Benefit To US Economy From Deadbeat Squatters: $50 Billion Per Year

Tyler Durden's picture

About a year ago, Zero Hedge first floated the then apocryphal idea that the economy is receiving an implicit boost from the money "saved" by squatters: people who no longer pay their mortgage, but due to banks' unwillingness to have a price discovery event on the home (in the form of an auction on REO or foreclosed properties) which would force mark bank assets far lower (due to impairments on the mortgage as opposed to it merely being in "Special Servicing" status), continue to reside in the property. Furthermore we disclosed yesterday, per LPS the average delinquency period is now 573 days meaning the typical deadbeat resides in their home for over a year and a half without paying a single cent. And since there are millions of delinquent mortgages, all this adds up to a lot of money. How much? Well, nobody had been quite able to quantify this huge boost to the economy, which is why the topic never received prominent media notice. Until now. In "Rental income and "Squatter's Rent" JP Morgan's Michael Feroli kills two disinformation birds with one client note: first he debunks all myths that "rental income" is surging, as was reported in glaring headlines in a variety of propaganda media outlets following Monday's personal income report was released. This is patently false. As Feroli explains: "This rise has little to do with landlords getting more from their tenants. In fact, it has very little to do with what speakers of the English language would normally consider "rent." Instead, it mostly reflects mortgage payments of the household sector coming down, in part because of the aggregate decline in household mortgage debt due to net cancellation of mortgages associated with foreclosures." In other words, surging rental income is nothing more than "squatter's rent" saved by not paying one's mortgage. As to quantifying this amount - per Ferroli until recently it was $60 billion a year! This is a stunning 0.5% of GDP. Luckily there is good news: this unethical and artificial "boost" to the economy is finally declining... and is now only $50 billion on an annualized basis.

We will not debate the ethics of this phenomenon. That a typical homeowner can walk away from their mortgage is perfectly normal. After all there is a trade off - a wipe out of one's equity investment (if any), as well as a dramatic impact to one's credit rating. On the other hand continuing to live rent and mortgage free in a squatted property is a different issue altogether. Whether this is to take advantage of a bank's own greed and stupidity is irrelevant: this is capital transfer. And considering that banks continue to be woefully undercapitalized, and one Mark to Market resumption away from total insolvency, the money that one deadbeat squatter is "saving" today, is money that all other taxpayers will have to make up tomorrow when the lender bank blows up at any given point in the future. Yet the enforcement of this process is the bank's prerogative, and there is little that can be done unless a lender is actively pursuing the expulsion of a squatter. But why should they - this process begins an involuntary Mark To Market process on the underlying mortgage which will have a far greater cost than benefit from letting the status quo persist.

In the meantime, said "squatter" benefits by not having the biggest consumption outlay typical for a US individual: residential costs, whether mortgage or rent. In essence what this does is to raise the effective wage of all the squatter households, by some estimates over 10 million of them. Which should force all those who believe there is no real inflationary pressure due to no real increase in wages to re-evaluate their thesis.

The one saving grace is that sooner or later the bank has no choice but to pursue foreclosure actions. Usually this occurs about two years in a mortgage's transition to delinquent. In the meantime the one beneficiary is the US economy, as these same deadbeats go out and buy iPads, consumer products and other non-credit intensive products (by now their credit rating is shot explaining why there is an inflation in necessary products (and iPads) and deflation in everything else). Of course by doing so they make life for everyone else far more complicated, as being perfectly elastic to staples' prices forces those foolishly who still pay their rent and mortgage to pay a greater proportion of their income on items that would otherwise cost less if demand was more elastic. This is yet another externality for the banks, which love nothing more than inflation. The only loser is as always the law-abiding, ethical, taxpayer.

As to the total benefit to the economy from this borderline illegal process: it now amounts to about $50 billion a year. Per JPM: "squatter's rent increased to over a $60 billion annual rate early last year, but with delinquencies declining that has come down recently to just over $50 billion." In other words, the ongoing ability to engage in "squatting" has a comparable impact on the economy as the most recent overhyped fiscal stimulus.

The question then becomes what happens when this ultra-stealthy and highly unethical stimulus goes away? $50 billion today, $40 billion tomorrow, and so forth. In the meantime, inflation will continue due to the abovementioned effect this phenomenon has on real wages, albeit in proportionately smaller doses. And how long before those who dutifully pay their mortgages say enough, or worse yet, turn against that deadbeat(s) in their neighborhood?

Luckily for Bernanke, this process will come to a head long after the Chairsatan, who through his policies is allowing this to take place in the first place, will be long gone on a non-extradition beach, collecting 20%.

Everyone else, however, will still be stuck here.

Full must read Feroli note.

Rental income and "squatter's rent"

Rental income has been soaring. In yesterday’s February personal income report, rental income of persons increased 2.6% on the month to $326 billion. After bottoming at $120 billion in February of 2007, rental income has nearly tripled in the subsequent four years. Even though rental income accounts for less than 3% of personal income, over the past four years it has accounted for over 16% of personal income growth. This rise has little to do with landlords getting more from their tenants. In fact, it has very little to do with what speakers of the English language would normally consider "rent." Instead, it mostly reflects mortgage payments of the household sector coming down, in part because of the aggregate decline in household mortgage debt due to net cancellation of mortgages associated with foreclosures. In this sense, some of this rise in aggregate rental income is related to what some have called "squatter's rent" -- the monetary benefit to the household sector from not staying current on their mortgage obligations -- though most squatter's rent is outside the official data. With delinquencies coming down, rental income should see slower growth in the future.
(Warning: the rest of this note gets a little wonky) About a quarter of rental income is what one would normally consider rent -- the income received by one person from another person to use a dwelling. The other three-quarters, however, is "owner-occupied rent." In one of the odder quirks of national income accounting, the BEA assumes that homeowners are essentially landlords who rent to themselves. (This adjustment insures that the measured output of housing services is invariant as to whether dwellings are owned or rented). Rental income for these owner-occupiers is this gross imputed rent less the costs associated with homeownership, and the largest such cost is mortgage interest. Gross rent has been gradually trending upward, but cannot account for the surge in rental income. Instead, mortgage payments have fallen off relative to trend, boosting measured rental income.
Mortgage interest payments decline when either the interest rate or the debt outstanding declines. In practice, most of the reduction in mortgage interest has been due to lower mortgage balances, and much of the reduction in mortgage balances has been delinquent loans having been foreclosed upon. In the official data, mortgage obligations are only removed from homeowners' balance sheet when the debt has been charged-off. At that point, of course, many homeowners would have been kicked out of their former residence. Generally, whoever buys the foreclosed-upon property takes on less mortgage debt, mostly because foreclosed properties tend to trade for significantly less than properties that have not been in distress. The lower debt and mortgage payments results in higher imputed rental income. The net reduction in mortgage debt due to foreclosures over the past few years could be around a half trillion dollars. This implies about a $30 billion decline in mortgage payments -- which is about $100 billion below the previous trend in mortgage payments -- and a corresponding boost to rental income.
When folks talk about "squatter's rent" they generally refer to the funds that delinquent mortgagers save by not staying current on their obligations: funds that, to the extent they are available, could be used for other purposes such as consumer spending. This phenomenon will not be captured in the official rental income data because mortgage debt is not expunged from the household balance sheet until it is charged-off by the mortgagee. (This is in keeping with international statistical conventions.) For some purposes, however, it may be helpful to look at households on a cash-flow basis, in which case disposable income would include the interest expense saved through delinquent (but not foreclosed-upon) mortgages. This measure of squatter's rent increased to over a $60 billion annual rate early last year, but with delinquencies declining that has come down recently to just over $50 billion.

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Monkey Craig's picture

"Benefit" to the economy.

When people don't have anything to lose, they lose it.

topcallingtroll's picture

there are plenty of beds at homeless shelters.  I am not aware of any right in the constitution to keep something that no longer belongs to you because you won't follow your contract obligations.  Kick the fuckers out now.

Gully Foyle's picture


Yes toss them the fuck out. Many of us struggle to pay our bills on time. Yet these fucks want a free ride. Screw that shit.

My Brother knew this couple who lived with ones Father. The Father left them with the house. They didn't pay the mortgage and it was repossessed. They trashed the house.

Trashed the house because of their own idiocy and failure to manage their money.

Yhis is what the world has come to.

tmosley's picture

Who should toss them out?  The banks that own the mortgages?  They could, but they don't want to, because they don't want to mark their "assets" to market.  This is the same as property abandonment, and in just a few more years, those homes will belong to the squatters under common law, same as if they were homesteaders.

If the banks don't want the property to the point that they abandon it, why shouldn't anyone else just take it?

traderjoe's picture

Not to mention that they might not have standing anymore (mortgage mess/fraudclosure)...

Bastiat's picture

Don't forget the tax liens. Best thing a squatter can do is pay the taxes.

Voluntary Exchange's picture

If you pay and support the destruction of children's minds through state education you become an accomplice to those crimes.

"Challenging the Myths of Modern Schooling":

Founders Keeper's picture

[If the banks don't want the property to the point that they abandon it, why shouldn't anyone else just take it?]---tmosley

Who's the real owner of the house? The title or note holder---the unsuspecting group of MBS investors who paid money for these criminally rated AAA securities. As we know, the servicing bank does not own the title/note and therefore has no legal ground to issue foreclosure notices.

(Now, how do the note holders get back their collateral, their piece of the house? That's a good question. Gonna take some imagination. Like, maybe the servicing banks and ratings agencies should be on the hook for paying off multi-note holders leaving in the end a one-person note holder. Then go from there.)

Thanks for your post, t.

EDIT: Then again, the banks are broke and the whole economy will fall like a house of cards anyway. The foreclosure fraud conundrum will be the last thing on people's minds before long.


euryale's picture

I wonder if we will see changes proposed to common-law to eliminate the right of long term squatters to claim title. The morgage holder/servicers will not let property slip through thier hands, but the RE market is still very weak (excepting land, from what I can tell), and not getting better. A quiet removal of squatters-get-title laws would be just the ticket. for the mortgage holders, that is...

MachoMan's picture

It is virtually impossible for adverse possession to arise out of permissory use of a property.  Further, I'm nearly certain all of the notes allow for flexible remedial efforts on behalf of the party seeking to enforce, e.g. "a failure by the bank to enforce any default does not constitute a waiver or acceptance of default."  There would have to be a break in the chain...  as in you and your squatter neighbor, both being in the same boat, just decide to switch houses...  live in them in the statutory length of time and file for quiet title...  although, you may need color of title and/or to have paid taxes on it...  depending on jurisdiction...

Voluntary Exchange's picture

@topcalling and others

Don't forget that also, the "world has come to": the biggest crooks in American history being regularly fed through the organize theft of the people through state intervention and currency debasement.  If the currency and mortgage itself is "deadbeat", can you accuse the victims of that mortgage of being "deadbeat"  if they get back some of what was stolen from them through a system based on fraud in just about every way you could look at it?

An institution that exists though compulsion and force rather than through "consent of the governed", (to quote the Declaration of Independence), can be considered nothing but a criminal gang, and those who use its unjust powers for their benefit are the biggest of all "deadbeats".  In fact, those types are quite busy "beating" otherwise living people on this planet into the "dead" and half-dead by the tens and hundreds of millions! The "beat" towards "death" goes on and will continue until we stop it.

Since this system is doomed, this  "next time" let us clearly keep the voluntary nature of "consent" uppermost into the arrangement of society by always keeping "defense" and "justice" as services in a voluntary and free market, where the buyer remains sovereign and there is never any ambiguity again about the issue of "consent".  All the criminal gangs on this planet that call themselves "governments" have a problem with that "consent" thing -  they don't have it!


Id fight Gandhi's picture

The big companies forced the taxpayers for money when they fell apart. We were forced to bail them out. Where would they all be if they didn't get that money? Add that to all the printed money being thrown into the market and into execs pockets every day.

That's the real crime, that's the real outrage. I really don't care if deadbeats don't pay their mortgage. These house will sit and rot otherwise and be torn down.

B9K9's picture

That's the real crime, that's the real outrage.

Give it a rest, sheep - he who complains has already lost. We had the opportunity to witness a complete take down of a well established nation-state. Yet, where is the (grudging) admiration or at least acknowledgement that the play was executed to the finest degree?

Save your outrage - revenge is best served cold. The only possible good that might arise out of this event are legal remedies "executed" by a new regime.

Calmyourself's picture

The rest is noise, watching for the nascent beginning of that "regime" is what occupies my casting about.  My eyes are peeled for its birth and its opportunities.

Pez's picture

W. is to blame! Hey that reminds me, Didn't a BoA execu-turd take over a house that was Foreclosed on a CA beach and was paying no mortgage?

piceridu's picture

it was Wells Fargo and they threw a party a foreclosed beach house in Malibu.

Dr. Porkchop's picture

There are often two things; the things that should be and the way things are. These people probably stopped paying their mortgages fully expecting to be evicted from their homes, but did it because of economics. After enough time passed, and nothing happened, they probably thought, well, if they aren't going to kick me out then fuck it.


These banks have nobody to blame but themselves. They engaged in ponzinomics and continue to do so. They have the rules of the game changed so that they can continue to avoid reality. Is it fucked up that some people struggle to pay mortgages while others have not paid and aren't evicted? Sure, but things have gone so far beyond fucked up because the lawmakers have allowed it to be so. The people in the homes aren't squatting to thumb their noses at people who pay... they are doing what everyone would do.. trying to survive in a country where laws have no meaning anymore.

FEDbuster's picture

Some pay mortgages, some don't.  Some pay taxes, half don't (including GE).  Some work, some collect two years of unemployment, food stamps, medicare, etc...  The government prints bonds, the FED prints money to buy the bonds.  The whole system is screwed up so bad now that most people are so pissed off they don't know what to do.

The government and banksters have fucked the real estate market up for at least a decade (maybe more?), so for the 25% (and growing) of underwater homeowners with mortgages the pay, squat or walk decision will be weighing on them every passing day.  This problem will continue to grow as property values continue to drop.

reader2010's picture

Let us all stop paying mortgage. Power to the people. 

Misthos's picture

You're being naive.  Are you aware that Banks still claim interest income from defaulted mortgages?  Banks don't write off that income until the actual foreclosure process is completed.

Believe me, the banks are in no hurry to "kick the fuckers" out.  The Banks are the "fuckers" still "making money" off them.


Urban Redneck's picture

I am surprised the Banks have not yet colluded Treasury to treat the value of Squatter Rent & foreclosure deferral as a current financial benefit, as it would allow the Banks to write down the current lost interest against current profits, create a taxable event for the Squatters which Treasury would tax, and the Banks would still be able double dip on their post-foreclosure write downs and loss sharing agreements.  They must be getting rusty.

MachoMan's picture

It's not a benefit until the loan is forgiven...  which, if forgiven, is already taxed...

Voluntary Exchange's picture


And notice that the mega-banks aren't actually trying to repair their balance sheets for a return to genuine accounting, instead they keep shunting the cash out through bonuses to their families as if it were a foregone conclusion that either there will be no "tomorrow" or that there will be plenty more where that came from. What a joke! I am thinking their passports are all in order and they have their next move well prepared.

Henry Chinaski's picture

Heard an ad for a lawyer on the radio this morning for forclosure and tax advice.  "If you have been given a 1099 from your bank for debt forgiveness and owe taxes, we can help you figure out your options."

The fact that debt forgiveness is taxable income supports the premise of the economic/GDP boost in TD's post.

Mortgage debt becomes income tax debt and unforgivable. = slavery


MachoMan's picture

maybe technically, but practically speaking, the IRS is no different than any other creditor (although probably more inefficient and needing more levels of interaction to speak to someone who knows their elbow from their asshole)...  meaning, they too settle for pennies on the dollar...  if you really are in financial hardship and can prove it....  further, there is a statute of limitations for collection...  and I know of a couple clients who've run out the SoL period without jobs/income...  the trick is to not have any assets (real property or titled personal property) to which they can attach a lien...

jesse livermoore's picture

it is the bank that will not kick them out because short term they have no benefit since they cannot resell the house and the value(BUBBLE VALUE) is neede to keep their bank sheets balanced

frobn's picture

Yes, by not promptly foreclosing the banks benefit because if they did they would have to mark to market instead of mark to fantasy and that would make them insolvent and the servicers benefit from fees that are charged to their investors.

I walked away from a condo that I could no longer afford in Nov 2009. In Feb 2010 I notified the bank and condo association and had my attorney send the bank a quick claim deed so that they could have clear title. The condo association rented the unit and per my instructions, after they deduct their fees, sends the rent to the bank. The bank has continuously lost or disregarded my communications and faxes. When I sent them a quick claim deed the bank attorney went ballistic, probably because if the bank accepted it they and their attorney would loose the fees they charge to their investors for over well over a year and still counting. They have set a foreclosure date twice only to cancel them. I did not benefiting from walking away. I lost a sizeable down payment and my credit. If you call me a deadbeat what do you call the bank? Admittedly mine is a mild case, I feel sorry for veterans, homeowners who tried working with the banks and completely innocent people who are losing their homes due to bank and mortgage servicer fraud.


Bearster's picture

One of the problems of Keynesianism... They measure "the economy" as GDP, and this adds to GDP.

I think I need to buy a gun's picture

JUNE is the 72 year bottom....all hell is going to break loose.....

RafterManFMJ's picture


I like your prophecy, but just like a real prophet you make no effort to be clear.

Calmyourself's picture

Whoa, I hate it.. June 7th Sofia Vergara sits on my face, I have foreseen it..

Twindrives's picture

Deadbeats and squatters?  Look no further than the occupants of the White House.

NOTW777's picture

is George ZH Washington being allowed to post like squatters rent

treemagnet's picture

The party's ending folks - you don't have to go home but you can't stay here.

defn8Dog's picture

Haaaaaaa..... no one's goin' anywhere, bitchez. Possession is 9/10ths of the law. This is the retail side of extend and pretend and it will take a LONG time to work through the system. You know what to do: BTFD. Hugs and smoochies.

buzzsaw99's picture

i wonder how many squatters were also 99ers? It could be that the bennies all run out at the same time. As for the bankers, fie.

Josh Randall's picture

I would side with a Squatter and 99er over a Bankster any day if I was on a jury - just sayin'

citationneeded's picture

o/t: You should really link to Barofsky's Op-Ed in the Times.

Atomizer's picture

Jamie Diamond unemployment check scam connection with Nancy Pelosi.

Mercury's picture

This is brilliant dot-connecting and it underscores why the residential RE market simply needs to clear...and it implies why certain, politically interested parties want to delay that as long as possible if not prevent it outright.

  Sometimes it seems that ZH is more outraged by the fact that some delinquent home owners are being foreclosed on by banks that may (or obviously don't) have clear title to the in-arrears mortgage in question.  I would argue (and have) that not letting the market clear will ultimately have far worse consequences, especially in light of the fact that almost no "fraudclosure" victims are even close to honoring the terms of their legal mortgage obligations.

topcallingtroll's picture

the sooner the market clears the sooner we can get things going in the right direction.  We need two million foreclosures a month until this damn thing is cleared.  It will be good for the economy and the majority of people.

Mercury's picture

If some bank doesn't hold a good mortgage title, trace backwards to the last good mortgage title and let them forclose.  If there is no good mortgage title maybe it should default to the appropriate state/county/town and let them foreclose instead - they could probably use the money.  Those are the kinds of things that are supposed to happen when you don't follow the law.  And giving banks yet another pass on their shitty, woe begotten assets is just flushing money down the drain anyway.

Bastiat's picture

Cities/counties take deliquent properties to tax sale.  You pay the taxes and get a tax lien which is senior to everything, including a morgage, and pays interest as well. At some point you can file for a deed and take possession if the lien is not discharged (taxes owed and all penalty interest).  Something like that--it's been awhile.


Voluntary Exchange's picture

The tax itself is a crime.  What does that make you if you do this?

Voluntary Exchange's picture

@ Mercury:

Here's the law:  don't steal, don't defraud, don't kill.  If you are a "man" you agree, if you are a "beast" you disagree. Everything else you are calling "law"  ceases to be "law" and becomes crime when the system that proclaims it is not based on voluntary CONSENT.  No consent, no "just powers".  Our system is not based on consent, and hasn't been at least since the time of the civil war and probably as early as the Constitution was "ratified", (presumably by some kind of "rats"), and unjust men started to use it to commit crimes. 

i-dog's picture

+1 ... for your definition of law ... it's so simple, yet all-encompassing, that we teach it to 2yr-olds (don't lie, don't cheat, don't steal, don't hit).

+1 ... for your observations on the Constitution ... both Jefferson and Henry wrote extensively to warn how it had already been subverted before the ink was dry.

MachoMan's picture

Mercury, spot on.  The process for determining the real holder is pretty simple and would only require the chain of assignment to pile into a single declaratory action...  once the determination is made, the proper party forecloses and the debtor is basically SoL to defend himself (at least insofar as the proper party bringing the suit, as precedent has already been laid down).  The problem though, is that the real holder can't be determined without running into securities law issues...  the real property component is simple...  the securities issues, not so much...  Ideally, the securities get put back to their creators...  and then mortgages put back until the first valid assignment.  Once the home is sold, the proceeds are divided among the parties as they agree or as a court determines... 

America- Some Assembly Required's picture

Not that simple really. With the creation of MERS to bypass costly title recordings and fees, another fraud was able to be created because the original "note" that the buyer signed was saved electronically and then destroyed. These electronic notes could be sold over and over to different investors and clustered into different MBSs or CDOs. Trying to ascertain who is the "real" note holder proves to be challenging at best.


Btw contrary to the MSM most loan defaulters made NO conscious decision to default. Clinton made home ownership almost a "right" and the govt did all that it could to subsidize this with ridiculous incentives and crazy low rates to make everyone a homeowner. Problems arose when the original "teaser" rates expired and became variable rates and the payments doubled or tripled. Meanwhile the variety of loans available all but disappeared due to the implosion caused by such unbelievable risky loans being written and wallstreeted into truly shitty non-performing packages. 

At one time a buyer could buy a house with 100% financing and STATED (no documentation) income with a credit score of 600! A 600 credit score means within 2 years there is a 10% risk of default!!! They knew these loans would fail.

This was orchestrated as part of the largest land grab and financial enslavement the world has known. As the banks collapse and their assets are nationalized, who wins? He who controls the debt controls the man (world). Who controls the debt of the US?