I don't think that last sentence was complete. It was meant to go something like this: "...and we are reflecting that in our expectations BY MOVING OUR ENTIRE PORTFOLIO INTO THE LEVEL 3 ASSET BUCKET SO WE DON'T HAVE TO FACE THAT REALITY."
Of course this is a widespread problem and will continue to get widespreader as home prices continue to fall. Not sure why there is debate the other way (walk-aways a media story lacking in reality). CR knows. Trust CR.
deflationaryjane@yahoo.com, Freddie didn't quantify "walking away", but they made it clear that defaults are not in line with historical rates.
However, prices are different this time too. Usually, when people can't make the payment, they can sell - now they are so far underwater, the situation is hopeless.
There was an assumption that you could buy a house and if, later on, you decided that homeowning was not for you, it would be easy to get out of it. And that was probably a good assumption, based on history. If you wanted to sell your house, you could get what you paid for it, plus at least enough to pay the transaction costs.
The problem now is that with falling home values, it's not so easy to get out of it.
Makes perfect sense. If folks were persuaded they were making an investment decision instead of a shelter decision, walking away is both moral and smart. Banks do it everyday.
Thanks CR. There seems to be debate whether ruthless borrowers really exist and wondered if there a policy change. It sounds like we just had a definition change is all.
Saying that people who have 600k mortgage with 3% down on a 350k house are more likely to walk away strikes me as a "water is turning out to be wet" type statement.
I'm interested in how far underwater the pain point is for people. Say I bought a house within the last year, if I find out that it's now worth 15k less than I paid then that really sucks, but whatcha gonna do. If it's now worth 200k less... then you start weighing your option.
I'd be fascinated by any numbers that show the average tipping point for people.
"those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth"
That defines 3/4 of the purchases made in Davis, CA. So to mitigate the losses to the tax base, the city is talking about building CRE now to attract hi-tech and green industry. That's their whole plan, no incentives; just the "build it and they will come" investment strategy.
People who are not deadbeats should strive to pay off all debt. Let the azholz who lent out $100Ks of free money to all those losers try to make a living off of them going forward. Pay no interest if possible.
This is precisely why the Government should adopt my Fiscal Stimulus Package Proposal. Instead of sending every tax payer $600, send them a foreclosed property. That way everyone can dollar cost average their "equity." Seriously, it seems very hard to believe that this country can emerge out of this negative equity mess unscathed.
We are about to discover the many fine gradations of "ruthless". Does the college fund go? How about the 401K? Give up the promotion that is in another location? Stop paying on the car and take the bus? Work during a difficult pregnancy?
Many of those who were PRIME are now underwater, and the reserves are being used up rapidly for those who stretched too far; thats almost everyone who bought a first home in my area in say, the last four years. How many of these will remain nailed to the house when giving up and becoming a renter solves the problem?
"The feeling I get from absorbing all these facts about the state of labor comes close to the nauseated dread that washes over me when I stay up late to read one of those what-if stories in which Hitler wins World War II. Could this really have happened to my country?
It has not merely "happened"; it has been done to us. The distinction is an important one to keep in mind as we survey the ruins of the affluent society. What has overtaken America's working people is not a natural disaster like "globalization," and not even some kind of societal atavism in which countries regress mysteriously to their 19th-century selves. This is a man-made catastrophe, a result that proceeded directly from the deliberate beatdown of organized labor and the wrecking of the liberal state.
It is, in other words, a political disaster, with tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest behind. Few of the voters who gave Ronald Reagan his landslide victories, it is fair to say, intended for this to be the outcome. They wanted their country to stand tall again, certainly; they wanted the scary regulators off their backs, maybe; but I can recall no conservative who trumpeted those long-ago elections or any of the succeeding contests, for that matter as a referendum on plutocracy.
So let us have one now. Instead of pleasant talk about "change" and feats of beer drinking at the corner tavern, let us hear our candidates address this greatest issue of them all: What kind of country are we to be? A land of equality? Or a bankers' utopia where the law of the land has achieved mystical oneness with the higher law of classical economics, and devil take the bottom 80%."
Just think of walkaways as the revenge of the bottom 80% against the bankers' utopia. It helps.
They didn't just say that historical default rates are unusually high, they also said (as I understand the comment) that "when we try to modify and renegotiate those loans," they're having a hard time convincing people that they actually owe the face value of the loan.
I'm beginning to wonder whether very public calls for banks to write down the value of the loans are not affecting the informed public's view of what they owe (i.e. a mod should write down the loan to the value of the house, not write it down to what the borrower has the ability to pay).
In 2003 people -- neighbors, coworkers, the press, the entertainment-weekly-masquerading-as-news-reporting
-- were all talking, shouting, about how the Big RE was the next can't lose bet and Highway to Riches! The specuvestor insanity had already begun full steam. So "those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth" should be understood as the vintage that are now significantly under water -- with the prior vintages getting set to dress up and join the party soon!
--
Freddie Mac is seriously underestimating the problem. From earlier thread on foreclosures:
One in every 519 U.S. households received a foreclosure filing in April. Foreclosure filings increased from a year earlier in all but eight states.
This 519 number is misleading because there are multiple households in some occupied units. We have one foreclosure filling for 455 occupied units (this includes rentals), per month. However, there are only 51M mortgages out of 111M occupied units. So, we have one foreclosure filling for 210 occupied units with mortgages, per month. Of the 51M mortgage units 1/3rd have so little mortgage debt that we can ignore them as having near-zero risk for foreclosure filling. This brings up down to one foreclosure filing for 140 units, per month. So annual foreclosure filling rate on homes with significant mortgage is 8.6%, nationally. In the top 5 states with the foreclosure problem this rate is more like 15%.
MORTGAGE LENDERS ARE COMING DOWN BIG AND FANNIE (FNM) AND FREDDIE (FRE) WILL SINK. Give it another year to
"Banned by Ritholtz" ....
Lots of ways to get banned by Barry.. he listed them on his blog, I think yesterday.
Know what will comment will unequivocally get you banned on his blog?
I read over and over again that we weren't going to face a Japanese-style deflation for this reason or that reason (we dropped interest rates faster; we wrote off loans sooner). When it's all said and done, when in twenty years we look back over the next twenty years that are about to unfold, one is left to wonder if we will have done even worse than the Japanese. I am personally seeing nightmare situation after nightmare situation. Friends deep in debt who have been laid off and at best will see a 50% cut in pay. Young people, old people. It makes no difference. We don't have merely a "subprime" problem. We have a major "loose credit" problem. Everyone got used to easy credit--and now it's GONE. Sayonara. Moreover, house prices in the UK and Australia HAVE ONLY JUST BEGUN TO GO DOWN, AND THEIR HOUSING BUBBLES WERE JUST AS EXTREME. The Baghdad Bobs of the financial world sure are doing their best to say all is well, though, aren't they? Thank god for non-mainstream news. You can't find a hint of truth in the MSM. I just read an article about how high gas prices are actually great, as they're helping combat global warming!
Everyone that buys a house hopes that it increases in value - that hope doesn't make them ruthless.
IMO, a ruthless borrower is someone who anticipates walking away/ defaulting as a highly possible outcome BEFORE the loan is taken out. That would be ruthless.
There probably aren't many of these relatively speaking.
And I do feel empathy for many people who over-extended themselves to acquire a home because there was quite a lot of marketing and selling (including by the POTUS) along the line that home ownership is how you build wealth and people should extend (stretch) to achieve that.
You've got to remember that most people are not college grads and most are not finance majors. They are ordinary people who get caught up in the prevailing myths of America.
It makes good sense that speculators are the source of the vast majority of "walk away" foreclosures. It's the same mindset, same attitude: make a rapid, ill-considered, poorly informed decision in hopes of maximizing financial gain or minimizing financial loss. Buying real-estate in 2006-2007, walking away in 2008.
That being said, walking away appears to be working out for them so far.
Just food for thought, and possibly OT. We owned a very small investment bank back in the 90's and sold when things started looking scarey. We movet to Panama and retired-- still somewhat working with the banking systems here. Bottom line, if you sell a working person here a home he/she cannot afford--Tough Luck! The foreclosure court takes one look at the home owner and says to the bank-- there is just no way you could have done this in good faith-- so take the $90 a month he/she can afford and be happy. If you loose a few hundred thousand, so be it, education is expensive.
I think that it is called 'responsibility for your actions'. At least it keeps the banks somewhat reasonable. OK, CR is altogether different. There is where the craziness starts, and it is hugh. But those are rich boys and they can take care of themselves.
Who knows, life is much simpler here. We still have investments paying 12% and 5% bank loans and dinner for two, with wine, at a 4 star rest. for $40.
Hang in there all. House prices are heading in the right direction - down. It took a long, long, long time to get the train rolling, but now she's really truckin.
For all the prudent fence sitters, there should be some good buys down the road. Be patient and be ready.
The early bird may get the worm, but the second mouse gets the cheese.
Joy posted: "those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth"
Isn't that the definition of "speculator"?"
It is. This would explain some things.
This housing contraction has never looked like a "normal" one, caused by significant job-loss in a recessing economy. Instead, the "bubble" and "bust" were caused by speculators, who behave very differently from typical homeowners.
So the "bust" isn't really a "bust" at all, just the froth being blown off, with all the expectations of non-residential spending "collapse" and imminent recession being called far more-seriously into question.
rich, I think we will be returning to debt forgiveness, by force, if necessary. What investmentbanker in Panama lays out will be coming to the U.S., I'm guessing.
Nice analysis, Jas. I'm guessing (and hoping) that the meltdown will take place this year; I'm ready to become a 'rentier' off of my short bets.
A local bank is the owner of Pulaski B&T...I think...
They have been fighting hard to make inroads into Arkansas. I'm not really sure why....as that same ownership bank has recently had to sell off a bunch of CC paper which is originally from...Pulaski! This CC paper was ballooning their NPAs at QE last year.
Makes me wonder if this isn't what ABN's NPA's were...CC!
"Instead, the "bubble" and "bust" were caused by speculators, who behave very differently from typical homeowners.
So the "bust" isn't really a "bust" at all, just the froth being blown off, with all the expectations of non-residential spending "collapse" and imminent recession being called far more-seriously into question."
Sebastian you risk falling to idiot status if you cannot see that it was not only speculation on homes that created this mess. It was also speculation by those who sold the mortgages and those who bought them.
Speculators created money from nothing by imagining there was less risk. And now that seems busted.
And similarly people bought auction rate securities to speculate. They imagined these speculative instruments were cash like.
This is not just a housing bust.
You need to get with the program or just be an idiot
People who bought a house and carefully calculated their budgets may not have been able to foresee this year's gas and food prices, not to mention next year's which I don't even want to think about.
"So the "bust" isn't really a "bust" at all, just the froth being blown off, with all the expectations of non-residential spending "collapse" and imminent recession being called far more-seriously into question."
Only if speculator actions exist in a vacuum. But they don't: credit contraction has been the most likely and obvious result, which would be more than enough to push our heavily credit-dependent economy into recession under normal circumstances, except foreign central banks seem to be working overtime to keep our interest rates low.
Yeah. Given the choice between spending money on subsidizing earthquake-resistant buildings for it's own people or buying US treasuries to help out the US consumer (keeping imports cheap and interest rates low), it's a no-brainer for the Chinese government.
For what it's worth, I disagree with Sebastian that the whole problem is from speculation. Speculation was the catalyst for the bubble, but normal homeowners who meet with financial stress and are unable to escape because of negative equity will accelerate the bust.
"those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth"
Isn't that the definition of "speculator"?"
It is. This would explain some things.
In markets such as San Diego and Las Vegas, everyone was a speculator... 40% i/o and neg am loans. Monthly rents of 30-50% of the mortgage nut. Median prices about 8 times median household income.
Kp,
FDIC does not routinely comment on NPA matters (or, many other matters)during the closing function. Its closing bank press releases are always boilerplate legal requirements. A lawsuit complaint may be filed later which will provide interesting detail. Here is another article about Iberia Bank which operates in Arkansas under the name Pulaski Bank & Trust Co. If you are a customer you can contact the bank or the FDIC's closing manager on-site at the bank and ask any questions you may have. You may or may not get answers. You may also call the FDIC's 800 information number at FDIC: Federal Deposit Insurance Corporation
Joy said: "Speculation was the catalyst for the bubble, but normal homeowners who meet with financial stress and are unable to escape because of negative equity will accelerate the bust."
Absolutely right, as soon as the recession comes and they start losing their jobs. Until that time...
Question for CR and Tanta - Wouldn't a straw buyer (good credit, now facing foreclosure) look an awful lot like a ruthless walk away when just examining the balance sheet? Are lenders attributing ruthlessness to failed borrowers when it could actually be mortgage fraud?
Are lenders attributing ruthlessness to failed borrowers when it could actually be mortgage fraud?
That is certainly possible. My guess is that most straw buyers default within six months, so it's less likely that loans originated a year or more ago that are only just now going DQ are straw buyers.
I think this particular comment by Freddie Mac is a love-note to Rep. Frank, myself. Translation: "We are too trying hard to work these loans out. We can't help it if the speculators won't take the bait."
Went to court today to get some extra time on a foreclosure (granted); bank's attys didn't show up--again--the judge told me they are so swamped that they are not showing up, so motion not granted if the defendant's show. If they don't show and she has a package, or if they call in the afternoon, she grants the summary judgment. This is Miami-Dade. Got to talking with a couple of forclosees, and a court reporter who is a probable future foreclosee.
The first guy owes 28 grand and has half the money. Bank won't accept it in forebearance. How stupid is that.
So they take his money, and then he defaults, they can sue for foreclosure, and be that much ahead.
The Court reporter bought an expensive house to live in, and an investment. The expensive house is $200,000 underwater, and the condo is $80 grand underwater, and the tenant is leaving and the condo bldg is full of foreclosures. What should she do?
Is your credit ok? I ask. Yes.
But--her loan is an adjustible of some flavor--she doesn't know what kind. Didn't know her interest rate; didn't know whether the adjustment used LIBOR or something else;
kinda didn't know anything about the terms of her loan.
And yes, she said, she and her husband figured that the house would go up in price if they couldn't make the payments, and they'd sell.
I suggested moving into the condo, but she said it was too small since she had kids.
In a few month, people are not going to know what hit them.
They don't realize that shortly their choices are going to narrow so much, that they would be grateful, or should be grateful, simply to have a roof over their heads.
I feel like walking up and down the commercial street I border wearing a sandwich board that says: Idiots!!
Hard times are coming!!! But it would do no good.
And court reporters are usually regarded as being at least medium smart.
Sign.
In Broward foreclosures are 3xs what they were last year, for the first 4 months.
And OT, but the fires in Brevard on the space coast were mostly arson, and have burned some 3 dozen houses.
Makes ya wonder, don't it?
It's natural for people to extrapolate short term trends to infinity. Once the bubble got rolling, it was easy for the average buyer to believe it wouldn't go down. When not only all the NAR, but all mainstream media, the Fed head, and POTUS, is saying it is wise to buy, it shouldn't surprise that many closed their eyes and bought.
I know many who should have known better who paid up (with someone else's money) for RE in Orange County, CA. I refused, but I was the exception and was loudly laughed at and disparaged. Some of these folks had even been through previous busts. Some were 'speculators' but most thought they were prudent 'investors,' and some were even desiring to be homeowners and truly believed that just another year or two of rising prices would bail out the loan products they took on. It was a risk they took, and they were wrong. There is no single pigeon-hole or soundbite that fits all these buyers. Lucky for them, they will soon enough learn about 'non recourse'... though some who did the HELOC game will learn what 'recourse' means, too. We all choose our lessons in this life. Fortunately, we already have bankruptcy courts so there is an out for all these people. No 'bailouts' needed!
Ok, here I go again. Banks will not ask for deficiency judgments--they never do in Florida, which is a non-recourse state. It is too expensive, and relatively hard to collect.
I have posted this previously many, many times.
They have not started asking. They can't get thru normal uncontested foreclosures; don't have the staff, don't have the money. And there's a time limit on how long after the foreclosure that you can ask, I just learned today, doing different research.
Edwards endorsing obama: [After dropping out of the race on January 30, Edwards asked both Clinton and Obama to make poverty a central issue of the general election and a future Democratic administration, something both agreed to do]
Poverty is the central issue. If you're not poor yet, YOU WILL BE, if Obama gets elected.
"That is certainly possible. My guess is that most straw buyers default within six months, so it's less likely that loans originated a year or more ago that are only just now going DQ are straw buyers."
Thanks for that Tanta. I know one flavor of the straw buyer scam involved the scammer making payments for some time, or even renting out the home to get it beyond the chargeback point 6 months for the mortgage broker that was involved.
I know there are a lot of variations on the straw buyer scheme, but some of them could be in this current time frame.
I'm even seeing 100k cash back at close still being attempted locally.
Funny the FBI said there would be more mortgage fraud now during the bust.
I think the whole debate over the prevalence of ruthless walk-aways might actually be due to the change of definitions of "investor" and "home-owners" in recent years. To a great extent the dinstinction between "investors" and "home owners" has become blurred, with most home owners acting just like investors, hoping to get rich on their homes, leveraging themselves to the maximum in order to get in on the real-estate gold rush.
Your whole attitude towards negative equity may be quite different depending on what your expectation for "profit" was when you bought the home. People who bought a home primarily with the expectation of getting rich will probably be far less attached to a home if it goes under water than those who were just buying a home to live in.
Thus, it shouldn't be surprising that many of these home-owners who behaved like speculators are now "walking away".
Feist!
I don't think that last sentence was complete. It was meant to go something like this: "...and we are reflecting that in our expectations BY MOVING OUR ENTIRE PORTFOLIO INTO THE LEVEL 3 ASSET BUCKET SO WE DON'T HAVE TO FACE THAT REALITY."
Hehe.
So they are saying walk aways are not a figment of our imagination?
No, it's just that the homeowners are finding homeowning "not constructive" any longer.
Of course this is a widespread problem and will continue to get widespreader as home prices continue to fall. Not sure why there is debate the other way (walk-aways a media story lacking in reality). CR knows. Trust CR.
deflationaryjane@yahoo.com, Freddie didn't quantify "walking away", but they made it clear that defaults are not in line with historical rates.
However, prices are different this time too. Usually, when people can't make the payment, they can sell - now they are so far underwater, the situation is hopeless.
Best Wishes.
They've given us a new definition of WHO is walking away. It's not subprime or prime it's:
"those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth"
The smoking gun?
There was an assumption that you could buy a house and if, later on, you decided that homeowning was not for you, it would be easy to get out of it. And that was probably a good assumption, based on history. If you wanted to sell your house, you could get what you paid for it, plus at least enough to pay the transaction costs.
The problem now is that with falling home values, it's not so easy to get out of it.
They just impute that definition to anyone that walks. They don't do exit interviews.
Makes perfect sense. If folks were persuaded they were making an investment decision instead of a shelter decision, walking away is both moral and smart. Banks do it everyday.
Cheers
Ross
Thanks CR. There seems to be debate whether ruthless borrowers really exist and wondered if there a policy change. It sounds like we just had a definition change is all.
Ross-
what in god's name got you 'banned'? I call him out all the time......
Ciao
MS
Saying that people who have 600k mortgage with 3% down on a 350k house are more likely to walk away strikes me as a "water is turning out to be wet" type statement.
I'm interested in how far underwater the pain point is for people. Say I bought a house within the last year, if I find out that it's now worth 15k less than I paid then that really sucks, but whatcha gonna do. If it's now worth 200k less... then you start weighing your option.
I'd be fascinated by any numbers that show the average tipping point for people.
"those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth"
That defines 3/4 of the purchases made in Davis, CA. So to mitigate the losses to the tax base, the city is talking about building CRE now to attract hi-tech and green industry. That's their whole plan, no incentives; just the "build it and they will come" investment strategy.
People who are not deadbeats should strive to pay off all debt. Let the azholz who lent out $100Ks of free money to all those losers try to make a living off of them going forward. Pay no interest if possible.
Where is Marianne Sullivan when you need her?
Just as I mentioned yesterday.
I wonder what percent of the total are walk aways.
This is precisely why the Government should adopt my Fiscal Stimulus Package Proposal. Instead of sending every tax payer $600, send them a foreclosed property. That way everyone can dollar cost average their "equity." Seriously, it seems very hard to believe that this country can emerge out of this negative equity mess unscathed.
"those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth"
Isn't that the definition of "speculator"?
Joy,
My thoughts exactly!
Freddies stock is up big time today.(They are not going to shoot us. They are going to kill us slowly. Lets celebrate!)
We are about to discover the many fine gradations of "ruthless". Does the college fund go? How about the 401K? Give up the promotion that is in another location? Stop paying on the car and take the bus? Work during a difficult pregnancy?
Many of those who were PRIME are now underwater, and the reserves are being used up rapidly for those who stretched too far; thats almost everyone who bought a first home in my area in say, the last four years. How many of these will remain nailed to the house when giving up and becoming a renter solves the problem?
Here is an interesting piece from (of all places) today's WSJ Editorial page.
Our Great Economic U-Turn - WSJ.com
"The feeling I get from absorbing all these facts about the state of labor comes close to the nauseated dread that washes over me when I stay up late to read one of those what-if stories in which Hitler wins World War II. Could this really have happened to my country?
It has not merely "happened"; it has been done to us. The distinction is an important one to keep in mind as we survey the ruins of the affluent society. What has overtaken America's working people is not a natural disaster like "globalization," and not even some kind of societal atavism in which countries regress mysteriously to their 19th-century selves. This is a man-made catastrophe, a result that proceeded directly from the deliberate beatdown of organized labor and the wrecking of the liberal state.
It is, in other words, a political disaster, with tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest behind. Few of the voters who gave Ronald Reagan his landslide victories, it is fair to say, intended for this to be the outcome. They wanted their country to stand tall again, certainly; they wanted the scary regulators off their backs, maybe; but I can recall no conservative who trumpeted those long-ago elections or any of the succeeding contests, for that matter as a referendum on plutocracy.
So let us have one now. Instead of pleasant talk about "change" and feats of beer drinking at the corner tavern, let us hear our candidates address this greatest issue of them all: What kind of country are we to be? A land of equality? Or a bankers' utopia where the law of the land has achieved mystical oneness with the higher law of classical economics, and devil take the bottom 80%."
Just think of walkaways as the revenge of the bottom 80% against the bankers' utopia. It helps.
CR,
They didn't just say that historical default rates are unusually high, they also said (as I understand the comment) that "when we try to modify and renegotiate those loans," they're having a hard time convincing people that they actually owe the face value of the loan.
I'm beginning to wonder whether very public calls for banks to write down the value of the loans are not affecting the informed public's view of what they owe (i.e. a mod should write down the loan to the value of the house, not write it down to what the borrower has the ability to pay).
In 2003 people -- neighbors, coworkers, the press, the entertainment-weekly-masquerading-as-news-reporting
-- were all talking, shouting, about how the Big RE was the next can't lose bet and Highway to Riches! The specuvestor insanity had already begun full steam. So "those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth" should be understood as the vintage that are now significantly under water -- with the prior vintages getting set to dress up and join the party soon!
--
Freddie Mac is seriously underestimating the problem. From earlier thread on foreclosures:
One in every 519 U.S. households received a foreclosure filing in April. Foreclosure filings increased from a year earlier in all but eight states.
This 519 number is misleading because there are multiple households in some occupied units. We have one foreclosure filling for 455 occupied units (this includes rentals), per month. However, there are only 51M mortgages out of 111M occupied units. So, we have one foreclosure filling for 210 occupied units with mortgages, per month. Of the 51M mortgage units 1/3rd have so little mortgage debt that we can ignore them as having near-zero risk for foreclosure filling. This brings up down to one foreclosure filing for 140 units, per month. So annual foreclosure filling rate on homes with significant mortgage is 8.6%, nationally. In the top 5 states with the foreclosure problem this rate is more like 15%.
MORTGAGE LENDERS ARE COMING DOWN BIG AND FANNIE (FNM) AND FREDDIE (FRE) WILL SINK. Give it another year to
Jas
"Banned by Ritholtz" ....
Lots of ways to get banned by Barry.. he listed them on his blog, I think yesterday.
Know what will comment will unequivocally get you banned on his blog?
"FIRST!!!"
Tell a friend.
"Just think of walkaways as the revenge of the bottom 80% against the bankers' utopia. It helps."
that's pretty much how i see it.
Rich, the Plutocrats are using government to do the looting. Just look at the Farm Bill Congress is voting on today.
I read over and over again that we weren't going to face a Japanese-style deflation for this reason or that reason (we dropped interest rates faster; we wrote off loans sooner). When it's all said and done, when in twenty years we look back over the next twenty years that are about to unfold, one is left to wonder if we will have done even worse than the Japanese. I am personally seeing nightmare situation after nightmare situation. Friends deep in debt who have been laid off and at best will see a 50% cut in pay. Young people, old people. It makes no difference. We don't have merely a "subprime" problem. We have a major "loose credit" problem. Everyone got used to easy credit--and now it's GONE. Sayonara. Moreover, house prices in the UK and Australia HAVE ONLY JUST BEGUN TO GO DOWN, AND THEIR HOUSING BUBBLES WERE JUST AS EXTREME. The Baghdad Bobs of the financial world sure are doing their best to say all is well, though, aren't they? Thank god for non-mainstream news. You can't find a hint of truth in the MSM. I just read an article about how high gas prices are actually great, as they're helping combat global warming!
Everyone that buys a house hopes that it increases in value - that hope doesn't make them ruthless.
IMO, a ruthless borrower is someone who anticipates walking away/ defaulting as a highly possible outcome BEFORE the loan is taken out. That would be ruthless.
There probably aren't many of these relatively speaking.
And I do feel empathy for many people who over-extended themselves to acquire a home because there was quite a lot of marketing and selling (including by the POTUS) along the line that home ownership is how you build wealth and people should extend (stretch) to achieve that.
You've got to remember that most people are not college grads and most are not finance majors. They are ordinary people who get caught up in the prevailing myths of America.
It makes good sense that speculators are the source of the vast majority of "walk away" foreclosures. It's the same mindset, same attitude: make a rapid, ill-considered, poorly informed decision in hopes of maximizing financial gain or minimizing financial loss. Buying real-estate in 2006-2007, walking away in 2008.
That being said, walking away appears to be working out for them so far.
Just food for thought, and possibly OT. We owned a very small investment bank back in the 90's and sold when things started looking scarey. We movet to Panama and retired-- still somewhat working with the banking systems here. Bottom line, if you sell a working person here a home he/she cannot afford--Tough Luck! The foreclosure court takes one look at the home owner and says to the bank-- there is just no way you could have done this in good faith-- so take the $90 a month he/she can afford and be happy. If you loose a few hundred thousand, so be it, education is expensive.
I think that it is called 'responsibility for your actions'. At least it keeps the banks somewhat reasonable. OK, CR is altogether different. There is where the craziness starts, and it is hugh. But those are rich boys and they can take care of themselves.
Who knows, life is much simpler here. We still have investments paying 12% and 5% bank loans and dinner for two, with wine, at a 4 star rest. for $40.
Hang in there all. House prices are heading in the right direction - down. It took a long, long, long time to get the train rolling, but now she's really truckin.
For all the prudent fence sitters, there should be some good buys down the road. Be patient and be ready.
The early bird may get the worm, but the second mouse gets the cheese.
Cheers!
Joy posted: "those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth"
Isn't that the definition of "speculator"?"
It is. This would explain some things.
This housing contraction has never looked like a "normal" one, caused by significant job-loss in a recessing economy. Instead, the "bubble" and "bust" were caused by speculators, who behave very differently from typical homeowners.
So the "bust" isn't really a "bust" at all, just the froth being blown off, with all the expectations of non-residential spending "collapse" and imminent recession being called far more-seriously into question.
Sebastian
Update:
Behind the Rapid Fall of ANB Financial
Behind the Rapid Fall of ANB Financial | Banks | Financial Articles & Investing News | TheStreet.com
FFDIC, that story doesn't really say what flavors were the NPAs....which is what I would like to know.
I wonder what percent of the total are walk aways.
Hazard
Some say in 06/07 up to 20% were spec players...this might be an indication
rich, I think we will be returning to debt forgiveness, by force, if necessary. What investmentbanker in Panama lays out will be coming to the U.S., I'm guessing.
Nice analysis, Jas. I'm guessing (and hoping) that the meltdown will take place this year; I'm ready to become a 'rentier' off of my short bets.
A local bank is the owner of Pulaski B&T...I think...
They have been fighting hard to make inroads into Arkansas. I'm not really sure why....as that same ownership bank has recently had to sell off a bunch of CC paper which is originally from...Pulaski! This CC paper was ballooning their NPAs at QE last year.
Makes me wonder if this isn't what ABN's NPA's were...CC!
It's like a race between two types of cancer...CRE and Consumer credits...which can hollow out the small banks faster.
"Instead, the "bubble" and "bust" were caused by speculators, who behave very differently from typical homeowners.
So the "bust" isn't really a "bust" at all, just the froth being blown off, with all the expectations of non-residential spending "collapse" and imminent recession being called far more-seriously into question."
Sebastian you risk falling to idiot status if you cannot see that it was not only speculation on homes that created this mess. It was also speculation by those who sold the mortgages and those who bought them.
Speculators created money from nothing by imagining there was less risk. And now that seems busted.
And similarly people bought auction rate securities to speculate. They imagined these speculative instruments were cash like.
This is not just a housing bust.
You need to get with the program or just be an idiot
numbers that show the average tipping point for people
that point is still affordability. until the reset
People who bought a house and carefully calculated their budgets may not have been able to foresee this year's gas and food prices, not to mention next year's which I don't even want to think about.
"So the "bust" isn't really a "bust" at all, just the froth being blown off, with all the expectations of non-residential spending "collapse" and imminent recession being called far more-seriously into question."
Only if speculator actions exist in a vacuum. But they don't: credit contraction has been the most likely and obvious result, which would be more than enough to push our heavily credit-dependent economy into recession under normal circumstances, except foreign central banks seem to be working overtime to keep our interest rates low.
Yeah. Given the choice between spending money on subsidizing earthquake-resistant buildings for it's own people or buying US treasuries to help out the US consumer (keeping imports cheap and interest rates low), it's a no-brainer for the Chinese government.
For what it's worth, I disagree with Sebastian that the whole problem is from speculation. Speculation was the catalyst for the bubble, but normal homeowners who meet with financial stress and are unable to escape because of negative equity will accelerate the bust.
Sebastian,
Froth, I love it! Don't think I've heard that meme since Lereah left for Move.com. You know, froth can be a serious business:
"SABMiller to buy rights to distribute Dutch-brand Grolsch in US from Anheuser-Busch", AP / International Herald Tribune, May 14, 2008.
"those borrowers that bought a home based on rapid house price appreciation as a way to grow wealth"
Isn't that the definition of "speculator"?"
It is. This would explain some things.
In markets such as San Diego and Las Vegas, everyone was a speculator... 40% i/o and neg am loans. Monthly rents of 30-50% of the mortgage nut. Median prices about 8 times median household income.
There aren't 10 upright men in the whole place...
MORTGAGE LENDERS ARE COMING DOWN BIG AND FANNIE (FNM) AND FREDDIE (FRE) WILL SINK. Give it another year to
Jas
Jas Jain
So, now it's finally "another year". Like last year, the year before and so on. I wonder if at some point you stop listening to yourself.
O-Joe
Kp,
FDIC does not routinely comment on NPA matters (or, many other matters)during the closing function. Its closing bank press releases are always boilerplate legal requirements. A lawsuit complaint may be filed later which will provide interesting detail. Here is another article about Iberia Bank which operates in Arkansas under the name Pulaski Bank & Trust Co. If you are a customer you can contact the bank or the FDIC's closing manager on-site at the bank and ask any questions you may have. You may or may not get answers. You may also call the FDIC's 800 information number at FDIC: Federal Deposit Insurance Corporation
theadvertiser.com | Lafayette | The Advertiser
Joy said: "Speculation was the catalyst for the bubble, but normal homeowners who meet with financial stress and are unable to escape because of negative equity will accelerate the bust."
Absolutely right, as soon as the recession comes and they start losing their jobs.
Until that time...
Sebastia
It's not so easy to walk away as a strategy.
Question for CR and Tanta - Wouldn't a straw buyer (good credit, now facing foreclosure) look an awful lot like a ruthless walk away when just examining the balance sheet? Are lenders attributing ruthlessness to failed borrowers when it could actually be mortgage fraud?
Yes, "investors" bailing may have be the spark plug for ignition but the fuel is no more HELOCs.
Are lenders attributing ruthlessness to failed borrowers when it could actually be mortgage fraud?
That is certainly possible. My guess is that most straw buyers default within six months, so it's less likely that loans originated a year or more ago that are only just now going DQ are straw buyers.
I think this particular comment by Freddie Mac is a love-note to Rep. Frank, myself. Translation: "We are too trying hard to work these loans out. We can't help it if the speculators won't take the bait."
Went to court today to get some extra time on a foreclosure (granted); bank's attys didn't show up--again--the judge told me they are so swamped that they are not showing up, so motion not granted if the defendant's show. If they don't show and she has a package, or if they call in the afternoon, she grants the summary judgment. This is Miami-Dade. Got to talking with a couple of forclosees, and a court reporter who is a probable future foreclosee.
The first guy owes 28 grand and has half the money. Bank won't accept it in forebearance. How stupid is that.
So they take his money, and then he defaults, they can sue for foreclosure, and be that much ahead.
The Court reporter bought an expensive house to live in, and an investment. The expensive house is $200,000 underwater, and the condo is $80 grand underwater, and the tenant is leaving and the condo bldg is full of foreclosures. What should she do?
Is your credit ok? I ask. Yes.
But--her loan is an adjustible of some flavor--she doesn't know what kind. Didn't know her interest rate; didn't know whether the adjustment used LIBOR or something else;
kinda didn't know anything about the terms of her loan.
And yes, she said, she and her husband figured that the house would go up in price if they couldn't make the payments, and they'd sell.
I suggested moving into the condo, but she said it was too small since she had kids.
In a few month, people are not going to know what hit them.
They don't realize that shortly their choices are going to narrow so much, that they would be grateful, or should be grateful, simply to have a roof over their heads.
I feel like walking up and down the commercial street I border wearing a sandwich board that says: Idiots!!
Hard times are coming!!! But it would do no good.
And court reporters are usually regarded as being at least medium smart.
Sign.
In Broward foreclosures are 3xs what they were last year, for the first 4 months.
And OT, but the fires in Brevard on the space coast were mostly arson, and have burned some 3 dozen houses.
Makes ya wonder, don't it?
It's natural for people to extrapolate short term trends to infinity. Once the bubble got rolling, it was easy for the average buyer to believe it wouldn't go down. When not only all the NAR, but all mainstream media, the Fed head, and POTUS, is saying it is wise to buy, it shouldn't surprise that many closed their eyes and bought.
I know many who should have known better who paid up (with someone else's money) for RE in Orange County, CA. I refused, but I was the exception and was loudly laughed at and disparaged. Some of these folks had even been through previous busts. Some were 'speculators' but most thought they were prudent 'investors,' and some were even desiring to be homeowners and truly believed that just another year or two of rising prices would bail out the loan products they took on. It was a risk they took, and they were wrong. There is no single pigeon-hole or soundbite that fits all these buyers. Lucky for them, they will soon enough learn about 'non recourse'... though some who did the HELOC game will learn what 'recourse' means, too. We all choose our lessons in this life. Fortunately, we already have bankruptcy courts so there is an out for all these people. No 'bailouts' needed!
Ok, here I go again. Banks will not ask for deficiency judgments--they never do in Florida, which is a non-recourse state. It is too expensive, and relatively hard to collect.
I have posted this previously many, many times.
They have not started asking. They can't get thru normal uncontested foreclosures; don't have the staff, don't have the money. And there's a time limit on how long after the foreclosure that you can ask, I just learned today, doing different research.
And besides, Carthage should be destroyed.
Edwards endorsing obama: [After dropping out of the race on January 30, Edwards asked both Clinton and Obama to make poverty a central issue of the general election and a future Democratic administration, something both agreed to do]
Poverty is the central issue. If you're not poor yet, YOU WILL BE, if Obama gets elected.
"That is certainly possible. My guess is that most straw buyers default within six months, so it's less likely that loans originated a year or more ago that are only just now going DQ are straw buyers."
Thanks for that Tanta. I know one flavor of the straw buyer scam involved the scammer making payments for some time, or even renting out the home to get it beyond the chargeback point 6 months for the mortgage broker that was involved.
I know there are a lot of variations on the straw buyer scheme, but some of them could be in this current time frame.
I'm even seeing 100k cash back at close still being attempted locally.
Funny the FBI said there would be more mortgage fraud now during the bust.
I think the whole debate over the prevalence of ruthless walk-aways might actually be due to the change of definitions of "investor" and "home-owners" in recent years. To a great extent the dinstinction between "investors" and "home owners" has become blurred, with most home owners acting just like investors, hoping to get rich on their homes, leveraging themselves to the maximum in order to get in on the real-estate gold rush.
Your whole attitude towards negative equity may be quite different depending on what your expectation for "profit" was when you bought the home. People who bought a home primarily with the expectation of getting rich will probably be far less attached to a home if it goes under water than those who were just buying a home to live in.
Thus, it shouldn't be surprising that many of these home-owners who behaved like speculators are now "walking away".
Lawyerliz-getting a little worked up there? What's up with you and Cartago? Did you hate Dido's music that much?
If folks were persuaded they were making an investment decision instead of a shelter decision
Buying a house just because you think the price is going to go up is speculation, not investment.
Buying a house because the cost of the shelter provided is competitive with renting is an investment decision.
There is no hope for the public, but people here ought to understand what investment really means.
Nope, just every time people talk about not recourse and deficiency judgts, that will be my mantra.
Carthage was destroyed,and I don't think it did anybody any good.
I for one have been in this situation.
Purchased house in 05 for 275k
Now worth 175k and all investors pulled out renting to undesirables.
Neighborhood is now a HOOD.
I stopped paying mortgage and now renting and trying to short sell the house.
New exit strategy for us and MANY others.