Doctor Housing Bubble 02/01/08

[Crewleader]

February 1st, 2008

Real Homes of Genius: January Recap and Compton Prices Rising. At Least in Theory.

If January is any indicator for the rest of the year, we are in for a world of economic hurt. The housing market is quickly adjusting and the law of unintended consequences is unfolding at a rapid pace. Many of you have read or heard of the idea of “intentional foreclosure” where owners let their homes foreclose even should they have the funds to make the mortgage payment. This was highlighted in a 60 Minutes piece last weekend with an interesting couple who was more the willing to let their home foreclose even though they had the money to pay the bill. I have gotten numerous e-mails from both sides of the fence on this one. Some of you argue from a moral perspective stating that this couple has an obligation to uphold their commitment. Others argue that it is the smartest thing they can do since economically, it no longer makes sense to keep opening the blue mortgage book and sending off checks for an asset that is continually declining. I’m a bit torn between both sides. First, the gravy train of handouts is in full force. Not only are we talking about bailing out insurers for their incredible miscalculation of risk, we are now talking openly about creating a fund that will buy subprime loans:“Senator Chris Dodd, the committee chair, said he is working to create a Home Ownership Preservation Corporation, which would purchase mortgage securities that are backed by at-risk, subprime loans from lenders and investors.

This corporation would give these lenders and investors a better price for the securities than they would get if the properties backing them were put through foreclosure.

Additionally the loans on these properties would be restructured so that borrowers could afford the new payments and remain in their homes.”

This is without a doubt a bailout plan. There are still some permabulls arguing that bailing out insurers is the right thing to do but there is absolutely no way you can spin this one. You’d have to be one cynical person to say with a straight face, this isn’t a form of corporate welfare. In fact, the rhetoric of “give investors a better price” smacks of market manipulation by the government in favor of investors (aka Wall Street investment firms). We’ve gotten to the point where these politicians don’t even bother hiding their pandering to financial special interest. We can smell the ink getting ready to print our stimulating and exciting tax checks.

http://www.doctorhousingbubble.com/real-homes-of-genius-january-recap-and-compton-prices-rising-at-least-in-theory/

[phantom power]

1. Yep, there is some epic "risk socialization" going on as we speak.

[Warpy]

2. People who are still able to pay that upside down mortgage

need to look at what rents in their area have done over the last couple of years. If rents are rising, then they're much better off paying that mortgage unless they're in California and paying two or three times the going rate for rent on equivalent property.

If they're in an area where rents are rising rapidly, they need to stay put. If rent is significantly less than their PITI and not rising, they should consider biting the foreclosure bullet, or at least talking to their lender to see what their options are.