Foreclosures: Better to let them happen

Barry Ritholtz, who pens the excellent economy news site The Big Picture was on NPR’s “All Things Considered” Friday with some insights on the foreclosure “crisis.”

Financial Blogger On Ethics Of Mortgage Modification

A full transcript is available at the link above. Here’s an excerpt.

SIEGEL: But what’s the risk of providing some kind of mortgage relief, whether it’s a suspension of full monthly payments, or whether it’s a reduction in the principal for somebody whose house plummeted in value and who is also unemployed and really will have a very hard time making the payments regardless?

Mr. RITHOLTZ: From a broad perspective, again, you’re keeping them in a house that they can’t afford, and they’d be much better off going to a place that leaves them a little spare change in their pocket, as opposed to just draining everything they have to make those payments.

Secondly, if these banks have their balance sheets just festooned with bad loans, we’re not allowing them or not forcing them to do what they’re supposed to do, which is take the write-down, get it off their books, free up some capital and move forward as a healthy lending institution.

Barry also wrote some additional thoughts on this issue on his site last week: More Foreclosures, Please…

It may sound counter-intuitive, but the best thing for the nation (but not necessarily the banks) is to allow the foreclosure process to proceed unimpeded.  We need more, not less foreclosures.

We should allow the real estate market to experience a healthy price normalization process. Even though home prices have fallen dramatically, they have yet to reach their historical means relative to income or the cost of renting. This is to say nothing of the usual careening past the median towards under-valuation that typically follows a massive mis-allocation of capital.

I agree with Barry 100%.

Also related: with all the foreclosure prevention and delay programs going on, it’s hard not to feel like you’re basically a chump if you pay your mortgage. Many stay at home for free as banks defer evictions

It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their home in Perris, Calif.

It’s been 11 months since the notice got slapped on their front door, warning it would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.

Throughout the country, people continue to default on their home loans — but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

54 comments:

  1. 1
    Anon. says:

    WOW.
    As a tax payer, I am completely outraged. This is even worse than the socialist agenda, we can *all* agree:
    This is going to be taking money from the hard working (and sometimes lower middle class) and giving it to upper managers/directors that bought that 800,000 home that is now only worth 500.
    I wouldn’t even like it if it were taking money from the upper-middle/upper class and giving it to the lower-middle/lower class. But this.. This we can all agree is lunacy and needs to be stopped.

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  2. 2
    CCG says:

    “it’s hard not to feel like you’re basically a chump if you pay your mortgage.”

    Let me expand that. In this country, you’re a chump if you’re not some kind of white-collar criminal. I’ve been planning to start a business, but I’m going to wait until I can get rid of my citizenship and tax obligations. I refuse to support this any further than what’s already being taken from me under penalty of jail. As a renter and saver, it’s already been made more than clear to me that this is no longer my country anyway.

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  3. 3
    Scotsman says:

    He makes excellent points. I’m surprised, but pleased, to see this on NPR. Maybe the public is catching on and opinion is beginning to turn toward reality on this issue.

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  4. 4
    singliac says:

    RE: Scotsman @ 2 – I’m not surprised. NPR was covering the sub-prime mess well before the cable networks started talking about it. I heard interviews with Shiller back in 2005 that scared me out of buying a condo in San Diego. I didn’t hear any other source mention the term “sub-prime” for at least another year.

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  5. 5
    LA Relo says:

    I’ve always held that foreclosures are the solution, albeit a painful one – not the problem.

    The problem was unscrupulous borrowing and lending.

    I’ve often wondered why public policy has been so intent on keeping home prices artificially inflated. Lower costs of living would mean more disposable income, and might *really* bring us out of the recession we’re supposedly “not” in.

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  6. 6
    wreckingbull says:

    RE: CCG @ 1 – This is such as good point. The war on savers continues. I am also making life changes to reduce my exposure to this massive con game. I still have some hope that we can turn this around though, so I am not willing to turn in my passport.

    Rate this comment: Thumb up 0

  7. 7
    Scotsman says:

    RE: LA Relo @ 4

    “I’ve often wondered why public policy has been so intent on keeping home prices artificially inflated”

    It’s all about the banks and their solvency, nothing more.

    Rate this comment: Thumb up 0

  8. 8
    HappyRenter says:

    Hi Tim,

    Today’s blog causes my firefox to crash. I also have an older version of Shockwave 9.0 but it has always worked. I had to turn off flash to view your post today.

    Thanks!

    Rate this comment: Thumb up 0

  9. 9
    HappyRenter says:

    RE: HappyRenter @ 7

    Strangely, it works now.

    Rate this comment: Thumb up 0

  10. 10
    johnnybigspenda says:

    By LA Relo @ 4:

    I’ve always held that foreclosures are the solution, albeit a painful one – not the problem.

    The problem was unscrupulous borrowing and lending.

    I’ve often wondered why public policy has been so intent on keeping home prices artificially inflated. Lower costs of living would mean more disposable income, and might *really* bring us out of the recession we’re supposedly “not” in.

    public policy has been to allow for a ‘soft(er) landing’…. letting things plummet (they way they should) could (would definitely?) lead to instability well beyond just financial markets.

    I am more amazed by people who are $100K plus underwater, who are under umployed and struggling to make each payment, but who are continuing to do so… they have a contractually legitimate way out with a downside that seems to be far outweighed by the upside of getting the albatross off their neck.

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  11. 11
    BillE says:

    Politicians all claim to support affordable housing. But with housing headed toward affordable levels again, they’re falling over themselves to push prices up.
    I sent my Senators an email telling them I don’t support any actions to prop housing prices up, including the 8k tax credit that I qualify for. What did I get back? An email from Sen. Murray’s offices listing all the things she’s backed to increase home prices.
    Senator, why don’t you support affordable housing?

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  12. 12
    Dan says:

    Some stability is good. Let’s say that housing is 25% above it’s “market” value. If the correction happened over night, it would be disastrous for banks. People would walk away from their loans en masse. Banks would fail, lending would freeze and unemployment would shoot up.

    But if the decline happens gradually over the next few years, homeowners can make their payments, and eventually the loans will no longer be underwater. Provided that no further bad loans are made, the problem will have resolved itself, albeit slowly.

    It’s annoying for me, since I won’t be buying until housing is fairly valued – and that’s going to be a long time yet.

    But overall, it’s for the best. Obama is pursuing the path of least risk.

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  13. 13
    PhinneyDawg says:

    By Dan @ 11:

    Some stability is good. Let’s say that housing is 25% above it’s “market” value. If the correction happened over night, it would be disastrous for banks. People would walk away from their loans en masse. Banks would fail, lending would freeze and unemployment would shoot up.

    But if the decline happens gradually over the next few years, homeowners can make their payments, and eventually the loans will no longer be underwater. Provided that no further bad loans are made, the problem will have resolved itself, albeit slowly.

    It’s annoying for me, since I won’t be buying until housing is fairly valued – and that’s going to be a long time yet.

    But overall, it’s for the best. Obama is pursuing the path of least risk.

    This is definitely the path of least risk. It creates VERY slow recovery and rewards all the wrong people (risk takers). Often enough, the path of least risk is going to be the most unpopular one because the potential rewards are drawn out and muted. No one likes it but that’s life right now.

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  14. 14
    anonymous says:

    By BillE @ 10:

    Politicians all claim to support affordable housing. But with housing headed toward affordable levels again, they’re falling over themselves to push prices up.
    I sent my Senators an email telling them I don’t support any actions to prop housing prices up, including the 8k tax credit that I qualify for. What did I get back? An email from Sen. Murray’s offices listing all the things she’s backed to increase home prices.
    Senator, why don’t you support affordable housing?

    By “affordable housing” she means subsidized section 8 type housing for very poor people. That is what it means in the political world. She does not support housing values declining so median wage people can afford to buy decent homes, because of what it would mean for the banks.

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  15. 15
    HappyRenter says:

    CCG @ 1 and wreckingbull @ 5 and anybody else planning to turn in their passport:

    When you enter the US as a non-citizen and non-resident you have to fill a form with a lot of “important” questions, e.g., “Do you plan to join a criminal organization?” One of the questions reads:

    “Have you ever declined US citizenship in order to avoid taxation?”

    Answering yes to one of the questions above might deny you entry into the United States.

    So, you know ;)

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  16. 16

    Besides

    Home values will never put burgers on the stove or help you get a scarce job. The essentials.

    I was driving to a family Easter dinner yesterday and stopped at the dollar mart to get some chocolate bunnies to pass around at the restaurant and a wet hispanic mother and her drenched teenagers came in the store with 7-11 bags….the store keeper screamed at the family to put the 7-11 bags up front [to prevent shoplifting I suppose, a bit heavy on the racial profiling IMO] before they could shop.

    I was driving away and mentioned it to my daughter and she piped up, I go into stores all the time with bags from other stores and they don’t scream at me about it. She laughed when I said, racial profiling. We both looked out the window and saw a man with a Top Food store bag walking in the rain, miles from Top Foods. I told my daughter, the essentials aren’t having a car, the roof comes first.

    Yes, we should foreclose on bad loans, but remember, poverty isn’t nice at all and it’s definitely inconvenient for those it impacts.

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  17. 17
    Ross says:

    Housing prices will get back to historical norms: either by falling in price, inflation of everything else or some combination of both. The political problem right now is that there is significant (i.e. electorally signficant) numbers of people affected by the “housing downturn” to the extent where politicians will react by trying to prevent huge losses for this subset of the population. It’s not fair to the saver, but even conservative savers would be tangentially impacted by falling home prices: unemployment, stock market losses, faulting bonds, (possibly) things like increased crime due to the downturn.

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  18. 18
    wreckingbull says:

    RE: HappyRenter @ 15 – Which is why I stated I am not willing to turn it in, although that is a secondary reason. My primary reason is I still think we have a small window to fix this. There are plenty of legal ways to reduce your exposure to this defraud. In a nutshell, live smaller.

    By the way, I highly recommend David Walker’s new book – “Comeback America”. If you want to see how screwed we really are, it is an interesting read. That guy does not have a partisan bone in his body, he is just sick and tired of our leaders not acting like adults.

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  19. 19
    HappyRenter says:

    RE: wreckingbull @ 18

    I was hoping you wouldn’t turn it in. Unless you are dual, you would be stateless afterwards ;)

    Out of topic: I think in the 70s or 80s there was a huge crash in the European banking system when somebody who was stateless tried to open or access a bank account. The system was not designed to deal with that situation.

    I will have a look at that reference, thanks!

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  20. 20
    Scotsman says:

    RE: wreckingbull @ 18

    Yeah, Walker has been pushing his message for years. Unfortunately it seems to have gained very little traction with either the MSM or the public. People at all levels just don’t want to face the facts. Nobody cares about the future if it’s more than a month or so out.

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  21. 21
    wreckingbull says:

    RE: Scotsman @ 20 – Maybe people will start to listen when their effective tax rates break 60%, just so we can service our interest payments. That scenario is much closer than anyone realizes.

    Where it gets a little darker is when you start realizing that a nation crippled by debt is a nation which no longer can spend money on things like defense and infrastructure. A day could come when we are, shall we say, ripe for the picking.

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  22. 22
    The Tim says:

    By wreckingbull @ 21:

    Where it gets a little darker is when you start realizing that a nation crippled by debt is a nation which no longer can spend money on things like defense and infrastructure.

    Some may say we’ve already reached that point with respect to infrastructure. How many years have they been hemming and hawing about the viaduct and the 520 bridge, both of which are allegedly unsafe? And I’m sure you’ve heard about the South Park Bridge.

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  23. 23
    HappyRenter says:

    By The Tim @ 22:

    Some may say we’ve already reached that point with respect to infrastructure. How many years have they been hemming and hawing about the viaduct and the 520 bridge, both of which are allegedly unsafe? And I’m sure you’ve heard about the South Park Bridge.

    I stopped slaloming around the potholes in Seattle roads. You avoid one but you still hit the next. At least, tires are cheap these days.

    What I still do not quite understand about this country is: you leave the road and walk into one of those shopping malls, and everything looks so clean and shiny. One is funded by tax money, the other by the buying power of citizens.

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  24. 24
    Anon. says:

    RE: HappyRenter @ 23

    Gee, that couldn’t indicate that profit is a better motivation than anything else?

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  25. 25
    Daniel says:

    By Anon. @ 24:

    RE: HappyRenter @ 23

    Gee, that couldn’t indicate that profit is a better motivation than anything else?

    It also could just show were people put they priorities: They refuse to spent money on the roads they use and on health care for the poor but spending it on the useless gimmicks that make up 90% of mall sales seems to be very popular.

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  26. 26
    Anon. says:

    RE: Daniel @ 25
    Either that or the government is to busy spending our tax money on aborting babies instead of fixing the roads.

    If Louis Voiton took several dollars from every purse sold and killed a baby with it, and therefore needed to increase the cost of the purse, there would be a proportional amount of people that would not purchase that purse, then another purse maker would start making similar purses, but, not spending much of their money on baby murder, would be able to lower the price. The average purse buyer would purchase the cheaper one.

    You see the government is essentially selling us a service (or service package), but their margins are too thin because they spend them on things that don’t end up benefiting the end customer. The only problem with the government, is that there *is no* alternative purse maker. So we have to buy things we never wanted/voted on. A company either charges what something is worth, and what the customer wants, or they go out of business while a competitor takes their place.

    So I believe this, while maybe only in part, explains the pot holes. (Not to be completely political with the abortion example, but it’s the most prominent thing that the government subsidizes that most Americans don’t support.)

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  27. 27
    What's my name says:

    Mr. RITHOLTZ: From a broad perspective, again, you’re keeping them in a house that they can’t afford, and they’d be much better off going to a place that leaves them a little spare change in their pocket

    This is in response to a stated assumption that the person affected is unemployed. No one is going to rent to the unemployed. Does Mr. Ritholtz believe that these people would be much better off sleeping under the viaduct? Did he read “A Modest Proposal” without a sense of irony?

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  28. 28
    THom says:

    Per WSJ, this is the best time to buy.

    http://finance.yahoo.com/real-estate/article/109209/time-to-storm-the-castle?mod=realestate-buy

    ‘Perfect Time to Buy’

    For these reasons, “this is the perfect time to buy,” says Eric Awad, a neurologist in Atlanta who thinks market conditions are forcing sellers of high-end homes to knuckle under. He and his wife, Nachwa Jarkas, an assistant professor at Emory University, are eager to trade up from their town home and buy a four-bedroom house in Atlanta’s posh Buckhead district. They are looking in the range of $1 million to $1.2 million, though Dr. Awad hopes to “knock the price down” below $1 million.

    Like many potential buyers of high-end homes, the couple has a big hurdle to clear: Before buying, they need to sell their town home, which is on the market for $575,000, and they have no idea how long it will take for them to find a buyer. In this still-troubled real-estate market, success favors buyers who don’t have to sell first.

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  29. 29
    Scotsman says:

    RE: THom @ 28

    I’ve said it before, but when I worked in banking we often had groups of doctors for clients and financed office buildings, etc. for them. Their loans almost always got approved, even though the deals often stank. Twenty years ago doctors made a lot of money, and even though they were invariably terrible business men and often got suckered into questionable situations, they had so much cash flow they could always bail themselves out, even though it often entailed a bit of pain. It doesn’t look like much has changed- except the pay.

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  30. 30
    mydquin says:

    By What’s my name @ 27:

    Mr. RITHOLTZ: From a broad perspective, again, you�re keeping them in a house that they can�t afford, and they�d be much better off going to a place that leaves them a little spare change in their pocket

    This is in response to a stated assumption that the person affected is unemployed. No one is going to rent to the unemployed. Does Mr. Ritholtz believe that these people would be much better off sleeping under the viaduct? Did he read “A Modest Proposal” without a sense of irony?

    Agree 100%. This is really a misguided, let-them-eat-cake comment. Exactly where does Ritholtz think these people are going to go? I’ll tell you where they go. To the homeless shelter. Never mind that such a move has hugely dysfunctional secondary social effects. Got kids in school? Too bad. Employers won’t take you because the address on your application is a homeless shelter? Too bad. Destroyed self-esteem? Drugs? Alcohol? Crime? Too bad.

    The analysis looks so clean and tidy when you never leave the realm of neoclassical economics. Start counting up the social costs (i.e., the hidden destroyers of economic productivity) and some of those evil socialist programs start looking like a pretty good deal.

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  31. 31
    EconE says:

    RE: mydquin @ 30

    Where should renters go if they lose their jobs? Nobody seems to talk about that.

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  32. 32
    Civil Servant says:

    “Exactly where does Ritholtz think these people are going to go?” I think he is simply assuming that many of them will go stay with friends or family until they can get back on their feet. Wouldn’t most of us, if a close friend or family member was unemployed and in serious financial straits, offer what we had — an extra room, a sofa even? (Note too that when a household adds an adult member or members, its aggregate productivity potential increases; if my pal can’t find work he or she can still help around the house and spare me from having to leave work early to take my cat to the vet.) Human kindnesses such as these obviate the need for a lot of “socialism.” In this sense, overheated rhetoric such as the above dehumanizes all of us.

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  33. 33

    RE: EconE @ 31
    That’s a good point. Renters make up a pretty good chunk of the population, and in most places they can be evicted without just cause with 20 days notice. They don’t get to stay in their homes for months on end without making payments. Also, landlords not only get to deduct mortgage interest from their taxes, but also get to claim depreciation. Renters get to deduct nothing. But without the renters, landlords would have nothing to make their payments with.

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  34. 34
    EconE says:

    RE: Ira Sacharoff @ 33

    One hears so much about how forclosures will make a neighborhood less stable.

    I argue the opposite.

    What kind of example does a HELOC abuser set for….the chillllllldren?

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  35. 35
    CCG says:

    By HappyRenter @ 15:

    CCG @ 1 and wreckingbull @ 5 and anybody else planning to turn in their passport:

    When you enter the US as a non-citizen and non-resident you have to fill a form with a lot of “important” questions, e.g., “Do you plan to join a criminal organization?” One of the questions reads:

    “Have you ever declined US citizenship in order to avoid taxation?”

    Answering yes to one of the questions above might deny you entry into the United States.

    So, you know ;)

    LOL, thanks for the tip. Dave Barry covered this once, I think. If you’re entering the country planning to commit a crime, you’re supposed to just blurt this information out, slap a pair of handcuffs on yourself, and go wait in line at the prison until they have room to let you in.

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  36. 36
    CCG says:

    By EconE @ 31:

    RE: mydquin @ 30

    Where should renters go if they lose their jobs? Nobody seems to talk about that.

    There you go again, looking at that pesky unseen side of things :-)

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  37. 37
    LA Relo says:

    RE: johnnybigspenda @ 10

    “public policy has been to allow for a ’soft(er) landing’…. letting things plummet (they way they should) could (would definitely?) lead to instability well beyond just financial markets.

    I agree, things could get worse, but I think a lot of that was a political sales pitch, like when Paulson said we had to bail out the banks. Really? Let things correct, and rebuild organically.

    Some of the best companies in our country have come out of hard times, because they are forced to adapt to tough situations and survive on their own, not tax payer funded life support.

    Reward the remaining $1,000,000,000,000 in under-water option ARMs still to reset with principle write-downs and lower rates and you encourage them to stop making payments.

    I tend to believe most of those underwater and struggling simply bought too much using a loan product they didn’t understand in hope of a huge profit.

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  38. 38
    mydquin says:

    By Civil Servant @ 32:

    “Exactly where does Ritholtz think these people are going to go?” I think he is simply assuming that many of them will go stay with friends or family until they can get back on their feet. Wouldn’t most of us, if a close friend or family member was unemployed and in serious financial straits, offer what we had — an extra room, a sofa even? (Note too that when a household adds an adult member or members, its aggregate productivity potential increases; if my pal can’t find work he or she can still help around the house and spare me from having to leave work early to take my cat to the vet.) Human kindnesses such as these obviate the need for a lot of “socialism.” In this sense, overheated rhetoric such as the above dehumanizes all of us.

    Seriously, is this a joke? FYI, ignorance is a whole lot more dehumanizing than rhetoric.

    http://www.endhomelessness.org/content/general/detail/2409
    http://www.nytimes.com/2009/10/19/business/economy/19foreclosed.html

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  39. 39
    EconE says:

    RE: mydquin @ 38

    Once again I ask…

    What’s a renter to do in the same situation?

    Who helps them?

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  40. 40
    Civil Servant says:

    From the first link above:

    “* Housing providers (including emergency, transitional, and permanent housing) estimated that 5 percent of their clients experienced homelessness as a result of foreclosure; all respondents estimated that 10 percent [sic] their clients experienced homelessness as a result of foreclosure.

    * Those homeless due to foreclosure tended to be renters – not owners.”

    First of all, this undercuts your implied claim that foreclosed-upon owners experience homelessness in greater proportion than do renters. Secondly, it is not at odds with my gloss on Ritholtz that “many” of them will find a more amenable situation than living on the streets.

    I think that during times of endemic hardship, those of us who have the great luck of a good job, money in the bank, and a place to live have the obligation to step it up a little bit: do more volunteer work, increase our charitable contributions. If I could more directly help a friend or family member who had lost a job and was at risk of homelessness, certainly I’d do it. Obviously a lot of other people would too, or the figures in the first bullet item above would be higher. Those points are what I wanted initially to emphasize. I do not contend that the effects of homelessness are less than terrible. What I am saying, however, is that “losing” one’s house leads less often than we might think to — for example — living out of garbage cans, developing a crack habit, or becoming permanently unemployed.

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  41. 41
    mydquin says:

    By EconE @ 39:

    RE: mydquin @ 38

    Once again I ask…

    What’s a renter to do in the same situation?

    Who helps them?

    That’s an interesting question, but why do you assume that evicted renters and foreclosed home owners face the “same situation” when they don’t, especially when it comes to residual liabilities?

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  42. 42
    mydquin says:

    By Civil Servant @ 40:

    From the first link above:

    “* Housing providers (including emergency, transitional, and permanent housing) estimated that 5 percent of their clients experienced homelessness as a result of foreclosure; all respondents estimated that 10 percent [sic] their clients experienced homelessness as a result of foreclosure.

    * Those homeless due to foreclosure tended to be renters â�� not owners.”

    First of all, this undercuts your implied claim that foreclosed-upon owners experience homelessness in greater proportion than do renters. Secondly, it is not at odds with my gloss on Ritholtz that “many” of them will find a more amenable situation than living on the streets.

    I think that during times of endemic hardship, those of us who have the great luck of a good job, money in the bank, and a place to live have the obligation to step it up a little bit: do more volunteer work, increase our charitable contributions. If I could more directly help a friend or family member who had lost a job and was at risk of homelessness, certainly I’d do it. Obviously a lot of other people would too, or the figures in the first bullet item above would be higher. Those points are what I wanted initially to emphasize. I do not contend that the effects of homelessness are less than terrible. What I am saying, however, is that “losing” one’s house leads less often than we might think to — for example — living out of garbage cans, developing a crack habit, or becoming permanently unemployed.

    Are you claiming that foreclosure to homelessness is not a problem? You are fallaciously arguing percentages without acknowledging base rates.

    Also, mark me down as thinking the ‘thousand points of light’ argument is pretty naive.

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  43. 43
    EconE says:

    RE: mydquin @ 41

    What makes a homeowner so special?

    Are their children more important?

    Is there something about the plight of a homeowner that makes them any different than a renter?

    Nope.

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  44. 44
    What's my name says:

    EconE at 43: The post and the associated comments are about Ritholz foreclosure prescription and his characterization that the foreclosed would be “much better off”.

    A: This is nonsense, and
    B: Your concern for and comparison with renters is entirely beside the point.

    Learn to focus man.

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  45. 45
    EconE says:

    RE: What’s my name @ 44

    All I see is a buch of whining in the post @30

    Boo Hoo. Think of the children! The poor poor homeowner. Destined for a life of drugs alcohol and crime.

    Whatever.

    Once again, why should homeowners get special treatment?

    Social Cost? LOL

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  46. 46
    What's my name says:

    EconE at 45: Is someone suggesting that evicted renters would be “much better off”?

    By all means, with your strong emotional argument, no need to restrict yourself to linear thinking.

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  47. 47
    corncob says:

    Why assume that poor foreclosed unemployed will suddenly go homeless. Very few homeless are that way due to poverty, as most people with an ounce of knowledge know that the government has plenty of subsidized housing for those who are poor. True homelessness (e.g. sleeping in the jungle and sucking dick for $2) is generally a result of drug/alcohol abuse or mental illness. These are highly unstable people who are either unaware or too f-ed up to get welfare and other assistance that is provided by the state.

    That said, the vast vast majority of foreclosed unemployed would simply go rent a place that they could afford on their unemployment checks. If you read the news you might notice benefits go up to practically two years now, and probably will be extended further. If you cannot find a job within two years, then go on welfare and get subsidized housing. There is no reason any of these people would magically go from their McMansion to sleeping in parks unless it was by their own choice. Providing them further incentives to stay in homes they can clearly not, and never will, afford is just doing them and the market a disservice.

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  48. 48
    What's my name says:

    Corncob at 47: “That said, the vast vast majority of foreclosed unemployed would simply go rent a place that they could afford on their unemployment checks”

    Really? This must be that ounce of knowledge you were bragging about. Do you know a landlord that will take a new tenant on the basis of an unemployment check? You don’t do it. That’s landlording 101.

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  49. 49
    corncob says:

    RE: What’s my name @ 48Section 8 assistance limits are up to $64k/year for a family of four in King county. Considering unemployment is generally around $500/week, even if both parents in a family are unemployed they still fall under the HUD limits for rent assistance. Maybe I am wrong, but I have never heard of a shortage of section 8 rentals.

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  50. 50
    corncob says:

    In fact, here are about 81 hits for 1-2 bedroom section 8 apartments in Seattle proper alone. Scanning quickly I would say maybe 30-ish are “family” rather than elderly or disabled. Of course it would be wise in such a situation to move somewhere cheaper anyways, I am sure there is a decent amount of section 8 in the cheaper surrounding communities of Seattle as well.

    I would just like to ask Whats my name, why do you think you are helping people keeping them in a home they will never be able to afford? If you are unemployed for a long stretch (enough to be foreclosed) then you are statistically far more likely to take at least a 20-30% haircut on your next job, meaning you will not be making your old salary for another 5+ years. If you could not really afford your home at your old salary then you are likely to not be able to afford it again for a long, long time. Why give people false hope and have them spend every last dime on housing that will very likely end up going away anyways? So they can waste even more of their limited income on a pipe dream? At least going to a rental allows them flexibility and will let them rebuild their finances.

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  51. 51
    What's my name says:

    Corncob, Is your list a list of providers with vacancies or a list of providers period? I suspect the latter, but I will grant you it is a larger base than I had suspected. I seriously doubt many people would feel “much better off” going to section 8 housing. A big part of what is going on now is the economy and people who are unemployed, but COULD afford their payments when they were employed. Many of them will be reasonably employed again. It is a big stretch to assume they couldn’t afford their payments anyway. If you had an arm, your payments are likely lower than when you started.

    Another Ritholz gem from the article states that if banks write off their loans, that will free up capital – although the reserved capital virtually never exceeds the write off, and the write off erodes the bank’s capital ratio. What do you think of that?

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  52. 52
    patient says:

    This thread is great. The new class war. The highly educated, wealthy renter vs. the poverty stricken wealthfare dependent home owner. It all makes sense, the bubble must be over. Seriously I wouldn’t be surprised if most of us renters on this blog are well off with high paying jobs and large savings, fat 401ks and ample college funds for our kids. We cringe over having to bailout the wall street elite and fund reckless home owners McMansions and spending sprees on helocs. What do you think the not by choice renters, the poor renters think about it? I can just imagine.

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  53. 53
    Snigliastic says:

    RE: corncob @ 47
    You can get that for two dollars?

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  54. 54
    John says:

    Can those that stay in their houses after being “foreclosed” on eventually claim squatter’s rights?

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