The best part of the Hitzik piece, I think, is that he cornered Wachovia and BoA, both of whose CEOs made these claims about walkaways in their investor calls, and neither outfit could cough up any data. The freakin' MBA guy said they'd read about it in the newspaper!
It's a big echo chamber. Kudos to Hitzik for spitting out the koolaid.
Within the last two weeks, short-term CD rates have soared, at least from my occasional glances at Bankaholic.com. No earlier than the start of the month the best rate was 3.60% at GMAC with a six-month deposit.
Today? 4.80% at Countrywide Bank. 4.50% at Indymac. 4.30% at Everbank. That's over a 100 basis points in fourteen days.
Anyone know what's going on? I know that these are some of the worst names in banking (Everbank excepted, I'm not familiar with them), but why this skyrocketing all of a sudden?
[i]the notion that legions of borrowers are simply deciding not to pay is an "urban myth" that largely reflects the mortgage industry's desire to blame homeowners, rather than their lenders, for the surge in problem loans.[/i]
the notion that legions of borrowers are simply deciding not to pay is an "urban myth" that largely reflects the mortgage industry's desire to blame homeowners, rather than their lenders, for the surge in problem loans.
Worth seeing again (and again, apparently - like CATS).
Just to be contrary, which is my nature, this article doesn't provide any more hard data than articles that allege the 'walkaway' phenomenon is rampant.
There may very well be not enough data about this walk away phenomenon. It very well could be a myth but don't you guys think it makes an economic sense for a home owner who bought a house for $450K that is now selling for $300K with a possibility of it retracing the peak price in next 7-10 years, to forget about it and start all over it? I agree if some one is living in a house for last 5-6 years and it goes under water slightly, owner is probably well adjusted to the expenses and will not walk away. He may not even notice he is under water.
But what about all those millions of people who bought between 2005-07 who are under water big time? many of them are not yet accustomed to their new expenses. many of whom thought about their pay check to paycheck living a temproary thing..soon to pass away..partly because of their new richness to come from the home ownership.
I personally know 4 home owners in Sacramento area who will walk away in near future...some have stopped paying the mortgage already and want to prolong the process to live for free. 1 family had a death in the family, another large loss in small business, 2 others working/earning and can afford the payment but feel stupid to live in a house they bought for $450K that their neighor bought last month for $290K. They need a very small economic push to walk away..already contemplating about it.
I wanted to thank you: Re: OK, you get a rainbow sticker for defining projection. Those of us who have never heard the term used in a sentence before are, I'm sure, grateful to you."
This is the second sticker this year for me, so just wanted to say upon reflection how nice my day has been and how this gives new meaning to who I am.
aClem writes:
Just to be contrary, which is my nature, this article doesn't provide any more hard data than articles that allege the 'walkaway' phenomenon is rampant.
aClem | 05.10.08 - 3:07 pm | #
I was looking about for something about proving a negative... but I just can't find it right now.
On second thought, it might just be Bankaholic's site acting wonky; I tried looking into the Countrywide and Indymac CDs and didn't find anything like the rates bankaholic suggested.
There are known knowns, those are things we know we know. Then there are known unknowns, which are the things we know we don't know. But then there are unknown unknowns, which are the things we don't know we don't know.
has a relevant post today that may indicate that government efforts could actually increase the likelyhood of walkaways in some form.
I know that I would try hard as hell to prove I couldn't or wouldn't pay to get someone to write down my mortgage by 400K. I might even start a service to help others do it for a nominal fee (instead of "youwalkaway"...I'd call it "getthefedtopay")
In any case...with all the news coverage and the easy access to sites like Zillow, more than ever before will walkaway. Whether that's alot, who knows...but it will definately be more than any past "models" accounted for.
I personally don't have a problem with it...Bernanke is essentially encouraging the lenders to do a "walkaway in place" through principle reduction. I find it a shame that if average joe who bought what he could afford and pays too much for too little because he can and is morally responsible may not get a mortgage reduction gift from the Fed while mr. speculator gets a gift and soon both have the same mortgage by speculator has a few thousand more square feet in his mcmansion.
I am sure Marianne Sullivan considered blogs like yours, Ben`s, Patrick, etc, "folklore" a few years ago. These are the same idiots for whom 40-50% annual price increase was considered normal. So I guess it would also be normal for homeowners to live in half built hoods, next to bug infested pools or drug houses etc, etc, just to be the proud owners of overpriced POS. Why would they walk away?
six percent solution writes:
The LA times and the NY times, huh? The lenders should have kept up their newspaper ad buys.
six percent solution | 05.10.08 - 3:36 pm | #
What I like is that the whole "Walk-Away" mania accurately describes investor behavior.
Banks just seem to hate it when folks play by their rules. A lot of small investors right now are attempting to play the BofA/CFC merger the same way.
Now when Bofa renegotiates due to deterioration in the CFC portfolio, all of the small investors should take note and demand the same in their business investments. And homeowners should ask that the Feds give them at least as good of a bailout as the Tan man is getting.
When realtors start getting good at, and rich from moving all these forclosures....they'll start encouraging walkaways just to keep the good times rolling.
To date, I am now personally aware of four homeowners who have decided to walk away...AFTER the replacement home was secured. One in Camarillo, one in Pasadena, two in Whittier...
The only possible conclusion that one can draw from this entire event is this: The bankers, lenders, realtors, mortgage brokers, and the members of the securitization industry are irredeemably corrupt. Their spokespeople (CEO's et al) are pathological liars. The lowly office workers in these industries were perhaps ignorant of the ramifications of their work, but nonetheless are complicit in the corruption. The speculators were in league with the realtors and mortgage brokers (indeed were they one in the same?).
All this corruption has injured many innocent homeowners whose own financial illiteracy has been exposed as a fatal flaw.
What to do? Nothing. Let it all play out. The only taxpayer funded activities I support are the demolition of vacant properties.
To date, I am now personally aware of four homeowners who have decided to walk away...AFTER the replacement home was secured. One in Camarillo, one in Pasadena, two in Whittier...
I hope you won't take this personally, but I am personally aware of substantially more than four different people who make shit up on the internet.
Some have been saying there's money out there to invest. If there wasnt, where is all the money that buys these deals from companies issuing stock coming from?
The real answer is it's being manufactured by hedge funds.
The hedge fund industry is going through a correction for sure. Those that dont run the risk properly have been paying the price. But there are really good ones, those that do run risk properly and are growing in capital and access to leverage.
Lets take a recent deal like Fannie Mae (FNM). Hedge funds know the company needs to raise capital and is thus willing to pay an egregious cost to get it done. When the broker-dealer comes to call for FNM it's with a derivative structure called a mandatory. It's a little more complicated than this, but essentially the mandatory is stock (convertible into) paying a very high dividend. The hedge fund is able to buy this derivative at a price yielding much more than the common stock, which it then shorts in the open market as an almost perfect hedge.They get a great return for very little risk. This is all at the expense of the current diluted common stock shareholders. Hedge funds borrow the money to do this. This is the one area where credit creation is being accomplished: the hedge fund is willing to borrow because of the great return and the broker-dealer is willing (and able) to lend because of the great collateral (no risk).
One gets the feeling that the powers are getting stock prices up so companies can raise capital by selling stock to hedge funds who sell it to the general public first.
Fannie Mae Gets Married
Would it be out of line to posit that walkaway is one of the things that made America great?
Back in the day (and that would before your grandfather was born but after Cicero famously complained that modern people have no shame), debtors were locked up. Then the dirty liberal reformers got hold of the levers of power and debtors were 'only' stuck in stocks in the public square to be jeered at and pelted with rotten fruit. More recently, it was decided that allowing people not to pay, even if there was a possibility that their future earnings might one day make their creditors whole, was better for the economy than effective indentured servitude.
When we criticize "inflexible European labor laws," prohibitive break fees, golden parachutes, punitive bankruptcy laws, non-compete clauses and the like (and I do even if you don't), we're criticizing sanctions on walkaway behavior.
Holding the weaker party to a ruinously bad bargain when circumstances have changed drastically and in a way not contemplated by either party can lead to bad outcomes. There can be few second acts in lives marred by crippling, long term unproductive debt servicing. And who will foot the bill for their penurious dotage?
More recently, it was decided that allowing people not to pay, even if there was a possibility that their future earnings might one day make their creditors whole, was better for the economy than effective indentured servitude.
Uh, you will find fewer more consistent defenders of bankruptcy as an economic necessity than I.
But our BK laws do not, actually, "allow" people to "just walk away" from debt. They never have. You do gotta go to court. You do gotta tell it to the judge. The creditors do gotta get their chance to tell their side of it. You do gotta get a judge's order confirming your discharge.
I have no problems with folks in upside down mortgages declaring BK.
I have big problems with people just deciding to write their own contract and debt law on the fly. It's a problem when corporations do it and it's a problem when individuals do it.
Oh great! So it's contained again? Look - a great deal more AltA and OptionARM borrowers had assets and were further up the socioeconomic scale than subprime borrowers. The loans were bigger. They will be a lot more pragmatic about the economics of struggling to stay in a deeply underwater home.
These skeptical articles will be signposts on the way to mass walkaways - just like the 2007 claims... it's contained to such-and-such was. Comical. I'm certain of it.
Just sayin'...
Ralph Cramdown | 05.10.08 - 4:47 pm | #
That's been kinda the point all along - whether the foreclosure is a walk-away or a throw-out does it matter? Where was the underwriting that allowed or forced (depending on your personal myth preference) people to do this?
Loans should never have been written where there was a likelihood based on sound actuarial process that the collective loan pool collateral would be insufficient to cover the collective risk of probable foreclosures in that pool.
That analysis didn't happen.
Now we have all kinds of fairy tales telling us why - like people have no morals anymore or relitters are greedy or the FED was too loose WHATEVER - but fact is there wasn't rigorous loan underwriting and now there are a lot of foreclosures & resultant loses.
But our BK laws do not, actually, "allow" people to "just walk away" from debt. They never have. You do gotta go to court. You do gotta tell it to the judge. The creditors do gotta get their chance to tell their side of it. You do gotta get a judge's order confirming your discharge.
Besides in many parts of the country its still the social equivalent of having the community throw rotten fruit at you...
I suspect I'm belatedly stumbling into the obvious, but here goes:
you owe $200,000 on a house. Similar houses could be bought now for $150,000.
If you could stop payments on your current house with no ill-effects and buy the similar house, you're $50,000 better off.
In the real world, most people don't have the $150,000. The choice is keep paying on your current overpriced house or renting.
A big wild card with renting is what's going to happen to rents in the next few years. Different people have made predictions with great confidence, but nobody really knows, and this is a crucial issue for a hypothetical ruthless borrower.
This is the second sticker this year for me, so just wanted to say upon reflection how nice my day has been and how this gives new meaning to who I am.
doc blitzen
Who you are for the next twenty minutes before you change your online name?
Maybe if you spent more time absorbing knowledge by keeping your eyes and ears open and your fingers away from the keyboard you'd learn something beyond a cursory google search.
Your "writing" sticks out like a turd in a punch bowl: cut and pasted text followed up by unintelligble points, the stink you possess comes off the page like a frightened skunk.
Jingle Mail? California's always ahead of the curve when it comes to trends.
A big wild card with renting is what's going to happen to rents in the next few years. Different people have made predictions with great confidence, but nobody really knows, and this is a crucial issue for a hypothetical ruthless borrower.
Billy Hill | 05.10.08 - 5:10 pm | #
Plus renting isn't always cheaper... For something like a third to half the country (WAG) renting is still more expensive than owning... That is IF you plan to stay in the home longer than about 5-7 years (closing costs & such). That BTW doesn't include HPA... just the difference in costs. There hasn't been a lotta HPA in much of the US.
In my little town rentals pay off in something like 10 years IF the landlord does the sweat equity to keep them maintained (if he has to pay somebody to do it I'm not sure he ever gets ahead). But prices & rents are so low you would have to own six or eight homes or a couple 2-3 fourplexes to make a living from it. Its tough work & there are easier ways to make money.
You would have to be on drugs to VOLUNTARILY walk away in my town - plenty of folks are getting 'thrown out' however. We always did do things the old fashioned way though.
The bankers, lenders, realtors, mortgage brokers, and the members of the securitization industry are irredeemably corrupt.
Well, I think we need to differentiate here. Brokers and realtors are always pushing to get a deal done. For them, no deal means no payday. Buyers and sellers also want to get the deal done.
IN the past, the banker/lender was the one in no hurry, the one taking the risk, the one who had every reason to ask the tough questions, set tough qualifications and so forth. If the deal fell through, there was always somebody else stepping up hoping to borrow the lender's money.
But when the lenders are in effect, lending other peoples' money, making their profits from fees per deal, their incentives are no different than those of realtors or brokers. They want to see how fast they can do deals.
That's what was different this time. That's what got us to where we are. Buyers and sellers of owner-occupied housing have always been unsophisticated. Realtors and brokers have always pushed to close deals. The banker/lender was supposed to provide the knowledge and the sanity.
It's also worth pointing out that a lot of these realtors and brokers were eating their own cooking, making speculative real estate purchases themselves. So many of the housing bubble "victims" that Tanta has found in the newspapers are real estate industry people who apparently believed their own hype as the bubble inflated.
Barely Try "you owe $950,000 and you can buy a similar home for $500,000 (still more than 8you* can afford*. You make $70K/yr".
Now think, "What is this you gonna do?"
There is no way such a person can pay the mortgage, so of course they will default. That is not a ruthless borrower - it's a broke borrower. At 6.5% an IO would cost $45,500. Then there's prop taxes and interest. Such a borrower is supposed to pay taxes on 70K income, pay about 48K in primary housing expense, and live off the balance of about 8-9K? It's friggin' impossible.
The "sea change" in borrower behavior is a myth. It was always the case that if you granted a mortgage to a borrower who didn't have the income to pay, the likely outcome was a default. It was always the case that if you let speculators and investors buy non-cashflowing homes with low dps, in a down market you would get tons of defaults.
The only way that people with 70K income could ever stay in their 700K homes for a time was to use funky mortgages and draw down on equity - but in the long run EVERY SINGLE ONE OF THEM WAS GOING TO DEFAULT. You can't keep adding to a mortgage you can't repay and make your mortgage more affordable.
Let's be honest about this - the only reason these loans were written was that it was expected that the price would increase enough to have the home sold before default. The banks just didn't expect to take losses on them. Now, because prices have dropped, they are.
Oh, sure, now these bankers are wandering around talking about fraud. Man, who could ever have guessed that stated apps might overstate the incomes? But it's all an exercise in plausible deniability, and it always was.
The only thing that has changed is that the borrowers now can't sell before default and cover their lender. That's it. The only thing.
Of course, the industry does not wish to admit this.
Sounds like the argument from ignorance (argumentum ad ignorantiam) fallacy, that a proposition is true simply on the basis that it has not been proven false, but while I had heard of that before a couple of bounces around Wikipedia also turned up "negative proof" (doh!) viz "X is true because there is no proof that X is false," and my favorite, "Russell's (or the Celestial) Teapot," the fallacy that any burden of proof lies upon the skeptic simply because they have expressed doubt (this seems to be more typically asserted in religious debates and mockery of same; e.g., The Church of the Flying Spaghetti Monster AKA Pastafarianism).
Shorter version: If there is no source of data from which walk-aways can be distinguished from other forms of being evicted, foreclosed, what have you, then the greater error lies in asserting walk-aways are a growing phenomenon: It could be true but it remains a fact not in evidence, a claim without data, and the skeptic is under no obligation to disprove it.
ELK GROVE VILLAGE, Ill. The foreclosure crisis is hitting yet another American locale: the self-storage center.
Skip to next paragraph
Enlarge This Image
John Gress for The New York Times
Brook Snyder runs Blair Auctions operation in Chicago.
As they lose their homes, people are turning to these humble cinderblock and sheet-metal boxes to store their stuff. But some people cannot keep up with their storage bills any better than they could handle their mortgage payments, and storage companies are auctioning off their property for a pittance."
The US real estate market going down and taking away the biggest bubble that kept the US financial engineered bullshit US economy artificially propped up !
Tranchefoot writes:
OT, but related to last night's banking issues: Within the last two weeks, short-term CD rates have soared, at least from my occasional glances at Bankaholic.com. No earlier than the start of the month the best rate was 3.60% at GMAC with a six-month deposit.
I don't know what you're looking at. But there's nothing much surprising about CD rates lately.
You need to watch Money-rates.com for CD rates. It's the best site on the Web for current rates, and they sometimes post rate updates even before you can get them directly from banks. They update daily.
Short-term rates are inching up. You can watch the historic trend in Treasuries here day-to-day:
For a long time, most of the online CD rate competition has been at the one-year maturity. Corus was always #1 at one-year for a long time, but they've dropped out of the derby.
Now, the highest-yield 1-years are the weakest banks: Indymac, Countrywide, E-Loan, GMAC, etc. It's like the Who's Who of Problem Banks.
Banks pay the highest 1-year CD yields because: 1) it's the maturity where most online buyers shop, and there is some stickiness at the end of a year when CDs roll over; 2) these banks really need deposits; 3) they can't get cheaper assets any other way.
But above all, they pay these high rates (even if they will soon fold) because THE FDIC LETS THEM.
Now lets replace the 50% above with 40% and ask the same question - one person whose paying underwater for at least 2 years. Then replace with 30%, then 25%, then 20%, etc., until we find where people say NO MAS!
Anonymouse - Well, I'd say if you can't find anybody at 50% you're not going to find anybody at less than 50% so I don't quite see the point of your followup post...
On the other hand, if you'd said 60%, 70%, 80% underwater I could see what you were driving at, if not exactly your point.
You can only walkaway once... right? I think we're all of the opinion that home prices still have a lot of downward momentum. Hypothetical walkway's will do nothing to stop that momentum.... and the walkaway in 2008 could be unhappy with what they are paying in 2010.
MOM, they can always refinance with an FHASecure loan. The fact that they wont be able to make the payments doesnt realy matter, as long as the loan is "secure". How do you like my logic? L.O.L.
It was always contained to the speculators and really mariginal subprime folks. It's time to acknowldge this.
I'm sorry if some folks used their HELOC to live beyond their means. To Heck with them. They deserve their fate. Otherwise, the VAST MAJORITY of folks are just fine thanks.
Recession? What recession? I'm gonna buy a new car. I just got a promotion and my job looks secure for the next few years.
Anonymouse Will someone find me one person who's paying a mortgage that's 50% underwater for more than 2 years? Just one!
FWIW, I personally knew several way back when in the 80s. From Texas. Housing dropped 40-50% almost across the board in some areas, and every one of them continued to pay the mortgages until they could unload. One took a loss of almost 60% to do so.
In the 80s I was working in the NE for the US arm of a big multi-national IT consulting firm, and some of the people I worked with had left Texas to get jobs, since the economy was hurting so badly. They kept the houses and rented them out. But they could afford to do so while renting in the NE, and eventually most of them unloaded the homes at a loss and bought new ones in the NE.
I also have more recent data in some communities in rural GA that had main employers close in the late 90s. Same thing. But the mortgages were affordable in the first place.
I'll tell you some differences that will jack default rates much higher now. First, lower downpayments. Second, much higher DTIs. Third, much greater mortgage/rent disparities.
With rents in most areas now being so much lower than mortgage payments, the same escape valve is not there. If you have to choose between eating, keeping the lights on, getting to a job, a job, or medical care and your mortgage, you do not choose the mortgage.
I swear to you that I am not lying when I tell you that what is different today is bad underwriting criteria. The underwriting criteria created the bubble and now are collapsing it.
While nationwide price drops of the current magnitude are unprecedented in the modern area, localized drops of this magnitude are not. All the history shows us that when mortgages were written more discriminatingly, most people continued to pay as long as they could.
FWIW, the default rates produced by neg-am mortgages in the 80s were higher than the default rates in collapsed price areas. Well, the neg-ams were written at very high DTIs. When interest rates came down, a lot of people could buy and prices rose, but a considerable cohort of the neg-am buyers had too much debt and couldn't keep the home.
It's not being underwater that causes defaults. It's being underwater and in financial difficulties. Well, a lot of the mortgages in the areas which are seeing sharp price declines were granted with no/low doc apps and very high real DTIs. These mortgages were in trouble when they were written in terms of the borrower capacity to repay - the only thing shielding the creditors were the price increases.
My 23 old daughter recently graduated from college and is relocating to Wenatchee, WA.
Wenatchee, WA was NO exactly the epic center of the sub prime mortage crisis but it appears even there is being effect as a builder is hold an auction later this month.
What would be your comments on this 9 house that go to auction May 30th.
MOM, I am afraid we havent seen anything yet. When you create monsters like Fannie, FHA, etc, sooner or later they are going to eat you alive. Thats the way it goes. It worked OK for the banks for a while though. It always does. For a while.
Paul,
Heard it from a lady at work. Been payin the mortgage for the last year with a heloc. Husband is in RE. Borrowed waaaaaaaaaaay to much. Sad thing is she has a good job and would most likely be fine without all the leverage.
I have mentioned it before,you are not the only one looking to spend...
Re: Analysis: Good economic news something of a mirage
Expired
When you look closely, "you do see some dark economic clouds in the silver linings," said Mark Zandi, chief economist at Moody's Economy.com. "The darkness is much greater than any sunshine."
I am thinkin' she may just be in the opportunity of a life time for getting a house at resonable price.
Seattle Sun - opportunities of a lifetime come around almost everyday, we just don't always recognize them. As they say in baseball 'sometimes the best deals are the ones that don't get done'.
So unless she KNOWS she is going to stay in that area for a long time and not do something like go back to school or relocate or get married and have a big brood or maybe lose her job, etc., then I'd suggest she continue renting & save & see how this work thing suits her.
BTW I got kids the same age, same situation & ask them... you really want to be 'house poor'? Wouldn't it be nice to be young, have some cash and not be tied down just yet?
OT: AIG Agony : More from Gaffen..."Beware of companies that find new ways to value assets while they're sinking...Where have we heard this story before? A company loses a bundle of money due to depressed values for its assets, and it says those valuations don't really count...During the conference call, Steven Bensinger...noted that the $19.3 billion unrealized loss estimate in one of its pools of [CDOs] doesn't jibe with their analysis, which should suggest a loss of $1.2 billion to $2.4 billion...Naturally, the estimate to be ignored is the one based on accounting principles, as the company says that 'during the first quarter of 2008 AIG developed a new methodology to estimate more precisely its potential realized losses from this portfolio.' Naturally, this new methodology 'lowers' the 'potential realized losses.'For financial institutions, it seems lower housing valuations (as determined by a market) are enough to alter lines of credit, raise certain interest rates or change insurance and loan terms. But market-based analyses of their own portfolios? Obviously hogwash. "
The down leg could run until 2013, and 'normal' may not return until 2025.
Last depression
Boom: '22-'29, household debt/GDP: 45%->53%
Bust: '29-'33; household debt fell 6% per year, GDP fell 12% per year, ratio of household debt/GDP grows by ~140% in four years
Recovery: '33-'39; household debt remained flat, GDP grew 10% per year, it takes until '39 for household debt/GDP to fall to normal level of 48%
This depression
Boom: '80-'07, household debt/GDP: 46%->94%
Bust: '08-'13, household debt falls by 6% per year, GDP falls by 12% per year, ratio of household debt/GDP grows to ~140% in six years
Recovery: '14-'25; household debt remains flat, GDP grows by 10%, it takes until 2025 to reach normal level of household debt/GDP of 45-46%
17 years in total: six years of downward movement and 11 years of recovery until we reach normal levels of household debt/GDP.
Lots of scrimping and saving to payoff debt or replenish vanished savings (i.e., written off debt) over those 17 years.
Learn to be thrifty, folks, 'cause you will be using that skillset for a long time, potentially.
Seattle Sun-Opportunity yes, problems, maybe. My business partner said that there was some kind of article on 25 problems to avoid at house auctions. The big ones are as you might guess, paying too much, and getting in over your head with repairs. If the consensus of this blog is any indication, there will be plenty more chances coming up in the next couple yearsttrft6tt. If you're still interested, try to find that list and have her go to a couple before she buys. There's a lot of hidden complications in real estate auctions, they're not like any other.
Walkaways are NOT a myth. Anyone claiming they are because (s)he didn't find proof from news reports or lenders is showing extreme naivety.
Most mortgage borrowers could easily file for bankruptcy soon after closing. They don't though because of a very strong desire to live in their new home and/or benefit from an appreciating asset. Over time some event will hit that removes these incentives for a portion of ho'moaners.
Some folks couldn't afford payments before/after resets or due to life changing events. Even excluding this group, there are still lots of defaulters who have very good salaries and can still afford payments even on resets. After one's property value falls by a certain amount, it doesn't make good business sense to stay. So, they walkaway and often by feigning some other excuse. Most aren't stupid to tell the media the truth because they don't want to be ostracized in their community or face scrutiny from the government. They often tell family and close friends the real truth though. Most lenders aren't stupid to provide hard statistics on walkways to the media or public because it would encourage far more struggling and also non-struggling borrowers to do the same thing.
Broker - I was just suckin' my thumb while I was reading MGIC's June 1st MI guidelines. They still haven't got down to where they need to be, but it is surely bad news for Barney Frank. MGIC is not exactly french-kissing the jumbos and it seems for some reason to have formed an aversion to DAPs, federal judges notwithstanding. When will be learn that kind thoughts and lofty principles do not pay mortgages?
I have read about half FNMA's last filing; I have to stop frequently to laugh. Their plan is to sell shares, leverage up even further, and make up for their losses on volume while making the books look better by using the new forgiving accounting procedures so beloved of GS. This is going to be quite expensive about 2012. I am sure we will all enjoy the bill for bailing out the GSEs while we have to start taking SS and Medicare draws quite seriously. There is nothing like structuring all your balloon loan payments to come due at the same time.
It's not as if Fannie's big boost in 07 isn't going to turn out as badly as many other vintages. For about 10 months everyone was shoving all the crap their way. Their guarantees are frightening and the credit losses are rising at a terrific rate.
Sticking Fannie, Freddie and FHA with the fallout is not going to be cheap.
I see no evidence from the article that 'walking away' is not happening. I saw non-supported quotes from a FNMA spokesman and from a non-profit workout director, both of whom have a vested interest in disputing 'walking away.'
C'mon, CR and Tanta, show me some data, like you do on everything else.
The data that we do see is skyrocketing defaults and foreclosures, correct? How do you tease out, objectively, how many are 'required' versus 'optional' defaults and foreclosures? It would take a difficult and expensive independent analysis of the defaulter's finances, and an interview/polygraph would be requisite, too, I think.
Most aren't stupid to tell the media the truth because they don't want to be ostracized in their community or face scrutiny from the government.
Yup. As a reporter, I don't have any good ways of finding large numbers of distressed homeowner/borrowers who want to talk to me. I have gotten lists of homes in foreclosure and have spent some time dialing up the owners, and so far the conversations are always very short.
The people who agree to tell their stories for publication are the tiniest imaginable sample of what's going on--weird anecdotes, not data. Generalizing from those published anecdotes would be dubious.
I don't think we'll ever answer the question about "walk-aways" definitively, there is just too much grey in each individual case to state for certainty "why" someone is in default. Some delinquent borrowers might have been able to hang on a bit longer, and others really were at the end of their rope.
But this whole debate is pretty useless. The vast majority of foreclosures result from borrowers with negative equity who ran into some sort of financial difficulty. It's negative equity that drives foreclosure rates, not the general willingness (or not) to "walk-away".
Thus, the core problem we face today is that increasing numbers of home-owners are under water leaving them no cushion to work things out when they run into financial trouble. The longer people remain under-water the greater the odds they will eventually default (i.e. they could lose a job, get divorced, etc).
dryfly writes:
I am thinkin' she may just be in the opportunity of a life time for getting a house at resonable price.
Seattle Sun - opportunities of a lifetime come around almost everyday, we just don't always recognize them. As they say in baseball 'sometimes the best deals are the ones that don't get done'.
So unless she KNOWS she is going to stay in that area for a long time and not do something like go back to school or relocate or get married and have a big brood or maybe lose her job, etc., then I'd suggest she continue renting & save & see how this work thing suits her.
BTW I got kids the same age, same situation & ask them... you really want to be 'house poor'? Wouldn't it be nice to be young, have some cash and not be tied down just yet?
Bounce that one off her...
dryfly,
This one is very "mature" and is relocating to be with the long time boyfriend. I mean this one was "17 going on 29" when she was in high school.
I guess what I was looking for with my post is what do you guys think would be a resonable bid on these 9 all new houses? $100 sqft? Does anybody know the construction costs in small town Washington State?
She will be going to the open houses and the auction if for nothing else but an "education" on real estate.
jg- any 400K La Jolla places yet? How low have they gone?
The walkaway phenomenon generates a lot of heat, but as Maxed Out Mom suggests, it doesn't amount to a hill of beans. The lenders have bad loans, bad collateral, bad borrowers. None of it would matter if they could sell for a decent price. The reason they end up with a non performing asset hardly matters to the numbers on the balance sheet and those are data we'll be looking at.
he walkaway phenomenon generates a lot of heat, but as Maxed Out Mom suggests, it doesn't amount to a hill of beans. The lenders have bad loans, bad collateral, bad borrowers. None of it would matter if they could sell for a decent price. The reason they end up with a non performing asset hardly matters to the numbers on the balance sheet and those are data we'll be looking at.
SS- go only 11k over the starting bid- you should be able to pick up distressed for $90 a sq ft. HOA? Those taxes ain't cheap and will go up, this is a distressed sale.
Teach her to wait. If she can't qualify, then she shouldn't buy.
Not saying downpayment help, but she needs to understand how much a house ties her down, especially in a crap rural market.
Gas prices are going to trash rural real estate big time. It took until the early 90s for it to recover from the debacle of the 70s here in the west.
"I guess what I was looking for with my post is what do you guys think would be a resonable bid on these 9 all new houses? $100 sqft? Does anybody know the construction costs in small town Washington State?
SS
SeattleSun | 05.10.08 - 8:29 pm | #
Don't know about costs in Washington State but Florida was way up there in cost just for run of the mill stuff. Think 125-175.00/sqft. Right now you can pick up 2k sqft homes for less than 100k brand new. Like dryfly said. Why not wait 1 year? Prices will not magically shoot up and will most likely continue to fall...
Was at a conference last week and during the lunch break a person from Santa Fe mentioned that he was going to "walk away" from a home he purchased in 2004. Claimed that the mortgage and related cost had become more then he could afford. He also said the servicer wanted large fee's to extend or do any type of work out.
Wenatctee is a small town agriculture area and the nickname is "Apple Capitial of the World". Of course AG is booming right now. About the coolest thing I saw was their 2 cents a kilowatt elecrical rates due to the Rocky Reach Dam just above the city. Note: every thing is electric including the home heat! I was checking into elecric cars!
I have seen a homeowner voluntarily default (July 2007)on 2 $99k homequity loans (E-loan, National City) and have a primary of $540K with national City.
About six months ago they leased a new $40k vehicle. wonder how they got approval for the lease???
This economy is am basketcase levered with wantabee homedebtors. bring on tough time. I am prepared and saved!
The vast majority of foreclosures result from borrowers with negative equity who ran into some sort of financial difficulty.
I'm sorry, Sniglet. How is it that you know this?
For those of us who don't live in Arizona, California, or Florida this "crisis" is irrelevant. Wake us up when you are done whining. Sorry - really though - deal with it.
Ag towns are big time boom and bust outfits. If you lived in Seattle long enough, you should have seen what happens when Boeing lays off.
She really wants a deal- go to Vegas- they are dying big time there.
We spent the last year in Las Vegas "Bring Down the House" but she didn't like the city/people. Want to go "small town" America. Maybe she is smart in that respect.
She is mostly shopping for a rental but these "new build", did any of you guys actually look at the houses on the web site, just popped up.
I mean how many new build auction house will there be? Do you really think the builders will just keep building house they can't sell?
You are my hero!!
I only worked on recon cameras for VMFP-3(RF-4B). My brother is the family pilot currenly flying Long Rangers(206) in the GOM.
But yes,I have a Cobra kit I built 9 years ago. But you could say I am huge fan of both. Esp the new Zulu Marine Corp version and Osprey and 53 and...O.K. anything that flies!!!
I look at the builders 'cause I am short one (RYL) heavily. I see that they are cutting back rapidly, with spec houses being moved for whatever it takes.
They are dying fast, with several major national ones on the brink and most likely to go under this tear. Ryl will take a while longer, but they still have over book stock price, hence more air. IMHO.
As I pointed out, she may not like small town life, and what happens when the money that is driving the community starts drying up. What does she do for a living? Is it really that stable? Or would she be happier being able to pull up stakes and move to where the grass is greener.
It is far easier to move when one is young, rather than when you have put down roots.
I advocate for folks in their twenties to own nothing more than a car. Turn 30 get a real job, get married, then have kids and a house.
Paul, c'mon, this downturn is clearly affecting places that did NOT have crazy run ups in home prices: TN is cutting 5% of its state workforce, a city in AL is about to undertake the largest municipal BK in history, yesterday there was a bank closing in AK.
The U.S. is one big marketplace. Glad that you do not have debt (neither do I). But, I fully expect to lose my job as venture capital dries up nationwide. Trouble may come to your neck of the woods, too (unless you live next to Seb).
sdtfs, I just log the monthly median home price in La Jolla, and do not look at individual homes. I will give my wife a blank check for a home in three-to-five years, but just work, sail, and tend the kids and garden during the interim.
There goes the bears' dream of mass-defaults by walk-aways. You got to give credit to the borrowers for faithfully meeting their obligations even in adveristy. Well, it's America after all.
O-Joe
hdude writes:
SS wants her to buy and also wants everyone's blessing.
hdude | 05.10.08 - 9:50 pm | #
Ooops, my bad - ya tell her to buy. Pay whatever it takes.
And ya I know nothing about small town boom bust - having lived almost all my life in the Midwest through $1 corn and $6 corn. Makes no difference, real estate only goes up and there are SO many buyers in rural towns they should have no problem unloading if it isn't an exactly perfect situation. We have after all hit bottom.
but fact is there wasn't rigorous loan underwriting and now there are a lot of foreclosures & resultant loses.
etc.
I may be misguided, but in my mind there is a step before the bad loan underwriting, and that is when the entity writing the loans no longer had to take responsibility for them. Selling the mortgages, I think, is what severed the chain of common sense.
this downturn is clearly affecting places that did NOT have crazy run ups in home prices
Sorry - I don't agree. People who live on the edge of solvency are always going suffer whenever there is a "downturn". This is not a catastrophe, just unfortunate given our lack of a real safety net.
I just don't see any widespread pain beyond those who were screwed up with unsupportable debt anyway. Mabye I'm wrong, but this "recession" does not strike me as anything but a necessary adustment of asset (housing) prices.
My 401(k) is actually close to even for the year. How is that possible given this financial calamity?
Claimed that the mortgage and related cost had become more then he could afford.
That's not a walk-away... that dude doesn't have the option. That's the whole point... how many can REALLY afford to make the payments, are not absentee specs and still CHOOSE to walk away?
I know one just like you - unable to afford to carry the house & chose to beat the bank to the punch - but it wasn't a choice to walk away, they'd lose it fairly soon if they didn't walk. Their only choice was to act first...
I just don't see any widespread pain beyond those who were screwed up with unsupportable debt anyway. Mabye I'm wrong, but this "recession" does not strike me as anything but a necessary adustment of asset (housing) prices.
The verdict is still out on that one...
I live in farm country & places that move/process commodities or build the capital they use to move/process those commodities aren't just doing okay - they are BOOMING.
Same with aerospace. I was in Wichita - crazy like aerospace boom town. Was there four years prior and it was almost a ghost town.
But that isn't everyone everywhere by any means. The spill over could be quite severe - blow up enough assets & it takes the companies/jobs/output with it. Fed will try to backfill via low rates & funny money but will it be enough? We just don't know yet what the end result will be.
I may be misguided, but in my mind there is a step before the bad loan underwriting, and that is when the entity writing the loans no longer had to take responsibility for them. Selling the mortgages, I think, is what severed the chain of common sense.
Outsider | 05.10.08 - 10:16 pm | #
Ya - the folks buying the MBS should have asked the tough questions before they bought since they were the ones with the ultimate skin in the game. They didn't. I doubt that will happen again - burn me once shame on you, burn me twice shame on me... or whatever it was Bush said.
Pual sounds like a guy whose neighbors are walking away in bunches and now the depreciating asset he owns has put him deep underwater and he's in a panic.
Chill Paul. Put your keys on the counter, tear up your deed and join the party!
I think that walkaways are a myth too. Everyone knows that the bank won't foreclose as long as there's a warm body in the house. Fogging a mirror got you the loan, now its free rent. The downside of being an "investor" is that you can't reside in every one of your proporties.
That storage article provides an interesting perspective for data - I assume that anyone who also loses their possessions because they can't afford storage fees can be removed from the rigorously defined CR 'walk-away' - because truly, such people did not make a considered financial decision when they walked out of their formerly mortgaged house into their newly chosen life without the encumbrance of material goods.
I think arguing about the spray at the top of the wave has little to do with the wave's size. Especially a wave that still has a while to go before actually hitting the beach.
And the pier jutting out over the water? Its supports are completely rotted out. Which is only a matter of opinion, as any expert can tell you, since no inspections have been performed since ca. 2001.
The newly-respectable (no-flip) subprime and
alt-a applicants were likely to view a mortgage
officer at the bank as being a fiduciary (though
they didn't know what that word meant, nor that
bankers were not actual fiduciaries under law).
The bank would not approve bad loans; right ?
Little did they know that the scam-o-rama called
mortgage-backed securities was in full swing,
with lenders knowingly approving zillions of high-risk loans as they evaded the usual risk. Lenders were
the 'professionals' in these transactions; and they
were far more culpable than their willing prey.
I think this indicates that the problems only have begun. People will try to keep their homes until the very end. And when that happens, it will be no end to the crisis.
If you owe more than the market value,
but you must sell to take that scarce
manufacturing job, then you will need
a bag of cash for the closing session.
If you need to borrow another 50k
to pay 75k at closing, then 'walking'
(or a deed-in-lieu) could be a
serious temptation.
Walkaways are real! My neighbor who lived at 1226 Wild hawthorn way in Reston, Virginia walked away. The negAm loan jumped to 4k a month and he walked away in December, 2006. One of the early walkaways.
if people indeed walk away despite all of the emotional attachments to their bellowed castles, it spells only one conclusion - "Hello Japanese type recession."
I say it's too early for massive walkaways, however those might be on horizon.
In the last down cycle (1990s) many people were underwater, and many walked away. People who were underwater were locked into double digit mortgage rates (unless they had ARMs). As rates dropped many people refinanced to lower rates and payments, but those who were underwater could not refinance. So they paid high interest rates on mortgage balances that excedded the property value when a new buyer could buy for a lower price and a lower interest rate. A frustrating trap for so many people.
Frost.
On the pumpkin.
The best part of the Hitzik piece, I think, is that he cornered Wachovia and BoA, both of whose CEOs made these claims about walkaways in their investor calls, and neither outfit could cough up any data. The freakin' MBA guy said they'd read about it in the newspaper!
It's a big echo chamber. Kudos to Hitzik for spitting out the koolaid.
OT, but related to last night's banking issues:
Within the last two weeks, short-term CD rates have soared, at least from my occasional glances at Bankaholic.com. No earlier than the start of the month the best rate was 3.60% at GMAC with a six-month deposit.
Today? 4.80% at Countrywide Bank. 4.50% at Indymac. 4.30% at Everbank. That's over a 100 basis points in fourteen days.
Anyone know what's going on? I know that these are some of the worst names in banking (Everbank excepted, I'm not familiar with them), but why this skyrocketing all of a sudden?
That is, over a 100 basis point RISE in fourteen days.
6 mos at 4.8 no way
[i]the notion that legions of borrowers are simply deciding not to pay is an "urban myth" that largely reflects the mortgage industry's desire to blame homeowners, rather than their lenders, for the surge in problem loans.[/i]
Worth seeing again.
the notion that legions of borrowers are simply deciding not to pay is an "urban myth" that largely reflects the mortgage industry's desire to blame homeowners, rather than their lenders, for the surge in problem loans.
Worth seeing again (and again, apparently - like CATS).
yep - this is just blame the ignorant borrower. It's time to burn Wall street!
Just to be contrary, which is my nature, this article doesn't provide any more hard data than articles that allege the 'walkaway' phenomenon is rampant.
There may very well be not enough data about this walk away phenomenon. It very well could be a myth but don't you guys think it makes an economic sense for a home owner who bought a house for $450K that is now selling for $300K with a possibility of it retracing the peak price in next 7-10 years, to forget about it and start all over it? I agree if some one is living in a house for last 5-6 years and it goes under water slightly, owner is probably well adjusted to the expenses and will not walk away. He may not even notice he is under water.
But what about all those millions of people who bought between 2005-07 who are under water big time? many of them are not yet accustomed to their new expenses. many of whom thought about their pay check to paycheck living a temproary thing..soon to pass away..partly because of their new richness to come from the home ownership.
I personally know 4 home owners in Sacramento area who will walk away in near future...some have stopped paying the mortgage already and want to prolong the process to live for free. 1 family had a death in the family, another large loss in small business, 2 others working/earning and can afford the payment but feel stupid to live in a house they bought for $450K that their neighor bought last month for $290K. They need a very small economic push to walk away..already contemplating about it.
OT,
Tanta,
I wanted to thank you: Re: OK, you get a rainbow sticker for defining projection. Those of us who have never heard the term used in a sentence before are, I'm sure, grateful to you."
This is the second sticker this year for me, so just wanted to say upon reflection how nice my day has been and how this gives new meaning to who I am.
The freakin' MBA guy said they'd read about it in the newspaper!
wow, the swear jar is starting to work!
aClem writes:
Just to be contrary, which is my nature, this article doesn't provide any more hard data than articles that allege the 'walkaway' phenomenon is rampant.
aClem | 05.10.08 - 3:07 pm | #
I was looking about for something about proving a negative... but I just can't find it right now.
On second thought, it might just be Bankaholic's site acting wonky; I tried looking into the Countrywide and Indymac CDs and didn't find anything like the rates bankaholic suggested.
Weird.
There are known knowns, those are things we know we know. Then there are known unknowns, which are the things we know we don't know. But then there are unknown unknowns, which are the things we don't know we don't know.
That might be what you're looking for Dry
dryfly said: "I was looking about for something about proving a negative"
We think alike.
I feel sorry for you!
Bancaholic may be suffering from Depositum Tremens
This blog:
http://bubbletracking.blogspot.com/
has a relevant post today that may indicate that government efforts could actually increase the likelyhood of walkaways in some form.
I know that I would try hard as hell to prove I couldn't or wouldn't pay to get someone to write down my mortgage by 400K. I might even start a service to help others do it for a nominal fee (instead of "youwalkaway"...I'd call it "getthefedtopay")
In any case...with all the news coverage and the easy access to sites like Zillow, more than ever before will walkaway. Whether that's alot, who knows...but it will definately be more than any past "models" accounted for.
I personally don't have a problem with it...Bernanke is essentially encouraging the lenders to do a "walkaway in place" through principle reduction. I find it a shame that if average joe who bought what he could afford and pays too much for too little because he can and is morally responsible may not get a mortgage reduction gift from the Fed while mr. speculator gets a gift and soon both have the same mortgage by speculator has a few thousand more square feet in his mcmansion.
The LA times and the NY times, huh? The lenders should have kept up their newspaper ad buys.
I am sure Marianne Sullivan considered blogs like yours, Ben`s, Patrick, etc, "folklore" a few years ago. These are the same idiots for whom 40-50% annual price increase was considered normal. So I guess it would also be normal for homeowners to live in half built hoods, next to bug infested pools or drug houses etc, etc, just to be the proud owners of overpriced POS. Why would they walk away?
six percent solution writes:
The LA times and the NY times, huh? The lenders should have kept up their newspaper ad buys.
six percent solution | 05.10.08 - 3:36 pm | #
LOL! Best entry of the day...
wow, the swear jar is starting to work!
Don't fucking push it, OK?
What I like is that the whole "Walk-Away" mania accurately describes investor behavior.
Banks just seem to hate it when folks play by their rules. A lot of small investors right now are attempting to play the BofA/CFC merger the same way.
Now when Bofa renegotiates due to deterioration in the CFC portfolio, all of the small investors should take note and demand the same in their business investments. And homeowners should ask that the Feds give them at least as good of a bailout as the Tan man is getting.
Someday this war's gonna end...
Sauce for the goose is sauce for the gander.
Don't fucking push it, OK?
ok, fine, i'll leave your buttons alone. anyway, i believe i owe you a gold star for the Let's Talk About Walking Away piece, so gold star for Tanta!
When realtors start getting good at, and rich from moving all these forclosures....they'll start encouraging walkaways just to keep the good times rolling.
Kudos to Hitzik for spitting out the koolaid.
Kudos to you too, Tanta, for taking this up and not letting it go.
Altho it will be nice to let it go at last, and get back to other fun subjects such as whether money markets are FDIC insured...
Roubini really needs to update his walk away figures
Considering that 50 percent of homeowners underwater would walk away is stupid.
To: dryfly re: dryfly | 05.10.08 - 3:22 pm |cannot prove a negative
Does "absence of evidence is not evidence of absence" help?
To date, I am now personally aware of four homeowners who have decided to walk away...AFTER the replacement home was secured. One in Camarillo, one in Pasadena, two in Whittier...
The only possible conclusion that one can draw from this entire event is this: The bankers, lenders, realtors, mortgage brokers, and the members of the securitization industry are irredeemably corrupt. Their spokespeople (CEO's et al) are pathological liars. The lowly office workers in these industries were perhaps ignorant of the ramifications of their work, but nonetheless are complicit in the corruption. The speculators were in league with the realtors and mortgage brokers (indeed were they one in the same?).
All this corruption has injured many innocent homeowners whose own financial illiteracy has been exposed as a fatal flaw.
What to do? Nothing. Let it all play out. The only taxpayer funded activities I support are the demolition of vacant properties.
It's all just shameful.
To date, I am now personally aware of four homeowners who have decided to walk away...AFTER the replacement home was secured. One in Camarillo, one in Pasadena, two in Whittier...
I hope you won't take this personally, but I am personally aware of substantially more than four different people who make shit up on the internet.
How could we possibly tell you apart from them?
I am the King of Spain!
Hey nobody.....even if you're telling us the truth, how do you know that the "people" didn't lie to you?
For Ipodius
Some have been saying there's money out there to invest. If there wasnt, where is all the money that buys these deals from companies issuing stock coming from?
The real answer is it's being manufactured by hedge funds.
The hedge fund industry is going through a correction for sure. Those that dont run the risk properly have been paying the price. But there are really good ones, those that do run risk properly and are growing in capital and access to leverage.
Lets take a recent deal like Fannie Mae (FNM). Hedge funds know the company needs to raise capital and is thus willing to pay an egregious cost to get it done. When the broker-dealer comes to call for FNM it's with a derivative structure called a mandatory. It's a little more complicated than this, but essentially the mandatory is stock (convertible into) paying a very high dividend. The hedge fund is able to buy this derivative at a price yielding much more than the common stock, which it then shorts in the open market as an almost perfect hedge.They get a great return for very little risk. This is all at the expense of the current diluted common stock shareholders. Hedge funds borrow the money to do this. This is the one area where credit creation is being accomplished: the hedge fund is willing to borrow because of the great return and the broker-dealer is willing (and able) to lend because of the great collateral (no risk).
One gets the feeling that the powers are getting stock prices up so companies can raise capital by selling stock to hedge funds who sell it to the general public first.
Fannie Mae Gets Married
is it possible that the SISA and NINA loans are confusing the issue of the "intentional walkaway" problem?
I imagine there's a few loans out there that are theoretically at 3x income... but the income is stated.
thus, when the person walks, the bank may say "hey, they can afford this".
but in reality they have nowhere near that stated income, so they really are being forced to walkaway...
just a thought.
Would it be out of line to posit that walkaway is one of the things that made America great?
Back in the day (and that would before your grandfather was born but after Cicero famously complained that modern people have no shame), debtors were locked up. Then the dirty liberal reformers got hold of the levers of power and debtors were 'only' stuck in stocks in the public square to be jeered at and pelted with rotten fruit. More recently, it was decided that allowing people not to pay, even if there was a possibility that their future earnings might one day make their creditors whole, was better for the economy than effective indentured servitude.
When we criticize "inflexible European labor laws," prohibitive break fees, golden parachutes, punitive bankruptcy laws, non-compete clauses and the like (and I do even if you don't), we're criticizing sanctions on walkaway behavior.
Holding the weaker party to a ruinously bad bargain when circumstances have changed drastically and in a way not contemplated by either party can lead to bad outcomes. There can be few second acts in lives marred by crippling, long term unproductive debt servicing. And who will foot the bill for their penurious dotage?
Just sayin'...
More recently, it was decided that allowing people not to pay, even if there was a possibility that their future earnings might one day make their creditors whole, was better for the economy than effective indentured servitude.
Uh, you will find fewer more consistent defenders of bankruptcy as an economic necessity than I.
But our BK laws do not, actually, "allow" people to "just walk away" from debt. They never have. You do gotta go to court. You do gotta tell it to the judge. The creditors do gotta get their chance to tell their side of it. You do gotta get a judge's order confirming your discharge.
I have no problems with folks in upside down mortgages declaring BK.
I have big problems with people just deciding to write their own contract and debt law on the fly. It's a problem when corporations do it and it's a problem when individuals do it.
Oh great! So it's contained again? Look - a great deal more AltA and OptionARM borrowers had assets and were further up the socioeconomic scale than subprime borrowers. The loans were bigger. They will be a lot more pragmatic about the economics of struggling to stay in a deeply underwater home.
These skeptical articles will be signposts on the way to mass walkaways - just like the 2007 claims... it's contained to such-and-such was. Comical. I'm certain of it.
Just sayin'...
Ralph Cramdown | 05.10.08 - 4:47 pm | #
That's been kinda the point all along - whether the foreclosure is a walk-away or a throw-out does it matter? Where was the underwriting that allowed or forced (depending on your personal myth preference) people to do this?
Loans should never have been written where there was a likelihood based on sound actuarial process that the collective loan pool collateral would be insufficient to cover the collective risk of probable foreclosures in that pool.
That analysis didn't happen.
Now we have all kinds of fairy tales telling us why - like people have no morals anymore or relitters are greedy or the FED was too loose WHATEVER - but fact is there wasn't rigorous loan underwriting and now there are a lot of foreclosures & resultant loses.
Whoocoodanode.
But our BK laws do not, actually, "allow" people to "just walk away" from debt. They never have. You do gotta go to court. You do gotta tell it to the judge. The creditors do gotta get their chance to tell their side of it. You do gotta get a judge's order confirming your discharge.
Besides in many parts of the country its still the social equivalent of having the community throw rotten fruit at you...
I suspect I'm belatedly stumbling into the obvious, but here goes:
you owe $200,000 on a house. Similar houses could be bought now for $150,000.
If you could stop payments on your current house with no ill-effects and buy the similar house, you're $50,000 better off.
In the real world, most people don't have the $150,000. The choice is keep paying on your current overpriced house or renting.
A big wild card with renting is what's going to happen to rents in the next few years. Different people have made predictions with great confidence, but nobody really knows, and this is a crucial issue for a hypothetical ruthless borrower.
This is the second sticker this year for me, so just wanted to say upon reflection how nice my day has been and how this gives new meaning to who I am.
doc blitzen
Who you are for the next twenty minutes before you change your online name?
Maybe if you spent more time absorbing knowledge by keeping your eyes and ears open and your fingers away from the keyboard you'd learn something beyond a cursory google search.
Your "writing" sticks out like a turd in a punch bowl: cut and pasted text followed up by unintelligble points, the stink you possess comes off the page like a frightened skunk.
Jingle Mail? California's always ahead of the curve when it comes to trends.
"you owe $200,000 on a house. Similar houses could be bought now for $150,000"
You need to make it over to CA. The numbers are a tad bit higher, only the income levels are roughly the same as you might find in flyoverland.
Try "you owe $950,000 and you can buy a similar home for $500,000 (still more than 8you* can afford*. You make $70K/yr".
Now think, "What is this you gonna do?"
A big wild card with renting is what's going to happen to rents in the next few years. Different people have made predictions with great confidence, but nobody really knows, and this is a crucial issue for a hypothetical ruthless borrower.
Billy Hill | 05.10.08 - 5:10 pm | #
Plus renting isn't always cheaper... For something like a third to half the country (WAG) renting is still more expensive than owning... That is IF you plan to stay in the home longer than about 5-7 years (closing costs & such). That BTW doesn't include HPA... just the difference in costs. There hasn't been a lotta HPA in much of the US.
In my little town rentals pay off in something like 10 years IF the landlord does the sweat equity to keep them maintained (if he has to pay somebody to do it I'm not sure he ever gets ahead). But prices & rents are so low you would have to own six or eight homes or a couple 2-3 fourplexes to make a living from it. Its tough work & there are easier ways to make money.
You would have to be on drugs to VOLUNTARILY walk away in my town - plenty of folks are getting 'thrown out' however. We always did do things the old fashioned way though.
The bankers, lenders, realtors, mortgage brokers, and the members of the securitization industry are irredeemably corrupt.
Well, I think we need to differentiate here. Brokers and realtors are always pushing to get a deal done. For them, no deal means no payday. Buyers and sellers also want to get the deal done.
IN the past, the banker/lender was the one in no hurry, the one taking the risk, the one who had every reason to ask the tough questions, set tough qualifications and so forth. If the deal fell through, there was always somebody else stepping up hoping to borrow the lender's money.
But when the lenders are in effect, lending other peoples' money, making their profits from fees per deal, their incentives are no different than those of realtors or brokers. They want to see how fast they can do deals.
That's what was different this time. That's what got us to where we are. Buyers and sellers of owner-occupied housing have always been unsophisticated. Realtors and brokers have always pushed to close deals. The banker/lender was supposed to provide the knowledge and the sanity.
It's also worth pointing out that a lot of these realtors and brokers were eating their own cooking, making speculative real estate purchases themselves. So many of the housing bubble "victims" that Tanta has found in the newspapers are real estate industry people who apparently believed their own hype as the bubble inflated.
Barely Try "you owe $950,000 and you can buy a similar home for $500,000 (still more than 8you* can afford*. You make $70K/yr".
Now think, "What is this you gonna do?"
There is no way such a person can pay the mortgage, so of course they will default. That is not a ruthless borrower - it's a broke borrower. At 6.5% an IO would cost $45,500. Then there's prop taxes and interest. Such a borrower is supposed to pay taxes on 70K income, pay about 48K in primary housing expense, and live off the balance of about 8-9K? It's friggin' impossible.
The "sea change" in borrower behavior is a myth. It was always the case that if you granted a mortgage to a borrower who didn't have the income to pay, the likely outcome was a default. It was always the case that if you let speculators and investors buy non-cashflowing homes with low dps, in a down market you would get tons of defaults.
The only way that people with 70K income could ever stay in their 700K homes for a time was to use funky mortgages and draw down on equity - but in the long run EVERY SINGLE ONE OF THEM WAS GOING TO DEFAULT. You can't keep adding to a mortgage you can't repay and make your mortgage more affordable.
Let's be honest about this - the only reason these loans were written was that it was expected that the price would increase enough to have the home sold before default. The banks just didn't expect to take losses on them. Now, because prices have dropped, they are.
Oh, sure, now these bankers are wandering around talking about fraud. Man, who could ever have guessed that stated apps might overstate the incomes? But it's all an exercise in plausible deniability, and it always was.
The only thing that has changed is that the borrowers now can't sell before default and cover their lender. That's it. The only thing.
Of course, the industry does not wish to admit this.
Proof of a negative?
Sounds like the argument from ignorance (argumentum ad ignorantiam) fallacy, that a proposition is true simply on the basis that it has not been proven false, but while I had heard of that before a couple of bounces around Wikipedia also turned up "negative proof" (doh!) viz "X is true because there is no proof that X is false," and my favorite, "Russell's (or the Celestial) Teapot," the fallacy that any burden of proof lies upon the skeptic simply because they have expressed doubt (this seems to be more typically asserted in religious debates and mockery of same; e.g., The Church of the Flying Spaghetti Monster AKA Pastafarianism).
Shorter version: If there is no source of data from which walk-aways can be distinguished from other forms of being evicted, foreclosed, what have you, then the greater error lies in asserting walk-aways are a growing phenomenon: It could be true but it remains a fact not in evidence, a claim without data, and the skeptic is under no obligation to disprove it.
This is kind of amusing in a sick way...
"Losing a Home, Then Losing All Out of Storage
ELK GROVE VILLAGE, Ill. The foreclosure crisis is hitting yet another American locale: the self-storage center.
Skip to next paragraph
Enlarge This Image
John Gress for The New York Times
Brook Snyder runs Blair Auctions operation in Chicago.
As they lose their homes, people are turning to these humble cinderblock and sheet-metal boxes to store their stuff. But some people cannot keep up with their storage bills any better than they could handle their mortgage payments, and storage companies are auctioning off their property for a pittance."
Losing a Home, Then Losing All In Self-Storage - NY Times
What's that giant sucking sound ?
The US real estate market going down and taking away the biggest bubble that kept the US financial engineered bullshit US economy artificially propped up !
Will someone find me one person who's paying a mortgage that's 50% underwater for more than 2 years? Just one!
...didn't think so
I don't know what you're looking at. But there's nothing much surprising about CD rates lately.
You need to watch Money-rates.com for CD rates. It's the best site on the Web for current rates, and they sometimes post rate updates even before you can get them directly from banks. They update daily.
Short-term rates are inching up. You can watch the historic trend in Treasuries here day-to-day:
U.S. Treasury - Daily Treasury Yield Curve
US Treasury for closing values daily
For example, 1-year Treasuries were at 1.52% on 4/11 and at 1.91% on 5/09.
Longer-term rates are moving up more as the curve steepens. For example, over the same interval, 5-year Treasuries have gone from 2.86% to 3.77%.
I don't see the CD rates you are quoting for 1-year. On Highest rates on bank Certificates of Deposit (CDs), Money Markets, Checking Accounts, and Savings Account rates | Money-rates.Com
it shows Indymac as the highest 1-year rate at 4.07%. You can get 4.40% with Countrywide by going out 3 years.
For a long time, most of the online CD rate competition has been at the one-year maturity. Corus was always #1 at one-year for a long time, but they've dropped out of the derby.
Now, the highest-yield 1-years are the weakest banks: Indymac, Countrywide, E-Loan, GMAC, etc. It's like the Who's Who of Problem Banks.
Banks pay the highest 1-year CD yields because: 1) it's the maturity where most online buyers shop, and there is some stickiness at the end of a year when CDs roll over; 2) these banks really need deposits; 3) they can't get cheaper assets any other way.
But above all, they pay these high rates (even if they will soon fold) because THE FDIC LETS THEM.
Where's Shiela when we really need her?
A long hot, bitter piss in Ronald Reagan's Face
Daily Kos: A long hot, bitter piss in Ronald Reagan's Face
A nice read !
Sorry, the quotes above are for 10-year Treasuries, not 5-year.
Now lets replace the 50% above with 40% and ask the same question - one person whose paying underwater for at least 2 years. Then replace with 30%, then 25%, then 20%, etc., until we find where people say NO MAS!
Anonymouse - Well, I'd say if you can't find anybody at 50% you're not going to find anybody at less than 50% so I don't quite see the point of your followup post...
On the other hand, if you'd said 60%, 70%, 80% underwater I could see what you were driving at, if not exactly your point.
The "suburban myth" of walking away will be an increasing trend in early 2009 as home prices continue to decline.
By the end of 2009 the government may step in to put an end to it with a HUGE bailout.
rich-
Do you think the CD rate increase is indicative of some sort of capital flight phenomenon?
You can only walkaway once... right? I think we're all of the opinion that home prices still have a lot of downward momentum. Hypothetical walkway's will do nothing to stop that momentum.... and the walkaway in 2008 could be unhappy with what they are paying in 2010.
The Los Angeles Times' Michael Hiltzik is exactly right when he says he doesn't see people walking away. Nobody walks in L.A.
Anonymouse writes:
Will someone find me one person who's paying a mortgage that's 50% underwater for more than 2 years? Just one!
Show me one that didn't? Just one - factual, proven out, documented 50% underwater walk-away? Just one...
This is so silly - really. Reminds me of the gig...
'YOU'RE FIRED!'
'YOU CAN'T FIRE ME 'CAUSE I QUIT!'
'YOU CAN'T QUIT 'CAUSE I FIRED YOU FIRST!'
Replace 'FIRED' with 'FORECLOSED' and 'QUIT' with 'WALK AWAY'...
MOM, they can always refinance with an FHASecure loan. The fact that they wont be able to make the payments doesnt realy matter, as long as the loan is "secure". How do you like my logic? L.O.L.
Broker - from the POV of shoptalk, it's very enjoyably funny. As a taxpayer, it hurts like hell.
Still beating this dead horse?
Oh great! So it's contained again?
It was always contained to the speculators and really mariginal subprime folks. It's time to acknowldge this.
I'm sorry if some folks used their HELOC to live beyond their means. To Heck with them. They deserve their fate. Otherwise, the VAST MAJORITY of folks are just fine thanks.
Recession? What recession? I'm gonna buy a new car. I just got a promotion and my job looks secure for the next few years.
I'm so glad I rent.
Anonymouse Will someone find me one person who's paying a mortgage that's 50% underwater for more than 2 years? Just one!
FWIW, I personally knew several way back when in the 80s. From Texas. Housing dropped 40-50% almost across the board in some areas, and every one of them continued to pay the mortgages until they could unload. One took a loss of almost 60% to do so.
In the 80s I was working in the NE for the US arm of a big multi-national IT consulting firm, and some of the people I worked with had left Texas to get jobs, since the economy was hurting so badly. They kept the houses and rented them out. But they could afford to do so while renting in the NE, and eventually most of them unloaded the homes at a loss and bought new ones in the NE.
I also have more recent data in some communities in rural GA that had main employers close in the late 90s. Same thing. But the mortgages were affordable in the first place.
I'll tell you some differences that will jack default rates much higher now. First, lower downpayments. Second, much higher DTIs. Third, much greater mortgage/rent disparities.
With rents in most areas now being so much lower than mortgage payments, the same escape valve is not there. If you have to choose between eating, keeping the lights on, getting to a job, a job, or medical care and your mortgage, you do not choose the mortgage.
I swear to you that I am not lying when I tell you that what is different today is bad underwriting criteria. The underwriting criteria created the bubble and now are collapsing it.
While nationwide price drops of the current magnitude are unprecedented in the modern area, localized drops of this magnitude are not. All the history shows us that when mortgages were written more discriminatingly, most people continued to pay as long as they could.
FWIW, the default rates produced by neg-am mortgages in the 80s were higher than the default rates in collapsed price areas. Well, the neg-ams were written at very high DTIs. When interest rates came down, a lot of people could buy and prices rose, but a considerable cohort of the neg-am buyers had too much debt and couldn't keep the home.
It's not being underwater that causes defaults. It's being underwater and in financial difficulties. Well, a lot of the mortgages in the areas which are seeing sharp price declines were granted with no/low doc apps and very high real DTIs. These mortgages were in trouble when they were written in terms of the borrower capacity to repay - the only thing shielding the creditors were the price increases.
.
Guys,
My 23 old daughter recently graduated from college and is relocating to Wenatchee, WA.
Wenatchee, WA was NO exactly the epic center of the sub prime mortage crisis but it appears even there is being effect as a builder is hold an auction later this month.
What would be your comments on this 9 house that go to auction May 30th.
Northwest Auctions - Setting the standard for real estate auctions
I am thinkin' she may just be in the opportunity of a life time for getting a house at resonable price.
As for financing, which I am sure you will say is a problem for a recent graduate without a job I could hold the mortage if push came to shove.
Your comments are appreciated, thanks in advance.
SeattleSun
.
MOM, I am afraid we havent seen anything yet. When you create monsters like Fannie, FHA, etc, sooner or later they are going to eat you alive. Thats the way it goes. It worked OK for the banks for a while though. It always does. For a while.
Paul | 05.10.08 - 7:20 pm | #
Paul,
Heard it from a lady at work. Been payin the mortgage for the last year with a heloc. Husband is in RE. Borrowed waaaaaaaaaaay to much. Sad thing is she has a good job and would most likely be fine without all the leverage.
I have mentioned it before,you are not the only one looking to spend...
Chris
Re: Analysis: Good economic news something of a mirage
Expired
When you look closely, "you do see some dark economic clouds in the silver linings," said Mark Zandi, chief economist at Moody's Economy.com. "The darkness is much greater than any sunshine."
Re: Don't fucking push it, OK?
Tanta | 05.10.08 - 3:40 pm
That almost deserves a trip to your tip tip jar!
CR4RE
Thank you for thinking of us!
Tanta and I sincerely appreciate the thought.
To mail a tip:
CR4RE, LLC
2967 Michelson Dr., Suite G212
Irvine, CA 92612
Please make check payable to CR4RE,LLC.
FYI, did you know you can now see where CR and Tanat slave away?
Google Maps
Type in address @ google maps for photo: 2967 Michelson Dr., Suite G212
Irvine, CA 92612
I think I see them on the roof?
I am thinkin' she may just be in the opportunity of a life time for getting a house at resonable price.
Seattle Sun - opportunities of a lifetime come around almost everyday, we just don't always recognize them. As they say in baseball 'sometimes the best deals are the ones that don't get done'.
So unless she KNOWS she is going to stay in that area for a long time and not do something like go back to school or relocate or get married and have a big brood or maybe lose her job, etc., then I'd suggest she continue renting & save & see how this work thing suits her.
BTW I got kids the same age, same situation & ask them... you really want to be 'house poor'? Wouldn't it be nice to be young, have some cash and not be tied down just yet?
Bounce that one off her...
Psssst- BaconDreamz
About the profanity fund container,...I got a one gallon glass pickle jar,.. or a five gallon bucket if you think that'll help.
OT: AIG Agony : More from Gaffen..."Beware of companies that find new ways to value assets while they're sinking...Where have we heard this story before? A company loses a bundle of money due to depressed values for its assets, and it says those valuations don't really count...During the conference call, Steven Bensinger...noted that the $19.3 billion unrealized loss estimate in one of its pools of [CDOs] doesn't jibe with their analysis, which should suggest a loss of $1.2 billion to $2.4 billion...Naturally, the estimate to be ignored is the one based on accounting principles, as the company says that 'during the first quarter of 2008 AIG developed a new methodology to estimate more precisely its potential realized losses from this portfolio.' Naturally, this new methodology 'lowers' the 'potential realized losses.'For financial institutions, it seems lower housing valuations (as determined by a market) are enough to alter lines of credit, raise certain interest rates or change insurance and loan terms. But market-based analyses of their own portfolios? Obviously hogwash. "
OT -- how long will the downturn last?
The down leg could run until 2013, and 'normal' may not return until 2025.
Last depression
Boom: '22-'29, household debt/GDP: 45%->53%
Bust: '29-'33; household debt fell 6% per year, GDP fell 12% per year, ratio of household debt/GDP grows by ~140% in four years
Recovery: '33-'39; household debt remained flat, GDP grew 10% per year, it takes until '39 for household debt/GDP to fall to normal level of 48%
This depression
Boom: '80-'07, household debt/GDP: 46%->94%
Bust: '08-'13, household debt falls by 6% per year, GDP falls by 12% per year, ratio of household debt/GDP grows to ~140% in six years
Recovery: '14-'25; household debt remains flat, GDP grows by 10%, it takes until 2025 to reach normal level of household debt/GDP of 45-46%
17 years in total: six years of downward movement and 11 years of recovery until we reach normal levels of household debt/GDP.
Lots of scrimping and saving to payoff debt or replenish vanished savings (i.e., written off debt) over those 17 years.
Learn to be thrifty, folks, 'cause you will be using that skillset for a long time, potentially.
OT -- how long will the downturn last?
There is no downturn for folks who didn't gorge themselves on debt.
Stop sending good jobs to China and India and this downturn ends in short order.
Seattle Sun-Opportunity yes, problems, maybe. My business partner said that there was some kind of article on 25 problems to avoid at house auctions. The big ones are as you might guess, paying too much, and getting in over your head with repairs. If the consensus of this blog is any indication, there will be plenty more chances coming up in the next couple yearsttrft6tt. If you're still interested, try to find that list and have her go to a couple before she buys. There's a lot of hidden complications in real estate auctions, they're not like any other.
Walkaways are NOT a myth. Anyone claiming they are because (s)he didn't find proof from news reports or lenders is showing extreme naivety.
Most mortgage borrowers could easily file for bankruptcy soon after closing. They don't though because of a very strong desire to live in their new home and/or benefit from an appreciating asset. Over time some event will hit that removes these incentives for a portion of ho'moaners.
Some folks couldn't afford payments before/after resets or due to life changing events. Even excluding this group, there are still lots of defaulters who have very good salaries and can still afford payments even on resets. After one's property value falls by a certain amount, it doesn't make good business sense to stay. So, they walkaway and often by feigning some other excuse. Most aren't stupid to tell the media the truth because they don't want to be ostracized in their community or face scrutiny from the government. They often tell family and close friends the real truth though. Most lenders aren't stupid to provide hard statistics on walkways to the media or public because it would encourage far more struggling and also non-struggling borrowers to do the same thing.
Broker - I was just suckin' my thumb while I was reading MGIC's June 1st MI guidelines. They still haven't got down to where they need to be, but it is surely bad news for Barney Frank. MGIC is not exactly french-kissing the jumbos and it seems for some reason to have formed an aversion to DAPs, federal judges notwithstanding. When will be learn that kind thoughts and lofty principles do not pay mortgages?
I have read about half FNMA's last filing; I have to stop frequently to laugh. Their plan is to sell shares, leverage up even further, and make up for their losses on volume while making the books look better by using the new forgiving accounting procedures so beloved of GS. This is going to be quite expensive about 2012. I am sure we will all enjoy the bill for bailing out the GSEs while we have to start taking SS and Medicare draws quite seriously. There is nothing like structuring all your balloon loan payments to come due at the same time.
It's not as if Fannie's big boost in 07 isn't going to turn out as badly as many other vintages. For about 10 months everyone was shoving all the crap their way. Their guarantees are frightening and the credit losses are rising at a terrific rate.
Sticking Fannie, Freddie and FHA with the fallout is not going to be cheap.
Mike - there are like 12 people in the situation you describe. Enough already.
In God we trust - all other bring data. Show me the data!
Speculators who own 3 houses walk away not owner occupied folks.
I see no evidence from the article that 'walking away' is not happening. I saw non-supported quotes from a FNMA spokesman and from a non-profit workout director, both of whom have a vested interest in disputing 'walking away.'
C'mon, CR and Tanta, show me some data, like you do on everything else.
The data that we do see is skyrocketing defaults and foreclosures, correct? How do you tease out, objectively, how many are 'required' versus 'optional' defaults and foreclosures? It would take a difficult and expensive independent analysis of the defaulter's finances, and an interview/polygraph would be requisite, too, I think.
Most aren't stupid to tell the media the truth because they don't want to be ostracized in their community or face scrutiny from the government.
Yup. As a reporter, I don't have any good ways of finding large numbers of distressed homeowner/borrowers who want to talk to me. I have gotten lists of homes in foreclosure and have spent some time dialing up the owners, and so far the conversations are always very short.
The people who agree to tell their stories for publication are the tiniest imaginable sample of what's going on--weird anecdotes, not data. Generalizing from those published anecdotes would be dubious.
I don't think we'll ever answer the question about "walk-aways" definitively, there is just too much grey in each individual case to state for certainty "why" someone is in default. Some delinquent borrowers might have been able to hang on a bit longer, and others really were at the end of their rope.
But this whole debate is pretty useless. The vast majority of foreclosures result from borrowers with negative equity who ran into some sort of financial difficulty. It's negative equity that drives foreclosure rates, not the general willingness (or not) to "walk-away".
Thus, the core problem we face today is that increasing numbers of home-owners are under water leaving them no cushion to work things out when they run into financial trouble. The longer people remain under-water the greater the odds they will eventually default (i.e. they could lose a job, get divorced, etc).
dryfly writes:
I am thinkin' she may just be in the opportunity of a life time for getting a house at resonable price.
Seattle Sun - opportunities of a lifetime come around almost everyday, we just don't always recognize them. As they say in baseball 'sometimes the best deals are the ones that don't get done'.
So unless she KNOWS she is going to stay in that area for a long time and not do something like go back to school or relocate or get married and have a big brood or maybe lose her job, etc., then I'd suggest she continue renting & save & see how this work thing suits her.
BTW I got kids the same age, same situation & ask them... you really want to be 'house poor'? Wouldn't it be nice to be young, have some cash and not be tied down just yet?
Bounce that one off her...
dryfly,
This one is very "mature" and is relocating to be with the long time boyfriend. I mean this one was "17 going on 29" when she was in high school.
I guess what I was looking for with my post is what do you guys think would be a resonable bid on these 9 all new houses? $100 sqft? Does anybody know the construction costs in small town Washington State?
She will be going to the open houses and the auction if for nothing else but an "education" on real estate.
SS
jg- any 400K La Jolla places yet? How low have they gone?
The walkaway phenomenon generates a lot of heat, but as Maxed Out Mom suggests, it doesn't amount to a hill of beans. The lenders have bad loans, bad collateral, bad borrowers. None of it would matter if they could sell for a decent price. The reason they end up with a non performing asset hardly matters to the numbers on the balance sheet and those are data we'll be looking at.
he walkaway phenomenon generates a lot of heat, but as Maxed Out Mom suggests, it doesn't amount to a hill of beans. The lenders have bad loans, bad collateral, bad borrowers. None of it would matter if they could sell for a decent price. The reason they end up with a non performing asset hardly matters to the numbers on the balance sheet and those are data we'll be looking at.
Nuff said.
.
Let me try this and take the daughter/father, etc out of the question.
ATTENTION REAL ESTATE PROFESSIONALS
What do you think would be a fair bid on one of these 9 auction houses that a builder is auctioning off in Wenatchee, WA
Northwest Auctions - Builder Liquidation
I am thinking $/sq ft.
This is an excellent web site and each new house has a "vitural tour" feature.
TIA
SS
.
SS- go only 11k over the starting bid- you should be able to pick up distressed for $90 a sq ft. HOA? Those taxes ain't cheap and will go up, this is a distressed sale.
Teach her to wait. If she can't qualify, then she shouldn't buy.
Not saying downpayment help, but she needs to understand how much a house ties her down, especially in a crap rural market.
Gas prices are going to trash rural real estate big time. It took until the early 90s for it to recover from the debacle of the 70s here in the west.
Think long and hard about it.
Someday this war's gonna end...
"I guess what I was looking for with my post is what do you guys think would be a resonable bid on these 9 all new houses? $100 sqft? Does anybody know the construction costs in small town Washington State?
SS
SeattleSun | 05.10.08 - 8:29 pm | #
Don't know about costs in Washington State but Florida was way up there in cost just for run of the mill stuff. Think 125-175.00/sqft. Right now you can pick up 2k sqft homes for less than 100k brand new. Like dryfly said. Why not wait 1 year? Prices will not magically shoot up and will most likely continue to fall...
Chris
Was at a conference last week and during the lunch break a person from Santa Fe mentioned that he was going to "walk away" from a home he purchased in 2004. Claimed that the mortgage and related cost had become more then he could afford. He also said the servicer wanted large fee's to extend or do any type of work out.
AllenM & Cobra Driver,
Now were getting somewhere.
Wenatctee is a small town agriculture area and the nickname is "Apple Capitial of the World". Of course AG is booming right now. About the coolest thing I saw was their 2 cents a kilowatt elecrical rates due to the Rocky Reach Dam just above the city. Note: every thing is electric including the home heat! I was checking into elecric cars!
Wenatchee, Washington - Wikipedia, the free encyclopedia
Cobra Driver,
This is the kind of Cobra I used to driver
AH-1R test firing a Hellfire missile
Is that what you drive? Or are you referring to the 4 wheel type.
SS
I have seen a homeowner voluntarily default (July 2007)on 2 $99k homequity loans (E-loan, National City) and have a primary of $540K with national City.
About six months ago they leased a new $40k vehicle. wonder how they got approval for the lease???
This economy is am basketcase levered with wantabee homedebtors. bring on tough time. I am prepared and saved!
The vast majority of foreclosures result from borrowers with negative equity who ran into some sort of financial difficulty.
I'm sorry, Sniglet. How is it that you know this?
For those of us who don't live in Arizona, California, or Florida this "crisis" is irrelevant. Wake us up when you are done whining. Sorry - really though - deal with it.
This is a little scary but found it reading the Wikipida write up.
So things did get crazy in the land of apples!
According to CNN's Money Magazine, Wenatchee has the second fastest forecasted real estate value growth for June 2006June 2007 in the country.
Tell her to get into a rental.
Ag towns are big time boom and bust outfits. If you lived in Seattle long enough, you should have seen what happens when Boeing lays off.
She really wants a deal- go to Vegas- they are dying big time there.
Paul- just wait, you'll soon get yours, most likely in your tax bill.
Someday this war's gonna end...
.
AllenM writes:
Tell her to get into a rental.
Ag towns are big time boom and bust outfits. If you lived in Seattle long enough, you should have seen what happens when Boeing lays off.
She really wants a deal- go to Vegas- they are dying big time there.
We spent the last year in Las Vegas "Bring Down the House" but she didn't like the city/people. Want to go "small town" America. Maybe she is smart in that respect.
She is mostly shopping for a rental but these "new build", did any of you guys actually look at the houses on the web site, just popped up.
I mean how many new build auction house will there be? Do you really think the builders will just keep building house they can't sell?
SS
.
SeattleSun | 05.10.08 - 9:01 pm | #
You are my hero!!
I only worked on recon cameras for VMFP-3(RF-4B). My brother is the family pilot currenly flying Long Rangers(206) in the GOM.
But yes,I have a Cobra kit I built 9 years ago. But you could say I am huge fan of both. Esp the new Zulu Marine Corp version and Osprey and 53 and...O.K. anything that flies!!!
Chris
I look at the builders 'cause I am short one (RYL) heavily. I see that they are cutting back rapidly, with spec houses being moved for whatever it takes.
They are dying fast, with several major national ones on the brink and most likely to go under this tear. Ryl will take a while longer, but they still have over book stock price, hence more air. IMHO.
As I pointed out, she may not like small town life, and what happens when the money that is driving the community starts drying up. What does she do for a living? Is it really that stable? Or would she be happier being able to pull up stakes and move to where the grass is greener.
It is far easier to move when one is young, rather than when you have put down roots.
I advocate for folks in their twenties to own nothing more than a car. Turn 30 get a real job, get married, then have kids and a house.
IMHO>
Someday this war's gonna end...
SS wants her to buy and also wants everyone's blessing.
Paul, c'mon, this downturn is clearly affecting places that did NOT have crazy run ups in home prices: TN is cutting 5% of its state workforce, a city in AL is about to undertake the largest municipal BK in history, yesterday there was a bank closing in AK.
The U.S. is one big marketplace. Glad that you do not have debt (neither do I). But, I fully expect to lose my job as venture capital dries up nationwide. Trouble may come to your neck of the woods, too (unless you live next to Seb).
sdtfs, I just log the monthly median home price in La Jolla, and do not look at individual homes. I will give my wife a blank check for a home in three-to-five years, but just work, sail, and tend the kids and garden during the interim.
There goes the bears' dream of mass-defaults by walk-aways. You got to give credit to the borrowers for faithfully meeting their obligations even in adveristy. Well, it's America after all.
O-Joe
hdude writes:
SS wants her to buy and also wants everyone's blessing.
hdude | 05.10.08 - 9:50 pm | #
Ooops, my bad - ya tell her to buy. Pay whatever it takes.
And ya I know nothing about small town boom bust - having lived almost all my life in the Midwest through $1 corn and $6 corn. Makes no difference, real estate only goes up and there are SO many buyers in rural towns they should have no problem unloading if it isn't an exactly perfect situation. We have after all hit bottom.
Did I miss anything?
but fact is there wasn't rigorous loan underwriting and now there are a lot of foreclosures & resultant loses.
etc.
I may be misguided, but in my mind there is a step before the bad loan underwriting, and that is when the entity writing the loans no longer had to take responsibility for them. Selling the mortgages, I think, is what severed the chain of common sense.
this downturn is clearly affecting places that did NOT have crazy run ups in home prices
Sorry - I don't agree. People who live on the edge of solvency are always going suffer whenever there is a "downturn". This is not a catastrophe, just unfortunate given our lack of a real safety net.
I just don't see any widespread pain beyond those who were screwed up with unsupportable debt anyway. Mabye I'm wrong, but this "recession" does not strike me as anything but a necessary adustment of asset (housing) prices.
My 401(k) is actually close to even for the year. How is that possible given this financial calamity?
Paul- just wait, you'll soon get yours, most likely in your tax bill.
I just got my $600 rebate. So where is the pain?
Claimed that the mortgage and related cost had become more then he could afford.
That's not a walk-away... that dude doesn't have the option. That's the whole point... how many can REALLY afford to make the payments, are not absentee specs and still CHOOSE to walk away?
I know one just like you - unable to afford to carry the house & chose to beat the bank to the punch - but it wasn't a choice to walk away, they'd lose it fairly soon if they didn't walk. Their only choice was to act first...
I just don't see any widespread pain beyond those who were screwed up with unsupportable debt anyway. Mabye I'm wrong, but this "recession" does not strike me as anything but a necessary adustment of asset (housing) prices.
The verdict is still out on that one...
I live in farm country & places that move/process commodities or build the capital they use to move/process those commodities aren't just doing okay - they are BOOMING.
Same with aerospace. I was in Wichita - crazy like aerospace boom town. Was there four years prior and it was almost a ghost town.
But that isn't everyone everywhere by any means. The spill over could be quite severe - blow up enough assets & it takes the companies/jobs/output with it. Fed will try to backfill via low rates & funny money but will it be enough? We just don't know yet what the end result will be.
Aw, Paul, you are not only dumb, you are of low socioeconomic status; I got no rebate 'cause I earn too much.
I will quit associating with you.
Thanks jg. I love you too!
lol dryfly you are my hero.
I may be misguided, but in my mind there is a step before the bad loan underwriting, and that is when the entity writing the loans no longer had to take responsibility for them. Selling the mortgages, I think, is what severed the chain of common sense.
Outsider | 05.10.08 - 10:16 pm | #
Ya - the folks buying the MBS should have asked the tough questions before they bought since they were the ones with the ultimate skin in the game. They didn't. I doubt that will happen again - burn me once shame on you, burn me twice shame on me... or whatever it was Bush said.
OMG!
Stay on the wrong side of history...
Walk aways are for real investor and primary residence owner alike.
Between CR and Tanta you have see no evil and hear no evil. Mr Hiltzik just nominated himself as speak no evil.
Love it!
Tanta wrote:
It's a problem when corporations do it and it's a problem when individuals do it.
Comment:
Corporations will never stop walking away so why should anyone else?
Pual sounds like a guy whose neighbors are walking away in bunches and now the depreciating asset he owns has put him deep underwater and he's in a panic.
Chill Paul. Put your keys on the counter, tear up your deed and join the party!
I think that walkaways are a myth too. Everyone knows that the bank won't foreclose as long as there's a warm body in the house. Fogging a mirror got you the loan, now its free rent. The downside of being an "investor" is that you can't reside in every one of your proporties.
That storage article provides an interesting perspective for data - I assume that anyone who also loses their possessions because they can't afford storage fees can be removed from the rigorously defined CR 'walk-away' - because truly, such people did not make a considered financial decision when they walked out of their formerly mortgaged house into their newly chosen life without the encumbrance of material goods.
I think arguing about the spray at the top of the wave has little to do with the wave's size. Especially a wave that still has a while to go before actually hitting the beach.
And the pier jutting out over the water? Its supports are completely rotted out. Which is only a matter of opinion, as any expert can tell you, since no inspections have been performed since ca. 2001.
Walk away ? No.
Anger and assistance ? Yes.
The newly-respectable (no-flip) subprime and
alt-a applicants were likely to view a mortgage
officer at the bank as being a fiduciary (though
they didn't know what that word meant, nor that
bankers were not actual fiduciaries under law).
The bank would not approve bad loans; right ?
Little did they know that the scam-o-rama called
mortgage-backed securities was in full swing,
with lenders knowingly approving zillions of high-risk loans as they evaded the usual risk. Lenders were
the 'professionals' in these transactions; and they
were far more culpable than their willing prey.
Seattle Sun -
You wouldn't be trying to unload 9 unsellable spec houses in bumf&*! Washington would you?
I think this indicates that the problems only have begun. People will try to keep their homes until the very end. And when that happens, it will be no end to the crisis.
If you owe more than the market value,
but you must sell to take that scarce
manufacturing job, then you will need
a bag of cash for the closing session.
If you need to borrow another 50k
to pay 75k at closing, then 'walking'
(or a deed-in-lieu) could be a
serious temptation.
Walkaways are real! My neighbor who lived at 1226 Wild hawthorn way in Reston, Virginia walked away. The negAm loan jumped to 4k a month and he walked away in December, 2006. One of the early walkaways.
if people indeed walk away despite all of the emotional attachments to their bellowed castles, it spells only one conclusion - "Hello Japanese type recession."
I say it's too early for massive walkaways, however those might be on horizon.
In the last down cycle (1990s) many people were underwater, and many walked away. People who were underwater were locked into double digit mortgage rates (unless they had ARMs). As rates dropped many people refinanced to lower rates and payments, but those who were underwater could not refinance. So they paid high interest rates on mortgage balances that excedded the property value when a new buyer could buy for a lower price and a lower interest rate. A frustrating trap for so many people.
Just between yooz and me ...
Integrity is too scarce in our world.
I am all for standing by contracts
fairly executed, even if that leads
to major losses, or even bankruptcy.
Maybe a contract must be renounced,
but there is an imperative in reviving
those "twins" called honor and shame.
We owe it to those dead, disfigured,
or disabled from public service, and
to those born into the world we make.
'Pursuit of happiness' is a sad joke
compared to pursuit of validation.