From Reuters last Friday:
PHILADELPHIA (Reuters) - Authorities in Philadelphia will suspend foreclosure sales of homes whose owners have fallen behind on adjustable-rate subprime loan payments — potential relief for tens of thousands of struggling debtors.
Sheriff John Green said on Friday he would halt sales of foreclosed properties in April and would seek a court order extending a moratorium for an unspecified period.
The response from this Philadelphian "People will stop paying their mortgages, because they know they will not be foreclosed on."
I don’t even like pondering the consequences should this actually be implemented nationwide.
Can we get more details on this? If it only applies to ARMs, does it only apply to defaults under the reset rate or to the teaser rate too? If it applies to defaults under the reset rates only, then a temporary moratorium might make sense to give people more time to refinance, which they may need during this credit crisis. And it’s not like the banks and the sheriff won’t have their hands full with foreclosures which would not fall under the moratorium. Of course if Philadelpia is wildly overpriced, a moratorium is just delaying the inevitable.
If it applies to defaults under the teaser rates, that’s pretty screwy.
A moratorium is not a get out of jail free card. The owner’s day of reckoning is just being delayed. I imagine the biggest consequence would be that houses that would have been abandonned will temporarily house people who would otherwise be homeless. Not the end of the world. And not an undeserved consequence for the lenders.
Is it also a requirement that the loans be subprime, or is that just the reporter using sloppy terminolgy to mean all defaults in the current environment? How will they define subprime if that is part of the deal?
I take back one comment. If you’re in default on your note, it ain’t bloody likely that anyone is going to give you a refi. So I don’t see what this accomplishes except to reduce homelessness and abandonned properties. I wonder if they are expecting “Hoover Cities” popping up all over, and that’s why they did this.
TC-
According to Paul Jackson over at HousingWire:
This is actually similar to legislation being proposed by the Bush administration, so it will be interesting to see how this goes down. It sounds like it will end up being a cat fight.
Nice way to ensure the rest of us can never get a mortgage again! Of course, that sure would drive prices through the floor, so perhaps that’s ok with me. Take away 100% of the leverage of the banks in issuing mortgages, and see who actually gets to buy a house! If those homeowners who aren’t defaulting have half a brain, they will rise up and put a stop to this.
The banks there will stop writing new notes there so hard and fast that everyone else will realize within a very short period that this is totally unworkable. From here on out, you can only buy a house in Philly if you’re all cash!
Igor’s word: stupid
It looks like the main objective here is to delay the correction. If you temporarily force a stop on foreclosures, you create a huge incentive for lenders to modify the loans, decrease or freeze the borrowers monthly payments, and/or extend the lengths of the mortgages. This would prevent more foreclosed homes from being dumped on the market and being piled on to existing inventory. The question is whether or not this temporary fix could be beneficial in the long run.
OK I have to say it. These people don’t deserve to be bailed out. This video make’s me think of the 5 year old that didn’t get another candy bar and throws a tantrum. Anything the bank does to help these hapless souls is going to come back on the taxpayers in some form or another. I didn’t borrow more than I can afford or use my home for a piggybank and absolutely wouldn’t ask someone else to be responsible for my debt.
Most of the homes going to courthouse auction around my area are already empty. Those that are still occupied are sometimes renters or “Contract for Deed” buyers. Igor says doomed and I think he’s right. All these attempts to save home buyers and stabilize prices are doomed to failure.
Bobby the Boob’s got brass
http://www.kvbc.com/Global/story.asp?S=8041764&nav=15MUUi4B
I posted this link on Easter and if anyone else has posted it, it is truly redundant and I apologize.
Richinaz-
I thought the guy in the video was particularly annoying, as it sounds like he was just trying to take advantage of the situation. He certainly didn’t sound like he was a struggling borrower- he wanted a chance to leverage himself into a lower mortgage.
It would be nice to think that the guy was atypical- but I’m afraid he might have a lot of company.
Heh. Richcinaz’s comment makes me think of this commercial.
http://www.youtube.com/watch?v=nojWJ6-XmeQ&eurl=http://filecabi.net/forum/showthread.php?t=17558
The kid is an FB. The rest of us are the helpless parent.
Most (not all) have put themselves in that position. A picture keeps popping in my mind that they are going to ruin it for people that didn’t go in over their heads and want to purchase in the future. Prices are getting closer to affordable in the areas I like and would like to be able to get a loan and actions like that in the video will mess things up for everyone.
Interesting. Somewhat predictable, but in the whole ‘macro economics’ scheme of things, VERY non-linear.
In other words, the predictions that people have been making for ‘the bottom’ of the housing boom are likely TOO optimistic!
You can predict human behavior to a point… that’s what most economists try to do. But then, at some point (who knows when?), people go bat-manure crazy…. well, then the jig is up. You have rather unpredictable results.
In other words, CR at Calculated Risk is predicting a short, shallow recession that will be over almost as soon as it starts. Check bloomberg.com, and you’ll see other analysts predicting similar rosiness.
The only one that seems to be in the ballpark is Noriel Roubini, who thinks we’re in for a 12 to 18 month long recession (not since the 30s have we had one that bad), but housing prices will only fall for 3 years.
I say, ‘who knows’ … ‘it’ll be bad… then it wil get really bad by the start of 2009′.
Stuff like this Philadelphia thing will definitely make things worse.
You know who else will enjoy this? Holders of Mortgage Backed Securities that are “backed” by so-called “collateral” homes in Philly.
Guess what your “security” just became worth when you can’t foreclose on the collateral? ZERO.
Even if I had perfect credit and the ability to pay, I’m not sure I’d keep paying if I knew the bank could not foreclose. I mean, I’m an honest guy and don’t have even a single late on my credit, let alone a default, but if the government says it’s ok now, who am I to buck the system? Heck, they’re telling you straight up that making any further payments is being a sucker!
Oh, and guess what the future market for instruments like this will look like if investors think that the U.S. government and its local governments will unilaterally allow borrowers to default on their notes with no consequence (or consequences drastically altered in the borrower’s favor)? Yes, you’ve got it Virginia, that would be “non-existent.”
Here’s a funny scene for you: Imagine in your mind’s eye some guys in a back room at Bear or Merrill, or at one of the buyers like Nomura or the Bank of Japan, trying in all seriousness to value a loan portfolio with the new knowledge that the government has just imposed a moratorium on enforcement of their collateral rights.
It blows my mind that there are this many people who are facing foreclosure. I know that something needs to be done so that you do not have a state full of homeless people, but is this really the answer?
I agree, it’s going to be impossible to get a loan on a new house…what about first time home buyers?
This is very interesting…I wonder how many other states and cities will decide to do this?
Landflip-
Remember that “foreclosure” and “homeless” are not synonymous. Folks with a good steady job who are in a house they can’t afford will move to a home they can afford. It might be a crummy apartment, but given that rentals are a bargain in many areas- many people could actually be moving into a nicer place.
When the foreclosure is due to unemployment or underemployment, that’s when the big problems happen– those are the folks that can end up in tent cities.
I’ve driven around the Phoenix area and seen a number of homes that were abandoned before the foreclosure process began– many were purchased as investments and never lived in. Moratoriums or delays won’t help these cases much.
I suspect that even the threat of these sorts of actions are enough to further chill a nearly frozen mortgage market.
Just think what it would do to house prices if we all have to pay cash!
Twist,
You are absolutely correct. This could very well cause on opposite effect and actually increase unemployment (banks/lenders would virtually stop all lending). Also good point on all the empty houses caused by investors/speculators. What a mess!!!
Richinaz… I agree. Slowing or stopping the slide in home prices is one of their objectives. If prices stop falling, it would slow the number of new foreclosures coming on to the market. Future buyers will definitely be hurt by having to pay more, but the current owners would lose less equity. In this case, the government would be totally ignoring the “moral hazard” issue.
JimatLaw said it all. Real estate liquidity in Philly will dry up like a November leaf. If I were a lender, stupid or not, I would not make loans in zip codes where the government suspended repayment obligations. All cash will be the only sales, and all cash means 60-70% discounts.
The thing is, I’m not sure it will have a positive effect on prices (if slowing the drop is “positive,” which many of us here do not believe). For it to slow the drop, people have to be able to borrow there, and do we think banks are going to keep making loans in this uncertain environment when they are barred from foreclosing? I can’t imagine it.
Twist, I (and I’m sure many others here) agree completely - foreclosed does NOT equal homeless, this is pure exaggeration in an attempt to get the government to act in favor of the irresponsible, and the rest of us be damned.
And that brings me to my last point - when did willingly going in debt over your head and then refusing to pay make you a victim?! Someone to be protected and sympathized with? The bank is the victim in this scenario, not the borrower who didn’t pay! The neighbors who will be left with a vacant house next door, they are victims! The one person here who ISN’T a victim other than of his own making is the borrower, and this perspective is left out of almost every story in the MSM. If I decide I spent too much on credit cards and it’s going to take me years to pay them off, am I a “victim” of the credit card companies for giving me those loans, should I be able to just stop paying them because those guys should have known better than to lend me money? Where on earth is the morality, the plain old moral judgment in all this, that when you borrow, you are undertaking a responsibility to pay back? And that if you don’t pay back, you are doing wrong? Where is the shame? This is, yet again, a showing of the direction our society has taken - when someone makes a huge bet using the bank’s money and then loses and refuses to pay it back, and they, rather than being judged the thief they are, have the gall to claim they were victimized by the bank that gave them the money they asked for, and the media and its sleeping-sheep listeners lap it up without question. Sad.
Sorry about the foreign language apostrophes, occasionally I fail to spot it when the Japanese keyboard is doing that.
Wow, lots of hyperbole and overreaction here, IMHO.
It’s an election year, no one should be surprised by this kind of political action.
In the end, a 3, 6, 9 or even 12-month moratorium won’t make a lick of difference in the market. If you can’t afford the house today, chances are overwhelming that you still can’t afford it in 12 months.
Jim - Word.
NVMike - I assume you’re still advocating jingle mail to get revenge on those evil banks who are losing billions, so a foreclosure holiday of indefinite length really shouldn’t make a difference, right?
Igor: Storm (Shouldn’t that be Sh*tstorm?)
Lenders will be delayed, but not denied their money. They’d probably attach strict regulations which would require the lenders and borrowers to agree on lower fixed monthly payments over an extended repayment period. It’s possible that homeowners might even be forced to accept 40, 50 or even 60 year mortgage term modifications if they want to stay in these homes.
(1)
I never cease to be amazed how often this needs to be repeated. I know that Twist mentions it above, but apparently it needs to be hammered into people’s heads (and esp. the MSM):
All together now -
PEOPLE WHO ARE FORECLOSED BECAUSE THEY CAN’T AFFORD A MORTGAGE RATE RESET ARE NOT HOMELESS.
They CAN still afford the pre-reset mortgage rate, which means they can afford a VERY NICE rental in the same area they have been living.
AND considering that there are so many empty homes right now (for sale), there is no shortage of places for them to move to.
I recently saw a British news video clip reporting on a campsite/motorhome area where “thousands” of victims of the subprime resets are homeless and living in campsites or what-have-you. What utter hogwash! If they are living in campsites, then not only could they not afford a mortgage reset, but they COULD NOT AFFORD THE PRICE OF A BASIC RENTAL, PERIOD!
(2)
Does anybody know if this Philly foreclosure freeze would be limited to only people’s primary residences, or would extend to flipper’s umpteen homes?
Frankly, neither type of mortgage deserves a freeze. BUT it is most obvious that the flippers are the least deserving. If the taxpayer in any way has to subsidize the flippers’ really bad real estate investments, then I suggest to you that there are a bunch of government officials that must quickly be thrown out of their offices.
(3) If Philadelphia is known for Cream Cheese, will it soon be known for Philadelphia Swiss Cheese - A.K.A. the place where mortgage contracts are shot full of holes after-the-fact?
Oh Yes, with this kind of changing the rules halfway through the game, if I had millions of dollars to invest right now, you sure KNOW that Philadelphia would be the LAST place I’d want to be going near.
The issue of bailing out the “little guy” homeowner without also bailing out the banks, lenders and investors is a very tough one. Remember, power and legislative influence in America are related to wealth and access. Wealthy investors and corporations have a lot more say in legislative policy than the “little guy” ever will.
I have a question: How can the Sherrif, an Officer of the Law, just arbitrarily decide to pick a part of the penal code to stop enforcing? What if it were drugs, and he said that he was going to not prosecute cocaine possession charges? I can’t imagine he would stay in office long after that.
And what about renters? If the bank can’t evict someone from a property they own then what right does a landlord have to evict a tenant that does not pay rent?
Just goes to show that in this country it has become de riguer for the silent, intelligent majority to be punished in order to provide assistance to the stupid, vocal minority. support
The banks should retaliate by refusing to make property tax payments to the city. With foreclosures banned, how will the city force tax payments?
NVMike - I assume you’re still advocating jingle mail to get revenge on those evil banks who are losing billions, so a foreclosure holiday of indefinite length really shouldn’t make a difference, right?
It’s not revenge. It’s a legal and ethical way to preserve one’s financial future when faced with a potentially crippling obligation.