Some Thoughts on Housing

There is a great chart in the WSJ today (which requires a subscription so no link for now) highlighting the 10 US metropolitan centers with the highest percentage of homes in foreclosure in January of 2008. Cape-Coral-Fort Myers, Fla holds the title with 5.8% of the homes in foreclosure, followed by Port St. Lucie, Fla with 3.9%. The list goes on and ends with Naples-Macro Island, Fla. which has 2.7% of its homes in foreclosure. The article is actually about the Senate's attempt to come up with a solution to the crisis but the chart is more interesting. The Senate is not getting any help from FNMA, who announced today a tightening in its lending standards for home mortgages it buys or guarantees. FNMAwill now impose a minimum credit score of 580 for most loans. FNMA did not have a minimum prior to this change. Furthermore, FNMA will increase the period to reestablish credit history after a foreclosure filing from 4 years to 5 years. This is more than likely in response to a rise in delinquencies of FNMA's portfolio. To recap, foreclosures are surging, home prices across the US are falling, lending is tightening. Also, what about all of the home equity loans on banks' books that are 90% LTV? Banks have frozen access to home equity loans, presumably because they feel it's not such a great business in a declining market, they have no room remaining on their balance sheets, and they anticipate taking write-downs on loans they already carry. The home equity loan problem is sure to be the next crisis. Although there are so many crises going around, it's hard to predict what's next.