The nation's top banking regulator warned Tuesday that help for troubled homeowners is failing to keep pace with the foreclosure crisis.What Sheila Bair doesn't seem to understand is that in the bubble markets of the east and west coasts, high mortgage costs and declining home prices mean many people would be better off financially if they lost their home to foreclosure and became renters.
"We're definitely behind the curve, and we fall further behind the curve every day," FDIC Chairwoman Sheila Bair told an audience at the Fortune 500 Forum in Washington, D.C.
According to Bair, the nation's financial system would be in much better condition today if earlier warnings she made about mortgage modification had been heeded.
Bair began sounding the alarm more than two years ago, warning that lenders had to shore up capital reserves to offset non-performing loans. In October 2007, she told lenders that they should start modifying more at-risk mortgages so borrowers could afford to stay in their homes.
Meanwhile the mortgage mess has ballooned, expanding beyond the housing market into the entire financial sector and the overall economy.
Since the cost of renting is still significantly less than the cost of owning, people who get "help" are still likely to be paying more for their mortgage than they would pay to rent an equivalent home. Furthermore, since housing prices are still falling, and are likely to for several more years, people who get "help" will likely find their negative equity is continuing to grow.
That said, the emotional cost of foreclosure may be worse than the financial cost of remaining homeowners.
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"What Sheila Bair doesn't seem to understand is that in the bubble markets of the east and west coasts, high mortgage costs and declining home prices mean many people would be better off financially if they lost their home to foreclosure and became renters"
ReplyDeleteSo well said. Please go testify on Capitol Hill, especially since her plan is being lauded by many up there, who don't seem to understand that the resolution of the housing issue will occur most efficiently and fairly by a readjustment of prices, not by transferring money from those who rent or can afford their homes to those who cannot.
Good post - and I wholeheartedly agree with the first comment, too.
ReplyDeleteAs far as the emotional cost of foreclosure...well, BOO HOO! What about MY cost of having to pay more and more taxes to bail out these boneheads who KNEW they were buying houses they could never afford? Yeah, I'm pretty emotional about it.
Bleh. I'm so sick of all the self-created victims out there who are just getting their comeuppance for being stupid and greedy.
"What Sheila Bair doesn't seem to understand is that in the bubble markets of the east and west coasts, high mortgage costs and declining home prices mean many people would be better off financially if they lost their home to foreclosure and became renters."
ReplyDeleteI think she understands this perfectly. Her #1 priority however is the credit markets which underpin our entire society.
Layoffs are now rolling through our industry (tech). Many of us losing our jobs were the same renters waiting for the bubble to burst. We did everything right, didnt buy, saved, etc. yet we are still getting hurt.
What should have happened is that these assholes never got the loans in the first place. Nothing we can do about that now - that ship has sailed. Going forward, whats the best way out of this?
If bailing out these assholes means we get to keep our jobs I say go for it. It just as soon be an employed renter, than an unemployed owner.
re: last comment
ReplyDeletesorry, but that is robbing peter to pay paul.
I think this process is a desperate attempt for the economy as a whole to hit the reset button.
If you are overextended, or if your employed position is of little true relevance (in other words if your are swimming naked), then you will be exposed and/or weeded out.
If you are losing your job, it is because this overconsuming society has finally burned out and deemed your skills unnecessary. Same if you are losing your house,car, HDTV, etc. The jig is up.
Rather than hope for pathetic bailouts to attempt to block this falling knife a.k.a. the economy, I strogly suggest that you re-examine your skill set ad consider a change fast.
-Fresh
"If you are losing your job, it is because this overconsuming society has finally burned out and deemed your skills unnecessary."
ReplyDeleteReally! Oh I had no idea that green energy was deemed unnecessary in the new economy.
Sorry, the reason we are loosing our jobs is our line of credit (essential to buy inventory and grow) has been pulled. Our cash flow is good, but the bank "thinks" that might change in the future.
So perhaps you want to rethink what you are saying. Does your employer have a line of credit (most of them do, just to keep the lights on and the business humming)? If so, you better pray that the retrenching doesnt hit you next. As it stands now, no one is safe!
This was a good post about mortgage mods. I don't think it is fair to set a stereotype and label people as being boneheads who have had trouble falling behind on their payments. Times are rough. It is plain and simple. Consulting with your lenders and banks could be beneficial. You never know unless you try.
ReplyDeleteBair's writings early on show she knows what she's doing, she's just in denial about negative repercussions or not telling the public the whole truth. however, i will give her credit for speaking the words "we need an exit strategy."
ReplyDeleteso what are the mid/long term expectations to all this socialized ownership?
Anonymous said...
ReplyDelete"Please go testify on Capitol Hill"
I'd never be invited. Politicians, policymakers, and the press don't read bubble blogs. If they did, we wouldn't be in the mess we're currently in.
Prince of belair said...
"If you are losing your job, it is because this overconsuming society has finally burned out and deemed your skills unnecessary. ... I strogly suggest that you re-examine your skill set ad consider a change fast."
Please be nice. Highly skilled people can easily lose jobs in a recession. Imagine two hypothetical software developers during the 2000 tech crash. One is very highly skilled and works for a tech startup. The other has mediocre skills, but works for a defense contractor. Who do you think would have a greater chance of getting laid off?
Sorry for sounding harsh. I am not implying that the worker is not skilled. I am just sayng that I do not understand the concept of saving anything - jobs, home prices, credit access, and the list goes on and on - when a (supposedly) free market has, at the present time, "priced them out". A recession, or worst case depression, is the unfortunate bad-tasting medicine to clean up the illness. My fear is that the attempted shot in the arm will be worse than the disease we are trying to avoid.
ReplyDeleteThe Anon poster above implies that he/she works in green energy. I am all for going green - however the free market is not there yet, so the value added of such employment still appears to be on the economic sidelines- sad but true
-Fresh