Feb. 23, 2008
PARALLEL UNIVERSE: Upside-Down with St. Joseph Statues
Desperate Home Sellers Willing to Try Anything
By David M. Kinchen
Huntingtonnews.net Editor
I don't care if it rains or freezes
'Long as I got my Plastic Jesus
Riding on the dashboard of my car.
Through my trials and tribulations
And my travels through the nations
With my Plastic Jesus I'll go far.
Plastic Jesus! Plastic Jesus,
Riding on the dashboard of my car....
"Plastic Jesus" (1957) written by Ed Rush and George Cromarty, made famous by the Gold Coast Singers and the 1967 movie "Cool Hand Luke."
The equivalent of a "Plastic Jesus" for people trying to sell their rapidly depreciating homes during the current housing bust might be a plastic statue of St. Joseph, buried upside down in the yard, next to the FOR SALE sign.
This sounds like an urban legend, but it's a tradition that has been around in the U.S. since at least 1984, according to sources I've discovered on the internet. For more on this "tradition" see: www.snopes.com/luck/stjoseph.asp.
The upside down part of the patron saint of carpenters resonates strongly, because many houses on the market these day have what real estate professionals call an "upside-down mortgage."
This happens when the remaining mortgage balance is higher than the actual home value, and has been observed in California's Central Valley, Nevada, Florida, Michigan and Ohio, to name just a few states.
On this site, we've thoroughly documented the spike in foreclosures, thanks to the excellent data supplied by www.realtytrac.com.
When a bank auctions a repossessed home, they typically will set the starting price to equal the remaining balance on the mortgage loan. If the property fails to sell, it becomes the banker's worst nightmare, a REO or "real estate owned. The bank will typically try to sell it at a loss later.
I hate to say I told you so (not really!) but three years ago almost to the day, Feb. 21, 2005, on this site I reviewed a book about the real estate boom, authored by David Lereah, the then chief economist of the National Association of Realtors. The title: Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade—And How to Profit From Them. Here's the link: http://www.huntingtonnews.net/events/050221-kinchen-bookreview.html
In my review, I threw cold water on what I considered Lereah's "irrational exuberance" regarding residential real estate. I didn't like the excessive use of creative financing and said that there would come a time when the boom would end and the piper would have to be paid. And so it came to pass that my comments came true with a vengeance. I don't claim any special powers of clairvoyance: I just recalled all the housing booms and busts since I began covering real estate in Milwaukee back in 1970.
On Feb. 22, 2008, the New York Times published an excellent story on proposed solutions to the upside-down crisis headlined "Rescues for Homeowners in Debt Weighed."
Reporters Edmund L. Andrews and Louis Uchitelle (I reviewed his outstanding book entitled "The Disposable American" when it appeared in 2006, see my review at: http://www.huntingtonnews.net/columns/060521-kinchen-review.html) detail how the Bush administration and Congress are pondering "costly new proposals for the government to rescue hundreds of thousands of homeowners whose mortgages are higher than the value of their houses."
Frankly my dear, I don't give a damn about these hapless folks. They made their bed in houses they couldn't afford and shouldn't have bought, so why should the rest of us, prudent to a fault, rescue them. Really, this is a form of socialism for the rich, or at least people who thought they were rich enough to buy these houses in the first place, and free enterprise for the rest of us.
This sounds like a heartless attitude on my part, so if you don't like what I've said, e-mail me at davidkinchen@hotmail.com and beg to disagree -- or agree -- as the case may be. But read the excerpt from the New York Times below first before you blast me with an e-mail f-bomb!
*****
From the New York Times story:
"Stuart Breakstone, a lawyer in Memphis, and his wife, Lori, owe about $670,000 on their home.
"Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody’s Economy.com.
"Administration officials say they still oppose any taxpayer bailout for either people who borrowed more than they could afford or banks that made foolish loans during the height of the speculative bubble in housing.
"But with the current efforts to arrest the housing collapse so far bearing little fruit, Washington is being forced to explore new ideas, among them the idea of a federal mortgage guarantee for troubled borrowers.
"And policy makers are listening to proposals from industry and community groups to use government funds to purchase and refinance billions of dollars in mortgages now in danger of default.
"Many owners are only gradually becoming aware that their homes would sell for less than the debt against them — a phenomenon, said Richard T. Curtin, director of the Reuters/University of Michigan Surveys of Consumers, that is 'beginning to weigh on people, making them uncertain and nervous about the future.'
"That nervousness is evident across the country, particularly in places like Memphis, a city of nearly 1.3 million people where falling home prices and negative equity are new experiences.
"The housing slumps of the mid-1970s and late 1980s were confined to the coasts. The current bust, while leaving some cities relatively unscathed, has cut a far wider path and it comes just when home debt is at its highest level since World War II.
"For Stuart B. Breakstone, the problem hit home when he was forced to come to the closing on the sale of his eight-year-old custom-built house with a check for $65,000. The money, out of his own pocket, was to pay the difference between what he still owed on the mortgage for his home and the lower selling price.
"Mr. Breakstone, a 42-year-old lawyer, and his wife, Lori, chief of customs agents at Memphis International Airport — who together earn more than $250,000 a year — managed to extricate themselves by paying off the mortgage. But millions of others are trapped in their homes. They have jobs, make their mortgage payments on time, but cannot raise enough cash to cover the shortfall.
Some eventually default, surrendering to foreclosure. But the vast majority — embedded in their communities, their children in public schools, their reputations at stake — wait nervously in hope that prices will bottom and rise once again, eliminating their negative equity and restoring their freedom to sell or refinance.
"'People can’t believe this is happening to them,' said Robert Moulton, president of the Americana Mortgage Group in Manhasset, N.Y.
In Washington, it will be difficult to engineer a bailout similar to the one for savings and loan companies in the early 1990s, because Democrats and Republicans alike cringe at the very word bailout and fear a backlash by people who never became overextended.
But with millions of homeowners already underwater and the prospect that millions more may face the same situation, Democrats and Republicans alike are scrambling for ideas to keep people from simply walking away from their homes and to help those struggling to pay
"Bank of America, which is in the process of acquiring Countrywide Financial and has potentially huge exposure, has circulated a proposal to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans.
"The bank warned that tightening credit conditions were leading to “escalating levels of delinquency and default among borrowers” and “an unprecedented number” of homes that would enter foreclosure.
"Administration officials have given the Bank of America plan a cold reception. But the idea is similar to one proposed by Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate Banking Committee.
"The Federal Housing Administration, meanwhile, is examining ways to expand its new insurance program, known as FHA Secure, to help people replace their costly subprime mortgages with federally guaranteed fixed-rate mortgages. Mortgage industry executives have complained that the F.H.A.’s eligibility requirements are so restrictive that the new program has helped only a trickle.
"Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, has ordered his staff to come up with options for a broader rescue bill. An aide to Mr. Frank said his bill would, among other things, allow the government to buy up at least some troubled mortgages.
"For Americans caught in a mortgage trap and owing more on a home than it would sell for, consumer spending and confidence are the most immediate casualties, Mr. Curtin reports. But the damage goes deeper.
"People cannot move easily to jobs in other cities if they have to sell their homes at a loss. The $168 billion federal stimulus package is likely to be less effective than intended because many homeowners may simply use their government checks to pay down their debts. Housing prices in Memphis fell by 2.5 percent last year, only the second decline since records began to be kept in 1968, and by far the largest dip, according to Chandler Reports, which gathers this data for Greater Memphis.
"The Memphis metropolitan area highlights the larger national trend, with the average first-mortgage debt, at $153,764, edging above the average home price, $152,815, for the first time. And that does not count refinancing and home equity loans, as well as closing costs.
"Collie Tuttle, in her early 60s, is caught in this bind. Four years ago, she purchased a newly built four-bedroom three-bathroom house in the Memphis outer suburb of Olive Branch, Miss., for $270,000. She put nothing down, relying on her six-figure income from selling furniture to pay down the mortgage, reducing it to $248,000.
"But then she lost her job, and in her next one — also selling furniture, but at lower pay — she is being forced to choose between her home and the rest of her life.
“'It was a big mistake on my part to buy this house,' she said. Divorced, with two grown sons, she rattles around in it alone. She had thought the house would add to her wealth.
"But now, to sell it for the $269,000 a potential buyer was recently willing to pay, 'I would have to come up with $6,000 from my pocket,' Ms. Tuttle said, explaining that she cannot afford to invade her meager retirement account. 'All I’m asking is for enough so that I come out even.'
"Her house payments and utilities come to nearly $2,400 a month. That is affordable, she said, on her present income. But very little is left over to replace her 11-year-old car, to travel, to pay down her credit card debt, or even to buy new clothes."
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PARALLEL UNIVERSE: Upside-Down with St. Joseph Statues
Desperate Home Sellers Willing to Try Anything
By David M. Kinchen
Huntingtonnews.net Editor
I don't care if it rains or freezes
'Long as I got my Plastic Jesus
Riding on the dashboard of my car.
Through my trials and tribulations
And my travels through the nations
With my Plastic Jesus I'll go far.
Plastic Jesus! Plastic Jesus,
Riding on the dashboard of my car....
"Plastic Jesus" (1957) written by Ed Rush and George Cromarty, made famous by the Gold Coast Singers and the 1967 movie "Cool Hand Luke."
The equivalent of a "Plastic Jesus" for people trying to sell their rapidly depreciating homes during the current housing bust might be a plastic statue of St. Joseph, buried upside down in the yard, next to the FOR SALE sign.
This sounds like an urban legend, but it's a tradition that has been around in the U.S. since at least 1984, according to sources I've discovered on the internet. For more on this "tradition" see: www.snopes.com/luck/stjoseph.asp.
The upside down part of the patron saint of carpenters resonates strongly, because many houses on the market these day have what real estate professionals call an "upside-down mortgage."
This happens when the remaining mortgage balance is higher than the actual home value, and has been observed in California's Central Valley, Nevada, Florida, Michigan and Ohio, to name just a few states.
On this site, we've thoroughly documented the spike in foreclosures, thanks to the excellent data supplied by www.realtytrac.com.
When a bank auctions a repossessed home, they typically will set the starting price to equal the remaining balance on the mortgage loan. If the property fails to sell, it becomes the banker's worst nightmare, a REO or "real estate owned. The bank will typically try to sell it at a loss later.
I hate to say I told you so (not really!) but three years ago almost to the day, Feb. 21, 2005, on this site I reviewed a book about the real estate boom, authored by David Lereah, the then chief economist of the National Association of Realtors. The title: Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade—And How to Profit From Them. Here's the link: http://www.huntingtonnews.net/events/050221-kinchen-bookreview.html
In my review, I threw cold water on what I considered Lereah's "irrational exuberance" regarding residential real estate. I didn't like the excessive use of creative financing and said that there would come a time when the boom would end and the piper would have to be paid. And so it came to pass that my comments came true with a vengeance. I don't claim any special powers of clairvoyance: I just recalled all the housing booms and busts since I began covering real estate in Milwaukee back in 1970.
On Feb. 22, 2008, the New York Times published an excellent story on proposed solutions to the upside-down crisis headlined "Rescues for Homeowners in Debt Weighed."
Reporters Edmund L. Andrews and Louis Uchitelle (I reviewed his outstanding book entitled "The Disposable American" when it appeared in 2006, see my review at: http://www.huntingtonnews.net/columns/060521-kinchen-review.html) detail how the Bush administration and Congress are pondering "costly new proposals for the government to rescue hundreds of thousands of homeowners whose mortgages are higher than the value of their houses."
Frankly my dear, I don't give a damn about these hapless folks. They made their bed in houses they couldn't afford and shouldn't have bought, so why should the rest of us, prudent to a fault, rescue them. Really, this is a form of socialism for the rich, or at least people who thought they were rich enough to buy these houses in the first place, and free enterprise for the rest of us.
This sounds like a heartless attitude on my part, so if you don't like what I've said, e-mail me at davidkinchen@hotmail.com and beg to disagree -- or agree -- as the case may be. But read the excerpt from the New York Times below first before you blast me with an e-mail f-bomb!
*****
From the New York Times story:
"Stuart Breakstone, a lawyer in Memphis, and his wife, Lori, owe about $670,000 on their home.
"Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody’s Economy.com.
"Administration officials say they still oppose any taxpayer bailout for either people who borrowed more than they could afford or banks that made foolish loans during the height of the speculative bubble in housing.
"But with the current efforts to arrest the housing collapse so far bearing little fruit, Washington is being forced to explore new ideas, among them the idea of a federal mortgage guarantee for troubled borrowers.
"And policy makers are listening to proposals from industry and community groups to use government funds to purchase and refinance billions of dollars in mortgages now in danger of default.
"Many owners are only gradually becoming aware that their homes would sell for less than the debt against them — a phenomenon, said Richard T. Curtin, director of the Reuters/University of Michigan Surveys of Consumers, that is 'beginning to weigh on people, making them uncertain and nervous about the future.'
"That nervousness is evident across the country, particularly in places like Memphis, a city of nearly 1.3 million people where falling home prices and negative equity are new experiences.
"The housing slumps of the mid-1970s and late 1980s were confined to the coasts. The current bust, while leaving some cities relatively unscathed, has cut a far wider path and it comes just when home debt is at its highest level since World War II.
"For Stuart B. Breakstone, the problem hit home when he was forced to come to the closing on the sale of his eight-year-old custom-built house with a check for $65,000. The money, out of his own pocket, was to pay the difference between what he still owed on the mortgage for his home and the lower selling price.
"Mr. Breakstone, a 42-year-old lawyer, and his wife, Lori, chief of customs agents at Memphis International Airport — who together earn more than $250,000 a year — managed to extricate themselves by paying off the mortgage. But millions of others are trapped in their homes. They have jobs, make their mortgage payments on time, but cannot raise enough cash to cover the shortfall.
Some eventually default, surrendering to foreclosure. But the vast majority — embedded in their communities, their children in public schools, their reputations at stake — wait nervously in hope that prices will bottom and rise once again, eliminating their negative equity and restoring their freedom to sell or refinance.
"'People can’t believe this is happening to them,' said Robert Moulton, president of the Americana Mortgage Group in Manhasset, N.Y.
In Washington, it will be difficult to engineer a bailout similar to the one for savings and loan companies in the early 1990s, because Democrats and Republicans alike cringe at the very word bailout and fear a backlash by people who never became overextended.
But with millions of homeowners already underwater and the prospect that millions more may face the same situation, Democrats and Republicans alike are scrambling for ideas to keep people from simply walking away from their homes and to help those struggling to pay
"Bank of America, which is in the process of acquiring Countrywide Financial and has potentially huge exposure, has circulated a proposal to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans.
"The bank warned that tightening credit conditions were leading to “escalating levels of delinquency and default among borrowers” and “an unprecedented number” of homes that would enter foreclosure.
"Administration officials have given the Bank of America plan a cold reception. But the idea is similar to one proposed by Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate Banking Committee.
"The Federal Housing Administration, meanwhile, is examining ways to expand its new insurance program, known as FHA Secure, to help people replace their costly subprime mortgages with federally guaranteed fixed-rate mortgages. Mortgage industry executives have complained that the F.H.A.’s eligibility requirements are so restrictive that the new program has helped only a trickle.
"Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, has ordered his staff to come up with options for a broader rescue bill. An aide to Mr. Frank said his bill would, among other things, allow the government to buy up at least some troubled mortgages.
"For Americans caught in a mortgage trap and owing more on a home than it would sell for, consumer spending and confidence are the most immediate casualties, Mr. Curtin reports. But the damage goes deeper.
"People cannot move easily to jobs in other cities if they have to sell their homes at a loss. The $168 billion federal stimulus package is likely to be less effective than intended because many homeowners may simply use their government checks to pay down their debts. Housing prices in Memphis fell by 2.5 percent last year, only the second decline since records began to be kept in 1968, and by far the largest dip, according to Chandler Reports, which gathers this data for Greater Memphis.
"The Memphis metropolitan area highlights the larger national trend, with the average first-mortgage debt, at $153,764, edging above the average home price, $152,815, for the first time. And that does not count refinancing and home equity loans, as well as closing costs.
"Collie Tuttle, in her early 60s, is caught in this bind. Four years ago, she purchased a newly built four-bedroom three-bathroom house in the Memphis outer suburb of Olive Branch, Miss., for $270,000. She put nothing down, relying on her six-figure income from selling furniture to pay down the mortgage, reducing it to $248,000.
"But then she lost her job, and in her next one — also selling furniture, but at lower pay — she is being forced to choose between her home and the rest of her life.
“'It was a big mistake on my part to buy this house,' she said. Divorced, with two grown sons, she rattles around in it alone. She had thought the house would add to her wealth.
"But now, to sell it for the $269,000 a potential buyer was recently willing to pay, 'I would have to come up with $6,000 from my pocket,' Ms. Tuttle said, explaining that she cannot afford to invade her meager retirement account. 'All I’m asking is for enough so that I come out even.'
"Her house payments and utilities come to nearly $2,400 a month. That is affordable, she said, on her present income. But very little is left over to replace her 11-year-old car, to travel, to pay down her credit card debt, or even to buy new clothes."
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