The Next Big Bailout?

[duane1969]

As housing prices continue to decline many homeowners are choosing to default and allow their homes to be foreclosed. It is called strategic default. These people are essentially accepting that their credit will be trashed in exchange for getting out from under a major defecit.

According to the article 3 of every 10 defaults in 2009 were intentional.

Economists at Goldman Sachs recently forecast that after bottoming in 2013 house prices won't recover their 2006 peak until 2023.

http://bottomline.msnbc.msn.com/_new...wers-walk-away

My primary concern is if this will lead to another bailout. If more and more homeowners start bailing on their mortgages and a stagnant housing market keeps those homes from being purchased from the mortgage company, how long until another trillion dollar bailout becomes along?

[gladdyontherise]

This has been happening for a while, right? My mom's friend had owned a home for like 17 years or so and upgraded some parts of it, but recently had to let it go because the payments on the house got so high it cost more than the house was worth.

[pghin08]

Great topic. I was actually discussing this very thing with someone from Goldman at the end of December. I'll leave a decent synopsis of that convo tonight. Totally swamped at work today.

[duane1969]

This has been happening for a while, right? My mom's friend had owned a home for like 17 years or so and upgraded some parts of it, but recently had to let it go because the payments on the house got so high it cost more than the house was worth.

Yeah I don't think it is terribly uncommon. The issue is what will happen when those foreclosed houses have sat unpurchased for months or years. When a house that was worth $275,000 3 years ago, is worth $200,000 today and will be worth $175,000 in a year is up for sale, nobody wants it.

What is going to hapen is that mortgage companies are going to start going bankrupt because they will legally own these houses and be required to maintain them and pay property taxes resulting in a net loss even if they manage to sell the house for what was owed on it when they foreclosed.

[Star_Cards]

I hate this. That's the risk of owning anything. They value could go down. Just because real estate prices have historically always gone up doesn't mean it's a given. That's the risk. No one made you buy a house for the amount you paid. I get that people sometimes need an out, but to give up your house because you made a bad purchase or bought at the wrong time shouldn't be a reason to stick someone else with your action. I have a house, it's not crazy expensive and I live in an area where housing prices are normal. I also have paid on the loan very aggressively, but have no clue what my house is worth. If it was worth less than what I paid for it I would never think of defaulting on it just because of that.


from watching HGTV a house like mine that needs work goes for 3-6 times what I paid for mine. Sometimes people need to be responsible about the things they buy. No one makes you buy a house and no one promises it will always go up in value. Even if it doesn't go up in value, so what. You're still building equity in it and would come to a point where you own it and don;t have the monthly cost of rent.

[gladdyontherise]

Yeah I don't think it is terribly uncommon. The issue is what will happen when those foreclosed houses have sat unpurchased for months or years. When a house that was worth $275,000 3 years ago, is worth $200,000 today and will be worth $175,000 in a year is up for sale, nobody wants it.

What is going to hapen is that mortgage companies are going to start going bankrupt because they will legally own these houses and be required to maintain them and pay property taxes resulting in a net loss even if they manage to sell the house for what was owed on it when they foreclosed.

This has been happening for a while though also, right?

It may be me being naive, but I don't see why the mortgage companies can't work with the home owner and not raise their payments, especially if they've been making payments every month and paying on time for a period of time. Just doesn't make sense to me.

[duane1969]

This has been happening for a while though also, right?

It may be me being naive, but I don't see why the mortgage companies can't work with the home owner and not raise their payments, especially if they've been making payments every month and paying on time for a period of time. Just doesn't make sense to me.

Bottom line. Mortgage companies are in it for the money and know they can get a government bailout to cover their losses. If the government took the safety net away you would see the mortgage companies changing their stripes very quickly.

[pghin08]

As housing prices continue to decline many homeowners are choosing to default and allow their homes to be foreclosed. It is called strategic default. These people are essentially accepting that their credit will be trashed in exchange for getting out from under a major defecit.

According to the article 3 of every 10 defaults in 2009 were intentional.



http://bottomline.msnbc.msn.com/_new...wers-walk-away

My primary concern is if this will lead to another bailout. If more and more homeowners start bailing on their mortgages and a stagnant housing market keeps those homes from being purchased from the mortgage company, how long until another trillion dollar bailout becomes along?

Okay. So when I was talking with my Goldman Sachs guy, we talked about the following:

- Strategic default will likely increase for the next couple years, but only moderately. Those who have been most effected by the 2008/09 crisis have done the damage. They've defaulted already. There may have been a wave of strategic default, but it is likely to be nearing its peak.

- One of the reasons we talked about was the stability of the job market. Believe it or not, December marked 21 straight months of private sector job growth. With corporate balance sheets carrying a record amount of cash (trillions of it), it remains only a matter of time before that money is infused back into the market. Which equals jobs. I know most people are pretty sickened by today's job market, but I strongly think we'll see a continued improvement here in 2012.

- Housing starts are up. This data always seems to get lost in the fracas. They were up 9.3% in November and the numbers are liable to show another increase in December. A lot of these were apartment complexes, but there was a jump in single-family homes as well.

- From a political standpoint, a bailout of the American homeowner would probably be extremely unpopular at this point. Where there is a lack of political will, there is no way.

- And truly (this is only my perspective), I think 2012 will be a bit of a bounce back year. Maybe I'm being an optimist here, but most of the crappy things that have happened (housing, political strife, Europe) has been priced into this market. There are too many good economic indicators that are being ignored right now. And this will have an undeniable effect on both the housing market and the possibility of a bailout. Nobody's home equity is likely to drastically decrease in 2012, and so long as the market covers that, it'll be really tough to institute a bailout.

To me the more interesting question will be the process of the government eliminating Fannie and Freddie, and the result.

http://blogs.wsj.com/developments/20...-freddie-plan/

[duane1969]

Kurt I really, really, really hope you are correct. My wife and I are not even remotely considering any kind of default but we have talked about moving to Va Beach this summer and are currently tied to our house because the $80k that we had in equity as recently as 1.5 years ago has dwindled to the point that we might actually take a minor loss to sell right now.

[pghin08]

Kurt I really, really, really hope you are correct. My wife and I are not even remotely considering any kind of default but we have talked about moving to Va Beach this summer and are currently tied to our house because the $80k that we had in equity as recently as 1.5 years ago has dwindled to the point that we might actually take a minor loss to sell right now.

The way we look at our homes may never be the same. It's far more of a liability than an asset anymore. It's like I've said before, people would buy $500K homes and think they were half-millionaires. And of course, they weren't. I will always put the majority of the housing crisis blame squarely on the shoulders of mortgage lenders/greedy bankers. However, we could have done a lot as citizens if we would have just used our brains a bit. You make $30K a year and you think you can buy a $400K house and everything will be fine? Come on. Of course, these mortgage lenders didn't care, they just wanted as many people in homes as possible, because they were just passing the risk of to investors anyways. It wasn't coming back on them.

I know I don't need to tell you how tough it is to sell in this market right now. From what you've said on here before, unemployment is a pretty big problem in your area, and as long as that's an issue, selling a house will of course be an issue.

Why the possible move to VA Beach? I thought you and the Mrs. were pretty secure in your WV jobs.