The great homeowner equity depression

[David Farber <dave () farber net>]

________________________________________
From: Robert J. Berger [rberger () ibd com]
Sent: Thursday, March 06, 2008 5:42 PM
Subject: The great homeowner equity depression

The great homeowner equity depression

As economic catastrophe looms, the mortgage industry, with the help of
Republicans, fights to stop the government from making a real difference
Andrew Leonard

http://www.salon.com/tech/htww/2008/03/06/homeowner_equity/index.html

Mar. 06, 2008 | One in ten American homeowners has no equity in their
family home. That's the worst percentage since 1945, according to data
released Thursday by the Federal Reserve.

Commenting at Credit Slips, Harvard law professor and bankruptcy
specialist Elizabeth Warren contributes some absolutely must-read
analysis of this disaster in the making that should be read in its
entirety. But here are the high points:

The data show that about 15 percent [of homeowners] will be below
water if prices continue to slide, owing more than their homes are
worth.

So what's the plan here? One in ten homeowners could just walk away
right now. Indeed, most of them, if they were the rational maximizers
so prominently featured in classical economic analysis, would stop
paying now, put the money in a savings account and wait the 90 days or
two years or whatever until the lender could force them out by
foreclosure....

If they walk, the national -- and world -- economy will seize up. The
investors who hold those mortgages can avoid that if they are willing
to share the pain and acknowledge that their loans are only partially
secured. Like practical lenders have done for thousands of years, they
could decide that getting a steady, partial payment is better than no
payment at all. So far, however, the investors are holding tight...

The only proposal on the table that would make the investors
renegotiate their mortgages and either get people into mortgages they
can afford or get them out of the houses is the amendment to the
bankruptcy laws [proposed by Democrats.] Last week, the Republicans
filibustered the bill in the Senate, and a cloture vote failed. But no
one is giving up yet....

The mortgage industry has blocked the bankruptcy amendment, but the
question that puzzles me is why anyone is listening to the mortgage
industry's herd of lobbyists. These are the people who said the
industry didn't need regulation, that high-risk mortgages could be
turned into low-risk bonds, and that everything was perfectly safe --
right up until it all came crashing down.



––––––––––––––––––––––––––––––
Robert J. Berger - Internet Bandwidth Development, LLC.
Voice: 408-838-8896 eFax: +1-408-490-2868
http://www.ibd.com


-------------------------------------------
Archives: http://www.listbox.com/member/archive/247/=now
RSS Feed: http://www.listbox.com/member/archive/rss/247/
Powered by Listbox: http://www.listbox.com