Two New Books: One GSE Informative; other, tragically timely
Blog # 374 Copyright 2015 COBA7® 22 November 2015; community-investor.com
Perspective. ‘Land-lease-lifestyle communities, a.k.a. manufactured home communities and ‘mobile home parks’, comprise the real estate component of manufactured housing.’
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INTRODUCTION. Read two books last week while traveling in New Jersey & Pennsylvania. One ‘filled in the blanks’ relative to my partial knowledge of Fannie Mae & Freddie Mac (Part I). The other one? A novella, whose dire prediction of the probable next 9/11 type terrorist attack – on elementary schools within the U.S.- profoundly disturbed me, especially with the Paris, France catastrophe occurring the same day I finished reading. A coincidental confirmation about what we must now plan to prevent?!
BOOK REVIEW of Shaky Ground, ‘The Strange Saga of the U.S. Mortgage Giants’ Fannie Mae & Freddie Mac; by Bethany McLean, Columbia Global Reports, NY, 2015. 159pp. Available from Barnes & Noble booksellers.
“Book exposes zombie side of Freddie and Fannie”. So began the newspaper review of Shaky Ground.
My take on the same book. ‘Ah Ha! Would this be the introduction to, and overview of, Fannie Mae & Freddie Mac, I’ve been seeking since the two GSEs (government sponsored enterprises) were guests – and valuable knowledge contributors, at the 23rd & 24th International Networking Roundtables in Atlanta & San Diego in 2014 & 2015?’
As it turns out, ‘it was & is’ that intro & overview, albeit a slow and difficult ‘read’ in places, given $ twists & turns, political intrigue & otherwise, that both GSEs have endured since the financial crisis of 2008. Learned a lot along the way, some general, some specific…
“One rule about financial crises that seems to hold true is the spark that lights the fire is never what everyone or even anyone was expecting.” P.8. For example; how many contemporary economists & historians know today, the ‘bursting of the manufactured housing chattel capital bubble circa 2000’, precipitated by subprime (abuses) & predatory lending practices, was a clear precursor to the ‘bursting of the conventional housing finance bubble eight years later – one also precipitated by subprime (abuses) & predatory lending?! Think I exaggerate? No. There was then, a small group of real estate investors (i.e. LLLCommunity owners/operators) who recognized, shortly after the turn of the century, ‘What was happening in both housing camps!’, but no one deigned listen to the naysayers then or later, as the national economy was overheating in earnest.
Later in this review, read more about secondary markets.
The author then describes another financial crisis rule. “When the crisis hit, private capital did what private capital does: It completely deserted an asset class it no longer liked. There was absolutely no capital available to finance mortgages – and if the mortgage market shut down, the economy would shut down with it.” P.42. Of course this describes ‘Why the government couldn’t afford to let Fannie and Freddie go – and it still can’t.’ (as) ‘Fannie and Freddie were all that was left.’! P.42. And for manufactured housing aficionados reading this book review, that’s the same rule consequence we experienced after ‘turning our home buying customers upside down’ financially, at the turn of the century. Again; do I exaggerate? No. Year end 1998 = 372,843 new HUD-Code home shipments; less than a decade later, 2009 = only 49,789 new HUD-Code home shipments, and not much better today (i.e. average of but 55,146 new homes shipped per year during past six years!) as we await the return of ‘easy access to chattel capital’ more than a decade later..
Back to Fannie & Freddie. During “…the Fall of 2008, the worst of the financial crisis…was all Fannie and Freddie’s fault (&) the genesis of the problem – the original sin – was Congress’s 1992 imposition on Fannie and Freddie of affordable-housing goals, which required the GSEs to guarantee certain numbers of mortgages made to lower-income borrowers.” P.46 Which is what occurred. However, “There is a big difference between a 30-year fixed-rate fully documented mortgage Fannie and Freddie mostly did in the 1990s – and the reckless loans that proliferated in the bubble, like adjustable-rate zero-down-payment mortgages where the borrower simply states his or her income” P.50
Where are matters today? Early in the book, the author notes, “Because the government is taking practically every penny of profit…Fannie and Freddie have not been allowed to rebuild any capital…” p.23. Then, on the final page of the book, she makes this sobering prediction: “…they are being used as cash cows to make the federal deficit appear smaller than it really is. But if market conditions, including the Federal Reserve’s sale of the agency securities it owns, destabilize them, they don’t have a cushion, and the effects on the American homeowner – and even on U.S. foreign relations, because of the large financial interests of other major world powers in Fannie and Freddie’s debt –could be devastating.”p.148.
And there’s this parting dose of reality, familiar to my contemporaries (i.e. those around for the turn of the century chattel capital bust) in the manufactured housing industry. “The reality is, private capital has a long sordid disastrous history in the secondary mortgage market, they have never been successful at it. Their involvement always leads to predatory style lending, high risk business practices, and always has ended in complete collapse.” P.143.
All the foregoing notwithstanding, Fannie Mae & Freddie Mac, during the past two years, at both International Networking Roundtables, have sought the manufactured housing industry’s cooperation in general; and input, specifically, from land-lease-lifestyle community owners/operators, as to how the two GSE’s might better serve our unique housing markets and income-producing property types.
• In 2014 they publicly expressed willingness to guarantee real estate-secured investment property mortgages containing what are generally referred to as ‘park-owned homes’, on a transaction by transaction basis, This is huge and continues to be..
• In 2015 they publicly expressed willingness to ‘doing deals’ at $1,000,000.00 and smaller in size. This too is huge – as it opens the doors to more than 80 percent of LLLCommunities across the U.S. with 100 and fewer rental homsites.
The future for Fannie Mae & Freddie Mac? Shaky Ground concludes with this inconclusive thought: “…neither of the solutions that look the likeliest right now – handing the market to the banks, or bringing back a version of Fannie and Freddie – does anything to rethink the cult of homeownership.” P.145. So status quo for now.
In either event, the manufactured housing industry and land-lease-lifestyle community real estate asset class with the two GSEs ‘very well’ as we continue to explore more ways to work together providing truly ‘affordable housing’ to this nation’s citizenry.*1
*1. As a matter of principle, I try not to ever use the words ‘affordable housing’ without clearly defining what is (should be) meant by the oft overworked term, often hijacked by the ‘low cost housing’ folk. According to Bruce Savage’s popular history of MHI’s National Communities Council, The First 20 Years!, ‘Housing is affordable when individuals or households ‘…earning less than half the Area Median Income or AMI, can afford to rent a conventional apartment and or buy a home in their local housing market.” Pp. 105 & 106. For example: National AMI is around $51,000. In that case $25,500. should be able to rent one an apartment or buy a house in many markets. Most LLLCommunity homeowner/site lessees have an AMI of around $36,000. In their case, they have $18,000 to use to rent an apartment, buy a house, OR, buy a manufactured home in a LLLCommunity and pay a modest site rent. GFA
BOOK REVIEW of Dies Irae: DAY OF WRATH, a novella authored by William R. Forstchen. Available from Amazon.com
If you have school age children or grandchildren, this may or may not be a book you’ll want or have to read. But if you survived America’s 9/11 attack, and understand dark forces are at work in this world, planning a repeat performance, you must read this book!
New York Times best selling author William R. Forstchen sets the stage for this work of fiction in the following manner: “Osama bin Laden made clear his intentions to us long before 9/11. Hitler made clear his intentions to all whom he declared were ‘racial inferiors.’ The list of warnings from such hideous murderers goes back to the first pages of recorded history. Those who did not listen to such warnings eventually learned of their folly. Are we doing the same today?” Quoted from the FOREWORD.
And on the second page of this novella, he hints just how far from (past) social and cultural norms we’ve drifted, as a nation, (Making us vulnerable to….)
“Our leaders tell us to believe in them, that they do all for our good. They tell us they fight for our rights, while they travel about in entourages costing millions, for their monthly vacations. They tell us to conserve – for all is running short, while their private jets take them to their next gathering. What are proclaimed to be our entertainers are experts on all things simply because they act a role in a movie. Their role model to our youth is one of dissipation, mocking any of us who try to teach our children any type of values.” P.2.
So, what does this presage? Something so horrific, it ‘Stopped me in my tracks’!
Understand this. In early 1969, while a company commander of ‘helicopter support teams’ with U.S. Marine infantry units throughout Northern I Corps, South Vietnam, I experienced firsthand, carnage, trauma and pathos not voluntarily recollected – until I read this book! *2 And just as the tragic events of 9/11 gravely affected the lives of many Americans, the message expressed in DAY OF WRATH, has potential for doing similarly today! It’s that ‘Wake Up Call’ no one wants; predicting a happening that, if and when it occurs, will match, maybe overshadow, that dark and awful day in September 2001!
While a quick & convicting ‘read’ for anyone with school age children or grandchildren, it’s also seminal reality reasoning for discussions of ‘gun free zones’ & arming teachers.
*2. For an accurate, firsthand description – presented as historical fiction – of extreme combat experienced by U.S. Marines, early 1969, in and around the Ashau Valley in South Vietnam, read Karl Marlantes’ Matterhorn.