No. 12 - January 20, 2016

REAL ESTATE

Big short, little short; how about no short?

 

Movies are supposed to be cultural entertainment not cultural history. Unfortunately, too many people get their history from movies and fictional shows on television, especially when it comes to complicated topics like finance.

The latest installment of entertainment/history is a movie called “The Big Short” which presumably tells the story of the housing crisis and the financial collapse. Like all good fiction, the story hinges on just a small percentage of facts that led to the crisis and runs with it. The movie pretty much places the blame for the crisis on investment bankers, even disclosing the names of major financial institutions at the end of the movie. However, the substantial responsibility for the crisis lies elsewhere and is a lot more complicated than the film would have you believe.

As I’ve report many times in this column, the majority of residential home mortgages are backed by Fannie Mae and Freddie Mac. The loans these quasi government agencies provide are guaranteed by the United States government, i.e. you and I, and therefore take their orders from Congress.

Prior to the 2008 financial crisis, these two agencies, influenced and legally mandated by Congress, started liberalizing the underwriting requirements criteria for qualifying for a home mortgage. Naturally, this gave mortgage lenders the ability to make mortgage loans to potential buyers who otherwise wouldn’t have qualified.

The Wall Street investment banks came in and securitized the loans and sold them on the world-wide market, and when the subprime loans, remember that word, failed, the pyramid collapsed, and the American taxpayer was left holding the bag. So as you can see there was plenty of blame to go around starting with our own Congress which, in the name of fairness, made some pretty bad decisions.

Now its 2016, and Fannie Mae and Freddie Mac are not only still with us, but under the supervision of the Federal Housing Finance Agency, are growing. The latest innovation is designed to remove some of the risk that can be passed on to taxpayers in the form of financial instruments that transfers some of the cost of defaults on to the investors. This is essentially an insurance policy for Fannie and Freddie and a way for them to continue backing risky mortgage loans.

Isn’t this sort of like buying extra liability insurance because you like to drive 100 miles an hour and want to be protected? Maybe a better choice would be to stop driving so fast, and you won’t need the insurance. Likewise, maybe a better choice for the American taxpayer is for Fannie Mae and Freddie Mac to just stop holding risky mortgages in the first place. And don’t forget the agencies are still backed by the federal government so the new “Connecticut Avenue Securities,” which claims to reduce the government’s participation in the mortgage market, could someday be looking for a bail out.

Far be it from me to pretend to know everything about our banking and financial structure. However, I know enough to know what I don’t know, and although I may not totally get the infrastructure of selling short and securitized loans, I do know the danger of granting mortgages to buyers who will have a problem meeting their monthly payment. I long for the good old days of movies like “Love Story” that you could at least understand.

Real Estate Transactions
August 2015

Sponsored by Alan Galletto Island Real Estate

Sold Date | List Price | Sold Price | Address | Provision | Property Style

Anna Maria

2015-10-29 265000 250000 522 Pine Ave # 8d 822 2 Br/1 Ba Condo

Bradenton Beach

2015-10-15 599000 540,000 2206 Avenue C 1557 4 Br/2 Ba SFR
2015-10-02 2,650,000 2,600,000 109 13th S St 3017 8100x100.4 8 Br/8 Ba SFR
2015-10-08 649,000 590,000 903 S Gulf Dr 51x96 SFR Lot
2015-10-20 399,900 370,000 2310 Gulf N Dr # 104 651 2 Br/1 Ba Condo
2015-10-08 385,000 372,000 117 10th N St # 112 873 2 Br/2 Ba Condo
2015-10-07 725,000 700,000 2311 Gulf N Dr 2975 50x100 Duplex

Holmes Beach

2015-10-06 450,000 390,000 410 Bay Palms Dr 1535 2 Br/2 Ba SFR
2015-10-05 435,000 400,000 2918 Avenue C 1196 2 Br/2 Ba SFR
2015-10-23 469,000 462,000 5800 De Palmas Ave 964 2 Br/2 Ba SFR
2015-10-26 499,900 475,000 204 83rd St 1454 2 Br/2 Ba SFR
2015-10-15 599,000 580,000 212 71st St 1380 2 Br/2 Ba SFR
2015-10-08 689,000 675,000 310 58th # B 1251 3 Br/2 Ba SFR
2015-10-29 1,070,000 985,000 603 Baronet Ln 2717 95x130 4 Br/4 Ba SFR
2015-10-15 1,499,000 1,200,000 611 Key Royale Dr 2784 103x162 3 Br/3.5 Ba SFR
2015-10-14 1,895,000 1,850,000 688 Key Royale Dr 3725 4 Br/3 1/2 Ba SFR
2015-10-06 3,495,000 3,200,000 2907 F Ave 2300 4 Br/4.5 Ba SFR
2015-10-05 255,000 249,000 3607 E Bay Dr # 103 1000 2 Br/2 Ba Condo
2015-10-16 324,900 315,000 709 Manatee Ave 709 1179 2 Br/2 Ba Condo
2015-10-14 375,000 350,000 6400 Flotilla Dr # 98 1185 2 Br/2 Ba Condo
2015-10-19 399,000 385,000 6500 Flotilla Dr # 185 1185 2 Br/2 Ba Condo
2015-10-15 399,900 387,000 207 75th St # East 800 2 Br/1 Ba Condo
2015-10-30 435,000 400,000 100 73rd St # 203a 100x102x68x96 1Br/1 Ba Condo
2015-10-09 585,000 555,000 244 S Harbor Dr # 3 1330 2 Br/2 Ba Condo
2015-10-15 399,000 385,000 6250 Holmes Blvd # 63 1224 2 Br/1 Ba Townhome
2015-10-02 675,000 625,000 203 77th St # A & B 2632 75x100 Duplex
2015-10-22 595,000 550,000 3801 Gulf Dr 2188 Irregular Duplex
2015-10-09 359,000 311,500 5405 Gulf Dr # A 1080 2 Br/2 Ba 1/2 Duplex

Source: Mid Florida Multiple Listing Service