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Tuesday, June 1, 2010
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49 comments:
NY Times Living rent-free
something to make your blood boil in the morning...
"More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier. "
Cara,
Thanks, nice article.
Any rational person who reads that article who does not think we are experiencing a "once in a lifetime" event in regards to ethics and moral standards is in denial.
I can't recall a time in my generation when so many people, across so many stratum of income have made financial decisions that are contrary to established mores and values.
"No matter what, you pay your debts" used to be engraved in stone in my curriculum. That no longer seems to be the case.
The more articles that continue to accrue with this type of message will likely begin to erode any market confidence that has returned since the '08 dip.
When I see articles like that one I can't help but think it's a standoff with no clear winners. Banks will not, cannot, and are unwilling to forgive the debt, regardless of the circumstances of the homeowner. The banks want the money. Period.
And homeowners have decided that a deal isn't a deal if they discover they aren't singing solo but rather complaining in chorus.
Simply astounding article.
TN,
I wonder why they focus on Florida when the NY State average squatting time is even longer? Sure there are more foreclosures in Florida, but the fact that foreclosures can be even slower in other states is impressive.
I do think a large part of this is a judicial foreclosure state problem, especially when those same states don't have the capacity to deal with this many cases. Not that I think judicial foreclosure is inherently a bad thing, in normal times it provides a useful layer of consumer protection. But swamped courts are never good.
I think a lot of the people in this story are just waking up to the consequences of the lending standard of 36% of your gross income being allowed to go towards PITI. Without wage inflation, that's a huge commitment with very little leeway. Trusting lenders to set the limit on the mortgage payment you "qualify" for is misplaced trust. Or was anyway, with inflation at low levels and limits slowly ratcheting up.
I would be interested in statistics concerning what proportion of buyers at different price levels are borrowing near or at the max 36%.
Ace,
That would be interesting. Haven't run across it. My speculation would be that's inversely proportional to those who can most easily afford it, with borrowers on the lowest rung borrowing the largest multiple of their income (since generally those places are also closest to rental parity anyway, so you're not losing anything but flexibility by it being a mortgage not rent). But I could be very very wrong.
my google searching isn't pulling anything up...
TN
Don't forget.
The banks established Subprime subsidiaries because they were buying Credit Default Swaps and they were
flipping these notes into RMBS, CDOs
and Synthetic CDO's.
for every foolish borrower there was a maniacal lender.
Let me be clear(er) with my comment.
This is a game of chicken. It's the banks vs. consumers.
Nothing more than that.
The banks are holding their ground, and using Wall Street and the market as a shield. The implied threat has always been "If you force us to take the loss, we will make the market drop when we correct the balance sheets."
Consumers are responding with "If you don't' renegotiate the loan, we won't pay and you will have to re-balance the sheets anyway.
It's a strange sort of MAD strategy I have not seen before.
Either way, there is going to be blood. Just a matter of who and how much.
Thanks for the link, Cara. I saw that this weekend, but my blood has stopped boiling at this point because I'm just not surprised by much of anything anymore.
I echo CR's comment, "this isn't for everyone." He quotes Streitfeld quoting Kyle Lundstedt, managing director of Lender Processing Service’s analytics group:
"These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure."
I think having your future financial life ruined for several years is worse than the benefits you get from living for free for a while. The stress would get to me, too.
I have noticed a fresh trickle of foreclosures hitting the market here locally in June.
for reference:
washington area 2007 ACS survey
Sadly, my favorite source has nothing in the ACS survey speaks to Ace's question. It doesn't even have the DTI at origination, just the current DTI (which is starting to be off quite a bit with a median origination date of 2003 and median occupancy date of 1999).
Speaks pretty loudly as to how moderate the HELOCing was here, given the median cost at origination and the median current mortgage amount are so similar. Sure, this means people in aggragate weren't paying down their homes like one should, but it's hardly California.
Different thread:
Over the weekend we attended a block party that was a hootenanny! We had a blast. Played Cornhole and got spanked by the local tailgating sharks.
During the course of the event, when RE popped up in the conversation, I was surprised to hear of at least three deals that hit the market that were not advertised. The homes were quietly advertised through word of mouth and the deals quickly closed on favorable terms. This appears to be a norm for that neighborhood. I also discovered no less than five homes that are in severe financial stress. The homeowners are underwater and because of a number of reasons (jobs, reputation, clearances, etc..) they are scrambling to put off foreclosure but time is running out.
I was stunned by the number of people who I initially thought were "well off" were confiding that they are worried to death about home values dipping any further. Two families nearby are struggling with a decision to move or rent. They can't sell (underwater) can't take the financial hit, but the new job is calling and they gotta go. They tried to sell the home last summer and had to pull it off the market hoping this summer would be a redemption. No joy so far.
My neighbor quietly purchased a foreclosure on the same street and it sitting on the property. I asked him why he bought it and he said "It's a great location, the home has good bones, and we know a few folks who may be moving here that might be interested in the home.
Wish I had friends like that...:(
The only folks who I talked to that seemed genuinely happy and content had bought before 2000 and were content with current market prices when and if they had to sell.
Zips were generally 22181/22182.
FWIW.
TN,
I'm jealous. There was a block party this weekend, and we didn't go because MIL was in town, and my husband didn't want to drag her to a party where even we didn't know anyone.
Whereas, I'm more worried that if we keep turning down what few opportunities are available to us, we'll never get to know our neighbors...
Thanks for the research, Cara; maybe Razzi would want to investigate it for the WaPo. I haven't seen anything either, which surprises me, since it seems highly relevant to many other stories we have seen over the past 5 years.
TN, I am surprised about those conversations too, given the zip codes.
I do feel sorry for people who did not overextend but simply got caught at the wrong time.
Ace,
Maybe people are afraid to look? Who wants to write a story showing that the rich get richer and being lower middle class sucks? Hmmm, maybe I should be looking up Elizabeth Warren and DTI...
Cara, well, there have been other such stories where incomes and wealth are the focus and those have drawn the same conclusion. So someone must want to write those stories. I once had two So. American friends who commented that a particular So. American country had huge pay and wealth stratification, and I found evidence on the web that the stratification was actually greater in the US than in the country they had concerns about.
Had a nice dinner with a couple of the neighbors we hadn't met yet. In talking to them, I remembered that one of them had one of the few true bubble sales in our neighborhood. So, I just went to check, and sure enough, a late '05 sale at least $150k over the current market. But the couple loves the house and neighborhood, and seems to have no concerns about the drop in value. One possible reason - we talked about their old house, and I was able to find the sale on the FFX assessment website. They cleared $200k in a bubblicious sale of their own (after owning for all of three years). The circle of life, er, housing.
Other fun point, heard back from the IRS regarding our $8k tax rebate. They promise to have it to us by the end of August - which will be a full year after we submitted the paperwork.
Fred,
Really? yikes!
We got ours in less than 3 months after filing. We included it in our 2009 tax return, and it only took about 2 weeks longer to get the refund than it did for others of my co-workers who filed around the same time.
I'm impressed that the neighbors can be so philosophical about it. Easy come easy go? Or perhaps on a deeper level they believe they'll win big again.
If they sold and bought during the bubble they can't really complain too much. Really, any complaint they would have about their property going down in value would have to come with guilt about the one they just sold doing the same thing to someone else. So I can see why they'd be okay with it.
All the first time buyers are the ones who are really screwed. I don't share Ace's sympathy with them though, since they signed the dotted line for the inflated price and it's their fault the bubble lasted as long as it did.
Jeremy, add to the first time buyer group: anyone who may have sold in a market that was not inflated, moved here (or another inflated market) and bought during the bubble years. There are quite a few of those people.
The people who cashed in (aside from those financiers who sold complex assets, etc.) were those who sold in bubble markets and moved to non-bubble markets.
Jeremy,
I agree completely that they should be okay with it for that reason, but not everyone takes a broader view.
I don't have a lot of sympathy for those that got overly creative with the financing during their bubble purchases (such that they would be intrinsically unaffordable in a known number of years), but I do have sympathy for those who downsized their expectations and bought the best compromise they could afford at the time. There was no good/easy way of knowing how much longer the insanity could have lasted or how it would all play out. Long-term renting is just not on everybody's radar as an option, especially people moving from an owned home in another area.
Cara,
All along, I've figured that since our '08 MAGI was bumping up against the phaseout limit and our purchase price was probably on the high side for those claiming the credit, that it would make sense if ours received tighter scrutiny. But, I never expected it to go this long. So, we'll just keep on waiting for our new patio door and downstairs windows...
cara said...
NY Times Living rent-free
something to make your blood boil in the morning...
I'm reading that in the evening, and it's making my blood boil.
I am reading the NYT story and it makes a lot of sense to me. My blood is not boiling because of people not being able to pay for mortgages they could not afford in the first place. They are paying for food instead, keeping their businesses afloat. They can declare themselves bankrupt. That makes sense to me.
If banks are not going to regulate themselves, then someone most. Banks took excessive risks because they would not be holding the notes. They knew borrowers could not pay those mortgages but they did not care. And they still do not care, because they knew they were too big to fail and the Federal government would bail them out. Now banks have tightened lending standards and "no doc or low doc loans" are less prevalent. That is healthier. Also, if banks do not want to modify a borrower's loan and are telling people they need to be behind in payments to even consider a modification, then banks are the main culprits making a bad situation much worse.
Not everyone is financially literate. Students graduate from college with thousands of dollar in loans they cannot pay back, credit card companies give thousands of dollars in credits to students without jobs, etc., etc. This is not new. Banks have a responsibility not to lend to people who cannot pay back the loan, credit card, etc. But they thrive on the large interest rates, fees, they charge for these financial products.
dc2 said...
I am reading the NYT story and it makes a lot of sense to me. My blood is not boiling because of people not being able to pay for mortgages they could not afford in the first place. They are paying for food instead, keeping their businesses afloat. They can declare themselves bankrupt. That makes sense to me.
I am jobless yet I pay my rent every month. If I don't, I get evicted. F*ck these deadbeats.
People who purchased homes in the past 12 months or so at lower prices and benefitted from these lower prices, are doing so on the backs of the many who had to foreclose their homes. So now, why are we so righteous about those who cannot pay for their mortgage, when this behavior in the first place helped many recently buy homes at very low prices compared to 2005. Isn't there a tad of hyprocresy here.
Kevin,
I am not saying the people in the article are not taking advantage of the situation. But when you have a bank that is taking advantage of what they know with no regard to your financial well being, tells you to be behind mortgage payments to even consider a modification, what can a borrower do.
Blogger dc2 said...
People who purchased homes in the past 12 months or so at lower prices and benefitted from these lower prices, are doing so on the backs of the many who had to foreclose their homes. So now, why are we so righteous about those who cannot pay for their mortgage, when this behavior in the first place helped many recently buy homes at very low prices compared to 2005. Isn't there a tad of hyprocresy here.
On a scale of one to ten, ten being complete enlightenment, I could bring almost anyone here to an understanding from "6" to maybe an "8".
I cannot, however, within the realm of space and time, provide you with a response that takes you from a "1" to a "9".
Banks are people. Financial institutions hold all our money, not someone else's. You either believe in capitalism and the rules of a free market or you don't.
Blaming the "man behind the curtain" has never, nor will it ever, solve anyone's problems.
A free market is a dangerous place. Just because it doesn't look dangerous, doesn't mean it isn't.
Not understanding how the free market system is supposed to work is part of how this problem was created and sustained.
AIG should have been allowed to fail. BOA should have been allowed to fail. Citibank. Ford. GM. All of them. Let the market correct.
And from the ashes of that monumental disaster would have been forged a stronger system that would serve generations to come by instilling a lesson of fiscal discipline and restraint.
The lesson that was about to be applied to the seat of the pants of an entire nation was aborted mid swing by parents who feared the lesson more than the temporary pain.
It ain't so in a free market system.
That's the lesson my parents learned in the 1930's. You spend more than you make and you go hungry. You don't pay the rent you're out on your a$$.
I fear that the market is biding its time to re-apply the lessons of capitalism when the protective parents run out of time and options.
Greece is getting paddled first. Then Spain. Then its probably our turn.
FWIW....
dc2,
yeah we have to be so grateful towards the people who inflated the prices beyond our reach in 2005and made us renters for much longer then we would have preferred otherwise.
banks certainly share the responsibility, the house is the only collateral for the mortgage loan in some places, but i think it would be not too self-righteous to wish a little bit of
enforcement on people who boast about their trips to --- of all things --- a bloody casino --- while not paying their mortgage.
dc2 said...
People who purchased homes in the past 12 months or so at lower prices and benefitted from these lower prices, are doing so on the backs of the many who had to foreclose their homes
Really? Did they suffer losses, or was it the banks that gave them the money?
So now, why are we so righteous about those who cannot pay for their mortgage, when this behavior in the first place helped many recently buy homes at very low prices compared to 2005. Isn't there a tad of hyprocresy here.
Your presumption is that they cannot pay the mortgage. When they're making such a net gain per month over the course of a couple of years that they can spend it on fine dining and investing in their businesses, they've moved from "poor owner that's unable to afford house they CHOSE to buy" to "rent free deadbeat".
Konstantin,
I am not saying you should be thankful for the people who purchased in 2005. What I am saying is that many people who wanted to buy recently were cheering that prices were going down due to foreclosures, etc. If these people would have been able to pay their mortgages, prices would not have fallen down. Probably they would have continued going up slightly or remain flat at 2005 prices. New home buyers would not have been able to buy yet or would have bought smaller places than what they did recently.
If you a renter, you are in a much better place than a lot of these home owners who are underwater. Yes, some are not paying their mortgages, until the banks take the homes from them. There is a current backlog and banks cannot process that many foreclosures at one time.
Sure there is people taking advantage of the situation. But a lot of others truly could not afford to pay their mortgages. They lost their homes and their livelihoods. They did not understand the documents they signed and trusted their banks.
There has to be some balance.
TN,
"Blaming the "man behind the curtain" has never, nor will it ever, solve anyone's problems."
I am not blaming the man behind the curtain. But scores of highly educated MBAs from Harvard, Yale, etc, financial analysts who know exactly what they were doing in trying to maximize profits for their companies at the expense of others with the full understanding they could not lose becuase the Federal government would bail them out. That is quite different.
On the other hand you have finacially illiterate people trying to buy a place to live in. That some knowingly abused the situation yes. But the majority didn't. The majority wanted to buy a home and believed in their whole hearts that if they didn't buy then they would be priced out forever.
Kevin,
Yes people suffered losses. I know people whose homes were foreclosed and they lost all the equity they had paid down, hundreds of thousands of dollars. They lost all that money, not just the banks.
TN
What you discovered is nice white middle class people are also caught in the great housing bubble.
What you aso discovered is what we call "Shadow inventory".
Stuck sellers are trying to figure out what to do.
The banks and FED Reserve are trying to buy time.
What you discovered is the banks are quite socialist when they are in trouble and ruthless capitalists when they are profitable.
The majority wanted to buy a home and believed in their whole hearts that if they didn't buy then they would be priced out forever.
Anyone dumb enough to actually believe that ought to be chained to their debt until every red cent is paid back.
You're not helping make a sympathetic case for these folks. That's not your fault though, there really isn't a case.
Yes people suffered losses. I know people whose homes were foreclosed and they lost all the equity they had paid down, hundreds of thousands of dollars. They lost all that money, not just the banks.
By the simple math alone there is a direct relationship between those that put down zero and are foreclosing versus those that put a lot down and aren't foreclosing.
Kevin,
Simple math. You buy in 2005 a home priced at the time at $700,000. You put down 20 percent -140,000. The house depreciates to $500,000. You lose your job and cannot pay the mortgage. The bank forecloses on you. You lost your $140,000 like "puff."
That money was gone whether they went into foreclosure or not. I agree that the real losers were those that put down the most, but they are disproportionately the ones that haven't had to go into foreclosure. Anecdotal evidence to the contrary is simply anecdotal.
Kevin,
People lost whatever they put down, and whatever they paid until they stopped paying and until they were kicked out of their homes. Some lost more than others, but everybody lost something.
I disagree they would have lost anyways that money. In my case described before, if they would not have lost their jobs they could continue paying the mortgage and wait until the market would have gone up back again. That loss of $140,000 would have not been realized.
http://franklymls.com/DC7115728
Heres one appraised at 575K, tries to sellin 08 for 524K, chases market down to 293K including 8K buyers bribe.
just about 50% down and 2 years loss of income to the banks.
Pat said:
What you discovered is nice white middle class people are also caught in the great housing bubble.
No. Wrong. I'll ignore that red herring for the moment.
I didn't discover anything. I have a fairly keen sense of the obvious. It worked this time.
What I discovered from my white parents who successfully lifted a middle finger to greedy capitalist bankers or greedy socialist bankers (depending on which year we are talking about)was the fact that cash is king.
Just pay cash. Don't have the cash? Then you can't buy.
How hard is that?
And not once did they ever get suckered by a bank, or anyone else into a bad financial decision.
It takes two to tango. Your tar brush is pretty fast on one side of the tracks but seems to be a bit light on the other side of the transaction.
PT Barnum would have a heyday in this time and age. It's no coincidence that flim flam men and bunko artists had a much harder time after the Great Depression than before. Folks called Bullshit bullshit and not "fertilizer."
There was plain old fashioned greed on both sides of those transactions. Nothing more, nothing less.
Both sides.
People lost whatever they put down, and whatever they paid until they stopped paying and until they were kicked out of their homes. Some lost more than others, but everybody lost something.
Look, a a guy that buys an $800k house that falls to $500k in value:
-Put $400k down, keeps house
-Put $0k down, loses house
This is regardless of employment circumstance. Given the article's circumstantial cases (that is, people WITH jobs), you are being quite disingenuous framing this as something that is inflicting the down-payment folks. The high REO rate happens with a much higher propensity with those that put nothing down.
So yes, I hold a grudge against strategic defaulters that get to live rent-free. They are contributing to the problem and profiting from being worthless, ignorant pieces of shit. As was mentioned upthread, paying one's loan's has traditionally been part of America's integrity. These people are the antithesis of integrity.
Hmm, I wonder how many of these loans have federal guarantees? Not the banks that are going to be on the hook in the end for these deadbeats, but the taxpayer. Sorry if your bad decisions mean you can no longer eat at Outback Steakhouse and have to rent like the rest of the unwashed masses, but don't give me boo hoo hoo, uncle sam please clean up my mess.
TN,
with regards to the middle class also being in trouble, I think he meant what you discovered at the cookout.
dc2,
My objection to the NYTimes article is not to those who can't pay not paying, it's the 500+ days of free rent on something that should be a 6-8 month process. In Florida I don't think it's the banks that are the slowest cog in the chain, I'm pretty sure it's the courts that can't handle the load. Not that if the courts caught up, the banks wouldn't quickly become overwhelmed too. OTOH, one can only imagine the further devastation to the Florida economy if all those who currently have money freed up for their businesses and pleasure had to start paying market rent. So, there is some brightside.
Cara said...
"OTOH, one can only imagine the further devastation to the Florida economy if all those who currently have money freed up for their businesses and pleasure had to start paying market rent. So, there is some brightside."
It's not as if the people who get the rent payments wouldn't also be spending that money for business and pleasure.
The comments to that article were interesting. Some lawyers commented that sometimes, lawyers for the home "owners" file motions or do whatever they can to slow the process to enable their clients to stay in the house. This may be contributing to the difficulty the courts have in speedily acting.
Another set of comments pointed out that there are at least three affected parties--taxpayers and other buyers, not just the home "owner" and the lender/banker. So it's not an us vs. them situation.
Jeremy,
ah yes, the trickle up economy. I don't think it works out quite the same. Certainly not in the short term.
Kevin,
Everyone who buys a home loses some money if it ends up to be underwater and foreclosed in this market. Every buyer has to pay closing costs. That is a lot of money you will not see back. Every payment also includes a portion of equity payment, unless you have an interest only loan. So even those who did not put any money down lost money, not to mention the pain and cost of dealing with an eviction, once the banks clear their back log and sell the homes.
Oh please, even now you don't have to bring CC$ to the table since the seller typically subsidizes it. 110 LTV loans during the bubble, no skin off the buyer's back. Or, you can just imagine a world in which they didn't buy into the bubble, in which case you'd be complaining about the closing costs in general being a rip off, which I'd agree they are. But don't try to frame them as victims because there were closing costs in their transactions. That's just ridiculous.
Getting to live rent free for two years and being able to walk away from hundreds of thousands in losses that YOU signed up for isn't some sort of equivocal justice, it's complete bullshit and an insult to those of us that don't get a free ride in life and actually pay our bills.
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