Zero-Down-Payment Loans & the Housing Crisis

Despite all the hoopla over subprime loans and unscrupulous lenders exploiting low-income homebuyers, a new analysis by University of Texas economist Stan Liebowitz finds that subprime was not all that important in the housing crisis. Most mortgage foreclosures involved prime loans, not subprimes or loans with introductory “teaser” interest rates that soon reset upward.

Instead, the majority of foreclosures involve prime borrowers who bought houses, often with little or no down payments, thinking they would appreciate. When housing prices declined instead to the point where they were “under water” — i.e., the loans were greater than the value of the homes — many people simply walked away and let the banks foreclose.

In a housing market unfettered by government regulation, home prices rise and fall with local incomes. Unless a major industry shuts down (think oil in Houston in the 1980s, Boeing in Seattle in the 1970s, the auto industry in Michigan today), home price declines tend to be small. To guard against people leaving homes, lenders traditionally require 10 to 20 percent down payments. This insures that the equity people have in their homes will almost always be greater than the remaining mortgage.

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Glaeser Opposes High-Speed Rail

Edward Glaeser, one of the nation’s leading urban economists, thinks that high-speed rail is a waste, especially when it is planned for areas such as Alabama and Oklahoma. Not only is this inefficent, he notes, “intercity rail travelers are wealthier than car travelers,” so subsidies to high-speed rail are regressive.

“The case for subsidizing urban mass transit, like the Massachusetts Bay Transportation Authority, is certainly debatable,” says Glaeser, “but it is much stronger than the case for subsidizing rail links between non-coastal cities.” Glaeser dismisses claims that high-speed rail will promote economic growth, saying that “no serious evidence supports such claims.”
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Meanwhile, a Government Accountability Office report on Obama’s high-speed rail plan raises many of the same questions posed by the Antiplanner. Noting that the Federal Railroad Administration has no reliable estimates of costs, ridership, and benefits, the GAO questions whether it is appropriate to spend billions of dollars of stimulus funds on an unknown and untested program.

DeFazio’s Bright Idea

As the Antiplanner previously noted, House Transportation Committee Chair James Oberstar (D-MN) and Highways and Transit Subcommittee Chair Peter DeFazio (D-OR) want to spend $500 billion on transportation over the next six years — which is about $150 billion more than is available. Fortunately, if you think their plan is a good one, DeFazio has a solution: tax futures trades in oil.

This should easily raise $150 billion, DeFazio says, and “it should be wildly popular. I mean, everybody hates speculators.” That’s the ticket: just tax people everyone hates.

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Sanity Prevails in Texas

After The Onion reported that Texas was building a wall around itself to keep out the job-hungry Americans, the Texas legislature effectively did the same thing by passing a smart-growth bill designed to destroy the Texas economy so that it would no longer have jobs attracting people from the rest of the country. Fortunately, Governor Rick Perry vetoed the bill.

The bill “would promote a one-size-fits-all approach to land use and planning that would not work across a state as large and diverse as Texas,” said Perry. “Local governments can already adopt ‘smart growth’ policies based on the desires of the community without a state-led effort that endorses such planning.”
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Actually, what makes Texas work so well is that counties, for the most part, have no zoning authority. This means if some city such as Austin decides to adopt a smart-growth plan, developers can simply go outside the city limits and build for the market instead of what planners want.

Metrorail Tragedy

It is too soon to know what caused the Washington Metrorail crash that killed at least six seven nine people. The horrific photos show one train car telescoping into another, which is the last thing you want to have happen in a rail accident. Considering the accident took place just after 5 pm, it was lucky there were not more fatalities.

Time has not been kind to the Metrorail system. The Antiplanner remembers when the first lines opened and the trains exploded into the various underground stations and smoothly came to a stop. Today, the trains lurch and shudder, are delayed or cancelled by broken rails and “baffling” smoke in the tunnels, and passengers have to put up with numerous elevator and escalator outages.

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Oberstar’s Grand Plan

Chairman Oberstar and the leadership of the House Transportation and Infrastructure Committee want to spend $500 billion on surface transportation over the next six years. This is a huge increase over the $338 billion authorized over the last six years.

Page 4 of the plan’s executive summary “provides $337.4 billion for highways.” But, in fact, only $100 billion of this is dedicated to highways; most of the rest is in “flexible funds” such as CMAQ and the Surface Transportation Fund that can be spent on either highways or transit. Nearly $100 billion goes for transit, and $50 billion goes for high-speed rail. The remaining $12.4 billion goes for safety programs.

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NY Times on High-Speed Rail

The New York Times Sunday Magazine focused on infrastructure this week and included an article on California high-speed rail. The article included a chart comparing the fares or costs for driving, flying, or taking the high-speed train from Los Angeles to Sacramento.

According to the chart, the airfare is $100, driving is $50, and the train will be $55. That is exceedingly optimistic: the current Amtrak fare is $55, and most other high-speed rail lines cost more than the conventional trains.

But the chart leaves out a big cost: the subsidies. Subsidies to driving and flying are about a penny a mile, or about $4 for the trip from L.A. to Sacramento. But when the construction cost of the California high-speed rail system is amortized over 30 years and then divided by the projected annual passenger miles, you get a construction subsidy of 32 cents per passenger mile, or more than $120.

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Suckered Again

The Congress for the New Urbanism is holding its annual convention, which means it is time once again for the New York Times to get suckered into publishing a story about how rail transit spurs development. The Antiplanner calls bullshit on that.

The article opens with a heartwarming tale of how light rail turned a dusty cow town in Texas into a thriving, New Urban community. Naturally, the writer never mentions the tax-increment financing that supported this redevelopment.

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New Urbanists Revealed to Be Train Nuts

The Congress for the New Urbanism is having its annual convention in Denver, so some California New Urbanists chartered two private rail cars to get there. The 35-hour one-way trip cost $1,400 each, about $1,200 more than airfares.

Flickr photo by SP8254

The bragged about how they chose a “sustainable” way to travel. What a wonderful example for the rest of us! If only ordinary people had the time and money to spend 35 hours and $1,400 on a trip that would cost about four hours and $200 on a plane. The Denver Post says that at least some of these New Urban planners work for the government, so they have time and money to blow. Heck, since they are New Urbanists, they effectively all work for the government since so little New Urban development is actually built for the market.

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Flickr photo by Train Chartering & Private Railcars

As it happens, the Antiplanner once rode the Silver Solarium, the car featured in the article, on an Amtrak trip from Los Angeles to New Orleans. I haven’t taken the time to digitize my photos from that long-ago time, so you’ll have to be satisfied to see how the car looks today. Riding in a dome car, even one without all the luxury frills of a private car, is to me the pinnacle of travel. But that doesn’t make it sustainable.