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Sorry about the lack of hat tips, but if I'd listed everyone who sent me this article this morning, the acknowledgements would be longer than the post.
Bless you all.
Good morning Tanta
Good morning!
And what a happy day it is, in spite of cold rainy yukky weather here in the mid-Atlantic.
We now have an actual statistic to throw around regarding walk-aways! 0.14% of Freddie Mac defaults.
Some salespeople will seize upon any explanation, valid or not, that will generate sales commissions.
Classsic projection?
mornin' Tanta!
Whaat woulld I doo withoout yoou, baccon dreamzz?
good morning. It's grey in the Pacific Northwest, but that's to be expected.
Interesting that the guy finds the source of all the misinformation to be the 'blogsphere.' I sure don't know every nook and cranny of the blogsphere--who could?--but in the precincts I frequent I haven't noticed it as being any more (and probably less) common than in the mainstream media.
I think the mainstream media is trying to claim a raison d'etre in the quality of its fact gathering and its editorial discipline. That claim is pretty hard to support. But this guy could hardly use his own newspaper as an example of a source of unwarranted hysteria.
OT, hope this doesn't piss you off:
Cyclical' real estate market will improve, Realtors told
Page not found
One in 53 adults in California has a real estate license
linear algebra, I do think this is an article of faith in certain quarters of the blogosphere (I don't read it all every day, either).
Nonetheless, you're spot on about the papers. To be fair, Bajaj doesn't peddle bullshit the way some of his colleagues do, and I doubt any editor would let him write, "Why, my very own newspaper has published this kind of sensationalist thin gruel with one not very convincing anecdote as evidence."
Whaat woulld I doo withoout yoou, baccon dreamzz?
nodoby knows.
Another "sea-change"?
Full Fathom Five thy Father lies
(Ariels's song from The Tempest)
Full fathom five thy Father lies,
Of his bones are Corral made:
Those are pearls that were his eyes,
Nothing of him that doth fade,
But doth suffer a Sea-change
Into something rich & strange
Sea-Nymphs hourly ring his knell.
Harke now I heare them, ding-dong, bell.
I think of CR could play Prospero, Tanta as Miranda, we've got a plethora of attentant lords here and not a few Trinculo and Stephano candidates, everyone may choose their own Caliban, and Ariel, that airy sprite would be, of course, Bacon Dreamz.
Have these walk-away arguers never moved? The transaction costs of moving from one home to another can quickly add up to very large amounts - for undecorating, organizing, packing, transporting, unpacking, re-appointing etc. If your home costs $100K and it costs you $10K to move (or it costs $500K and you have to pay movers $50K to move you), that's quite a large drop in equity that you can ignore. If they just built transaction costs into their models, they would stop this meme.
If they'd built transaction costs into their models, they wouldn't have spent the last five years or so telling people that a 2/28 ARM "makes sense if you're only going to be in the house for two years."
It never makes sense to buy a house if you're only going to live in it two years, absent a price bubble that can turn on you pretty fast.
Oh, so that's where TS Eliot got his
pearl eyes thing.
It's sauna-like in Space Coast Florida.
At some point, I'm gonna have to retire because this 200 mile drive thing on weekends from Miami to Brevard will get to be too much.
Talked to a real estate/mtg broker yesterday. he said even the hard-equity lenders are getting really spooked.
After all, they are using their own money, or friend's money, so don't want to lose any. So, they are taking peak pricing, dividing in half to get what they thing is true value, and then lending only 65% of
that. He had a desperate borrower, who went thru 6 hard equity lenders, before he found a 7th, and even then
the borrower will have to bring 12 grand to the table.
In Miami. He feels like the mkt is dropping on a daily basis. The broker I used to direct people to didn't have a big stable of hard equity lenders, and is now selling cruises. And people are buying them!!
And all this for the privilege of paying 14% and at least 4 points.
It never makes sense to buy a house if you're only going to live in it two years, absent a price bubble that can turn on you pretty fast.
Tanta | 05.10.08 - 11:33 am | #
Full service hotels are cheaper - plus you save on shampoo.
Heeheehee.
And you can steal the towels.
In the early '90s in Southern Ca I knew a manager level CPA who owned a LA condo that was severly underwater. He said he could not walk away, even though it made sense finacially, because it would ruin his reputation. I think some of the psychology in today's walkaway discussion is no more than idle onlookers pushing a fight for their amusement. Sad that they have nothing better to do.
Re: "article of faith:
Re: Buried by noise.
So, how do we get out?
Well, we have a couple of choices.
1. We can choose to remain ignorant. Billions of people choose this route every day. Pop open a beer and pretend nothing interesting is happening in the world. That explains why American Media would rather talk about Britney Spears than about anything really important (like what Barack Obamas new policies are).
http://scobleizer.com/
I meant too much financially to drive 200 miles up and 200 miles back, given the future price of gas.
Also, I really can spell. . .
Tanta - thanks for posting the Bajaj piece. As a sales guy I too think a lot of this rationalization is 'projection' - after all it is a lot easier to justify a few problems on evil doers (walk aways) than face the possibility that the whole model - our parts included - is broken. That's late night scary stuff that is.
I know a few walkers away. Tho they were ruthless, there was always some other factor going on too. And they might not have walked without that factor. They still count as walkers because those other factors didn't prevent them from making the payments.
I thought the walk-away Meme was being peddled by the banks more so than the realtors and brokers. On the earnings conf calls there's talk of a change in borrower behaviour as the cause of portfolio impairment. I don't buy it. It's not a change in behaviour it's the behaviour of the speculator.
In San Diego, a friend, who is a hard money lender has stopped, at least 9 of 26 current loans were delinquent with a few more questionable. He's got property he doesn't want, and someone with a key stole a kitchen out of one.
And my acquaintance who was pretending to be a walk-away as a negotiating threat accepted a 6% interest rate instead of the 10%.
LL-"Space Coast" has become appropriate in more than one context, heh?
The "projection" and "psychology" assertions are easy to explain. If the current situation cannot be explained by psychology then it must mean that the problems we are facing are driven by fundamentals. That conclusion is anathema to the REIC who legitimately have much to fear from a real estate market based on rational economics.
I know a few walkers away. Tho they were ruthless, there was always some other factor going on too.
Lawyer Liz - do you do biz law too? I ask because I think the real walk-away will be when PE firms get massively up-side-down on their LBOs & throw in the keys.
People think they know 'ruthless'? They've never even met 'ruthless'.
I've had mgrs at PE 'owned' (owned in the same way a flipper owns a condo) companies tell me if they can't get this company sold in X amount of time the 'principals' (PE partners) will throw the keys back to the bank - exactly the same wording we hear tossed around about spec RE 'investors'. I about fell out of my chair.
And the banks are those same ones CR talks about for the C&D and CRE loans... mid-sized regionals.
You hear anything in your biz dealings on that front?
Tanta,
I think you and CR may differ on this point. I believe CR has argued, and presented evidence, that people were walking away who could otherwise afford the house simply because it was worth less than they owed. He presented a Boston study? that argued that the act of falling prices itself increased forclosures. I argued that the falling prices didn't CAUSE forclosure directly, but that other factors such as: cant afford it, lost job, illness, divorce....combined with a house worth less than the loan means that all problems lead to forclosure. (I conceded the possibility of true walkaways in high numbers after CR kept posting anectodal evidence such as that 60 minutes piece).
Is there agreement between you and CR on this issue?
It is impossible to put a number on the walk-away problem because there are so many shades of gray. As someone that has bought foreclosure properties for 11 years, I would put the number at about 5%. But I have not seen a noticable increase in that number recently in my mareket. There has always been segment of the population that is willing to walk away when they get upside by $20,000++, even when they can make the payments. I have no doubt there is a substantial increase in the frequency of walk aways in markets like CA, FL and NV which have seen double digit price drops. IMO, it is not that the psychology has changed, but that the circustances have changed.
Speculators are the only ones for whom walking away makes sense. But - where is the data?!?!?!
Whatever the walkaway population was in previous downturns, this one will produce far, far more.
The bubble extended much further. There were far more speculators at the end so there will be far more people under water. Worse, money will be less available in this instance than before and the pool of eligible (if willing) buyers will be significantly reduced this time. So those tempted to walk will be historic from the beginning.
Last; in the early 90s there might still have been a modicum of the ancient concept of "shame" still lingering around.
Today? Post White House sexcapades, MTV and people like Barbara Walters trumpeting their illicit affairs with married men, one will search far and wide for any mention of the word "shame" much less an argument that someone, anywhere, has acted shamefully.
The concept doesn't exist (at least in a "public" sense) anymore. The result will be far more people, on the margin, seeing the choice to walk away as one with at least no meaningful sting of social stigma.
Shame acts as an invisible "friction" against certain behaviors. When long time, commonly held, "shameful" acts somehow become "acceptable" a lot of other, previously shameful, activities also fall by the wayside. Just the slippery slope at work, as always.
Perhaps folks are projecting their hypothetical actions. It's reasonable to presume that most everyone would walk away given some extreme in the relevant, causal variables (negative equity, income, debt load, assets, substitution, individual and societal beliefs, etc.).
The "reasonable person" approach is typical in economics and law. I speculate we're reaching levels in the causal variables where larger numbers of folks will walk. I further speculate that you will get your hard evidence later this year.
that argued that the act of falling prices itself increased forclosures.
Falling prices do indeed correlate with foreclosures. Any number of studies bears this out.
But correlation is not causality. I think the Times piece gets it right:
Owners who live in their homes do tend to default more when home prices fall. That is because being under water leaves borrowers fewer options if they run into financial trouble. When prices are rising, borrowers can usually sell their houses for more than they paid or refinance their mortgages.
CR is pointing out that we need to look at the percentage of homes underwater to gauge how many foreclosures are still to come, I think. But that's not the same thing as arguing that it is the mere fact of being underwater that leads people to voluntarily default. It is to acknowledge that underwater borrowers who experience "normal" (or "abnormal," in terms of a recession) stresses can no longer sell or refi, so the final disposition will be foreclosure more often than in the past.
Average Joe the article states:
Owners who live in their homes do tend to default more when home prices fall. That is because being under water leaves borrowers fewer options if they run into financial trouble. When prices are rising, borrowers can usually sell their houses for more than they paid or refinance their mortgages
No one disagrees with the idea that falling equity postions leads to more delincies. The disagreement is in whether the falling equity position is the cause in itself.
I do a little biz law, but strictly small potatoes stuff, so I have no gossip as to PE firms.
I have heard snippets of tales of investers getting together to buy at super low prices, but I haven't actually seen anything yet. I guess
they are not super low enough.
The space coast is bad, but not quite as bad as South Florida. And neither is as bad as Cape Coral/Ft Meyers. Just ask Cobra driver.
And people are still moving to Florida, so someday the inventory will be used up, if it doesn't rot first, and I mean that seriously.
Someday is really far away for all those condo towers. Which have been blacklisted by many banks.
Banks and developers NEVER take into consideration what other banks and developers are doing, even for big development. If anything, someone else making money on a development makes them conclude, they should do it too, instead of asking, will there be too much inventory.
Banks are stupid.
I think some of the psychology in today's walkaway discussion is no more than idle onlookers pushing a fight for their amusement.
Word.
That and a bunch of people who like to give other people advice--behind the cloak of anonymity--that they probably wouldn't be willing to follow themselves. What I hear in a lot of comments is not actually the claim that people do walkaway, but that they should. A lot of it sounds to me like the office cranks who always try to talk the newbie into going into the boss's office to set him straight about something.
Tanta,
I am in your camp on this issue. This seems like common sense to me but I believe CR and others think that there is a likely hood of true walkaways in high numbers either happening or about to happen. You may confirm CR where he stands on this issue.
The price drops in are so dramatic now in San Diego that I am more open to the idea of actual walkaways, although I haven't seen it.
I did mention before a co-worker who could afford a house but was upsidedown in a condo. With his growing family he'd like to buy up but is stuck. He is thinking of buying a second house and walking away from the condo. If he and others can pull it off, this may be an area where walkaways could happen in higher numbers. (Alot of people who wouldn't stretch themselves nevertheless bought what they could afford just to get on the property ladder.)
...Perhaps folks are projecting their hypothetical actions.
I still think this is a way for banks and IBs to try and blur their role in creating this mess. To say that the actions of "ruthless borrowers" are a change in behaviour as a result of a once in a lifetime real estate market overlooks how this environment developed. The banks and IBs had completely irresponsible lending practices supported by the thinnest veneer of assumptions. You just won't hear any of the lenders say "we made some really dumb decisions". All you hear is hoocoodanode.
Someday is really far away for all those condo towers. Which have been blacklisted by many banks.
So does the state of Florida 'underwrite' potential S Fla condo buyers? Say guarantee the loans so banks will bite? Or at least assume 'first loss' position?
If they don't grease the deals - at least at first to get critical mass in those towers NONE of them ever sell. Any rumors on that front?
I came back from Philly the other day. Lot of condos going up or lookin g for tenants. Philly was nice. You can see how the money poured in over the past 7 years. Hopefully that will be sustainable but I doubt it. There goes the neighborhood again.
A train ride on the east coast is always interesting. There lay the rust belt visible out the window.
My little subdivision in No. VA now has 3 foreclosures. The family behind us who were foreclosed were workers. Every kid worked also. Before they were old enough to get jobs they would ask if they could shovel snow or whatever.
My cabdriver was telling me his friend was told to pay "whatever he could" and he could stay in his foreclosed house for now. He was also telling me that Ethiopia has 13,000 troops in Somilia being supported by the US including airstrikes on the Kenya border.
oberman - "Real estate is the, WORST.INVESTMENT.IN.THE.WORLD
I would like a clearer definition of what is walking away as opposed to being foreclosed. If the owner waits until one day after the lender says, "You are in default; pay up or we are going to invoke our foreclosure rights", and then says, "OK, you win, here it is", which is that? If it doesn't turn on that, what does it turn on? The discussion seems to me to be outrunning the terminology.
Home Underwater?
don't walk away. Prepare!
... - Yahoo! News Photos
"If they don't grease the deals - at least at first to get critical mass in those towers NONE of them ever sell. Any rumors on that front?"
dryfly | 05.10.08 - 12:09 pm | #
Not yet,but it won't surprise me when/if it happens. Gives me something else to keep a eye out for.
I talked to a friends wife in RE. She had 10+ buyers for higher end condos from up north this winter. Most were looking in the 250k-500k range. Nobody bought. Why?
Insane HOA fees on all the newer builds...Most were way north of 500/month in just fees...
Chris
Even the jingle mail anecdote in the story wasn't a walk away - her husband died and she could no longer afford the repayment on one income.
I'm with you, Tanta, but it's darn hard to convince people who are convinced that walk aways are widespread.
If the owner waits until one day after the lender says, "You are in default; pay up or we are going to invoke our foreclosure rights", and then says, "OK, you win, here it is", which is that?
That's an uncontested foreclosure. Too many people seem to think you can stuff your deed in an envelope, mail it to the lender, and therefore not get "foreclosed." This is false. Banks have the option to accept what is known as "deed in lieu" of foreclosure (DIL), but not the obligation, and they aren't going to accept it from anyone if the property has other encumbrances (like second liens). They'll foreclose so that they can get clear title through the courts. Only in a tiny fraction of cases can the first lien lender get the subordinate lenders to extinguish their liens on a DIL. You almost always have to FC to do that. But still, the vast majority of DILs are hardship cases.
We've gone around and around about what this term means. As I have said before, it doesn't mean anything to me unless it implies voluntary default. You stop making your payments because you don't want to make them, not because you simply cannot afford them. The issue is the cause of the payment default, not the exact legal mechanism by which the bank takes title, nor the absence of eviction or the borrower's continued occupancy until the FC date.
I will defend that use of the word psychology, as a generally understood colloquial meaning:
The possibility is that we won't have a smooth transition in pricing because people will see an advantage of making the same change at the same time.
As I have said before, it doesn't mean anything to me unless it implies voluntary default. You stop making your payments because you don't want to make them, not because you simply cannot afford them.
And that is very hard to distinguish between. IMHO.
Re: Classic projection?
No, Tanta you are off your rocking horse with that hypothesis , but a give you high marks for an attempt to seek theory as to why these evil realtor bastards are so inclined to be manipulative and and to distort information!
Re: projection bias is a defence mechanism, e.g, whereby one "projects" one's own undesirable thoughts, motivations, desires, feelingsbasically parts of oneselfonto someone else (usually another person.
Transference is a phenomenon in psychology characterized by unconscious redirection of feelings of one person to another. For instance, one could mistrust somebody who resembles an ex-spouse in manners, voice or external appearance; or be overly compliant to someone who resembles a childhood friend.
I think the root of this story is simple greed, in that realtors and people who play this game associated with speculation, want to increase the supply of undervalued assets. This game is now being played with homes, but not too many years ago it was played with dotcom stocks. This is a matter of aquisition and obtaining undervalued goods and to thus force weak hands out of the market place, while stronger players gain greater opportunities for leverage.
Ame
I think the root of this story is simple greed, in that realtors and people who play this game associated with speculation, want to increase the supply of undervalued assets. This game is now being played with homes, but not too many years ago it was played with dotcom stocks. This is a matter of aquisition and obtaining undervalued goods and to thus force weak hands out of the market place, while stronger players gain greater opportunities for leverage.
Now what was that you were saying about projection & transference?
The lenders are bailing sellers out by letting them get mortgages on new lower priced homes by treating the original home as a rental. Very little documentation is needed to justify classifying the first home as rented, and then the new mortgage is sold. The owner walks on the first home and is OK on the new one because they have their loan. This will take a few months, but it is a bank shot walk away.
After several seconds of deep thought, I must conclude that I agree with Tanta, that this is a matter of exploitation, which is often linked to issues with illegal aliens, or people that were taken advantage of. This game is about people and interactions with property and there are those that want to create leverage and opportunity by preying upon situations where there is the perception of an advantage or anomaly which can be exploited!
Ok
Bank shot referring to eight ball in corner pocket.
What really dazzled me was Mr. Bajaj's methodology.
Looking for information regarding defaults, he contacted a lender!
Re: projection bias is a defence mechanism, e.g, whereby one "projects" one's own undesirable thoughts, motivations, desires, feelingsbasically parts of oneselfonto someone else (usually another person.
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.
Now tell me why I'm off my rocker for asking--not asserting--whether these RE agents aren't projecting their own ruthlessness onto everyone else? The context of the remark in question is that it comes in an article that pretty much declares there to be no evidence for widespread walkaways. Yet here is Mr. Barry the RE agent confidently declaring that people will indeed do it. I am wondering if Mr. Barry, perhaps, would indeed do it, and requires for his own "psychology" that he project that willingness to default onto everyone else.
The lenders are bailing sellers out by letting them get mortgages on new lower priced homes by treating the original home as a rental.
And your evidence for this is . . . ?
Friends and family being advised by lenders on how to qualify for a new loan. Behavior reported from several locations recently. No, I have not done a lender survey.
Behavior reported from several locations recently.
That is the "evidence" given for every urban legend.
Millions of Americans are upside down on their mortgages they owe more on their homes than their homes are worth. So far, however, there is little evidence that people who have the means to pay are walking away from their homes as values sink.
I think it's fair to criticize the lack of empirical evidence that people walking away.
The problem with the above logic though is that housing markdowns in local markets are so slow, sloppy, and debatable that I think many people think that house prices are falling, but not theirs.
I live in a city where prices are already down double digits but I don't know a single homeowner I work with whose house has depreciated in value (according to them).
Millions of Americans maybe upside down on their mortgages, but I suspect millions of Americans don't believe they're upside down on their mortgages.
I would be more willing to walk away in their position because I'm a housing-ultra-super-perma-bear and I think home values will continue spiraling into the abyss.
Many people on this site probably think that too.
But the typical homeowner may not be to that point yet. They may think the decline in home values is temporary and their house hasn't been effected because it's their house, and their house is special, and when their house is eventually put on the market it's going to sell at 2006 prices or higher. They own it. It has special meaning to them, and that makes it worth a lot more.
Mark to nostalgia.
I can't see how we can ever expect to get credible data on walkaways.
Assuming that the term is defined largely as someone who stops paying due to negative equity rather than inability to pay, then you would need data on their current ability to pay. Who is going to collect that information?
And, of course, there would have to be some agreed-upon standard for "inability to pay". Good luck with that.
My favorite part of the article was this: "In fact, researchers say the rich are no more or less likely to walk away ruthlessly default is the economic term for it than those of more modest means. A persons credit history is usually a better indication of how he will behave than his income. How much money a person put down on the house when he bought it also makes a difference."
One of the big lessons of the mortgage debacle is that credit history as measured by FICO score was actually a poor predictor of default behavior. What it might have been a good predictor of (and I haven't seen or looked for data) is a person's willingness to enter into a purchase and loan deal that was very risky and speculative.
Agree. Falling price correlates but not necessarily causes "walk-away". However, it is one of the most dominant determinant in the regression model. Market fundamentals whether in stocks, bonds or houses were simply ignored during the mania. Blind optimism of ever rising home prices and fear of missing out, stoked up by industry's professionals, encouraged by political leaders, assured by financial managers, and ultimately supported by oversea investors fooled by the AAA label of these MBS, turn homeowners into taking on more risks than they can actually handle(buying as big a house as the lender allowed, not as how much one can afford). This behavior was prevalent in Orange County, CA where I reside. I know many who made home purchases beyond their intrinsic capability because of the belief that "Orange County is different, homes here only appreciate in values" and "everyone else was profitable doing it so why not". There was no financial stress during the boom because refinancing was the way out every time. Trading homes at great velocity was essentially the engine of growth here for last several years. In this environment, homeowners inadvertently become speculators by reaching beyond their means. Now, home price drops substantially here ~20% since peak (July 07), back to 2004 level. Every activity that is housing related come to an abrupt halt. Household's wealth in term of home equity decreases, reducing household's consumption. County recorder office shows a worrisome rising trend in NOD and back taxes. Housing-related industries such as builders and subprime loan companies have imploded or folded altogether, laying off thousands of local residents. Local cities and county facing budget shortfalls cut back on services, halt hiring and begin to hand out pink slip. The financial stresses brought on by the collapsing of the unsustainable housing market are felt at every level. Homeowners, on average, who maxed out to buy their homes after 2004 not only are now underwater but also have to deal with interest rate reset and host of other economic headwinds. So in this distress time, "walk-away" may be the only solution left. It was the ever rising home price that got people to take more risks, sustainable during the boom, but unbearable during the bust.
If I hear an urban legend more than six times, I count it as fact! This practice has served me well and is better than a tin foil hat.
So many of these "expert opinions" come from people you would expect to know what they're talking about, but don't.
Back when times were "good," if you tallied up the number of units sold on the MLS and divided by the number of agents on the board, you'd find that the average agent sold about 8 homes/year. In areas with a lot of licensees, the numbers were even lower.
Factor in the Pareto Principle, and you'd find that the top 20% of relitters were selling about 24 homes/year, or 2/month.
Most agents have very little idea what's going on in their own backyards, and they don't understand how to use and interpret statistics.
They spend more time talking to each other than they do talking to prospects.
So they have 1 or 2 conversations with potential homeowners where there's some overlap and suddenly, "Everybody's walking away."
If you pressed them for a tally of how many of these people were current on their payments versus how many were behind, you'd have small numbers at best. I
n most cases, you'd find that their sample size was extremely small, certainly not a big enough pool to draw a conclusion.
How can I put this, so no one will understand?
The issue of leverage in this supply/demand game, is like water in a tube.
I think it best to bypass theory and go right to my Gedankenexperiment:
Think of a clear glass tube, which is closed at both ends, and half filled with a liquid like water or oil.
The tube is always half full, half empty and thus we can change the balance by tilted or inverting or moving this like a teeter totter which sloshes back and forth.
Imagine the liquid in the tube as the housing supply which has plasticity, i.e, it is always in a dynamic state of being elastic, sloshing between supply and demand.
Yah, are you with me on this?
Conforming loans from Freddie and Fannie should have lower rate of "walk-away". In the bubble areas of CA, only innovative/exotic loans in the last few yrs made possible homeownership. So slice and dice the data to different level of granularity and the troubled picture would emerge.
Ms Tanta,
Re: Now tell me why I'm off my rocker for asking--not asserting--whether these RE agents aren't projecting their own ruthlessness onto everyone else?
RE: I came around to your side very fast and agree, as you see in my post: 05.10.08 - 12:41 pm
Yes, this is a matter of PR projections and hype from NAR-types that are looking to exploit and explode an issue which is probably a very small dynamic.
Assuming that the term is defined largely as someone who stops paying due to negative equity rather than inability to pay, then you would need data on their current ability to pay. Who is going to collect that information?
Well, the GSEs are good candidates, as are the MIs. They have very large databases. Actually, any large investor or servicer could do this.
You end up with sampling, at best, since there will be cases in which you don't have the data. But there are plenty of cases in which the servicer can get some decent information even without the borrower's cooperation. This can be and is passed on to the investor or insurer.
For instance, if the servicer is also a bank and the borrower is also a bank customer, you can check out deposit accounts. You can send out re-verifications of employment under the auspices of your Quality Control program. You can always get a credit report, which can't always prove lack of distress but can certainly provide indication of distress.
My guess is that Freddie's numbers, for instance, are based at least in part on tenders of DIL in which the servicer requested financial information from the borrower.
It is difficult to determine this in a lot of cases, but that fact should mean we're skeptical about these firm claims that voluntary default is going on.
...that boy is a walkaway Joe.....
I had a credit score of 805 and walked awaay last October after going upside down in the home I bought new in '02 out on the fringes. Did a refi in '05 at the height of the boom and when I tried to sell last spring there were already 7 in my neighborhood alone in foreclosure. I had planned all along to sell it and get out of BFE in a couple of years and when the time came and then the market went bust I could not bear the idea of waiting another possible 5 years for a turnaround. I wanted out. So I walked. So shoot me.
I'm very skeptical of any data regarding walkaways. In addition to the measurement issues and moral trends already mentioned, there is almost no past history when large numbers of homes were deep underwater for a long period.
We are entering uncharted history regarding the walkaway effect, and I wouldn't be surprised if it becomes one of the dominant factors in the housing cycle over the next three years.
I wanted out. So I walked. So shoot me.
We don't shoot speculators on this website. We simply do not think there is any reason for anyone at any time to be surprised by their behavior.
You "had planned all along to sell it," and then you waited until there were 7 FCs in your neighborhood? Forgive me, but what kind of "plan" did you have there?
Why would people walk-away from their houses when they can live 'mortgage free' for ~1 year? I guess those boyz at Freddie never thought about that. However, when those overpriced properties are going to need expensive repairs, than we are going to see a lot of walk-aways.
I think there's a whole continuum of behaviors and situations here.
Underwater? How deep? If I can afford my payment and I think the decline in my home's value is small and/or reversible, I'll stay put--dependig on how much I like my house, and my neighborhood, and how big a hassle it would be to move etc.
Some underwater people have been in their homes for just a short time in a home that was too expensive and too far from their jobs, and they aren't emotionally attached to the place.
Other underwater people got suckered (or forced by circumstances) into doing cash-out refi's under the wrong terms, at the wrong time, and now they are struggling to keep the home they have lived in for many years. (Think small business owners who put the cashout proceeds into their small retail shops, etc. Yes, this does happen.) Those people are likely to hang onto their homes as hard and as long as they can.
Without belaboring the point--Everyone's situation is different. People have differing ideas of whether their payment is "affordable," how much they will have to sacrifice to afford it etc.
azwalker,
What's missing from that tale is that you did what you did with other people's money.
You didn't stick it to the bank or to the rich, but to people you don't know. We probably wouldn't shoot you, though you've evidently taken a shot in our general direction.
I lived in that house for 5 years, what's the average time anybody stays in one place anymore? That's the usual amount of time I spent anyplace over the course of my adulthood. So that makes me a speculator? Knowing I would be wanting to move on in 5 years?
Did you hear the NPR report a couple days ago about a woman (economist! no less) who said Countrywide's agent tried to coach her to mis-state her income? It's under investigation.
This only confirms what I started suspecting from the last post on "walk-aways". They all seem to be so called real estate "professionals" with a smattering of amateur real estate moguls thrown in. I agree with Tanta on the projection by the "professionals" with a bit of self-justification thrown in. If lots of borrowers are walking away, they can avoid having to face their lack of integrity. I'm not saying people shouldn't walk-away just like the big ole mean corporations. I'm just saying, if you do accept the fact you lack the integrity to follow through with your commitments. Once you do, you'll be far less troubled by being ruthless.
azwalker - No we won't shoot you. We just won't enter into agreements with you without some buffer or hire you for positions of trust. You being ruthless and all.
My coffee is kicking in so here is more ranting from my Gedankenexperiment.
The subprime story is essentially an argument between The HomeOwnership Society mentality, i.e, the bias which related to "the" mechanism for jump-starting the economy before The Iraq War -- and the entangled dynamics of supply and demand reality within economic cycles.
The argument was influenced by the string of collusion-connected members of a model that favored very loose lending practices, which would help drive the economic engine of America into prosperity, while simultaneously a war was phased in.
The obvious disconnect in this argument, was the blind faith, both in the cost of the war and the parabolic increase in home values.
Now, how do these dynamics fit inside my tube filled with water?
Profit maximizing behaviors all the way to the top also explains "walk-away" phenomena on the way down. In stock, it was a rush out of the market. In housing it has been more of a sobering walk-away. Stock speculation follows by housing speculation were the financial sector's contribution to our economy in recent time. Have we become a nation of speculators? Why? So much money sloshing around? Where is all the money come from?
I lived in that house for 5 years, what's the average time anybody stays in one place anymore? That's the usual amount of time I spent anyplace over the course of my adulthood. So that makes me a speculator? Knowing I would be wanting to move on in 5 years?
azwalker | 05.10.08 - 1:22 pm | #
az - can you do us a favor? Can you look back at your records over those five years and tell us whether renting would have been cheaper?
I ask that because folks on this forum ALWAYS say rent is cheaper than 'owning'... but if you have little or no down payment, low payment teasers & refi teaser loans... and tax deductions... then walk away later w/out recourse... I'd bet the actual out of pocket cost of 'owning' beats the heck out of renting in many cases - even w/out HPA factored in.
Yes/No?
That could tell us a lot about the economic 'justification' of a premeditated walk away. Care to play with us on this?
"but that they should."
What I ultimately want to determine is where RE valuations are headed. Foreclosures are a major variable. There may not be that many technical walkaways if the definition of a walkaway is a mortgagor that could afford the payment using traditional affordability metrics, but chooses not to.
The whole debate as to the prevalence of ruthless "walking away" is beside the point. The key issue is that home-owners with negative equity have a MASSIVELY higher default rate than those who have equity.
An equity poor home-owner has few options when they run into financial difficulty (for whatever reason). They can't just sell their home, since negative equity will prevent them from getting enough to pay off the debt.
Sure, some people with negative equity may voluntarily decide to default (even when they can still afford payments), but the majority of delinquincies will always result from those who ran into financial trouble and simply couldn't make the payments.
The percentage of people with negative equity who ultimately default will largely be a function of the length of the real-estate downturn. The longer a given home-owner remains under water the greater the odds that some problem will arise that makes them unable to make their payments.
Tanta, I think I support the classic projection idea here - I used the idea months ago when some madman attacked you in these comments with an entirely invented notion of your character and motives.
But I also see a more cynical use of misdirection - the magician's and the pickpocket's friend. If you're diverted to fussing over the ruthless defaulter, you have less time to consider the part relitters played in inflating the bubble or - let's not forget - in working to disguise its end.
To offer some clarity, the American housing crisis does not have to with folks consciously walking away from their homes. Many homeowners already see a house like a money pit, spending thousands of dollars on home improvements on top of the original purchase of the home. So I agree, being upside down on a property isn't such a big deal to the American consumer already addicted to consuming. Just imagine if the American consumer consumed stocks and bonds? What a bubble that'd be!
Any how, the dilemma is not a subprime crisis. Many of these people do not have 500 FICO scores. The problem in America and the UK is the share of homeowners who bought a home between 2004-2007, are now upside down, and have an ARM resetting once the Fed inevitable starts increasing the Fed funds rate. An ARM's interest rate favorably drops when the Fed cuts, while an ARM adjusts unfavorably when the Fed raises rates. If the Fed increases interest rates, folks upside down will be unable to refinance, and will lose their home. We are not in a subprime crisis, we are in the beginning of an ARM crisis with mortgages hanging on the Fed funds rate and the LIBOR.
36% of all home purchases 2004-2007 were financed with an ARM. It's not a walk away because the property's debt exceeds its value, the American consumer is already used to living a numbing net debt lifestyle.
It's a government-controlled eviction policy solely based on Fed Bernanke's decision on Fed funds rates. If Bernanke decides to keep rates the same (like Japan did to lacerate its own investment climate in the 1990's) as some predict, we will see $200/barrel in oil along with all other dollar-denominated commodities rising double digits by 2010.
And this would be why George Soros (in India) and Jim Rogers (in Singapore/China) are dropping dollars for the RMB and the rupee. The US government is abandoning the investor/saver, so they're abandoning the US.
To quote one of America's greatest authors, 'History may not repeat itself, although it often rhymes.
The notion that people who can otherwise afford their payments will walk away just because they owe more than the house is worth is absurd. People have always owed more than the house is worth and this has never been a big problem in the past.
Consider that everyone who buys a house and doesn't pay cash owes more than the house is worth, because they have to pay interest on their debt.
If I were to buy a new house for 500k with a typical 30 year fixed loan, I am not paying 500k for the house. I am paying about a million dollars for the house once interest is taken into account.
I think the point I'm trying to make here is that I think I did what was best for me after weighing all the alternatives. It's been no walk in the park, I've taken a serious hit to my credit worthiness and pride...but... here's the deal..am I so different from other people out there in similar circumstances? That seems to be what this thread is trying to determine...who are the walkers and how many of them are there.
Knowing I would be wanting to move on in 5 years?
I don't doubt that you "knew" that you would "want" to move someday. I surely don't doubt that you merely assumed that it would work out.
I am simply asking you what kind of "plan" you had going there.
You seem to think that you should have been able to sell in early 07 just because that was "five years" into your ownership of that home. God, I hope you don't buy stock.
People with a "plan" sell when the price is right. Or at least they try to. They pay attention to the market in an attempt to time it. They do not ignore signs of market distress because their "five years aren't up yet."
You seem to have just counted on the market to accommodate your own personal view of how long people stay in homes "on average."
Invisible hand wrote:
"We are entering uncharted history with respect to walkaways"
Hey, don't you mean uncharted "territory" ?
Metaphoric, I think they meant 'we are at a crossroads on the sea of life.
It's been no walk in the park, I've taken a serious hit to my credit worthiness and pride...but... here's the deal..am I so different from other people out there in similar circumstances?
It is, in fact, quite possible that you are. That other people in similar circumstances elect to honor their commitments and quit feeling quite so sorry for themselves. You may be quite unusual in your ability to rationalize your conduct.
We don't know one way or the other, but at least one of us detects your clear desire to believe that you are not different from other people. I simply note that wishing it to be true doesn't make it true.
"All you hear is hoocoodanode."
Not true...My favorite to date is Wells Fargo & Co. President John Stumpf -
"It's interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine."
Dryfly:
I'm not sure what data you're looking for but I got into that house with 2k down and $900/month payments. I had been paying apprx. $600/month rent at the time so that was a big jump, but I got to write off apprx $12k in interest which was great. But as gas prices went up and I had to commute all the way back into town, plus driving distances for decent shopping, that added expense. Yes I took advantage of the boom and did a refi at height of the market..put 75% of that money back into the house with wood floors, extended patio, landscaping, french doors, etc..thinking that would only increase the value of my home. I did manage a nose job and a little lipo out of the deal so you could say I profited from it.
Would I have been better off renting? I don't know. But I wish I had.
"home-owners with negative equity have a MASSIVELY higher default rate than those who have equity."
Doesn't the industry already have numbers on this from other busts such as the Texas oil bust?
Tanta, from what I've seen, the "oooh, tons of jingle mail people!" meme is a way for banks and realtors to argue that None of the Mess Is Our Fault, It's All The Fault Of Those Nasty Borrowers Who Aren't Paying Back in preparation for wheedling more handouts from the government (or at least pleading for more tax breaks and the gov't not turning on the regulatory spigot.)
A combination of "hoocodeanode?" and "nottmifault!"
I'm especially bemused by the entities that scream about this and the evilness of not having put 20% or more down. "Hoocodanode that people with only 2% down would default?!"
Um, isn't that what PMI is supposedly for? Now, the risk of actual default may have been misevaluated, with the resultant bad pricing of PMI, but that's a problem for the banks and mortgage people, not the borrower.
Back to Tanta and this story as it relates to my fading Gedankenexperiment, I think the internet and media in general are looking at drama in a subprime opera and there are some content writers that want to push various characterizations.
It is worth note that this type of foreclosure story is like a bedtime tale, which lacks fact, but nonetheless, stirs ones imagination!
This symbolic jingle mail person that walks away is just perhaps nothing more than a representation, the projection of realtor greed in the form of Deus ex machina: Deus ex machina - Wikipedia, the free encyclopedia
Furthermore, this is related to the bedtime story: As Martin Lee and Norman Solomon noted in their 1990 book Unreliable Sources, Hearst "routinely invented sensational stories, faked interviews, ran phony pictures and distorted real events."
In regard to my Gedankenexperiment, much of this subprime game is about media distortion, not unlike the stories that motivated the dotcom mania, or the stories that create a bias to influence buyers in The Ownership Society. Thus, the mechanism of media with collusion behind it, manias are fueld which tilt the supply/demand metrics, and therefore, the water in the tube sloshes to one side as if the lemmings all run to buy houses. In this story, a small group of manipulative shitbags want a lot of people to think in terms of a crisis which involves illegal aliens or a target group that you may hold in disdain -- who are walking away and causing fear to spread.
This story is hogwash and there is great motivation to manipulate the economics of The Iraq War and to take the focus of debt there and lay at the steps of those that can be further exploited!
Amen
Burned out
The demand wasn't for housing the demand was for pieces of paper aka mortgages. They were bundled, sliced, diced and repackaged as something they weren't, solid, safe investments. The originators, bundlers and sellers of these walked away from them as fast as they could. Greed and naivety like other things roll downhill. Musical chairs are being played with these worthless pieces of paper. Who in their right mind would be amassing these at this time? Fannie Mae. Why? Their execs. facee no real risk. Tax payers back Fannie's balance sheet as we back the S&L industry and IB"s who were "too big to fail". Taxpayer bailout of billions of dollars of worthless pieces of paper is how this will end up.
Tanta I don't really know where I stand with relation to anybody else on the issue of this being a "moral" or a "financial" or whatever decision. I'm curious to know, but not put off by the answer. That's why I decided to post my experience on this thread.
Burnside:
But I also see a more cynical use of misdirection - the magician's and the pickpocket's friend. If you're diverted to fussing over the ruthless defaulter, you have less time to consider the part relitters played in inflating the bubble or - let's not forget - in working to disguise its end.
I think that nails it. But are the realtors the only--or even the main--culprit? Isn't the real problem RECKLESS LENDING??? In all of these home mortgages, who was supposed to be the wise and knowledgeable and cautious party? Not the buyer/borrower or the realtor under pressure to close a deal. The lender! That's where the checks and balances broke down. Now the lenders are telling their stockholders that a sudden shift in borrowers' sense of honor is a key part of the problem.
Yep, Dallas Fed Fisher delivered an excellent oration on the TX home price bubble in the 1980's.
The Egocentricity of the Present (Prefaced by the Tale of Ruth and Emma) - Richard Fisher Speeches - News & Events - FRB Dallas
"In the 1980s, the euphoria of oil prices around $100 a barrel in todays dollars led to a frenzy of lending activity in Texas. At least I think thats what any reasonable observer would call the annual growth rate of business loans of over 40 percent at Texas banks and annual growth in commercial real estate lending of almost 50 percent that we saw in the early part of that decade. Booking assets at such a rapid clip has a seductive power. My favorite line from the musical Evita is when she belts out, All I want is a whole lot of excess! Well, we certainly pursued excess here in the 1980s. In pursuit of a seemingly sure thing, more than 550 new banks were chartered in Texas from 1980 through 1985. This made for a volatile brew, combining dramatic rates of growth in activity with a dramatic expansion of the number of players with limited experience in knowing what to do when things go wrong. The assumption of permanently high, or permanently rising, prices in an asset classin this case, oilinvariably leads to regrettable decisions."
azwalker,
you did the right thing for your family. It's business, nothing personal against anybody.
Moral highground BS!!!
Just like the corporations, it's business when they back out of deals or drop clients who did nothing wrong.
Just want to make sure I understand correctly.
Ultimately, aren't the investors of Mortgage Backed Securities the ones left holding the bag when someone walks away, defaults on their mortgage, etc.
And, aren't a large number of investors -- the ones who hold MBS -- actually pension funds?
Pension funds represent people who spent their lives working. In theory, every time someone walks away or defaults on their mortgage, ultimately they're just screwing over a retiree somewhere. Lovely visual.
I'd be curious to know how many upside down mortgages are held by workers who also have pension funds.
People won't walkaway. They won't care if they are a few $100k underwater. OK. Fighting an obvious trend when momentum is just beginning is dangerous. Just ask flippers over the last 2 years.
Doom:
Are you of the Housing Doom blog? If so thank you. Finding that site really educaated me as to what was happening in the market and what my prospects were. That site also led me to this one and furthered my knowledge and ultimately my decison to walk.
Doesn't the industry already have numbers on this from other busts such as the Texas oil bust?
Well, yes. There is data from that.
But since it is, exactly, data from a highly distressed local economy with rising unemployment, population outflows, and general economic hardship, why would we want to conclude that underwater borrower defaults in that time and place were caused merely by the drop in home prices? And not the drop in home prices caused by widespread economic distress?
Just like the corporations, it's business when they back out of deals or drop clients who did nothing wrong.
doom | 05.10.08 - 1:59 pm | #
And corporations are going to be backing out in spades - especially the PEs - when they realize they aren't going to be able to flip their holdings (mother of all horrors) and actual companies have maintenance costs (just like condos & SFH)... and the cash flows these firms generate in a recession are like rents in a housing bust - they won't cover the carry cost of those holding title to the asset. We know what happens next if they don't have enough skin in the game to motivate them to stay in the game.
Re: "But are the realtors the only--or even the main--culprit?"
The reason is simple, it is this group of shitbags that zip around in cars and connect people to homes, to dreams and help create the story, the dream, the illusions. These are the people on the frontline that make no judgement as to who you are, what you can afford or what accountability they may have. These are the people that will drive you from dream home to dream home and then drive in to the mortgage company and help walk you through a deal, help you sign, explain that stack of a thousand pages of legal masturbation that gets skimmed over, as the mortgage companies sit back as if they are just providing chairs at a funeral or cookies for desert. The realtors are the conduit that initiate the fraud!
I posted this story @ 11:16 am as Amigo and it represent the fact that with all the foreclosures the common thread is the non-accountable realtor!
One in 53 adults in California has a real estate license
Page not found 1b10real.html
And, aren't a large number of investors -- the ones who hold MBS -- actually pension funds?
That's my guess. But I haven't seen any great analysis of who owns what. We know that the problems are wide spread, but when we started, I remember they said it was only the "wealthy" investors who were at risk.
The notion that people who can otherwise afford their payments will walk away just because they owe more than the house is worth is absurd. People have always owed more than the house is worth and this has never been a big problem in the past.
Consider that everyone who buys a house and doesn't pay cash owes more than the house is worth, because they have to pay interest on their debt.
well, you are allowed to pay off your loan at par, you know...
Oooops, "wealthy and financially sophisticated" investors at risk.
MBS's are spread worldwide. Socialize risk and privative reward model. A fishing village in Norway saw their assats decimated by US MBS's
Dryfly--the State of Florida has cut its budget by, ummm, 4 billion dollars. It has no extra money. Has cut the courts some, has cut schools some (all bureaucrats, I hear). I REALLY don't think any towers will get any bailouts.
And I have had, as I've posted before, a couple or 3 of ruthless defaulters. People who could have made the payments. Since I am a sole practicioner this is 'way more than the percentage quoted for the GSEs.
One moved to west Coast Fla, then his son in law died in a car crash, and his daughter moved back to the east coast, so they abandoned the house they were building, he bought another house, and then he filed bankruptcy.
The other came in just last week. Had a small condo bought when he was single, and now there's 4 people living there. He's buying a new house and will abandon the condo. Could continue living there in super crowded conditions. Wanted to know the worst that could happen. My answer: nothing much.
The 3rd one I forget.
Another oddball one I also posted. The closing agent ruthlessly stole his 171 grand payoff on his first mtg. He can make his second "first" mtg, (and was doing so until the problem appeared) but not both. No equity. I advised to pay for a coupla-3 months on the second first to see if the title insurance coughs up, which actually they should, and if they reneg, well, just walk away. After of course, living there free for as long as possible to save for a down payment with the money he isn't using for his second first. If the title insurer comes thru before the foreclosure is done, well he has all that money saved up. He could end up with a house that DOES have equity, and really, does anybody think he should feel guilty? He didn't do a single thing to cause this. He used a closing agent picked out by his second first. He even has a true story to explain his bad credit.
bacon--if you don't have a prepayment penalty. Those blow-up Option Arms all do.
Housing Crisis on This American Life
A repost and I haven't read everything in between, but I listened again to the This American Life/NPR 1 hour special on the housing crisis. It was good.
This American Life
show 355
Anyway, at the end -- the credits -- they mentioned 'the fantastic housing blog, Calculated Risk'.
Congrats.
Unfortunately, I can't cut and paste (or check the accuracy) of this, but the shows are available for free a week or so after the original broadcast.
This American Life does Subprime:
Today the LA Times has a similar article online. Hope this link works.
'Walkaway' homeowners may be myth - Los Angeles Times
John Stark,
Much as I enjoy being singled out for agreement, I can't participate in singling out lenders or any other link in this enterprise.
Each component behaved as if its bit of fudging would vanish, diluted in a broader, functioning lending and investing stream. I can't even excuse them on the grounds they actually evaluated their own prospects in this way. They looked at the overall apparatus, and then fudged anyway.
There really, truly is no single poster child - victim or villain. It's becoming, predicably, a vast finger-pointing exercise. No point in enabling that that I can see.
In closing (Thank God, Tanta mumbles)
What we need is a : http://en.wikipedia.org/wiki/Magnuson-Moss_Warranty_Act
America needs a f___king warranty/disclosure contract which will hold the realtor accountable for any misrepresentation or association with a crappy inspection, a crappy appraisal and "stuff" like that.
If you had this type of threat in place, where these realtors had to be involved in realistic valuations, inspections and insure that there was a realistic arms length transaction in the works, these scumbags would have earn the cash they make and run in circles to make sure that customers were placed in positions of strength versus just being in a sales position to spin off illusions and dance around a sales contract that be linked to a fraudulent deal!
Do you get my F---king drift? The realtor would have to say in effect, :oh shit, these people have no clue what mess they are getting into....and I'm not gonna be screwed on this one......that inspection needs re-done and the price is way too high and I doubt if these people can afford the deal and I'm not going to jail on this baby...."
But......Noooo, they have no accountability and they don't give a crap if they sell a crack dealer a meth lab, these realtors are conduits for fraud, and the states should all require a B.S degree in real estate mang and a license tied to a warrenty that holds them accountable for lack of due dilligence!
Amen(this is a prayer)
Those blow-up Option Arms all do.
Technically speaking, lawyerliz, only about 40% do, and most expire before the "blow-up" occurs.
And "blow-up" is of course assuming that the borrower paid her minimum pay option every month, triggering a "blow-up."
the ones who hold MBS -- actually pension funds?
The AAA tranches, mostly, yes.
Excuse me, Schnapster, but I understand that 80% or more pay the minimum.
And the 2-28 ARMS also, largely, have prepayment penalties.
And "blow-up" is of course assuming that the borrower paid her minimum pay option every month, triggering a "blow-up."
Interesting factoid: RBS Greenwhich's OA report this month observes that there is a significant share of OAs with 110% balance caps that have been sitting for months now with balances in the 109.75-110% range. That implies that the borrowers know they're right on the cusp of the payment recast, and so they upped their payment to full IO in order to keep their balance at 109.75% but not up to 110%.
OT:
For those of you that missed the amazing Hillary vid a few nights ago, there appears to be an update:
Update; The Secret Diary of Steve Jobs
Previous vid (meanwhile-deep-inside-hillarys-brain): The Secret Diary of Steve Jobs: Meanwhile, deep inside Hillary's brain ...
Thanks for all the fun today!
There's no c in shnapster, either.
The point is they don't HAVE to pay the minimum.
The way the product is supposed to work, is like so: I am a salesman who earns most of my income as a annual bonus. So I pay the minimum payment 11 of 12 months (91.6% of the time) and then I pay a lump sum in month 12, which includes all the deferred interest from the prior 11 months.
Not that the 2006 vintage POAs are doing that. They were taken out by Johnny Punchclock. That's the problem, I know. That's a bigger problem that the PP penalties on those loans.
2/28s are a whole nuther issue.
Today's LA Times
In mortgage meltdown, walkaway homeowners may be suburban myth
'Walkaway' homeowners may be myth - Los Angeles Times
A prayer with so many f-words?
But I agree with you and here's why.
In 1985, the Johnson case in Florida held that you had to disclose any known defects which were not patently obvious. If a window is broken in front, you don't have to disclose it, if a crack in the foundation is under the rug, and you know it you have to disclose. The realtors got in trouble in Johnson, and the news spread like wildfire. To this day, realtors fall all over themselves to reveal defects, have the sellers fill out long forms about physical defects, etc. And there is a moderately hard course and exam they have to pass. Just one, to become a salesman. To become a broker, they have to be a realtor for a little while, then take a second course and pass it.
So what if they had to take 30 credits, including credits in finance? If it is in their financial advantage, they will close their eyes firmly and do whatever it takes to make money.
Lawyerliz writes:
Dryfly--the State of Florida has cut its budget by, ummm, 4 billion dollars. It has no extra money. Has cut the courts some, has cut schools some (all bureaucrats, I hear). I REALLY don't think any towers will get any bailouts.
They need better lobbyists - that's all I have to say. More proof of incompetence & 'Peter Principal'... people just not up to the task.
Tanta - thanks for that factoid, I've been yammering about the significance of that behavior for months now.
Dry---heeheeheehee.
Nice that incompetence helps the taxpayer for once.
I know how the Option Arms were supposed to work. Perhaps one out of a hundred was offered to an appropriate customer for this product. Don't try to teach your grandmother to suck eggs.
Fascinating factoid Tanta. I'm surprised that so many are smart enough to figure this out. They re-cast after 5 years anyhow, right?
We are entering the Un-Ownership society. I personally don't blame anyone for walking away. I've never been in a deeply upside down housing position, so never taken that step, but believe me, I would do it without thinking twice if I were sinking in a mcTitanic and trying to bail with a teacup.
There will be plenty of time to rebuild credit over the next 5 years as housing sinks and begins to stabilize at a severe discount to today's prices, let alone 2006 nominal prices. We haven't seen the tip of the iceberg on walkaways.
"That implies that the borrowers know they're right on the cusp of the payment recast, and so they upped their payment to full IO in order to keep their balance at 109.75% but not up to 110%."
Tanta | 05.10.08 - 2:31 pm | #
Tanta,
Just in rough numbers what kind of money are we talking on a 300k loan?
Minimum...
IO...
Full recast ???
Chris
There's no c in shnapster, either.
Oh but there is... if you've been drinking a whole lotta scccchhhhnaps.
Lawyerliz,
The reason they (realtors) don't want to be involved is the obvious reduction in sales price related to not only a lower commission, but more work involved to get the deal done right! The seller also doesn't want to be accountable for sinking more money into the deal either, but with an arms length negotiation all these people will come together to cut a deal, which will be better in the long run. That stability would reduce foreclosures and add longer term value to deals and it would also restrict bubble mentality. It also places a bank in a situation where they can reduce risk for lending. This just makes sense to crush realtors now and to force attrition and wake them up to the fact that these deals are not free rides where they put a few rubes in a car and sign off on fraud! NAR needs to be shut down and state regulators need to act as if they have some clue as to what fraud is!
speaking of option arms, i read an analysis recently that tried to compare the default "optionality" of option arms to alt-a hybrids, noting that hybrids have a higher % of investor loans and higher monthly payments, so you might expect DQs to accelerate faster in a negative HPA environment. however, option arms actually deteriorate significantly faster when HPA is negative, which the authors of the report speculate is attributable to occupancy fraud (speculators that don't show up on the loan tape).
Sounds a lot like the propaganda the credit card industry was peddling for changing the bankruptcy laws a few years. Now some people are now walking away from secured debt and continuing to pay the unsecured debt.
alt a resets http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg
Do I see evil credit card companies vs evil incompetent mtg lenders in titanic battles in our future?
Lender Smackdown!!
Of course a lot of them are the same
companies.
Don't try to teach your grandmother to suck eggs.
Alrighty then, grandma. I just wanted to point out that if 80% of the payments are minimums, that fact, in and of itself, doesn't mean the borrowers are misusing the product.
dryfly - that shit makes me hoark!
OT: Ok, one last one, I promise:
This is a great little video on Peak Oil:
YouTube -
There is one section in here towards the 5 parts, where there is a discussion on oil exploration and increased costs for drilling deeper and using technology to offset supply constraints -- which will result in higher gas prices.
In that discussion, there is guy on a panel that suggests that as oil becomes more expensive, the market essentially becomes more creative and entrepreneurial in efforts to react to supply/demand opportunities.
That ideatriggers the thought in my mind, that if you do in theory shut down NAR and have states take (better) control of real estate licensing, by requiring greater education and greater accountability, that will drive some of the scum out of that speculative role and force the remaining people to consolidate into a group that will have to be more efficient. The mortgage and back office banking will also need fine tuned, but if there is any place to begin change ASAP it will be in regulating realtors and decreasing the amount of bastards that are waiting to "engineer" a sales trap. I think I'll refine this and send something to my dumbass retarded senator... mafia connected lobby friend
Blitz--I didn't notice any decrease in sales after the Johnson case, and no other improvement in realtor smartz either, and no shakeout. People really did start to disclose and keep on doing it. Deals got worked out. It was ok. When a friend of mine sold his hurricane Andrew damaged house, I wrote a whole page of buyer beware warnings for his contract. No lawsuits ensued. On the other hand his sunken living room was really sunken. Full of water. The developer built well enough that it was water tight!!! The damage was slap you side the head obvious.
Just in rough numbers what kind of money are we talking on a 300k loan?
Minimum...
IO...
Full recast ???
I did a great long honkin' post on that in December which includes spreadsheets so you can see how various loans work. It all depends on the start rate, how old the loan is, what index it uses, etc.
Calculated Risk: On Option ARMs
Law,
Once you get mania in place, anything goes!
From burnside:
Much as I enjoy being singled out for agreement, I can't participate in singling out lenders or any other link in this enterprise.
Each component behaved as if its bit of fudging would vanish, diluted in a broader, functioning lending and investing stream. I can't even excuse them on the grounds they actually evaluated their own prospects in this way. They looked at the overall apparatus, and then fudged anyway.
There really, truly is no single poster child - victim or villain. It's becoming, predictably, a vast finger-pointing exercise. No point in enabling that that I can see.
Sorry, but I'm going to single you out for agreement again. My point was simply that the bank is supposed to be the grownup in this three-way transaction, and traditionally, they played that role.
Once it became the norm to simply securitize these loans and play the game with other peoples' money, there were no longer any checks-and-balances in the system.
The investors who were providing the lenders with money had no seat at the table. They just trusted the lenders (and the rating companies) to look out for them. That didn't work out.
Anon--too true. Developers demanded 30% down to protect themselves from speculators in S. Fla on some of those towers and got it. The last time around they got 10% and it was baaaad. It never crossed their minds that prices could go down 'way more than 30%, which they have. There are attys who are suing on contingency for the 30%. Frankly, in general, there is no basis for those suits. Occasionally there is something to hang your hat on in return of deposit suits, but usually those contracts are water-tight. I'm sure the developers of finished towers have no money to go after anyhow. I suppose some of it is in escrow.
dryfly - that shit makes me hoark!
Shnapster | Homepage | 05.10.08 - 2:51 pm | #
LOL - thanks.
BTW those 2 d00dz musta lived in my 'dorm block' (sorta 70s Soviet lookin' if you know what I mean)... it was common practice to splash a little Peppermint Shnaps in with the iced bong water if you were plannin' on smokin' some of that skank weed.
azwalker writes:
did manage a nose job and a little lipo out of the deal so you could say I profited from it.
a better title cold have been azdieter, and then the note holder could have recovered more.
Anyway, at the end -- the credits -- they mentioned 'the fantastic housing blog, Calculated Risk'.
and
It's becoming, predictably, a vast finger-pointing exercise
Calculated Risk is not a "Housing Blog",.. following Dryfly's quip: It's Jerry Springer for those who can read,...everybody is a bad guy.
Seems I've come late to the party. Kudos and my compliments on a well edited victory lap.
As for a sea change in behavior - A senior manager at S&P a while ago attempted to exculpate the firm by claiming a different sort of behavior "sea change" on the part of "the people" that had thrown their models into disarray. He said the difference now is that people are defaulting first on their home whereas in past downturns most people would let the car and credit card payments go first.
True? Hard to say but it seems rational to me. Few people can keep their jobs without a car and as long as you can make the minimum payment on your credit cards you can keep a semblance of a normal life.
True? Hard to say but it seems rational to me. Few people can keep their jobs without a car and as long as you can make the minimum payment on your credit cards you can keep a semblance of a normal life.
fred | 05.10.08 - 3:30 pm | #
Home is where your credit cards are...
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.
"Orange County is different
It does have Disneyland after all. Doesn't everyone want to live with Micky and Minnie?
Fred: "He said the difference now is that people are defaulting first on their home whereas in past downturns most people would let the car and credit card payments go first."
That's because the lenders pushed through the change in the bankruptcy law where middle class people can't get out of paying their credit card bills in bankruptcy. They not only should have predicted this, they caused it.
Ziggurat:
Thanks for the reminder. You can also get that show on podcast. Once I'm done with finals, I'll give it a listen.
Unfortunately for CR and Tanta, now that This American Life gave them a hat tip, by Monday morning, this place will be swarming with hipster know-it-all's who like to talk about how interesting ordinary people are.
One super-inflatable Bernanke doll(ar) to the first to recognizes the source of that comment.
Walk aways will snowball as things get worse-much worse for consumers and homeowners--not just from homes but from credit card debt as well as the sheeple finally realize the extent of the moral hazard perpetrated on them by greedy bankers, Wall St. and the Fed. Add to that,the "socialization of losses" on the backs of the taxpayers.
I'm starting to hear the anger and defiance on the street more and more. What's a high FICO worth when you can't finance anything anymore. Anger and defiance can be infectious and very powerful.
When selling a home, RE brokers may be motivated to minimize the expense of maintaining it. RE Brokers often put potential buyers in contact with mortgage brokers and suggest low down payment options and how a purchase might be financed. Some RE brokers operate mortgage brokerage services. In particular, I am thinking of Weichert.
azwalker:
Even though I totally disapprove of your walking away, I appreciate your honest posts on this board. Your posts are much more complete and coherent than the sound bytes I've been getting from TV and the popular articles.
I'm trying to understand this phenomenom and make some forecasts. The data is woefully inadequate, and even the anecdotal information is sketchy. So thanks for sharing your first-hand knowledge of the subject.
A young colleague just mentioned that one of his friends recently did a genuine walk-away up in one of those ex-bubble Idaho towns. He's a software developer who moved there from Silicon Valley and bought when things were booming. Now the town is sliding down the slippery slope, with many vacant homes, and he made the classic move of buying a new, larger home for much less than the amount he owed on the old one, which he then allowed to fall into foreclosure.
Walk away or unable to afford the payments? Is the reason for foreclosure relevant? And if so, relevant to what or for what?
Capitol Weekly: Debate intensifies over Richardson home default