David Leonhardt writes in the NY Times:
In a speech in Phoenix [on Wednesday], a signature real estate boomtown gone bust, President Obama will explain his plan to reduce foreclosures. And the key to understanding that plan will be remembering that there are two different groups of homeowners who are at risk of foreclosure.
The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. Many took out loans they were never going to be able to afford, while others have since lost their jobs. About three million households — and rising — fall into this category. Without help, they will lose their homes.
The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater. If they want to stay in their homes, they will have no trouble doing so. But some may choose to walk away voluntarily, rather than continue to make payments on an investment that may never pay off.
Scratch beneath the details of any housing bailout proposal, and the fundamental issue is whether it tries to help the second group or just the first.
Mr. Obama has evidently decided to focus on the first group, based on the previews of his speech that aides have offered.
So, let me see if I have this straight? Obama is going to throw money at the most hopeless cases, the people who never should have bought the house in the first place, many of whom are speculators and/or crooks who lied on their mortgage applications, but he won't help out the larger number of people who are doing the right thing?
And it's really not that hard to turn yourself into a hopeless case, especially if the government will pay you for doing so.
Further, a lot of deadbeats and potential deadbeats who look like hopeless cases based on their own individual incomes and assets have this thing called "relatives." Over the last couple of decades, I've twice written moderately sizable checks to get relatives through credit crunches. It's just what you do.
My published articles are archived at iSteve.com -- Steve Sailer
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20 comments:
The housing market is NOWHERE near the bottom. In fact, it is still accelerating downward. What will the plan be when everyone with a mortgage is upside-down, deep underwater?
Like all intelligent people who are upside-down, I will very quickly stop making my mortgage payment if it means I get eligible for some federal program. They know this, so they can't offer any help that would actually work, since it would encourage more people to do the same.
This is a financial tsunami. Unless he somehow gets the authority to write-down all mortgages, by like 50%, tomorrow morning, there is no stopping it.
Japanese real estate lost 90% of its value during their deflation. 90%!!! If Obama's plan doesn't deal with that likelihood, it is not a serious plan.
So far, he is just running for re-election, not actually trying to solve problems. In short, a politician, and a good actor, not a leader. At a time of global crisis begging for real leadership.
Steve, the government is helping the family through a credit crunch. It is not buying out speculators. This is a pretty good move on Obama's part.
A better move would be to do nothing and let things find their level. But then the govt. would miss an opportunity to stick its snout (and hands) into things.
"So, let me see if I have this straight? Obama is going to throw money at the most hopeless cases..." (Steve Sailer)
He's just paying back the people who voted for him. Its called ethnic loyalty. Something white politicians know nothing about.
Being upside-down in a home you can afford is not the taxpayers' problem; it's not a problem at all (until you have to move because your job has, but that's another story).
These people don't need help, and the other group doesn't deserve it. As for the latter, most will be better served in foreclosure and renting (I am curious what will happen to rents as this thing unwinds further--good time to own a duplex), rather than being kept viable for a period. There is no shame in renting--and it's going to make a lot more sense for a lot more people for a very long time. Everybody needs to start viewing housing as housing, not investment.
Of course one might make an argument for debt moratoria, simply eliminating obligations rather than leaving houses empty and straining the rental market, thus creating the moral hazard Steve worries about, rewarding the foolish and punishing prudence.
What is needed is not liquidity, but liquidation--a painful but necessary period of mass foreclosures and investors being wiped out.
But these things aren't, yet, politically feasible. Politically we'll have to throw a bunch of thereby devalued dollars down the rathole of "helping people stay in their homes." Of course, as pointed out above, there is no definitive line between the distressed and the opportunistic, and people will act to place themselves in line for free money.
If I get to skip a couple of mortgage payments in the midst of economic hard times, and in return I get a greatly enhanced financial position...well, I wouldn't mind you, but my neighbor is a greedy bastard.
They should just let the top rotten banks go bust whilst guaranteeing say USD40000 personal savings. Then the smaller banks with solid books can take the slack. As for the overextended: Let them devalue by say 50%. The rest they will have to live with. The deadbeats are going to have to move back to government housing. I’m sure there is enough of it still around.
In total this would be much cheaper than guaranteeing black books with gigantic bubbles waiting to burst on all of us taxpayers. I could really live well in a world where Goldman Sachs, Citi, Hypo Vereinsbank, Deutsche Bank and AIG do not exist anymore. Does anybody miss Lehmann?
David said:
"This is a pretty good move on Obama's part."
It may be a politically smart move but it won't secure the country's future. All these people who are so amazed at Obama's political skills need to ask themselves whether it’s doing the country any good. And this skilfulness only works as along as most others are somewhat decent.
When everybody becomes scheming like Obama the country turns into just another cesspit overnight. People like Obama ride on the backs of lots of decent folk who do not leverage their possibilities to the max but look out for the common good. Some presidents in the more distant past also did this, and are now perceived as weak, whereas they were just being more honest and responsible than the forever scheming Obama.
Are real Americans going to rebel against this tyranny?
The real dead weight loss here is the slowness of the banks in getting foreclosed houses sold.
People drive around their neighborhoods and see empty houses and the crime and problems that they bring.
The proper role for the government *might* be in requiring that all bank owned houses be occupied within a certain number of weeks after the bank takes posession. That means the banks would have to figure out a way to hire property managers who would rent the houses out, or the banks would have to figure out a way to quickly sell the houses to landlords who would then rent out the houses.
The houses need to get in to the hands of someone who will either occupy then, find someone to occupy them, or at least visit twice a week to make sure the houses don't deteriorate.
We are entering a golden age of housing affordability. In much of America a young couple getting out of college with useful job skills (like nurse and CPA) will be able to buy a house for one and a half times their combined annual income. Or if they want they can instead rent that same house for ten percent of their combined annual income.
On balance, low housing prices are good for our society and for our economy - we just have to make sure that no houses stay empty due to incompetence of the banks
Does anybody miss Lehmann?
Who?
So what IS the alternative to mass housing deflation - dollar inflation? Make those dollars worth less so that those ginormously ridiculous housing prices aren't so ridiculous?
"Further, a lot of deadbeats and potential deadbeats who look like hopeless cases based on their own individual incomes and assets have this thing called "relatives." Over the last couple of decades, I've twice written moderately sizable checks to get relatives through credit crunches. It's just what you do."
Why don't we exclude anyone of Mexican ancestry from receiving government help. After all, Mexicans are supposedly family-oriented and family loving. Save the rest of the stimulus for us cold-hearted whiteys.
Wow, I am sure glad I saved money, invested conservatively and stayed out of the housing market. After all, Obama and Bush are both rewarding my thrift and adhering to time tested financial principles by: taxing me, inflating my money to near worthless value AND creating an environment where I am paid LESS interest.
Meanwhile, if had bought a home that is 10X my yearly income, they would have bailed me out.
THANKS GUYS!
Such bailout logic has been applied to the agriculture sector: poor, struggling farmers needed some help, but soon the big boys found a way to the trough, and now anybody who shows up with any tenuous connection to a handful of dirt gets a slice of the pie.
headache said...
They should just let the top rotten banks go bust whilst guaranteeing say USD40000 personal savings.
The US government has guaranteed bank accounts since the depression. Until recently the guarantee was $100k but now it has been increased to $250k.
Then the smaller banks with solid books can take the slack.
I think this will destroy most of the US banking system. I used to bank with a local credit union here in Mesa called Desert Schools that had a required notice near its' entrance declaring its' compliance with the CRA. This CU probably has 2-5 billion dollars in deposits and is concentrated here in the valley. I remember reading the notice where it said that CRA compliance data data was available by zip code. I didn't understand the significance of that notice at the time. Thankfully I now bank with WaMu...
The deadbeats are going to have to move back to government housing. I’m sure there is enough of it still around.
Or back to Mexico. Not all of the deadbeats were project dwellers or even colored.
Obamanomics = Socialism 2.0
Question:
under the O.'s proposal, if a mortgage principal is decreased, will the [property tax] asessed value of the haus also be decreased?
It's a good thing the gov't can print as much money as it needs, otherwise we'd be in trouble.
"malcolm said...
Wow, I am sure glad I saved money, invested conservatively and stayed out of the housing market. After all, Obama and Bush are both rewarding my thrift and adhering to time tested financial principles by: taxing me, inflating my money to near worthless value AND creating an environment where I am paid LESS interest.
Meanwhile, if had bought a home that is 10X my yearly income, they would have bailed me out.
THANKS GUYS!"
And in addition, because they're trying to maintain the real-estate market at inflated levels, your kids will be hard pressed to afford a house.
Remember when Bill Clinton talked about all those people who "worked hard and played by rules"? They've got a new name for us now - suckers.
Does no one on this comment stream get it? The real estate deflation cannot be stopped, not even close. Today's news: Phoenix median home price fell to $130,000, the same level of 2001, 50% peak. How is subsidized refinancing supposed to stop this?
The real estate deflation cannot be stopped, not even close.
Hope, not fear. Believe in Obama!
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