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Another precinct heard from

By Michael J. Smith on Wednesday February 10, 2010 02:10 PM

Alternet has joined the ranks of Walkaway advocates:

The homeowner relief plan adopted by President Obama and Treasury Secretary Timothy Geithner has not been working for a full year now. What's worse, as the program is currently structured, its chief benefits accrue directly to the nation's largest banks.... If you owe more than your house is worth, just walk away.

"The rational thing for these people to do is to send the keys to the bank and say, 'Good luck,'" says Dean Baker, co-director of the Center for Economic Policy and Research. "Every month that you keep that person in their home paying that mortgage, that's a gift to the bank. So if you could keep a lot of people from sending their keys to the bank, and keep sending their checks instead, that helps the banks directly."

...[T]he "relief" offered by the plan is actually worse for a lot of borrowers than outright foreclosure.... HAMP attempts to keep people in their homes by reducing how much they have to pay every month.... But buying a home is so expensive, especially at bubble-level prices, that even borrowers receiving this aid could usually rent a comparable home for less....

The average underwater borrower today owes about $70,000 more than their home is actually worth, according to CoreLogic. Since 10.7 million mortgages are currently underwater, the banking system could see losses of up to $749 billion from problem mortgages—and the number gets much bigger if home prices decline further, [so] with HAMP, we've... encouraged borrowers to waste their money on irrational payments.

Icing On The Cake Dept.: Baker also thinks house prices are still heading down:
Housing Market Prepares for Renewed Plunge Following Removal of Supports The Mortgage Bankers Association’s purchase mortgage applications index fell by another 3.3 percent last week and continues to run substantially below the depressed levels of January 2009. This indicates that housing purchases still are not recovering from the slump that followed in the wake of the original November 30th ending date for the first-time buyers tax credit. It seems virtually certain that prices will soon begin to decline again as the market will finish shedding the 15-20 percent of house price valuation that is attributable to the bubble.

...The tiered index provides evidence that is consistent with the first-time buyers credit being a major factor in the recent price increases. In most cities, prices for houses in the bottom third of the market rose much more rapidly than the price of houses in the middle and top third....

In addition to the end of the credit, the lower end of the market will also be hit by the tightening of standards by the Federal Housing Administration (FHA).

Just call me Ignatz von Schadenfreude. I'm loving this.

But as noted in an earlier post, the Great Walkaway hasn't materialized yet, alas. And some of the comment thread to that post suggests some reasons why: the houseownership fetish still has a strong grip on people's minds, and plenty of people believe that the rental options are all unsatisfactory, for one reason or another.

As a lifelong renter, I tend to think this latter belief is pretty much superstitition, but perhaps there are places where there's some truth in it. That wouldn't be too surprising, since policy for decades has contrived a fantastic Rube Goldberg machine of perverse incentives to chute us poor lambs into the mortgage abattoir, and a relentless barrage of propaganda and marketing has brainwashed us into believing it's a nice place to be.

As a result, rental housing has been comparatively starved of investment, and renters as a class have become a less important political constituency.

If the Walkaway does materialize -- and I sure hope it will -- it's probably the sort of thing that will exhibit avalanche dynamics. One minute the snowy mountainside lies tranquilly shining in the sun; next minute it's boulders and uprooted trees and a cubic mile or two of wet heavy snow heading for your ski chalet.

Comments (9)


I'll admit it...I've bought the koolaid.

Still...my mortgage is barely underwater at present, and rents are thus frankly not very much lower for non-slum apartments in dreadful suburban apartment "complexes" that offer units 50% smaller, no garage space, and suffer from problems of rent increases, severe pet restrictions (I have two dogs who I love dearly...so if that makes me a bourgeoise fool, so be it)and poor locations.

So...I am staying put until my past indiscretions using the crack cocaine of consumer finance foolishness pushes me out. Which, given our furloughs and pay cuts, may be coming sooner than I would like.


Not wanting to move is understandable, especially if you like where you live and the options aren't attractive.

I think many landlords run credit checks, too, so there's probably lots of fear that a blown mortgage will foreclose equal-quality renting. I'm not sure that fear's irrational.


Well, first of all, sign the lease and make the deposit before you send in your keys.

Otherwise, if walkouts become a trend, it's hard to imagine poor credit mattering all that much.

I mean, the creditors could decide to turn away the renting public and keep all those houses empty, but is that likely?

Correct me if I'm wrong.

I'm in full agreement with MJS, eug. Just trying to parse the psychology of the drowning "homeowners," that's all.

And, of course, there's a chicken/egg problem in relying on landlords to lower their screening devices. Until people dump their mortgages in an avalanche, the screens stay up. While the screens are up, people are scared to bail, so no avalanche...


Chickens and eggs appreciated. As is the insidiousness of the credit rating system.

So prices have to fall more than they have before the walkaways walk.

In an ideal world, somebody would set up something like a debtors' union. Enrollees could provide details of their mortgage arrangements and send their payment to the union, instead of the mortgage company, in advance of the payment due date.

If there were enough participants, the union would suddenly have bargaining power. Debtors could relinquish deeds to the property in return for favorably priced rental contracts. Or something. If the number of participants falls short, the union simply forwards the payments to the company before the renters' respective due dates. No risk from the homeowner's perspective, and there's always another payment cycle.

Impossible fantasy, I'm sure. It's probably even illegal. Anyway.


Snow, still on the slope;

There will be no avalanche

Until there is one.



mortgage payers association of america

block bargains on payments and principal reductions
once the local cxhapter reaches necessary density trigger the withholding mechanism

MJS hit on it first but let me add my two cents.

The few lucky people with mortgage defaults in their history who have signed leases in my market recently have agreed to a premium on rent and had to make an exorbitant security/damage deposit.

Most of them end up in much more economically challenged sections of the city.

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This page contains a single entry from the blog posted on Wednesday February 10, 2010 02:10 PM.

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