Housing: Doom, Gloom And The Blame Game

Talk about lowering one's expectations.

Not long aga, the National Association of Home Builders' chief economist David Seiders was forecatsing a 2% decline in new home sales in 2007. Then it was 4%. Now it's 8%.

"it had looked like demand had stabilized," Seiders told CNBC's Erin Burnett, explaining his early forecast. Then the subprime mess emerged and January and February sales proved "disappointing." Seiders says he's been "surprised" by how much builders say "lending standars have been tightened."  Lennar, Tuesday, lowered full-year guidance, referring to "soft market conditiions."

Seiders says we're in "uncharted territory", one reason why some are predicting a full blown recession. Guy Cecala, publisher of "Inside Mortgage Finance",  says recent events show "how vulnerable the home builder's market" is, but he isn't sure how badly that bodes for the overall economy. On the positive side, Cecala says there's a "strong supply of prime borrowers out there," low unemployment and "pretty attractive rates."

Many would say we have former Fed boss Alan Greenspan to thank for that, his famous interest rate "conumdrum" comment aside. Now there's something of a rear guard effort saying the historically low rates of the 2003-2004 may have been too much of a good thing.

Some are beginning to lay the blame for the subprime mess at the feet of former Fed boss Alan Greenspan. David Moon, Moon Capital Management president is one of them. Moon told CNBC's Melissa Francis that Greenspan on "at least two different public occasions" said that people would be better off with adjustable rates and that the mortgage industry is capable of assessing the risk of subprime borrowers. Moon says Greespan'd commnets confirmed what the "Fed had been doing for four years," namely "loosening reserve requirements."

Anthony Chan, JP Morgan Private Client Services managing director & chief economist, disagrees. In his view, Greenspan was saying that consumers think of 30-year mortgages as "an insurance policy to lock in a rate"  but rarely need it because of they change homes withing a few years; thus, adjustable rate mortgages made more sense. Chan also rejected claims that the Fed was lowering rates "for the benefit of the housing sector."

As the raging debate over the health of the housing continued, Congress mad another stab at understanding the problem, calling industry experts to testify for the second week in a row.

The head of the Mortgage Bankers Association Tuesday testified before a House panel looking into the subprime housing mess, telling lawmakers some lenders had made mistakes and that regulations needed to be revised.

John M. Robbins told the U.S. House of Representatives’ Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit that "bad loans were made. They were not made responsibly or with the best interest of consumers in mind.”

Robbins also said poor pricing transparency and a complicated closing process were also to blame. "The mortgage market is desperate for a rewrite of the nation’s settlement laws and a strong uniform lending standard to trap predators and bring them to justice.”

The Senate Banking Committee held hearings the week of March 19.

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