Stop Me Before I Vote Again

http://www.washingtonpost.com/wp-dyn/content/article/2007/04/18/AR2007041802499.html?referrer=email

Maybe some sub-primers will get the relief we called for here, though so far it looks to have the usual big bold talk and small penis one associates with these two waddling behemoths. Their function, after all, is to turn lending to us homemakers into a barrel shoot for "the private lending interests".

If it's for real, and gets really rolling, this bailout, by my seat of the pants guess, for the whole subprime quagmire, could end up needing about 20 times as much as the two Uncle-spawned and -backed outfits are dummying up here (ie 500 billion maybe 750 billion in Uncle guarantees.)

Most importantly, imo, there's a back story here, of course, provided for us by the wishywashy express, and it sure does seem to be aswim with the usual beltway smelly factoids.

My favorite: the fiercely snarling false teeth of our ever heroic tribunes, the donk house boyz, as they pressure "both companies [Fannie Mae and Freddie Mac] ... to demonstrate that they perform a public service." Demonstrate to who? Rep. Barney Frank, that's who, the man from Newton Lower Falls himself, who according to this article is making large motions about requiring uncle's two spoiled brats "...to contribute to an affordable housing fund," 'cause battlin' Barney feels "the public has not received enough value in return for the commercial advantages Fannie Mae and Freddie Mac get from their government ties."

"The public?" Hmmmmmm. Poke around in this soup a bit, and I bet there's a private label under the cover of all this "the public" business.

Note well: we often hear this stuff called a cheap Wall Street bailout, when its some sub-saharan state that's on the dunking stool.

Recall, fellow citizens: if Uncle saves an 'umble 'omeownin' defaulter, He saves the stiff's generous soft hearted creditor's arse too, don't he now?

US Housing Crash Continues
It's A Terrible Time To Buy
Why?

1. Prices still disconnected from fundamentals. House prices are still far beyond any historically known relationship to rents or salaries. Rents are less than half of mortgage payments. Salaries cannot cover mortgages except in the very short term, by using adjustable interest-only loans. Anyone who buys now will suffer losses immediately, and for the next several years at least.

MURRELLS INLET, South Carolina: Ettore and Larisa Costanzo are showing off their new house, which they love madly.

"Notice how we upgraded so there's tile on all the floors," Ettore Costanzo, a retiree from Brooklyn, said.

Now if only they could get the keys and go inside...

Their builder is Levitt & Sons, which ran out of cash in October and declared bankruptcy in November.

Here's a bit of thumbsucking from the Washington Post:

Everyone knows the direct causes of the present housing collapse: low interest rates, lax mortgage lending, rampant speculation. But the larger force lies in Americans' devotion to homeownership. It explains why government officials, politicians and journalists (including this one) overlooked abuses in "subprime" lending. The homeownership rate was approaching 70 percent in 2005, up from 64 percent in 1990. Great. A good cause shielded bad practices. The same complacency lulled ordinary Americans into paying ever-rising home prices. Something so embedded in the national psyche must be okay.

I never cease to be amazed at how much Left discourse accepts the idea that house ownership is a good thing, and I'm dismayed by all the Left handwringing about the bursting of the speculative bubble. I hope it bursts so far and so fast it puts people off buying real estate for a generation.

http://robertreich.blogspot.com/

'Twould appear the great American home lot collapse has Bobby in its spell, 'cause now he figures without the borrow-on-tomorrow two-step provided by ballooning property assets, there's just not enough effective demand out there to go around -- at least not enough to keep our consumer market bells ringing lustily away. Hence RECESSION -- maybe worse....

And what of this Congro-confected interim stimulus package? Well, sez Bobby, if you looked at it from the point of view of every underwater householder, it's got serving sizes maybe two sizes two small. And then there's the deficit we'll need to cover the shortfalls -- where's the funding for that to come from, in a country that's not saving even the spared dime?

[cue ominous sub-Wagnerian monster music] -- "overseas"! The horror!

Bobby, keep your shirt on. Warm up some milk. Read Lerner and Vickrey.

http://latimesblogs.latimes.com/laland/2008/01/a-tipping-point.html

A tipping point? "Foreclose me ... I'll save money"

A homeowner who can't sell his house tells the L.A.Times, "Foreclose me. ... I'll live in the house for free for 12 months, and I'll save my money and I'll move on."

Banks and lenders fear this kind of thinking -- that walking away from a house could be the smart economic move -- appears to be on the rise....

Calculated Risk notes this is "one of the greatest fears for lenders ... that it will become socially acceptable for upside down middle class Americans to walk away from their homes."

The evil hillbilly mage behind this blogsham (pictured above) had an initial instinctual reaction to the house lot bubble bust: "If yer under water -- if yer upside down -- stop paying and walk away."

The stop-payments walk-off war is well into its third or fourth round now, and Uncle is preparing a remedy: "restructured mortgages".

Yes, Mr and Mrs Delinquent, before you morph into Joe and Jane Commonlaw Squatter, Uncle wants to help you stay in your home and own it too. Legally, like. Not by raising your cash flow to meet your payments, but by hammering down your payments to swim more easily through your cash flow.

Well, rangers, this oughta be fun. Imagine ole Snidely Whiplash caringly easing your burden -- voluntarily?

Sure -- if Uncle uses the national credit to insure the principal.

They're talkin' millions of mortgages here, and of course hundreds of billions of "face value". Not that much money, really -- though we'd all like to have a substantial piece of it. More importantly, imagine the interclass ruckus this would induce: Hey, why them layabout louts, and not us upstanding job-holding toil critters? Wedge politics at its finest.

Sum-uppin's: it's the N birds with one stone department. Stop the walk-away freight train to nowhere that credit grinders can getcha. (Freedom's just another word for no credit left to lose.) And for that, you get as bonus: one, the above venerable wedge amidst the exploitables; and two, you prop the collateral that is the lodestone of job loss fear Oh, and, err, three: you save America for exploitations yet unfound.

There seems to be a lot of back-and-forth just now about whether to include, in the "stimulus" package, a $15,000 tax credit for people who buy what I call a "house", but which conventional diction calls a "home".

Now this credit will not, of course, be available to renters.

Or, for that matter, to people who stay in their present home, or house. No. We can't stand pat. Buy a new home, or house -- or the terrorists will have won!

The Senate seems to be very keen on this idea:

The U.S. Senate on Wednesday voted unanimously to approve a home buyer tax credit of $15,000 or up to 10 percent of the purchase price... The amendment to the Senate’s economic stimulus package [was] co-sponsored by Sen. Johnny Isakson (R-Ga.) and Sen. Joe Lieberman (I-Conn.)....

Isakson... spent more than 30 years in the real estate business....

Note that word "unanimously". So the Dem majority -- fruit of the Last But One Most Important Election In The History Of The Universe -- and the defeated forces of darkness, the orcs of the Republican Party, are entirely on the same page here.

This profoundly bipartisan particular measure will spend about $35 billion -- let me write that out: $35,000,000,000.00 -- of our dollars to encourage Joe Schmo to keep speculating in real estate.

Because if Joe ever stopped -- Christ, where would we be?!

So.... will Obie sign it? Bets, anybody?

From Reuters:

Obama to unveil foreclosure plan, big lenders wait

U.S. President Barack Obama will unveil a plan to stem home foreclosures on Wednesday, a spokesman said, and major U.S. lenders said they had stopped foreclosing until details of the program have been firmed up....

Bank chief executives said at a Congressional hearing earlier this week that they would agree to temporarily halt foreclosures until the White House can unveil a program to help mortgage borrowers....

A suspicious person might entertain the thought that the bankers are maybe not all that happy about the idea of owning tens of thousands of unsaleable piece-o-shit McMansions. Perhaps... they'd rather not foreclose? Perhaps they prefer debt slavery, on a mass scale?

A Reuters report on Thursday of the Obama administration's mortgage plans triggered a U.S. stock market rally.

The National Association of Realtors said on Thursday that sales of foreclosed homes helped drag the median price of existing homes to its lowest level since 2003.

"Mr. Obama has unveiled a,,, plan to prevent as many as nine million Americans from losing their homes."

Translation: 9 million rubes hornswoggled into keeping the mortgage monkey on their back.

Here it is, Mr and Mrs Honest Godfearing Dumbcluck -- Uncle's helium rescue: re-fi credit balloons to lighten that nasty house on your back. Imagine! Up to 105% of market value!

Underwater never felt so good.

"Moody's Economy.com says nearly 27 percent of America's 52 million homeowners with a home loan owe more on their mortgages than their homes are worth."

Hmmmm. That's a big negatory, good buddy. What we job goons really oughta do is not pay as we go till we get relief, but walk away free now, all of us, and rent back each others "homes" from the foreclosure ghouls.

Free at last! Free at last! Thank God almighty, free at last!

Why continue this game of pass-it-along, anyway? " In whose pocket -- after all -- does the money end up?", as our dear backwoods troublemaker, Father Smiff, is wont to add.

The kissin' cousins, Fanny and Freddie, got something too out of Obie's "keep our mortgages flying" program. Ask the Washpost, they'll tell ya:

"The federal government yesterday doubled its commitment to Fannie Mae and Freddie Mac, promising to reimburse the companies for up to $400 billion in losses on their investments in mortgage loans. "

It's on the loan portfolio front, however where you get to see clearly "feeble is as feeble does." Though Obie has authorized a new higher limit on mortgages the two can "buy", the total is way way way too low. The buy limit oughta be -- well, unlimited.

No problem here. The master plan already calls for "The Treasury -- to buy securities created by the two companies, easing the pressure to find private investors."

And we all know the Treasury has no credit limit. So why not swing for the fences here? In plain fact, these two chubby chillin' of our dear uncle Sammy could buy up all the residential mortgages in America, all 10 trillions worth, and we'd each of us citizen taxpayers be the better off for it.

More on this in a future post.

Folks brought up on the Bible -- as I was -- will recall the surly older brother in the parable of the Prodigal Son. (I think he's the scowling chap next to the sawhorse on the right in Tissot's lovely picture above).

The Prodigal took his inheritance and went catting around the ancient Near East, spending his substance in riotous living.

The elder brother, good dutiful fellow that he was, stayed home and did his duty.

When the Prodigal finally returned home, and was met with rejoicing by his Pop, the elder brother was understandably aggrieved.

The story, as told by its distinguished author, puts the elder brother obscurely in the wrong. But perhaps because I am an elder brother myself, I always felt a certain sympathy for the sullen, pouting non-prodigal.

These old memories have come to the fore recently as I read about the mortgage bailout. Here's a sample from the Boston Globe:

Bailout lament: What about me?
Many who played by rules see unfairness

Brian Carpenter bought his Woburn home [sc. 'house' -- MJS] in 1980, and 29 years later, he has never missed a mortgage payment. It wasn't always easy. With three kids, it meant driving old cars, clipping coupons, and brown-bagging it to work.

Now, he sees the federal government committing nearly $1 trillion to bail out banks and struggling homeowners, and nearly $800 billion to offset economic damage caused by reckless lending and borrowing. What's in it for him? Probably $13-a-week, the middle-class tax cut in the stimulus bill.

"What about people like me who are playing by the rules, who got a mortgage we could afford?" said Carpenter.

The other day on NPR -- I was driving at the time, that's my excuse -- some "economist" was trying to explain this problem away. One of Mr Carpenter's fellow-elders had called in with precisely the Carpenter complaint: Where's the justice here?

The "economist" gabbled and stammered. For quite an agonizing long time. I nearly drove off the road, I was laughing so hard.

Finally the "economist" came up with his answer: it's not about justice, it's not about fairness, it's not about keeping the promises the system made. It's about saving the "system" itself.

To the "economist", this seemed like a pretty good response, no doubt. But I wonder whether Mr Carpenter will be convinced. If I were Carpenter, I would be asking myself whether virtue is really worthwhile.

Personally, I asked this question years ago, and answered it in the negative. But this was a quirky non-standard contrarian response, back then. The "system" seemed to have a certain moral authority at the time.

The moral authority is now shot. It's clear what the "system" was about in fact. It wasn't about rewarding virtue. It was about encouraging speculative frenzy.

Saving the system means: let's keep the suckers speculating, at all costs. Virtuous or not, they must stay in the game. Or all is lost.

Will that work, I wonder, if the moral story that the Carpenters like so much is undermined? Didn't the scam need that?

I guess we'll find out.

Meanwhile -- where did I put that damn fiddle? All this moving around, from rented anthill to rented anthill -- it's next to impossible to keep track of what little movable property you have.

My peerless leader, Snuffington J Smiff, finds uncle in the land loan biz a perfect horror. Well, consider the following, one and all, including you, squire Allsmiffy:

Okay, so Mr and. Mrs Sprawl need a place to store their household savings.

Well there's precious metal, and there's land, the classic stores of wealth.

We'll skip metal and go straight for land -- specifically, land in the form of a house lot, as that's overwhemingly the chosen path of plebian folks like the Sprawls, particularly here in the land of amber fields and parking structures.

As a store of wealth house lots are a pip, so long as a householder sticks to the Polonian way and remains free and clear of debt, or at least strives to become polonian by paying the mortgage off.

The free and clears come in at about one-third of our 75-million strong fleet of house lots these days.

Now comes a big down market, and these small taters are still free and clear -- even if in real terms they've taken a hit to their stored wealth (gold would have survived).

But the other two thirds face a bigger risk if their lot's market value falls far enough -- since their mortgage's outstanding principal, of course, doesn't adjust to drops in asset market values. Cometh the great panic -- and they're suddenly operating out of a sunken house, wealth-wise -- a tethered submarine, financially speaking: no longer a store of wealth but a mere hideous little debt sump.

What now?

The tale obviously starts and ends with its genie:

Uncle is said genie, a one-wish wonder: the magic market trick called Capitalized Ground Rent, CGR for short -- is CGR a particle or a wave, rent or interest? Both -- capitalized ground rent or amortized lot value, six of one, half-dozen of the other. Ground rent is the market value of a certain number of square feet of ground space in a certain location for a certain period of time. It's ultimately linked to its use value, of course, which itself partakes of the intricacies better left to Clio.

The rent or its interest payment equivalent is a social product, optimally captured by society and not left to households, anymore than it oughta be left to the Duke of Westminster.

Conjecture: the episodic undulations of ground rent are best ridden by the whole people together, with individual variations of guile and fortune playing a minimalized role. So how do we construct a raft for all of us -- how can we float as one, together above the inevitable unforeseeable complexity of 75 million lots all being hit always with these highly variable local value waves?

Answer: Uncle should make each of us an offer we can't refuse -- a mortgage on our lot value with a super-submarket interest rate, no principal payments until sold, fully transferable, etc.

Upshot: Uncle eventually caputures all the lots in America as if he'd nationalized 'em, and and he becomes our landlord.

A few yeoman holdouts? So what? I bet even of the 25 million free-and-clears we'd seduce most.

The point is: once Uncle holds the paper on all the lots, Uncle can control their value. In fact, over time, the Sprawls will only think about what they borrowed on the house itself (as opposed to the lot) as a mortgage. The lot value will look like a land tax -- yup, George time in America, folks!

Whoa up, there, Owen, you're saying -- what about the store of wealth bit?

I lied about that. It was just a teaser to draw in you Scotsmen and monkish acolytes of the abstaining wet-blanket cult.

Forget it! Forget saving! Like hair shirts, it's for suckers. Given my ultraloose Uncle-backed credit systems, Owen kills savings like Macbeth killed sleep.

Old monster Luce's flagship has a beaut of a piece:

Jobs Are The New Assets

"Remember when jobs weren't worth your small talk? Think back a year or two.... You talked about your house. A new deck! You talked about your portfolio. Gotta go small cap. Did you mention how much pleasure you derived from bringing home a steady paycheck? Probably not.... Land was valuable, and capital was valuable, and labor — who cared?"

Now here at the dawn of die Obamazeit with our cratered 401K/IRA "portfolio" and our house treading the waterline, our shitass jobs are all we got -- again. Its like 1946 all over -- err, only different; we ain't got no CIO.

Let's take the Wayback to the beginning, the time before Reagan time, to the cold war, the one Harry stared and Nixon won by going to visit his co-victor Chairman Mao.

The kulacking of America's blue-ribbon wage earners began with the great migration out of the urban apartment and onto the family house lot in Sprawlville. Okay, so you're still William Bendix, Brookyn wage smurf, but now you got a front lawn and a back yard of your own.

Beats hell out of stickball, rooftop picnics, and the iceman shtupping the wife, eh?

Here's the gimmick turned miracle: by 2006 those house lots -- now owned by Homer Simpson, not Chester A. Riley, are worth megabucks -- or thereabouts. Like a magic tree growing over the years in the back yard, suddenly the fucker's yielding golden apples. The credit line running off that lot's appreciation in value by '06 is getting Homer a 9% "lifestyle raise". Life is sweet!

...That is, until yesterday when the great lot pop exploded. Oh well, I still got my 401K -- except it's now more like a 201K.

Looks like it's back to being just that good old peculiar commodity again. Welcome back, 1946!

It gets me to ruminating. Back then, America's white wage smurfs took a path away from the CIO class model toward the BYOB model -- that is -- the Build Your Own Business model, though the phrase has to be understood in a perverse sense. It means build some other offsite bunch of ass holes' business, by cultivating your inner professional, that guy or gal you make yourself over into, by acquiring skills and, better yet, credentials. That's your business, and it don't matter if you're counter help or a wily commission sales harpooneer.

Your business is best done inside a bigger limited-liability outfit -- BYOB don't mean Be Your Own Boss. Just upgrade yerself, pard.

My grad school idol, Gary "The Pecker" Becker, shown above, turned this caper, this investing in ourselves, this building a deck onto ourselves rather than our house, into a career, and gave it a name -- "building our human capital." In fact he got a Swedish dunce-cap award for his "modeling" of it.

So there you are, all you have-hopers: what'll you be? A commodity or a capital? A "professional" or an honorary wetback?

It's America. You're free to choose, hombre.

I just saw Michael Moore's latest effort. It's not really about capitalism as much as foreclosure, American style -- yup, good ole sheriffs-comin' foreclosure -- and, as we used to say, "the fightback".

Fightback ain't easy -- so is there a lighter way? Uncle offers hope these days -- right? A plan for us, even for the least of us.

Here's Liz Warren's update on Obie's mortgage mitigation program, and here's the delightful Miss Warren herself as talking head:

Her report gives us a sense of just how likely it will be that us 'good people' facing foreclosure ahead will be rescued by Uncle Sam:

"From July 2007 through August 2009, 1.8 million homes were lost to foreclosure and 5.2 million more foreclosures were started. One in eight mortgages is currently in foreclosure or default. Each month, an additional 250,000 foreclosures are initiated. [Current levels of funding] will support about 2 to 2.6 million modifications. But if foreclosure starts continue their push toward 10 to 12 million, as currently estimated, the remaining losses will be massive."

As Warrens's posse sees it, there are three things that don't look promising about the setup:

"First is the problem of scope.... The second problem is scale.... The third problem is permanence"

My squint on this: HAMP -- as this 7th cavalry program acronyms itself -- looks like the Katrina helicopter roof rescue so nicely folded into Moore's montage:

Bottom line: I suggest stick to 'fight back'. Unlike Uncle's doubletalk flimflam, plain old fightback scales up nicely, scopes out limitlessly, and permanence is its middle name.

From Reuters. No comment needed:

Foreclosed Couple Detain, Torture Loan-Modification Agents

LOS ANGELES (Reuters) - As Los Angeles housing advocates launched a campaign warning of mortgage rescue scams, a couple hit by foreclosure are charged with torturing two loan-modification agents they suspected of fraud, authorities said....

"The two allegedly sought loan modification assistance from the victims but believed that nothing was being done and wanted their money back," a statement from the district attorney's office said.

[DA mouthpiece Shiara] Davila-Morales added that the couple, according to investigators, believed they had been swindled.

----------------

Editor's note: And so they have, of course, like every other so-called "homeowner" of less than 40 years' standing in North America. Why, I wonder, aren't all the others responding in such an appropriate way?

Population, 1959: 180 million

Population per unit under construction: 120

Population today: 300 million

Population per unit under construction: 600

From the Wall Street Journal:

One in Four Borrowers Is Underwater

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

... as the Lord Humungus, shown above, once memorably advised.

Dean Baker, alas, though he's a fine fellow, is no Humungus. In a recent Counterpunch piece, El Dino has caught the smell of welfare-queen bankster handout number 13 in the recent POTUS mortgage relief plan. Dean sets it up nicely:

"Homeowners are effectively throwing money away every time they make a mortgage payment... the Center for Economic and Policy Research calculated that a family who purchased a small home in Los Angeles near the peak of the bubble could save $1,640 a month by renting rather than owning. This comes to almost $20,000 a year. In Phoenix, a family who purchased a home near the peak of the bubble could save $420 a month or $5,000 a year. In Miami, the savings would be $1,940 a month, more than $23,000 a year... These homeowners also have no reasonable prospect of ever getting equity in their homes. In many cases they are 20 or 30 percent underwater, possibly owing over $100,000 more than the current value of their home."

Nope. Dean wants the geefs and geefettes to be able to rent back their present "owned" digs for ten years at today's lower rental ratess.

Hmmm. Not gonna happen. The POTUS has a different remedy: why not have Uncle pay down a chunk of the mortgage? Reduce the nut, make it easier to carry. Hold the phone, our man sez:

"If the government pays for a mortgage modification where the homeowner is still paying more for the mortgage than they would for rent, then the bank gets a big gift from the government, but the homeowner is still coming out behind."

But we want walkaway to accelerate, so we unlike Dean, want all underwater households to bug out son-of-sam style today, all at once, and then go out and rent each others' houses at market rates from the banksters. Now there's a fearful symmetry for you. Why is our magic president talking a big bundle of buy-down money anyway? Maybe it's a twofer: one, it hands money to the banks they'll never collect otherwise; and two, it might slow the walkaway movement with a fusillade of false hopes -- which are, after all, something of an Obama house special.

From the Daily Telegraph -- of all places -- a long-standing fantasy of mine, realized:

US cities may have to be bulldozed in order to survive

Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.

The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.

Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.

The radical experiment is the brainchild of Dan Kildee, treasurer of Genesee County, which includes Flint....

Mr Kildee, who has lived [in Flint] nearly all his life, said he had first to overcome a deeply ingrained American cultural mindset that "big is good" and that cities should sprawl – Flint covers 34 square miles....

The local authority has restored the city's attractive but formerly deserted centre but has pulled down 1,100 abandoned homes in outlying areas....

Already, some streets peter out into woods or meadows, no trace remaining of the homes that once stood there....

"Much of the land will be given back to nature. People will enjoy living near a forest or meadow," [Kildee] said.

I love the idea of those sheetrock streets going all bumpy and unmaintained under your wheels, as you drive your car ride your bike out of the tiny village center. If you forge incautiously ahead, you begin to see weeds growing up through increasingly treacherous cracks in the pavement.

Soon you have to leave your car bike and continue on foot. Finally the mulberry bushes and the brambles have blocked the asphalt completely. You can still discern the line of Airport Road, a notch in the woods where the trees are not quite so high, yet, as the trees on either side, in what used to be the yards of American Dream houselots.

Unless you've brought a machete, you can't follow the road any farther.

Oh, there will be deer tracks, and if you're willing to go on all fours, you can creep through the little low tunnels that the wild boar have made in what was once the Airport Road Mall. That's if you're not too worried about encountering a wild boar -- and my advice is, you should be.

Not to mention the wolves.

Next: New Jersey. And then... Westchester!

In the soap opera of petty commercial matters, if the Wall Street Journal covers it, then something has long since become so widespread it can't be ignored any longer. Note this headline:

American Dream 2: Default, Then Rent

"Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion. As a proportion of the economy, that's roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.

The flip side of those losses, though, is massive debt relief that can help offset the pain of rising unemployment and put cash in consumers' pockets.

For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven't paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month...."

"... an injection that in the long term could be worth more than the tax breaks in the Obama administration's economic-stimulus package."

I hate to report this, but the Father Scruffle Smiff 'just walk away hoss' spiritual revival movement has not as yet really caught fire. Seems way too many folks are still not taking the rational option of strategic default.As an inquiringly-minded NYT columnist notes:

"Millions of American homeowners are “underwater,”... In Nevada, nearly two-thirds of homeowners are in this category. Yet most of them are dutifully continuing to pay their mortgages, despite substantial financial incentives for walking away from them"

"In a report prepared for the Department of Housing and Urban Development, Susan Woodward, an economist, estimated that home buyers in such states paid an extra $800 in closing costs for each $100,000 they borrowed. These fees are not made explicit to the borrower, but if they were, more people might be willing to default, figuring that they had paid for the right to do so."

Speaking of hidebound prig-sticker morality, here's my idea of a real asswipe doing a no-harm no-foul flyby on this whole business. It's from the industrious quill of none other then Mr Mark Thoma of the Thomatic poisoning site 'Econo Mist View':

"I think that people in non-recourse states understood the option a bit differently... If medical costs wipe you out, if the demand for the widgets you produce falls permanently causing you to lose your job and also have trouble finding a new one, or if other things out of your control cause you to be unable to pay your mortgage, then you won't lose your car, furniture, heirlooms, etc. in a forced liquidation to pay of as much as possible of the remaining balance on the housing loan. Non-recourse protects you fro losing everything. But a change in the price itself wasn't part of the deal. You get to keep the upside, but have to eat the downside-that's how it worked and you knew that going in. At least, that's how I always understood the implicit deal (enforced in part by a fear of losing access to credit in the future, social norms, etc.).... Following this implicit rule lowers costs for everyone..."

Alternet has joined the ranks of Walkaway advocates:

The homeowner relief plan adopted by President Obama and Treasury Secretary Timothy Geithner has not been working for a full year now. What's worse, as the program is currently structured, its chief benefits accrue directly to the nation's largest banks.... If you owe more than your house is worth, just walk away.

"The rational thing for these people to do is to send the keys to the bank and say, 'Good luck,'" says Dean Baker, co-director of the Center for Economic Policy and Research. "Every month that you keep that person in their home paying that mortgage, that's a gift to the bank. So if you could keep a lot of people from sending their keys to the bank, and keep sending their checks instead, that helps the banks directly."

...[T]he "relief" offered by the plan is actually worse for a lot of borrowers than outright foreclosure.... HAMP attempts to keep people in their homes by reducing how much they have to pay every month.... But buying a home is so expensive, especially at bubble-level prices, that even borrowers receiving this aid could usually rent a comparable home for less....

The average underwater borrower today owes about $70,000 more than their home is actually worth, according to CoreLogic. Since 10.7 million mortgages are currently underwater, the banking system could see losses of up to $749 billion from problem mortgages—and the number gets much bigger if home prices decline further, [so] with HAMP, we've... encouraged borrowers to waste their money on irrational payments.

Housing Market Prepares for Renewed Plunge Following Removal of Supports The Mortgage Bankers Association’s purchase mortgage applications index fell by another 3.3 percent last week and continues to run substantially below the depressed levels of January 2009. This indicates that housing purchases still are not recovering from the slump that followed in the wake of the original November 30th ending date for the first-time buyers tax credit. It seems virtually certain that prices will soon begin to decline again as the market will finish shedding the 15-20 percent of house price valuation that is attributable to the bubble.

...The tiered index provides evidence that is consistent with the first-time buyers credit being a major factor in the recent price increases. In most cities, prices for houses in the bottom third of the market rose much more rapidly than the price of houses in the middle and top third....

In addition to the end of the credit, the lower end of the market will also be hit by the tightening of standards by the Federal Housing Administration (FHA).

But as noted in an earlier post, the Great Walkaway hasn't materialized yet, alas. And some of the comment thread to that post suggests some reasons why: the houseownership fetish still has a strong grip on people's minds, and plenty of people believe that the rental options are all unsatisfactory, for one reason or another.

As a lifelong renter, I tend to think this latter belief is pretty much superstitition, but perhaps there are places where there's some truth in it. That wouldn't be too surprising, since policy for decades has contrived a fantastic Rube Goldberg machine of perverse incentives to chute us poor lambs into the mortgage abattoir, and a relentless barrage of propaganda and marketing has brainwashed us into believing it's a nice place to be.

As a result, rental housing has been comparatively starved of investment, and renters as a class have become a less important political constituency.

If the Walkaway does materialize -- and I sure hope it will -- it's probably the sort of thing that will exhibit avalanche dynamics. One minute the snowy mountainside lies tranquilly shining in the sun; next minute it's boulders and uprooted trees and a cubic mile or two of wet heavy snow heading for your ski chalet.

There's a site, youwalkaway.com. It's a thoroughly commercial undertaking, whose proprietors are betting on what I called in an earlier post the "avalanche dynamics" of mortgage serfs deciding to lay their burdens down.

Don't you love entrepreneurship?

youwalkaway.com cites -- alas, without a link -- a story in the Wall Street Journal’s Real Time Economics which reported that

Researchers have found that homeowners start to default once their negative equity passes 10% of the home’s value. After that, they “walk away massively” after decreases of 15%. About 17% of households would default — even if they could pay the mortgage — when the equity shortfall hits 50% of the house’s value, they found.

[And] there is a multiplication effect, where the social pressure not to default is weakened when homeowners live in areas of high frequency of foreclosures or know others who defaulted strategically... The predisposition to default increases with the number of foreclosures in the same ZIP code.

A good many of our commenters on this topic seemed to be doing what I think of as the Apologia pro Catenis Suis -- my chains are so strong, so drop-forged, so trebly-welded, that I can no other. Yes, I'm a prisoner of my underwater mortgage, but if I were to walk away and rent, my landlord would take advantage of me, and maybe he wouldn't even rent to me anyway, and in any case my neighbors would be nasty undesirable people.

I have a kind of unnatural hypersensitivity to euphemism, and so the comment that put me over the top tonight, and drove me to bite the hands that feed me, psychically speaking, was this:

The few lucky people with mortgage defaults in their history who have signed leases in my market recently have agreed to a premium on rent and had to make an exorbitant security/damage deposit.

Most of them end up in much more economically challenged sections of the city.

Aren't we all? What does this phrase mean? In monosyllabic Anglo-Saxon, doesn't it mean "broke"?

That's just what these underwater mortgage slaves are. They made a big speculative bet on their house, it didn't pay off, and now they're broke.

Welcome to the club. It's not so bad, actually. Once we drop the pretence of being better than the next guy, we can have some good times.

A kind reader passed this along:

22 February 2010

To:  Michael J. Smith and Owen Paine

Now we're really talking!

http://www.wlwt.com/news/22600154/detail.html

You can just walk away.  But then again, you
can get a bulldozer and leave the bankster with
just the raw land to play with.

Let Paulson and Bernanke securitize that!

I must have mentioned before how I would really like to say nice things about Michael Meeropol, for the sake of his mom and dad, a couple I admire deeply. But damn, Mike sometimes says the silliest things. Here he is, in another item from my lefty mailing lists:

I sent a letter to the NY Times, asking them to support the RIGHT TO RENT ACT OF 2010.

For those who don't know it's a proposed law that would put into effect the Dean Baker/Mark Weisbrot proposal from at least 2 years ago --- namely that the way to keep people in their homes without subsidizing the bankers who made these ridiculous mortgages is to give them the option of renting at fair market rents (the law says for 5 years).

The bankers can foreclose but they can't kick you out of your home -- and you can stay there for five years paying market rent (which is almost always way below the ridiculous mortgages you owe on the bubble-inflated house prices).

It cures two problems at once ---

1) no one is kicked out of their homes

2) no empty homes to ruin neighborhoods and depress housing prices further.

I think we should begin badgering Congress to do this.

Mike

No empty homes to ruin neighborhoods and depress housing prices further.

What the hell is wrong with "depressing housing prices"? What other commodity necessary to life do we want to see become more expensive? Air? Water? Food? Sunlight? No? Then why shelter? Why isn't it a triumph for humankind when shelter gets cheaper? And as for "ruining neighborhoods" -- if they're the sort of neighborhoods that nobody would live in except on spec, then the sooner they're ruined, the better.

Oh, I know, I know, people's "savings" are tied up in these fetish objects. Actually, that's not quite true. What was supposed to happen was that the speculative gain on the house was going to offset the share of the interest you spent on the mortgage(*) and give you a nice better-than-average return on the principal to boot.

But let's ask ourselves: how do you realize these "savings" -- actually, of course, these speculative gains? By making some younger person buy the house, at its inflated price, when you decide to cash out, that's how. To the extent that this scam can work successfully over any period of time, what is it but an intergenerational transfer of wealth from younger people to older ones?

Fie on it. I want to see house prices in the basement, the subbasement, the catacombs, the chasms, the caverns, the Malebolge. I want to see people being paid to live in these sheetrock monstrosities.

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(*) Of course Uncle Sam paid the rest -- or rather, we renters paid the rest of it, through that iniquitous cross-subsidy for "ownership" known as the mortgage interest deduction. Faugh!

Thanks to the miracle of Facebook, I'm now in touch -- of a sort -- with some former college classmates. One of these recently posted an item on his blog that tickled me:

Renegonomics

Read carefully. The title of this piece is NOT "Reaganomics," but "Renegonomics."

I came across this interesting snippet from Bill Fleckenstein today, who refers to "the hidden benefits of debt repudiation and forbearance by the banking system, all of which have been created by the government's easy money and bank bailouts.... People who aren't making home payments; or those who are participating in short sales on homes they can actually afford -- in other words, the folks who in essence reneged on mortgages that were under water and did so because they could -- have extra money to spend that they wouldn't have if they'd been making payments."

The 'do-over' that the world was given during the financial crisis, courtesy of the printing press (read: government bailouts), will be 'paid for' with higher inflation....

Exchange your currencies for gold as a store of value in inflationary times.

Oh, So The "Recovery" Is About Delinquency?

I've said for a long time that one of the reasons our consumer spending numbers have been "reasonably good" the last six months or so - and have been improving - is that people haven't been paying their mortgages.

Now comes Bank of America about to tell Congress the same thing:

Bank of America's top mortgage executive, testifying today before Congress, will release sobering details of home-loan delinquencies, including that "hundreds of thousands of customers" haven't made a payment in more than a year.... Almost 500,000 struggling loan customers have not supplied information or taken other basic steps to qualify for mortgage help. About half of them have not made a payment for more than a year, or owe more than 50 percent of the value of their homes.

That's because those 500,000 lied about their income, assets or both when they applied for the loan originally, and that deception would be discovered.

But this also means that some 250,000 of those customers have not made a payment in a year.

If we presume that these people have average mortgage payments of $1,000 a month (and this number is probably low), this amounts to $250 million monthly that is being spent in the economy but would otherwise go to mortgage payments.

Anecdotes bear these sorts of numbers out - so-called "struggling" homeowners who, despite being delinquent on their mortgage and in fact not having paid in over a year, are spending upwards of $1,500 monthly in places like Best Buy, hairdressers and tony clothing stores.

The essential conundrum is this: Eventually, one way or another, these families will have to start making payments toward housing again. They may make those payments via their mortgage or they may be evicted and become renters but the money currently being blown on frivolities that is "propping up the economy" and leading to "strong consumer sales" is showing up there only because people are literally getting a free ride on their shelter costs.

The perversions at play here are outrageous - not only are these "homeowners" living effectively for free (and since most mortgages have escrow accounts for property taxes, those aren't being paid either!)

Anything to all this, O econ-meisters? I don't mean the "inflation", which I couldn't care less about, but the idea that the "recovery" -- such as it is -- is fuelled to some important degree by people stiffing their mortgage lenders. Is that really happening? If so, it's the second most wonderful thing to happen in my lifetime.

The first most wonderful thing is shown below. Landlubbers beware: the newsreader, droll though he is, doesn't know how to pronounce the word "leeward".

I know Dean Baker is not universally admired here, but I thought he made a hell of a lot of sense in this clip. Precis:

"I think we’re going to see a big fall-off in purchases for the rest of 2010 and even into 2011,” Baker says. “So the idea that somehow the market is stable, that housing prices will rise anytime soon – it’s really hard to make a case for that."

Baker lays out several reasons for his bearish case:

• Programs that lifted the market, including the tax credit for first-time buyers, have expired.
• The Federal Reserve is exiting the mortgage market, which will likely push rates to 5.5% to 6% by the end of the year.
• There's still an inventory glut and rental rates are falling in many markets, notes Baker, author of "False Profits: Recovering from the Bubble Economy." He says the rental market doesn't lie.

He also thinks -- as I always have -- that the right approach to relief for strapped mortgagees is to gently turn them into renters.

Somebody tell me what's wrong with this reasoning.

What a rush this must have been, don't you think? You aim the truck at the flimsy siding, you stomp on the accelerator. The wall leaps out of the middle distance into the foreground. Maybe you'll survive the crash, maybe you won't. But in that euphoric millisecond before impact, perhaps you sense, without having the time to form it into words, that you've set one of your masters upon the other?

I'm back from my bucolic -- or rather, riparian -- Maine holiday. Still can't afford a cottage in the very nice place where Better Half and I usually go, so naturally I'm rooting for a major drop in real estate "values". Perhaps I'll get it, or so the Gray Lady of 43d Street seems to think:

Grim Housing Choice: Help Today’s Owners or Future Ones

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

The silver lining is that whatever the Obienauts can do may not be enough. My delight in a further plunge of real-estate prices, should that occur, will be greatly enhanced to the extent that it knocks the Democratic Party into a cocked hat, or rather, knocks it farther into an even more cocked hat. How much can prices fall in the two months before the midterms? Here's hoping we set a record.

One of my lefty mailing list colleagues wrote recently, in response to a thread entitled "Ciao, Dems":

Of course the subject line, "Ciao, Dems," needs, for the sake of accuracy, to add something like "for the next few years." Over the last 50 years there have been several predictions of the permanent disappearance of one or the other of the parties after some landslide election, but of course the loser always ended up the winner in 4 to 12 years.

This is not your father's Democratic Party any more. What committed constituency does it still have left? Liberals -- a tiny and inconsequential social formation. Union bureaucrats, ditto.

Of course, there may be a kind of oxygen-tent effect: Perhaps there are elite interests who derive some advantage from having an A team and a B team of flunkies. Play 'em against each other. Every officeholding sycophant serves at pleasure, and there's always some lean-and-hungry B-teamer waiting in the wings if the incumbent doesn't give satisfaction.

What I really want, of course, is for the precarious house-of-cards occupation regime of bribery and subornation in Iraq to break down spectacularly. If I were a truly conscientious person, I would add, the sooner the better. But in fact, I hope it happens in October 2012. Or no, that's unimaginative. I hope it happens on September 11, 2012.

Wouldn't it be exciting to witness the actual disappearance of one of the duopoly parties? We haven't had that pleasure in this country for quite a long time -- even I am not old enough to remember when the Whigs evaporated, and the extinction of liberal Republicans, while gratifying, wasn't quite so tectonic.

I desperately need some excitement; don't we all? This is turning out to be a very boring Administration and Congress. There is a certain arid pleasure in having been right, but nothing to compare with the wild ride Clio can give you when she decides to kick up her heels and surprise you.

Ms Clio! Paging Clio!

A correspondent drew my attention recently to this site, with these dire news:

15 Bone Chilling Signs That Part Two Of The Double Dip Housing Crash Has Begun

[T]here are a whole lot of signs that things are about to get quite a bit worse. U.S. home sales have hit record lows in recent months. An increasing number of sellers have started to reduce their asking prices, and there are signs that home prices are already starting to slip substantially in many areas of the country. Meanwhile, the inventory of unsold homes in the United States continues to rapidly increase. Home foreclosures and bank repossessions of homes continue to set all-time records. What this all means is that the U.S. housing market is being absolutely flooded with homes for sale at a time when there are very few buyers.... The home buyer tax credits that the U.S. government was bribing home buyers with helped stabilize the U.S. housing market for a while, but now the tax credits have expired and things are getting scary out there.

[T]here simply is not going to be a "recovery" in the U.S. housing market until there is a jobs recovery. But at this point, even the most optimistic cheerleaders for the economy are admitting that unemployment is going to remain high for quite some time.

But if the American people do not have good jobs then they can't buy homes.

The author goes on to list his 15 signs of the real-estate apocalypse. I'd be interested to hear the response of those more astute about matters economic than I am.

The site has, to be sure, a somewhat nutty flavor, with links to ad mashups for "Emergency food", "Gold coins", and "Personal security." But even a stopped clock is right twice a day, as my grandma used to say.

I don't like the writer's habit of referring to houses as "homes" -- a nasty salesman's euphemism which I've always hated. And of course my bones are anything but chilled about the news he brings. I'm rooting for a collapse so huge that it makes people scared to buy real estate for the next generation or two.

One fetish object down, and one to go. Now if we could just convince people that cars make you fat -- as in fact, they do.

To foreclose, or not to foreclose? That appears to be something of a banksters' dilemma, and therefore, of course, the banksters' wholly-owned President's dilemma, as well. On the one hand:

Obama resists call to halt foreclosures nationwide

As all 50 states escalate efforts to quell a rising tide of foreclosures, one prominent figure is resisting calls for the federal government to do more: President Obama.... Top White House officials worry that imposing a national moratorium on foreclosures would backfire by driving down prices even more, delaying the real estate shakeout and potentially creating more foreclosures as additional homeowners find themselves underwater.

Approximately 11.5 million U.S. home mortgages are in danger of foreclosure, or about 20% of outstanding mortgages. Foreclosures anywhere near that total would be devastating to the economy and society in general.... Foreclosure is the worst-possible outcome for everyone - the financial system, homeowners and their local communities.

(I may have said this before, but it always has seemed very puzzling to me that housing is the only commodity whose price everybody wants to go up. Usually we're pleased when prices go down. I certainly wish Chateau Haut Brion cost a lot less than it does.)

A massive wave of foreclosures wouldn't bother me at all, which no doubt seems terribly heartless; but as I have written at length, mass "home" "ownership" -- which of course means mortgage slavery -- is surely one of the greatest triumphs of reactionary obfuscation, stultification, and social control ever devised. If a foreclosure wave drives house prices into negative numbers, well all the better; and if it turns out to be bad for "the financial system," not to mention that mythical beast, "the economy" -- what fun.

But of course the banksters, like all corporate honchos, hate to be told what to do and what not to do, even if the substantive effect of what they're being told to do might be in their interest. Back in the day, they hated being told they had to hire black folks and women, though they quickly realized that "diversity" worked in their favor.

But there's no doubt in Obie's mind what to do. He's going to do what they want, no matter whether it's good for them, or bad for them, and certainly without regard to anybody else. Including his own electoral prospects; it seems pretty clear that among the certain casualties of a foreclosure wave would be Obie's second term -- admittedly, an increasing hypothetical entity in any case.

------------------

(*) By the way: how, exactly, does a fall in prices "delay the shakeout"? Surely driving down prices is what the "shakeout" consists of?

(The Golden Age in question is of course Eric Hobsbawm's of the "short twentieth century"; though he ended his in 1975, I think.)

I neglected to scribble about this item when it appeared last week; but it concerns a favorite hobbyhorse of mine:

Administration Calls for Cutting Aid to Home Buyers

The Obama administration [calls] for the federal government to cut back its broadly popular, long-running campaign to help Americans own homes. The three ideas that the report outlines for replacing Fannie and Freddie all would raise the cost of mortgage loans and push homeownership beyond the reach of some families....

[A]dministration officials said they had concluded the country could no longer afford to sustain its commitment to minting homeowners. Better to help some people rent.

Federal programs subsidized nine in 10 mortgage loans made last year. If the Obama administration succeeds, that could plummet to a mere one in 10 loans by the end of the decade.

That's an amazing statistic -- Federal programs subsidized nine in ten mortgages. Does that include the mortgage interest tax deduction, I wonder? If so, you'd think it would be ten out of ten.

I was also amazed to read that

30-year fixed-rate mortgages [are] a product that has never existed without government support.

Rhetorical question, of course. I know the answer: the enrichment of real-estate developers, the further enrichment of banks, and the pacification and stultification of the public.