We have been following the demise of the real estate market with great interest. The newest thing in the industry is people who bought at high prices wanting a "do-over" on the principle of their mortgages.
If they don't get the "do-over" they simply quit making the mortgage payments and wait for the bank to seize the property. In some markets the property has decreased in value by as much as 75% and like the big bankers they are walking away from their obligations to repay the mortgage.
In some cases where this is widespread people have lived in their underwater property for several years before the banks make a move on the property. These people are not calling it a lack of ethics but rather a "business decision". They can afford the mortgage payment but they see they clearly are never going to make it back to dead even on their mortgages. They stand ready and willing to take the hit on their credit scores as they can now buy the exact same property across the street for $0.25 on the dollar and be debt free.
There are two more waves of foreclosures that will roll over the market in the next two years and will amount to an additional 8-10 million more homes out there. It will be interesting to see if these vacant homes remain vacant or if they will be bought up by speculators who think they can make a buck as this mess works its way through the banks and investors who bought up these securities.
People who walk on their mortgages are putting the screws to anyone holding mortgage backed securities in their 401K or Bond portfolios. They think they are hurting the banks but the truth is they will be leaving retirement funds holding the bag and taking the losses. You buy a car and it loses value the day you take ownership. Somehow the people walking on their mortgages think they should be redeemed for a bad investment.
Greed is alive and well with both the banks who walked on big dollar projects and homeowners who see themselves as making a "business decision" just like the big banks are doing and getting away with. Real estate right now is like owning and trying to sell over- ripe bananas. The price has only one direction to go and it isn't up.
This all started with Wall Streets greed. When they gambled big and lost, the people got stuck with the bill. Now we got a case of the people tired of getting stuck again and trying to stick it back to wall street. Unfortunately this is going to make things worse again. This all started with the de-regulation of the mortgage industry which was an absolute mistake. Sub prime mortgages were issued to any high risk candidate who asked for one. When Wall Street jacked up their interest rates they of course all defaulted when they couldn't pay on the loans.
ReplyDeleteWhat should have happened is the Feds should have reversed their decision to de-regulate the industry. Then they should have forced every last one of those idiots who issued sub prime mortgages to refinance every one of those loans to a fixed rate where they were when they were first issued. You know, the rate where the homeowner was still making payments, that one. Sure wall street would have taken a loss but it would have been nowhere near as big, would not have created a global financial crisis, and I would have felt a lot better about paying a lot less to bail their sorry butts out of trouble knowing there were not millions of Americans who had lost their homes just so Goldman Sachs could give another wave of bonuses out to undeserving, overpaid wall street types. God forbid they might have to sell their yacht or give up one of their three summer homes located in France, Italy and upstate New York respectively. In some ways it actually puts a smile on my face to hear people can buy a home so cheap and still stick it to wall street, but I know at the same time in the end this will only worsen this crisis and it will be us who pays for it and not Goldman Sachs.
Failure to foreclose may be as simple as leaving it until the housing market turns around and then toss them out. It costs money to foreclose on property and nothing but a nonperforming asset if they don't. Non-paying owners will probably take decent care of the place and keep the already glut of homes that much smaller.
ReplyDeleteVacant property can become vandalized and an eyesore pretty quickly if nobody is living there. Also, the insurance drops to a fire only policy with 60 days of vacancy. This is a little know fact mostly known by insurance companies and mortgage holders.
Mortgage companies may have to leave someone in the home so it can be insured. That's what happened during the great depression. If they leave someone in the house it will less likely be vandalized.
ReplyDeleteThe above described people who have elected to take the easy way out on underwater homes may have a warm fuzzy coming. There exists such a thing as a "default judgement" that allows the lender or designates to recover losses from defaults. If the person in default does not mitigate this through bankruptcy or an agreement with the lender this troll is sitting out there.
ReplyDeleteFast forward a few years when the person is on the fast track again, has a good job, another home with equity (this time), or even investments and savings (miracles can happen), some law firm buys up these contracts for a song, or even the lender decides now would be an opportune time get there losses back proceeds with the above. Now we can address which end of the anatomy the warm fuzzy is comming from.
THE INQUISITOR seems to know something the rest of us don't. I hope the Goldman Sachs scandal is the tip of the iceberg for bank, bankers and wall street traders who screwed those of us who tried to live by the rules.
ReplyDeleteIf we don't see some people in fancy clothes going to prison for a long time my faith in the justice system will sorely tarnished. I know the wheels of justice move at a very slow pace but we can hope they grind up a bunch of greedy SOB's as we move forward out of this mess.
I am what maybe is called a first time commenter on this blog. I and several others have thought Mr. Nancolas was doing a fair to good job as Mayor. However, over the last few weeks and months there have been several things come to light and I know that there have been several unreturned phone calls to the Mayor’s office. I have understood that you, Mr. Nancolas, have known Mr. Hurst for a very long time and have known his family many many years.
ReplyDeleteWhat some us of would like to know, and we have to address it on this blog because you never return phone call, why would you not support Mr. Hurst in the upcoming county clerk race? You let his opponent say that you personally want a change in the clerk’s office. However, you have not made a public statement either written or a verbal announcement stating any reason why you dislike Mr. Hurst’s performance while he has been in office. I along with others know that Mr. Hurst’s job has been exemplary and has the support of his staff and other elected officials in the county, and state. By the way, what day to day relationship does the Mayor’s office have with the county clerk anyway?
It appears that you let other people put words in your mouth and you say one thing and do another. It is also known that there are many in your administration, and city counsel that support Mr. Hurst. Mr. Mayor why don’t you do the right thing or are you really that out of touch. Mr. Hurst has supported you and why should he? What is a little ironic Mr.Hurt's opponent was going to run against you!
The above comment is true. Please do not allow a gang takeover of all of the elected offices in this area. Vote for Bill Hurst for Canyon County Clerk.
ReplyDeleteSeveral states do not allow investors or banks to persue deficiency judgements against first mortgages. However, these investors can usually sue for a deficiency judgement on a borrower for a second mortgage.
ReplyDeleteAnother subtlety which seems to be slowing foreclosures and motivating banks and investors to relegate homes in default to the shadow inventory is the delay of the implementation of the Financial Accounting Standard Board's implementation of mark-to-market accounting for some infrequently traded assets. (see the Wall Street Journal article titled, "Congress Helped Banks Defang Key Rule" June 3,2009 by Susan Pulliam and Thomas McGinty. And see, mark-to- market accounting on wikipedia)
Completing a foreclosure would force the bank to reprice the asset (mortgage) or sell the property at true market value.
It makes one wonder about the effect of such repricing on bank balance sheets, and the true fractional reserves of banks with significant mortgage holdings. It also makes one wonder how mis-stated the financials of other big mortgage investors (like pension funds) might be.
The squatters are helping the banks and investors by preventing looting and vandalism. And, as long as they stay in the home the property taxes, homeowner fees and municipal assesments are (arguably) still their obligations. The mortgage lender isn't the property owner until the foreclosure is complete.
Banks and investors seem to have decided to wait out the bad market. But, the question is, will the market recover with the uncertainty caused the huge overhanging shadow inventory. . . .