11.20.09
Interesting interview of Bob Toll, CEO of Toll Brothers (one of the largest homebuilders in the USA), at UBS’ Building and Building Products Conference via Seeking Alpha:
He outlines how the GOVERNMENT is AGAIN creating MORAL HAZARD in the housing industry – in short, Fannie and Freddie’s business has diminished but FHA loans have gone from 2-3% of market to about 30% of market according to Toll – FHA requires only 3.5% down so if someone buys a $100,000 condo, gets the $8,000 tax credit and only puts $3,500 down, they could theoretically walk away with a profit.
When a policy or provision allows someone to purchase something with virtually no risk, that policy or provision invites MORAL HAZARD – the idea that someone will take advantage of this (without feeling any moral obligation). it would be like a disability insurance company selling a policy that pays $100,000/year to someone who only earns $40,000/year. What’s the chance this guy becomes “disabled?” Pretty good wouldn’t you say? That’s moral hazard.
If what Toll is predicting is true, this will be ANOTHER housing blowup in the near future caused by moronic government policies that will be blamed on the “free market” (just like keeping interest rates at 1% during a housing bubble in the 2000’s was “the free market at work.” No that wasn’t an out of control Federal Reserve Bank overstimulating…no not at all…).
FYI -Definitions of moral hazard from:
How exactly does one qualify for an FHA loan? Click HERE
Chris Grande
PS this follows what I mentioned in my article last week that buying AFTER the housing credit ends could land you a better purchase price…
