LA Times: Bad Outlook for homeowners

[JWM in SD]

“Who says we need 100% raises overnight? In a hyperflation scenario played out over 4 to 5 years, wages could increases 5 to 10% per year and it would go a long way toward rebalancing if accompanied by modest declines.”

Jobs will still end up being outsourced. I also have a feeling that foreign investors in US Treasuries might not like that very much and interest rates would go up to compensate for it so affordability will still not be had that way. Face it, credit is going to contract and inflated assets along with it because their valuations are not justified by incomes unless you want to bring about true hyperinflation of hard money (not M3). That results in a fundamental political change in which case all else is irrelevant anyway.

Did I not already explain what happened in Weimar Germany prior to WWII???

[NotCranky]

“entitlement Tsunami that will start hitting around 2011.”
Please explain.

JWM, Thanks for responding. I am following the discussion.

[bsrsharma]

entitlement Tsunami

That is when the leading edge of baby boomers start enrolling in Medicare & Social security. The Social security trust fund IOUs have to be paid by the treasury. Treasury will be compelled to borrow increasing amounts just so that medicare & social security checks can be sent out. That increase in debt will enter the economy as inflation. That will in turn lower $ exchange rate causing further inflation in imported goods. This is all pretty much on autopilot and their is no way out. If you think this housing bubble is a problem, you should see some of those numbers. They are in tens of Trillions. That is 13 zeroes.

[SD Realtor]

BSR it is a huge difference. The home still sits with the lender. The lender slowly loses money. Instead of the home getting put on the market (which is what SHOULD happen) it sits and gets rented. There is no bill to taxpayers if the home gets repo’d. This policy only delays the inevitable by holding inventory off the market.

It is far healthier for banks and investors to take a bath now and get it all overwith then for them to drag it out over the long haul.

What is the difference between letting them rent verses just rewriting the loan? In either case you are most likely violating the original agreement when the debt became securitized.

Let me ask you this… How is the debt bubble completely cured? It is now the lender who owns an overvalued property? So when the lender goes under what do you suppose will happen to the home? I really see no logic to the argument at all.

BSR finally what has the original homeowner learned from all this? That it is okay to buy an overpriced asset because he will get his *ss saved and it will convert to a rental for him? Has that homeowner learned anything or suffered any hardship other then a ding on his credit?

Where is the d*mned personal responsibility?

Seriously you have to be kidding if you think that sort of solution should even be considered.

(JWM what the heck is happening to me?)

SD Realtor

[SD Realtor]

Hi Rus –

Any and all proposals distress me you are correct.

For sure I agree with you that affordability is coming back. yes yes yes… but don’t you think that the fastest way back would be with NO intervention at all? Whether this modifies the course slightly or not slightly or whatever I just want the market to work itself out…

I have seen some comments bashing the people who made lots of money by selling at the peak. There are even great posters here who sold at the peak. I don’t wish any of them ill will at all. They were smart and took advantage of the market. I can sum it up in one sentence:

Left alone the market will operate in the most efficient manner possible.

That is all I ask.

SD Realtor

[bsrsharma]

SD – you analysis is somewhat like this analogy: You have a bad tire and driving on the fast lane of a freeway at 70 mph. Would you rather have a puncture and pull over to an exit or shoulder or “get it all over with” and have a blowout?

The “far healthier” “bath now” approach will liquidate many more banks like Countrywide. Even FDIC may have to pay up the depositors. A puncture instead of a blowout will allow the banks to continue business, take losses and limp along. Like Ford & GM rather than U.S.Steel & RCA (remember them?).

Debt bubble will be cured because, being in crisis mode for a long time, the banks will be super risk averse and never make a bad loan. That is healthy in the long run. If they all blowout on the other hand, a new breed of Cowboys will be born again from the ashes and the cycle will continue. It is good to have an army of wounded veterans to preserve the institutional memory.

I am all for personal responsibility. But if a lender gave NINJNA loans, I think REO is written in watermark on all those no cash down/exploding ARM mortgages.

[NotCranky]

“but don’t you think that the fastest way back would be with NO intervention at all?”

For the FED and politicians and those people that influence them I don’t think the “fastest way back” is how they are looking at it. It certainly doesn’t matter what I want to have happen. Obviously we are going to have affordability sooner or later so that puts time on the prospective buyer’s side. I think we should be careful not to assume affordability is absolutely coming as the result of massive price declines.I do enjoy having been in the big chunk camp because it looks like we will get that. Just don’t want to be in the big chump camp by missing something like nascent inflation. Of course these things happen slowly and we will be the first to know either way.

[SD Realtor]

rustico –

“For the FED and politicians and those people that influence them I don’t think the “fastest way back” is how they are looking at it…”

Of course not. If we thought they were heavily influenced by PACs and lobbyists before… we ain’t seen nothin yet! Yep affordability will come sooner or later, I would rather it be sooner, I think it would be healthier for the country and the economy in the long run if it were sooner.

Basically I am at heart, a libertarian. I really do not feel that our government should be doing much more then protecting our borders. I put tremendous faith in the free markets, unfortunately there is and will always be fraud in free markets and that sucks. However I do feel that the market will for the most part run efficiently and it will weed out inefficiences in the most timely manner if left to itself. That is my hope. My prediction however is more dour. IMO in the next 18 months we will see all sorts of political influence over this depreciating market. It will not stop it, nor do I think it will have much effect on the San Diego market in general which is all I care about. However it is just something I do not agree with.

BSR your analogy doesn’t hold water to my opinion because a blowout of the tire is a more or less random event. I didn’t go out and buy a new 600k car on 100% financing.

Tell me this… I am a bonehead and I buy a home I completely should have never bought. I financed it 100%, I should have never done it and then it was foreclosed on me. Instead of getting the boot, I get to rent it for about 2k less per month then what I was spending. I don’t have to move, my kids get to stay where they are at, everything is exactly the same except my credit is bad but that doesn’t matter as I am renting now anyways.

How have I learned my lesson?

SD Realtor

[bsrsharma]

How have I learned my lesson?

I too have libertarian feelings. But you are dealing with 2 million families. That is a lot of voters with discontent in an election year. Least painful method is to burden the major costs to lenders, slowly enough that they are injured but not killed. The borrowers have been punished by loss of ownership anyway. Why walk over them some more? I am much more keen on seeing risk aversion in more sophisticated lenders than in lay borrowers. Nothing better than the festering wound of a mountain of REOs on their balance sheets.

[SD Realtor]

Well I guess we agree to disagree then eh? I am much more confident that our politicians will manage to muddle things up and our country will continue on the path to be the greatest nanny state of all time. After all it is an election year!

“The borrowers have been punished by loss of ownership anyway.”

If you consider that punishment then so be it. I guess they are entitled to not having to lift a finger and continue to rent a home.

So where do you draw the line? If you ask me it is a pretty slippery slope BSR.

“Nothing better than the festering wound of a mountain of REOs on their balance sheets.”

If they price the REO properties properly they will sell. It is all a matter of finding the right price.

SD Realtor

[jficquette]

With $50+ Trillion in unfunded Social Security obligations out there we are all ready serfs.

John

[NotCranky]

I tell my kids that we have a wonderful society where the young people take care of the old . I say “son you will take care of your dad when you grow up…and all the other dads too”. Might as well get them used to it.

An aside:
It is hot up here in the hills of San Diego today but the clouds thunder and lightning and rain are putting on a terrific show. Beautiful sunset from 200O feet and 25 miles from the Pacific.

[gn]

JWM,

Can you write to Diane Wednar (attaching her reply from last year) ? I’d be very interested in what her response would be.

[JWM in SD]

“Can you write to Diane Wednar (attaching her reply from last year) ? I’d be very interested in what her response would be.”

I already did this afternoon. I suspect I won’t hear back…people don’t like to admit when they are wrong.

[sdrealtor]

It was beautiful from sea level and 25 feet from the Pacific too.

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