Re-defaults
An example that the more the US govt gets involved in cleaning up the
economic mess, the longer it will last, aka Japan, Fitch is forecasting
that between 65-75% of mortgage loans that are modified will redefault
after 12 mo’s. An example of the damage that can be done to a family by
artificially modifying a loan for one who should be renting and
redefaults in 12 mo’s and thus prolongs the agony and delays the
inevitable, is the money that a family spends each month on a mortgage
during the initial 12 after modification that can be used for renting at
a lower monthly price, with money leftover. It’s not the same as owning
one’s own home but it improves the financial health of the family. The
foreclosure process however painful also more quickly clears markets and
brings out demand. The homeownership rate is now 67.5% versus the
average of 65.3% dating back to ’65 and we need to get back to that
average and not keep artificially propping it up.
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May 26th, 2009 at 3:43 pm
For those that bit off more than they could chew in a mortgage, I agree that they should stop trying to prop it up and should go to renting. However, for those that could afford their mortgage and have been put on the unemployment line, I say throw them the life line. We’ve given $100 billions to the banksters (+GM+GE+…) to keep afloat incompetent asshats who drove their companies into the ground. The employees they’ve f*#ked over deserve a break as much if not more so.
May 26th, 2009 at 4:18 pm
I agree completely with the above comment. Anyone who is midway through their mortgage has the right to say that this is their home that they are losing, unless they have taken on ridiculous 2nd liens, HELOCs, CC debt etc. Newbies would be better off walking away in any case.
May 26th, 2009 at 8:59 pm
Typical over application of Occam’s razor. Everything just won’t “bounce back” to normal in a few months if we decide to swallow the bitter pill and pop the bubble rather than slowly deflate it. We’re just expected to wait for heavy immigration to start up again to replace that 2.2 percent of people who, according to your own statistics, shouldn’t own a home, but do (since natural birth rates don’t exceed replacement rates for first-home-buying age persons)? The road is a long one with either option, even based on this over-simplified analysis.
Dumping over 3% of all homes back on the market (meaning 10%+ in certain markets) drastically increases supply and therefore reduces prices. Reduced prices lead to more defaults because otherwise re-mortgageable, salable, etc. properties now need to go into default. Even more go into default because people who can afford to continue to pay their mortgages stop, since they’re now upside down on their home. It’s in their own best interest to keep paying even if they can. Reduced tax bases snowball into even more job losses, blight, and therefore further reduced values. The list goes on and on. If 25-35% of people are not-re-defaulting, that’s probably a good thing. People will pack up and leave the places hardest hit due to continuing price decreases. Suckering people into staying is probably GOOD policy in the long run from a purely economic perspective. This is especially true for the places where defaults are the highest – the outskirts of cities with (previously) fast population growth. What’s going to keep someone who can pay their mortgage on a home but won’t because it’s rapidly losing value in a town that they have little connection to, only having moved there a few years ago? While it’s nice to proselytize this from a place like Manhattan where real-estate will continue to be worth something, to apply this theory everywhere in the nation is just nuts. Even with all of it’s issues, do we really want to let Las Vegas turn into Detroit? That’s basically what’s being proposed here. Propping up home prices in Arizona, Nevada and California may be the only thing stopping yet another national economic disaster. Letting scavengers come in and take homes for pennies on the dollar isn’t better for that 25-35% that won’t re-default. So I don’t buy the “but think of the children” argument being presented here.
This sounds fine from an economic standpoint if you ignore all of the externalities, but pretty much nuts if you do. From a real-estate perspective, you can’t just wave a wand and make all of those homes that were built go away. There is value in keeping homes occupied by letting the bubble slowly deflate. This isn’t solely a mortgage problem, so you can’t treat it as such. There will always be some winners and some losers. And there might be a better way to accomplish the same goals, but sticking your head in the sand isn’t one of them.
I expect better posts from this site. This is just the typical extremist Libertarian thoughtless rhetoric (which has also been recently adopted by the Republicans). This offers no alternative solution that has any place in the conversation about the problems facing this nation. Kneeling at the throne of the god of capitalism isn’t going to do anything. Blind faith to the most extreme principle is not the answer. Neither extreme works for a society with 300 million people, so stop pretending they do.
May 27th, 2009 at 12:50 am
So if you flip the stat the modifications keep 25-35% of people in their homes. Do you really expect it to be… what 80% or 90% effective? It sounds like a success to me.
Barry, are you reading this stuff?