Posted on 10/08/2008 5:38:00 AM PDT by Sub-Driver
Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water' More Defaults and Foreclosures Are Likely as Borrowers With Greater Debt Than Value in Their Homes Are Put in a Tight Spot By JAMES R. HAGERTY and RUTH SIMON
The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.
The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.
And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.
About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.
The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."
(Excerpt) Read more at online.wsj.com ...
And how many of these victims refinanced to the hilt and spent all the “equity” on cars, flat screens, and trips to Disney?
Let them sell short and write them a new loan for the difference. Payback is a beyotch.
(I think right now we have about 4% actually in foreclosure.)
I asked this question yesterday, and I’ll ask it again...
I consider myself pretty well read in econ. I’ve read tons of Hazlett, Friedman, Sowell, etc. But I am utterly baffled (maybe somebody can help) as to how giving a bunch of bad loans could lead to WORLDWIDE financial market collapse. Tell me that 50% of our homes are in default, and it makes some sense. Tell me that, what???, THREE per cent are in default, and a bunch more are “under water” and I’m really puzzled.
Regarding McCain’s proposed bailout of homeowners. At first I gasped when he said he would spend $300 billion to reset mortgages.
However, the plan could make sense.
Assume someone bought a house for $500,000 and it is now worth $300,000. If the government put a lien on the house for $200,000 and the homeowner’s new mortgage was for $300,000, the homeowner might be able to meet their new mortgage payment and stay in the house.
Since the government will continue its practice of inflating its way out of this economic problem, at some point in the future the house will be worth $500,000 and the government will collect its $200,000 lien.
1) Spend less than you earn
2) Avoid Debt
3) Build in a cash cushion
4) Have a long term plan
5) Remember it all belongs to God, you’re just entrusted with whatever He thinks you can handle.
Now, who would have a problem if they followed these rules, even just the first 4, if you’re not “of faith”?
The reality is that the federal government is going to spend more-—in fact, whatever it takes-—in the next years to reverse the effects of the Toxic Twins.
Is that a terrible situation to be in? Yes. But it is what it is.
That said, I think it’s worth considering whether to funnel some of this money to “unfreeze the credit” of the consumers who are not deadbeats and who will use the money and financial flexibility in a way that helps the overall economy.
Restructuring a mortgage with a balance of $500K on a house that is now worth only $300K through no fault of the homeowner who is still throwing good money after bad by continuing to pay the $500K mortgage rather than walking away, seems to me, has a very different economic and moral impact than buying the paper of a deadbeat who put no money down, made very few payments, and walked away.
For one thing, all the people making payments on upside-down mortgages right now have, in effect, lost every penny of their downpayment unless and until decades from now the real estate market recovers on its own.
The subprime borrower loses NOTHING in any of this. Oh, sure, there’s the sob story that they “lost their home.” I call BS on that most of the time. They had to move to a different abode, that’s it. When you don’t even have a penny in the house, how is that different emotionally from being evicted from a rental apartment?
But the people who make this economy work, those who put tens of thousands of dollars down, or more so as to be “wise” and not pay PMI,on their home purchases have at this moment lost every single penny of that cash because of FANNIE and FREDDIE and the Rats’ push for subprime loans.
This loss was not caused by normal market forces-—so it’s not “pay your money and take your chances.” It was directly and indisputably caused by the U.S. GOVERNMENT through the DEMOCRAT party.
They caused, maybe they should fix it.
http://www.freerepublic.com/focus/news/2100113/posts?page=93#93
many, like me, never refinanced. you have to have equity
to refi, and many buyers were underwater before their
stuff was unpacked.
it’s real easy to sling accusations around without getting
any facts...
Mortgage bundling, tranches, credit default swaps, insurance for subprime paper, derivatives, etc.
These subprime loans were like a virus that infected the entire global economy.
No one wants to lend to another bank because they have no way of knowing what the collateral is actually worth.
When bubble markets burst the decline can be frightening. In this case you have new homes that cannot be sold, short term owners who cannot sell and then you have the foreclosures. Adding inventory to a market that is over saturated and way over leveraged puts a lot of heat on the banks. The banks who are holding assets and lending out money are finding the value of the assets to be less and now have to start writing down the assets, raising cash and refusing to lend.
Only ONE candidate — Gov. Palin — has dared speak the truth about this issue, summed up (at least partially) in two words — personal responsibility. We can bash Wall Street and lenders all we want, but a lot of the blame rests on the individual buyers themselves.
The relentless push by ACORN and other pressure groups to extend mortgage programs to obviously unqualified buyers also contributed heavily to this mess, along with their collaborators in Congress. As a Realtor who had a lot of first-time buyers as clients in ‘04-’07, I was told by lenders about pressure being pushed their way to qualify people who had no business buying a home, including illegal aliens. Lenders were threatened with legal action if they didn’t “comply,” so they acquiesced.
There’s enough blame to go around, but the question is how to fix it. That’s the tough question, because it’s going to take a long-term fix, not the band-aid approach. First off, to prevent this crap from ever happening again, lenders should require no less than 5% down on home purchases, along with a clause that allows loan assumptions if the initial buyer gets into difficulty. Back in the 70s and 80s, assumable loans were common. It’s far preferable to sell the home on loan assumption terms than to have it foreclosed.
Interesting conversation on this thread re: renters & home-owners. Have to wonder how Federal & State tax revenues were reduced/impacted (interest deductions)when all these “owners” filed their returns.
http://www.hillaryclintonforum.net/discussion/showthread.php?t=31640
then post your facts...
why are you upside down on your mortage to house value?
Did you buy in the last 3 years? Did you make a down payment? Did you get a 15 year or 30 year fixed rate loan with payments at 25% or less of your reliable monthly income?? How long did you expect to stay in your house when you bought it?
I have plenty of kleenex on hand
“But I am utterly baffled (maybe somebody can help) as to how giving a bunch of bad loans could lead to WORLDWIDE financial market collapse”
This is what I’ve been asking. I know Fannie and Freddie bundled bad loans with good loans and sold them as securities (I think). How are they worthless now?
Also, when congress was trying to pass the bailout half the money wasn’t going to subprime debt but to “other bad loans.” Riddle me that.
That's ok, McCain is going to bail them out too. With taxpayer money. I think I'll stop making mortgage payments, so I can get my home for a deep discount.
That’s right — fixed rate is the way to go. I’m glad to see this “interest-only” second-mortgage crap go by the wayside. It’s like chocolate strichnine — tastes great at the outset, but wreaks havoc soon afterward.
Hmmmm, I guess ownership has different meaning in financial circles than it does in my household.
I can't understand how a person who owns his house can owe more that it is worth?
That’s a heck of a lot of mortgages for McCain to buy up!
That three percent of worthless mortgages has been sold,how many times,across the globe?Propped up values that don’t exist,sold many times over.That’s your answer as to how so few,affected so many.Don’t forget the foreign real estate markets were doing the same thing,also.
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