Posted on 02/23/2008 11:52:12 PM PST by Flavius
NEW YORK (Reuters) - One-tenth of U.S. homeowners hold mortgages that are larger than the worth of their homes, Moody's Economy.com said on Friday.
Nearly 8.8 million homeowners, or 10.3 percent, are in over their heads, its chief economist, Mark Zandi, estimates.
As a result, millions of U.S. homeowners have the incentive to abandon their properties.
(Excerpt) Read more at news.yahoo.com ...
Sounds so familiar.
A little Jimmy Carter-esque inflation and all will be well. Coming soon to a home town near you!
Believe it, or not, this is a GREAT time to be a loan officer!
Unfortunately I did everything right except time my life around the markets. Low, fixed-rate 30 yr in a busy part of town, extra monthly principle payments, and 18 months later I can’t move unless I could come up with an extra $10,000 to cover what the home has lost beyond that.
I do not know what it is like to borrow and spend money I do not have, but I do know what it is like to pay taxes for generations who did what you’re talking about. I know the cost of the New Deal and Great Society first hand. I suppose my great mistake was being born into the wrong generation...
I’m in the banking business, and I find these numbers suspect. 10% of the millions of homes in the U.S. are “upside down”? I call BUSHWAH!
Actually, I do not believe foreclosure absolves you of debt. All the costs of foreclosure will added to your residual mortgage obligations. You have to go through bankruptcy which may be expensive and painful
Best bet is to find someone who will assume your mortgage, if you really want out bad enough.
Underwater? So what.
If the homeowner can still make the payments, he will eventually be above water, after things turn.
I just don’t understand this argument the MSM and politicians are putting forth that home owners have a $200,000 mortgage and now there home is only worth say $180,000. So what. They borrowed $200,000. Get over it and pay back your loan. Its an obligation people.
The solution?
Inflate, Inflate!
Let there be nothing of any value whose price you don't escalate!
Must be the great meals at the Homeless Shelter.
Did you complain when the Federal Reserve was manipulating the market by raising interest rates and inverting the yield curve?
It sounds familiar because that's the very definition of borrowing money.
That's the big problem, many people who don't deserve to be punished are. Yet the torch and pitchfork crowd wants more carnage and destruction in the financial and real estate sectors.
According to market indicators, the Fed is way behind in lowering rates.
It is not a guaranteed short term money maker.
You (generically speaking) paid more than a pile of lumber and dirt was worth because you thought it had a built in ATM machine.
When people drop the notion of the built in ATM machine, and refuse to pay silly prices, prices will get in line.
The choice was to continue renting (guaranteed loss) or work toward actually owning that block and dirt someday (who buys a wooden house in a hurricane zone?).
Anyway you’re right, its a long term investment and we should be even again with rental costs after another 2-3 years (even if the market continues plummeting at the rate of -10%/yr) and slowly ahead after that. In 9 years we’ll own the dang thing so yeah, in the long run it still beats renting.
Price discovery isn’t instant in the home market. Historical comparisons suggest that it will take another 6-8 years for home prices to reach their true value (~60% of the top of the bubble). Its not like the government isn’t involved too, trying to keep the prices at artificial levels with the use of artificially low interest rates...which gets me to the problem of food and gasoline prices...
The exact same thing happened in Japan - the people who graduated at and after the top of the bubble became known as the “lost generation” - doomed to work menial jobs and pay off public debts incurred by previous generations. When I first read about that it sounded so familiar, it is truly the ultimate effect of socialism that we have been warned of, shown proof of, and yet ignored.
Assuming that you weren't one of the hundred of thousands that have not been laid off permanently.
Especially the one with Lincoln and Washington tap-dancing.
Cheers!
By laid off permanently, I just meant from that job. Many mortgage companies and banks are closing down offices including the giant GMAC.
Yes, that’s true. Well, collections jobs should be plentiful with all the foreclosures and such. The skill set is very similar.
Also be a good time to rent out a room and continue to make house payment for that 10%. Democrat supporters won’t help because their strategy is to be stingy, to grow government programs.
In the old days, a buyer had a 20% stake in his home, so to forfeit it was a real personal loss. Now a lot of these buyers have nothing invested but a few months' payments, like rent. But still, if they like living in the home and they can make the payments, just live in it and make the payments and there's no problem. Don't freak out because someone says your home has lost value. The only value your home has is to you. Live in it and love it, and make the payments you agreed to make. See? No problem. The big bad mortgage monster can't touch you.
Of course, if you bought it with a 2/28 ARM and now you can't make the payments, go to your bank and tell them that you need a fixed rate loan or you will have to default. As others have posted, the banks don't want another empty house to maintain. 70% of something is far better than 100% of nothing. They might surprise you.
In the really old days buys put 50% or more down.
I wish only one tenth of our government had spent more than it had.
they can always go to the well
When someone can readily afford to pay their mortgage, this isn't a problem at all, because they hold for 15 years or 30 years or what have you. Over that long a time span, the price of the house will advance (due to inflation mostly, it is true) and the principle on the mortgage will be paid down, or off completely. Obviously when that happens the homeowner is ahead, has saved equity, etc.
Short term valuation differences between the house and the loan size only matter if the owner can't pay the mortgage, and therefore can't hold for the long term, gradually build equity and wait for prices to rise.
But mortgages that people can't afford to pay are never a good idea to start with, even if they are for less than the house is worth to someone else. And have nothing to do with the relation between present price and loan value. It is a matter of the ratio of the loan value to the owner's income, not to the price of the house.
Speculators and imprudent people in the last couple of years, making poor use of overly loose mortgage lending, are a third category. These are people who paid their mortgage only by taking out equity as prices rose in the bubble. This left them with loan values topped up to right near the latest price, and also masked an inability to pay the underlying mortgage, while also increasing the amount due each month every time they refinanced.
That was simple the old tale of leveraged bets on an appreciating assets with other people's money. Which always ends badly, since prices cannot rise faster than the whole economy forever.
Anyone dumb enough to have played that game deserves to lose the house. And anyone dumb enough to have lent to them deserves to get less than all their money back. This isn't a problem for any of the rest of us, and the way it is meant to work is crystal clear.
The bank gets the house, sells it for what it is really worth, keeps that, and writes off the remainder. It has to cover its losses from its other earnings from home loans that did pay, and in the short run must raise new capital if necessary, if a lot of that hits at once.
What we are seeing in all of these headline stories is everyone involved in that recklessness, trying to "welsh", and get Uncle Sam to ride in and rescue them from their folly. If we have any brains left at all, the answer ought to be "pound sand". Liquidating the overpriced houses is the only way to cure the financial distress, assign the losses, limit their scope, and put the whole thing behind us.
You know, I despise whiners on a cosmic scale these days. It is so very beyond tired.
>>Must be the great meals at the Homeless Shelter.
That one made me laugh out loud!
If you bought a home that you could afford; then you are not in such a bad spot. You should be able to continue to pay for the home, and as the market changes in the future you will recoup your losses and then some. The problem is many bought homes they could not afford to begin with, and lenders enabled them to do that. I have sympathy for people who bought what they could afford, and are now facing a loss in value because of the market- that is always a possibility though and has happened before in the housing market over the years. I have no sympathy for people who bought way above their means, just because they could.
This is not a problem unless one has to sell one of those houses. Thousands of folks who bought on LI in the mid-late eighties saw the market value of their homes drop below the debt on those homes in the early nineties. Those homes today are worth a multiple of the value at that time (even in today’s down market).
Over 30% of all homeowners outright own their homes so there isn’t a loan involved. Taxpayer’s shouldn’t be responsible for Las Vegas gambling losses or for people that gambled on real estate deals. The lesson learned here should be budgeting 101 and not when you screw up the government will bail you out with the people’s money.
But in recent years, it became very typical. The goal was to get an adjustable mortgage, buy more house than you could afford, ride the equity elevator upward for a couple of years, sell the house before the mortgage resets, take your gain, and use it as a down payment on another house.
The problem is, markets change - and now a lot of these pseudo-speculators are trapped with negative equity and payments they can't begin to handle.
Most people who own houses didn't buy in the last 5 years. Houses are an illiquid market. To be underwater today, you have to have bought or refinanced right up to the value line at the top of the bubble, in the last 2-3 years, tops. And easily half of those who bought at those times are perfectly able to make their payments - for many, equity from their previous house covered up to half the cost, etc.
Five million people might have problems. But there are 130 million households in the US. "Typical" doesn't mean a few percent, it means "typical".
Yep—guess those “house flippers” are having a helluva time now. I wonder why that show is even on anymore?
I thought most mortgage loans made these days are not assumable? I had thought "due on sale" had become the most common case for new mortgage loans except for some FHA and VA loans.
Same thing, the new buyer takes a mortgage to cover the old mortgage. What I meant was, a person who can’t meet a mortgage might be better off finding someone willing to take the property off his hands, possibly even agreeing to help the new owner with payments to avoid bankruptcy.
I have little sympathy for homeowners and banks who grotesquely distorted the housing markets making things difficult for everyone else. They deserve this mess (we don’t.)
Great post BTTT.
Fortunately, everybody is already familiar with the feeling since most everything we buy immediately begins to lose value. Cars, college educations, Presidents
... ... along with ACORN and the rest of the socialist trash orgs.
Of course, my co-workers have some common sense. That separates them from the many Americans who are fixated on "hope".
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