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You're good at pointing out problems, now how about you come up with some solutions.
Not having a solution of his own doesn't mean that your solution is workable.
This is playing out slowly because the shock to the financial system to do it all at once might be fatal. If the banks had to absorb all the losses at once it would likely put them out of business without massive government intervention (again). Meaning the taxpayers would have to cover the losses via FDIC and other avenues.
On some level, I see these defaults as putting the burden back onto the entities that created the problem. But what exactly are you trying to accomplish with your plan? Bring back your home equity? Stop the depreciation of your home? By attempting to fix that problem you might simply be creating a new one by adding to the countries massive financial debt load, which you and I and our children will have to pay eventually...with interest.
I think the market will just have to work this one out by itself over the long haul. The up side is that homes are now more affordable than ever for first time buyers or those looking to trade up.
Last edited by shaker281; 06-10-2011 at 01:03 AM..
Both sides might be stupid. Difficult to say. But, one side gets screwed a lot worse than the other when someone walks away from a no money down property, that they quit paying the mortgage on a year ago, and is worth half its "loaned" value. And I don't need an economics degree to see that.
Another thought: This real estate correction was probably going to play out eventually, albeit over a much longer period of time, due to the large baby boomer demographic divesting themselves of assets. Too much supply and not enough demand going forward. In addition to the frenzy of home building that has exacerbated the problem, homes values were likely simply due for a correction eventually.
What will this mean for the U.S. economy, and how and whether should this be stopped?
My belief is that the banks need to take the majority (but not all) of this one for the team, write it off with stop-gap infusion from from the various rounds of QE, and let the homeowners return to normal discretionary spending, with the unavoidable stagflation that will follow from the money that will vanish into this financial black hole of the financial sector. I'm all for morality and the honoring of contracts, but we need to return to an economic equilibrium and quickly. For this to happen, the housing market needs to return to a norm, where prices fall in line with replacement costs. It won't be pretty any way it happens, but the medicine needs to be taken sooner rather than later.
The homeowners themselves signed a contract, but should they be extended the option of just renting for PITI (minus the monthly principle) from the banks and subcontracted leasing agents? Could the banks get the last laugh when they own the majority of foreclosures, and possibly dictate rents that exceed the previous mortgage obligation? Deny lending to homebuilders, thus tightening the market in their favor? This could get very complex over the next decade.
Your thoughts?
I think we need to bring the housing market back to equilibrium. Our policies previously were to artificially pump the market up, and since the collapse, we have tried to stave off the painful adjustments necessary in the hope that the market would re-inflate itself to prior levels, so the banks wouldn't have to take the losses that would result from their foolish lending practices.
We should recognize at this point that it is neither possible nor desirable for this to happen. Housing became too expensive relative to incomes, and it is sucking money out of the economy that should be spent elsewhere. The only way it can or should return to previous levels would be a sharp increase in incomes, which would probably come through induced inflation.
We've painted ourselves into a corner and will need to take painful medicine, one way or another. The reality is that if people are paying a $500,000 mortgage on a house that's worth $200,000, it makes no sense for them to keep doing it.
Does anybody know whether there's been a rise in post-foreclosure deficiency suits? I don't know the percentages in each state, but the states in which I'm licensed allow the holder of the note to sue the borrower for the difference between the loan balance and what the foreclosure sale (NOT the subsequent sale of the property to a real buyer, if that happens) yields-- the difference is called a deficiency, hence the name. Just as there's been a dramatic rise in vulture capitalists buying defaulted credit card debt in hopes of collecting something on it. When I first heard about that business, you could buy batches of defaulted debt for 1-3 cents on the dollar. From what I hear, that's gone up to around 10 cents, due to demand. It's the same thing as happened with abandoned storage lockers. When I first heard about the business of buying their contents at auction, most people bought the locker for a few bucks. Now, in that show on A&E, these idiots are bidding high three-figure sums for lockers whose contents they usually can't even get into and see...until they bought it.
Anyway, back on topic-- the thought of having a judgment creditor chasing after you to collect that $200,000 or so left on the note might make you think twice about just walking away, if you're in a state allowing deficiency judgments.
I'm so glad I'm out of real estate-- I thought it was grimy and crooked 20 years ago, and that was nothing.
I think we need to bring the housing market back to equilibrium. Our policies previously were to artificially pump the market up, and since the collapse, we have tried to stave off the painful adjustments necessary in the hope that the market would re-inflate itself to prior levels, so the banks wouldn't have to take the losses that would result from their foolish lending practices.
We should recognize at this point that it is neither possible nor desirable for this to happen. Housing became too expensive relative to incomes, and it is sucking money out of the economy that should be spent elsewhere. The only way it can or should return to previous levels would be a sharp increase in incomes, which would probably come through induced inflation.
We've painted ourselves into a corner and will need to take painful medicine, one way or another. The reality is that if people are paying a $500,000 mortgage on a house that's worth $200,000, it makes no sense for them to keep doing it.
Does anybody know whether there's been a rise in post-foreclosure deficiency suits? I don't know the percentages in each state, but the states in which I'm licensed allow the holder of the note to sue the borrower for the difference between the loan balance and what the foreclosure sale (NOT the subsequent sale of the property to a real buyer, if that happens) yields-- the difference is called a deficiency, hence the name. Just as there's been a dramatic rise in vulture capitalists buying defaulted credit card debt in hopes of collecting something on it. When I first heard about that business, you could buy batches of defaulted debt for 1-3 cents on the dollar. From what I hear, that's gone up to around 10 cents, due to demand. It's the same thing as happened with abandoned storage lockers. When I first heard about the business of buying their contents at auction, most people bought the locker for a few bucks. Now, in that show on A&E, these idiots are bidding high three-figure sums for lockers whose contents they usually can't even get into and see...until they bought it.
Anyway, back on topic-- the thought of having a judgment creditor chasing after you to collect that $200,000 or so left on the note might make you think twice about just walking away, if you're in a state allowing deficiency judgments.
I'm so glad I'm out of real estate-- I thought it was grimy and crooked 20 years ago, and that was nothing.
I saw that storage locker thing too and I thought it would be fun as hell just to screw with them by renting one and dressing it up so that the contents look really valuable looking from outside. Maybe stick in seriously broken HDTV flat screen that doesn't look broke and go to a junk yard and buy the rear end of an expensive Harley Davidson and just make that visible. Then don't pay for it and go to the auction and video the suckers going ga ga over your locker and bidding it up and up and up!
The housing situation was created by the banks.... period. Anyone who does not understand that is ignorant of how the situation developed.
The public did not change the rules of the game, the banks did. They created the housing bubble, they profited from the housing bubble, and when it collapsed, the government bailed them out with taxpayer money.
Any homeowner who owes substantially more than the value of their property, and is still going along with the game because it is the "right" thing to do is a simpleton.
All they are doing is hurting themselves, and helping the banks who are screwing everybody.
It is just a question of math, if you inject emotion into the equation; it becomes a tool of propaganda.
The housing market needs to be allowed to find its own value level based on supply and demand and not an artificial level propped up by illegal government and banking schemes.
Many people have stopped paying on their upside down property, saved their payments for 3 to 5 years while squatting in their homes for free, and then gone on to purchase new homes with substantial down payments at prices sometimes half of their original houses. They are now in an infinitely better position than if they had continued to pay on a dead horse.
The housing consumer is not responsible for this screwed up housing market, but they are responsible for their own financial predicament. You cannot save the housing market by crucifying yourself, but you can improve your financial condition by playing the game smart, and taking advantage of what opportunities the market is providing for you.
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