Wikinvest Wire

Stop throwing your money away on mortgage payments

Friday, April 04, 2008

So, do you think this latest development will have any impact on the collective psyche of those homeowners who have cut back on their spending or taken on second jobs in order to continue making their mortgage payments?

The short answer is "yes".

Bob Ivry at Bloomberg has all the details:

Lenders Swamped By Foreclosures Let Homeowners Stay

Banks are so overwhelmed by the U.S. housing crisis they've started to look the other way when homeowners stop paying their mortgages.

The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on.

Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody's Economy.com, a unit of New York-based Moody's Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.

"We don't have a sense of the magnitude of what's really going on because the whole process is being delayed," Zandi said in an interview. "Looking at the data, we see the problems, but they are probably measurably greater than we think."
...
"Some people stay in their houses until someone comes to kick them out," said Angel Gutierrez, owner of Dallas-based Metro Lending, which buys distressed mortgage debt. "Sometimes no one comes to kick them out."
...
Real estate broker Georgia Kapsalis is offering a home for sale in Birmingham, Michigan, a Detroit suburb, where the owner last wrote a mortgage check in July. He still lives in the house, she said.
Uh ... would you mind tidying up a bit? We want to show your house this afternoon.

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10 comments:

Pool Shark said...

Letting them stay is likely cheaper than paying them to vacate and leave the premises in good condition.

Additionally, foreclosure requires the lender to begin caring for the premises and paying property taxes.

Interestingly, in my California County, property tax payments are due by April 10th.

It will be interesting to see how many 'owners' without tax escrow accounts choose to stiff the gubmint.

Tim said...

If they're not paying the mortgage, why would they continue to pay the taxes or the insurance?

Anonymous said...

Well, the government has guns, unlike the bank.

Speaking of property taxes Tim, here's probably another bubble associated with property values: public employee compensation; see http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/03/30/MN7OVQOPK.DTL

Where is California going to find the money to keep paying nurses $350k and park rangers $250k?

Rob Dawg said...

"Uh ... would you mind tidying up a bit? We want to show your house this afternoon."

"Uh ... would you mind tidying up a bit? We want to show our house this afternoon."

Until the bank records their name on the title at the courthouse/assessor the County will continue to think the borrower is liable for taxes. Banks are running a risky game to save a few dollars.

matt said...

Tim:

I'm seriously thinking about buying a house. It seems like paying for housing is a thing of the past.

There are a zillion homeowner subsidies from the gang of fools in Washington, but I'm waiting for the one where they pay me to buy a house.

donna said...

Matt,

That might not be too far off. They used to pay people to settle in new territories, or give them free land. I think some parts of northern Minnesota you can still homestead.

It would certainly be a Good Idea in areas where they are having to tear down houses that are not being maintained.

pft said...

It is a big cost to foreclose, even in the best of times (someone floated 50 K as a number). Also, once you kick them out, nobody is around to pay the property tax except the bank. The homeowner, now squatter, probably pays the property tax to avoid the city from seizing the property, and if he maintains the house reasonably well, the bank does not have to pay for this service since they don't want it's value to deteriorate before being sold off, and thats going to take some time. If the bank forecloses, they also risks the house being looted for copper and trashed, this has happened (every house has about 2000 dollars in copper plumbing and electrical wiring). Also, too many houses on the market will result in a deeper crash in the housing market, fueling even more foreclosures, and reducing the value of what the bank can get on the houses they are already trying to dump.

The other plus in delaying, is allowing a homowner who has defaulted to get time to arrange their finances. Not paying a mortgage for a year, and perhaps finding a job, or if a health care crisis has passed, and then maybe they can work out a deal with the homeowner that avoids foreclosure.

This is money the banks created out of thin air. The hurt comes
when the loan has to be written off, and the bank has to replace the money they created for the loan with their own capital.

It is also likely that many of those investment banks holding the mortgages, can't prove it. I guess this is a free market working it's magic.

Ken said...

I think instead of bulldozing houses, they should bulldoze Wall Street. Has anyone read Kunstler's new "World Made By Hand"?

Anonymous said...

A great "Greenspan's mess" sighting in this Bloomber video (an interview with Steve Roach, but the interviewer calls it Greenspan's mess, not Roach) about 195 seconds in - vtDkST57PZhM

Anonymous said...

Matt: There's legislation under consideration to provide a $7,000 tax credit for people who buy foreclosed homes. I'd guess it will probably pass pass.

The homebuilders lobby is pushing to extend the tax credit to new homes. My gut says that will be a harder sell, but they are a pretty powerful lobby and have bought many politicians, so who know.

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