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TheStreet.com's Jim Cramer says they should be punished for trying an end run on taxpayers. Love Centex (NYSE: CTX) (Cramer's Take), sell Horton (NYSE: DHI) (Cramer's Take)? That's how I feel after reading Horton's pathetic plea to bring back down-payment assistance for this industry, which remains unpunished for all it did to foment the housing crisis.
Yesterday, in one of our "Wall Street Confidential" series, I opined that Centex was shaping up to be one of the better builders after making so many right moves in the last year to preserve capital. I didn't care for industry leader D.R. Horton, though.
And that was before I read the outrageous comments from Horton CEO Don Tomnitz in Market Watch yesterday, where he decried that the new housing law didn't include more down-payment assistance loans from the FHA. These seller assistance loans plied basically, by the homebuilders that allow homebuyers to use a back door to FHA loans, have been defaulting at very high rates. The Congress, in an actual dollop of wisdom, scrapped them and instead gave people a tax credit of $7,500 to buy a new house, not bad considering that houses have retreated in value to the point that even though you need to put down more money as a percentage basis, as an absolute basis there's some affordability. This kind of loan is precisely what got us in trouble, an affordable loan that people ultimately couldn't afford that just helped Horton dump properties.
Centex, on the other hand, a more conservative company than Horton, and hence a more likely survivor, agrees that this kind of financing is bad in the long run because it is being given to unqualified people who then can't pay.
As we probe and (I believe) hold the bottom for the financials reached July 15, the congressional legislation is a key aspect of the returning to sanity in the housing market. But sanity includes some punishment for those who didn't play by the rules, meaning those who abetted the process of giving loans to people to get homes off the books and then hooking in the taxpayer, through the FHA, to do so. We need some homebuilders to merge or go out of business to continue to shrink the new supply to get price stability.
Horton's outrageous comments show we aren't there yet. Still too many companies in that industry depending upon you and me to stay in business, not their own business smarts and balance sheets.
The shame from this industry's participants and their unwillingness to admit that they had anything to do with the problems is just outrageous.
It's good that the legislation gave them no handouts despite ample attempts from them to get them.
Maybe there's hope for the consolidation and bankruptcies and rationalities after all, because only a desperate company would still call for such insanely imprudent plans like down-payment assistance.
Random musings: Yesterday I wrote that Freeport-McMoRan (NYSE: FCX) (Cramer's Take) was being destroyed by quant funds and the idea that it could lose 25% in a week was unfathomable. Today, Lonmin gets a bid from Xstrata, a reminder that mineral companies may have no value when it comes to the quants but tremendous value when it comes to companies that have to deliver ore to real customers who are not watching the S&P 500 futures and the stop losses and the 200-day charts.
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RELATED LINKS:
D.R. Horton Narrows Loss, but Clearly Weak
U.S. Housing Prices: When's the Bottom?
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Freeport-McMoRan.
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Reader Comments (Page 1 of 1)
8-06-2008 @ 8:01PM
dr said...
Cramer - You have fallen for HUD's misinformation campaign. Downpayment programs backed by sellers have a 94% success rate, according to the General Accounting Office. How is that a high default rate? It's virtually on par with other downpayment programs. Check out http://www.supporthomeonwership.com. HUD just wants to offer its own zero down program and sees these guys as competition.