1. The WaPo reports,
Today, they struggle under nearly $1 million in debt that they will never be able to repay on the 3,292-square-foot, six-bedroom, red-brick Colonial they bought for $617,055 in 2005. The Boatengs have not made a mortgage payment in 2,322 days — more than six years — according to their most recent mortgage statement. Their plight illustrates how some of the people swallowed up by the easy credit era of the previous decade have yet to reemerge years later.
Living rent-free in a $600,000 house is a “plight” only in the sense that at some point you may have to stop.
80% of Greek debt is now in the hands of “foreign official.” Now you know why nobody is worrying about “contagion” anymore. The negotiation is entirely which government will pay.
I must be really old-fashioned or something. But paying taxes so that Greek governments can live beyond their means or that people can live in houses twice the size of mine rent-free is not really my idea of “the things we all do together.”
It’s easy to point fingers after the fact, saying “Well, you shouldn’t have signed that loan”. Which is both obvious and unhelpful.
Fact of the matter is that too many home buyers, especially first time buyers, are distressingly uninformed and too many brokers don’t bother to help inform buyers. Or real estate agents.
There are programs to help this- both HUD sponsored and by independent nonprofits. The one I went to was extremely informative.
Matt, you are absolutely right that people make mistakes.
If you’ve taken on too much debt, then isn’t the right thing to do to move to a cheaper house?
Does it make sense to say that the Housing Credit Lobby is so ultra-powerful and unstoppable at the same time that people like this are able to live in a million-dollar mansion for 6.5 years without making a payment?
Maybe if the taxpayer is definitely holding the bag in these cases, but that doesn’t seem to be always true. And otherwise, it seems to me, at least after the worst of the crisis is over – which it was a while ago – that quick turnover and restoration of payments would be their desired policy. Still, they live there free, and I’m sure they’re hardly the only ones.
I saw that blog post from Cochrane also, and I am a confused by it. Specifically, what is “foreign official”? Is this code for central banks of other countries. If that is the case, I suppose that these central banks wouldn’t be prone to bank runs the way a private bank might me. Perhaps this is why professor Cochrane believes the risk of contagion has faded. However, aren’t these central banks subject to other pressures, such as political pressures (e.g., the Swiss Central Bank), which would mean that contagion could still happen, but rather with a political rather than a market catalyst? Maybe I’m missing something.
Another market distortion that is well-meaning (let’s not kick the nice people from the nice home because that wouldn’t be … nice.)
I think it was Arnold who said in the wake of the 2009 crisis, and I paraphrase (referring to financial institutions) “we can choose to make things easier to fix, or, harder to break.” Banks can be smaller and less complex, or, larger and incomprehensible.
An optimal system would evict the nice couple after 90 days and allow the home to be factored on the open market. Even a thousand or one hundred thousand nice couples would survive and the housing market wouldn’t be where it is today; the current landlord’s delight coupled with the homeowners dilemma of extremely strict standards on the average buyer, which is excessive, but even more necessary because we have chosen to be nice.
More to the point, back in 2008 and 2009 I was saying that the taxpayers should subsidize delinquent borrowers by supplying moving vans, not mortgage relief.
Agreed, but that doesn’t make the houses go away or fabricate people who can afford the sticker price on too much house. It seems like too much house was a subsidized sunk cost and malinvestment should be talked about more often. People were enticed into too much house basically as they always have been and still are but with a little more gusto and hubris is all.
The lender is merely hoping the value will continue to come back lessening their losses. It is in their favor to have responsible caretakers for it until they are prepared to act though that should be sooner rather than later.
Anyone concerned about Greece living beyond its means should have worried about that before lending to them. Now they aren’t, but that doesn’t mean they will be able to repay it. Most of the Greek debt is owned by the ECB. They could just set the interest rate on it to negative and let it pay for itself.
(Germany would like Greece to leave, but unless they offer to pay the ECB for their losses, they shouldn’t be taken seriously.)
From Carpe Diem’s Friday roundup:
“3. Chart of the Day III. The US homeownership rate fell to a 25-year low in the fourth quarter of last year at 63.9% (seasonally adjusted) — the lowest rate since Q4 1989, according to Census data released today. So the rate of homeownership is back to where it started before the political obsession with homeownership turned millions of good renters into bad homeowners as government housing finance policies pressured forced lenders to lower credit standards, income requirements, and down payments to what would otherwise have been unqualified home buyers. After a housing bubble, mortgage meltdown, financial crisis and a homeownership rate approaching 70%, we’ve returned to the homeownership rate of the mid-1980s.
Chart, here:
http://www.aei.org/wp-content/uploads/2015/01/ho.jpg