naked capitalism

Tortoise says:

Yellen is right to be concerned given that her area of purview includes the epicenter of the housing crisis, California. But, there is little useful the government can do. The actual healing is taking place through the painful process of assets adjusting to incomes. It is excruciating for those caught unprepared! However, believe it or not, we are making progress.

Anonymous says:

These mortgages are contractual agreements by willing parties, to borrow and repay specific sums of money under specific terms. Is the government now supposed to annul those contracts and/or rewrite the terms arbitrarily? Is the government now supposed to take tax money from responsible borrowers who did not buy too much house, or did not borrow excessively on their existing house and give that money to irresponsible borrowers to pay down their debts? Is the government going to unilaterally demand that the lender of the money now must accept less than was contractually promised in repayment? I think most rational people would agree that these approaches would make no sense. Particularly, if there is to be an affordable mortgage market in the future.

If we are talking about people who either bought a home in the last few years that was more expensive than they can afford, or if we are talking about people who borrowed too heavily against their existing home and now can’t afford to repay their loan, how does the government fix that in a way that is fair to the rest of us? It is important to remember that these over-extended borrowers are the very people who are responsible for driving house prices to irrational levels in the first place. Without their profligate borrowing and spending, there would have been no housing bubble and home prices would not have risen to unsustainable levels. The fact that money was lent too easily should mean that the lender of that money should bear the risk, and the loss, if any. The fact that some people borrowed in an irresponsible manner and spent the money on over-priced real estate should mean that the borrower, and that borrower only, bear the risk and the loss if any.

patrick neid says:

With the continued lunacy of these “all you can eat” buffet plans, I think when they ultimately figure out what the average cost of helping each home owner/speculator is they owe every renter these last ten years a check for double that amount. Consider it a thank you for not being part of the problem.

We are definitely being charged for the solutions, which won’t work of course.

When these same folks were going to sell their houses in the prior bubble I hadn’t read where they were going to cut me a check! Now they want mine.

As predicted earlier, we have gone off the rails.

Matt Dubuque says:

The FOMC is a broadly diverse group of people with widely divergent opinions.

Of all the FOMC members, Ms. Yellen is clearly the one who is most concerned about a deflationary burst and all the adverse consequences that would entail.

We don’t want that genie to get out of the bottle. We still have some time.

I’ve followed her for many years and my opinion of her has grown greatly with time. She has truly grown into the job in an excellent fashion.

Matt Dubuque

Anonymous says:

I’m a responsible renter. I wish housing prices were lower in my area, but I think it’s more important that I have a job, a functioning 401(k) plan and (most important) a functioning bank accountant.

So, yes, it’s unfair if the people who own homes and SUVs get bailed out while I, who live in a shabby rental and take public transit, get nothing. But I’d rather be jerked around then end up living in a shantytown trying to scrounge up roots and berries.

- invisiblehand64114

Anonymous says:

what they want to do is refinance at lower rate.

but refinancing makes the recourse loans. PEOPLE WHO ARE UNDERWATER ON HOMES WOULD BE FOOLS TO CHANGE TO A RECOURSE LOAN WHEN THEY COULD WALKAWAY.

Anonymous says:

Yellen is trying to put lipstick on the piggy greed train that is now off the tracks.

It is interesting to note in these comments the conflation of thoughts about what is right to do for my neighbor’s mortgage problem and and similar thoughts about the bailout fiasco of the financial system.

The excesses of the financial system are why we are on the edge of becoming a 3rd world country, not the mortgage bubble. Where is the public clarity about that?

The train is off the tracks because the current administration chose to not only not admit the financial excess problem but throw money at the actors in hopes they could tame their ponzi scheme before a meltdown.

What ever happened to integrity and consequences for moral failings. If this a race to the bottom, kiss your ass goodby.

Yves Smith says:

Matt,

I am familiar with the home price appreciation versus foreclosure analysis, in fact we featured it here in March.

However, ALL those analyses are based on historical data with POSITIVE home price appreciation, and there the correlation is strong. It is not clear now strong the relationship is in a negative HPA environment.

Perhaps more important, the causuality may flip when you go from positive HPA to negative. In a positive HPA environment, you see fewer defaults at higher HPA levels because even deadbeats can refinance their way out of trouble. In a zero/negative HPA environment, you cannot refinance or sell your way out of trouble. Thus the NATIVE driver is getting to zero AND have overextended borrowers. Once you get to zero, the main driver may be other factors, such as neighborhood concentration of people who got zero down payment loans and teasers. The level of foreclosures may be due to other factors but is then reflected in negative HPA.

Tanta has often stressed that the idea that people voluntarily walk from their homes is very much exaggerated by the media.

Jim Hamilton, who is no empty head at CNBC, says deflation is completely avoidable and the Fed seems pretty determined to avoid it.

http://www.econbrowser.com/archives/2008/10/deflation_risk.html

doc holiday says:

Speaking of weird GDP tidbits related to PPP:

GDP includes the output of the multinational sector, which is very significant in Ireland (over 90% of Irish exports are made by foreign-owned firms), it is more useful to use Gross National Product – the total value of final goods and services produced in a country plus income from Irish capital held abroad set-off against transfers of net earnings of multinationals – in effect net income outflows from Ireland . In Other OECD countries, there is only a marginal difference between GDP and GNP.

Because exchange rates do not always reflect international differences in relative prices, The comparison of GNI per capita estimates into international dollars using purchasing power parity (PPP) rates, can be viewed here.

The PPP method gives Ireland a per capita income of $35,900 in 2006 compared with the Atlas method of $45,580.

Gross national income per capita 2007, Atlas method and PPP
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf

???

Anonymous says:

I think it is deeply worrisome that Yellen states a “correlation” is a “predictor”

Anonymous says:

All of the proposed ‘work outs’ so far have included a provision to make the reworked mortgage a recourse loan.

No sane person is going to sign such a loan agreement when they are waaaay underwater on their home.

All the government is seeking is the insurance of recourse loans to help bolster the banks balance sheets. With recourse loans on the books the banks will suddenly have money good mortgages to replace the worthless garbage that they are now sitting on. The Fed doesn’t give a damn about home owners or they would not be including rediculous recourse provisions to loan work outs proposals.

fresno dan says:

I agree with the predominant view that bailing out homeowners is a bad idea.
Government operates by written rules at the consumer level. Who will actually get refinanced and what will the benefit be? If by missing a few payments you can knock 200K off your mortgage, or 300$ a month off your monthly house payment, lot of people will be inclined to do that. People do not want to be played for suckers.
What criteria should be used? Should any house over 750K be in the program? Should any family with income over 200K…150K… 100K be eligible???

River says:

Fresno Dan…

It is not a ‘bailout of home owners’ that is being sought. It is a another bail out for the clowns that caused this financial disaster…the banks.

If recourse provisions are placed in ‘mortgage work out loans’, who benefits? The banks suddenly have ‘money good’ mortgages that will make some of the level 2 and 3 garbage they are sitting on look better, perhaps even good enough to sell to some other fool.

I have seen no plan yet that is beneficial to home owners.