[quote=CA renter][quote=sdrealtor][quote=jpinpb]As CAR said, a huge amount of consumer spending in the economy HAS been going on for 2 years.
It’s called living mortgage-free and the bank not foreclosing.[/quote]
JP
I’m not disagreeing it has been going on just that many of you dramatically over estimate its impact. The people living mortgage free is a very very small proportion of the population in a very limited portion of the country. Gving 4% interest rates the tresponsible folks like us has an impact many times beyond homesquatters living mortgage free many of whom are under or un employed.[/quote]
1. Many responsible people have already refinanced over the past couple of years. Many of them have near 4% rates, while others have ARMs that have rates even lower than that. I think the benefit of any further refinancing of these mortgages is going to be minimal.
2. The squatters are not such a small proportion of the population, especially when you consider the fact that about 32% own their homes outright, and about 32-33% rent. About 33% of the homeowners out there have a mortgage, and about 8% of them are in default (some of these for years).
Of the ~33% who own, about 8% are in default. We don’t know the exact percentage of the remaining 92% who have refinanced, but I’m guessing it’s a pretty substantial number — certainly many of those who COULD refi (had adequate income, DTI ratios, and equity) over the past couple of years have done so. But, let’s assume that you can knock $200/month off of every mortgage out there, on average (that’s probably high, when you consider most people who haven’t been able to refi don’t own $700K homes).
Using the numbers below, if there are 44 million mortgages, and you save $200/month on each one, that’s $8.8 billion/month. That’s probably a very optimistic assumption, and assumes that these people haven’t already refi’d into lower-rate loans. According to Feroli’s numbers, if the benefit of “squtter’s rent” is $50B/year, then it’s $4.16B/month. So…the greatest possible benefit from this refinance program will **maybe** be double that of squatter’s rent.
It’s not chicken scratch, but it’s not exactly going to set the economy on fire, either, IMHO.
Michael Feroli has been tracking what’s called “squatter rent” and he says it’s actually helping the economy to the tune of $50 billion. He’s chief U.S. economist at JPMorgan Chase and joins us now. Welcome.
Michael Feroli: Thanks.
Vigeland: So first of all, can you give us a sense of how prevalent this is? What are the numbers of people who are squatting in their own homes?
Feroli: Well, right now you’re looking at about 8 percent mortgages outstanding are past due and there are about 44 million mortgages out there. So you’re talking about a pretty significant number of people who right now are not paying their mortgage.
Vigeland: Wow. So how did you come up with the estimate of a $50 billion impact here?
Feroli: Right. So there’s about $10 trillion in mortgage debt owed by the household sector. So you’re looking at about $800 billion in mortgages, which are past due — average interest rate of about 6 percent or a little above. Most of those mortgages, of course, are in the early stage when it’s mostly interest that you’re paying. So 6 percent on a little over $800 billion comes out to about $50 billion per year that are free for other purposes.
CAR
Unfortunately you always looked at these things from the most skewed and cynical point of view. There is one fatal flaw with your squatters rent. Most of the people who are in default are there for a reason. They are unemployed or underemployed not strategic defaulters. The vast majority of that squatters rent is not stimulating the economy as discretionary spending it is going toward basic survival needs. Expanding discretionary spending income among the more resposnible will have an impact many times over the squatters rent.
