Comments on: Negative Equity + Subprime = Default

By: DeDude

DeDude — Mon, 06 Jul 2009 15:10:02 +0000

ahab, cvienne;

The people they are giving those 120% refinancings to are people in Fannie and Freddie loans. They have simply made a business decision that it is better for government to save those people into an underwater mortgage than to forclose on them and sell the property with a huge loss for government (and depressing RE prices in the process). I think it is a smart move; in the big picture. Even if some % of those refinanced will eventually default with a bigger loss that % would have to be very high to make the overall losses bigger..

By: Bestmiler

Bestmiler — Mon, 06 Jul 2009 14:40:38 +0000

Can anyone explain to me why this is the case (Negative Equity + Subprime = Default)

By: danm

danm — Mon, 06 Jul 2009 11:12:26 +0000

There’s going to be a tipping point when even those who can afford to pay will also leave the keys in the mailbox.

By: How the Common Man Sees It

How the Common Man Sees It — Mon, 06 Jul 2009 04:25:40 +0000

I think what would be really cool is to see an animated version of chart 7 going back 5 years or so. I assume the ‘wave’ is going backwards. Putting some action it is would look neat none the less

By: Effective Demand

Effective Demand — Sun, 05 Jul 2009 19:36:23 +0000

@Onlooker

“And for many the rational economic decision is becoming to stop paying and go to foreclosure before burning through all savings. ”

And I think the rational decision for banks is to foreclose on people right now and not be very cooperative about loan mods. This will force the feds hand and I think the fed will buy the assets on the books off at much higher value than they can get on the open market. Since I think the Fed will use printed money to do this I think they will write down the value of the mortgages and pass that on to the homeowner.

I don’t think the fed particularly wants to do this but I think they will do anything possible to stop deflation. The savers of the world will be screwed again.

By: Onlooker from Troy

Onlooker from Troy — Sun, 05 Jul 2009 18:32:10 +0000

Steve

And for many the rational economic decision is becoming to stop paying and go to foreclosure before burning through all savings. When you’re so far underwater why throw good money after bad and drain yourself of all savings, especially if you’ve lost your job. It’s a tough decision for many to make and I’m certainly glad I’m not faced with it, but I’m really sympathetic to those who are that didn’t get themselves into that position through a liar loan or other irresponsible borrowing actions.

By: Steve Barry

Steve Barry — Sun, 05 Jul 2009 18:25:08 +0000

No Savings + Layoff also = FORECLOSURE

By: wunsacon

wunsacon — Sun, 05 Jul 2009 17:52:42 +0000

When the folks with negative equity default, the resulting foreclosures reduce house prices more. That shifts more borrowers from right to left in chart 7. And since so *many* are sitting right at or near “0″, it means each wave of foreclosures can “tip the next group over” like dominoes. Or, like a string of climbers tied to one rope, each falling over the cliff and pulling the next climber with him/her. (That one might make for a decent cartoon. Unfortunately, I can’t draw.)

Could be wrong. But, my guess is the tight grouping of equity percentages makes it easier for one wave/domino to affect the next.

By: thetanman

thetanman — Sun, 05 Jul 2009 17:13:14 +0000

There have been numerous houses go up in flames in my area. Now that’s burning off inventory. You used to here the fire trucks 1 or 2 times a week. Now its everyday.

By: How the Common Man Sees It

How the Common Man Sees It — Sun, 05 Jul 2009 13:29:25 +0000

Actually Byno, that is a brilliant idea. Maybe governments, in order to raise revenue, should skyrocket the cost of building permits. That way if the banks won’t make the cost of mortgages prohibitively expensive for reckless builders, maybe fees will. The downside is it will kill the building side of the RE market for a while. It does have quite a few upsides though. Fee revenue, community control of growth back from the bankers, true justification of projects instead of funny money justification of projects.

In the future that sounds like a great way to take back control of communities from the Federal Reserve and the banking system. The ‘free money’ will be going out from the banking system and into the local government instead of it usually going the other way. LOL! The more I think of it the more I like it. Having the cash go to the local government may not be the best solution but it is better than having the cash flow out of the community and across the country to New York (nothing personal there Gotham )