Monday, March 03, 2008

Treasury Secretary Paulson wants bankrupt ex-homeowners?

Via The Housing Bubble Blog:
Treasury Secretary Henry Paulson had a tough message for homeowners: Don't think about walking away from your mortgage if you can afford the payments. In a speech to the National Association for Business Economics, Paulson said people who can afford their mortgage payments but decide to walk away from their homes because of falling home prices were nothing more than "speculators." Economists are concerned that many homeowners will choose in coming months to take part in "jingle mail" or mail their house keys back to the bank because of the falling value or rising payments as their adjustable rate loans reset.
If you bought a house with a mortgage, then you were in one sense gambling that it would rise in value in partnership with the bank. You put your downpayment at risk, along with what little you'd been able to pay off in the months since, and the bank put up the remainder. It would seem like the earlier you acknowledged that loss, the better off you'd both be.

But, Secretary Paulson would rather people stick with their underwater mortgages? The UK Telegraph interviews Bay Area short sales & foreclosure agent Heidi Mueller about what happens then.
[M]illions [of families are] faced each year with a sudden increase in their mortgage rates as the cheap deals they signed up to expire and they are shifted onto exorbitant rates. It is these so-called mortgage resets which are triggering each year, bringing forcing more troubled families to sell their homes in a rush at knock-down prices or face having them repossessed. Given that 2005 and 2006 marked the peak of the US housing boom, it is this year and next's vintages which will be the most miserable.

"If it had just doubled that wouldn't have been so bad - at least they could rent an extra room out," says Mueller. "That's what most families do to make up the difference. Then when that fails they try to do it with credit cards. Sooner or later they end up coming to see me.
Which I guess explains why it was so important to make bankruptcy harder to navigate in the earlier part of the decade. Mortgage lenders knew that in a cultural hangover from the Twentieth Century, homeowners would try to make their mortgage payment by hook or by crook, including getting unsecured debt to pay off secured debt. With secured debt, you can just hand over the security and you're done with it. With unsecured debt, the credit card agencies will hound you with the aid of a complicit government. So, you really don't want to go about turning one into the other. The huge benefit of credit cards is that you have a credit limit. Your heirs should be able to pay off whatever you borrow by the ends of their lives -- there's no such implication in mortgages.

But, there are positive signs of our emerging glorious socialist future in the Redding Record Searchlight.
Since January, [Redding Code Enforcement Supervisor Debra] Wright's office has posted about 20 compliance orders on foreclosed homes in Redding. That's the most in Wright's 20 years - four as supervisor - with the city.
In Stockton, home to some of the highest foreclosure rates in the country, the city issued 800 code enforcement orders on homes in February, Wright said.
Fed up with lenders seizing homes and then leaving them to rot, Chula Vista in July adopted a program that forces lenders to maintain homes they've taken back and to register the abandoned houses with the city.
Do you see where I'm going with this? The lender forecloses. The 'homeowner' is evicted. The lender has to maintain the property, or face fines several times the normal property tax. The obvious solution is to foreclose on a property, and let the homeowner stay there as long as they keep the house up to code. They need someone staying there! Maybe they could rent it back, or something, but I suspect many of these houses are incredibly inconvenient -- people only moved into them for the promise of a huge payout in the future. Now that that's gone, pretty much all you can ask is that they stay there for free, and keep the garden up.

Then, in the mythical future when they've collected a 20% down payment and the market's stabilized -- call it 2015 -- whoever currently owns the lenders' assets can sell it back to them!

No comments: