The math of payment shock means the Reuters story is the harbinger of more accounts. I only hope some of them focus on how banks and regulators made matters vastly worse for borrowers through their efforts to save their own hides.
It might come as a surprise to NC devotees, but we primitives in Texas are not experiencing this problem to a significant degree. The main reasons are threefold: –We didn’t have the absurd bubble in housing prices –The economy has been better (or “less worse”) in general here –And, perhaps most importantly, HELOC regulations in Texas state that the total value of first and second liens is not supposed to be greater than 80 percent of https://www.monarchtitle.com/wp-content/uploads/2019/09/GettyImages-946637150.jpg the fair market value of the home. While the regulation undoubtedly could be abused via inflated appraisals, it served as a significant deterrent to using one’s primary residence as an ATM.
We’re already seeing overheating markets here in Houston
If the shale ‘miracle’ stalls, then it would be reasonable to assume our real estate market will soften too. I’m currently looking at new home builders and their cancellation rates. The diminishing effects of QE are already playing out here….
Your observations are cogent, Aaron. I was merely addressing the issue of second lien write-downs. Home prices are up 12% or so here in Dallas in the last year, but the rate of increase is indeed slowing.
What used to drive me crazy about krugman was he was advocating fannie and freddie write down mortgages and attacking the administrator who didn’t want that. so he was really advocating another big bank subsidy while saying he is for the common good. Why do people continue to beleive and follow that man I have no idea
Not to defend Kruggy too much, but he shouldn’t have had to specify that seconds should be written down first, should he? My understanding is that that is the current applicable law, so when advocating for mortgage write-downs, he was (or should have been) implicitly arguing for seconds to be wiped-out, no?
Not necessarily. It is the order of priority in bankruptcy court, but if the writedowns Krugman proposed were conducted outside of a bankruptcy, then it doesn’t necessarily follow tha the 2nds would be wiped before impairing the first mortgages.
Correct, in fact the Federal/state mortgage settlement astonishingly allows seconds to be written merely pari passu with firsts, as opposed to being required to be wiped out (the formula is more complicated, but the economic effect is pretty close to pari passu).
This has been discussed for years on this blog and others, but it will “Shock” many public official with its “Unexpected” severity. Sigh. The crisis will have to be addressed quickly ( No time to read the bill) and the solution will benefit ….
They will be shocked, but the real shock will come from the pushback. In 2008, there was a young, seemingly anti war President who promised universal healthcare and higher taxes on the wealthy coming into office. The outcome was never in doubt. Perhaps Franken’s seat was in doubt, but that is about it.
Now I am all for mortgage write downs, but he would leave out that second lein mortages should be written down first
This time people are poorer than they were, and there has been no accountability or sufficient sacrificial lambs to restore trust. Craziness will break out. The history of major protests and revolutions come after a series of smaller issues were assuaged by promises. Those promises were made and broken. There was no accountability from 2008 to now. Accountability will have to come first, and remember there is no honor among thieves.