Front Line on Foreclosures
To everyone who says, "Let the homeowners with bad mortgages go down," I say "Cleveland." The subprime crisis has hit the city hard, and it is clear that it isn't possible to limit the effects of bad mortgages to the homeowners and investors who were involved in those deals. Cleveland demonstrates that a critical mass of bad loans can threaten the survival of a community.
With little help anywhere on the horizon, Cleveland is using the presidential primary to draw attention to the crisis. The Cleveland City Council has asked the presidential candidates to send senior representatives to a meeting today on fighting foreclosures and abandonment. Cleveland plans to present its proposals to get some new federal laws to deal with the crisis. What better time to gather promises than when the presidential candidates are stumping for votes?
Watch the proceedings live, 10-1 today. And think about the effects of subprime lending on a whole city.
One of every 10 homeowners now owes more on his home than it is worth. WaPo 2/26/2008
This assertion appears unsourced. Does anyone know whether it's accurate? Or is it simply an example of the Washington Post's usual carelessness with facts and figures?
February 27, 2008 9:01 AM | Reply | Permalink
Calculated Risk
Not sure the HTML will work. If not google"homeowners underwater" until you find "Calculated Risk". Links to data and analysis are there.
February 27, 2008 9:37 AM | Reply | Permalink
So ---
Is the assertion accurate or isn't it?
February 27, 2008 9:54 AM | Reply | Permalink
If you are satisfied with Moody's and the U.S. Census bureau as sources - yes. If you agree with Calculated Risks's personal analysis the percentage is closer to 20 than to 10.
February 27, 2008 10:17 AM | Reply | Permalink
As a commenter on CR's blog said, Moody's figure is, no doubt, the result of its running one of its models. And lately, Moody's models have not proven themselves to be particularly robust.
If true though, I think we should recall that the vast majority of home buyers are also home sellers who bring substantial capital gains to the closing table. If instead of reinvesting those gains in their new homes they withdrew them and bought Hummers and vacations in Tahiti, I see no reason to sympathize with them in their current plight.
February 28, 2008 4:30 AM | Reply | Permalink
Those who sold their homes for a substantial profit did what they wanted with that profit and are not at issue here.
We're talking about the last fools in the pyramid scheme, those who bought at the peak and now are standing there naked, lost, busted. Of course they don't deserve any sympathy. Ditto the lenders who thought they could make one last million before they bailed.
But what about collateral damage? At what point should the government step in and say "we can't let everyone be ruined"?
February 28, 2008 9:22 AM | Reply | Permalink
Ellen you are quite right to be skeptical because this sounds like such a large number. I looked into it but it seems valid. Before the bubble started to deflate, it was industry expectation that 10% of the subprime homeowners would be unable to continue their payments beyond 2 or 3 years. What this number suggests is that the rational thing for 10% of ALL homeowners to do is to walk away from their mortgages. If anything close to that happens we are talking about a downward price spiral and even more homeowners holding mortgages in excess of their market value. This is completely uncharted waters for any of us. Very scary indeed.
February 27, 2008 6:15 PM | Reply | Permalink
It's not just coming from WaPo.
It was a page A1 headline of the New York Times seems like over a week ago--I remember it, "1 in 10" nationwide was part of the wording of the headline, remember it because I pointed it out to the spouse. But I didn't read the piece. Since all they have online of the print edition is since Feb. 22, I can't find the headline piece I remember, but Feb. 22 had this page A1 headline follow up which also uses the figure. Maybe I just had a different edition...whatever. This Feb. 22 headline story says it comes from Moody's:
February 28, 2008 1:28 AM | Reply | Permalink
I'd completely forgotten The Times' little graphic. Thanks for the reminder and the link.
Looking at it again I remembered my first reaction to it -- GIGO.
February 28, 2008 4:45 AM | Reply | Permalink
Some suffering for whole cities might remind people that--when it comes to regulation (and not just hurricanes)--whom they vote for actually matters before a crisis occurs. But, I'm not sure most politicians really want that. With modern liberal economics, reform comes only after a major Keynesian crises. So, don't worry, you're big bailout is coming...eventually. They will make up for tardiness with bigger loads of cash...but not from the brokers who caused this problem (since we no longer believe in taxing "capital gains" like income). That way we can avoid learning any lessons and move on to the next big bubble.
February 27, 2008 9:04 AM | Reply | Permalink
"With little help anywhere on the horizon"
What do you mean? Didn't Congress vote on the Foreclosure Prevention Act (S. 2636) yesterday? How did that got? If it passed has Bush followed up his threat to veto it?
February 27, 2008 9:14 AM | Reply | Permalink
How hard is it to explain to people that if your neighbor has to abandon their home, that is NOT good for your property values? Actually, I'm sure homeowners understand this perfectly well. It's the bank-lobbied politicians who want to confuse the very simple equation.
February 27, 2008 10:18 AM | Reply | Permalink
come on
who would ever wanna ropo Cleveland ???
February 27, 2008 11:28 AM | Reply | Permalink
Pardon the tangent Ms. Warren. Just wanted to say you were great in Maxed Out.
February 27, 2008 1:57 PM | Reply | Permalink
The nasty secret out there is that there is nothing the government CAN do to help the problem, it is much to big. The entire system is based upon the premise that property values do not decrease, that is what all lending risk models take into account. With that premise being proved wrong, there is nothing the government can do to get housing values up.
Well, except for running the printing presses at the fed 24-7 and stimulating inflation. Which they are doing. Inflation will still take a few years to catch up with housing prices, but there is no other way this is going to work. The dollar figures owed are going to stay stagnant, all other prices will rise and hopefully wages will rise along with it. That way housing devalues only in relation to all the other inflated values. Basically, expect to see teachers making 80k starting in a few years, 60k for mailmen, and $12 an hour at McDonalds. You will make more but still will not be able to afford much.
February 27, 2008 6:38 PM | Reply | Permalink
I thought you liked the Foreclosure Prevention Act discussed on a previous thread. Yet here you seem to be saying that it's little more than a band-aid.
February 27, 2008 7:49 PM | Reply | Permalink
The entire system is based upon the premise that property values do not decrease, that is what all lending risk models take into account. RE
A wet-behind-the-ears bunch of purposefully myopic quants* had never heard of what happened to home prices in the Northeast (1988-1992) and in Southern California (1990-1995)?
* “It is difficult to get a man to understand something when his salary depends on his not understanding it.” Upton Sinclair (Al Gore's favorite quotation)
February 28, 2008 5:11 AM | Reply | Permalink
No doubt other cities will follow. It's been a rough winter. The cost of heating oil is hurting everyone. Even careful, prudent folks are watching their savings get drained.
That plus decreasing home values = stagflation, a relatively modern and hurtful state of affairs that, oddly, mirrors unfettered profits in the oil sector.
February 29, 2008 9:43 AM | Reply | Permalink