Corpse of a Thousand Houses

All signs point to a new flood of real estate foreclosures that no amount of government sandbagging will prevent. Sources of trouble:

• A record 7.58 percent of U.S. homeowners with mortgages were at least 30 days late on payments in August, says Equifax, up from 7.32 percent in July. Delinquencies are not only rising from month to month, but rising at a faster pace. More than 41 percent of subprime mortgages are delinquent. (That's quite an increase from 2007, when I took heart from the fact that only 10 percent of subprime mortgages were in default. But, well, at least the glass is still more than half full, right?)

• About 1.2 million loans out there are in limbo: The borrower is in serious default yet the bank has not started the foreclosure process. Another 1.5 million are in early stages of the foreclosure process but the bank hasn't yet taken possession of the home. Counting these and loans that are highly likely to end up in default, one analyst estimates three million to four million foreclosed homes will come on the market over the next few years. And don't believe the freshwater economists when they tell you there's no such thing as a free lunch: Some 217,000 Americans have not made a mortgage payment in one full calendar year, but their lenders have yet to begin the foreclosure process.

• Option ARM recasts (not resets, as Calculated Risk explains) are as much of a time bomb as ever, with nearly all borrowers in this class making only minimum payments and negatively amortizing their mortgages.

• Something called the National Consumer Law Center criticizes state mortgage-mediation schemes as well as the Obama Administration's Home Affordable Modification Program, which at last count had managed to prevent 235,247 homes from coming onto the market.  However, data from the Federal Reserve and the Office of the Comptroller of the Currency indicate that even when these programs succeed, about half of all the renegotiated loans end up back in default soon afterward.

In those cases, the renegotiation has made things worse for everybody. The lender ends up with lower payments in the short term and then has to foreclose on a less-valuable property at some point in the future. The borrower gets no financial upside and (though he or she gets the use of a subsidized domicile for some period of time) is encouraged to stay in a losing situation when immediate foreclosure would have been a more merciful option. Prospective buyers get locked out as dumb lenders, deadbeat borrowers and the government all collude to keep the price of the house artificially inflated. And taxpayers have to spend $75 billion (the budget of HUD's Making Home Affordable program) for the privilege of making it all happen. The best option for all concerned would be to get the deadbeat out of the house as quickly as possible, but nobody is doing that.

Put it all together, and throw in mainstream media outlets that as recently as June were calling for mortgage haircuts specifically to allow people to keep borrowing against their houses, and you've got the mother of all perfect storms mixed with the crack cocaine of third rails on steroids. The foreclosure wave may seem all tired and 2008, but it's hotter than ever.

Update: Because commenter hmm brings up the Coming Commercial Real Estate Hyperpocalypse, which is the elephant in the room of all swords of Damocles spreading like wildfire; and also because like a golem I screwed up Jim the Realtor's title in my latest print column, I urge you to run, don't walk, to give two thumbs up to this tour of ghost malls by Jim the Realtor®.

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  • hmm||

    shhhh it's all going to be okay. You're racist motives to bring down the U.S. are unpatriotic and not welcome.

    I still think commercial is going to be the crash story. After a short discussion with 5 commercial owners that lease strip malls and office space every one of them stated that at least 50% of their clientele had come hat in hand looking for deals like lowered rates for extended leases and so on. With all five owning most of their property and being clear of leans and debt on the property they all said they refused most of the offers. Which seems short sited to me, but heh it's not my empty strip mall or office building sitting there generating expenses and no income in future.

  • Hugh Akston||

    hmm, you said it. Retail spaces are vacating faster than Lonewhacko's bowels at a taco cart. I've actually seen some property managers raising rents on their tenants "because of the economy."

  • hmm||

    Pray for decent 4Q. If it sucks retail space is going to be plentiful and I still think industrial property is going to be a sleeping giant. Without something driving a need to fill inventories there is going to be a metric shit ton of large scale plant facilities sitting idol, while not going into default, since a lot of large scale facilities are paid for and sit on the books at ridiculously low values, they won't be getting sold either. Just lots of idol degrading facilities. We have 3 idol here at the moment that are huge, and at least 3 more medium sized facilities. It's bad when residential real estate tanks. It's a nightmare when commercial property starts tanking. Pretty soon we might all live in Detroit. (that was hyperbole for those with borked hyperbole detectors)

    sited = sighted above

    I'm sure there are more errors, I don't care.

  • hmm||

    Anyone that owns a building and rents to residents or commercially leases to business should be looking for government guaranteed fixed income tenants. Old people and DMVs should be getting huge bargains right now. The problem is most people don't realize 1 > 0 and both are better than standing chin deep in shit.

  • 24AheadDotCom||

    Just one of the many aspects of this issue that the chips in Reason's brains prevent them from discussing (lest a vision of a snarling Kochtopus is beamed directly into their cerebral cortexes) is discussed here. See also his many other articles on the wider issue.

  • ||

    When I was a loans officer, one of my supervisors drummed into me the maxim "The first loss is the best loss."

    IOW, when a loan is going sideways there is no sign that things are going to get better fast, take your security, liquidate it and write off your loss. It keeps your balance sheet clean and allows you to focus on what's profitable. Doing anything else just makes for bigger losses later.

  • Anonymous||

    I've given up. I don't know how any of these people think.

    Frugality and liberty are virtues, but every crack whore, executive, and tv anchor act exactly the opposite, and project themselves onto me. And because of that addled collectivism, they're determined to prevent anybody from escaping their disaster.

    This is how the world ends, not with a bang, but with me whimpering.

  • ||

    nice piece timmy.

    yeah it's bad and getting worse. that's OK, the government is on the hook for the next step down. FHA is writing about a third of all purchase mortgages, most of them with no money down (after the 8% tax credit). Believe it or not, USDA mortgages are gaining market share too. Yeah, USDA. And the mortgages the private sector writes, it quickly turns around and sells. The biggest buyer is, you guessed it, the government.

    The bailout is permanent. It won't end because it can't. When the government IS the market, it can't very well step away from the market.

    mother of all tsunamis. (have you noticed the latest lazy-ass mediaism: all-in. As in, Obama's going all-in on health care reform.

  • Hugh Akston||

    Also, Shut the Fuck Up Lonewhacko.

  • zoltan||

    The best option for all concerned would be to get the deadbeat out of the house as quickly as possible, but nobody is doing that.


    Buh, buh, but then them and their children would have to live in ::gasp:: an apartment!!! ::shiver::

  • ||

    "There's nothing that price won't fix"

    A-fuckin-men. Would that were the response to the financial sector when they cried about how there "was not market" for their foolish subprime infested MBSs.

  • ||

    not=no

    damnit

  • ||

    you've got the mother of all perfect storms mixed with the crack cocaine of third rails on steroids

    the elephant in the room of all swords of Damocles spreading like wildfire

    Tim, you should step up to the plate, grab the bull by the horns, and go over the top in using tortured mixed metaphors. You're quite good at it.

  • ||

    So, how much longerdo you think the stock market will be going up? When is the end of the dead cat bounce?

  • Zapp Brannigan||

    If we can hit that bulls-eye, the rest of the dominoes will fall like a house of cards. Checkmate!

  • ||

    Zapp, in the game of chess, you can never let your adversary see your pieces.

  • Naga Sadow||

    Well, thanks a lot hmmmm. You just tanked the economy with all your "logic" and "reason".

  • Paul||

    A-fuckin-men. Would that were the response to the financial sector when they cried about how there "was not market" for their foolish subprime infested MBSs.

    There's always a market.

    Everything I know about economics I learned from the Lone Biker of the Apocalypse:

    Price, it's not what you say it is, it's what the market will bear.

  • ||

    "So, how much longerdo you think the stock market will be going up? When is the end of the dead cat bounce?"

    I don't think the stock market is going up in intrinsic value per se, but it is reflecting the dollar getting cheaper relative to what it prices (stocks in this case, kinda like gold) and of course the new financial bubble (financial companies are leading the rally by-and-large).

    Stock market is usually a leading indicator of macro by about six months...give or take. So I would figure by the March-April time frame inflation will start picking up steam in that creepy logarithmic way it does. This trend will officially be on The Radar of our elected masters by June or so.

    I'd figure what will break this market is the coming Christmas season (sad irony there) being very lackluster, with a ton of retailers mailing it in afterwards...leading to the commercial real estate implosion mentioned by other commentators on this thread. With those numbers, the "high" of the kitty-bounce should be in the ballpark of Thanksgiving or so. Time will tell.

  • Long time reader||

    Regarding the Ghost Strip malls,

    Jim is wrong about that second one being open "at least" two years, I lived right next to it and it opened about a year ago, and that video is quite a few months old now.

  • ||

    Mixed metaphors are racist.

  • Xeones||

    Yo, this is depressing.

  • Ska||

    It takes a tough man to make tender predictions. Just keep fucking that chicken, Xeones.

  • ||

    The cure for a binge is hardly ever another binge. But- what the heck, it's worth a try.

  • Surrealtor® ||

    There has never been a better time to invest in commercial properties.

  • Warty||

    Yo, fuck whoever beat me to the Zapp Brannigan quote.

  • Warty||

    Oh yeah, and the title is pure win.

  • BH||

    The stock market has decoupled from the economy and instead is all about the dollar and the printing presses. Dow 36000!

    I dunno didn't the Zimbabwe stock market go up 100,000% or something?

  • ||

    Oh, it gets even worse, folks.

    There was a case recently where the court ruled that the clearinghouse holding mortgages pledged to mortgage-backed-securities had no standing to enforce the mortgages.

    On the upside, the people living in those houses would appear to be unforeclosable.

    On the downside, all those MBS's are now un-marketable and un-value-able. This just tees up the problem that cratered the financial system last fall, all over again.

  • hmm||

    Page one WSJ

    Any thing is marketable at the moment. For the love of god you could market dogshit on a stick and probably find a buyer. The market has flipped its lid. When the market spooks again then everything is unmarketable regardless of what backs it. But we will all get free dogshit on a stick.

  • Happy Thursday, everyone!||

    On the local news this morning they talked with a financial expert about how to reduce your tax burden. The gist of his advice was to take on all kinds of new debt (e.g., buy a home, buy a car, etc.) so as to take advantage of associated tax credits. And there are ads on the local subway trains touting home equity loans ("take that dream vacation!"). So, for those of you keeping score at home, there really are a lot of people who think that the way out of severe financial trouble is to do even more of the stupid things that got them in trouble in the first place.

    And people wonder why "Atlas Shrugged" is selling so briskly these days.

  • Mark||

    All we need is 15% inflation for a few years and people will be flush with equity, loan to value will be good again, people can get equity lines and start spending on crap again putting everyone to work.

    Print Geitner, print!!!

  • Cliché Bandit||

    I read the WSJ article hmm posted above. So it seems that the article is the stupid section and the comments are the smart section. Isn't it usually the other way around?

    Ohh and, make sure to round all the bases ahile flanging up with Q&A to come to a quality centric value added consensus. This will ensure buy off from all the stakeholders who know the model and focus on core values while target projecting growth potential. Then you can do the hokey pokey.

    and turn youself around

  • ||

    I've got NO DEBT other than my mortgage, a FICO over 800 and a safe, good paying gig. Still, I contacted my lender to request a bit of a better rate. I even threatened to walk (I won't) and buy basically my same house in the neighborhood for $110,000 less. The loan modifier at Citi actually told me that "Citi has already taken such a hit they really don't care if you walk. They'd rather auction it off for 1/3rd the price and get SOME cash now then wait around 30 years for my note to be paid off. My point, many people may indeed be redefaulting. But many lenders could do a hell of a f*ckin' lot more to keep people in their homes if they wanted to. The deal they offered me? $4,000 closing costs to reduce my mortgage a whoe $67.00 bucks. I told the guy, literally to go f*ck himself. I'm no big Jim Cramer fan but his idea of dropping everyone's mortgage to 4.0% sounds pretty sensible to me.

  • ||

    Wait ... I'm confused.

    If "best option for all concerned would be to get the deadbeat out of the house as quickly as possible", and the lead paragraph says that "all signs point to a new flood of real estate foreclosures that no amount of government sandbagging will prevent" ... shouldn't we be happy?

    A foreclosure is kicking a deadbeat out of the house. Right?

    So, kicking millions and millions and millions of deadbeats out of their homes as quickly as possible is good. Right?

    So, a flood of raped, stripped bank-owned crap homes coming onto the market simultaneously is good. Right? Huh?

    I'm confused.

    Flooding a market with a new supply of homes at a time when demand is at its lowest (owing to 17% unemployment/underemployment) will do nothing but lower home values of all other existing homes.

    That will merely put more and more people underwater on their loans; making the smart business decision be to walk away from their home loans.

    Of course, they that batch will be foreclosed on.

    Do you see a vicious cycle here?

    The smart thing would be for the government to allow bankruptcy judges to mediate and rework these home loans to prevent foreclosures; since banks have no incentive to do it and homeowners can't even get their note holders on the telephone since their home loans are owned by millions of stockholders.

    Otherwise, our society is doomed.

  • robc||

    economist,

    The vicious cycle would end once we get down to the people who own their homes (or dont care that they are a bit underwater because they nearly have them paid off anyway or just dont care because they like their house and payment is reasonable).

    Also, not all foreclosed homes are stripped down. Not everyone is an ass.

  • robc||

    Otherwise, our society is doomed.

    Bullshit. This is good for our society. Failure is often the best teacher.

    Saving rates after hanging around zero percent for a few years, and being negative for a while, are back up to 4%. Maybe society has learned a lesson.

  • robc||

    I'm no big Jim Cramer fan but his idea of dropping everyone's mortgage to 4.0% sounds pretty sensible to me.

    What about those of us with a sub-4 mortgage now?

  • Debbie||

    Waaaahhhh! Cry me a river.

  • ||

    I'm no big Jim Cramer fan but his idea of dropping everyone's mortgage to 4.0% sounds pretty sensible to me.

    Of course, that proposal would destroy the banks as we know them as it crushes their balance sheets, and require a massive federal bailout of the entire financial sector.

    But other than that, good plan!

  • ||

    I'm no big Jim Cramer fan but his idea of dropping everyone's mortgage to 4.0% sounds pretty sensible to me.



    As long as you appreciate the new and even more enormous bailout of the big banks that would follow and find that "pretty sensible" as well.

  • Russ 2000||

    I'm no big Jim Cramer fan but his idea of dropping everyone's mortgage to 4.0% sounds pretty sensible to me.

    Of course, because everyone is the same default risk.

    CNBC kills brain cells.

  • ||

    The smart thing would be for the government to allow bankruptcy judges to mediate and rework these home loans to prevent foreclosures; since banks have no incentive to do it and homeowners can't even get their note holders on the telephone since their home loans are owned by millions of stockholders.



    You don't think that would lead to a vicious cycle, just like other bright ideas like the mortgage interest deduction and the very idea of "too big to fail" lead to vicious cycles? You think it's credible that if the government decides that everyone's mortgage is "too big to fail" that that wouldn't guarantee that the same problems would continue in the future?

    Otherwise, our society is doomed.



    Pain now, or more pain later. Choose. Putting pain off into the future is what's dooming us, IMO, in several areas.

  • ||

    I've got NO DEBT other than my mortgage, a FICO over 800 and a safe, good paying gig.... The deal they offered me? $4,000 closing costs to reduce my mortgage a whoe $67.00 bucks. I told the guy, literally to go f*ck himself. I'm no big Jim Cramer fan but his idea of dropping everyone's mortgage to 4.0% sounds pretty sensible to me.



    Funny how you can see that paying $4,000 is closing costs to reduce your mortgage by $67.00 is a bad deal, but you can't see that paying $4,000 more in taxes to reduce your mortgage by $67.00 is a bad deal. That's what would happen, you know, since as someone with "NO DEBT," a "FICO score over 800" and a "safe, good paying gig," you would be one of those paying the tab for everyone else.

  • ||

    Otherwise, our society is doomed.

    Schumpeter would say otherwise.

  • Russ 2000||

    The smart thing would be for the government to allow bankruptcy judges to mediate and rework these home loans to prevent foreclosures;

    Except that doing such a cram down reduces the value of the home, which reduces the value of all homes, which reduces the value of the crammed down asset on the bank's books and makes the bank closer to insolvent. Close the insolvent banks and you reduce the supply of lenders which increases interest rates which reduces the number of potential buyers... which reduces house values.

    I'm not against cram downs (which require a bankruptcy) but having the government do things to prop up home values is the same amount of smartness as ag subsidies, tariffs, and cash for clunkers.

  • ||

    @John Thacker

    History proves that allowing bankruptcy judges to reconfigure loans to prevent foreclosures is actually good for the market as a whole.

    Every foreclosure is bad. Houses that go into foreclosure typically reduce the value of all of the homes that surround it; destroying wealth of individuals who pay their bills right along with the "deadbeat."

    The Congress did not move until recently to restrict the power bankruptcy judges used to have to bring the bank to heel in order to prevent a foreclosure.

    The Congress should return this power to the judges.

    Foreclosure is a nuclear weapon; to be used as a last resort to remove someone incapable or unwilling to make their payments.

    Foreclosures today are being driven in large part today by an inability of a buyer to ascertain and negotiate with the note-holder ... because the loans have been securitized such that there is no single note-holder to negotiate with.

    A bankruptcy judge can cut through that problem and stipulate terms that result in the loan staying a performing loan; and staving off the foreclosure.

    You folks paying your mortgages dutifully will have your wealth (equity) destroyed if you don't get on board and have your government put an end to this mess.

    Restoring historic bankruptcy power to judges is the only way to end the nightmare.

  • robc||

    economist,

    Every foreclosure is bad.

    Absolute bullshit.

  • Cliché Bandit||

    @economist
    (the irony of your name seems to escape you)

    I don't know about the rest of you but I don't keep all my "wealth" in one asset (like a house). I guess I am the exception but regardless if my home "looses value" I wont notice since I still live in it and plan on continuing to, and that is valuable to me. The "value" is just a phantom to begin with. I certainly have no intention of leverageing myself when I have no method of paying back the commitment (i.e. home equity loan etc). I don't really care if 10 of my neighbors forclose. If they did I may even consider buying their homes as investments (price dependent). Diversity is the key to financial security not "My home is my retirement plan". I am not saying that I am immune to financial trouble. We all are but I have done my best to mitigate that possibility by having diverse investments (Jobs, classic cars, gold/silver, stocks, 401ks, sugar momma).

    A kiss and a promise

  • ||

    Mr. Cavanaugh, once again you are a ray of sunshine.

    Sunshine from the noontime sun that drills into the retinas of my taped-open eyes, as I lie on the desert floor, pinned into the sand by the Strangers. Who are they? What do they want?

    Ants begin to explore my helpless body.

    At night, the coyotes come...

  • ||

    Every foreclosure is bad.



    Every foreclosure reflects a bad situation; that doesn't mean that it's not necessarily the worst option.

    Foreclosures today are being driven in large part today by an inability of a buyer to ascertain and negotiate with the note-holder ... because the loans have been securitized such that there is no single note-holder to negotiate with.



    Not according to the Fed research.
    To wit: "In addition, this paper provides theoretical results and empirical evidence supporting the hypothesis that the efficiency of foreclosure for investors is a more plausible explanation for the low number of modifications to date than contract frictions related to securitization agreements between servicers and investors."

    You folks paying your mortgages dutifully will have your wealth (equity) destroyed if you don't get on board and have your government put an end to this mess.



    And they'll have their wealth destroyed if they do get on board and have the government take action. Not to mention they'll have their chances of borrowing in the future impacted because rates will have to rise to price in the value of inevitable cramdowns and bailouts.

    Pain now or more pain later.

  • ||

    Also, not according to a later Fed paper from August.

    Again:

    We show that this reluctance does not result from securitization: Servicers renegotiate similarly small fractions of loans that they hold in their portfolios. Our results are robust to different definitions of renegotiation, including the one most likely to be affected by securitization, and to different definitions of delinquency... We use a theoretical model to show that redefault risk, the possibility that a borrower will still default despite costly renegotiation, and self-cure risk, the possibility that a seriously delinquent borrower will become current without renegotiation, make renegotiation unattractive to investors.



    But feel free to keep on contradicting all the research, "economist."

  • Phil Hodgen||

    . . . which is the elephant in the room of all swords of Damocles spreading like wildfire . . .



    You win the Metaphor Boy Award. :-)

  • Tim Cavanaugh||

    Jim Klinge recommends a narrowly defined version of that 4 percent plan: Subsidize purchases of foreclosed properties at 4.5%, which would encourage lenders to move to foreclosure quickly.

    I'm opposed to both good and evil social engineering, so:

    1. Covering the spread over 30 years of fluctuating house prices and interest rates would be hundreds of billions of dollars more expensive than it seemed at first.

    2. After the thing got Pelosfied, it would include all kinds of goodies for the Fair Affordable Housing Fairness For Fair House Affordability crowd, so virtually all mortgage rates would end up subsidized.

    3. It's not clear that encouraging the deadbeat and the lender to part is a scalable solution. In one of the links above, there's a statistic indicating that one in three deadbeats, when left alone, manages to get out of trouble and get back on a regular payment scheme. So you'd be setting up a system that discourages bad borrowers from trying to solve their own problems.

    That having been said, this suggestion does get at a real stone in my shoe: Houses are still too expensive. Claims to the contrary are merde de beouf. Coldwell's index has the average national home price at $363,460. I'm a homeowner in one state and a prospective buyer in another, and I can tell you: The house I own needs to lose at least another $100,000 in value, and the houses I'm shopping for need to lose at least another $150,000, before they become attractive deals. We're coming off a three-decade explosion in real estate prices, and we're not even back to 1999 levels. The real estate market can give and give and give. Why pretend that's not true?

  • Dello||

    "The house I own needs to lose at least another $100,000 in value, and the houses I'm shopping for need to lose at least another $150,000, before they become attractive deals."

    Brings up an interesting question...

    Quick show of hands: Who house is still worth at least 10% more than they paid for it?

    Ours is.

  • ||

    The best way to "subsidize" purchases of foreclosed and soon-to-be-foreclosed houses at market-clearing prices would be to stop trying to prevent the inevitable, and allow the price discovery process to proceed.

    And to stop raising the marginal cost of employing people, so unemployment will begin to fall.

  • hmm||


    The smart thing would be for the government to allow bankruptcy judges to mediate and rework these home loans to prevent foreclosures;


    I didn't read the responses to this post, but wouldn't the "smart thing" or best thing be the banks to take less of a profit and still break even. There will, of course, be situations where the bank is going to lose and the person is going to lose.

  • ||

    @John Thacker

    Question for you John, re the Fed research you cited:

    The Fed used a theoretical model, upon which it based its incorrect conclusions.

    Why?

    There is plenty of real data out there to explain the paltry amount of loan modifications occurring. Why use a theoretical model?

    How about this: I disagree with the Fed's theory. Their theoretical model sucks; and since the model sucks, the conclusions aren't worth the paper they're written on.

    Loan modifications are not occurring because the borrower cannot communicate with the note-holder in a timely fashion.

    No note-holder comes out better foreclosing than modifying (when modifying is possible). None of them!

    It is in nobody's interest, especially neighbors who are watching their home equity be vaporized.

    Judges can stop some foreclosures while preserving value for the bank and the homeowner and especially the innocent victims in all of this - you and me who continue to pay our mortgages but have had our equity DESTROYED by greedy bankers flooding the market with foreclosures.

  • ||

    The Fed used a theoretical model, upon which it based its incorrect conclusions.



    Bzzt, wrong. "economist," you've just proven yourself a lazy git. You only read the excerpted quote, not the study which I linked to. They did use real data, which is obvious from the linked paper.

    For example, from the first page (not counting the title page):

    In this paper, we explore the renegotiation of home mortgages using a dataset from Lender Processing Services (LPS), a large, detailed sample of residential mortgages. Our primary empirical analysis involves following borrowers over the year subsequent to their first serious delinquency and counting the frequency of renegotiation.



    You are either a liar or a fool.

  • ||

    There is plenty of real data out there to explain the paltry amount of loan modifications occurring. Why use a theoretical model?



    They developed a theoretical model to attempt to explain what they saw in the empirical data, after testing the mortgage modification data against the empirical data and finding that it didn't fit at all.

    You disgust me, pretending to be an economist.

  • ||

    From pages 4 and 5, you intellectually lazy and dishonest pretender:

    Our empirical analysis provides strong evidence against the role of securitization in preventing renegotiation. The LPS dataset includes loans that are serviced for private securitization trusts that are not sponsored by any of the government sponsored enterprises (GSEs), so-called "private-label" loans, which are subject to all of the contract frictions described above. It also includes loans owned by servicers, so-called "portfolio" loans, which are immune to such problems. We compare renegotiation rates, controlling for observable characteristics of the loans. For our narrowest definition of renegotiation, payment-reducing modification, we find that the differences in the likelihood of renegotiation in the 12 months subsequent to the first 60-day delinquency between the two types of loans is neither economically nor statistically significant. When we consider the broader definition that includes any modification at all, which, as we mentioned above, we would expect to be most affected by securitization, the data even more strongly reject the role of securitization in preventing renegotiation. We also find that servicers are more likely to perform modifications, broadly defined, and to allow the borrower to prepay on a private-label loan than on a portfolio loan.

  • ||

    "economist" demonstrated that on an easily-verifiable factual piece of information, he was willing to confidently opine completely out of his ass having no idea what he was talking about. He's completely impeached himself as a source.

    You had no idea what you were talking about before, and even with the best evidence and argument of the other side placed directly in front of you, you refused to even glance and it and instead spoke as though you knew what it said. What a contemptible waste of a commenter.

  • robc||

    Who house is still worth at least 10% more than they paid for it?

    I bought my house in Oct of ought-7, so it never was worth 10% more than I paid for it.

    Paid 184k in Oct 07. Was appraised at 185k in Dec 08 when I was refiing.

    Based on that, I am over 50% equity. Im not too worried about going underwater.

  • ||

    Who house is still worth at least 10% more than they paid for it?

    I have no idea. I haven't tried to sell it.

  • robc||

    A 50% drop in housing prices leaves me still above water and paying 50% less in property taxes.

  • robc||

    Two houses on my street went up for sale this spring. The reasonably priced one (179k listing) has a new family living in it, as of about 2 weeks ago. The new owner mowed his lawn for the first time last weekend.

    The other one (original listing 209k, now at 199k, probably not worth what the other one was worth) hasnt had any action, as far as I can tell.

  • Russ 2000||

    History proves that allowing bankruptcy judges to reconfigure loans to prevent foreclosures is actually good for the market as a whole.


    No it does not. The sheer number of cram downs done before is so small as to be anecdotal evidence.

    The drug isn't the problem, it's the dosage.

  • Russ 2000||

    It is in nobody's interest, especially neighbors who are watching their home equity be vaporized.

    A renter's rent is vaporized every month and you don't seem to give a shit. So why do you hold another class of people with such high regard?

  • ||

    What's going to happen when most banks can't foreclose on the houses anymore because they thought they could get around paying recording fees and now they can't prove that anyone owes them money?

  • hmm||

    Stupid first link won't work for me. I assume it's the fed study by Foote and others (forgot names) dealing with foreclosure reduction. If so that study is pretty solid.

    I didn't know the Atlanta Fed one existed, but I'll be reading it tonight.

  • Tim Cavanaugh||

    Thanks for the links, Thacker. And for the rage.

  • Michael Ejercito||

    Let the foreclosures happen.

  • Ebeneezer Scrooge||

    robc | September 24, 2009, 3:44pm | #

    A 50% drop in housing prices leaves me still above water and paying 50% less in property taxes.

    Nope.

    You may end up above water (albeit poorer just the same). You will definitely not be paying less in taxes.

    Did you forget how government works?

  • Ebeneezer Scrooge||

    The problem isn't that people no longer want houses. The problem is that nobody knows what the hell they're really worth right now. I say we start the bidding at 43 cents and go from there.

    The economic dislocations that could occur from a simultaneous residential and commercial real estate crash are non-trivial. We could be talking revolution-generating stuff. Tim should be able to give us some really neat twisted metaphors to describe it -- assuming he (and the rest of us) still have jobs by then.

    Crashes are great for clearing out the corrupted memory space. You know that Windows has to be rebooted.

    But you also have to survive the reboot. The hard drives have to spin up again, the mainboard still has to work and all that happy stuff.

    This one is starting to look bad enough that you have to wonder.


    Meanwhile, I think Obama may be working out okay after all. If he keeps pushing for socialist medicine and carbon taxes that aren't going to pass, then he isn't doing damage in other places. I may have to vote for him next time around (could not bring myself to vote for anyone last time around).

  • ||

    I read this thread and I get the sense everyone is very confused, and the only thing that is clear is that we're headed for a double dip recession at least in housing.

    Let's begin with the people who think their taxes will go down if real estate values go down. I have a little math lesson for you confused folks. Let's put it this way. A city council levies a set amount each year -- let's say $30 million. The economy goes to crap. You happen to have a particularly fiscally responsible city council. The council orders spending cuts and lowers the levy to $29 million. Meanwhile, your assessed value drops by 50 percent. If your assessed value is dropping at the same rate as everyone else's, how much do your taxes drop by? That's right, just over three percent -- the equivalent of the drop in the levy, not the 50 percent drop in your assessed value. Change in assessed value only affects your taxes significantly if yours goes up or drops faster than the next guy's. Bottom line, if you want taxes that go up and down with your spending power, you want an income tax. If you want taxes that go up and down with your actual spending, a sales tax. Property taxes pretty much go along like a giant oil tanker, never going down in a crisis or up when times are good, but at times like these is when property taxes are a truly scary thing because there's no break on them. Not surprisingly, governments love property taxes.

    And everyone who thinks foreclosure versus cram-down is some kind of black-and-white choice. It isn't. Total collapse isn't an option, unless you really like Depressions. Total bailout isn't an option either, unless you think we can handle massively more public debt. Judgment needs to be used on where to draw the line. The person who called for the judges to judge on this one is right -- it's a bit stomach curdling to think of Congress doing it.

    And everyone who thinks the moral hazard in this crisis is entirely on the home buyers or on government policy is ignoring how much was triggered by predatory and illegal lending by banks and mortgage companies. Much of the moral hazard belongs on their heads. This is where cram-down is a good idea -- if the burden principally falls on the lender. Compare, for a moment, with community reinvestment programs, which many people seem to irrationally hate. The government's loan programs actually had lending standards, and have had quite low foreclosure rates. Private lenders like Countrywide on the other hand -- an utter nightmare. If there's a failure of government here, it's a failure of the first basic duty (maybe the ONLY basic duty) of government and that is to provide law and order. In this case, prevent and/or punish outright fraud by financial institutions.

    And lastly, the irrational fear of Obama going "all in" on health care. Personally, I fear allowing health care spending to reach 20 percent of GDP a lot more. We need health care cost control, or every remaining part of our economy is going to get offshored and outsourced because it's too expensive to do business here. The critical thing with health care reform is that it lower costs. Of the plans so far presented, only the public option ones effectively do that. Why? Competition. And why have other forms of competition not been explored, such as allowing insurers to operate nationally rather than state-by-state, taking away insurance's anti-trust exemption, and regulating conflicts of interest in the industry? Simply because, just like with mortgages, politicians are too bought by industry to do their basic job of providing law and order. A properly run healthcare market under the rule of law wouldn't need a public option. But we've never had one in this country.

  • Michael Ejercito||

    The problem isn't that people no longer want houses. The problem is that nobody knows what the hell they're really worth right now. I say we start the bidding at 43 cents and go from there.


    We can have more affordable housing now.

    In this case, prevent and/or punish outright fraud by financial institutions.


    What proportion of these delinquent mortgages involved fraud by the lender?

  • Russ 2000||

    I'm a homeowner in one state and a prospective buyer in another,

    Sounds like Tim's found a new job. If so, congrats.

  • ||

    I don't see what the mystery is here. The foreclosure problem is being extended across time because it's still 3 years until Obama's next election. If the problem were to be solved quickly by letting the market crash and recover, the recovery would be old news during the election.

    When the government is in charge of the economy, the economy will be managed according to political priorities. That's not rocket science.

  • ||

    And has everyone seen that "tip of the iceberg" story about "strategic defaults"--that is, people in good financial circumstances with excellent credit ratings walking away from their mortgages?

    Makes the best sense in the world. Even if your bank has lowered the required payment, why in the world would you want to continue making payments on a $400,000 mortgage on a house which is now worth $190,000?

    I repeat, this is a "tip of the iceberg" story.

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