The politics of the underwater homeowner.

drhousingbubble's picture

The housing market is sending mixed signals in 2012. Time can sneak up on you and if you rewind to the last presidential election cycle the housing market was already moving lower. So here we are in 2012 and the housing market is still weak. A recent report shows that 1 out of 3 Americans with a mortgage is still underwater owing $1.2 trillion more on their home than it is currently worth. Keep in mind that the 5 to 6 percent cost of selling a home is shouldered by the seller and that isn’t reflected here. In spite of this, most underwater homeowners continue to pay their mortgage dutifully. Even in Las Vegas where 71 percent of homeowners are underwater, many by twice the current home value, only 14 percent are 90+ days delinquent. With so many homeowners underwater what implications will this have on the 2012 election?

The underwater nation

Home prices are still at their nadir on a nationwide scale:

case shiller index

The Case-Shiller is a repeat home sale index which captures the best price movements since it tracks the same home over time. The index is delayed by a few months and given recent changes, it is likely that prices are reaching a nominal bottom nationwide. However, we should take a look at the top 10 underwater regions in the US:

underwater mortgages us q1 2012

Source: Zillow

California, Arizona, Nevada, and Florida still dominate the list. These are the states also with the largest share of shadow inventory. Many of those focused like hawks on home prices rarely examine the inseparable connection of household incomes to the value of housing. Part of the continued weak pricing power in housing stems from the sluggish economy. If you look at the chart above, many of the top underwater regions have negative equity rates of 50 percent or higher for mortgage holders. While many continue to pay their mortgage, you can rest assured that many are seeking alternatives.

The politics are already heating up around this issue. HARP 2.0 is getting major activity especially with refinancing underwater homeowners. Again, these artificially low rates are helpful for those already in homes but looking forward, what larger impact will this have on the economy? If you think low rates for very long durations are good just for the sake of saving the banking and housing sector you can take a glance at Japan and see how that turned out. It is interesting that HARP 2.0 is taking on much more momentum in 2012 versus the initial HARP version.

Housing will be a factor in the upcoming election however many battleground states have negative equity rates below that of the overall national rate:

battleground underwater mortgages

The discussion online now revolves around housing reaching a bottom on a nationwide scale. Yet the vast majority of reputable analysts conclude that just because a bottom has been reached this does not mean home prices are set to skyrocket or suddenly move up. Shadow inventory will keep prices in check for a few years and these low interest rates are giving buyers more perceived purchasing power since many only focus on the monthly nut. What happens when rates go up even slightly?

To provide evidence that distressed properties will keep a tug on prices at the low end, a RealtyTrac report listed a few top places to purchase foreclosures:

top foreclosure locations 2012

*Based on sales price

The above is interesting because many places that were already presumed affordable in 2011 continued to fall well into 2012. Distressed properties do sell for discounts and many times for deep discounts. Here in California we are seeing banks more willing to sell homes via the short sale process and avoiding the REO channels of releasing real estate. Just because home sales are picking up and inventory is moving doesn’t mean housing is in good shape. The housing market appears to be better than it is because of the massive amount of support from mark-to-market accounting suspensions, the Fed intervening and pushing mortgage rates to record low levels, and a banking system that is leaking out shadow inventory. In other words, the housing “market” is one of the most controlled systems in the economy and prices are still near the bottom after many years of intervention.

It’ll be interesting to see how politics will show up in the 2012 housing market. HARP 2.0 and other refinancing programs are a big win for anyone with a GSE mortgage. For those deep underwater it still does not make sense. If you bought a home for $500,000 and it is now worth $250,000 what big benefit is there if your mortgage drops from say 6% to a rate in the 3% range? Sure your monthly nut drops but the home price tag is still inflated. It is likely better to walk and purchase the home at $250,000 and take the hit on your credit report. Unfortunately these odd controlled market games are now par for the course. Yet of the 16,000,000 underwater homeowners 9 out of 10 continue to pay their mortgage on time. This is likely another reason why principal reductions are not part of the bailout equation years later. Banks are willing to walk away quicker than a cheetah on a bad bet but it is apparent that even Americans deep underwater on their homes are willing to pay for an asset that is clearly overvalued. The new name of the game is refinance at the artificially low rate and ignore the data showing a less affluent younger generation that is more focused on quality jobs than purchasing a property.

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skipjack's picture

Housing bottoming ?  This guy is smoking something goooood !!  Housing has only begun its fall.  You can't even pay a $100k mortgage on a Mickey D's income; where are all the minimum wage folks going to live, and what happens to the market when 1- the entry level buyer can't afford to buy and 2- the 2nd tier homeowner has no one to sell to ?  Then we get to the huge overhang of Boomer retirees needing to sell their crappy McMansion to afford retirement at all ?  And the millions of government retirees who will, in the next few years, get ginormous cuts in their pension benefits ?


No, folks, this baby has a lot further to go...down...before any bottom is reached.  Stay in your home and keep paying if the mortgage+taxes is less than equivalent rent, but everyone else should  PLEASE!!! quit paying.  The market will find bottom only then.

Walt D.'s picture

In the San Francisco Bay Area, the cost per square foot of a mortgage plus property tax is less than the cost of renting. Therefore, unless you have to move, it is more economical to stay put and continue paying your mortgage, even if you property is under water. However, unless you know you are going to be staying for at least 10 years, it is probably not a good decision to buy. Also, even if you want to buy it is almost impossible to get a mortgage on a jumbo loan house. The days of lax underwiriting, induced by rapidly appreciating house prices, are over. When prices were rising at 10 % a year, most lenders did not care whether borowers had no down payment, no job, no income, no assets. Now they are going through every loan application with a fine tooth comb. In this environment, you are not going to see 10 people putting in an offer the first weekend a house goes on the market, as was the case at the height of the bubble.

Kreditanstalt's picture

We desperately need to see higher unemployment.  That's the only thing that can crack this.   Most home"owners" can only keep their heads above water and pretend-and-extend because somehow someone is still willing to pay their salaries...

Hopefully not for long...

max2205's picture

If more people had nuts they would have walked and the system would be cleared like it should have. We might be in a real recovery by now.


Arnold Ziffel's picture

I thought only the mid-end houses ($250k-$400k) and high end houses (lets say > $500k)  were plunging but now I even see $156k houses dropping to $116k.

As long as they continue handing out zero-down mortgages, the house market will not recover.

BTW, take a look at any hood on Zillow and see the hundreds of red houses for sale....this does not even include the 12 million shadow inventory.



BotMightFly's picture

    One individual filed bankruptcy and listed the primary residence as unsecured debt, after several hearings no note was produced.  The collection calls stopped and the bank gave up. 

    Recently, another person was dealing with delinquent loan payments having a "servicer" offer a program for unemployed who needed to catch up on primary residence.  Servicer knew the money after a tiny amount of it was used -- for the program funding was re-allocated elsewhere and nothing was left.  When servicer was asked if servicer had authority to negotiate loan which is double the present value of the house, servicer said no.  This after a series of misrepresentations, lies and misleading statements. 

   Pulling title revealed no transfers of note were filed and chain of title has issues. 

   Even the Chinese through a mid-east representative are placing offers to buy up US housing now by mail.


Mark123's picture

You cannot have a real housing market until government gets out of the market.  I see no sign of that, and likely it will not happen until there is a complete economic collapse.


Also, the entire economic rebound is being driven by a renewed move to subprime credit (we are being bombarded with crazy credit card offers once again).


Think about it....virtually the entire mortgage market is now supported by the taxpayers.  How long can that go on.


Oh, and those great car sales....complements of subprime loans.

moneymutt's picture

You got facts for this? Consumer debt has gone up only because of increase in student loan debt, otherwise it is decreasing, hardly confirms your pint...

orangegeek's picture

There is much more downside over the next few years.


A weekly Dow shows a lot.

I am Jobe's picture

Are Homes still an Amerikan Dream. Just askin?

Vendetta's picture

housing prices correlating with household income, what a novel idea! /snark

lynnybee's picture

we'll all be underwater when the end comes.     one monster box will buy a mansion.   a couple of gold coins will get you a small house.     fuckers !    these people need to go !!   i know what they've done, i know who they are & what's going on .    i talked with a friend today & told her that we were going to a new monetary system.     she didn't know what i was talking about.    i told her that one day cash holders will be wiped out & we'd be going to a new monetary system.    she didn't understand a word of it & here is what she told me :     " well, they can't do that without giving us some advance notice !  that would be illegal !! "        i told her that they are giving us a warning !!! gold is signaling something is very wrong in the monetary system !          i just wanted to cry; am i the only one who knows what's happening !  how can people be this stupid !!?   GET RID OF THESE S.O.B. BANKERS !

fattail's picture

They are not stupid, its just the normalcy bias.  People believe things will always continue as they have until they dont and they receive their obligatory punch in the face.


Here is to a heavy punch in the face.

Obvious Paradox's picture

westboundnup, your mortgage is an asset (sic) of the failing company. That asset will be sold to another bank to service. Good luck getting out of your loan due to your servicing lender going under.

Andre, most of the loans done from 2003 to 2007 had no PMI on them, as lenders were doing a 1st/2nd TD combo so there was no PMI needed. 

chdwlch1's picture

Man, I sure do wish ZeroHedge was around when I bought my townhouse in 2005...

moneymutt's picture was around long before bubble popped.......but Know you enough now to squat and not pay and challenge title, you could be richer than if you rented whole time once you walk away from debt....or a cleaner, less lucrative (no free rent) way it is simply arranging a short least debt is gone,..if you are underwater you should likely do one or the other....but a
always talk to local experienced real estate lawyer first, lots of issues like tax implications, future liabilities etc

Andre's picture

It will never work. A buddy of mine explained it very succinctly as he was giving up his house.

If the banks work with you for a loan extension/reduction/whatever, you stay in your home and they get less money.

If they force you into foreclosure, the mortgage insurance pays the full remaining value of the loan and they get to sell the house again. LOTS more money for the banks. The now former homeowner is screwed, but the banks look at that as someone else's problem.

shuckster's picture

It's not a well known fact that banks actually make money from foreclosing on people via government payouts and insurance

andrewp111's picture

Then, explain why they are not foreclosing in NY City?

moneymutt's picture

Also, a bank actually owns the loan, is not just servicing it, they have another issue normal investors don't, leverage from fractional reserve and they need for reserves on paper, if they are just servicing loan, fireclosures produce more fees than work arounds, investor gets screwed, but bank/servicer makes money on servicing fees. But if bank owns loan, writing $500k loan down to $250k, decreases their loaning power by at least 10 times the $250 k loss. When they are scrambling for reserved, solvency, this is a big hit. Last few years banks have making up this lost income stream by taking free money from Fed, prop trading or buying Tbills so we tax payes pay them interest. A regular investor would cut losses when income stream, mortgage payments stopped and foreclose, but banks are a different animal...and then there is the note issues as noted above

gurkha108's picture

Because NY has great laws for the homeowner -- judicial foreclosure.  Most of these liar banks don't actually have the promissory note, and the foreclosures don't stand up in court.

unemployed's picture

 IF the servicer/bank has given you a HELOC or they have not securitized the debt and own the note directly,  or they Sold credit default swaps on the mortgage,  then they are incentized to use public tax dollars to make a loan mod,  if they bought credit default swaps,  or the servicer does not own the note and some unit servicing your note has a business model of mading dollars doing the foreclosure through their insurance and rehab cutouts,  they are incentized to start the foreclosure...

  Just guessing,  it depends on the bonus metric of the servicing manager,  bigger bonus for workouts, you get workouts,   bigger bonus for notice of defaults,  you get notice of defaults.

Sabibaby's picture

...but how long did you get to stay in your house mortgage/rent free and do you consider it worthwhile for other homeowners? 

Andre's picture

Two months wih partial payments and negotiations.

Wells Fargo strikes again.

potlatch's picture

my episode allowed me almost 2 years.  but i'm old school; this was a wamu mortgage baby.  my finances fell apart, stopped paying cuz couldn't pay, then tick tick tick, economy collapsed, wamu fell -- took another year+ for them to get back to me after that with a duly asked for mod request w/ impeccably submitted paperwork.  lol.


<bows before crowd>


footnote: ye, my finances fell apart.  so I am not sure anything that heppens in this context can be called "winning," but it sure beats "homeless"

TahoeBilly2012's picture

I got HSBC to cut my payoff on my truck by nearly $5k! I have never heard this story anywhere else, but I assume others have made similar deals. My truck had high miles and needed some work. I owed $11K or so and had not paid in about 6-7  months. I suggested an offer, sent some estimates from the dealer for work it needed and they made me an offer. Sent a cashiers check and got the title!

Dburn's picture

Timing an offer to Gas prices (for a SUV) going up or an economic slowdown with jobs going negative. I had a similar deal but only needed to supply a image of the dameged read hatch that somehow was backed into a fence. The image selection helped as the perspective and a enhanced depth of feild enhanced the damage to where a 11,000 pay-off (47K miles) went to 4K. Told them I wasn't going to use my insurance to fix a car they were trying to take.

It's strange that they took the offer when it ammounted to about a year of car payments. "How did he get the money to pay cash?" But hey, it's paid for. It's like making a right trade. No emotion and let it come to you.


RafterManFMJ's picture

After reading that, my head hurts. But I think you won, so good job!

disabledvet's picture

Congratulations! You're one up on the Banking system by having a clean title! Now did someone say something about this being a "political" issue again? Hahahahaha. Let's start with something that isn't illegal to begin. The fact of the matter is we're well beyond corrupting mere politicians.

potlatch's picture

Huzzah!  A clean title!


<drone appears over hill, strafes village, repossesses truck + several family members>  "Wait, was that a Ford drone or a Chevy drone?  Damn them sneakin up on a feller and makin it so he got not choice but to go get another one.  Sigh.  Well, this was the new way things just had to be, Jeb said it was "one for the Gipper" whoever the fuck that is, but anyway, got to get to the dealership, talk to yuns later."

Sabibaby's picture

So can you afford to fill it with gas and was your credit in anyway damaged?

Dburn's picture

Mine was marked "Paid as  agreed." The lates switched off in two years.

disabledvet's picture

How bout we start with "bank capital in the tank" and go from there Mr Rich Guy. Unless of course having 2008 2.0 is your modus vivendi.

Sabibaby's picture

From what I can tell the people who are rich are those at the banks and those not paying for what they said they would pay for. Sounds like a sweet deal, keep what you can't afford and socialize the loss to the tax payers. You know, some of these bozo's go on and on talking about how terrible banksters are meanwhile, behind our backs, they 'bankster' the rest of their people and community!!! 

I really don't care about the truck or the gas, I'm mostly hoping tools like the swindler above become debt slaves and are forced to wear stripped orange and clean the community until their debt is repaid. I feel the same way about the banksters :)

Lincolns Mullet's picture

Average homeowners don't look at their house as an "asset", waiting to sell it to make a profit.  The ingrained idea of homeownership is to make a home, and to stay put, especially with children.  You live where you work, and you stay where your memories are.  People are still paying their mortgage despite being underwater because it's a place to live, and holds more meaning than "asset value".  Sure, it sucks knowing you bought something that is now worth less than what you paid, but Americans do it everyday when they buy a new car.  The value is they get to drive around and look awesome and bang hot women in the passenger seat.

The reality is, most underwater homeowners are in a position to play hardball.  It's beneficial to stop paying your mortgage, because the red flags go up at the bank, and they can't get in touch with you fast enough to "work something out".  My cousin has been dealing with IndyMac for nearly 3 years.  They've come back 3 times in that period with different loan mod offers.  Going from $1700, to $1450 and most recently, $1150.  The process took forever because they kept "losing" paperwork while she was paying on the mortgage.  It wasn't until she stopped paying that they offered the loan mods.  She would take it for the 3 month duration, then stop paying, and the process would start all over again.  She didn't pay a mortgage for 5 months and now she has a new, reasonable loan mod.  Right or wrong?  Doesn't matter.  This is how the game is played now.

potlatch's picture

your description of the sentimental mortgage payer is me.  and if anyone wants to call me a sucker, they can come visit, and we'll go out and have beer, and you'll see overall I live a pretty cool life in my little home, and you might even say, oops, NOT a sucker. 



Anyway, the morgage aint killing me, so i could give a rip about some "negative asset" -- I like my house, and the mortgage is cheaper than rent, im gtg.


But if this wasn't my home?  Or was an investment?  Or if I wasn't all that attached I couldn't go for a change and get out from this absurdity?  Oh hell ya.  Who wouldn't?  It is illogical to not realize -- as each passing month goes by -- the glue of any sense of "duty" among the citizenry is evaporating to levels even beyond the near-vacuum we currently live in.  More and more will be moved by even the slightest of inclination to say, FUCK THIS.



barroter's picture

Excellent! Treat the Banks the same way they treat you.  If you act like a prick, you sometimes can win.

Sabibaby's picture

Screw the tax payers #Winnning.... lolz... we all know who will pay for this and it sure as hell aint the banksters!

jeff montanye's picture

not in today's reality, but depressions, especially when combined with food price inflation, are where history often changes course.  ask the jews in hitler's germany (oh wait).  ask quaddafi.  oh wait.  you can still ask mubarak, can't say for how much longer.

12ToothAssassin's picture

Same thing here - Our lender wouldnt do squat until we stopped paying, then they couldnt wait to 'help' us...

Sabibaby's picture

Does your cousing do anything useful with all the money she's saving like buy silver or guns?

westboundnup's picture

The lender holding my mortgage has filed for Chapter 11 protection.  I received a notice of creditors.  I cannot help thinking that this presents an opportunity to expunge the mortgage on my home.  Conceptually how can a corporation who is unable to pay its debts use income from my mortgage as collateral to creditors?  Would anyone like to discuss this idea further?  Feel free to message me if you'd like to discuss this further.

spinone's picture

Your mortgage has been securitized, the lender is only disbursing the payments to the holders of the MBS.

You can stop paying your mortgage, put your payments in escrow, then ask your mortgagor to produce the wet-ink Note at the foreclosure if you are in a judicial state.

i recommend you continue to pay your mortgage.

potlatch's picture

why?  honest question.


I think I am approaching the question purely logistically.  I know the backlog.  I know the staffing.  These institutions can't afford a phone bank to handle inquiries about accounts, never mind legal staff to execute these foreclosures once they become anything tricky.  The entire system can't aford its own enforcement.  There are no poor houses, sir, there are no poor houses.

jeff montanye's picture

potlach is a start, but what we are looking for is more along the lines of a jubilee.  manumission of the debt slaves.

Bicycle Repairman's picture

We are nowhere near a final bottom.  Some real estate will see a bottom at $0.

jeff montanye's picture

real estate took thirteen years to bottom in the '30's and they didn't have helicopter ben, et. al., mark to myth, too big to fail.  as the post notes, japan is still going down over 20 years later.

neidermeyer's picture

I bought 12 acres and 85,000 sq ft. of commercial space in a rural area for $100 2 years ago ... MANY areas will bottom at $0.

Newsboy's picture

Good name, "Bicycle Repairman".

I ride Biopace chainrings on my fixies (heh, heh, heh, secret weapon)