Q I did hear you say that you're eligible — not eligible if the size of your mortgage is below the amount — or has to be below the amount of the conforming limits. I thought you just said in an earlier answer that the non-conforming mortgages were eligible.

SECRETARY DONOVAN: Yes. So just to be clear, two different things. A conforming mortgage is a Fannie Mae or a Freddie Mac mortgage. Conforming loan limit is a dollar figure, okay? So what we're saying is, very large mortgages aren't eligible. Smaller mortgages are eligible whether they are Fannie Mae or Freddie Mac mortgages or other kinds of mortgages. Sorry about that.

Q What's the definition of that? Because in New York or San Francisco, very large is very large — but, I mean, there's different levels –

SECRETARY DONOVAN: And we'd be happy to provide more detail to you. It varies across the country, depending on what home prices — the maximum is about $730,000 in the highest-priced areas. There's a relatively complex formula I don't want to bore you with, but we'd be happy to get you what those numbers are across the country.

Q So there's a regional –

SECRETARY DONOVAN: Yes, there's a regional variation, depending on home price, exactly.

http://blogs.suntimes.com/sweet/2009/02/backgro…

I still maintain that the Monterey Bay area should be developed into another national-class city and metro area like the Bay Area, the LA Basin, and San Diego. (It should be much larger than a developed Santa Barbara area, even with the latter on the State Water Project someday.) This would include a world-class port with a shipping channel over the deep-water canyon. But this would not ameliorate the housing price problem in California (and similar problems elsewhere). Homes still cost far too much. I'm not sure how to combat this well except to rebuild with smaller homes (as in the Eastern neighborhoods I've enjoyed living in and visiting) after the “Big One” earthquake, fires, and other consequences.

DaGoat: Be nice to Patrick. I grew up in California in an earlier time and actually was one of the few that chose to leave it (a “living education” over the past many years, including many years now in the eastern USA), but I realize that its climate enchants people, as do all the physical amenities so very lacking so much elsewhere in the nation, both by relative and absolute standpoints. Even outside California (or other West Coast localities or spots in the Northeast), there's still a problem with housing affordability, which can be addressed to some extent by “down-sizing” (I prefer a smaller “footprint” for my lifestyle, and it's cheaper, anyway), but which remains a serious problem, even a crippling problem, in this country. It's made worse by home “flippers,” real estate third-parties, speculators, etc. Patrick made the traditionally smart move, going to the Central Valley where housing is relatively cheap, but it's still far overpriced. My brother was relocated to Los Angeles and pays for rent what should be the payments for a primary _and_ a vacation home.

“High-cost area” conforming moved from 417 to 625 depending on the specific area. But that only applies to originations 1/1 and subsequent.

And what happened to the earlier change last year to increase the conforming rate to $720,000. Is that no longer in play?

On another thread I posted something that many would not believe about California (where I grew up; I'm familiar with it and with other parts of this country) but which you, Patrick, would understand. People were buying homes for commuting to the Bay Area as far away as Merced, Madera, or even Fresno, or in the other direction, Redding. Why? Because it was so much cheaper than in the Bay Area.

Washington, DC, is expensive, yet during 2000-2001, a number of Bay Area and other California people went there in large numbers? Why? Because despite its terribly high housing cost, DC remained a bargain for many in California at the time.

And homes _still_ cost too much. And that's even when you account for growing “needs” for housing size and land parcel size (a joke in California, where parcels are shrunk and there's often little distance between adjacent homes, because land has been so expensive for years). Even those of us who have seen older, smaller homes (often on decent-sized land parcels, even if small on an absolute basis, and in comparison to home sites whose land areas match their McMansion home sizes) look askance at how much we're asked to pay.

Also for those who don't live in a real estate market like California I would point out that while $ 300k or $ 500k may seem like a lot of money that in California it was (and in some cases still is) a starter home.

My own house for example (which I rent, not own) is a 50 year old 2 bedroom, 1 1/2 bath with a small deck outside (no yard otherwise) covering around 1200-1400 square feet. Nice but hardly luxurious. At the peak of the market it was valued at $ 375,000 and is still worth over $ 200,000.

This of couse shows the conflict between our current housing crisis and the issue of affordable homes.

Actually, it's a bad one. Lay aside the issue of what's actually being considered here, the lowering of the amount of _principal_ owed as well as the interest rate and other terms of the mortgage loan agreements in question, which involves the loans, not the houses. To be able to impose changes of terms is the ability to commit expropriation (a form of theft). And when you read all that is written, it makes so clear that what is preferable is that the lenders and borrowers freely and willingly — from consent rather than from coersion or other kinds of compulsion other that how you view their situations and the economy — can and should do this rather than have it imposed by others.

Interestingly, though nobody but a Rambo class warrior would like it, there is plenty of motivation (not coercion, at least not yet, effectively!) for the lenders and borrowers to do this on their own, i.e., for the big, bad, evil, rich creditor lender banks to do this on their own accord, for it can be in their best interest. Why? If there is a foreclosure, it results in the loss of the loan and the costs to acquire and then sell or otherwise dispose of the property (ideally, to resell it), often involving repairs from less-than-well-behaved borrowers as a going-away present. The banks can end up like Detroit, with a bloated inventory of too many homes on hand that nobody wants to buy or can buy, even if the banks have already managed already to “reduce excess unit production” by not providing continued high-level support to the building industry. (Many homes are in older areas and so old the building industry is irrelevent, anyway.)

I'm wondering how real this bankruptcy-judge issue is. It's a darling objective of a few misbehaving people in Congress, but is no incentive to get banks to resume lending to people to buy or refinance homes, just cheap political posturing of some of the ugliest kind.

It's actually the homeowners who have much of the power here. There's an observational item here of note. With our deflationary spiral scenario, we have the “paradox of thrift” where individual virtue is collective vice insofar as preferring saving or debt service over spending has a broad de-stimulative effect on the economy, something we're currently worried about. The more individuals choose to refrain from spending, the greater the effect through the economy. Now with the distressed homeowners, the more potential foreclosures and more troubled loans and households there are, the more each individual borrower stands to gain against the evil creditors, even those who are not in trouble largely of their own accord. These observations' remarks are not logical fallacies of composition and division, but reality.

And just wait until credit cards become an even larger and more urgent problem.

I am glad that the bailout focuses more on modestly underwater homeowners and not those languishing at the bottom of the ocean.