Tag Archives: liquidity

Air Date 5/11/13: Sears Catalog Homes

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Special Guest:  Rosemary Thornton Author and Authority on Sears Catalog Homes

Do you live in a Sears Home? Learn how to identify a Sears home! We want to hear from You! Mark.Griffith@migonline.com

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Sears Catalog Homes:

For more than 10 years, Rose Thornton has traveled throughout the country, seeking and finding Sears Homes. In that time, she’s written countless newspaper and magazine articles, in addition to several books.

Rose is the author of The Houses That Sears Built (2002,) Finding the Houses That Sears Built (2004) and she’s the co-author of California’s Kit Homes (2004) and Montgomery Wards Mail-Order Homes (2010). Rose’s newest book – The Sears Homes of Illinois – was published in December 2010.

Rose has traveled to 24 states to give 200 lectures on Sears Homes, from Bungalow Heaven in Los Angeles to The Smithsonian in Washington, DC. She has addressed a wide variety of audiences from architectural preservationists in Boston, St. Louis and Chicago to kit home enthusiasts in small towns across America.

Rose has appeared on PBS (History Detectives), A&E (Biography), CBS (Sunday Morning News) and her book was featured in its own category on Jeopardy. She is considered the country’s #1 authority on kit homes. Her work has been featured in the Wall Street Journal, New York Times, Christian Science Monitor, Washington Post, L. A. Times, Dallas Morning News, Old House Journal, American Bungalow, Blue Ridge Country and about 100 other publications. Twice in the last three years, the story of her unique career was picked up by the AP and in May 2009, she was interviewed on BBC Radio.

Rosemary Thornton
Order your copy today!

Rosemary explains how to identify a Sears Home:

Do you live in a Sears Home? We want to hear from You!  Mark.Griffith@migonline.com

Click here  to see dozens of extant photos of Sears Homes!

The number one question I’m asked again and again – How do you identify a Sears Kit Home?

First, begin by eliminating the obvious. Sears sold these homes between 1908-1940. If your home was built outside of that time frame, it can not be a Sears catalog home. Period. Exclamation mark!

The nine easy signs follow:

1) Look for stamped lumber in the basement or attic. Sears Modern Homes were kit homes and the framing members were stamped with a letter and a number to help facilitate construction. Today, those marks can help prove that you have a kit home.

2) Look for shipping labels. These are often found on the back of millwork (baseboard molding, door and window trim, etc).

3) Check house design using a book with good quality photos and original catalog images. For Sears, I recommend, “The Sears Homes of Illinois” (all color photos). For Wardway, there’s “The Mail-Order Homes of Montgomery Ward.”

4) Look in the attic and basement for any paperwork (original blueprints, letters, etc). that might reveal that you have a Sears home.

5) Courthouse records. From 1911 to 1933, Sears offered home mortgages. Using grantor records, you may find a few Sears mortgages and thus, a few Sears homes.

6) Hardware fixtures. Sears homes built during the 1930s often have a small circled “SR” cast into the bathtub in the lower corner (furthest from the tub spout and near the floor) and on the underside of the kitchen or bathroom sink.

7) Goodwall sheet plaster. This was an early quasi-sheetrock product offered by Sears, and can be a clue that you have a kit home.

8 ) Unique column arrangement on front porch and five-piece eave brackets (see pictures below).

9) Original building permits. In cities that have retained original building permits, you’ll often find “Sears” listed as the home’s original architect.

To buy Rose’s book, click here.
To read another article, click here.
Lumber was numbered to facilitate construction

Lumber was numbered to facilitate construction

Numbers

The numbers are usually less than an inch tall and will be found near the edge of the board.

The Sears Magnolia was also known as Model #2089

See the faint markings on this lumber? This mark was made in blue grease pencil and reads, “2089” and was scribbled on the board when the lumber left Cairo, Illinois. This was a photo taken in a Sears Magnolia in North Carolina. The Sears Magnolia was also known as Model #2089

Sears Magnolia was also known as #2089

Sears Magnolia was also known as Model #2089.

Shipping labels can also be a clue that you have a Sears Homes

Shipping labels can also be a clue that you have a Sears Home.

“The Sears Homes of Illinois” has more than 200 color photos of the most popular designs that Sears offered and can be very helpful in identifying Sears Homes.

Ephemera can help identify a house as a Sears Home

Ephemera can help identify a house as a Sears Home. This picture came from an original set of Sears “Honor Bilt” blueprints.

Ephemera

Ephemera and paperwork can provide proof that you do indeed have a Sears Home.

Goodwall Sheet Plaster

Goodwall Sheet Plaster was sold in the pages of the Sears Modern Homes catalogs. This was a “fireproof” product that was much like modern sheetrock.

About two dozen of Sears most popular designs had a unique column arrangement that makes identification easier. The Vallonia was one of those 24 Sears Homes with that unique column arrangement.

About two dozen of Sears most popular designs had a unique column arrangement that makes identification easier. The Vallonia was one of those 24 Sears Homes with that unique column arrangement.

Close-up of the columns.

Close-up of the columns.

And in the flesh...

And in the flesh…

Houses should be a perfect match to original drawings found in the Sears Modern Homes catalog.

Houses should be a perfect match to original drawings found in the Sears Modern Homes catalog. This is where people get into trouble. They ignore the details.

Sears Mitchell in Elgin, Illinois.

Sears “Mitchell” in Elgin, Illinois.

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The Sears Winona, as featured in the 1921 Sears Modern Homes catalog. The house in Raleigh (see below) is just a spot-on match, a rarity in a house of this age!

The Sears Winona, as featured in the 1921 Sears Modern Homes catalog. The house in Raleigh (see below) is just a spot-on match, a rarity in a house of this age!

Sears Winona in Raleigh, looking PERFECT!

Sears Winona in Raleigh, looking PERFECT!

Sears Auburn in Halifax, NC

Sears Auburn

And a dazzling Auburn in Halifax, NC.

And a dazzling Auburn in Halifax, NC.

Sears Pheonix from the 1919 Modern Homes catalog.

Sears Pheonix from the 1919 Modern Homes catalog.

And a lovely Sears Pheonix in Newman, IL. Photo is courtesy Rebecca Hunter.

And a lovely Sears Pheonix in Newman, IL. Photo is courtesy Rebecca Hunter.

To buy Rose’s book, click here.
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Send Rose an email at thorntonrose@hotmail.com
To read more about Sears Homes, click here.
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Mortgage Delinquency Rates Fall!

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Remember how Bob Newhart’s last show called  Newhart ended? Bob’s character, Dick Loudon, had bought a small Vermont Inn full of zany characters. Newhart became so frustrated with everything going on at the inn, that he stormed outside where he was struck in the head with a golf ball and  knocked unconscious. When he finally awoke, he was in bed with TV wife Susan Pleshette from the original Bob Newhart Show that ran 12 years earlier. This TV history making scene stunned America and brought back the fond memories of a previous time. Watch the full scene:


The Housing crisis that began in 2007 is one of those  dreams everyone wishes they could wake up from. But there is great news in recent reports suggesting, at least in one regard, that one aspect of the housing crisis may be back to pre-2007 levels. Our national nightmare could be coming to an end.

New mortgage payment delinquency data released from  Lender Processing Services (LPS) gives reasons to hope. The LPS reports that new problem loan rates in March (seriously delinquent mortgages that were current six months ago) have fallen below 1%  for the first time since 2007. This means that these delinquency levels have reverted to levels that have not been seen since the Great Debacle  began. The key factors for the decline in delinquencies are: home equity increases which are rising due to the improving housing  market, increasing home values, and over all improvement in the economy.

A new report from Corelogic states, “Home prices nationwide, including distressed sales, increased 10.5 percent on a year-over-year basis in March 2013 compared to March 2012. This change represents the biggest year-over-year increase since March 2006 and the 13th consecutive monthly increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 1.9 percent in March 2013 compared to February 2013.” Corelogic also reports that April will see excellent home value increases. Delinquencies and foreclosures, which were once the nemesis for our country and the housing market, may be a thing of the past.

These are wonderful signs that point to a housing recovery in full swing. But unlike Hollywood, where the scene can magically take us back to a happier place and time; our happy place will not be facts and figures that point us to the past, but an economic recovery that points us to an exciting future.

Jobs continue to grow!

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Jobs continue to grow last month. Labor Department reports that non-farm payroll increased by 165,000 jobs in April and unemployment went down to 7.5%. With many experts speculating  that the economy could be heading the wrong way, these numbers are another great sign for the country. The 7.5% unemployment rate is at a four year low. There is more  great news; past employment numbers were revised upward signally positive steps for our economy.

Now’s a great time to buy!

Mortgage Investors Group understands there are a lot of choices when it comes to financing the purchase of a new home or refinancing an existing one. Our licensed and experienced loan officers are here to help you gain a better understanding of those options and answer your questions about the loan process, qualifying and the different features of each loan program. We offer everything from conventional mortgages to government loans.

Call us today and take advantage of these incredible market conditions!

Mortgage Investors Group
Mortgage Investors Group

Mortgage Lending:The Liquidity Factor, Part III

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Read Part 1 and Part 2

By Mark Griffith
Mortgage Investors Group
Branch Manager- Oak Ridge
Co-Host of The Housing Hour

The collapse of the S&L’s

levitt townThe strength of the S&L’s and their mortgage lending market share soared from post-World War II until 1965. The National Housing Act was a crucial first step to turning the Liquidity Factor from local markets to national markets, but the transition was extremely slow. When WWII ended, and millions of servicemen returned home, a housing boom ensued, caused mainly by a baby boom. The post-war housing expansion was primarily funded by the S&Ls.  S&L’s continued to grow in numbers and worth by offering saving rates that typically were higher than banks.  By 1965, the S&L’s had over 26% of the savings customers and a historic high of 46% of the mortgage lending market. Banks and S&L’s were battling for savings account customers, but the S&L’s were winning the rate war.  Customers took advantage of the fight until the government thought it necessary to step in and end the rate war in 1966. Regulation Q was passed to limit the rate of returns these institutions could pay to their customers. But, as stated in Part I, the government gave the S&L’s a 50 basis points rate advantage over the banks. This advantage enabled the S&L’s to maintain their dominance, particularly in the mortgage lending market. Yet, there was a deliberate limiting feature to Regulation Q and it had an effect on the number of S&L’s from 1965-1979, dropping the actual numbers of institutions from approximately 6000 to 4700. However, innovative business practices caused the assets of the S&L’s to grow.

But change was coming. Inflation was on the rise, causing stress in the S&L’s by the mid-’70s. Inflation erodes the interest returns on fixed savings accounts and other fixed investments, like the below-market fixed rate mortgages that the S&L’s were holding. Those savings customers, for whom the S&L’s had fought so hard for during the rate wars, were now looking for other methods of interest income. The locked in nature of the Certificates of Deposits which were the bread and butter of the S&L’s for the past 20 years were now prison cells to consumers, as high inflation rates stripped them of interest income and Regulation Q prevented the S&L’s to renegotiate the savings rates.  The S&L’s found themselves, for the first time in their history, trapped by the very regulation that they had profited from in the past.

Additionally, there was more distressing news on the horizon for the S&Ls.  As inflation started to appear, so did a new type of investment institution, the investment bank. A new investment product came to the attention of savings customers, the Money Market Mutual Funds (MMMF). The MMMF’s were highly liquid, paying current market rates with no early withdrawal penalties and they were all outside the control of Regulation Q. The S&L’s were caught flat-footed. The investment banks were now able to offer market-rate returns to their customers by taking full advantage of the high-interest rate market caused by inflation. When asked the question, ‘What, in your opinion, caused the collapse of the S&L’s?’ Stephen (Steve) R. Smith, CMB, Executive Vice President, Retail Sales & Production with Mortgage Investors Group and former top executive of an S&L in the ’80s replied, “In a word, disintermediation.”  Smith went on to explain what disintermediation meant, “….saving account customers poured out of the S&L’s and into the investment banks. The effects were devastating and in the end, insurmountable.”

The dominoes of the S&L’s slowly began to fall. In Part II, the point was made that the S&L’s did not participate in selling their mortgage loans to FNMA but chose to keep them, as assets, on their books. If they needed to free up money or liquidity, they sold to other S&L’s. But as a result of disintermediation, no S&L had any cash to buy, they were suffering the same fate: the threat of insolvency.

The only thing to stem the tide was deregulation, but it came too late and it came in pieces. There were numerous attempts by the government to help supply ballast for the listing S&Ls. In the early to mid-1970s, the S&L’s were allowed to offer checking accounts, engage in commercial lending, make limited investments in land development and construction as well as educational type loans. These changes helped the S&L’s to develop diversified business practices, but Regulation Q was still the governing burden. The main source of their solvency continued to be the savings account customers and mortgage holdings, and by 1979, double-digit inflation was wreaking havoc on these fixed-rate investments.

Renewed hope appeared in March of 1980 with the first deregulation attempt to save the S&L’s, Deregulation and Money Control Act. The Act allowed the S&L’s to pay market interest rates to their savings customers in hopes to curb their moving to the investment banks.  The act restored some confidence, but it only addressed half the issue, it did not address all those millions of dollars of under-performing fixed-rate loans that were still on the S&L’s books. There was certainly no hurry for homeowners to pay off these low-interest rate loans and there were no commercial buyers to purchase the mortgage paper from the S&Ls.  Steve Smith supplies an anecdotal example of the dilemma the S&L’s faced, “…we used to joke that our business plan was based on 3-2-1, we loan money at a rate of 3, we pay savers at a rate of 2 and go play golf at 1, but when inflation hit and then deregulation, our model changed to 3-9-0, we were bleeding badly and couldn’t afford to play golf.”

It took 2 years for the government to deregulate the lending restrictions for the S&Ls. Reagan signed a new law giving the S&L’s additional flexibilities, namely the much needed adjustable rate mortgage. This type of mortgage allows the lender to move the interest rate to match market conditions, such as inflationary pressures, protecting the lender from a below-market fixed rate investment. However, there was still no help for thousands of fixed-rate loans that were trapped on the S&L’s books. But the new law gave the S&L’s ability to expand into more speculative business enterprises. By the mid ’80s, the speculative nature of the S&L’s along with poor business decisions and fraud sealed the inevitable collapse of the S&Ls. “The fraud was symptomatic of an existing systemic problem….” explains Smith, “…by the early to mid ’80’s we were trying to create revenue given the new advantages offered by deregulation. Certainly, some didn’t play by the rules, but there was desperation throughout the industry. Inflation and the inability to react to it was an unintended consequence of government regulation and ultimately, in my opinion, the cause of the collapse. ”

Although the S&L collapse caused great financial hardships, including the use of US taxpayer’s money for bailouts, it did not create liquidity void for mortgage lending markets. The expansion of the GSE’s, FNMA and the newly created Freddie Mac in 1970s, allowed the vision of Roosevelt to finally be realized, the switch from local liquidity markets to a nationally controlled market.

Next: Mortgage Lending: Part IV, The rise of the GSE’s

Read Part 1 and Part 2

Air Date 4/20/13: John Burns, Direct Lending-MIG

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Special Guest: John Burns, Direct Lending

director-lending-div

John Burns

Director, Direct Lending Division

John Burns joined Mortgage Investors Group in January 1998. John’s experience includes over 20 years of outside sales and management. He manages all aspects of sales and production for Direct Lending. Direct Lending’s focus is the secondary market lending needs of Community Banks and Credit Unions. John’s responsibilities include staffing, product development, marketing, training, recruitment, and market expansion. In addition, John is a past President of the Knoxville Mortgage Bankers Association and has served as the East Tennessee Advisory Director for Tennessee Mortgage Bankers Association.

John also shares his scary story  that ALL parents must here. It’s about a fire that almost burned his home down and what you can do to prevent it!

WARNING:

The Housing Hour has learned that under certain conditions the smoke detector in your home could fail to go off.

Common home Smoke Detectors Failing:

Also, we have discovered another study regarding Children under 10 and smoke alarms…we discuss this study and will be posting a video on the study. Every parent with small children must see this video!

Learn more from our Protect your Family Series

Also: Check out The Housing Hour’s latest blogs: Edutorials

Our thoughts and prayers are with you Boston!

Housing starts rise in March!

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Housing starts rise in March to levels that have not been seen since June 2008. According to the Commerce Department new construction starts for homes rose 7% last month to an annual amount of over 1 million units.

This is  fabulous news for the recovering housing market. Low interest rates and a high demand for homes have pushed the new and existing home markets to some of the highest levels  in years.

Bidding Wars are pushing home values higher too. According to S&P Case-Shiller home prices rose 7.3% in 2012.  US Economic growth has been stimulated by the increasing housing activity. Realtors are trying to add more inventories to their MLS. Builders are scrambling to build more units, but they are finding it hard to find construction workers in some areas. Plus, the sudden increase in building permit requests have created significant delays in local government offices. It’s true the sudden change in our economic environment has created some issues in the home buying and selling markets; however, it will eventually seek some form of normalcy as things stabilize and balance.  If you’re a seller, now’s a terrific time. If you’re a buyer, now’s a terrific time!

Mortgage Investors GroupMortgage Investors Group understands there are a lot of choices when it comes to financing the purchase of a new home or refinancing an existing one. Our licensed and experienced loan officers are here to help you gain a better understanding of those options and answer your questions about the loan process, qualifying and the different features of each loan program. We offer everything from conventional mortgages to government loans.

Call us today and take advantage of these incredible market conditions!

Air Date 4/13/13: Tyler Fogarty-REALTOR

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We continue our Home Ownership Matters Series:

Special Guest: Tyler Fogarty, Realtor with  Realty Executives Associates

Tyler FogartyTyler Fogarty, Realtor

Realty Executives Associates

109 Northshore Dr. Ste 200
Knoxville, TN 37919

Office:(865) 588-3232
Mobile:(865) 414-6145
Fax:(865) 251-3232

Tyler joins The Housing Hour with a fascinating discussion regarding the recent surge in home buying activity the local Real Estate Market. He brings his passion to the Home Ownership Matter Series by describing the current biding wars that are occurring and ways to come out on top. Tyler discusses how his parents, who are also in the business, have helped  shaped him into one of the top agents in Knoxville and the surrounding markets. He also shares his philosophy of doing quality business with his  customers and the meticulous way he communicates all phases of the transaction.

For more than five years, Tyler Fogarty has built his reputation at Realty Executives by listening to his clients and providing the most accurate information for them to make the best decisions for their family. A Knoxville native and Real Estate expert, Tyler is known for his commitment to service and follow-through. Tyler Fogarty is your friendly guide helping you successfully navigate the Knoxville real estate market.

We cover all topics regarding the current market, so you don’t want to miss this crucial show!

Follow Tyler on Facebook and Twitter

Check out our latest blogs on the topics:

The Bidding Wars Begin

Timings everything, now’s the time!

Mortgage Lending: The Liquidity Factor, Part II

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 Read Part I

By Mark Griffith
Mortgage Investors Group
Branch Manager- Oak Ridge
Co-Host of The Housing Hour

The History of Mortgage Lending and The Liquidity Factor.

At the peak of the Great Depression, the Hoover administration realized the importance of the liquidity factor. Their policies bolstered the S&L’s, securing them as the main channel to provide the necessary liquidity to the mortgage market. The Federal Home Loan Bank supplied millions of dollars to the local banks and Savings and Loans for lending.

The importance of the S&L’s was, unintentionally, immortalized in the holiday classic, It’s A Wonderful Life. George Bailey was struggling to save his father’s Building and Loan business (essentially a Savings and Loan) from being taken over by the evil Henry Potter. George Bailey’s father built the business around the principle that the common worker needed the ability to borrow money for a better home and quality of life rather than living in the horrid conditions of Henry Potter’s slumlord developments. Mr. Potter, being a significant shareholder in the Bailey family Building and Loan, admonishes the board for lending money to the ‘rabble’ types (or the lower classes; the common people) that live in Bedford Falls.

In the famous scene, George Bailey rallies the board with the inspiring lines directed toward Mr. Potter, “You… you said…  They had to wait and save their money before they even ought to think of a decent home. Wait? Wait for what? Until their children grow up and leave them? Until they’re so old and broken down that they… Do you know how long it takes a working man to save $5,000? Just remember this, Mr. Potter, that this rabble you’re talking about… they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?” Watch the full scene:

This scene typifies the great  American dream that everyone should have the same opportunity to own their own home. George even points out what current research has verified when he asks the board a simple question “…doesn’t it make them better citizens?”Home ownership has social benefits and every president from Herbert Hoover to present has tried to further that sentiment.

But the scene also points out, inadvertently, the weakness of the Savings and Loan. That weakness was its localized business philosophy: meaning the small town, ‘good ol boy ‘ way of doing business. In every community across the country, S&L’s were the dominant player in the savings and lending business. Decisions were often based on who you knew or a set of standards and dynamics that was specific to a particular area or community.

When Roosevelt was elected in 1933, policies regarding how to supply the mortgage lending market with liquidity changed.  Roosevelt saw the disadvantages of the small town, local S&L’s and opted for a nationally standardized way of supplying liquidity. In 1934, The National Housing Act was authorized which created three particularly significant changes to the housing market. First, the Federal Housing Administration (FHA) was formed to improve housing standards and to insure the mortgages against default to the lenders, bringing stability to the financing market. Fixed rate loans were introduced with terms in excess of 20 years and smaller down payment requirements. Lastly, a government-sponsored enterprise (GSE) was authorized to purchase originated mortgages from lenders and securitization of those loans in the form of Mortgage Backed Securities (MBS).

fha1In 1937, the Federal National Mortgage Association (FNMA or Fannie Mae, a GSE) was created to provide liquidity to the mortgage market by buying the newly originated FHA loans from lenders. This technique gave the lender the ability to replenish their cash assets so they could continue to provide additional FHA loans. FNMA, at that time, only bought FHA loans and did not enter the conventional financing market until 1970 when her younger brother, Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), another GSE, was formed. As a result of the expansion of the GSE’s role in the liquidity market, Fannie Mae and Freddie Mac became the largest private mortgage companies in the country. Although the GSE’s are publicly traded and non-government owned, the US government gives its full backing to the loan products they purchase. The full backing of the US makes these mortgage bond investments one of the best investment choices in the domestic and foreign markets.

It is essential to note, the commercial banks were generally the only lending institution participating in the newly created FHA loans.  The majority of the S&L’s continued with their long developed business practice of keeping originated mortgage products on their books.  If they needed to create liquidity, they just sold their portfolio loans to other S&Ls across the country. This decision to not participate in government loans and the diversified liquidity it would provide them would play a future key role in the collapse of the S&Ls.

Part III:  The collapse of the S&L’s

 Read Part I

Air Date 4-06-13: Anne Brock- Safer Chemicals, Healthy Families

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Flour Sack Mama’s, Anne Brock joins us in studio!

We continue our series on ‘Protect Your Family

Special Guest :  Anne Brock, Blogger for FlourSackMama.com and Safer Chemicals, Healthy Families

We invite Anne Brock, blogger for Flour Sack Mama and Safer Chemicals, Healthy Families, to discuss the importance of taking steps to avoid toxins in our homes and communities. Anne, a professional blogger, maintains a website that is rich in practical information and inspiration.  Her down to earth philosophy is captured in her motto, Carry on Grandma’s best traditions; improving on what we know better.  Anne challenges us with these questions: “What if we could all breathe clean air, drink safe water and eat healthy food without spending a fortune on it?  When will we get serious about preventing cancer and other terrible diseases, even if it means taking an honest look at everything in our environment? Why not spend a moment each day thinking of someone who might follow decades later in our footsteps or of anything bigger than ourselves?”

Join us this Saturday 8:00 to 9:00 am to hear our discussion about simple living, ways to start protecting your family from toxic chemicals in everyday products, and what’s happening with the Safe Chemicals Act.

Safer Chemicals, Healthy Families : Click and join now!

 

Mortgage Lending: The Liquidity Factor, Part I

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Part I Part II Part III Part IV

By Mark Griffith
Mortgage Investors Group
Branch Manager- Oak Ridge
Co-Host of The Housing Hour

Mortgage Lending: The Liquidity Factor, Part I

In Mortgage Lending, it has always been said that the two largest purchases families will ever make are homes and cars. Since the 1900s, those two items have not only revolutionized the way we live but also the way we spend. In 1901, the Oldsmobile sold for $650 which works out to be approximately $16,000 in today’s dollars. Home prices were on an average of $5000. In 2019, the average home price peaked to a historic high of $227,000. New car prices hit highs of roughly $35,000 in 2018.

What helped home values to soar so high?

The Housing Hour points to its own terminology, The Liquidity Factor. The Liquidity Factor is the ready availability of loanable funds made possible by the Federal Government and private companies, through varied techniques of government policies and created business entities, which help individuals and companies purchase goods and services that they otherwise would not be able to afford. Simply put, without liquidity in the marketplace buyers only options are to pay with cash. No liquidity means values stay at the levels of what consumers can afford to pay in cash.

The liquidity factor is the key to mortgage lending and home ownership.

The history of Mortgage Lending and The Liquidity Factor.

“In the 1900s, homes generally had to be paid for in cash.”

Mortgage Lending has several historic moments worth noting since the 1900s. The most remarkable pieces of information revolve around long term financing options available in the 1900s, there weren’t any.  Mortgage Banks were formed in the 1870’s to help finance the expanding western territories, but they never offered ‘long term’ financing. It tended to be in the 5 to 10-year term range. But unsound underwriting guidelines caused high default rates which led to the demise of these Mortgage Banks by the 1900s, resulting in homes having to be purchased with cash.

The Great Depression: Unemployment exceeds 20%

It wasn’t until the roaring 20’s that expanding credit markets created enough liquidity to spur a mini real estate boom. Insurance Companies saw an opportunity to capitalize on the housing market bubble and got into the home lending field. But whatever a robust market giveth, a declining market taketh away.  Black Tuesday struck, leading to The Great Depression. High unemployment and acute deflation caused high foreclosure rates, which collapsed the home lending market for the second time in 30 years. Facing a countrywide crisis, the Federal Government created its own 1929 version of TARP, Troubled Asset Relief Program with the creation of The Home Owners’ Loan Corporation and Reconstruction Finance Corporation (RFC). These entities (like TARP) sole jobs were to liquidate non-performing loans and remove them from the Banks ledgers keeping the banks from insolvency. They were toxic assets. Interestingly enough, homeowners took advantage of this bailout opportunity and intentionally defaulted on their loan. These created government entities are estimated to have purchased over one million mortgages from banks.

The government buying toxic assets may keep the banks from insolvency but it doesn’t cure the lack of liquidity in the market place. No liquidity means no lending, so the Hoover administration started to form  (Roosevelt signed into law) the Federal Home Loan Bank. The main goal of the FHLB was to supply the needed liquidity to banks and Savings and Loans, as well as requiring specific lending guidelines, such as mortgage term limits of 10-15 years, as well as other stringent policies. The main lending institutions benefiting were the Savings and Loans. The S&L’s grew rapidly across the country, serving small community areas, creating a small town ‘good ole’ boy feel. Each S&L were owned and managed privately by individuals or groups, giving great control to the board of directors and president.  But the expanding  S&L’s demanded more flexibility from the government. The S&L’s were not full-service banks. They could not offer checking accounts and other typical banking products. As a result of  Banks and S&L’s waging a savings rate war, Congress, in 1966, regulated and limited the amount that banks and S&L’s could pay to customers. However, as a carrot to preserve their savings and lending, the S&L’s were given an award by the Federal Government with permission to increase the savings rate paid to customers in the amount 50 basis points over what traditional banks could offer their saving account customers. This regulation was known as Regulation Q. But the intentions of the regulation were more than just an award for the S&L’s; it also served as a back door liquidity technique. Regulation Q created a cash-rich environment for the S&L’s and helped secure them as the leading mortgage lending institution in the nation, supplying the market with the necessary liquidity until the collapse of the S&L’s in the ’80s, paving the way for the expansion of FNMA and Freddie Mac.

Part II, Mortgage Lending: FHA, FNMA and The S&L’s