Housing Doom

twist -

I’ve taken the liberty of adding this to Doom’s Recourse Mortgages category. Igor’s “outraged,” but I suspect the real outrage is the Western flippers being held hostage in Dubai (just read one of your sidebar finds; I really don’t think we want to go there )

Like many he bought a flat off-plan in what was a red-hot property market. Today he is trapped, his passport confiscated until he repays bank loans he used to invest in a property that may never exist. If his work dries up before he can clear his debts he will go to jail.

D.C.-

I don’t think people should walk away from an underwater mortgage that is merely annoying. If you are underwater 5% and can easily make the payments, you shouldn’t be walking.

People should meet their obligations, but most of us have multiple obligations. We need to put the kids through college, pay for braces, save for retirement, etc. Will making that payment cause someone to not properly take care of their children, or risk having them be a burden to society later on? I thought the “experts” here didn’t ask enough questions.

I once came to a closing with $5K to close the deal- and I was the seller. It was worth $5K to me to keep my conscience and credit clean. I wouldn’t and couldn’t have done it had it been $200K though.

I don’t think there is one right answer as to whether people should walk or not. The answer is a big “it depends”.

twist (#3) -

We’re already being visited with biblical vengence. Exactly one year ago the Thessalonians were rioting in the streets. Fresh from VI Foxtrot (scroll up) here’s a slight hint from portfolios economist Warnock on where this is coming from.

And we also had, associated with this, and again there’s many drivers of global inflation, but one of them, one could argue, was the massive reserve accumulation. [slide 9] We had a spike in global inflation. This picture goes back 3 decades, so the spike doesn’t look nearly as bad as previously, but it certainly was going up. It was 2 or 3 percent, and then went up to 7 1/2 percent, and there were food price riots in many emerging market economies in 2007 and 2008.

DCBeacon said:
“[walking away] is the only way for the market to find equilibrium at some point”

It is also the only way for the banks, investors and the MSM who cheered on the bubble without the slightest consideration of the consequences to truly learn their lessons. Why should Joe Sixpack be the only one that has to pay for the failings of their rush to riches, sacrifice their life and livelihood for the bottom line of their stockholders’ portfolios? At the very least, they should both pay a penalty in this. By defaulting, in many cases both sides have paid a penalty.

Richinaz said:
“A true economic dilema versus a moral one.”

In 2009, we are no longer living in Pottersville, USA. Banks are no longer on a first-name basis with their customers and borrowers who live just down the street. The corporations understand only one thing: money. Stockholders, who comprise the soul of the corporations, only care about the money; ergo the corporations only care about money.

Banks, investors, the MSM are ‘corporations’, ‘entities’ that do not have a capability for a code of conduct called ‘morals’ — they only concern themselves with the rule of law, which we must know understand is a much different thing. And oftentimes these corporations scoff even at the rule of law! (eg. everybody been watching what the banks are doing about the upcoming laws around credit cards?)

As we have already seen, corporations couldn’t care less about foreclosing on millions of American families, even though these same corporations were THE driving force in the build-up of the bubble. These corporations were the ones that made the subprime and adjustable-rate mortgages possible. These corporations were the ones that invited buyers with no money down and no job stability. These corporations are the ones that constantly released only idiotically optimistic real estate predictions and research to the MSM, as the halcyon days of the bubble wore on (and naysayers were scoffed at).

And now *I’M* supposed to feel bad if this soul-less entity (and their stockholders) is going to lose some money along with me, because of a calamity of which it was the cause? No, I don’t think so.

There is no question the borrowers had responsibility in the transaction. BUT, let there be absolutely no doubt: none of this mess would have been possible without the enablers making it possible!

In other words, both the drug addict and the drug pusher bear responsibility, but the drug addict would never have existed if the pusher had not kept pushing his wares and promises. I feel no sadness for the drug pusher losing out and bearing responsibility for the long-term consequences of his selling false promises and wrecked lives.

Where is the moral dilemma? I find it akin to participating in a game of football or hockey and arguing about whether it is “moral” to tackle your opponent or crash them into the boards. You have to understand that the rules of the game are all that counts. Not only is corporation tackling its opponents “legally” and with complete lack of feeling every chance it gets, but we all know it even plays dirty when it gets a chance.

If you are going to participate in this game and refuse to use the rules to the best of your advantage, prepare to be walloped.

Agree with DC Beacon
Should of been Winget is a wingnut.
Sure live like a slave some some offshore bank exec. gets his perks.
Laughs.
This is not a correction or a resetting, this is the end of the system, period. This is on the level of the fall of Rome when the parliament was filled with uber-rich elitists who thought they could do as they pleased. This is on level with the fall of all of humanities great civilizations/super powers. Spain, Rome, England, even the USSR. This is not about a natural cycle, this is about system failure.
Housing will bottom in 2015.

To MikeC and CPGone’s points, the other benefit of folks walking away from significantly underwater mortgages in what were highly speculative markets (twist your point is well taken about being 5% underwater) is a systemic shock that may stop the current approach to housing as a way of getting rich (by both lenders and consumers).

If the social goal is affordable hpousing for the middle class (that’s what I would favor), then shocking the current market reality with mass strategic defaults by the average american might just do the trick.

Stocks should be priced based on the quality of management and the long-term dividend record, and homes should be priced as a reasonable multiple of what middle class families in the area earn.

Is it morally wrong to shock the system as we know it towards something more fundamentally sound and sustainable?

i’m with DC (and some of you others) on this. collateral is involved so i don’t think there is even a “moral” aspect of it. if i take my watch to the pawn shop and get $50, neither the owner nor myself should feel slighted if i don’t go back to pay the $50 for my watch. i got $50 and the pawn shop will sell it for much more. the only difference here is that the banks didn’t pay attention to true values. they woulda gave me $500 for that watch!!! that’s their own fault. now if twist loaned me the $ for my home on a handshake type of deal…morals come into play, and i would not sleep well by “walking away.” but this is a contract that clearly states that if you don’t pay, the banks gets consideration in the form of the property. would we even have this discussion if someone owed $150K on a home worth $250K and the bank foreclosed when the home owner couldn’t make their payments?