Mortgage crisis and increased consumer spending

by PrimateDave 12 Replies latest social current

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  PrimateDave

  I just read this piece at Financial Armageddon:

  More About That 'Healthy' Consumer Spending

  I've highlighted posts at The Market Ticker, Business Insider's The Money Game, and Housingwire which have suggested that one reason why Americans can afford to keep on spending in the face of 20 percent underemployment and stagnant incomes is because many of them have decided to stop paying the mortgage.

  Now, Yves Smith, publisher of another one of my daily must-read blogs, Naked Capitalism, and author of ECONned, a great new book on how we got into the mess we are in, is also weighing in on the subject. In the following excerpt from "Strategic Defaults Increase Consumer Spending," Yves reveals some of the eye-opening tidbits that others have passed along to her:

  My anecdotes on strategic defaults

  Here’s what I have uncovered via two anecdotes a friend sent me.

  This first one comes via Bill Fleckenstein from a retired hedge fund manager. Catch Fleck via his daily newsletter (subscription) or his MSN column, which is free. Bill says the reader told him the following five anecdotes:

  1. My 25 year old niece had $10,000 of outstanding credit card debt. Recently, she told the bank she couldn’t pay. She is not unemployed so the ‘hardship’ is all relative. Nevertheless, the bank offered her a concession which she refused. They offered another concession, she refused again. Finally, they told her if she paid $150/month for 2 years (total of only $3600 with no interest), they would call it paid in full! She accepted in a heartbeat. It is less than a month later, and she celebrated her good fortune by going on a cruise to Hawaii....

  ...

  Another hedgie in San Francisco, responded with this after seeing these anecdotes:

  From the West Coast I have at least that many stories. They come in clusters. One brave party takes the first step and "wins" then relatives or co-workers follow the successful example. The persons are still employed – default on debt – they rarely get contacted by lenders and then negotiate hard (the debtors that is). After some settlement they keep spending lavishly. In every case a vacation is part of the program. Every case!

  There is more at the link above. The gist of it all being that lots of people are apparently living the good life in their overvalued homes, have stopped making mortgage payments, and seem to be getting away with it... for now. Does anyone here know of someone in this situation? Any Witnesses you know of who stopped making house payments yet still spend money on major non essential things?
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  Robdar

  hmmm, I work in bankruptcy. And in the midwest it is very difficult to get the banks to modify your mortgage, let alone give you some of the sweet deals that are described above. Although not on the west coast, it smells fishy to me, a person in the trenches.
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  serenitynow!

  No, I try not to know too much about the JWs finances around me. That may lead to them trying to borrow money from me.
• 

  JeffT

  Robdar, it ain't that easy in Seattle either.

  I note that the first example involves credit card debt, not a house. It is a lot easier to make a bank reschedule an unsecured debt. Looking at some of the other examples on the link, if I was the banker I would be talking to the local prosecutor about fraud in at least a couple of them. And the long term consequences to these people are going to be really bad. They are going to find their credit destroyed, even renting a decent place is going to be difficult.

  As a financial plan, this is not bright.
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  PrimateDave

  No, this is most surely not a recommended course of action for anyone, but it would seem that at least some of the so-called "recovery" in consumer spending is simply "robbing Paul to pay Peter." I just find it incomprehensible that the mortgage lenders are either unwilling or unable to promptly follow through with foreclosures and evictions.
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  cult classic

  I've heard of several similar cases here in Ohio (midwest by the way) - i know each personally.

  1)homeowner had a rental property he was having a hard time with and the bank gave him the house. they didn't want the hassle of following through with the foreclosure and the taxes owed.

  2) homeowner didn't want to make the payments anymore on his upside down mortgage. The bank has been trying to work with him for almost 2 yrs now, he just wants out, he hasn't made a payment in about a year, they have yet to foreclose.

  3) homeowner couldn't afford her upside down payments. They lived in the house for a year before the bank took a short sale, no payments to be made and no foreclosure.

  It seems some of these banks just don't want the houses empty, especially in the "better" neighborhoods. And they don't want to pay the taxes on the properties either if they foreclose - taxes stay with the house.

  Cult Classic
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  beksbks

  Sorry Primate, I believe you will find the opposite more true than not. Also you have to consider folks who rearranged lives to purchase a home in an area they could afford. Then the gas prices go through the roof, and housing values plummet. What a waste. I can't fault people who try to recoup somehow. It wasn't thier fault. They will pay for it with crappy credit for 7-10 years. I wish now, we had let the banks fail.
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  Robdar

  I just find it incomprehensible that the mortgage lenders are either unwilling or unable to promptly follow through with foreclosures and evictions.

  PDave, It isn't that they are unwilling to foreclose, it's just that there are so many foreclosures and they are overwhelmed.

  Cult Classic is correct. Foreclosures lower the value of the neighborhood. Also, once the banks foreclose, they are responsible for the upkeep of the house and property.
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  beksbks

  We bought a foreclosure. What a mess. Upkeep? The pool was so hideous, the neighbors had called the mosquito abatement department. When they dredged it, I was afraid we might find a body in there.

  Oddly, we found an old checkbook. It was from '04. Looks like that is when they took a second, and built the pool. Housing bubble was insane at that point. Poor folks. They had been here for 13 years.

  The fireplace was all burned on the wall, and inside the flue. The chimney guy said he sees that all the time with foreclosures, because people let the heat and other utilities get shut off first, and try to warm the house with the fireplace by making huge fires not meant for them.

  Shoot, makes me cry just thinking about it.
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  sammielee24

  I agree Beks. I've known people who have been foreclosed on and for the majority it devastates them. I know a handful of people who just packed up and walked away - couldn't even take the furniture because they had no money to move it. Another family had the electricity turned off and as you said, tried to heat with a small propane stove...no electricity means no refrigeration either, no lights, no hot water.

  I always shake my head when I hear people make it sound so simple and easy for others in these circumstances. A small percentage might game a system but the majority do not.

  You have millions upon millions of homes that people bought as homes - if a society can't understand what happens to the psyche when you lose your lodging, your security, your place in the scheme of things - then society as a whole is lost. We have generations of kids who now understand the cruelty of life and for 75% of those, it will alter the way they view the world forever.

  When you drive by and see entire subdivisions of empty houses that were once fountains of hope for people...p e o p l e...there is a desolation and a depression that can be overwhelming.

  sammieswife.