tag:blogger.com,1999:blog-10424035.post584418161367896019..comments2023-09-11T08:58:24.710-06:00Comments on Reach Upward: Housing Crisis Remedies Driven By Political WhimScott Hinrichshttp://www.blogger.com/profile/11831447472339880148noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-10424035.post-20148599022471379282009-07-09T15:41:45.968-06:002009-07-09T15:41:45.968-06:00I once worked as a loan collector. It wasn't ...I once worked as a loan collector. It wasn't a pretty job. But I saw a lot of different situations where people weren't paying their loans on everything ranging from musical instruments to cars to homes to farm equipment.<br /><br />Many people didn't have a problem paying on their car loans when they were upside down on the loan because for most of these people, the car they were driving was quite new. However, there were a lot more problems when people were upside down on older cars, especially when they carried a high debt ratio.<br /><br />If such a car experienced mechanical problems, a significant number of these folks would just stop paying their loan. "Why should I pay for something that doesn't run?" they would think. If we came to repossess it, they'd have no problem letting us take it away, despite the consequences of having a repo on their credit rating.<br /><br />It was different with homes. I rarely saw people that were upside down on loans. Back in that day, almost nobody got an interest only loan in hopes of flipping the house and turning a tidy profit on increasing home values.<br /><br />Perhaps it comes down to those that are intent on 'owning' a home as opposed to 'holding' a home for speculation. I'm not sure if any data can effectively delineate between these two groups. My guess is that speculators would be more likely to walk away from an upside down mortgage than owners would.Scott Hinrichshttps://www.blogger.com/profile/11831447472339880148noreply@blogger.comtag:blogger.com,1999:blog-10424035.post-16439435052991579232009-07-09T11:18:21.008-06:002009-07-09T11:18:21.008-06:00I'm still not sure how much incentive there is...I'm still not sure how much incentive there is to simply walk away from a house you're paying for just because the market price is down. Pretty much everyone who has ever financed a car purchase has been upside down in that scenario, yet we don't have wholesale car abandonment. It seems like there would have to be some sort of financial incentive to do so, ie you can no longer afford the payments. <br /><br />Though I suppose if you had a large down payment on that house you would be less likely to walk away and more likely to find some way to save the home. In some ways, without skin in the game, as you put it, homeowners take on the same mentality as home renters who can leave just about any time they want with little repercussion.Cameronhttps://www.blogger.com/profile/06016275707476655364noreply@blogger.comtag:blogger.com,1999:blog-10424035.post-2614357426747740212009-07-08T17:33:17.924-06:002009-07-08T17:33:17.924-06:00No doubt that a combination of factors are in play...No doubt that a combination of factors are in play here. However, Liebowitz contends that without people essentially having no ownership in the property, the current crisis would not exist.<br /><br />It is also important to realize that home prices are trying to adjust to normal market rates. Unless the financial and political elites manage to successfully create another bubble, it will be a generation before home prices reach the dollar amount that some of these people currently owe on their loans.<br /><br />Being upside down on a home IS a problem because you know that you are in essence not the owner. You're just paying rent. Moreover, the areas where the vast majority of foreclosures are occurring (only four states) all have laws that provide few consequences if you decide to just walk away from the house and the loan.<br /><br />When the penalties for walking away are low and your payment is high, the incentive for walking away is significantly increased, even if you can afford the payment. If finances are getting tight for one reason or another, that increases the incentive even more.<br /><br />Kevin (y-intercept at comment #2 above) has proposed a more shared ownership system that he suggests will make sure that both the homeowner and the lender have more skin in the game, as it were. It's an interesting idea.Scott Hinrichshttps://www.blogger.com/profile/11831447472339880148noreply@blogger.comtag:blogger.com,1999:blog-10424035.post-28430561059686999102009-07-08T11:50:57.295-06:002009-07-08T11:50:57.295-06:00Being upside down is solely a function of current ...Being upside down is solely a function of current market prices. And as long as you can make your payments, it doesn't really matter if you are upside down.<br /><br />The problem is that there are many who for a variety of reasons cannot make their mortgage payment each month. Two of the larger reasons for this is loss of employment coupled with no savings, and a mortgage payment that increased due to an adjustable interest rate. In some cases, like that of my neighbor, it's a combination of both at the same time.Cameronhttps://www.blogger.com/profile/06016275707476655364noreply@blogger.comtag:blogger.com,1999:blog-10424035.post-82250818211867584612009-07-08T10:38:20.968-06:002009-07-08T10:38:20.968-06:00I've come to the conclusion that the mortgage ...I've come to the conclusion that the mortgage system is based on a flawed mathematical model. The mortgage system has people leveraging off the equity off their property rather than building equity.<br /><br />David's comment about integrity is interesting. The real heart of mortgage financing is the integrity of the people engaged in the process.<br /><br />One is able to completely undermine the system if they change the integrity of the people in the system. <br /><br />The media created a <i>flip-this-house</i> mantality about home buying. The mantality was one that encouraged people to take great risks. They would reap the rewards if the market rose, but would externalize the costs of failure on the system at large.<br /><br />This creates a systemic fault in that there is now an artificial pressure that magnifies the peaks and valleys of real estate cycles.y-intercepthttps://www.blogger.com/profile/03389285761013186443noreply@blogger.comtag:blogger.com,1999:blog-10424035.post-84181629526917395222009-07-08T08:20:27.626-06:002009-07-08T08:20:27.626-06:00"The trick is to pull that off (working withi...<strong>"The trick is to pull that off (working within the political economy to advance just causes) while remaining unsullied."</strong><br /><br />I think the key to pulling that off is an enormous degree of personal integrity. I only wish there were a way to reliably and consistently identify people with that kind of integrity who also have the capacity to work on issues as complex and nuanced as the federal government deals with.Anonymousnoreply@blogger.com