The American Dream: Walking from your mortgage obligation

That article really annoyed me. I get that the WSJ has an agenda and the subjects (read: interviewees) of the articles are plucked to prove a meta-point. But c'mon! That those featured owners-now-renters bought their homes plus investment properties at the peak, cry poverty to the banks, and now live high on the hog on the taxpayers dime is criminal. People have a right to live in dignity not impunity.

If you lose money in any other investment, is it possible to walk away & recoup a good portion of your loss? A lot of this is fraud, if you ask me. A loss is a loss is a loss; life has no guarantees.

Unless you're a mortgage lender.

People don't understand the corrosive impact that this kind of thing has on our institutions. A contract means nothing. A prime example: people trying to get out of purchase contracts in Manhattan. This is all part and parcel of the dumbed-down entitlement society. Bailing people out (and letting people just walk away from debts) just makes it more likely that more people will pay too much for more stuff in the future.

"This is all part and parcel of the dumbed-down entitlement society. Bailing people out (and letting people just walk away from debts) just makes it more likely that more people will pay too much for more stuff in the future."

Not necessarily. Many people who are making the agonizing decision here in New York to walk away from their homes have less to do with the fact that they're underwater, and more to do with the fact that they've been UNEMPLOYED for a year or more, have burned through their savings, and simply can't swing their mortgage and monthly maintenance payments on the $430 the state is providing in unemployment benefits.

I'm not excusing Shana Richey -- she clearly didn't lose her stream of income. Her income is presumably the same as it was when she bought her house. She's abandoning her home (and mortgage) because she perceives she'll lose money in the long run.

These are two completely different sets of people, and should be recognized as such.

Another caveat: California (among other states) is a "no-recourse" state -- New York is NOT. This means that in California you can legally walk away from your mortgage, dust off your hands, and there's nothing the bank can do. In New York state, however, the bank will eventually foreclose on the property, and sue you personally for any shortfall. They can legally attach property, confiscate valuable possessions, and garnish wages until the debt (and the legal costs of collecting it) are repaid.

I didn't realize Cal is non-recourse. That's not a very sensible rule, and actually, in a undistorted market should mean mortgage rates are higher in Cal. than in recourse states. During the mortgage finance easy days, I doubt if there was such a differential.

I realize plenty of people have terrible economic problems, and actually that is why we do have unemployment insurance, and bankruptcy laws.

But something is way wrong when people start thinking they should be able to get out of a contract because the deal is now a bad economic deal (the case of depositers in Manhattan).

Ha! Here's one for you. I am a firm believer in tort reform esp as it relates to medical lawsuits. However, if an incompetent doctor killed one of my loved ones id sue him until he drove his suv into a tree and hydrant.

Totally agree with you Jimmy, but 'hypocrisy' is a human gene, methinkz , ; )

hypocrisy is sexy

But on the subject of re., if you've never done a what if scenario in your head while 'gambling' on that 2nd 3 rd 4th home, plz don't ask us 'renters' for help when it implodes on you.

"I realize plenty of people have terrible economic problems, and actually that is why we do have unemployment insurance, and bankruptcy laws."

Unfortunately, New York state's maximum weekly unemployment benefit is $430 -- after taxes, that doesn't even cover living expenses for someone's who's total housing nut is $750 per month, let alone the more "average" monthly mortgage payment of $2000 and monthly maintenance of $800.

And bankruptcy laws don't solve the problem that the vast majority of unemployed New Yorkers find themselves in. Bankruptcy is a solution to DEBT, not to lack of income. Chapter 13 requires you put together your own plan for debt repayment, and requires proof of an INCOME in which to do it. Chapter 7's main purpose is liquidation -- the court appoints a trustee to go through your finances and your home, auction off anything and everything of value (I believe there are exceptions for certain pieces of household furniture, like beds and tables), leaving you with a total asset value of all your worldly possessions of up to a combined value of $10,000 or so.

The problem is, you're using a gun to try to solve a problem with cockroaches. The vast majority of today's victims of the economic downturn were perfectly able to service their mortgages and other debt loads -- until they lost their incomes. Debt isn't their problem, it's a lack of income. The primary problem that they're facing is falling behind on their mortgages, not mounting debt. The only benefit to filing Chapter 7 would be to temporarily halt foreclosure proceedings. But the halt is only temporary -- eventually, if they're still unemployed, the foreclosure will proceed. And in the meantime, the court has needlessly gutted their homes of years (perhaps decades) of "life": furniture they'd planned on willing to the grandkids ... heirlooms from Grandma and Grandpa (yep, including Grandpa's Rolex that was given to him by his father, which survived World War II, sadly will not survive the Depression of 2009) ... right down to the rugs on the floor and the small appliances in the kitchen (KitchenAid mixer, anyone?).

No. What needs to happen for this particular group of people is that the banks need to allow people to say in their homes while they continue their job search. Eventually, they WILL find jobs. All they need is TIME. Why not just temporarily restructure the mortgage by adjusting the payment to whatever they can afford (even if it's just $400 per month), and tacking the balance of their old monthly payment onto the back of the mortgage, adding to the principal? Sure, you'd be adding interest onto the principal, which sucks, but at least you can stay in your home while you continue your job search.

This is not about "artificially propping up inflated housing prices". This is about not throwing people out of their homes and into the streets.

Will the banks lose money? Not in the long run. In fact, by tacking whatever interest the mortgage holder ISN'T paying each month onto the principal, in the long run, they'll make even more money.

In the short run? Take it out of the executives' bonuses.

Sexy indeed.

Matt i don't know. If I didn't have to pay for housing in NYC, there's so much going on here. The zoo, cp, the met, the Guggenheim, the off B'way shows, the restaurants. Etc etc etc. Alright, matt for mayor in 2013!!!!! When we can all stop paying mortgages and go to the zoo on Wednesdays together. It's free!!!!!

Well, there are trade offs Matt. If people do get foreclosed on, then more people will actually be able to afford housing, won't they? And won't the people who can now afford housing be the non-culpable ones who didn't go buy during the bubble, leverage to the max, etc.

West 67th, I'm not advocating people not pay their mortgages. I'm advocating that the banks and our own government get realistic about the struggles of the unemployed, and give them WORKABLE solutions.

A friend of mine, out of work for more than a year and still hanging on by a thread in his co-op, was offered "help" by his bank in the form of temporarily reducing his mortgage payment by 35%. I'm not sure of his exact situation, but he told me that even after the reduction, his mortgage and maintenance would still come to over $2000 per month -- with an unemployment income of $1500 per month.

That's not a solution.

"Matt. If people do get foreclosed on, then more people will actually be able to afford housing, won't they? "

I suppose that's true.

So while these "more deserving" people swoop in like vultures into foreclosed properties, where do you propose the original owners go?

"Where do you propose the original owners go?"

This is silly, Matt. These people cannot afford their homes, simple as that. They should downgrade their lifestyle: e.g., sell your home and move somewhere else. If they have to take a loss, that's the price to be paid for buying an over-priced asset. Maybe they could afford the lifestyle at some point in the past, but not any more. It obviously sucks, but continuing to live a lifestlye you cannot afford does not really help. If you're out of a job with a certain salary for a year, granted during a very bad recession, and cannot find something else for the same or some fraction of the old salary, perhaps that's not a lifestyle you can afford.

People don't understand the corrosive impact that this kind of thing has on our institutions. A contract means nothing

I disagree, They know the contract in many states mean if you don't pay your mortgage you just give up the house..

"They know the contract in many states mean if you don't pay your mortgage you just give up the house.."

And. Go. Where???

*****

"These people cannot afford their homes, simple as that. They should downgrade their lifestyle: e.g., sell your home and move somewhere else."

And. Go. Where???

This isn't about "downgrading their lifestyle". Who do you think these people are? Most of the foreclosures I'm hearing about from my RE agent friends are people who have mortgages of less than $400K.

So they "sell" at a loss (provided, of course, the bank approves the short sale). Now what? Where do they go? Where do they move to? With no equity from their sale, there's no "downgrading" to a "smaller" place. Indeed, with no money even left in the bank (otherwise they would have paid their mortgage), how can they even pay for the move, let alone try to find a lease for a rental with no proof of income?

Mcd! Work at mcd to make up the $500 diff. Plus free lunches!!!!

MCD? What's that?

They know the contract in many states mean if you don't pay your mortgage you just give up the house.."

And. Go. Where???

They are underwater on their mortgage, not broke. That's the point

"hey are underwater on their mortgage, not broke. That's the point"

Wrong. I'm talking about people who are UNEMPLOYED and can't afford the mortgage payments. They ARE broke. THAT's the point.

In contract law theory, what these folks are doing is called "efficient breach". Happens all the time in other markets, why not here? This business about the moral obligation to honor contracts misses the point-- arms-lengths agreements between participants in the so-called "free" market are backed up (or not) by the legally enforceable consequences of not honoring those agreements. Morality has nothing to do with it. The banks operate on this assumption. Why shouldn't underwater home owners? The question of whether the state will step in to protect banks against those losses is another matter altogether, but it has no bearing on whether it makes rational economic sense for a self-interested participant in the real estate mortgage market to minimize his/her losses if he can by defaulting on mortgages for amounts greater than the dollar value of the underlying asset. Any other view of the matter is pure sentimentality, which ignores the nasty, mean and brutish laws of capitalist markets.

That's all well and good, cherrywood, but my two main points are:

-- New York state is a non-recourse state, so "efficient breach" can and will be followed up with a lawsuit to recover damages.

-- Walking away from your home vis-a-vis "efficient breach" works only if you have the wherewithal (income) to find another, more affordable home.

NY is recourse.

Oops sorry -- I meant to say that New York is NOT a "non-recourse" state.

My post wasn't responding to yours, NYCMatt. If mortgage banks can successfully sue to recover shortfalls from forced sales, then a decision to walk away from the mortgage would not, by definition, be efficient. Ditto with respect to your point about being able to find alternative housing.

Got it, Cherry.

"Who do you think these people are? Most of the foreclosures I'm hearing about from my RE agent friends are people who have mortgages of less than $400K."

I know you think that having a half-million-dollar mortgage and spending $3000 a month on housing supported by a 6-figure income is a birthright, but it ain't. Only 15% of the population has a 6-figure income, and if you can't afford that lifestyle any longer, you just need to downgrade. I understand that it's a painful transition, it won't be pretty, but it needs to happen one way or another. Even if your friend finds a job tomorrow and can continue to pay, it needs to happen. The fact of the matter is that the friend has been cutting it too close with the spending, as this episode has unfortunately demonstrated. Having the bank add on more debt by tacking the interest onto the principal won't change this.

"I know you think that having a half-million-dollar mortgage and spending $3000 a month on housing supported by a 6-figure income is a birthright, but it ain't. Only 15% of the population has a 6-figure income, and if you can't afford that lifestyle any longer, you just need to downgrade. I understand that it's a painful transition, it won't be pretty, but it needs to happen one way or another. Even if your friend finds a job tomorrow and can continue to pay, it needs to happen. The fact of the matter is that the friend has been cutting it too close with the spending, as this episode has unfortunately demonstrated. Having the bank add on more debt by tacking the interest onto the principal won't change this."

You missed the facts completely.

Most of the people facing foreclosure in this market have mortgages UNDER $400K.

And I really don't think you understand how "painful" a "transition" it is to leave your home and have literally NOWHERE TO GO.

Again, this isn't about "downgrading", it's about being HOMELESS.

Why are you not getting this?

MYCMatt:

Capitalism can be course and at times ugly but if left pure it works. Some will perish some will come back better than before. inonada - right on! 67 - see you at mcd.

Cramdown

http://www.cnbc.com/id/34366352

I'm moving to Cuba or China.

nycmatt: aren't you the same guy who has been endlessly posting about how smart and great it is to be an owner? how its better to be an owner than a renter when you lose your job? do you remember any of that?

"Most of the people facing foreclosure in this market have mortgages UNDER $400K."

Right, and to be able to afford a mortgage of $400K, you need a 6-figure income, which most people don't have. You sneeze at $400K as if it's nothing simply because our current low-mortgage-rate-supported-by-the-govt-plus-a-tax-deduction-on-top environment translates that to a mere $21K a year. Understand that at a $100K annual salary, it takes 20 years to save that kind of money even if you save a very fiscally-tough $20K a year after-tax. That's a person in the top-15% of the income bracket saving a huge chunk of their after-tax income (like 30%) for half their working lifetime.

I understand that losing your home is difficult, but it does not mean you become homeless. Millions of people have been foreclosed in the past couple of years, and the vast majority did not become homeless.

You make some bad decisions, you get caught skinny-dipping when the tide goes out, but life goes on. This is not the third world, and your friend was not in a situation where they were hanging by a thread, living paycheck-to-paycheck. You acknowledge that you're living beyond your means, adjust, and carry on.

cherrywood.....spot on. Its a contract with repercussions if the terms are not met. Plain and simple. What needs to be done is to get the gov't out of the housing market so that truly free markets can shape the pricing. Boom, bust or otherwise. When a non-economic actor of such size distorts market conditions, the results are nearly always the same. Kapow!

"nycmatt: aren't you the same guy who has been endlessly posting about how smart and great it is to be an owner? how its better to be an owner than a renter when you lose your job? "

Because as an owner, if you lose your income and can't pay your monthly housing expenses (mortgage and maintenance), the eviction process is a long and protracted one that involves foreclosure, which at a minimum can take 6 to 9 months in an ideal economy. In today's economy, it can take longer than a year. The eviction process for RENTERS, however, remains the same: 3 to 6 months. At least as an owner, you can buy some extra time while you're looking for work.

*****

"I understand that losing your home is difficult, but it does not mean you become homeless. Millions of people have been foreclosed in the past couple of years, and the vast majority did not become homeless."

Yes, it DOES mean you become homeless. Most foreclosures up to this point involved people who bought more than they could afford. They moved out, but because they still had JOBS and INCOMES, could still afford to find other housing. This new wave of foreclosures involves not people who bought more than they could afford, but people who lost their jobs, ran through their savings, and have no way to find new housing once they're pushed out of their foreclosed homes.

Again, I don't know why you're not getting this. Or is it that you just don't WANT to get it?

*****

"You make some bad decisions, you get caught skinny-dipping when the tide goes out, but life goes on."

Again, people who lost their jobs were not "caught skinny-dipping" when the tide went out from under them. They were doing nothing wrong.

""nycmatt: aren't you the same guy who has been endlessly posting about how smart and great it is to be an owner? how its better to be an owner than a renter when you lose your job? ""

Also, if you still have equity in your home, you could tap it in order to meet living expenses. Not so with a rental.

jimstreeteasy wrote:

People don't understand the corrosive impact that this kind of thing has on our institutions. A contract means nothing. A prime example: people trying to get out of purchase contracts in Manhattan. This is all part and parcel of the dumbed-down entitlement society. Bailing people out (and letting people just walk away from debts) just makes it more likely that more people will pay too much for more stuff in the future.

Jim, I have to take issue with your conclusion, but not completely with your reasoning. Cherrywood explained "efficient breach." It may be that you believe there is a moral component to a contract; others believe that a debtor has an obligation to repay the loan OR face the consequences under the contract and the law. In California, the consequences are not that onerous, so it is rational for borrowers to accept those consequences. The banks knew that and made the loans anyway.

There is no corrosive impact of a homeowner sending the keys back to the bank. In fact, it may be just the opposite: banks will make bad loans until they are forced to face the consequences of reckless behavior. The banks had every opportunity to assess the risk of borrowers walking away one day and decided to lend enormous amounts. . . to people who put little or nothing down. . . sometimes without income verification. . . on properties whose valuations were clearly suspect, etc., etc. and booked record profits doing so.

Most homeowners are not professional borrowers. The banks were professional lenders, in the business of assessing the risks of mortgages. They should have known, not only that the loans were risky, but also that if loans stopped performing, the cycle of non-performance would lead to lower property values would lead to more defaults. Borrowers often try to overextend themselves. The banks' role was to minimize the risk of loss. They failed, miserably and repeatedly. To the extent you worry about sending the wrong message and perpetuating bad behavior, then what you really object to is bailing out the banks.

Jim, if you are concerned about institutions, look beyond individual homeowners. The banks booked large profits making bad loans. If banks cannot learn how to do their job, it "just makes it more likely that more people will pay too much for more stuff in the future" using borrowed money.

I agree with everything cherry wrote, and also the katie post. I wrote in haste.

Basically, obviously a person is entitled to default and pay whatever consequences, if any, on the mortgage contract. I agree it is not about morality. If it is non-recourse, then they owe nothing apparently, fine. If it is recourse, they are liable for the balance owed, also fine. I don't like the idea however of asking the government to step in and pay a role in altering any of those contracts or default consequences.

However, what is about morality and does have a corrosive impact on efficient business is the idea of pursuing bogus claims to get out of a contract. I suspect many of the people trying to back out of contracts to purchase in Manhattan are doing just this, and hopefully they will dismissed by the court if the claims are not valid and material. That was really my main point. I also think it is corrosive of free markets to have people look to DC to bail them out of a contract by subsidies or alterating contracts. In all the above cases the benefit to the party seeking a reprieve is obvious, but the cost to the rest of us, and to the general cost of doing business, is less obvious and direct, but just as real over time.

I'm sorry, I don't think strategic defaults constitute a corrosion of our institutions, as suggested by Jim. The contract with the bank was that you would pay the loan or if not the bank would get your house. It was the bank's job to assess the value of the house, and you're not responsible for the bank's losses if they failed to do so correctly. These strategic defaulters have also lost whatever equity they had. It doesn't seem unfair to me.

I agree bailouts are wrong and entitlements are out of control. But mortgage defaults are an issue of private contract, and a risk that the lender takes by choosing to be a lender.

Also, of course people feel sorry for homeowners losing their homes, but what is about them that makes them particularly deserving of subsidies or government interference. Lots of people have worse problems, so why not help them first. I think the only decent justification for helping home borrowers is to try to stabilize the market (ie, not to help the particular person, but to prevent market wide problems), but personally the government always fucks everything up, so I think it would be better to not try that solution.

Please Matt. It is undoubtedly true some will end up homeless, but many have family, alternatives, some income stream, etc. so it is a false premise you are positing. And if all these people were calling it that close, what in the hell were they doingin the home in the first place?

"Also, of course people feel sorry for homeowners losing their homes, but what is about them that makes them particularly deserving of subsidies or government interference."

Perhaps because they lost their jobs because of an economic meltdown that was caused in the first place by the banks themselves?

And I'm not even advocating subsidies, but definitely "government interference" insofar as banks (the very same banks who enjoyed the "moral hazard" of reckless gambling knowing full well that the government would never "let them fail") should be REQUIRED to offer temporary restructuring of their mortgages until they are re-employed.

*****
"Please Matt. It is undoubtedly true some will end up homeless, but many have family, alternatives, some income stream, etc. so it is a false premise you are positing. And if all these people were calling it that close, what in the hell were they doingin the home in the first place?"

Really? How many income streams do YOU have? For most Americans, their JOB is their only "income stream".

"Family"? Assuming that family is nearby, and has enough room to take them in.

"Alternatives"? Like what?

"Calling it that close"? Really? Since when was an entire YEAR'S worth of living expenses in the bank considered "calling it close"?? How many of YOU could hang onto your homes if you lost your income for an entire year?

I'm so glad there is a thread about this article, it's the first one I read on my subway ride to work this morning and I was seething at the end...for one particular reason, Mr. Fernandez:

"Mr. Fernandez says he made four attempts to modify the larger of the two mortgages on his home, which add up to $423,000...With an income of about $8,300 a month and a rent of $2,200, Mr. Fernandez says he now has the wherewithal to do things he couldn't when he was stretching to pay the mortgage. He recently went to concerts by Rob Thomas and Mat Kearney. He also kept his black BMW 6 Series coupe, which has payments of about $700 a month.

"I don't know if I'll buy another house again, because it's such a huge headache," he says.

Um, didn't they say this guy is a firefighter? Income of $8,300/month? Let's see, how many firefighters do you know bring home a NET $99,600/year and drive a 6 series Beemer?

There are so many facets to the real estate boom and bust but the general excess consumption is a key element. McMansions, bmws, flat screens, cruises....by people who have not saved much. It's nuts, really.

---

""Mr. Fernandez says he made four attempts to modify the larger of the two mortgages on his home, which add up to $423,000...With an income of about $8,300 a month and a rent of $2,200, Mr. Fernandez says he now has the wherewithal to do things he couldn't when he was stretching to pay the mortgage. "

Good for him.

I'm talking about people who are facing combined mortgage and monthly maintenance payments of less than $2500/month, who once had incomes in excess of $10,000/month and are now trying to live on $1500/month.

"This new wave of foreclosures involves not people who bought more than they could afford, but people who lost their jobs, ran through their savings, and have no way to find new housing once they're pushed out of their foreclosed homes."

Different people's definition of "afford" are different, I guess. Your definition of "afford" is to be able to make the payments assuming everything goes right for the next 30 years. I.e., you continue holding a job, you continue to be paid the same, etc. Mind you, we're talking about something that was purchased at price that was completely unreasonable compared to its fundamental value (renting), making it a luxury as compared to a necessity. Even if the $100K-earning person paid their FULL take-home income, it would take 15 years to buy that asset. Paying half their take-home income, it takes 30 years.

So, could they minimally afford their purchase? In the strictest sense, sure: as long as everything went perfectly for decades, they could pay. However, was it a good idea to think they could afford it under the assumption that one can be without pay for more than a year, or that what they bought for an amount that equal to 15-years of take-home pay is only really worth half of what they paid? Apparently not.

"Again, people who lost their jobs were not "caught skinny-dipping" when the tide went out from under them. They were doing nothing wrong."

I believe the term "caught skinny-dipping" refers to when you take on too much leverage, things don't go perfectly as you planned, and you are left hanging. Matters are made worse when you bought an overpriced asset compared to any fundamental valuation metric.

I'm not making a moral judgement on them, just verbalizing my thoughts on their financial decisions. If you want to keep from being exposed to such a situation yourself (I'm not by any means wishing it), I suggest you reconsider your definition of "afford".

"Different people's definition of "afford" are different, I guess. Your definition of "afford" is to be able to make the payments assuming everything goes right for the next 30 years. I.e., you continue holding a job, you continue to be paid the same, etc."

I guarantee you that's 90% of the American population, including YOU.

*****

"Mind you, we're talking about something that was purchased at price that was completely unreasonable compared to its fundamental value (renting), making it a luxury as compared to a necessity. Even if the $100K-earning person paid their FULL take-home income, it would take 15 years to buy that asset. Paying half their take-home income, it takes 30 years."

Incorrect. If buyers with a solid track record of income could afford the monthly payments, regardless of whether you or Ben Bernanke or the Man in the Moon felt the property's value was "completely unreasonable" -- they could AFFORD it. And co-op boards held them to much stricter standards than the banks, ensuring they had the requisite post-closing liquidity.

Again, NO ONE in this country can afford their home if they're unemployed for long enough. I suppose people are being fiscally irresponsible if they don't have at least enough savings to carry them through to the grave, yes? Since NO ONE can ever "depend" on a job ...

*****

"So, could they minimally afford their purchase? In the strictest sense, sure: as long as everything went perfectly for decades, they could pay. However, was it a good idea to think they could afford it under the assumption that one can be without pay for more than a year, or that what they bought for an amount that equal to 15-years of take-home pay is only really worth half of what they paid? Apparently not."

Wrong again. Even to "minimally afford" a co-op purchase in Manhattan, most co-op boards want to see a minimum of six months of post-closing liquidity. Until Obama became president, two generations of Americans lived and died without having to worry about mass unemployment knocking them out of work for more than a few months.

*****

"I believe the term "caught skinny-dipping" refers to when you take on too much leverage, things don't go perfectly as you planned, and you are left hanging. Matters are made worse when you bought an overpriced asset compared to any fundamental valuation metric. I'm not making a moral judgement on them, just verbalizing my thoughts on their financial decisions. If you want to keep from being exposed to such a situation yourself (I'm not by any means wishing it), I suggest you reconsider your definition of "afford"."

Frankly, I'd like to hear YOUR definition of afford.

Because what I'm hearing from my RE friends about people facing foreclosure is that the vast majority of them them bought co-ops, paying no more than 25% of their take home pay (NET, not gross), with at least 6 months' worth of living expenses in the bank. Frankly, that's doing better than most of America.

What is YOUR liquidity? Honestly, how long could YOU last without your income?

*****

"'I'm not making a moral judgement on them, just verbalizing my thoughts on their financial decisions."

SOUNDS like judgement. And for many of these people, their "financial decisions", given their job histories, income histories, debt load, and purchasing decisions at the time were considered downright conservative.

NYCMatt, I commend your concern for those going through a difficult time right now. And you are right, it is hard to imagine how devastating it must be to lose one's home. When I was first married, I had to move out of the city because it was just too expensive to live in the city and raise a family. It was a pain in the neck to commute in every day, but that was what we could afford. And once upon a time, $400,000 was a large mortgage, and a lot of money to borrow. Over the years the numbers have gotten more and more absurd, and we have to get back to reality when housing costs are in line with salaries. In order to buy into the bubble, people over extended hoping to catch up when their salary increased, their bonus got big enough, or their home had increased in value enough to sell at a higher price. For many, all of these things have come to a grinding halt. They are over extended. They got caught in the pyramid scheme that is NYC real estate. Perhaps they will have to leave the city and regroup for a while. This whole process will unfortunately be painful for many. But prolonging this step will ultimately delay economic recovery. We have really gotten ourselves into a tragic situation.

Hi Matt; in the end you have to pay your mortgage or you lose your home. Complicating that relation with emotion-based argument or otherwise screwing with the market doesn't really help anybody in the end. The specific reasons behind the defaults are not significant from a systemic point of view as there have *always* been and always will be a sob-story behind *every* guy that won't pay his bills. We know this to be plainly true and the fact that over 1/2 of adjustments/modifications over the last 2 years have re-defaulted proves the case further.

Those folks who are irresponsible, or regret their bad RE deals, or fell on hard times, or just don't want to pay their bills have to own up to their responsibilities at some point. Move into a $500 2BDRM in the Bronx, move home with Mom upstate or back in Florida or wherever, move in with a friend, suck it up and get an off-books job to supplement your unemployment. Or no? Am I missing something?

"Until Obama became president, two generations of Americans lived and died without having to worry about mass unemployment knocking them out of work for more than a few months."

really? you really want to say this? really? go for it, asshole.

Excluding people who lose their job, the article points out to the growing "sophistication" of the American borrower. The understand the "implied put" option in an "out of the money" mortgage and are exercising it. Have not heard the term "efficient breach" before, but interesting that its been well documented.

"Move into a $500 2BDRM in the Bronx, move home with Mom upstate or back in Florida or wherever, move in with a friend, suck it up and get an off-books job to supplement your unemployment. Or no? Am I missing something?"

Yes, you are missing something.

That $500 apartment in the Bronx will STILL require you to have a JOB.

"Move home with Mom upstate" -- provided, of course, her home isn't at Shady Pines Retirement Home, or worse, in a cemetery.

"Move in with friends" -- provided you have friends who have space for you, or God forbid, you AND your kids and pets.

"Get an off-the books job to supplement your unemployment". It's that easy, is it? Where can one find one of those? Even more importantly, where can one find an off-the-books job that would pay enough to justify all the hours you WON'T be spending on your job search?

>>prolonging this step will ultimately delay economic recovery. We have really gotten ourselves into a tragic situation.

Yes that's it NYRENewbie! Except when you talk about "We" in the tragic situation you have to be sure to restrict the conversation to those that cannot handle their post-bubble responsibilities. There are millions that participated in the bubbling and are paying their bills. There are those that did *not* participate and are now reaping the benefits as the market slides down and snapping up great deals. This is a good thing for them.

"Excluding people who lose their job,"

Riversider, I appreciate your point here. But from what I'm hearing from within real estate circles, the vast majority of people facing foreclosures are in trouble not because they overspent, but because they've lost their incomes.

"Excluding" those people would exclude most of the people facing foreclosure in NYC co-ops today.

Until Obama became president, two generations of Americans lived and died without having to worry about mass unemployment knocking them out of work for more than a few months."

really? you really want to say this? really? go for it, asshole.

"But from what I'm hearing from within real estate circles, the vast majority of people facing foreclosures are in trouble not because they overspent, but because they've lost their incomes."

care to cite your source? do you have a source?

"care to cite your source? "

I'm not naming names, but my sources include three agents at Corcoran, one at Halstead, and a senior executive at Halstead.

Until Obama became president, two generations of Americans lived and died without having to worry about mass unemployment knocking them out of work for more than a few months."

really? you really want to say this? really? go for it, asshole.

tell us more about how obama has wrecked the economy.

riversider is ready to applaud you. go for it.

"Until Obama became president, two generations of Americans lived and died without having to worry about mass unemployment knocking them out of work for more than a few months."

Unemployment was at 10.3% last year and has now dropped to 10%. Normal is 5%: twice as many people are now unemployed as "normal" -- one in 10 rather than 1 in 20. No question this is bad, but for perspective, in 1980's it peaked at 9.7%. No question this is worse, but we're not talking Great Depression style 25% unemployment: 1 in 4 people. That's mass unemployment. Mind you GDP (i.e., the entire production of the country) dropped by 50% at its worst during the GD! During the current recession, GDP only dropped 4%. Certainly, it's bad out there, but have some perspective about the real crapshow. This is peanuts in comparison.

"Frankly, I'd like to hear YOUR definition of afford."

Look, it's one thing to have a year's worth of spending saved up. Two is better still.

However, if you've got a $500K mortgage on an asset whose fundamental value is $250K (which was/is clearly the case with NYC housing if you take your head out of the sand), then you need another $250K on top because the day the crap hits the fan is the same day the rug gets pulled out on the market's price on your illiquid asset, and its price drops from $500K to $250K, and you're stuck.

"What is YOUR liquidity? Honestly, how long could YOU last without your income?"

Depends: if I cut my spending in pretty non-onerous ways, decades. If I don't, about a decade. That's assuming I don't take a lower-paying job the entire time. If I took a lower-paying job at a fraction of my current income, one I think I'd objectively be able to get in any economy (i.e., what would be the equivalent of McDonald's for many in terms of a low-paying job that you're pretty sure you could get no matter what), then I could last indefinitely at my current level of spending. Mind you, I can cut my spending in an instant on top of that.

Clearly, my level of liquidity is an anomaly and not what I consider "required" for a financially-prudent person.

How about you? What is your liquidity, and how long could you last without an income?

lets hear from matt about how obama is to blame for the economy.

come on matt---you can do it...tell us more.

"Unemployment was at 10.3% last year and has now dropped to 10%. Normal is 5%: twice as many people are now unemployed as "normal" -- one in 10 rather than 1 in 20. No question this is bad, but for perspective, in 1980's it peaked at 9.7%. No question this is worse, but we're not talking Great Depression style 25% unemployment: 1 in 4 people. That's mass unemployment."

If you're going to compare today's unemployment rate to the Great Depression, you're going to have to use the same formula they used in the '30s (and dropped in the '70s, to make the Carter administration look good during HIS recession). Using the same criteria, today's REAL unemployment rate is closer to 22%.

*****

"Look, it's one thing to have a year's worth of spending saved up. Two is better still."

And frankly, for the past 70 years, completely unrealistic and unnecessary.

*****

"if I cut my spending in pretty non-onerous ways, decades. If I don't, about a decade. ... How about you? What is your liquidity, and how long could you last without an income?"

One year. I guess that makes me "irresponsible" and deserving of losing my home and thrown out into the streets if I lose my job, yes?

just want to run your mouth?

so according to you---the problem began with obama? everything was great before that?

you're building credibility by the minute.

FRANKLIN'S TOWER (Robert Hunter / Jerome John Garcia)

Some come to laugh their past away
Some come to make it just one more day
Whichever way your pleasure tends
if you plant ice you're gonna harvest wind

>> One year. I guess that makes me "irresponsible" and deserving of
>> losing my home and thrown out into the streets if I lose my job, yes?

Uhh yeah. Come on man...responsibility means that *you* have to *pay* your mortgage...if you don't there are consequences including losing your home. That's the way the system works. So many excuses for people that cannot own up to their *individual* responsibilities. And all based on emotion of course. And to what end exactly? I can only imagine.

You see, there's a reason why 90%+ of people pay their mortgage and we know why. Obligation, responsibility, consequences. It's easy stuff really. A lender supplies a few hundred thousand that *you* don't have, you stop paying them back, they take their asset back. What do you think would happen systemically if that consequence wasn't there huh?

so matt you say anything and everything and when challenged you go away?

Until Obama became president, two generations of Americans lived and died without having to worry about mass unemployment knocking them out of work for more than a few months."

really? you really want to say this? really? go for it, asshole.

well; with all respect politics and government involvement should be minimized in our society beyond the essential. Pre-Bush policy towards RE certainly set the stage. Bush's Ownership Society primed the pump. Loose lending, poor standards, low interest rates, and a bunch of poor decisions by individuals did the rest. And it continues with this administration with bailouts, stimulus, TARP2? Uggh.

Govt policy created the conditions for much of these ill-effects and then people say that govt policy has to solve the problem. I don't get it. In hindsight, the well intentioned idea that "everyone should own a home" had limitations and unintended consequences. And when that crap hit the fan our govt double-downs with TARP. And we see now how poor the results are there. Just wish the govt would keep out!

matt: you make cockroaches look good.

Until Obama became president, two generations of Americans lived and died without having to worry about mass unemployment knocking them out of work for more than a few months."

really? you really want to say this? really? go for it, asshole.

"One year. I guess that makes me "irresponsible" and deserving of losing my home and thrown out into the streets if I lose my job, yes?"

There's no "deserve". You should simply consider the fact that if you don't have adequate equity in your home (30% compared to current prices IMO), then you are in a precarious situation and should bolster your reserves.

Out of curiousity, what do you think should happen to renters who lose their jobs and can no longer pay rent? Just run up a balance with the landlord and pay it off once they find a job?

Hugh_Grant you want to be in President Obama shoes. You want to be President Obama. give it a break.

Oh PLEEEEEEAAAAAAASSEEEEEZZZEEEEEEEEEEEEEE !!!!!!!!!!!!!!!!!!!

honestly,,wouldn't any sane person seee that govt helped create this mess, and be ultra wary of govt to solve it

Matt.....Even one accepts every moral and logical element of your arguments....there are more deserving welfare cases out there..so..why focus on the in-situ defaulting over-leveraged human?

Hugh G,,,just to know where you are coming from, how would you rate sex appeal of Michele vs Condi?

(67 likes "the boobies"..but i dont know how you do your rating)

"Hugh G,,,just to know where you are coming from, how would you rate sex appeal of Michele vs Condi?"

Not sure why I should bother telling you, since SE's editor, a leftie who can't bear to hear accurate criticism of his favorite "well deserved Nobel prize winner", will just delete the post. But since you asked, I think Condi can be attractive, if she would just fix the gap in her teeth. Michelle Obama, however, looks like Patrick Ewing in a dress.

I give SE 2 hrs before "Patrick Ewing in a dress" is deleted. F*** you, too. Is this the People's Republic of Streeteasy? China has more freedom to critisize its leaders than we do on SE. Shame...

hey matt:

so matt you say anything and everything and when challenged you go away?

Until Obama became president, two generations of Americans lived and died without having to worry about mass unemployment knocking them out of work for more than a few months."

really? you really want to say this? really? go for it, asshole.

Oh Condi. She's got such a weird, uptight vibe, and she spent hours and hours all chummy with W, which is a creep idea in its own right.

Sorry to burst your bubble, Hugh G., but you misunderstand the free speech principle. Freedom of speech doesn't mean you get to say anything you want on the Streeteasy website-- Streeteasy has the right to determine who gets to participate in its forum, and on what terms. Properly understood, all the free speech idea requires its that you have the right to create an alternative to Streeteasy and to invite anyone who's interested in what you have to say to join it. You have that right, if you are willing to expend the effort and the money to exercise it.

Cherrypopper: Zzzzzzzzzzzz...your points are all correct, and obvious. I wasn't asserting I had a legal right to post anything I want on a server someone else is paying for. Obviously. Are you a first-year law student? Geez. The point I was making (which 98% of SE likely understood), was that SE appears to be afraid of having an honest and open dialogue where all viewpoints are heard. Instead, they selectively "prune" comments, so it appears that 75% of the readership is of a certain view, when in reality its simply 75% of those whom they've allowed to post. Feminist websites do the same thing, under the guise of creating a "safe space" for womyn. LOL. Are people such children that they need a "safe place" that protects them from views that happen to conflict with the webmaster's world view?

I think, to some extent, this is just the continuation of an arc, which is born in the changing media (i.e. exponentially and staggeringly increasing amounts of information about ANYTHING, many of which no media would have published before) and ending up with a blurring of classes 9not financially, but "privilege"). I know I'm not going to be able to get this across the way I want to, but I will try.

FDR would never be elected President today, because everyone would see him on television and the net. But back in the 30's they heard him fine on the radio and the press behaved the way the press behaved then.

JFK would never have been able to carry on the way he did today, because the media would be reporting everything he did. But the press behaved the way the press behaved then.

In the 50's and 60's, the divorce rate was lower. Was it because there was much less acrimony between spouses then? I think not: I think it was because there was much more stigma associated with getting divorced. As more people got divorced, it became more acceptable to the extent where today i think there is virtually no stigma attached to it.

Next came declaring personal bankruptcy. I don't remember knowing too many people who even thought about it before 1980. But after, more and more people did it, and now people don't think much if they heard someone did it because they ran up $100,000 in credit card bills. As the stigma waned, more people did it (eventually rising to such a level that they had to revamp the bankruptcy laws).

Today, it's foreclosure. The more people it happens to, the less stigma. You reach critical mass (i.e. little or no stigma) people just make the decision on what is good for their own pocketbooks.

You might be Hugh but you are too thin.
For biased and repressive forum moderation, try Trulia. You put the word stupid and they delete your post.

Quite frankly, there are many disparate political views on this site. I cannot be further removed politically from jimstreeteasy, eg and my heart is warmed everytime cc takes nycmatt to task for his strident, misinformed view on Obama causing mass unemployment. But what is amazing here is how much I agree with jimstreet, cherrywood and inonada in this thread. It seems to be a quorum of righteousness.

NYCmatt might have his heart in the right place about those who are unfortunately dispossessed by this economy. However, it is extreme hubris to state that people can't live on $1500 a month and be incredulous about people who have lost their homes that had mortgages of under $400,000. I feel for anyone who has lost their home but if you are in the $400,0000 mortgage range, we have to assume that you are educated and if not, then at least, privileged. There were countless stories about buying into a bubble in the past 6 years just as there are countless stories now about the risky financial environment. If you bought then or if you buy now without a serious financial base then you were/are gambling.

Not that the banks didn't do the same thing -- and I believe in many cases, eg Countrywide, it was criminal. But all must be accountable for their actions. The fact that some ( large banks) get a break while others do not is unfortunately a fact of life. But the basic fact is that you must know the laws and the laws of averages. The fact that this downturn is worse than many thought possible is not an excuse because there were many who did telegraph this downturn. If you are educated and were about to plunk down a considerable amount of your earning power, you had an obligation to know the facts and the probabilities. You didn't have to go back as far as the GD, just to the 80's. Just as the banks should have known better. But unfair or not, people and institutions have always been taken down by the averages. Lehman goes under and so do a lot of individuals. Believe me, Dick Fuld probably doesn't think it was fair either. But when you gamble, there are consequences. It is called contract law.

And btw, like ionada, I could live decades on my savings also. There are wonderful places to live in this country on very little money, like San Antonio and New Mexico. I would not be able to pursue my chosen profession but I can work and would take any job if necessary to survive. WTH do you think people in New Orleans did? They moved, sucked it up, and got on with their lives after a very unfair situation. It is unconscionable to complain about not being able to live on $1500 per month when so many in this country -- let alone countries with less advantages-- make do with so much less.

"You might be Hugh but you are too thin."

I don't get it.

Cordially,

Hugh G. Rection

Not that it matters I suppose (not that anything on here matters), but since apt23 is referring to my political beliefs, I am a disenchanted Republican, mainly because in general i think markets do things better than governments. I am libertarian on many social issues.

But Washington is a cess pool of lobbyists and special interests now (corporations are big into both parties; trial lawyers and unions close to the Dems; both parties pig out on earmarks), so that what most sensible people in both parties would agree (get rid of farm subsidies, do tort reform, stop wasteful military spending, etc.) can't be done. It's just sad. It's especially sad when we face such daunting fiscal issues, not to mention national security issues that could result in huge unforeseen additional expenditures at any moment. There is a failure of seriuosness. Most politicians are playing to the polls and the cable -tv quip.

Obama promised to be a new kind of politician. I am glad Obama won because we needed a fresh start after the catastrophe of cowboy Bush, who was hardly a Republican. However, unfortunately, as attractive as Obama's rhetoric often is, when push comes to show, he doesn't have the political courage to truly reach across party lines , except on some national security issues, where he is effectively constrained by the awesome responsibility of being head of the executive in a dangerous world.

I've mentioned it on here before, but here I go again on another issue that is tied in with the real estate bust. The me me me baby boomers don't have enough savings, especially when real interest rates are quite low, when the home equity piggy bank has gone empty, and the 401k is way down. This is a big problem, and it may have unfolding implications as the boomers get ready to retire.

Back to the OP. The nuttiest thing in that article is not people walking away from their underwater mortgages, it is that just about all of them mentioned in the article are consuming...not saving...the money they have available after they stopped making payments. How do these people intend to live without building up savings? I don't think of this line of commentary of righteousness, but rather as plain old common sense. In a moral sense, they may be wonderful people, they just aren't planning their lives very sensibly.

No, hugh, I'm not a first year student, but if you were, I'd hope you'd better reader than you seem to think you are. I wasn't talking about legal rights, since the question of your legal rights of free speech would only be relevant if Streeteasy were the government. Why does Streeteasy's favorable response to those of us who consider your racist rants an abuse of this website have to be about "fear" as opposed to say, oh I don't know, civility?

hugh,,,perhaps it was meant to say "thin skinned"...not sure

Apt23, here's what I think is going on with Matt: he looks at the people, and he thinks "this could be me". You and I look at it and think "eh". I think when you see someone dispossesed that you see as a peer, it's a different reaction.

Here's a random slice of life I'm always think about. You know how you're in the subway, and some poor guy goes around with some sad story asking for money? Personally, my reaction is a) it's the same guy I see every 4 months ago with the same story about having JUST contracted HIV; b) I'm some rich a-hole, and like all rich a-holes I prefer to help the dispossesed through charities where I know the money is making it to those who need it, and if I can screw Uncle Sam out of a few tax dollars, all the better; and c) my tax dollars are already helping the dispossesed. So I give nothing. I always wonder what the other people who give nothing think, but what is most interesting is the people who do give. By all superficial measures, they always seem to be the ones who least seem to be able to afford it. I imagine it's because they think "that could be me".

And, by the way, zillions of people, especially poor people, would be better off if housing cost less, so I think we ought to be wary of policies designed to keep housing up artificially....

Huge. Mimi means huge and skinny, aka skinny penis. Some women like a fulfilling relationship, most don't like to be tickled to death.

Aka pencil penis.

Aka starter penis.

"You might be Hugh but you are too thin."

I read this as "You might be huge, but you are too thin [in your dimwitted banter]". You know, some high New Yorker style humor. But then I interpreted your "I don't get it" as a witty retort playing up your thinness. Then I laughed.

So now, EXEGESIS comes to Street Easy.

It just gets better and weirder.

Exegesis. Can you pls repeat it and use it in a sentence.

Oh crap. Just hit ignore myself. Where am I?

jim: so that what most sensible people in both parties would agree (get rid of farm subsidies, do tort reform, stop wasteful military spending, etc.) can't be done. It's just sad.

you know, jim, I want to agree just off the top of my head because it is so true that we need things to change. but everything is so complicated. Do I want those things? Yes. Except they are all riddled with exceptions. Take the least volatile: farm subsidies. When I had my fancy second home upstate, I used to take all the city children to the farm next door. The very sweet farmer was literally bent over from decades of hard work. He had only taken one vacation in 30 years, when all the foreign exchange workers that had come to him to learn farming over the decades, all pitched in to work the farm for a week so he could take a week off. His daughter went to Disneyland for her honeymoon because they had never had a family vacation. Yet, this sweet man, took the time to show city kids how to milk cows every time I brought them over. One day, when my god daughter was there (carrying her bottle of poland spring water), he said to me " I wish I wish that instead of teaching them how to milk a cow, I could teach them how much money and back breaking work it takes to produce a quart of milk which costs less at the store than that small water bottle she is carrying -- which doesn't take a lick of work to create." i looked at that work ravaged face that only Van Gogh could love and couldn't stop from weeping.

So there might be questions on all of your example, but the thing we can really agree on is that the govt support of housing seems unsustainable. I don't have the reaction you do to people that try to litigate their way out of the stupid prices they paid because some of the most successful people in our society are the most litigious. Until we have tort reform, the poor should be able to sue just like the richest bastards. Perhaps when things don't go their way, we can all learn the lesson that you can lose money in real estate. It is the only lesson that will bring prices down to sustainable levels.

Cherrypopper said: "I wasn't talking about legal rights, since the question of your legal rights of free speech would only be relevant if Streeteasy were the government."

Huh? Since when does the law only involve the government? Have you heard of civil cases? Some law doesn't even proceed from the government, it proceeds from the people, as in the case of laws promulgated by the Constitution. And, in fact, you were talking about legal rights when you said "Properly understood, all the free speech idea requires its that you have the right to create an alternative to Streeteasy". Where does that right exist if not in the law?

You're an idiot. A babbler. No, I will not be civil to you. No where in that same constitution or anywhere else in the law does it require that I suffer fools gladly. (It doesn't say that anywhere else, either!). So fcuk off. As for your charge of "racism", all too common for the lighter-brained liberals to play the race or sex cards. "He's a RACIST! He's a misogynist! I want my mommy!". Well, your mommy isn't here, and if she was, lets just say I'd be keeping her busy with my manliness...

Cordially,

Hugh G. Rection

"Mimi means huge and skinny, aka skinny penis. Some women like a fulfilling relationship, most don't like to be tickled to death....AKA Pencil Penis".

Mimi should talk! Last time I was with her it was like throwing a hotdog down the hallway...