By Request: The Foreclosure People
Katy asks:
Matt I’ve been wondering this from across the Atlantic for some time: where are all the foreclosure people?
Millions have lost their homes across the US and yet with the exception of the odd ‘middle class person sleeping in car’ human interest story on CNN and a comment in this week’s Economist about parents within two parent families moving out of state for work I really can’t recall seeing much within my trusty US print sources on where these people are now living or the wider social consequences of this.
The essence of the housing bubble has been that the cost spread between owning a home and renting one got extremely wide. Thus, up until now it appears that most people who’ve lost homes due to foreclosures have been able to afford to move into rental housing. There are articles like “Foreclosures result in apartment boom” about landlords suddenly finding it much easier to get tenants. Of course you also have situations where tenants find themselves in trouble because their landlord is being foreclosed on.
But the last time I was in a foreclosure-heavy part of the country, I saw several rental properties that were being explicitly advertised with “Foreclosure Victims Welcome” banners. And googling for “foreclosure victims welcome” reveals that lots of folks all across the country are advertising their rental property in this way.
To some extent, though, this is yesterday’s story when the main news was the housing crash bringing low people who’d taken out loans they were never going to be able to pay. Since that time, the “real economy” has gotten quite a bit worse. That’s going to lead to a second generation of foreclosure victims — people who had the ability to make regular payments at the time they bought their house but who can’t make them now because they’ve lost their jobs. And when you don’t have a job it’s hard to pay rent, too.
32 Responses to “By Request: The Foreclosure People”
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January 7th, 2009 at 10:32 am
Our crezy economy: people get foreclosed and move into rental housing, and meanwhile they properties they vacate remain vacant and lead to neighborhood blight and depressed property values for their neighbors, who are therefore encouraged to default as well because they have negative equity.
Wouldn’t it be smarter to devise a strategy to keep people in their current homes as renters, either permanently or as a clock-stoppage in their mortgage amortization?
January 7th, 2009 at 10:33 am
Many of the foreclosed-upon people in California especially were immigrants, legal or otherwise. Some might have returned to their home countries.
January 7th, 2009 at 10:34 am
“Foreclosure Victims Welcome” banners
The new Hoovervilles.
January 7th, 2009 at 10:43 am
Many of the foreclosed-upon people in California especially were immigrants, legal or otherwise. Some might have returned to their home countries.
You are so right! Also, many other of the other “foreclosed-upon,” even if possibly legal residents of the USA, simply lacked the “moral fiber” and “strength of character” necessary to be “good homeowners,” and their present lack of a place to live is simply the natural order reasserting itself. Therefore there is nothing to worry about!
January 7th, 2009 at 10:44 am
I know of people who are employed and could keep making mortgage payments but are choosing foreclosure and are very happy about it.
These are the people who took out 80/20 5 Year I/O mortgages who have seen their home value fall 50% and are more then happy to let the home go into foreclosure. They put nothing down, have paid down zero principle, and never intended to stay in the property longer then 5 years.
These people stop paying the mortgage, save the month payment for a deposit on an apartment, or to pay down other debt, until the foreclosure is complete in 6-12 months, and then go on paying the same amount, or less, in rent then they were paying in interest on their mortgage.
They are not crying about the foreclosure because they have lost nothing other then the monthly interest payment they would have been paying in rent anyways and can even work the foreclosure to their financial advantage by living completely rent free for 6-12 months while the bank process their case.
January 7th, 2009 at 11:00 am
The first wave of foreclosure “victims” consisted mostly of investors who bailed on their payments as soon as they realized they’d never make their money back. Now the economy is really tanked were going to see a lot more people who are actually losing their home.
January 7th, 2009 at 11:01 am
Homeless rates have risen dramatically. For some reason, it isn’t considered newsworthy.
This was the only story I found:
http://www.reuters.com/article/domesticNews/idUSTRE4BC01020081213
January 7th, 2009 at 11:02 am
Can we stop this bullshit about people “losing their homes”? They never owned the homes in the first place. They have little or no equity and only got the mortgages because of funky Wall Street nonsense. They won’t “lose their homes”, they’ll just change addresses back to the rental properties they lived in before the housing bubble nonsense. Lesson learned: don’t buy something you can’t afford. And even among people who have the $$$, many are better off walking away if they’re “underwater”.
January 7th, 2009 at 11:08 am
@ James Gary -
Please show me, Dr. Einstein, where I said it was good that foreclosed-upon immigrants, or that that had bad moral character. I was only stating a (likely) fact.
@ badlydrawnbear -
In some states, though not California, residential mortgages are written on a recourse basis, meaning that lenders can hold borrowers personally liable for any shortfalls at foreclosure sales. Walking away from a mortgage in one of those states can be a disastrous step even for borrowers in negative-equity situations. Also, in any state, losing a property through foreclosure can be devastating to one’s credit score.
January 7th, 2009 at 11:09 am
@ James Gary -
Please show me, Dr. Einstein, where I said it was good that foreclosed-upon immigrants, or that that had bad moral character. I was only stating a (likely) fact.
I meant to say, ” … it was good that foreclosed-upon immigrants are leaving the country“
January 7th, 2009 at 11:10 am
C’mon kafka; plenty of us got affordable mortgages and have equity, but have lost our jobs. So stop your bullshit.
January 7th, 2009 at 11:23 am
“C’mon kafka; plenty of us got affordable mortgages and have equity, but have lost our jobs. So stop your bullshit.”
Of course it’s not your fault. I mean, when you bought your house they should have given you lifetime job security to go with it. The bastards.
January 7th, 2009 at 11:27 am
Kafka, by your illogic, there would be no homeownership, ever. The foundation of a strong democratic, capitalist society is that the govt. can make credible commitments to a wide set of economic groups that prompt them to participate/invest confidently in the economy. The govt. failed in this case (and I am not referring just to the original housing debacle, but the wider economic decline). Get over it.
January 7th, 2009 at 12:40 pm
It’s worth noting that many people in the first wave also suffered from income disruption due to frictional unemployment, divorce or medical problems.
Also, another part of the equation: oversupply. In places like Arizona, Vegas, or the condos in Miami. Developers seriously overestimated the demand and built too many units
January 7th, 2009 at 12:54 pm
I’m glad OGT got back to the original question that Katy asked and that Matt responded to. There’s actually been a huge building boom in specific places, scattered across the entire country. That is, not just Arizona, Vegas, or Florida, but also in many different cities in California, and some other spots around the country. But this is normal. Real estate markets (both residential and commercial) move in a cycle of 1. overbuild, 2. crash, 3. wait for what’s been built to be absorbed by rising population, and 4. start building again. “Overbuild” in this sense means developers “build more houses than the population needs.” Since they overbuilt, there were plenty of rental spaces going un-rented, as evidenced by the “Foreclosures Welcome” that Matt mentioned.
The cycles are 10-15 years long, so few people learn the lesson. Big shitpile occurred because the cycle happened along with weird, baroque securitization, decreased lending standards, and very lax government oversight
January 7th, 2009 at 1:24 pm
The next stage down from renting is squatting in abandoned homes. Google foreclosure and squatters and you’ll find examples all over the country of the homeless living rent-free in foreclosed houses. Rich in PA made the critical point, it’d be far less wasteful to simply help foreclosed-upon families stay in their own house.
January 7th, 2009 at 1:26 pm
@Peter 11:08
True, but even in those states if you declare bankruptcy and foreclose you are, I believe, you are off the hook.
Also, what the foreclosure crowd is banking on is the fact that so many people will be going into foreclosure/bankruptcy that the ding to the credit will not be seen as a big deal, especially since it will fall of their credit report after 7 years, a much shorter time, in their view, then they will likely have to hold the underwater asset.
FYI – I am not trying to advocate this behavior I am just explaining that for many recent buyers who bought at or near the peak, foreclosure and bankruptcy is being seen as a very good thing that they can use to their advantage to minimize the pain of a bad financial decision.
January 7th, 2009 at 2:21 pm
17: Well, even if you walk away from the property after 3 years or so, you still paid closing costs and had to go through the pain of moving. And if you were moving from a property you owned previously, you paid your realtor in all likelihood. That 6% and those closing costs may seem small compared to the value of your home, but that sort of stuff only seems cheap in a rising market. Obviously if you are seriously underwater with no principle paid, you are probably going to walk, but it’s not that great of a deal even if it looks like it on the surface.
January 7th, 2009 at 6:51 pm
I’m really sorry, kafka; you’re right; stereotype us; I confess, we’re all welfare queens who signed “no doc” loans to buy huge homes we couldn’t afford; we thought that teaser rate would be forever. We’ll just live in our SUVs til they get repossessed.
January 7th, 2009 at 9:02 pm
Re: The next stage down from renting is squatting in abandoned homes.
No, it’s moving in with friends or relatives. One of my cousins (and her young daughter) just had to move in with her step-father after losing her job.
January 13th, 2009 at 7:55 pm
Once again, idiots think the wave of foreclosures are all on home purchase mortgages. They are not. The majority of delinquent subprime loans, and indeed the majority of the securitized mortgage market, are refinance loans. I.e. people who already own the homes, often with affordable mortgages, who were induced to refinance into exotic products that were guaranteed to lead to foreclosure as surely as a grenade with a pulled pin will explode the person holding it. Billions of dollars of low-income and middle-class wealth is being destroyed not to mention displacement costs and foreclosure externalities. Sorry, you can’t wash your hands of this. Out of control foreclosures are actually problematic.
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