Delinquent mortgage squatters are spending $50 billion this year stimulating the economy rather than paying their mortgages.
Irvine Home Address … 37 NAVARRE Irvine, CA 92612
Resale Home Price …… $395,000
I was a young boy that had big plans.
Now I'm just another shitty old man.
I don't have fun and I hate everything.
The world owes me, so F you.
Glory days don't mean shit to me.
I drank a six pack of apathy.
Life's a bitch and so am I.
The world owes me, so F you.
Green Day — The Grouch
Recently I wrote about The real Ponzis and posers of Irvine. Peggy Tanous of the Real Housewives of OC made a conscious decision to get a boob job rather than pay her rent. She is not alone.
The plastic surgeon undoubtedly appreciated the money, and any other provider of goods and services that received the Tanous's money did the same. The combined economic stimulus of all the delinquent mortgage squatters is estimated at $50 billion this year alone. Back in June of last year, I reported Strategic Default: The $10,000,000,000 Monthly Economic Stimulus. 
The case could be made that our HELOC economy based on mortgage equity withdrawal and consumption has been replaced with a squatter rent economy based on people failing to pay their mortgages and spending that money instead.
In the astute observations recently some challenged me on why this upsets me so much. The real question is why doesn't it upset all of you? Does anyone want to see this behavior rewarded? With our tax money going to bail out the enabling banks, you and I as taxpayers are indirectly supporting these people.
You paid for part of Peggy Tanous's boob job.
I want a refund.
‘Squatter Rent’ May Boost Spending as Mortgage Holders Bail on Payments
By Bob Willis and John Gittelsohn – May 6, 2011 7:26 AM PT
Melissa White and her husband stopped paying their mortgage in May 2008 after it reset to $3,200 a month, more than double the original rate. That gave them extra cash to pay off debts and spend on staples until their Las Vegas home sold two years later for less than they owed.
“We didn’t pay it for about 24 months,” said White, who quit her job as a beautician during that period after becoming pregnant with her first child and experiencing medical complications. “What we had, we could put towards food and the truck payments and insurance and health things I was dealing with.”
The couple above aren't the only ones enjoying a payment-free lifestyle.
Millions of Americans have more money to spend since they fell delinquent on their mortgages amid the worst housing collapse since the Great Depression. They are staying in their homes for free about a year and a half on average, buying time to restructure their finances and providing an unexpected support for consumer spending, which makes up about 70 percent of the economy.
So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that’s equal to about half the estimated savings generated by cuts to payroll withholding in December’s bipartisan tax plan.
“We’ve had a lot of government transfers to the household sector; this is a transfer from the business sector to households,” Feroli said. “It’s a shock absorber that has helped the consumer ride out the storm.”
We have created a subsidy for the least deserving in our culture, and it is being spun as if it's an economic boost we should all be happy about. Mortgage squatting doesn't help out the American consumer, it only helps those consumers who are not paying their mortgages.
BTW, why don't we have rent modification programs? If renters become unemployed, why aren't we forcing landlords to lower their rent? Why doesn't the government allocate some TARP money to paying the rent of those who cannot afford it?
When a renter fails to pay their rent, for any reason, it's just assumed they should move out and find a more affordable place even if that is in the gutter. Loan owners get to apply for relief programs and government assistance not being offered to renters — programs renters are being forced to pay for. And if none of those programs offer satisfactory relief, loan owners get to squat in these houses indefinitely.
Now Renting
White, 28, now has two children, daughter Makenzie, 2, and son Christian, 1. She and her husband, Shannon, a sheet-metal worker, rent a house for $1,425 a month.
$1,425 per month in Las Vegas will rent a very nice property. Most rents in Las Vegas run between $1,000 and $1,200 per month. I'm not sure how an unemployed beautician and a sheet-metal worker afford that.
“My credit’s back,” she said. “I’d buy a house again, but I’d get a fixed-rate loan.”
At least they learned something of value for this experience. BTW, there are now loan offerings for people a day out of short sale. This family probably could get a loan. That won't contribute to strategic default, will it?
Consumer spending is projected to rise 2.8 percent this year, according to economists in an April Bloomberg News survey, after a 1.7 percent increase in 2010.
Delinquencies and defaults have helped homeowners save more, pay down other debts and move on to more affordable homes, according to Stan Humphries, chief economist at Zillow Inc., a Seattle-based provider of housing data. Owners in default need the savings because degraded credit scores from the default make it more difficult to borrow, he said.
“It’s bad that they’ve lost the home, but household finances have been rearranged in such a way that it’s arguably more sustainable,” Humphries said.
That reality is why we will continue to see strategic default, particularly once the general public realizes the 2009 bottom was an illusion.
Delinquent Debt
Van Perrault, a home appraiser who defaulted on his Saint Mary’s, Maryland, investment property in 2007 after his tenants stopped paying the rent, used the extra money to take care of late payments on his delinquent credit-card debt.
Do you think his tenants stopped paying the rent, or do you think he stopped paying the mortgage and skimmed their rent?
The additional $1,500 a month “made a difference in my life,” said Perrault, 60, adding that paying down his card balances helped him and his wife limit the damage to their credit scores.
Anyone who avoids paying a $1,500 monthly bill will find it makes a difference in their life. What's astonishing about this situation is that failing to pay their bills is being so handsomely rewarded.
Consumer debt fell to $11.4 trillion in the fourth quarter of 2010, down about $1.1 trillion from the peak in the third quarter of 2008, the Federal Reserve Bank of New York said in February. Mortgage debt dropped 9.1 percent in the period.
A total of 6.3 million homeowners weren’t current on their loans at the end of March, with 2.2 million in the process of foreclosure, according to data from Lender Processing Services Inc., a Jacksonville, Florida-based provider of mortgage- processing services and data. Loans in foreclosure were an average 549 days late.
If 6.3 million people haven't been making mortgage payments for nearly two years, you can see how the $50 billion adds up.
Conscious Decision
While many Americans couldn’t make payments because they lost their jobs or earned less during the recession, others made the conscious decision to stop paying — or carry out a so- called strategic default — on homes worth less than the outstanding obligation.
About 27 percent of single-family homeowners with mortgages, or about 15.7 million, were “underwater” at the end of last year, according to Zillow, the highest share since the first quarter of 2009, during the recession. Las Vegas led the nation, at 82 percent, followed by 70 percent for Phoenix.
Those numbers are shocking. Everyone in Las Vegas is underwater. The 18% that aren't include some recent buyers with large down payments and buyers from before the 00s who paid down their mortgages. It isn't very many people.
Failing to pay a mortgage bill is “a big moral issue,” said Karl Case, co-founder of a housing-price index that bears his name. “On the other hand, it’s exactly what you would expect given the way we treat and reward behavior in an economic system built for private gain.”
Strategic Default
More than a third of mortgage defaults were strategic, according to a June 2010 survey by finance professors Paola Sapienza of the Kellogg School of Management at Northwestern University and Luigi Zingales of the University of Chicago’s Booth School of Business. That was up from 29 percent in a March 2009 survey.
In Las Vegas that number is much, much higher. The people who believe they are paying because it's the right thing to do are being tested by market conditions. At some point, they have to wonder if they are doing the right thing for their families. 
Almost half of Americans surveyed in January “said they would be more likely to default if their bank was accused of predatory lending, even if they’re morally opposed to strategic default,” Zingales said in a telephone interview from Chicago. “One likely reason for this may be related to a psychological notion of retribution.”
Adam Turner, 43, went eight months without making payments on his Las Vegas townhouse after he quit his job as a casino- restaurant wine steward in November 2009. He stopped paying as “a way of sticking it back to the banks” for pushing mortgages on people who shouldn’t have been qualified, he said. He sold the property in a July 2010 short-sale — when a bank agrees to accept less than the outstanding value of the loan.
When people want to take an action or make a decision they are morally uncomfortable with, it is quite common to seek out rationalizations and justifications. If they believe they have been victimized, even if it was by their own decisions, they can cloak their own misdeeds as bringing justice to an unjust situation.
Distressed Deals
Distressed deals — short sales and foreclosures — accounted for 40 percent of existing-home transactions in March, up from about one third last year, according to the Chicago- based National Association of Realtors.
With unemployment at 9 percent in April and forecast to average 8.7 percent for the full year — well above the 4.6 percent average in 2007 before the recession began — more Americans probably will enter the default pipeline this year. The number of homes receiving a foreclosure notice will climb about 20 percent, reaching a peak for the housing crisis, predicts RealtyTrac Inc., an Irvine, California-based data seller.
Turner, now a waiter and renting an apartment, used the money he saved by not making mortgage payments to take care of electric and phone bills and buy necessities while he was unemployed.
I wonder how he defined necessities….
“It definitely boosted my cash flow, which was helpful to move on with my life,” said Turner, who made almost $100,000 a year before the recession. “It was not like I was celebrating and partying. It was a rough time. It represented the American dream that collapsed around me.”
To contact the reporters on this story: Robert Willis in Washington at bwillis@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net
To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; Kara Wetzel at kwetzel@bloomberg.net
(Almost) 20% down the drain 
The owners of today's featured property are offering it as a short sale. Although they have not been served a NOD, in all likelihood, they are not paying the mortgage. Why would they? They credit is going to take a big hit either way.
I heard yesterday that FHA has guidelines which punish short sellers more severely if they also have missed payments, so perhaps there is some small incentive in the system to keep paying. The incentive to save two years of mortgage payments is arguably more enticing.
- These owners paid $608,000 on 4/7/2006. They used a $456,000 first mortgage and a $152,000 down payment.
- They refinanced on 8/30/2007 with a $482,400 first mortgage.
- On 11/14/2007 they refinanced again with a $492,000 first mortgage.
They bought at the peak, and they still managed to squeeze out $36,000 of their down payment in mortgage equity withdrawal. Like most bubble era buyers, they undoubtedly expected the HELOC money ATM to go on forever.
They were wrong.
They bought a house they can't afford, and now they are selling it short.
Irvine House Address … 37 NAVARRE Irvine, CA 92612 
Resale House Price …… $395,000
House Purchase Price … $608,000
House Purchase Date …. 4/7/2006
Net Gain (Loss) ………. ($236,700)
Percent Change ………. -38.9%
Annual Appreciation … -8.1%
Cost of House Ownership
————————————————-
$395,000 ………. Asking Price
$13,825 ………. 3.5% Down FHA Financing
4.62% …………… Mortgage Interest Rate
$381,175 ………. 30-Year Mortgage
$83,941 ………. Income Requirement
$1,959 ………. Monthly Mortgage Payment
$342 ………. Property Tax (@1.04%)
$0 ………. Special Taxes and Levies (Mello Roos)
$82 ………. Homeowners Insurance (@ 0.25%)
$438 ………. Private Mortgage Insurance
$395 ………. Homeowners Association Fees
============================================
$3,217 ………. Monthly Cash Outlays
-$317 ………. Tax Savings (% of Interest and Property Tax)
-$491 ………. Equity Hidden in Payment (Amortization)
$24 ………. Lost Income to Down Payment (net of taxes)
$69 ………. Maintenance and Replacement Reserves
============================================
$2,502 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$3,950 ………. Furnishing and Move In @1%
$3,950 ………. Closing Costs @1%
$3,812 ………… Interest Points @1% of Loan
$13,825 ………. Down Payment
============================================
$25,537 ………. Total Cash Costs
$38,300 ………… Emergency Cash Reserves
============================================
$63,837 ………. Total Savings Needed
Property Details for 37 NAVARRE Irvine, CA 92612
——————————————————————————
Beds: 2
Baths: 3
Sq. Ft.: 1524
$259/SF
Property Type: Residential, Condominium
Style: Two Level, Villa
Year Built: 1978
Community: 0
County: Orange
MLS#: S656795
Source: SoCalMLS
Status: Active
On Redfin: 10 days
——————————————————————————
Two-story townhome–award-winning floor plan is bright and open with extra-high ceilings and has direct access to 2-car garage Two full bedrooms and baths upstairs. Master suite is huge. A den/office and full bath downstairs. Very private enclosed courtyard entry with lush plants. Remodeled kitchen is full of light and overlooks spacious open atrium/porch. Dual-pane windows and sliders. Baths remodeled. Easy-care wood-like tile flooring. Build-in wine rack, inside laundry, and more. Enjoy the Villas at RSJ, a unique, upscale comminity ideally located next to the golf course and the Racqet Club. Walk across the street to shops, restaurants, etc. Resort-like Pool and Spa. Near UCI, Senior Center, best schools and public transportation. Plus, HOA dues covers trash, water, and earthquake insurance.
Is Rancho San Joaquin upscale? comminity?
You need to rephrase your title, because it sounds like it is the squatters who are providing the stimulus, when the money is coming from taxpayers and those still making their payments.
Your anger at people living in homes without paying was the proximate cause of Santelli’s rant on CNBC that spurred the tea party movement. In that way, your anger, coupled with others, brought about change in Washington. It doesn’t seem like the change you wanted, because foreclosures are still taking a long time to work out.
One quick change you can make to limit strategic default is to go back to taxing forgiven debt. Say you’ll save $3k/mo for 2 years, or $72k, let the tax man take $24k, which you’ll have to write a check for, and see if you don’t arrange with your bank for the loan to be settled sooner.
Taxing the unforgiven debt is not fair. Think of all the jobs that were created by spendthrift practices that tossed caution to the wind. No, we must not threaten the recovery’s job growth. Moral hazard is not our biggest problem right now – we have jobs and terrorists to worry about! You do not support terrorism do you?
😆
I love your sarcasm.
Ha…Ha…Ha
This is what we should expect when our treasury boss is also a RE speculator and also hit big time.
Good one AZ…..
…or, we could just inform those considering default that they’ll lose their 72 virgins in the after life- should they act.
IR wrote:
“In the astute observations recently some challenged me on why this upsets me so much. The real question is why doesn’t it upset all of you? Does anyone want to see this behavior rewarded? With our tax money going to bail out the enabling banks, you and I as taxpayers are indirectly supporting these people.”
*******
I think it upsets many people who pay their bills and live within their means. However, many people I know, including myself, have completely lost faith in the system. Nobody in power cares what happens to or how their legislation effects responsible people. Just print more money. Those in power pick and choose the laws and rules they wish to enforce; this attitude has trickles down the fabric of our society and our morality. What can be gotten for little or no work/risk? Many truly believe they are rock stars, deserving a baller lifestyle. They never wind up flat broke on the streets. US taxpayers provide safety net.
*******
IR wrote:
“$1,425 per month in Las Vegas will rent a very nice property. Most rents in Las Vegas run between $1,000 and $1,200 per month. I’m not sure how an unemployed beautician and a sheet-metal worker afford that.”
**********
Never an end of the road for these types. I’ll bet they’ll have a new car by years end.
It just shows you the disdain that the blog’s author has for unemployed people. Notice how IrvineRenter craftly inserted the word “unemployed” next to “beautician” to imply that that should have any bearing on whether or not someone can afford a higher than average rent. Perhaps the husband “Shannon” is independently wealthy – yet the author of the blog just writes him off as some Joe Blow sheet metal worker. I wish them the best – I know it is not easy raising children in this economy. I am pledging to raise taxes on myself to help out. Who is with me?
Irvine Renter –
One must ask why you are so angry as of late. Your madman hateful rants are becoming unbearable. I suggest that you tone things down before the readers revolt and stop reading!
Clearly you can not appreciate the hardships faced by these struggling house debtors. As a renter myself, I can understand the personal sense of greed that we sense from time to time when the Government takes money from us to pay the mortgage of a struggling house debtor. However, as the good word says – “Giving is the greatest gift of all”. I would suggest that you engage in some deep introspection.
One aspect of your post that I found particularly distasteful was your cavalier comparison of helpless innocent children to Ms. Tanous’s +2’s. You facetiously stated that you wanted a “refund”. Do you hate children, IrvineRenter? Should the Las Vegas mother of two get some post birth abortions so that you can have your “refund”?
Part 2:
————
Now I know that there are those who will say that it is irresponsible to stop paying the mortgage, quit your job, and pop out children with your husband “Shannon”. Some will even suggest that this is trailor park behavior and suggest buying a banjo and a 12pack of Natural Light Beer. But not I. No sir. Where you see self-destructive behavior – I see victimhood. Do you know how expensive it is to have children these days? Think of the merciless medical bills that they are dealing with. Oh, but to you – children are just boobs. I see how it is.
I am not going to put up with this blog’s hate mongering anymore. I wish Ms. White and her husband “Shannon” the very best. In fact, I am sending a box of diapers to the Las Vegas Diaper Drive as a token of my support. It is good to know that we do not have such selfish leaders in government such as IrvineRenter who clam up at the thought of helping the victim class in our society.
I hope that you will be wise enough to read this tough love as a wakeup call before it is too late and the hate overcomes you and leads you down the dark path.
I’m from North Carolina and I resent that statement! (Not really, I do think it’s funny.) I do play the banjo actually, but I need to tell you the drink of choice at the Trailer Park these days (at least in Mebane, NC) is Bud Ice.
There may be those who suggest you take your banjo and Bud Ice west to Las Vegas where people stop paying their mortgages, quit their jobs, and pop out children with their husband “Shannon”. I am not in that group, however.
This is not a laughing matter. People are struggling to keep an unpaid house over their heads. It’s time that we step up and help those who are in need. Is North Carolina with us or against us?
“There may be those who suggest you take your banjo and Bud Ice west to Las Vegas where people stop paying their mortgages, quit their jobs, and pop out children with their husband “Shannon”.
Vegas is not the only choice for this behavior. No need for Bud and a banjo, come to OC for champagne and jazz…Detox facial and massage mandatory for Mom so she can relax while recovering from a stressful day in acting class, squeeze the “twins” into a low cut dress and head to Newport in the new Porsche. “Consultant” husband joins her for dinner at new sushi place. Jobs? Verifiable income? Huh? All that’s necessary is credit, the ability to continue BS’ing; and a good wig/hair extensions really can’t hurt.
That’s funny and quite accurate
You are on a roll today, AZD! IHO & PR are rolling over in their grave… I mean, house right now!
AZDavidPhx,
When you are ready to start writing the Phoenix housing blog, let us know, and we will get you set up. Your writing, humor, cartoons, and point-of-view are too good to be featured only in our comments. Just don’t get too busy to keep commenting here. You add tremendous value to the IHB.
Tremendous value, like nitrogen in excrement. Good for growth for IHB.
I can’t wait till my 2% loan starts going up so I can ram another default right up your moral high ground. Can’t wait…clock is ticking for you guys to pay for the fraud. BTW, you can blame me all you want, I don’t care I won’t owe a penny…currently waiting for the 20K credit card I walked from to go bye bye as they only have 48 months to get a jugement. Speaking of collections, my 2nd wrote off as well….LOL!!! Eat the debt!!!!
Tremendous value, like nitrogen in excrement.
I am disappointed! Here I am fighting for you and other victims today and this is the thanks I get!
Swiler,
If you are going through a bankruptcy process to purge your debts, there is nothing wrong with that. Bankruptcy is the process here in the United States for getting rid of debt. I am not taking a moral high ground on anything. I have failed to pay debts and accepted the consequences. I am not perfect, nor am I morally superior to anyone. You keep reading words into my posts that are not there.
What is annoying is watching people continually spending money they don’t have to preserve entitlements they cannot afford and expecting the rest of us to pick up the tab. When banks lose money, they are getting what they deserve for making dumb loans. When I have to pay for that, it makes me angry.
Swiller good for you. I also take great pleasure in that I didn’t have to pay a dime in taxes selling off near the peak. When I write my fat check to the IRS next year I will smile thinking of you, my tax free profits, and these blow hards who could never profit, though apparently they saw it coming LOL. David the tech bubble joker and IR the housing bubble counterpart.
Nice try, PR. I sold before the bubble popped as well. You are not as smart as you think you are.
“and these blow hards who could never profit, though apparently they saw it coming”
I feel a wager coming on. Name the terms PR.
How can I not read into your words? It seems for the last few months it’s hammer the homeowner time. Don’t get me wrong, I’m not defending the people who used fraud and no money down to live large. HOWEVER, those who were LUCKY or simply timed it right, walked with thousands and sometimes millions, but THEY are heroes of capitalism, while the ones who stayed put, got de-FRAUDED out of their down payment.
The GOV screwed everyone with the bailout, and then the media, along with the type of people with very nonimal intelligence, blame the VICTIMS, and not the gov. Frankly, I’m tired of this country, and I’m tired of it’s people who seem to only know how to support policies that enslave them and take away rights. This policy was another step in that direction. America has fallen, truth, honor, and justice? LOL ROFLMFAO. Secrecy, assassinations, invading countries on lies, bowing to corporate interests over and over.
I am not proud of my country, nor am I happy with it, and I will work to change it. If part of that is living without a home, SO BE IT, but I will not support this corrupt crap anymore than I have too.
fighting the good fight. give until it hurts
@gepetoh:
Sorry… no grave rolling here. After AZDave’s 1999PricingGate, it’s dawned on me that facts and quotes don’t matter… you just have to believe.
@IR:
Takes more than spam and jpegs to create a housing blog… you know that.
AZDave’s 1999PricingGate, it’s dawned on me that facts and quotes don’t matter
Bernanke and Congress have your back, Irvine HO. It looks like inflation will catch Irvine before the 1999 party arrives. Break out the bubbly! Vegas and other parts of the country were not as “fortunate”!
Takes more than spam and jpegs to create a housing blog
Totally agree. It needs to be a lot more like that cutting edge “Talk Irvine” Housing-Love-Forum.
yeah i stopped reading talk irvine cause it seemed like a big irvine circle jerk.
and by cutting edge, do you also mean completely ignoring the effect of ~0% fed funds rate, suppression of interest rates via fed treasury purchases, and the laundry list of other subsidies both housing and economy?
I don’t read ocreader either, but sometimes I’ll go there to look at BK posts.
Well I guess it’s up to me to be the turd in the personal responsibility punch bowl, since nobody else is stepping up to this arduous task.
So, many people (millions?) who are stuck with mortgages they can’t afford, on properties that are far underwater such that it makes no financial sense to make the payment even if one can afford it, are choosing to quit paying and gaming the system such that they know they can live in their house for free for XX months before they are forced to move out.
If the choice is between feeding your kids or paying that kind of mortgage… it should come as no surprise that survival comes first.
Who made the piss-poor decision to give people like this a mortgage with atrocious terms, backed by property with a vastly overinflated value?
What changed from the ‘good old days’ where those who lent the money bore the risk and therefore were careful about whom they lent money to?
“Financial innovation”. Wall Street hubris and greed which said that risk didn’t matter because it could be pawned off on someone else (*coughAIGcough*) and become their problem for a small fee. Aided and abetted by politicians who fell for (or were bribed in one way or another to accept) the BS that derivatives markets should be an Ayn Rand fantasyland, completely unregulated in any way whatsoever.
If I loan $1000 to an unemployed bum and he stiffs me, do I really have much business railing about deadbeats and the lack of personal responsibility these days, when I made a really dumb decision in the first place?
Or, let’s talk about a very real-world analogy. If a credit card company chooses to issue a card – unsecured line of credit – for $10,000 to a 20 year old college undergrad, and they max it out in six months and then can’t pay it back… who’s more deserving of opprobrium? The college kid or the idiot who more or less gave $10,000 to an not-yet-mature, low-income young adult based only on their promise to pay it back and nothing else?
Yes, nobody forced any of these people to sign on the dotted line. But clearly the person or entity lending the money has some responsibility too. I believe the phrase is, ‘due diligence’.
So, I’m not about to get up on my high horse about these ‘delinquent mortgage squatters’. They were set up for default by the people who relentlessly dangled promises of free money from the HELOC ATM.
At the individual level, yes each of us should have the common sense to know that borrowed money must be paid back someday, almost always with interest, and therefore taking out a loan must be done with maximum prudence and awareness of what it will be used for. But at the aggregate, society level… it is not the least bit surprising that some number of people fell for this Ponzi scheme and now we’re in the situation where we’re all bearing the costs in one way or another for their poor judgement.
I can’t blame anyone who chooses feeding their family over slavish devotion to principle. As for the people who choose to go delinquent in order to afford a lifestyle they can’t otherwise afford… yes they are scumbags, but once again… who gave them the loan?
I also have a disagreement with the notion that individuals should be held to a higher moral standard than corporations. But that’s a story for another day.
Let’s hope that someday soon we can return to a world where loans are made with prudence (as if one was loaning one’s own personal funds) and consumers are far, far more economically literate than they are today, so that they can spot a shitty deal rather than believing in free money trees just because they saw it in a TV spot with a celebrity spokesman.
The turd has been cast. It has come down to survival of the children and feeding the family. I second this. When it comes down to paying the 3200.00$ mortgage versus spending $300.00 to buy a month’s worth of buckets of fried chicken – I say Cluck You Mr. Banker, give me KFC or give me death.
The blog’s author is a hateful anti-childist who would rather see families starving and withering away so long as the Usurers get their money on time.
The very fact that these house debtors choose to default in order to feed children proves their morality in the eye of their creator.
Pay no attention to the angry rantings of hateful blog.
enough with the Rand bashing. We dont have free market interest rates, we dont have honest money and thus economy wide, market forces will be distorted. the true ‘deregulation’ you speak of was removing consequence from failure.
For whatever its worth IR, and those reading, I’ve been reading this blog almost daily since inception. I bought and enjoyed your book… etc.
I’ve never been able to understand why you reserve so much disgust for ‘homebebtors’, (EVEN ones that may still be current on payments!), relative to ACTUAL criminals and those who would aide and abet them.
“In the astute observations recently some challenged me on why this upsets me so much.”
You’re getting challenged because your anger is about 1,000% misplaced. The fact that you characterize strategic default as a ‘misdeed’ is all to revealing of your bias; a bias which others are rightly judging ‘absurd’. These are judgments made from an objective legal/economic framework; a ‘fundamental valuation’, as it were.
Not some slumlord’s subjective value standard.
You are blind.
I too think IR is a bit too antagonistic towards too general a target sometimes, but I would have to say he spreads his blame around pretty equally, not overly concentrated towards ‘homedebtors’.
As for strategic defaults, it is a misdeed in that there is a victim as a result of the act. This is different than selling a stock because fundamental valuation isn’t right. Remember the defaulter was LEGALLY OBLIGATED to pay the loan back, and he didn’t. That’s not covered in the “economic framework”. Squatting after defaulting is double the misdeed. You are trespassing to boot.
Well, I am both angry at the squatters/strategic_defaulters, the lenders, and the government. All deserve to be punished so severely for done or doing the $hit.
If the fvcked-up government did not change the rules of the game, the delinquents will have to pay taxes on the defaulted loan, and the lenders will lose a lot of money. Both outcomes are actually very fair and will bring the housing closer to actual market values.
IR has spilled more ink railing against ‘homedebtors’ than likely every other class of person COMBINED. I’m open to wagering that this can be quantitatively proven to boot. Any takers?
The only person/entity ‘legally obligated’ is the Owner (used generically) and that is to the local taxing authority. Stop paying them and see how long they let you ‘squat’ or ‘trespass’ on the property. I’m not going to waste my time explaining loan risk, collateral, etc. I guess the bottom line is, if you think there is a ‘crime’ taking place (squatters), why don’t you make a citizens arrest… and see how that works out.
Complaining about the ‘misdeeds’ of squatters is like yelling at your neighbor who’s bunny left a turd on your lawn while a local gang loots your house and hax sex with your wife right behind your back, yet within earshot.
Wake up people.
Friends and countrymen – ink has been spilled! The house debtors have been wronged! Who is next I ask you! Credit Card Debtors? Payday Loan Debtors? Does the hatred on this blog have no limits?
I do not know about you, but I sure do not want to be the next one to be railed by Irvine Renter! Hide your wives! The end is at hand!
Buck,
I would wager that I have written far more about the misdeeds of banks that created this situation than the mortgage squatters who have taken advantage of it.
Delinquent mortgage squatters are a big part of the housing story, and failing to write about them would be a failure to tell the story of the bubble.
I have on many occasions pointed out that lenders are more responsible for this mess than borrowers. That doesn’t make borrowers blameless, and it doesn’t make them any less a part of the story.
IR,
First, my initial question to you was what I observe to be a greater level of disgust reserved for ‘homebebtors’ relative to ‘criminals’. I understand that is just an observation of mine; I could be wrong about how you ‘feel’. Mostly its a ‘tone’, the way you write… i.e. I cannot prove/quantify it. It was a question (unanswered) to you, and I only brought up the wager after being challenged by Gepetoh. But I will still take the wager, from anyone.
No one denies that squatters are part of the story of the GHB. Characterizing strategic default as a ‘misdeed’ is another thing altogether; it is NOT.
Might I quickly point to the irony of calling it a ‘misdeed’ considering many of said loans where specifically engineered to reach default with the express PURPOSE of being fraudently represented to one group investors, so that others could secretly take the short positions on TOP of the initial scam? This level of ‘fraud’ (read: criminality) is of a nature and order of magnitude so many THOUSANDS of times greater in terms of damage inflicted to our society as a whole, that to place strategic defaulters, squatters (read: non-criminality), etc. in anything close to the same UNIVERSE is reprehensible.
This is why you are experiencing blowback, as you have unwittingly (apparently) become part of the process of divide and conquer… scapegoating people who have not even committed crimes, or actual ‘misdeeds’, as somehow “responsible for this mess”, if only “less” so.
What a shame.
Funny, I don’t remember challenging anyone… I merely stated that IR has played no favorites when laying the blame.
As for the misdeed thing, leaving a dog turd on someone else’s yard IS a misdeed. The notion that it is difficult to enforce does not make it “okay”. I don’t think anyone here (I know I don’t) have any illusions regarding the realities of what is occurring. The opinions here pertaining to “we should do this” or “people shouldn’t do that” are what people WANT, not necessarily what is reality. People here express what they think should be many of the times, and responses such as “well, that’s not how it is so deal with it” aren’t very relevant to that. Your notion that defaulting and squatting happens and therefore it’s not a misdeed is misguided. People drink and drive all the time but that doesn’t mean it’s okay to do that. Same with defaulting and squatting. Just because people do it doesn’t mean it’s not a misdeed. Be clear on that, both of those things ARE misdeeds.
Buck,
I didn’t answer your earlier question because I was letting you make your point without rebuttal. Based on your comment above, I see that your placement of blame is much heavier on the banks than on the borrowers. So be it. IMO, it takes two to Tango, and although the banks are clearly more responsible, I don’t see it quite as imbalanced as you do. Our views of the facts are in agreement, it is the magnitude of the blame where we are not.
In thinking about the tone of the writing, you are probably right. It’s easier to get emotional about specific people who steal my money than it is to get worked up about a faceless institution that does so. My writing is largely an unfiltered look into my mind and emotions. Also, I go over the top for effect sometimes too. It’s part of my sense of humor.
IR,
As long as you continue to falsely claim that strategic default is a criminal activity, then yes, we are at an impasse with regard to assignment of blame, and assesment of reality.
Buck
“I merely stated that IR has played no favorites when laying the blame.”
That is a challenge to my claim, which was that he does the opposite.
In a civil society, the rule of law is used to arbitrate the conflicting ‘wants’ of a people. Let me explain how some of this works:
Drinking and drivinig: a crime.
Defaulting on a mortgage: NOT a crime.
Intentionally defaulting: NOT a crime.
Breaking and entering a residence: a crime.
Ignoring a notice of tresspass: a crime.
Remaining in your defaulted home: NOT a crime.
With the dogshit metaphor I was speaking to the economics of our situation (not the legality). I was trying to point out the absurdity of worrying about what amounts to LESS than pennies in the scheme of things, i.e. 50 billion of economic flows divided into 23 trillion in bailouts and backstops equals POINT TWO OF ONE PERCENT.
IR is right though: it is the banks are ‘enabling’ these people. It is not tresspass if the people are not evicted. So again, we have a problem, a mess, created (or refused to be cleaned up) by banks. Again IR’s disgust is completely misplaced.
Nonsense.
“I merely stated that IR has played no favorites when laying the blame.”
That is a challenge to my claim, which was that he does the opposite.
In a civil society, the rule of law is used to arbitrate the conflicting ‘wants’ of a people. Let me explain how some of this works:
Drinking and drivinig: a crime.
Defaulting on a mortgage: NOT a crime.
Intentionally defaulting: NOT a crime.
Breaking and entering a residence: a crime.
Ignoring a notice of tresspass: a crime.
Remaining in your defaulted home: NOT a crime.
With the dogshit metaphor I was speaking to the economics of our situation (not the legality). I was trying to point out the absurdity of worrying about what amounts to LESS than pennies in the scheme of things, i.e. 50 billion of economic flows divided into 23 trillion in bailouts and backstops equals POINT TWO OF ONE PERCENT.
IR is right though: it is the banks are ‘enabling’ these people. It is not tresspass if the people are not evicted. So again, we have a problem, a mess, created (or refused to be cleaned up) by banks. Again IR’s disgust is completely misplaced.
Nonsense.
Buck, don’t confuse misdeed with a crime. Misdeed is something closer to a moral conscience rather than a criminal act. But even WITHIN law, there is civil contract law (yes, law) that states you MUST pay back your debts and you CANNOT possess a property that is not yours. But these are CIVIL laws, not criminal. But they are still MISDEEDS from the point of ethical behavior. Which is to say that just because one’s not breaking a criminal law does not make it OKAY. Contract law is still LAW. And when you go against a moral or ethical behavior, then it’s still a MISDEED.
And since when does monetary insignificance at a macro level relate to moral behavior? Don’t compare macro-economic monetary measures to micro-economic impacts on individual households. That $50B insignificance to the nation is a whole lot of difference to tens of thousands of people. But I digress. Just please get it through your thick head that Misdeeds and Crime are two different things. I don’t ever remember mentioning anything about default being a crime. Sheesh!
“you CANNOT possess a property that is not yours”
That’s great except for the fact that the property is in fact theirs.
“you MUST pay back your debts”
Actually no, you don’t have to pay back your debts. You
must simply allow a lender to take back any collateral. If the bank doesn’t take back the collateral you still own it. Which brings us back to the fact that they own the house until the bank decides to take ownership.
Why do people even waste time debating this?
People have an ethical responsibility to follow either option of the contract, not only one, and not the one you have decided is ethical.
“IR,
As long as you continue to falsely claim that strategic default is a criminal activity, then yes, we are at an impasse with regard to assignment of blame, and assesment of reality.
Buck”
What are you talking about? I never claimed strategic default was a criminal activity. I have openly encouraged it on this blog in numerous posts.
Please cut and paste the post or comment where I made this claim.
I’ve read the posts where you outline default as an economically rational descision. Perhaps thats why I’m confused. At first I was only perplexed and annoyed that you were characterizing default (in this post) as a ‘misdeed’ that would need to be ‘cloaked’ by rationalizing. I took extreme exception with ‘misdeed’, because, by any interpretation of the word (ALL of which have negative connotations), default is not. It’s an option, as PR details, etc.
However, as we talk later, where I am making a comparison with defaulters and criminals, you say:
“In thinking about the tone of the writing, you are probably right. It’s easier to get emotional about specific people who steal my money than it is to get worked up about a faceless institution that does so.”
So who are you talking about here? I can only assume, given the context (i.e. ‘tone’) that you are talking about who we were just discussing: defaulters, Peggy Tanous, etc., from whom you “want a refund”.
I do not confuse misdeed with crime. Far from it. In fact I constrast the two in an attempt to illustrate where your ire should be placed.
As to the rest, see PR’s comments.
“Why do people even waste time debating this?”
Good question. By the tone of some of IR’s posts (this one), I can see why some are still so confused.
Thats the problem.
It appears you have read far too much into a single word.
First, I was referring to the psychology of the individual who believes they shouldn’t walk away from their mortgage. In their mind, it isn’t simply a contractual option.
I think it is a viable option, and I have stated so on many occasions.
In my statement, I was merely looking into the mind of a typical debtor, not expressing some deeply held belief I have on the subject. I am surprised any long-term reader like you would interpret it otherwise.
When I refer to the people stealing my money, I am referring to everyone who is gaming the system to get a taxpayer bailout because they are stealing my money. Yours too. Now that is an area where the banks are orders of magnitude ahead of mortgage squatters, but that doesn’t make the mortgage squatter any less blameworthy.
Perhaps this will make it more clear: I have no animosity toward someone who strategically defaults, moves out, and moves on with their life. They have exercised a contractual right, and they are not gaming the system to get free housing or taxpayer relief.
“Actually no, you don’t have to pay back your debts. You
must simply allow a lender to take back any collateral.”
Only true in the case of purchase mortgages in non-judicial foreclosure states. Considering how many California mortgages in foreclosure are refis or are mortgages made in judicial foreclosure states , PR’s statement is about as relevant as his perception of how much wages have increased, or how much of a putz you are if your wages have not increased as much as his, or how many Bentleys he saw in the Spectrum parking lot, or …
Even in those cases your only ethical obligation is to comply with that option of the contract. That may be paying taxes if the government requires it or it may be going to jail if you are in a country that requires imprisonment for unpaid debt.
Stick to your federal reserve comedy routine. That nonsensical soap box never gets old.
IR,
Thank you for your clarification, sincerely. I would just like to point out and/or ask one thing.
How on earth do you think that people lucky enough to be able to squat for any extended period of time are “stealing” or oththerwise getting a tax subsidised “bailout”? They are not.
All of these people have already decided to default, which is where the damage is inflicted to the bank (cashflows). Their payments to the banks have already stopped. The fact that they are not “moving on” does not cost the bank one extra penny. Its not like the bank is waiting to rent out the home until it can be sold; that would make too much sense. Whether there are people in the homes or not, those properties are just going to rot on the balance sheet for 2 years either way. Arguably the squaters keep the home better maintained than if it was abandoned, which is exactly why the banks allow them to squat, until/unless the property is already targeted for liquidation.
Once again, your problem? The banks.
I would understand Irvine Renter’s frothing at the mouth rage and contempt of house debtors if the majority of house debtors were not such innocent victims. Where I must draw the line is when he brings children into it.
It is clear that Irvine Renter is one of those greedy bitter renters who expect the world on a silver platter. He pays his rent on time and in full each month and acts like that grants him carte blanche to viciously attack those who don’t want to pay for their own housing costs. His bias shines as bright as I am standing here OH LORDY.
Now that the blog’s author has been exposed as a biased fraud, we can ignore him and talk about those who have victimized the house debtor victims.
Remove your blinders, IrvineRenter. Take off that tin foil hat. Unleash the beast; alll the challenges will cease and the blog’s popularity will grow by leaps and bounds as your hatred turned to positive energy will bathe the ether with warm and fuzzy wonderfulness allowing us readers to bask in the glory of child worshipping family feeding goodness.
If you do not find a way to let go of your hate – I will have no choice but to stop reading the blog. Don’t make me do it!
“Where I must draw the line is when he brings children into it.”
The children are just collateral damage from the irresponsible/stupid decisions of the parents themselves… so spare us the bs about the children. BLAME THE PARENTS!
Geeessssshhhhhhhhhh!
so spare us the bs about the children
You are clearly not a parent! What do you know!
…and speaking of moral transgressions…is it wrong to be weeping with laughter while reading these astute observations today? Who knew HELOC abuse could be so much fun!? Thanks especially to AZDave for his fine contributions (it really IS all about the children, as he so sagaciously continues to note) 🙂
If you were a home owner that bought your home at the peak in 2006 in Southern California for X amount, then after 3 years had planned to refi it when your variable interest rate increased into a fixed rate mortgage. Of course once your LTV was better.
But then come to find your monthly payment has tripled now from what it was and your LTV is upside down due to your home being worth 1/4 what you paid for it… YOU TO would contact your lender and negotiate a fix rate 30 year loan modification.
Or as you state, you would most likely give up your home so as to not burden American’s. RIGHT!
That’s exactly what you would do…not me!
I defaulted on my 400K Chicago home, so what. Defaults are part of banks’ market risk. I risk being pursued for a deficiency.
Defaulters aren’t the problem. Homes are places to live AND investmens. Only the poor, minorities, dumb and otherwise uninformed continue to pay fo ran underpreforming asset.
The real problem is the notion that private entities are entitled to bailouts with public monies.
Funny, how every day there is a new fire to put out on this blog…LOL. Tommorrow it’ll be the Federal Reserve, Realtors, or Banks. Take your pick.
Yet, I love this blog. I credit its existence(and Patrick.net) for giving me the information and courgage to strategically default. Sometimes talking about abstinence makes you just want to have sex…
Thanks to IHB & Patrick.net I am no longer uninformed, even though I am still a poor, dumb, minority who no longer believes in abstinence.
IR wants you to strategically default. I don’t think he has a problem with it. He has a problem with people who do that and then squat in the house and play games to stay until the marshal comes and kicks them out. Then those people play the victim card.
I think there are past blog posts where he says strategic default was the way to go.
Yep, you have been paying attention.
Illinois is a Recourse state, so you can be pursued for the deficiency.
Then you can just bankrupt out. You will have ruined credit for a few years, but so what? It’s survivable.
But better be careful the next time. I expect that FHA loans will become the next bailout, given the super-high default/delinquency rates on vintage 2008 and 2008 FHA loans, and the fact that fully 50% of new mortgages are underwritten by the FHA. Since student loans are not forgiven in a bankruptcy because they are government-guaranteed, what reason is there not to make FHA loans and loans backed by Fannie and Freddie, full recourse and ineligible to be cleared by bankruptcy? I suspect our authorities will get around to correcting the injustice in making student debt non-forgivable while letting home debtors off the hook completely, and that adjustment will not even the field by forgiving student debtors.
“…what reason is there not to make FHA loans and loans backed by Fannie and Freddie, full recourse and ineligible to be cleared by bankruptcy?”
The fact that it’d be an unconstitutional, retroactive law, for starters.
Not a great article, but it does crunch a few numbers related to the asinine homebuyers’ credit and price declines.
How the $8,000 Tax Credit Cost Home Buyers $15,000
What in the hell are all of you talking about?? Angry with home debtors?? Angry with credit card debtors?? Angry with HELOC abusers?? Angry with banksters??
HELL YES! BECAUSE IT IS OUR MONEY THAT IS PAYING FOR THEIR MISTAKES! If nobody got bailed out and people and companies paid for their OWN mistakes everything would be fine. But, that is NOT THE CASE!
You are all showing the tyarrny of the majority. Because when you are the majority nothing about right and wrong matters?? Because you say it is ok to steal from some to give it to others because you are the majority?? Please… people and business should all be held equally accountable. This is the real problem. The majority of people now believe it is fine to take from some to give to others. BTW, this is why we fought the war of independence.
BD
If you have a problem with bailouts, then I think you should be shouting at the Legislative, circa Fall of 2008.
Happy to condemn ALL bailouts. They are all WRONG! Don’t care if it is GOP or Dems… wrong.
You want to strategically default? Well, go ahead – I have no problem. It was a contingency covered in the contract. That said, don’t expect to be able to stay for years at a time for free…and not have your credit damaged for a decade.
None of us would loan ANY of our own money to any people with that kind of history. But, because originators can dump it on the tax payer?? Well they go right ahead!!!
This is complete BS…reminds me of healtcare reform. People want the best healthcare that OTHER PEOPLE’S MONEY CAN BUY…
BD
We’ve been doing that too, in case you haven’t been reading.
Why don’t you guys direct your issuesat the govt and stop crying about how people handle their finances… The govt is providing the bailouts, individual people can do as they please, it’s a free country.