2009 April 05 Sunday
Obama Wants To Keep Poor People In Expensive Homes
The first group here is the group that shouldn't be living where they are living.
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.
My initial reaction to reading the above is that of course the first group need to give up their homes and move down into smaller cheaper accommodations. Whereas we should want the second group who can afford to pay their mortgages to stay put and keep paying. But I do not think like a liberal Democrat. Obama wants people to stay in houses that they should never have bought in the first place.
Mr. Obama has evidently decided to focus on the first group, based on the previews of his speech that aides have offered. In coming weeks, his administration will begin spending $50 billion to entice banks to reduce the monthly payments of people who otherwise couldn’t afford to stay in their houses.
So basically this amounts to subsidized housing in the suburbs. Cheat on your mortgage appication, get way in over your head, and his sainthood will bail you out at the expense of net taxpayers.
But if the first group default then their properties are put on the market on a fire-sale basis, pushing overall house prices further down and greatly enlarging the second group. Then the second group start to voluntarily walk away, causing property prices to drop further and again greatly enlarging the second group, causing...etc etc etc
The only way to stop it is to start bulldozing houses... But that's kind of perverse if there are people sleeping in tents.
Here in Michigan (which is the fifth "Sand State"), the housing situation is just terrible. The unemployment rate is the highest in the nation, people are leaving the state, housing prices are plumetting, there are lots of vacant properties. A local lawyer told me about a conversation that one of his associates had with a couple that came to him for advice - the both had kept their jobs, but they were way underwater on their home - the property was worth a lot less than their mortgage on it. They were worried about continuing to make the big payments on a property that would never be worth that much. The conversation went something like this:
Clients: "We're worried about making all these big payments on a house whose market value has dropped so much. While we can afford the payments, we'd rather use the money for other things."
Lawyer: "So just stop making the payments."
Clients: "But won't they kick us out?"
Lawyer: "Sure. But it'll take them at least eight months to do it, and during that time you can live in the house for free."
Clients: "But won't they come after us for the balance?"
Lawyer: "Nope. This is a non-recourse state, which means, essentially, that they can't do anything more than recover the property. Anyway, as a practical matter, banks never come after defaulting homeowners, at least not around here."
Clients: "But where will we live?"
Lawyer: "Defaulting on your mortgage will damage your credut rating, but you can still find some easy-credit offer to buy another property. Or just rent for a while - there are a lot of vacant houses out there right now."
So the clients followed their lawyer's advice and dumped their house. It took the bank over a year to evict them. Now the house sits empty, just another vacant property that no one wants. Looks like Obama wants to keep this nice little scam going forward at taxpayers' expense.
The homes were way overpriced. Probably at least some of the people living in them could have afforded them, had the whole housing madness thing not started. Unfortunately prices are still relatively high in most of CA, and rents are slow to come down too. $800/mo for a studio apartment in the bad side of town is not only highway robbery, but is the result of a gross distortion of the market--for one thing, the landlords who are charging that often bought the properties at grossly inflated prices, for example.
Possibly the solution to the rental price issue is to make it easier to forclose on people who own rental properties. I see no reason to keep a landlord afloat at all if they are trying to catch up on their mortgages by charging ridiculous rents. Someone who is paying, say, $200/mo per unit on the mortgage is much less likely to charge ridiculous rents than someone paying two, three, or four times that much.
I guess it is really the law of unintented consequences: cheap and easy credit, especially for housing, was supported politically to help poor people trying to get homes. Instead of simply allowing poor, lower middle class, and young people to buy houses, housing prices exploded, and now the poor are stuck paying high rents to landlords who paid way to much for their properties, just as their ex-homeowner tenants did.
 True believers will have their justice.
 Unrepentant sins will be rewarded with forgiveness;  for, yea, it doth destabilize existing power structures.
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