Foreclosures are up again

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Remember last year all that stuff about robo-signings to foreclose properties? Well for the past 9 months there was a sharp drop in foreclosures as banks had to stop foreclosures while they got their legal house in order. Well, last quarter they did, and foreclosures are back up again. (Although they still remain lower than they were a year ago.)

Story.

Two questions here:

The story points out that an increase in foreclosures should speed the recovery of the housing market. I do not follow that logic - how does increasing the number of houses available for purchase - a market that already is saturated with many more sellers than buyers - help? Sure, I understand that replacing someone who can't pay their mortgage with someone who can pay their mortgage would speed the recovery, but like I said, there are already a whole lot more homes available for sale than there are potential buyers. So increasing the number of homes on the market should only serve the drive home prices lower.

Second issue: The story goes into great detail about a point that to me seems self-evident - that people with lower incomes are disproportionately affected by home foreclosures. Really? You mean people that make the least amount of money are behind on their mortgage, and those same people can least afford a lawyer to help them out? They actually devoted about 1/3 of the story making that point. I was wondering if they were going to close the story by telling me the sun still was rising to the east...

 

Re your first question, and from the link:

They might be saying that it's better to get it all over with now, rather than have a partial recovery now, and then have another downturn later by dumping a new round of foreclosures on the maket. Basically, it's increased short term pain for longer-term gain. I'm not sure I agree with that, but it seems like that's the idea (although I could be wrong).

 

What a disgrace it is to throw families out of their homes. The bankers may rot in hell for all I care.

 

So they should allow families to live in the house without making payments, rather than trying to find someone who can make the payments? As much as I don't like to think of a family losing their home, every home owner signs a contract before buying a place and there has to be consequences for not paying.

When the housing bubble was in place, a large percentage of people purchased homes who had no right to. I don't think it's so horrible for those people to move into a place that they can actually, you know, afford. In fact, it's what needs to happen. I have several friends who purchased during the "bubble era" and don't say this heartlessly.

Interestingly, one family I know stopped making their payments over 3 years ago, and still haven't been kicked out of their condo. Amazing -- 3 years without rent or a mortgage payment. Such things cannot last forever, of course.

 

I am sure it's going to get a lot worse before it gets any better.

 

I tend to agree with Marceror here. Certainly, it's a terrible thing to lose your home, but ultimately, if you cannot afford the mortgage payments, what is a bank supposed to do? Usually you have to be at least 90 days behind before your loan is even considered delinquent, and according to the article it typically takes another 13 months after foreclosure proceedings begin before you are evicted. Allowing someone who cannot afford to pay their mortgage to continue living there doesn't seem like a viable option.

While I do not know anyone who had their home foreclosed on, I do know several people who are underwater. They are all still making the payments, but the biggest problem is it ties you to that area. You cannot leave and take a job somewhere else, because they can't sell their current home for what they owe on it.

 

I know several people who, when they went underwater in their home, simply stopped paying. They could pay but decided they didn't want to. Now they simply live in the house and brag about how they haven't made a payment in several years. I have no respect for these people (on the other hand, I also know people who have negotiated lower payment and are really trying to do everything they can -- very commendable).

In this area there is another problem as well, people who gutted their houses before they left. These houses even have the copper wire and piping removed from them (some by the owners and some by thieves). These houses need to be demolished and rebuilt (which is less expensive than to fix them in many cases).

When I bought my house the bank and realtor both said I could qualify for a house nearly three times what Mrs Bruno and I were comfortable with. We simply told the realtor the price range we were interested in and if she took us outside that range we would find another realtor -- that immediately ended her push to oversell. I have no compassion for those people who didn't show restraint and bought as big and expensive as they could qualify for; sometimes people are punished for stupidity.

I do feel for those people who made the right decisions and used common sense when purchasing only to find themselves in the midst of a financial disaster that wasn't their fault (unemployment, medical issues, etc.). We spent billions on a stimulus package which protected the banks and really didn't protect those people -- shame on us.

 

Well, not to split hairs (well, OK, I guess I am), but obviously they had a right to buy or they wouldn't have been able to do so. It would probably be more accurate to say that they were foolish to buy.

On the whole subject of whether or not people should have bought the houses they did, the financial makets share a large part of the blame. The whole sub-prime market was driven by bankers suckering people into purchasing homes that they were ultmately not going to be able to afford long term; they were selling the Great American Dream to people who lacked the financial wherewithal to know better.

 

I understand the argument here but at some point the person buying the house -- actually signing the dotted line -- has some accountability. I think vast majority of buyers knew what they were getting but just chose to ignore the possible bad outcomes ... much like a child eating Holloween candy.

 

In my experience this happens all the time - it seems like most people qualify for a house that is more expensive than they could reasonably afford. By that I mean they can technically make the payments, but the mortgage payment is in excess of half their monthly income. When we bought our first house, we qualified for a loan well in excess of the price of the house we ended up buying, but I would not have been at all comfortable with that mortgage payment. And this happened back in 2000 - so well before the housing boom. It seems like a good rule of thumb to see what you qualify for, and then try to find a house that costs about 3/4 of that maximum (or 1/3 if you're T2).

Of course, a secondary question then arises - banks are ultimately putting their money at risk. Why would they continue to approve mortgages that people are going to have a really hard time affording? During the housing boom the answer was obvious - they were going to sell your mortgage to other investors, so they weren't really risking anything, but it happened before the housing crisis and since the housing crisis, and yet they still continue to do it.

Can you help me out on the mindset of these people? Why would you stop paying on a house that you could still afford? I have a friend who bought at the peak of the boom, and his house is now worth less than what he paid for it, but as he told me, that's not a big deal so long as he remains gainfully employed. He could afford the house at the time he bought it, his salary is somewhat higher now than it was then, and therefore there isn't an issue with continuing to pay the mortgage so long as his situation stays as it is now.

It seems like a very drastic step to take to stop paying when you have the ability to pay. Eventually, the bank is going to either get their money, or take your house. After that, good luck finding another bank willing to give you a loan to buy another house with a mortgage default on your credit report. What exactly are these people thinking? Are they foolish (or perhaps shortsighted) enough to think that they'll be able to live there forever without paying?

The thing that angers me about those people is it is malicious. They can afford it. I have some sympathy for some people who thought during the housing boom that this was the one chance they had to be able to afford a home, got in over their heads, lost their job, and with it, their ability to pay the mortgage. Perhaps they used poor judgement, perhaps they were simply foolish, but their intentions were true, and they would have kept paying provided they had the means to do so. But to stop paying when you still have the ability to do so? In addition to the deserved scorn they receive, it also makes no sense at all. Even my 4-year old son knows that you can't buy something if you don't have the money to pay for it. In fact, we have a word for that - it's called stealing.

 

I can't -- I don't understand it either. I also know people who continue to collect Social Security for disabilities they no longer have. In my mind these types of things are truly shameful.

 

While I agree it's shameful, I can see why people do this. It doesn't speak highly of one's character, but they see it as a means of collecting an income without working, combined with a low risk of getting caught. They think they can - and many do - get away with it, so that's why they do it. Say your hurt your back at work. Even if it gets better, there's no way to prove that your back still doesn't hurt.

The same does not apply to your mortgage payment. Here the chance of eventually getting caught is certain. You can only "get away with it" for so long. It's not a question of if the lender comes looking for the money, it's when. And it will have serious future repercussions in that you'll likely never get another home loan, or even a car loan for that matter. There's no scenario where this works out favorably for you, as it could it first example.

 

Yep, you're definitely splitting hairs here. The "no right to" comment was just a figure of speech. What I meant is that people were buying homes that their incomes could not sustain. So perhaps that had a "contractual" right to buy them -- the stupid banks gave them the loan, sure -- but not a moral, ethical, smartical (new word), legal (if they lied about income), and certainly godly right to buy the home.

I have not so fond memories of telling friends and acquaintences on the cusp of making some of these purchases that they were out of their minds. "I don't see how in the world you're going to make the payments." No one ever appreciated hearing that, and ultimately never listened. All of those people have either since lost their homes, or are awaiting foreclosure. The Optiom ARM thing did nothing to help... as if property values were just going to keep going up forever. Pfft.

 

I agree with Chandos' sentiments about banks kicking people out of their homes in the most egregious of cases - the homeowners have tried, they have small children, etc., etc. That does seem heartless. But banks are often in a no-win situation with that, much like utility companies. Everyone thinks that it's heartless to cut off someone's heat or electricity, but normally this takes place only way, way after they stopped paying for it. As much as we might like to demonize them, I think it's pretty rare that there's someone turning off the switch at the utility company with a big smile on their face, or someone at the bank filing the foreclosure papers with a sense of great satisfaction. I put in some time in a bank's debt collection department, and generally the ethos there was that the true deadbeats were the bad guys that you went after, while those who tried would get the greatest amount of cooperation.

I think that generally these people file for Chapter 7 bankruptcy, which means your property and assets get sold off and distributed to your creditors, but after that you start fresh (no other collections are allowed). If you don't really have any assets, this isn't such a bad deal beyond the fact that the bankruptcy sits there on your credit report for I think 10 years, but that itself isn't as bad as the alternative - paying tons of money toward a mortgage that you will ultimately lose on anyway. The prospect of having to rent an apartment for the forseeable future or live with someone else is probably fairly low on the list of problems for people in these kinds of situations.

Yes there is.

 

Stephen Colbert:

http://www.huffingtonpost.com/2010/01/18/stephen-colber-takes-on-t_n_427258.html

 

Oh, absolutely; that's why I said banks share in the blame, rather than that they're fully to blame.

 

Genuinely asking... how? I have a herniated disc. Some days it hurts some days it's pretty good. But it never goes away... Or someone with say, back spasms. It feels pretty good when it isn't have a spasm. How can you definitively prove someone doesn't have chronic pain if it isn't something that will readily show up on some type of diagnostic test?

 

Awesome quote Chandos.

 

T2 -

They hire dectives to go out and watch. They often observe them doing stuff like playing basketball, unloading their cars or trucks and yardwork.

 

I can't say I understand it either, but based on my experience/observations a lot of people view their homes more as a revenue generation source than a place to live. If the revenue generation potential is gone, then it's time to get out. If you have no sense of ethics, you are happy to get out the cheapest way possible: quit making payments and sock that money away (or go out and blow it on "stuff") for the eventual day that you will be forcibly removed from your home.

As it turns out, many homeowners, just like many wall street execs, are largely devoid of any sort of ethics, and are 100% out for themselves, regardless of who they hurt.

Or in other words, there's a hell of a lot of neutral evil folks in the good ole U.S. of A (trying to keep the DND references alive).