on the part of scum flipping houses and condos, and now walking away from the loans? I suspect it's a huge part of the problem, but maybe someone has the numbers.
Definitely a big part of it, but the underlying problem is the FED keeping rates so low in the first place. This allowed people to buy twice the house they could really afford. Many of the people walking away from mortgages live in the house (until they walk that is). Without the artificially low rates, prices in the bubble markets never could have run up to those levels in the first place as no one would have been able to afford to buy the damn things. Some economists are predicting that prices may stop falling within a few years, but then remain flat for up to a decade until incomes catch up to historical mortgage/income ratios. I believe this to be true in places like Cal.
Cheap money was the bonus. Underwriting was the problem, also it is my understanding the conventional accounting for "reserves" went out the window. People don't walk away from a negative equity home, it seems pointless, they have to live somewhere, they walked away from the payments they can't make.
The problem was simply that lenders permitted borrowers to leverage their homes at 100%+ of appraised value. This allowed people to purchase a home without risk. When a person makes a risk-free investment, there's no reason to hold the position when it's under pressure -- so, the person just walks away and the market crashes. Exactly what happened with stocks prior to the Great Depression.
yeah, but without the low rates, even 100% financing would never have lead to these lofty prices as people never would have been able to make a single payment. Its the artificial rates that allowed prices to get so high.
They do now, and they are starting to do it in large numbers. They move into rentals at half the cost. Not only are there articles about it all over the place, there is now a firm called youwalkaway.com which helps people do exactly that. They help people in foreclosure AND those that just have negative equity and want to bail. They are getting 7,000 hits per day, and their staff of 12 is over worked with all the calls they are getting. Lots of news about these guys here in San Diego as prices are dropping faster here than anywhere else now (even Florida), and the company is based here.
Everyone has negative equity in the vehicle they drive, granted some may walk away but it hardly seems worth it to have it repo'd if you can make the payments. I did see the "youwalkaway", imo, more preying on the ignorant as bad as the mortgage lenders. Too bad they just can't refinance the loan.
What if you could get the same car for half the payment? Many people do not see their homes doing anything but continuing to tank, so they say "what the hell, I'll rent". Maybe buy another home several years out, if at all. Probably people that are also leveraged up to their eyeballs in credit card debt also. I read an interesting article in Friday's WSJ that was discussing how many people nowadays would rather lose their home than credit cards cause that's their cash flow. This debt thing is only going to get uglier.
how many people nowadays would rather lose their home than credit cards cause that's their cash flow. --------------------- tough call. A mortgage is going to be their only tax deduction, unless they have kids. Taking away the credit card interest deduction was a bad move, everyone took the equity loans and paid off cc's for the tax deduction. Smart builders would not let people speculate with home equity on their properties. Trump was one.