In the years immediately following the financial crisis, no small amount of space on WSO was dedicated to the debate over what should be done about those Regular Joes who were caught in the crossfire of the mortgage mess and were losing their homes right and left. The subject of strategic foreclosure came up repeatedly, and in my opinion was one of the more interesting debates in the history of the site. For better or worse, a lot of folks in the general public got a government bailout, which seemed fair at the time at least on a prima facie basis because of all the handouts the banks were getting.
So now that we've put a few years distance between then and now, how did all that charity work out?
About like most of us expected, frankly. In a study released earlier this week, it was revealed that 30% of those homeowners who received a bailout have already defaulted again. What's worse is that the remaining 70% are about to go through a mortgage reset, which will no doubt shake a few more out of the deadbeat tree.
“The program was a temporary Band-Aid,” said Greg McBride, a senior financial analyst at Bankrate.com. “Five years later, that Band-Aid is going to be ripped off.”The initiative was based on the flawed assumption that the economy would bounce back more quickly, undoing the damage wrought by plunging home prices and high unemployment. The program lowered the monthly mortgage payments of qualified borrowers for five years, presumably long enough for them to regain their financial footing.
So it looks like some pretty crazy assumptions were made and the chickens are coming home to roost. Maybe one of you can explain to me how policy makers expected incomes to rise immediately following the largest financial crisis since the Great Depression when they hadn't for the previous two decades.
The good news is that the program wasn't really all that effective to begin with, so we're not talking about a ton of foreclosures looming. Even if every single person who received a mortgage modification defaulted, we're only talking about 800,000 loans.
I'll leave you with the following tale of woe that is probably illustrative of at least a plurality of the folks who received modifications. It's just one bad financial decision after another with these folks:
Barbara Irving feels vulnerable. Irving said her family is doing better financially but not well enough to withstand a higher loan payment. When times were good, she and her husband were close to selling their home in Texas and moving into a new one they were building. But the housing bubble burst, and suddenly they had two mortgages to juggle.Unable to keep up with the payments, they lost their first home to foreclosure and got the mortgage on their second home modified through HAMP in 2009, she said. But they recently were notified that the monthly payments eventually would increase by hundreds of dollars.
Now in their 60s, Irving and her husband are earning much less than they were before the economy soured, she said. They cannot refinance or sell, because they owe more on their mortgage than their home is worth.
“We are living on a super-tight budget with only one car and just cannot afford any increase,” said Irving, a housing counselor. “It would be a struggle to make payments.”
Don't be that guy.
Mod note: Blast from the Past - "Best of Eddie." This was originally posted in March 2014.
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Not cool Eddie not cool
The issue is that the handouts were just that. Handouts. No Strings attached except a raised payments years down the road. Do you really expect that someone who is already struggling, or not paying at all, on their loan to suddenly wise up and start saving money preparing for an increased payment down the road.
All we did was re-create the adjustable rate, no money down shit that helped crush us before. Look, I'm not a terrible person and I fully understand how hard it can be for people out there when incomes are stagnant and the job market is what it is. Hell, I make decent money for where I live and I can't even fathom adding three more people to that income... I barely know where some of my money goes now.
Eddie, I think this speaks to the reality of what the world did a few years ago. We simply borrowed more money to make payments on what we already borrowed, and managed to do it at increasingly cheap interest rates. We just refinanced much of the debt in the world at lower rates. Now we are exactly where we were beforehand and again the rising equity markets and home prices are masking the structural issues. Same shit, different decade.
Another shocker, as the Onion pointed out: "World's Mortality Rate Holds Steady at 100%."
I can't wait to see the picture of George Bush with the mission accomplished sign be edited with Obama claiming mission accomplished for this "HAMP" program. Which by the way he has done on countless occasions. The irony here is that the mission accomplished sign was for some exercise the ship was doing and had nothing to do with the invasion at all.
I think there are four basic rules to follow to ensure a decent life. Maybe not rich, but comfortable
1) No arrests 2) No drug addictions 3) No kids before 25 4) Don't buy more house than you can afford
Avoid those, and it's really difficult (at least in the U.S.) to spend your twilight years in a mobile home park living off food stamps.
Good life advice. Number 4 might as well be anything you can't afford given that certain people buy flat screens on layaway...
agree with you to a certain extent but I think it's hard to deny that some (less fortunate) people are born into a cycle of poverty (single parent household, poor public schooling, drug ridden community, less than ideal job ops etc.)
I think you're completely right, but that doesn't necessarily preclude anyone from living by these rules; just makes it significantly harder. For example, like you said - communities are often drug-ridden, education is low, it's very difficult not to fall into the habit of drug abuse or unprotected sex; but if you can you'd likely be in a good spot.
but arrests tell a unique story that you can leverage during interviews and b-school apps
I wouldn't go so far as to say the HAMP program has been ineffective, I think the re-default rates just speak to the sheer volume of people who were clearly in houses they couldn't afford and that fact that there is a pyschological/social aspect that is associated with people who default on their loans, which can only be partially mitigaged by reducing monthly mortgage payments. Homeowners have reduced their mortage payments by ~$544 through HAMP, equating to ~40% of their median before-modification payment. That's huge. The fact that these individuals are still re-defualting at rates of 30-40% after 36-42 months of modifications is mind-blowing. Rate-resets will definitely be a topic of discussion over the next year or so, as a majority of the resets are due to begin in 2015, given most of the modifications occured in 2010. I think it's safe to assume that there will be an increase in foreclosures/re-defaults, but it may still be 1-3 years out, since the rates reset at +1% per year, until the Primary Mortgage Market Survey rate is reached for the modification year (averages ~5% for 2009-2011 vintages).
So, interestingly, I went to the HAMP website and apparently in 2012 you could be eligible if the home isn't a primary residence but it is being rented/you intend to rent it.
I don't know what a housing counselor is, but I'm guessing there's some irony there.
Moral of the story is simple don't bite off more than you can chew and don't view a house as an investment, it clearly isn't. Be conservative, buy less than you can afford and have a rainy day fund with a bare minimum of six months of expenses, preferably twelve. Now I sound like IP.
@Addinator Yes, I believe that's correct. In mid-2012, they introduced HAMP Tier 2, which expanded eligibility to non-owner occupied (i.e. what you described) as well as loosened some of the restrictions around debt-to-income criteria.
Wow. I'm waiting until I can buy a house in cash. Fuck that.
Question: can it be said that HAMP reduced delinqency by 70%? Obviously the politicians are going to spin it like that, but what do you all think?
It Postponed delinquency which reduces it for a period of time, so you can spin it like that. At the end of the day it didn't reduce anything it applied lipstick to a pig.
Relevant quote that relates to this...
"If the world's wealth were divided equally today amongst every human on earth, we would have the same level of inequality in the span of a single lifetime"
I always think of radical wealth redistribution in the context of the French Revolution. Basically all the country's wealth was distributed more or less evenly (at the expense of a great many wealthy heads literally rolling), yet all the country's wealth was concentrated back into the hands of the pre-revolution aristocracy within three generations (and remains in those same hands to this day).
Guess if you want it to stick you gotta kill it with fire.
It makes me wonder: is inequality the bad thing, or is the real issue the quality of life of the people NOT in the top 10%. I mean, if some dude has a billion dollars most people don't really care if they're happy. It's when they start to suffer that they look around and wonder why one person should have it so good, why they should not take for themselves what ultimately is the product of everyone's work despite the merit of the person organizing the labor/resources.
There will always be 'poor' people, and there will always be people marketing bad stuff to them. That can be addressed as a seperate issue. What I'm getting at is: who cares about inequality if the standard of living is good and there's freedom to do as one pleases. The bottom line is that the Founding Fathers' desire to avoid an aristocracy has failed, and we now have an established plutocracy that is passing its wealth through the generations. All fine and well, but is this necessarily a bad thing? Or is it that such concentrations of wealth (and by extension, power) lend themselves to abuse and eventual social chaos? I'm inclined to think so. This year's aquittal on the premise of "affluezia" is a huge red flag in my mind. Like, we're warming up for some serious upheaval.
Sorry to sidetrack, it just seemed relevant.
My question would be is there real poverty in America? Well it is certainly true that there is relative poverty, a millionaire would also be relatively poor among billionaires. I define real poverty as being unable to afford adequate shelter, enough calories to maintain weight and enough fuel to stay warm in the winter, this is pretty rare in the US thankfully. What is described as poverty here is mostly relative poverty, which is certainly bad and unpleasant, but usually does not rise to the level of an existential threat to one's existence.
Furthermore, what is seldom noted is that the natural human condition is poverty. Inequality is natural and not just in wealth. Good looks aren't spread evenly, nor is height. We don't try and redistribute that, but rather we simply understand life isn't fair.
Agree with the first part, totally disagree with the second part. The natural human condition is to club bears and eat berries, none of this shit is natural. Humans created civlization, every aspect of it, and humans can mold it however they like.
That's a very solid comment that many americans fail to grasp. Whatever has been making the Gates and Zuckerbergs of the world ever richer is also correlated with a fantastic reduction in world poverty levels. The Economist had a pretty good report on that, showing how a billion plus people got out of true poverty in a few decades (mostly from China and India).
As that happened, some US media vehicles give space to an old couple because they can only afford a single car and a single house. That's not poverty.Often that's just lazy people having the incredible luck of being born in the US.
Louis C K nailed it in less than 2 minutes: http://www.maniacworld.com/we-have-white-people-problems.html
I think the majority of the middle class is going to need a lot more financial strain and stress before an upheaval happens. The wealthy in America have managed to create a nice buffer through the creation of the middle class. By giving those in the middle enough to keep them content and feeding the dream that they may one day join the wealthy, the upper class in America doesn't need to fear any sort of retaliation.
A relevant case would be the whole Occupy movement. People were outraged, but the middle class protesters eventually decided to go back to their jobs. They weren't willing to risk everything they have for the chance that it could get better. It's a beautifully twisted system.
Despite cynicism, the system actually did what it was supposed to, especially compared to an era like the 1920's. I don't think a lot of people realized how close we came to much worse problems than stock prices in 2007/08.
This whole cycle of geographically distancing from a guild style local controls has good long term payoffs for everyone...IF the short term isn't destabilized to the point where local strongmen assume power via offering themselves as a solution to people's problems.
The US is not an oligarchy, and the wealthy in this country do not act as a collective against other classes. The wealthy compete against, and cooperate with, one another pursuant to their individual interests. The proliferation of the middle class was/is a consequence, not an intention.
Newsflash: people can't make good on loans if they lack the income. The core problem is income inequality and unemployment.
The core problem is idiocy. You make 3k a month and your mortgage payment is $2,999.00. Can you pay your mortgage? Yes, can you actually afford to do that? No. That is the problem, the blame goes every where. The problem that was generated by the sub prime melt down was that no group wanted to accept any blame. Not the home owners, not the mortgage industry, not the banking industry, not the credit agencies, not congress. It was a complete failure of common sense on all levels. I say common sense because I don't want to dredge up the whole "they did this on purpose" debate again.
I agree, but there is no stopping the innate desire for keeping up with the Joneses. What we need is more high paying jobs; this will not happen in an economy that is built around corporatism.
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Yeah, a bunch of mouth breathers who can't show up to work on time or follow the most basic instructions from junior management is going to organize a full scale revolt.
Throw them a cheeseburger and the Kardashian's and they will be happy.
The quality of this conversation just took a sharp nosedive
Love the headline
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