Mortgage Got You Down? "Nah--I Just Don't Pay It"

Saw this story in the NYT Tuesday morning and meant to blog it that day--never got around to it. The story is about a people who have just stopped paying their mortgages, counting on the fact that it is more trouble for a bank to evict them than it is worth to the bank to take possession of the property in a down market.

The story is downright disgusting, mostly for the breathtaking shifts of responsibility that are voiced. Here's one: "One reason the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers. It was a stupid move by their lender, according to Mr. Pemberton. “They went outside their own guidelines on debt to income,” he said. “And when they did, they put themselves in jeopardy.”

Ah. I see. It's their fault you are a deadbeat. Precious.

The Next American Real Estate Bubble...

...is upon us. Let's review--low interest rates + low money down + $8K tax credit = bubble. As long as we continue to subsidize bad personal investing behavior (the mortgage interest deduction which drives poor investment balance and diversification) we will find ourselves fighting this ridiculous boom/bust real estate cycle.

As Worthless As Beads...

The owners of the Stuyvesant Town and Peter Cooper Apartments in Manhattan who paid $5.4 Billion for the complex back in 2006 have announced that they are turning them over to creditors.

The housing complexes were built by MetLife in the mid-1940's to accommodate returning GI's. MetLife sold the property to Tishman Speyer and Blackrock equity partners in 2006 at the height of the real estate boom. The partners each invested $112 million out of a total equity financing of $1.9 billion. They also took out a $3 billion mortgage from Wachovia Bank, which was promptly packaged and re-sold with other commercial property loans and as securities.

And just who owns these securities? Bloomberg reports that the largest holders are Fannie Mae and Freddie Mac. Ouch.

Where The Next Bubble Is Likely To Pop

I caught this video link over at NRO; it's a five minute news report examining one way China may be able to maintain its 'consistent' GDP growth numbers. The story focuses on the Chinese city of Ordos - or is that "New Ordos" - a brand new city built from scratch just several miles away from the existing city. Here's the interesting part - it sits completely empty:



Watch for the money quote from Patrick Chovanec of Tsinghua University at about 2:5o: "Nobody's ever really lost money in real estate in China."

Uh-oh.

Megan McArdle on a New Breed of Deadbeats

Sometime contributor Robert Thorn is a big megan McArdle fan--and I am increasingly becoming one myself. In this little piece, she hits upon one of my favorite themes--the blatantly irresponsible among us making things worse for the hard-working and honorable.

Defaulting on a mortgage must be a painful and horrific thing to go through--at least that's the way I think it should be. So does McArdle. But not so for the turd of a human McArdle cites in her post. Where is the shame? Where is the responsibility?

I have no time for the "upside down" mortgage crowd, those who believe that their monthly payments were predicated on a home valued differently than it currently is--leaving them in a situation in which they owe more than the house can currently be sold for. If you are in a position to HAVE to move--this is certainly a bad spot to be in. But if you're not moving, who cares what your house is worth on that day? You are making a mortgage payment (read: rent to own), you are getting the same "shelter value" that you were when the house was more expensive--so why is being upside down on one's mortgage ANYTHING the rest of us should give a crap about.

Yes, yes, I know--some would say we should care because this crowd has a higher propensity to default, and that of course, isn't good for anyone. I say--they have a higher propensity to default because IT ISN'T PAINFUL ENOUGH to do so. There simply must be more social shame AND financial injury accruing to someone who walks away from a mortgage. The person written about in McArdle's post should wear the Scarlet "D" for Deadbeat.