Consequences of Massive Bailouts

[Bob]

NYT: Some homeowners stop paying mortgages - The New York Times- msnbc.com By David Streitfeld
updated 22 minutes ago

ST. PETERSBURG, Fla. - For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life ? something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

?Instead of the house dragging us down, it?s become a life raft,? said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. ?It?s really been a blessing.?
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A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender?s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

 

[Geo]

Wouldn't this be the consequence of all the things that first led to the sitution of the bailouts (e.g. lobbyists, politicans, deregulation, underwriters, appraisals, investulators, bundled loans, etc etc)

 

[scooterbug44]

Bailouts have nothing to do with it - people made bad choices and are now continuing to make bad choices and try to work the system.

Read the whole article and you will find that they are in this pickle because they kept borrowing against their minimal equity - in one case to buy a car to offer as a prize! :angry:

 

[Geo]

Scooter, I agree with you that people made bad choices. Buy I no longer agree with you that they are continuing to make bad choices. I know longer believe in the "moral" stigma that we see attached to someone who makes a rational business decision.

When the ultrarich (e.g. Donald Trump) find themselves on the wrong side of market conditions they don't keep throwing good money after bad and they don't let emotion or morals cloud their judgement. They "work the system" and start over. It's not personal- it's business.

I have a friend who was professionally advised a year ago to stop paying on his house. But he refused this course of action because it didn't *feel* right. A year later he is wiped out, umemployed and not paying on his mortgage because he paid on it until he could pay no more. Cashed out all investments and what little savings he had to keep paying on it as long as he could
because it was the "moral" thing to do. And as it has worked out- the stupid thing to do.

 

[scooterbug44]

I think there is a big difference between not paying the mortgage and wisely using that money to regain your financial footing and not paying the mortgage, living frivolously, not changing your ways, and trying to justify it.

Filling up your gas guzzling airboat vs. paying other outstanding bills. :roll:

 

[Lynnie]

The King of Bankrupcty - very smart man. I also just read a stat that 59% of homeowners who are upsidedown would never consider walking away. That leaves 41% and I would guess a fairly large percentage of those would rather keep their homes and modify than leave due to foreclosure. I've said before, there are many variables to this equation and it doesn't just fall on the homeowner. Typically, when we move in a financial recession, we know what to expect, but this one took many by surprise, and like Trump, added to their debt loads while trying to float. Some will make it, some won't.

Donald Trump - Wikipedia, the free encyclopedia

 

[scooterbug44]

Um, that needs some severe editing.

 

[Lynnie]

Holy Smokes, not sure what happened with that text.

 

[30ashopper]

Nothing wrong with skirting the rules and trying to survive. There are side effects to this, the credit ratings of the folks in the NYT article are dropping like rocks every time they miss a payment. In the end, they'll likely push the limits too far, lose the house, and have to rent. They won't purchase another house for years.

Geo, your friend's credit is ruined, he'll not be able to purchase a house for quite some time as well. Once he's shown the ability to make better decisions he'll have the chance to purchase again.

Even the people getting bailed out by the government are defaulting at significant rates and their credit is getting destroyed. Such is life.. lessons learned.

The thing that angers me the most - FHA insured loans that are being made today by Freddie and Fannie, which make up a majority of the loans being issued. A lot of these loans are headed into foreclosure because the politicians in Washington are allowing the FHA to underwrite people who can't afford the payments, and F&F are government owned now, so they have a congressionally sanctioned bottomless pit of funding (courtesy of the democrats in power I might add). In the end we all have to pick up the tab. But even in these cases, credit ratings get destroyed, and all the people making bad decisions right now will pay a heavy heavy price.

 

[Geo]

Here's the rub, Shopper. My friend thought he was making good decisions. In hindsight, renting instead of buying would have been a good decision. In almost any other moment in our lifetimes folks like my friend would have had as a worst case scenario having to sell their houses. Not an option when the market demonstrates that it is worth literally half of what one paid for it 3 years earlier.

Scooter, I completely agree with your distinction...