Daily show makes CNBC their bitch

[Jamie_B]

[quote name='sois' post='755457' date='Mar 12 2009, 09:39 AM']Hmmm... I read those articles late last night. I was too lazy to really read past the third paragraph where I got my stat. I am also too lazy to go back and read it again.

However, you ask "For what?"

The answer to that is very simple. It is a consequence. Why is everything else in life allowed to have a consequence? Even for renters, if you don't pay your rent, you are evicted. If you buy a car and don't make payments, it gets repo'd.

"Soaking" everyday folks? They aren't dying, they are simply going to have to move to an apartment for a few years until they get themselves organized. For the last 12 years of my life, I lived in rentals. Apartments, duplexes, homes. Nothing bad happened to me. Renting was awesome.

And I think YOU have the view wrong. The small class of folks is the people facing foreclosure. The everyday folks are people like me who were waiting for prices to fall as well as all of the renters of America.[/quote]


Im not quite sure you understand what happens if the number of home loans that are underwater increase. Think of it as a reverse on what happened when the bubble was in effect. Rather than people buying homes increasing the value of them, now you will have people whose home is worth less than what they paid for it walking away from the loan the vacume this would create on the credit market for everyone not just the, "loser homeowners" as that douchbag Santellie would put it, would be huge. And not just the credit market, but imagine what happens when the number of empty homes skyrockets? I bolded the part on the article Im posting to give you an answer.

[url="http://news.yahoo.com/s/bw/20090219/bs_bw/feb2009db20090218423745"]http://news.yahoo.com/s/bw/20090219/bs_bw/...b20090218423745[/url]

[quote]The Obama Administration's $75 billion homeowner-rescue plan offers a lot of help to people in imminent danger of losing their homes. It does far less for those who are deep underwater on their mortgages but have the wherewithal to keep making their monthly payments. And that could be a problem -- not only for those homeowners themselves, but for the banking system and the economy in general.

Here's the dilemma: Many homeowners owe more on their mortgages than their homes are worth, and -- rightly or wrongly -- increasing numbers of them may decide to give up and mail in the keys. The taboo against reneging on debts already shows signs of fading in hard-hit markets like Phoenix and Las Vegas. More abandonments would increase losses for lenders while damaging the vitality of neighborhoods.

There's not much in the Homeowner Affordability and Stability Plan announced on Feb. 18 to deal with this looming problem. Provisions to reduce monthly loan payments for homeowners who are struggling don't prevent these so-called "voluntary foreclosures," since in many cases the payments already are affordable. The most effective way to keep underwater homeowners from walking away en masse would be a big writedown of the principal they owe. That would give them positive equity in their homes -- or at least the hope for it once prices begin creeping upward again -- and with it, a reason to stay put. Although the Obama plan permits principal writedowns -- and even pays off up to $5,000 of principal for homeowners who remain current on their payments -- they aren't required, or even central to the proposal.

[b]Temptation to Walk Away

Writing down mortgage debt on houses that are underwater could total $1 trillion or more. The value of underwater homes could be as much as $700 billion below the mortgage values, according to financial analysts and informal government estimates. Keep in mind, though, that this is not an actual expense because no dollars would change hands: The debt holders would simply be bringing their valuations in line with the reality that many of the loans are destined to be defaulted on. And banks would recoup even less if the homes are allowed to go into foreclosure unnecessarily than they would have in a writedown, because the owners will stop paying entirely. What's more, vacant houses are subject to vandalism that further erodes their value, and foreclosures drag down the value of neighboring properties.

For some of the roughly 10 million underwater homeowners, especially those with spotty credit records, the temptation is great to walk away. "It's just common sense," says Yale University economist John Geanakoplos. He takes pains to say he's not defending the behavior, but adds, "If your house is worth much less than the loan, you're pretty sure you'll never really own it. You'll just go rent somewhere. The only bad thing is the mark on your credit rating, which for these people wasn't too good in the first place."

Even for those who want to keep their homes at the moment, reducing monthly payments without addressing negative equity may just postpone the inevitable. "The reality is, people lose jobs, especially in a recession. People get transferred, people have to move at some point," says Sean O'Toole, founder and CEO of ForeclosureRadar.com, which tracks California foreclosures. "By lowering payments and not principal balance, you're guaranteeing the extension of this crisis for years to come."

Why Default Rates Skyrocket

How big is the risk that many more Americans will give up and walk away from their homes, figuring that paying the mortgage every month is throwing good money after bad? A widely cited study by the Federal Reserve Bank of Boston found, seemingly reassuringly, that only about 6% of people who were underwater on their mortgages in the 1991 regional housing slump eventually faced foreclosure.

But Yale's Geanakoplos says the danger is much greater this time. Housing prices have fallen more, and many more of the loans were made to people with bad credit. His research using more recent data finds that default rates skyrocket when subprime or option adjustable-rate mortgage borrowers owe more than their houses are worth. The default rate is about nine times as high for people who are way underwater as for people with substantial equity in their homes, all else equal, Geanakoplos found.

Lowering the amount that people owe on their homes would obviously help the homeowners. What's surprising is that it might even benefit the people who bought their loans, bundled into mortgage-backed securities. How could that be? Because the values of those securities have already plunged -- in some cases to as little as 25% per dollar of face value -- in the expectation of massive foreclosures. If big writedowns managed to keep more people in their homes, it could actually enhance the value of those mortgage-backed securities.[/b]

Lawsuits Are an Obstacle

There is one potential obstacle to big principal adjustments that the Obama plan doesn't address: litigation over writedowns by investors who bought stakes in the vast number of mortgages that have been securitized. A minority of the "pooling and servicing" agreements governing securitized loans explicitly restrict modifications. Even in cases where modifications aren't banned, servicers say they worry about getting sued anyway for abrogating unwritten responsibilities to investors.

Indeed, on Dec. 1, William Frey, a private investor in mortgage-backed securities, filed a lawsuit in New York State Supreme Court alleging that the proposed modification of some 400,000 home loans originally underwritten by the defunct lender Countrywide Financial is illegal.

Many in the industry expected the Administration's proposal to include a "safe harbor" protecting servicers against lawsuits where loan modifications benefit investors as a whole more than foreclosure would. But while Congress is contemplating such protections, the Obama plan doesn't -- and one Democratic Senate aide says Administration officials have been distinctly cool to the idea.

A Missed Opportunity

Is there an argument against massive writedowns of principal for underwater homeowners? Sure: It rewards the person who put no money down, and it does nothing for the next-door neighbor who put 20% or 30% down and still has equity. "I don't think you're going to find any sympathy for that," says Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter. Trouble is, trying to treat those two neighbors equally could have unintended harmful consequences for the neighborhood if the family that's underwater simply walks away.

Ultimately, strong resistance to principal writedowns in the industry -- whether from legal concerns, because banks can't absorb the paper losses, or because it sets a worrisome precedent for other borrowers -- means implementing such a program would involve "a major time delay," a senior Administration official says. "If you're going to try to prevent the foreclosures now, you can't go that way."

The Obama Administration missed another opportunity to help underwater homeowners when it limited the assistance it is offering homeowners who are current on their mortgage payments. In a step in the right direction, the Obama plan allows Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) to finance new, more affordable mortgages even if homeowners owe more than the current standard of 75% to 80% of their home's current value. But for unexplained reasons, there's a cap on eligibility. Fannie and Freddie still won't be allowed to help with refinancings if the loan-to-value ratio exceeds 105% (e.g., the loan is $210,000 and the house is worth $200,000).

Putting a cap on eligibility for refis cuts out many of the people who most need a break and doesn't appear to make any sense from the government's viewpoint either, says Christopher Mayer, a Columbia University economist who has helped devise homeowner-rescue plans. Throwing open eligibility for cheaper loans to anyone who currently has a loan owned or guaranteed by Fannie and Freddie would lower default rates and thus the ultimate cost to the agencies and taxpayers, says Mayer. He adds, "I don't understand why they did this."

Coasts Hit the Worst

Moreover, "private-label" mortgages that lack Fannie or Freddie's backing -- particularly in California and the Northeast, where home prices are higher and subprime mortgages more common -- aren't eligible for Fannie and Freddie refis at all. "Where the markets have been hardest hit on the coasts, where private mortgages are the biggest, this program won't really help," says a fixed-income portfolio manager for a major mutual-fund management firm.

The senior Administration official said the 105% cap seemed advisable in part because re-default rates tend to rise with high loan-to-value ratios. And the government excluded private-label loans from the refinancing program because it little or no authority to dictate rate changes where government-affiliated entities don't provide guarantees.

Obama's plan is broader and stronger than Hope for Homeowners, the unwieldy, mostly voluntary program passed by Congress last summer. On the other hand, that's not saying a lot. Hope for Homeowners has refinanced a microscopic 25 mortgage loans so far. Even a thousandfold improvement over that would still constitute failure for the Obama Administration. That's why this plan may require some changes in the months ahead.[/quote]

[sois]

[quote name='Jamie_B' post='755472' date='Mar 12 2009, 11:48 AM']Im not quite sure you understand what happens if the number of home loans that are underwater increase. Think of it as a reverse on what happened when the bubble was in effect. Rather than people buying homes increasing the value of them, now you will have people whose home is worth less than what they paid for it walking away from the loan the vacume this would create on the credit market for everyone not just the, "loser homeowners" as that douchbag Santellie would put it, would be huge. And not just the credit market, but imagine what happens when the number of empty homes skyrockets? I bolded the part on the article Im posting to give you an answer.

[url="http://news.yahoo.com/s/bw/20090219/bs_bw/feb2009db20090218423745"]http://news.yahoo.com/s/bw/20090219/bs_bw/...b20090218423745[/url][/quote]

If a person walks away then the bank is stuck with the house.
As bank home inventories grow (supply) and the demand falls, the price will fall.
Banks have incentives to lower the price because they can sell toxic assets to the Govt and also they have access to bailout money.

So what if home prices decrease?
They're supposed to decrease, they're way to high!
The average family can't afford a home right now?
Don't you think this is the big issue here?

Let people walk. Eventually you will reach a point where renters will say, "hey, it would be stupid not to buy right now.".

[Bengals1181]

[quote name='Homer_Rice' post='755374' date='Mar 11 2009, 07:29 PM']Everyone has some good points here. Let me add a few observations to think about:

1) The collapse of the housing bubble was the [i]trigger[/i] for the ongoing systematic breakdown of our economic system. It was not the [i]cause[/i]. In medical terms, you have to take the symptoms seriously and treat them, but it does not follow that such treatment is sufficient for dealing with the disease. Look to the underlying causes which created a housing bubble in the first place.

2) In treating those symptoms, it's important to have a clear idea of just what defines "health." So, I ask, why is it that people assume that housing will appreciate in value? Isn't it true in virtually every other case where a significant investment is made in plant and other capital, that that investment depreciates over time? Why is it we do depreciate hosuing stock over the period of it's investment--eventually creating a situation where is were economically feasible to tear the house down and replace it with more modern building techniques and technologies? (Implicit here is that any new housing would represent an improvement over past construction. As it is obvious that in many instances this is not the case, then that too begs the question--why have many of our standards not improved in recent decades? Or, just to cite one example close to home for us geeks, why is it that most new construction does not include a fiber network within the house? Surely this would be easy to do, and economical, too, if adopted in scale.)

[b]3) Do we really want to reinflate housing prices? Why, if there is some truth to what I just suggested?[/b]

4) If we come to a social consensus that housing prices need to be realigned downward, then wouldn't it be Just to insist on some form of remediation for those caught in the transition? Further, kicking folks out of there homes--instead of renegotiating the terms of their mortgage, infers that the current system has functioned well and rewards those who helped create the problem in the first place. Is that what we really want?

5) We had really think these sorts of problems through, as we'll be going through similar disturbances in commercial real estate, with credit card debt, and with other medium to long-term investments.[/quote]



before I sell, heck yea. My house is currently worth $15K less than what it was appraised at when I bought it just back in December. I won't be moving for years, but I definately want that value back.

[sois]

[quote name='Bengals1181' post='755476' date='Mar 12 2009, 12:16 PM']before I sell, heck yea. My house is currently worth $15K less than what it was appraised at when I bought it just back in December. I won't be moving for years, but I definately want that value back.[/quote]


That value was not real. Why is it so hard for people to understand. That # is meaningless unless you were selling at the time.

If it were up to you, my Ken Griffey rookie cards would still be worth $1,000 bucks.

[Homer_Rice]

People seem to focus on the third point, when it's #2 they ought to mull over for a while.

In any case, it isn't so much that we're fucked, though we are. It's that your kids are fucked, too.

[Jamie_B]

[quote name='sois' post='755475' date='Mar 12 2009, 12:05 PM']If a person walks away then the bank is stuck with the house.
As bank home inventories grow (supply) and the demand falls, the price will fall.
Banks have incentives to lower the price because they can sell toxic assets to the Govt and also they have access to bailout money.

So what if home prices decrease?
They're supposed to decrease, they're way to high!
The average family can't afford a home right now?
Don't you think this is the big issue here?

Let people walk. Eventually you will reach a point where renters will say, "hey, it would be stupid not to buy right now.".[/quote]


With all due respect did you even read the consaquence on EVERYONE if too many people default? It isnt as simple as your making it. And we agree that the prices of these homes are overvalued, but we dont agree on how to fix that. Rewrite the terms so people arent underwater and there is no threat they walk away which in turn will not hurt everybody else.

Oh and Homer is right point #2 is the most important, because point #2 exists in other markets as well.

[sois]

[quote name='Jamie_B' post='755488' date='Mar 12 2009, 01:20 PM']With all due respect did you even read the consaquence on EVERYONE if too many people default? It isnt as simple as your making it. And we agree that the prices of these homes are overvalued, but we dont agree on how to fix that. Rewrite the terms so people arent underwater and there is no threat they walk away which in turn will not hurt everybody else.

Oh and Homer is right point #2 is the most important, because point #2 exists in other markets as well.[/quote]

Yes Jamie, I read it. It's a theory. It's a good theory. But at the end of the day, it's just a theory.

And I don't buy it.

The best way to fix the issue is to remove the people who foreclose and allow new people to purchase the vacant homes. Speed that process up. The $8,000 tax credit is a good start.

Rewriting the terms of the loan brings the discussion full circle to 'moral hazzard'. See post #15. You can't reward bad behavior. It's not my fault that someone decided spending 50% of their gross income on a mortgage was a good idea.

And also, think about this: Now that Joe Foreclose is spending 20% of his income on an apartment instead of 50% on his crappy mortgage, he now has 30% more money to stimulate the economy with.

[Jamie_B]

[quote name='sois' post='755494' date='Mar 12 2009, 01:40 PM']Yes Jamie, I read it. It's a theory. It's a good theory. But at the end of the day, it's just a theory.

And I don't buy it.

The best way to fix the issue is to remove the people who foreclose and allow new people to purchase the vacant homes. Speed that process up. The $8,000 tax credit is a good start.

Rewriting the terms of the loan brings the discussion full circle to 'moral hazzard'. See post #15. You can't reward bad behavior. It's not my fault that someone decided spending 50% of their gross income on a mortgage was a good idea.

And also, think about this: Now that Joe Foreclose is spending 20% of his income on an apartment instead of 50% on his crappy mortgage, he now has 30% more money to stimulate the economy with.[/quote]


Stop blaming the homeowners, this problem goes deeper.

[Homer_Rice]

The concept of "Moral Hazard" is a goofy economic concoction brewed up by a bunch of speculators who only invoke the phrase when their self-interests are threatened. It's like no one ever heard of usury. LOL.

[url="http://blog.laptopmag.com/source-office-depot-associates-routinely-lie-about-notebook-stock"]Here's a very good example of the behavioral problem felling our culture today[/url]. Figure out why for oneself.

[Jamie_B]

[url="http://www.reuters.com/article/ousiv/idUSTRE49L01S20081022?pageNumber=1&virtualBrandChannel=0"]http://www.reuters.com/article/ousiv/idUST...lBrandChannel=0[/url]

[quote]"Under water" mortgages are growing threat to U.S.

By Tom Brown

CAPE CORAL, Florida (Reuters) - Long before she filed for bankruptcy, Ann Neukomm was "under water" -- she owed more on her mortgage than her house was worth -- a situation more and more Americans are finding themselves in.

As the financial crisis hits Main Street America, nearly one in six U.S. homeowners are finding themselves in the same position, threatening the U.S. economy with a new wave of foreclosures and bankruptcies.

About 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006, said Mark Zandi, chief economist at Moody's Economy.com.

"At the root it's 'the' problem," said Zandi. "If you're going to put your finger on the one thing that's gotten us into this fiasco, it's the fact that millions of homeowners are under water on their homes."

If, like Neukomm, these homeowners go into foreclosure, it would add to the oversupply of homes, delay a recovery in the housing market, and add to pressure on banks.

Already, U.S. consumer spending is slumping as homeowners find they can no longer take equity out of their homes to fund their lifestyles.

In a slowing economy, it doesn't take much to push an underwater mortgage into default.

"When you're under water and you have some kind of hit to your income or some kind of unintended expense, that's when you default. And so now we've got this noxious mix of millions of people under water and quickly rising unemployment," Zandi said.

Like Neukomm, 57, many people got into trouble by refinancing mortgages to pull out cash when rising property values made it seem like an almost risk-free deal.

She ended up filing for bankruptcy in May after failing to keep up with mortgage payments on her home in Cape Coral, a once-booming town in southwest Florida.

"It's a dirty word," said Neukomm of her bankruptcy and personal feelings of failure. "Nobody wants to say it."

WASTELAND

Cape Coral, built over swampland near Fort Myers on Florida's palm-fringed Gulf Coast, was fertile ground for the real estate boom, which peaked across much of the United States three years ago.

It is now a wasteland, with barren strip malls, a bloated inventory of unsold or abandoned homes and ubiquitous for-sale signs that speak volumes about the plunge in housing prices and surge in mortgage defaults that triggered the U.S. credit crunch last year.

With current home prices likely to decline on average by another 10 percent, Zandi said there will be 14.6 million homeowners under water by September next year.


"House prices have collapsed and you've got many homeowners who bought homes in the last three years who put very little down or have been borrowing against their homes," said Zandi. "That's causing this to rise very rapidly."

Economists like Zandi worry that the underlying housing crisis could eventually prove much more costly to the U.S. taxpayer than the $700 billion the U.S. government has pledged to recapitalize banks and buy up distressed debt from financial institutions.

"The government is going to have to start filling this negative equity hole and that's just going to be a direct cost to taxpayers," Zandi said. "This is going to be the really costly part, I think, for taxpayers."

While the U.S. government has focused its rescue on banks, it has done little to help individuals who are struggling to pay their mortgages, apart from the HOPE NOW program, which has facilitated a few hundred thousand mortgage restructurings.

The government may have no option but to step in, [size=4][color="#FF0000"]especially if a rising tide of foreclosures and falloff in property and other tax revenues endanger municipalities and local governments[/color][/size] and force some into bankruptcy.

Both presidential candidates have outlined plans for relief for distressed homeowners but critics say they have been short on details and there appears to be little consensus about how best to help homeowners who are under water.

DREAM HOME

Among homeowners in danger is Virginia Washington, a 64-year-old medical secretary from California who bought her retirement home in the town of Tolleson, Arizona, in 1996.

"It was supposed to be my dream home, but it has turned out to be a nightmare," said Washington, who owes $207,000 on a house that is worth about $150,000.

Whereas many families that are now saddled with negative equity simply hand the keys back to the bank and walk away, Washington is haunted by the fear of losing the $65,000 in savings she put down as her deposit.

"Many people did not put any money down on a home and they feel free to walk away. But $65,000, there's no money tree that grows that kind of money," she said.

In Stockton, California, a town that has become a posterchild of the U.S. housing crisis, Zillow.com said nearly every homeowner who bought in 2006 is now under water.

There are countless other troublespots across the country.

Nationwide, for those who purchased U.S. homes since the beginning of 2003, nearly one in three now have negative equity. Nearly half of buyers who purchased in 2006 are under water.

Despite tighter credit and underwriting for home loans this year, Steve Berg, a managing director at research firm LPS Applied Analytics, said mortgages originated in 2008 were on par or trending worse than those originated last year or in 2006.

"Presumably the equity position of the borrowers in the loans originated this year should be better," Berg said in an interview. "That doesn't appear to be the case, and certainly not to the magnitude you'd expect."

Foreclosed homes already account for 50 percent of all home sales in some markets, according to Zillow.com, an online real estate research service.

For homeowners like Neukomm, any solution to the negative equity problem will be too late. Any day now, she says she expects to receive a letter giving her 21 to 30 days to abandon the house she bought back in 2000.

"I can make my credit card payments. I just can't do it with the house," she said, adding that she was now looking at rental properties in Cape Coral.

(Reporting by Tom Brown; Additional reporting by Tim Gaynor in Phoenix, Julie Haviv in New York and Emily Kaiser in Washington; Editing by Eddie Evans)[/quote]

[sois]

Moral hazard a goofy economic concoction? What? How can you say that? Do you deny that people act more reckless when they have less to lose? Come on now Homer.

Jamie, as far as I've researched (not very far), property tax is still paid by whoever owns the house, be it a landlord, a bank, or a homeowner themselves. Tax revenue won't change any different if someone is in the house or not. For example, rental house owners still pay property tax.

Next.

[Jamie_B]

Here is the rub, if you have everyone who is underwater walking away you lose tax revenues on those living in the homes, this will effect your local goverments ability to function. Sois' solution is that the prices of those homes will fall because of that and new buyers will take on the homes that are now lower. In theory this is true but it misses the point that now there isnt any revenue to the local goverments to do anything and this is how it effects everyone because one of two things has to happen either 1. your taxes are raised to make up the difference or 2. budget cuts are made and you may be talking about losing basic goverment essentals if this many people bailout. Where as in my solution the terms are reworked and people stay in their homes, while the tax revenue to the local goverments does go down, they are still getting at least something as opposed to zero.

The tax revenue is how this effects everyone else and not just the homeowner.

[sois]

[quote name='Jamie_B' post='755505' date='Mar 12 2009, 02:08 PM']Here is the rub, if you have everyone who is underwater walking away[/quote]

I stopped reading here because THAT IS NOT GOING TO HAPPEN.

That is about as likely as everyone getting caught up on their payments.

[sois]

Also, like i mentioned earlier I *believe* property taxes are still paid regardless of the status of the house. Rental property owners still pay taxes. Banks still pay taxes.

[Homer_Rice]

I'm more used to seeing the phrase "upside-down" than "under-water" but the concept is the same. Let's look at this a little to see what percolates.

1) Being upside-down is not necessary a problem if one intends to use a home for the purpose intended: as a dwelling and not as an investment.

2) As a dwelling, any increases in value would stem from "improvements" and this makes sense. Add a swimming pool to a house that previously did not have one and one ought to view that as an increase in the value of the dwelling.

3) Problems begin to creep in when folks tend to view their home as an investment, the which, by the magic of the marketplace, will somehow increase in value without any improvements being made at all.

4) Problems are exacerbated when people, perhaps foolishly, accept the premises of the nebulous creeping-value thesis, and then refinance their home to take some of the so-called equity out to use for other purposes. If one thinks back just a few short years, [i]that[/i] was the marketing mantra which drove so many people over the edge. The newest twist on this sick manipulation of folks is exemplified by the "It's my money and I want it now" infomercial in which a usurer wants to take advantage of one's "settlement" by convincing you that the payment schedule is not rapid enough for one's "consumerist" ways.

5) So the judgmental error, imo, is not that folks paid more for a home then while it would sell for less now, as much as they thought that the value of a home would increase like a fantasy money-tree, and therefore made some secondary moves to re-fi the home under that assumption.

6) Without this aspect of the situation, the upside-downess is less of an issue, provided that folks can make the payment originally agreed upon.

7) But we live in a world in which jobs are much less secure than we would like, in households which are one semi-serious medical emergency away from bankruptcy, and in a society which has, for the past few decades, hammered home the notion, "Don't Worry, Be Happy" in a variety of ways. So, for some folks, whether they liked it or not, their only recourse to fund personal crises might be to take this avenue, even if they didn't like it as an alternative.

8) So, in a world in which finance dominates and actual tangible production wanes, the psychic border between reasonable behavior and nor-so-reasonable behavior gets blurred and many otherwise decent folks get suckered via a society-wide meme.

9) Which causes all kinds of problems.

Oh, it's a moral hazard, alright. Consider this, most developing nations today are in really serious trouble as a result of the breakdown in international trade. Millions will die. Folks won't "see" that, so they'll not feel any moral hazard culpability in that regard.

Shit makes me sick. You were warned, goddamnit.

[Jamie_B]

[quote name='Homer_Rice' post='755516' date='Mar 12 2009, 02:34 PM']I'm more used to seeing the phrase "upside-down" than "under-water" but the concept is the same. Let's look at this a little to see what percolates.

1) Being upside-down is not necessary a problem if one intends to use a home for the purpose intended: as a dwelling and not as an investment.

2) As a dwelling, any increases in value would stem from "improvements" and this makes sense. Add a swimming pool to a house that previously did not have one and one ought to view that as an increase in the value of the dwelling.

3) Problems begin to creep in when folks tend to view their home as an investment, the which, by the magic of the marketplace, will somehow increase in value without any improvements being made at all.

4) Problems are exacerbated when people, perhaps foolishly, accept the premises of the nebulous creeping-value thesis, and then refinance their home to take some of the so-called equity out to use for other purposes. If one thinks back just a few short years, [i]that[/i] was the marketing mantra which drove so many people over the edge. The newest twist on this sick manipulation of folks is exemplified by the "It's my money and I want it now" infomercial in which a usurer wants to take advantage of one's "settlement" by convincing you that the payment schedule is not rapid enough for one's "consumerist" ways.

5) So the judgmental error, imo, is not that folks paid more for a home then while it would sell for less now, as much as they thought that the value of a home would increase like a fantasy money-tree, and therefore made some secondary moves to re-fi the home under that assumption.

6) Without this aspect of the situation, the upside-downess is less of an issue, provided that folks can make the payment originally agreed upon.

7) But we live in a world in which jobs are much less secure than we would like, in households which are one semi-serious medical emergency away from bankruptcy, and in a society which has, for the past few decades, hammered home the notion, "Don't Worry, Be Happy" in a variety of ways. So, for some folks, whether they liked it or not, their only recourse to fund personal crises might be to take this avenue, even if they didn't like it as an alternative.

8) So, in a world in which finance dominates and actual tangible production wanes, the psychic border between reasonable behavior and nor-so-reasonable behavior gets blurred and many otherwise decent folks get suckered via a society-wide meme.

9) Which causes all kinds of problems.

Oh, it's a moral hazard, alright. Consider this, most developing nations today are in really serious trouble as a result of the breakdown in international trade. Millions will die. Folks won't "see" that, so they'll not feel any moral hazard culpability in that regard.

Shit makes me sick. You were warned, goddamnit.[/quote]


Nailed it.

[Jamie_B]

Further if a person could afford the home if it was redone where as they cant now, but they could afford it if the price went down due to market conditions why not just redo the home upfront so that the person isnt getting hurt in the process?

[Jamie_B]

[url="http://www.thedailyshow.com/video/index.jhtml?videoId=220524&title=jim-cramer-battle"]http://www.thedailyshow.com/video/index.jh...m-cramer-battle[/url]

:rofl:

[sois]

[quote name='Jamie_B' post='755532' date='Mar 12 2009, 03:39 PM']Further if a person could afford the home if it was redone where as they cant now, but they could afford it if the price went down due to market conditions why not just redo the home upfront so that the person isnt getting hurt in the process?[/quote]


Hmm, I don't know because it's unfair?

Sometimes people deserve to get hurt. Especially when they do stupid things like take out home equity. Or buy more house than they can afford. I remember getting laughed at when I first moved to Nevada. I had major sticker shock. People were laughing at me because I thought that houses were unaffordable. They urged me to buy because prices would always go up. Yeah, even at a financial planning firm, people had these ridiculous ideas.


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Or maybe I like your ideas. I guess I can just ask the Mercedes dealership to lower my payments and balance. After all, I didn't wind up making more money this year than the last.


In the end, you have a theory, I have mine. Nothing we can say on here will actually prove anything, except who has a bigger epeen.

[Jamie_B]

[quote name='sois' post='755559' date='Mar 12 2009, 05:15 PM']Hmm, I don't know because it's unfair?

Sometimes people deserve to get hurt. Especially when they do stupid things like take out home equity. Or buy more house than they can afford. I remember getting laughed at when I first moved to Nevada. I had major sticker shock. People were laughing at me because I thought that houses were unaffordable. They urged me to buy because prices would always go up. Yeah, even at a financial planning firm, people had these ridiculous ideas.


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

Or maybe I like your ideas. I guess I can just ask the Mercedes dealership to lower my payments and balance. After all, I didn't wind up making more money this year than the last.


In the end, you have a theory, I have mine. Nothing we can say on here will actually prove anything, except who has a bigger epeen.[/quote]


Except that there was alot of predatory lending going on too wasnt there? And yet the people doing that arent getting hurt are they?

[Squirrlnutz]

Cramer is going to be on the Daily Show tonight. Should be fun!

[sois]

[quote name='Jamie_B' post='755573' date='Mar 12 2009, 06:11 PM']Except that there was alot of predatory lending going on too wasnt there? And yet the people doing that arent getting hurt are they?[/quote]

If you think that housing lending is predatory, then lets talk about student loans. Who is more naiive? A college student or a couple buying a home? If you want to be fair about it, help out people with student loan debt first.

[Jamie_B]

[quote name='sois' post='755634' date='Mar 12 2009, 09:50 PM']If you think that housing lending is predatory, then lets talk about student loans. Who is more naiive? A college student or a couple buying a home? If you want to be fair about it, help out people with student loan debt first.[/quote]


You lost me on this comparison, please expound on it.

[Ben]

[url="http://blog.indecisionforever.com/2009/03/13/jon-stewart-and-jim-cramer-the-extended-daily-show-interview/"]http://blog.indecisionforever.com/2009/03/...show-interview/[/url]

Gotta give Cramer credit for going onto the daily show and taking on stewart on his home turf.

[Jamie_B]

Good interview.