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66% Of Las Vegas Mortgages Are Underwater, 27.7% Of Total US Housing Debt Has Negative And Near-Negative Equity

Tyler Durden's picture




 

Following yesterday's news out of Zillow of a 0.77% drop in April home values compared to March, today we get an update from CoreLogic which in turn looks at the latest trends on "underwater" (or negative equity) mortgages in the US. In summary: "10.9 million, or 22.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011, down slightly from 11.1 million, or 23.1 percent, in the fourth quarter. An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the first quarter. Together, negative equity and near-negative equity mortgages accounted for 27.7 percent of all residential properties with a mortgage nationwide. In the fourth quarter, these two categories stood at 27.9 percent." The most impacted state is Nevada, which has 62.6% of all mortgages underwater (with another 4.8% in near-negative), followed by Arizona, Florida and Michigan. California is fifth with 30.9% of all homes underwater. We doubt these millions of "homeowners" are benefiting much from the wealth effect.

Highlights from the report:

  • Data Highlights Nevada had the highest negative equity percentage with 63 percent of all mortgaged properties underwater, followed by Arizona (50 percent), Florida (46 percent), Michigan (36 percent) and California (31 percent). The negative equity share in the top 5 states was 39 percent, down from 40 percent in the fourth quarter. Excluding the top 5 states, the negative equity share was 16 percent in the current and previous quarter.
  • Although the slight decline in the national negative equity share was primarily due to slight improvements in the hardest hit states, which include Nevada (-2.7 percentage points), Arizona (-1.3 percentage points) and Florida (-1.3 percentage points), the majority of states either remained unchanged or had minor increases.
  • Las Vegas led the nation with a 66 percent negative equity share, followed by Stockton (56 percent), Phoenix (55 percent), Modesto (55 percent) and Reno (54 percent). Outside metropolitan areas in the top 5 negative equity states, the metropolitan markets with the highest negative equity shares include Greeley, CO (38 percent), Boise (36 percent), and Atlanta (35 percent).
  • While the average negative equity borrower was upside down by $65,000, there were wide disparities by state (Figure 3). New York borrowers were upside down by an average of $129,000, the highest average in the nation, followed by other high housing cost states: Massachusetts ($120,000), Connecticut ($111,000), Hawaii ($98,000) and California ($93,000). Ohio’s negative equity borrowers were upside down by $31,000, the lowest average in the nation, followed by Indiana ($34,000) and Minnesota ($38,000).
  • Not only was the decline in prices a clear force driving negative equity, but borrower equity extraction also significantly increased the risk of a negative equity position. While only 18 percent of borrowers with no home equity loans were underwater at the end of the first quarter, 38 percent of borrowers with home equity loans were in a negative equity position. Over 40 percent (4.5 million) of all negative equity borrowers have home equity loans.
  • While borrowers with positive equity averaged 1.2 loans per property (Figure 4), this incidence rises to 1.6 loans per property for negative equity borrowers and it continues to rise the deeper the property is underwater.
  • Not only does the incidence of home equity loans raise the probability of a negative equity position, but it also raises the severity of that position. A negative equity borrower without home equity loans is upside down by an average of $52,000, versus an upside down average of $83,000 for a negative equity borrower with home equity.
  • The default rate generally rises as the current combined loan-to-value ratio (CLTV) increases; however there are differences between default rates for negative equity borrowers with home equity loans vs. those without (Figure 5). At moderate levels of negative equity (up to 115 percent CLTV), the default rate for borrowers with home equity loans is slightly higher than those without. However, for those with severe negative equity (115 percent CLTV and above), the relationship reverses and the default rates for mortgage loans without home equity perform slightly worse.

A table breaking down the state by state negative equity:

Looking at the home equity data chronologically indicates little improvement over the past year:

New York continues to be the best "capitalized" state with nearly $130,000 difference between property value and mortgage debt outstanding. On the other end of the spectrum are Ohio, Indiana, and Minnesota.

And so on - Full report here. We are confident that as ever more equity value across the troubled US housing sector evaporates the Fed will have no choice but to onboard ever more of this toxic debt: whether or not this will be the key asset class purchased by Bernanke in the next monetary easing round remains to be seen.

 

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Tue, 06/07/2011 - 09:37 | 1346555 FOC 1183
FOC 1183's picture

e-o-eleven

Tue, 06/07/2011 - 09:38 | 1346556 FreeNewEnergy
FreeNewEnergy's picture

Got houses, bitchez?

Tue, 06/07/2011 - 10:11 | 1346643 Josh Randall
Josh Randall's picture

Deflationary death spiral -- unsold inventory will be stripped for copper, wiring, appliances, salvageable fixtures, toilets, etc. and then 'burried at sea' to keep any semblance of a market going through 2015

Tue, 06/07/2011 - 10:25 | 1346689 snowball777
snowball777's picture

Bad bank. Bad bad bank. Sit. Roll-over. Play dead!

Tue, 06/07/2011 - 14:01 | 1347516 RichardP
RichardP's picture

Nice.

Tue, 06/07/2011 - 15:23 | 1347887 smlbizman
smlbizman's picture

fuck'n maryland, were in the game....were going to win this thing.....i have at least 1 mill. ft of warehouse being built and at lease 2,000 condos and residential units going up within 1/2 mile ...this does not count the 3 mill. vacnt warehouse ft....we will be number 1.....21220 area rt. 43...wampler road..look it up...

Tue, 06/07/2011 - 09:38 | 1346557 apberusdisvet
apberusdisvet's picture

The bottom, which we are no way near, IMO will be when the median home price drops to $125K, or 2.5 times median household income.  BTW, most mini-macmansions will wind up being demolished.  Disclosure:  long bulldozers.

Tue, 06/07/2011 - 09:46 | 1346579 Alcoholic Nativ...
Alcoholic Native American's picture

yea, the only people popping out enough kids to fill those 5 bedroom Mcmansions live in the the ghetto or the  trailor park.  And they can't afford them.

 

Death to Suburbia!

Tue, 06/07/2011 - 10:52 | 1346771 Pegasus Muse
Pegasus Muse's picture

Some of the slack will be taken up by multigenerational families living under the same roof; boarders renting out rooms; or as in the case of poor southwestern states, extended families moving in together whose homes are easily identified by the 10 cars parked out front, most of which have bigger monthly lease payments than the house payment (Escalades & STS's), parked all caddywhompus up on what used to be a lawn before they moved in, and intermixed with junkers cars and trucks up on cinder blocks.  An ever more common site these days, even in what used to pass for upper middle class neighborhoods.  

Tue, 06/07/2011 - 11:38 | 1346979 MachoMan
MachoMan's picture

Of course, given that all of these people presumably have houses of their own, there will be multiple vacant residences from this scenario...  And, ultimately, the aggregate notes, I suspect, would be smaller (hence more affordable per debtor). 

 

Tue, 06/07/2011 - 09:49 | 1346598 flattrader
flattrader's picture

It will have to go lower than that.  Young people/couples--the ones who might produce genuine demand--are not making anywhere near median income with newly minted degrees burdened with student loan debt.

Tue, 06/07/2011 - 09:57 | 1346628 johnnynaps
johnnynaps's picture

oh it's a vicious cycle! Glad I robbed Peter (MC, Visa) to pay Paul (University)! I see it as an unfortunate job market that crapped on me.....and I at least was able to crap on someone else! I feel bad for my best friend who used Peter for too many Spring break trips and was locked into paying Paul with his student loans! He's finishing 4 years in Afghanistan to pay Paul back!

Tue, 06/07/2011 - 09:35 | 1346560 Dexter Morgan
Dexter Morgan's picture

I will not buy my next house until everybody thinks I am a loon for buying real estate.  They already think I'm a loon anyway but this will cement the idea.

Tue, 06/07/2011 - 19:16 | 1348888 Trimmed Hedge
Trimmed Hedge's picture

This is the correct motorcycle....

Tue, 06/07/2011 - 09:40 | 1346570 Jimmy Bora
Jimmy Bora's picture

OFF TOPIC AND MUST WATCH VIDEO

http://ooginoog.kro.nl/seizoenen/2011/afleveringen/01-06-2011/

At 23th minute, Marine Le Pen speaks about the end of EURO when she becomes president in 2012.

 

Maybe interest to report this, Tyler?

Tue, 06/07/2011 - 10:37 | 1346754 s0lspot
s0lspot's picture

She says she believes in april/may 2012 (next french presidentials) the puto €uro will have disappeared so she won't even need to choose whether to quit it or not.

 

That being said she's a daddy's girl, very very populist ( think "Change we can believe in" ) and her party is full of very ignorant, racist bigots. I doubt she could assemble a sufficiently instructed team of individuals in order to make a government. Then again that goes for the conservatives & socialists. But french national party members are famous for their ignorance & dumbness...Every 1st of May in Paris they celebrate the ousting of the Brits (during the fucking 1400's!!!) by parading their ugly skinheads around a golden Jeanne d'Arc statue 100m away from poshy Place Vendôme (think bankster's buying heaven). They are retarded catholics living in the past for most of them, rural farmers and the petite bourgeoisie ( and many EU/Social democrats/globalization disillusioned communists and union workers, worth noting ) and they generally are perceived as usurping class-struggle ideology in order to gain more votes. But really they're the Nationalist Bourgeois's party.

 

She'll never win the elections, might get through the 2nd round seeing how fucked up UMPS parties are but then she'll be kicked out, just like her nazi dad in 2002 against Chirac.

 

That being said i do agree with her on Gold & monetary sovereignty. But she'd ruin France if ever she got elected.

 

The Euro will fail either by itself or because of a small country gone pitchfork-rogue, not through the big ones who have too much to loose bankster-wise and their populations have it good enough not to stir shit up.

Tue, 06/07/2011 - 09:42 | 1346578 MachoMan
MachoMan's picture

I hope this pig of a market holds up for a few more months so I can get out from under my house...  although, I'll be selling a property with net equity in it...  If I do purchase a property in the next 3-5 years, it will be multifamily and will be used to offset my rent.  If we are going to have any debt hanging over us, better for it to work for us rather than as a consumptive endeavor. 

Tue, 06/07/2011 - 09:47 | 1346592 snowball777
snowball777's picture

Hadn't thought about that configuration before, but it makes sense, especially when the crazy deals and goober-steps foreclosure deals will be rampant in that space.

Best of luck with finding a buyer!

Tue, 06/07/2011 - 10:32 | 1346726 MachoMan
MachoMan's picture

In my area, anything below 4x avg. household income is selling pretty quickly...  and very quickly with de minimis reduction.  We're actually growing and, don't hold me to it, but I think creating jobs...  Anything higher than this ($175k) can/will sit on the market for an indefinite period of time.

I still think it's hilarious that sellers cannot require earnest money of buyers ($500 tops, regardless of value of the home) because no one has it...  not sure how the hell they're still getting loans, but they are...  I guess they just like eating PMI (scam).

Not sure if it's the same everywhere else, but single family residential on the lower end of the spectrum is being mercilessly bid up...  a couple explanations: (a) easy money for indigent families, tops out about where these properties are bid up to; (b) money on the sidelines chasing more return than CDs are giving (grandpa and grandma); and (c) down sizing.  As a potential investor, I wouldn't touch this stuff with a ten foot pole.  For whatever reason though, multifamily hasn't had the same appreciation and, relatively speaking, is a vastly better deal... 

Buy the multifamily, start a sinking fund, run it on 15 year amortization, pay it off in 5 years or less, use the income to offset the rent of your personal residence, when the single family market finally capitulates, go buy your dream house, but don't over extend, sell multifamily property if necessary...  obviously not a panacea, but a helluva lot better than holding your dick with a big note on a single family residence...  (for those places that haven't taken the plunge yet for sure)

Tue, 06/07/2011 - 11:26 | 1346936 Sgt.Sausage
Sgt.Sausage's picture

==> I'll be selling a property with net equity in it... 

Says you. Come back and report how much "equity" you realized after the sale.

Tue, 06/07/2011 - 11:42 | 1347003 MachoMan
MachoMan's picture

a comp house on my street (cookie cutter houses) sold within the last week (after a few days following a reduced price) for a price point that would give me 15%+ equity (at the price reduced to for sale).  Even factoring in closing costs, etc., I'm in the 15% ballpark...  at least...  while I recognize your sentiment (and certainly appreciate it, that's part of my reason for selling), if I was that worried I would have dumped it long ago...  we're talking about shitbird housing here (sub $150k), not some palace that will be difficult to move.

Tue, 06/07/2011 - 09:43 | 1346580 pasttense
pasttense's picture

So what percentage of new cars are underwater? Housing is a consumer good just like cars are.

Tue, 06/07/2011 - 09:47 | 1346591 Alcoholic Nativ...
Alcoholic Native American's picture

Good point.  ALL OF THEM.

The new normal is losing 50% of your homes value as soon as you sign the mortgage.

awwwwwwsome, simply awesome

Tue, 06/07/2011 - 10:32 | 1346718 ugly_avatar_Muir
ugly_avatar_Muir's picture

I do not know what planets you turkeys live in, but I've made money in RE and only in AmeriKa would a house be considered a disposable consumer item.

Tue, 06/07/2011 - 09:52 | 1346612 snowball777
snowball777's picture

We leave it as an exercise for the reader exactly how to repo a house and sell it one city down the road; liquidity is not to be underestimated.

 

Tue, 06/07/2011 - 09:44 | 1346583 Alcoholic Nativ...
Alcoholic Native American's picture

THE OWNERSHIP SOCIETY HAS FAILED.

 

 

Tue, 06/07/2011 - 14:16 | 1347554 RichardP
RichardP's picture

I own, and I haven't failed.  Neither have my neighbors, who own.  But then, we bought our houses in the 1980's at the low end of the market.  And used the houses to live in and raise families.  When we die, we won't care what happens to the houses.

Tue, 06/07/2011 - 09:47 | 1346595 richard in norway
richard in norway's picture

"Not only was the decline in prices a clear force driving negative equity, but borrower equity extraction also significantly increased the risk of a negative equity position"

 

at the risk of appearing stupid, but are they saying that folk are so desperate that they are raising money on the declining value of their homes?

Tue, 06/07/2011 - 14:19 | 1347570 RichardP
RichardP's picture

They are making a point of logic.  Given two houses with the same market value, and given a decline in value that is the same for both houses - the house with a second mortgage on it will be under water faster than the house without a second mortgage.  Think it through.  It makes sense.

Tue, 06/07/2011 - 09:49 | 1346597 hedgeless_horseman
hedgeless_horseman's picture

Mr. Chairman: If we can just keep interest rates low, then this housing issue will be solved.

Mr. President:  How can we do that?

Mr. Chairman: The solution is called Quantitative Easing.

Mr. President:  Do you forsee any problems with this plan?

Mr. Chairman:  Not problems, per se.  We bankers like to think of the additional outcomes as features.  Trust us, you'll like it.

Tue, 06/07/2011 - 09:50 | 1346603 johnnynaps
johnnynaps's picture

Nj is reassessing property values and we all know that they aren't going to cut property tax! This number will be a lot worse next year when Uncle Sham raises taxes and more homeowners give up!

But then again, isn't this statistic like unemployment? I mean, after the bank forecloses, doesn't the homeowner fall off that chart into the same oblivion as the discouraged job seeker? If this is the case......we are in deeper shit than I thought!

Tue, 06/07/2011 - 09:51 | 1346604 SheepDog-One
SheepDog-One's picture

Hey did you hear the eCONomist yesterday who said the problem is we need to start building a shitload of new houses real fast? Wow and these people get paid for their opinions!

Tue, 06/07/2011 - 14:20 | 1347593 RichardP
RichardP's picture

If we put 10 million people to work for one year, and paid them each $50,000 for the work (regardless of what they are doing), do you think retail sales would pick up any?  The economist's logic is OK.  The question is, where would the money come from for the workers' paychecks.  If it comes from the government, why not just give the money straight to the "workers" and leave the uneeded houses unbuilt.

Tue, 06/07/2011 - 09:54 | 1346620 lizzy36
lizzy36's picture

But there is going to be a strong rebound in the 2nd half of 2011.

Plus there is going to be a housing shortage in 2012.

Time to average down.

I am currently taking orders for dow 20,000 hats (ZH logo on the back)......who wants in on the order?

Tue, 06/07/2011 - 10:48 | 1346804 Bam_Man
Bam_Man's picture

Are you married to Mark Zandi?

Tue, 06/07/2011 - 09:56 | 1346625 dick cheneys ghost
dick cheneys ghost's picture

some analysts are predicting another 8 million foreclosures ............giddy up.......

Tue, 06/07/2011 - 10:00 | 1346626 FreeNewEnergy
FreeNewEnergy's picture

I am proud to live in the Empire State:

New York borrowers were upside down by an average of $129,000, the highest average in the nation...

 

What the article does not point out is the fact that NY has, if not the highest, very close to the highest property tax rates in the nation. They are so high that the state has implemented a reduction plan - called STAR - that gives homeowners an automatic reduction in their prop. tax. The catch is that you have to pay on time to get the reduction.

Earlier this year, Tom Golisano, founder and CEO of PayChex, sued and won a property tax fight over a $6 million tax assessment. The court lowered it to $2.85 million.

http://rochester.ynn.com/content/top_stories/510924/golisano-gets-tax-bi...

Golisano set up a free seminar for people who wished to follow his lead, promising to give advice on how to fight and win property tax assessment cases. Limited to 500 attendees in Monroe County (Rochester, NY), the free seminar was completely booked within three hours.

I recently had my home assessment dropped from $124,000 to $82,000, a cut of more than a third. The town assessor said they would come by in the Fall (yeah, sure) to see if I had made improvements, the unspoken threat that they would again raise my assessment.

I felt like telling her that my plan was to demolish parts of the house, so to lower my assessment even further, but thought better of it.

With the average tax bill running well into the thousands of dollars, it would not surprise me one bit if NY counties began a cascading default in the not-too-distant future. Tax rates in NY have been too high for many years and the economy - what's left of our industrial base - in upstate, is moving underground, cash, trade, unreported, you name it.

We're fed up and are probably, as a group, the largest tax cheats in the nation.

Tue, 06/07/2011 - 10:00 | 1346629 equity_momo
equity_momo's picture

So if one had a modest sum of say 300k to buy outright , where would one look? Assuming quality of life was important , not just a cheap house.

Tue, 06/07/2011 - 10:17 | 1346672 SheepDog-One
SheepDog-One's picture

Guatemala?

Tue, 06/07/2011 - 10:48 | 1346798 MachoMan
MachoMan's picture

South central/east united states...  lots and lots of retirees piling in to stretch their dollars (yankees)...

3/2 1600 sq ft newer build ~$135-145k all day...  some decent jobs...  and cheap as hell cost of living...  many streams/rivers/lakes and outdoor activities...  it ain't the riviera, but it'll do.

Tue, 06/07/2011 - 11:33 | 1346971 equity_momo
equity_momo's picture

thx for the response. as poor as the US economy is doing , real estate is "relatively" cheap on a western comparison.  i dont think anyone is going to escape this , so may aswell move to where money will go further.

Tue, 06/07/2011 - 10:45 | 1346774 johnnynaps
johnnynaps's picture

Costa Rica, but if you must stay in the US.....I figure Florida.

Tue, 06/07/2011 - 15:42 | 1347951 Stax Edwards
Stax Edwards's picture

Florida is much cheaper per SF generally speaking than CR right now.  There are exceptions in particular areas of course, but housing, food, fuel are all less expensive in FL than in CR right now.  Fuel is about half. 

Tue, 06/07/2011 - 10:55 | 1346825 Arnolds Love Child
Arnolds Love Child's picture

Patagonia Argentina

Tue, 06/07/2011 - 10:02 | 1346631 lizzy36
lizzy36's picture

But there is going to be a strong rebound in the 2nd half of 2011.

Plus there is going to be a housing shortage in 2012.

Time to average down.

I am currently taking orders for dow 20,000 hats (ZH logo on the back)......who wants in on the order?

Tue, 06/07/2011 - 10:08 | 1346637 FreeNewEnergy
FreeNewEnergy's picture

'

Tue, 06/07/2011 - 10:17 | 1346662 tawdzilla
tawdzilla's picture

And with 66% of homeowners underwater...they're still building new tract homes in Vegas:

http://www.fox5vegas.com/news/25767726/detail.html

 

Tue, 06/07/2011 - 14:32 | 1347628 RichardP
RichardP's picture

All the cash generated by the underground economy in LA needs to be laundered somewhere.

Tue, 06/07/2011 - 10:19 | 1346667 Cast Iron Skillet
Cast Iron Skillet's picture

In Germany, the only people having a lot of children are the turkish immigrants. And they tend to have a lower education level than native Germans and live from welfare.

Tue, 06/07/2011 - 10:46 | 1346777 johnnynaps
johnnynaps's picture

"Been around the world and found that only stupid people are breeding, The Cretans cloning and feeding"!

Tue, 06/07/2011 - 10:23 | 1346682 rfullem
rfullem's picture

hmmmm. so tell me again why 10.9 million responsible people that are paying mortgages lose their downpayment and much more? They are actually irreponsible gamblers who deserve bankruptcy? What was that reason again why home prices suddenly drop 20% and will not recover for decades? A housing bubble? lax underwriting? lax regulation?

"The purchase of Litton did not yield the benefits we anticipated, given the unprecedented depth of the housing crisis, which we, like virtually everybody, failed to foresee," Goldman spokesman Michael DuVally said. Really? How bout we had a flyer in a high margin ponzi business that we just wrote off while the homebuying family's hold the bag for years. Guess what, those same homebuyers get hit again because they are paying taxes to bailo out Fannie, Freddie and GS...oh have anther please, the Fannie/Freddie homeowner subsidy will go away...but don't worry, virtually "nobody saw it coming." Guess GS held MBS all the way through the crises then.

Oh I forgot the standard prickly response, "get over it" and "move on"   

 

Tue, 06/07/2011 - 10:21 | 1346688 Temporalist
Temporalist's picture

Like in the movie "Too Big To Fail" Alan Greenspan recommends to buy up the glut of unsold housing and burn it.

See there are solutions if you just ask the wrong people...

Tue, 06/07/2011 - 10:30 | 1346707 ugly_avatar_Muir
ugly_avatar_Muir's picture


"66% Of Las Vegas Mortgages Are Underwater, 27.7% Of Total US Housing Debt Has Negative And Near-Negative Equity"

sounds deflationary...

Tue, 06/07/2011 - 10:37 | 1346743 mayhem_korner
mayhem_korner's picture

I thought the house always wins in Vegas...

Squatters Rent = the new normal

Tue, 06/07/2011 - 10:34 | 1346745 monopoly
monopoly's picture

Gotta luv it. My state is number 1 again. And remember all, we have also been #1 in unemployment for over 6 months. Go Nevada.

Beyond words, what a recovery.

Tue, 06/07/2011 - 14:37 | 1347656 j0nx
j0nx's picture

And yet you guys reelected Harry Reid. Bravo sir, bravo! Even if you did not personally vote for him, your fellow constituents overwhelmingly did. May Nevada get all that is coming to it for returning that cretin to CONgress so he can continue to infect the country along with his state.

Tue, 06/07/2011 - 10:51 | 1346794 Fix It Again Timmy
Fix It Again Timmy's picture

A McMansion - oh yeah - no need to bulldoze them, they will fall apart by themselves.  With 300+ million shipping containers lying around the world, here's an alternative:

http://www.mnn.com/your-home/remodeling-design/photos/8-eye-catching-shi...

 

Tue, 06/07/2011 - 11:59 | 1347074 flattrader
flattrader's picture

Shipping containers can be easily converted to interim housing post natural disasters.

Haiti has thousand of them.  I don't believe they were ever put to use in signigicant nos.

Tue, 06/07/2011 - 11:04 | 1346814 Bam_Man
Bam_Man's picture

I am shocked...Shocked to find that houses surrounded by dozens of mega-casinos are heavily mortgaged/deeply underwater/in foreclosure.

Shocked!

Tue, 06/07/2011 - 19:22 | 1348895 Trimmed Hedge
Trimmed Hedge's picture

Are you talking about Las Vegas -- or Wall Street?

*confused*

Tue, 06/07/2011 - 11:21 | 1346899 goldfreak
Tue, 06/07/2011 - 11:42 | 1347000 Saxxon
Saxxon's picture

And what of the people living in these homes?  This must partially explain the awful ennui I sense riding the BART into S.F. from the East Bay.  People literally look half dead.

Tue, 06/07/2011 - 12:20 | 1347163 Byronio
Byronio's picture

Sailer has written a number of articles for a few years now tracing the mortgage disaster, he calls it THE MINORITY MORTGAGE MELTDOWN, here is his latest:

The Past Is An Unknown Country–NYT’s Astonishing Ignorance On Minority Mortgage Meltdown

Tue, 06/07/2011 - 13:20 | 1347356 Cvillian
Cvillian's picture

Reduce principal on people underwater who have been on-time and have not taken equity out in ten years.

All these other centrally planned bailouts/stimuli were a huge waste of money. The cost to undertake a national principal write-down program for honest qualified borrowers screwed by people walking/foreclosing would have been cheaper and more effective than all this other bullshit. 

Thoughts?

Tue, 06/07/2011 - 14:41 | 1347697 RichardP
RichardP's picture

Only the owner of the mortgage can agree to reduce the principal.  For any given property, contact all the owners of the mortgage after it has been sliced and diced and resold, and get them all to agree to a specific reduction in what is owed to them.  Good luck with that.

Tue, 06/07/2011 - 14:48 | 1347737 MachoMan
MachoMan's picture

The goal of any reasonable person at present should be to reduce moral hazard.  In the present situation, I think that envisions pulling everyone from the teet, banks and underwater homeowners alike.  There is already a legal framework to extinguish debts...  it should be utilized rather than languishing away in debtors purgatory (with glimpses of heaven). 

In short, my thoughts are that moral hazard is moral hazard is moral hazard.  Instead of bailing anyone out, you simply reduce the size and scope of the government and let those people and entities fail, shake out, and see what happens...  if we want to keep a de minimis safety net around for helping people get back on their feet, fine...  but this is not a permanent fixture.  The government should not be in the business of picking winners and losers...  (everyone loses)

Tue, 06/07/2011 - 18:03 | 1348682 Cvillian
Cvillian's picture

In my zip code, that is exactly what you're seeing. The problem is that a responsible person is left holding the bag for all intents and purposes by continuing to pay his increasingly drowning mortgage until a "market price" is found while deadbeats walk away and flood market with supply (pun intended). At that period when he thinks he is at equilibrium, he calculates how long it will be before he can pay down enough to sell (assuming his underwater loan doesn't see a drastic interest rate hike if rates go up) b/c he is likely stuck in a 1 year ARM, as the original 5 & 7 year ARMs have/are hitting their reset point from when they were originally taken out in the boom.

So...assuming no disruption to his principal reduction efforts in this interest rate environment, I calculate the average person probably has about 5-7 years to go before he gets his head above water. Again, assuming no movement in rates but also assuming no increased ability to put additional money towards closing on his underwater mortgage or price appreciation from foreclosure market bottom.

A long slow grind with a shitload of unknowns.

Wed, 06/08/2011 - 12:09 | 1351192 MachoMan
MachoMan's picture

Every homeowner has a duty to mitigate his damages (including banks)...  if that means eating your pride and selling at a loss, then so be it.  First to blink wins.

Tue, 06/07/2011 - 14:53 | 1347598 White.Star.Line
White.Star.Line's picture

Let's see, do we get to keep the houses and just wipe clean the uncollectable debt?
Or do the banks get the money anyway, get our houses back, and kick us into the street?

Tue, 06/07/2011 - 15:12 | 1347840 downrodeo
downrodeo's picture

The pessimist in me says it will be the second option, and the optimist in me has been bound and gagged and dragged to the basement by the pessimist in me.

Tue, 06/07/2011 - 15:32 | 1347912 MachoMan
MachoMan's picture

hopefully bruce willis comes downstairs with a sword before it's too late!

Tue, 06/07/2011 - 14:26 | 1347601 Things that go bump
Things that go bump's picture

I was at a funeral home last night, as a relative of an in-law had passed away.  I was chatting with a commercial real estate broker, whom I know only slightly.  What he had to say from the trenches so to speak, wasn't any surprise, but it was rather shocking in terms of scope.  He told me he has more listings then he has ever had in his life, but he can't find any buyers.  He is extremely busy and driving all over the upper midwest for listing appointments, but he is basically starving as no one is buying, and so is everyone else he knows in the business.  He feels that he is just spinning his wheels and wasting gas.  

Tue, 06/07/2011 - 19:20 | 1348901 Trimmed Hedge
Trimmed Hedge's picture

If he wants to find buyers, perhaps the sellers should lower to more realistic prices?

Crazy talk, I know....

Tue, 06/07/2011 - 14:27 | 1347602 White.Star.Line
White.Star.Line's picture

This ship will sink only as far down as the amount of money in real estate debt derivatives, that doesn't get paid back.

Tue, 06/07/2011 - 15:05 | 1347808 downrodeo
downrodeo's picture

WHOO HOO!!! my state is #2!

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