Irvine Housing Blog

Owners Stop Paying Mortgages, and Stop Fretting

ST. PETERSBURG, Fla. — For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”

Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

While there are no firm figures on how many households are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of overextended borrowers taking the “free rent” approach is on the rise.

There is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time.

More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.

But this is inevitable in a society that is conditioned to ‘always have it all’.  How many times have we seen lottery winners and NBA superstars end up broke after a few years?

A consumption based economy must inevitably reach where we are now.

Perhaps if we truly start referring to HELOC abusers as thieves - we may see some change.

But I am not hopeful.

IrvineRenter: “the ability to do math clearly demonstrates that strategic default is wiser”

It goes well beyond math.

For example: imagine that strategic defaulter is in court, and I am on jury duty. IMHO, justice without morality is wrong, and it is moral to protect society from thieves. Sorry, but, please, do not expect any slightest sympathy from me.

One question I would pose to strategic defaults is where are you going to live when you are evicted out of your house?  Maybe landlords and property management companies do a background and credit check.

As a landlord now, if you are not paying in cash up front for the lease and your credit and background is shoddy, I tack on 20% to the total price (really I give a discount to others, but hey) 

Personally I don’t like the strategic default option, but there is a lot of positive that would come from it (if the government doesn’t interfere so much and banks really do evict trespassers/squatters). 

For example, I look at Zillow and in Florida 1.9% of all homes sold are priced at 900K+.  That is logical as in the top 2% of household incomes (250K+, according to government) could realistically afford a 900K+ home.  Now look at what is for sale, 5.1% of homes for sale are listed over 900K.  Assuming you can negotiate 10% off a 1M home and buy for 900K, you still have 4.5% of the homes listed at 1M+. 

Do this exercise in just about any state and you will see that what somebody can afford lines up with what sells, but not what is listed.  Most listings are listed high because of the debt that is owed on the property.  So how do we reduce the listing prices to come within 10% of realistic purchase prices(this would take a 20-50% reduction in list price depending on the price range)?  Answer could be strategic defaults, or just letting the market slowly drop for another 5 or 6 years.

More power to the “homeowners”. The banksters set all this up just as nice as pie, expecting the ethics and morals of the american people to keep them paying simply because it’s the “right” thing to do.

The american people will only play the fool for so long. The common man knows the whole system is run by fraud and the corrupt are getting rewarded. The homeowners defaulting are well aware of the hyprocritical stance of the wealthy and those whom bought before the fraud. The ones with massive “equity” are only scared that their INVESTMENT will drop to mere pennnies and will try anything in order to get people to support the housing Ponzi scheme.

I hope home prices drop another 50%, and the average american family can once again, afford to buy a home, rather than just DINK’s (dual income no kids), baby boomers who got lucky and bought before fraud, and the rich whom just pass a $100,000-200,000 down payment to their kids.

The government (or those behind it, the globalists) want out private property, and they want our guns. So far with Obama in office, things are going according to plan.

“After writing about this for over three years, when I see someone who stole $422,400 and squatted for almost 2 years, I am rather numb to it all.

If someone robs a bank and gets $20,000, it makes headlines and someone goes to jail, but when someone steals nearly half a million dollars through a mortgage, nobody notices.

If someone breaks into a vacant house and squats for a couple days, the police are called out to remove them. If someone quits paying their mortgage and squats for a couple years, nobody notices.

If someone had told me these would be commonly accepted actions a few years ago, I wouldn’t have thought it possible. Yet here we are. I am uncomfortably numb.”

So why are you so goddamn sympathetic to the same person who is now underwater?  You are talking out of both sides of your mouth.

This is a commercial strategic default.

This is a commercial strategic default.
Please read at….

http://lansner.freedomblogging.com/2010/06/01/irvine-office-tower-goes-back-to-lender/67481/

Read this for commercial strategic default story
in Irvine…...

http://lansner.freedomblogging.com/2010/06/01/irvine-office-tower-goes-back-to-lender/67481/

Any word on the status of Cal senate bill 1178 sponsored by Corbett that would remove the personal liability when re-financing a purchase money mortgage? It would not apply if additional money was taken out and would not apply to heloc or second mortgage refinancing. It would limit the lender’s recourse to taking back the property in a default as does an original purchase money mortgage now.

Under $2500 a month for 2500 sq. ft. and 5500 sq. ft. Lot?

Dare I say below rental parity in Irvine?

The answer is No, incomes have not doubled. Here is the data source:

http://www.melissadata.com/lookups/TaxZip.asp?Zip=92620

IR wrote: “After writing about this for over three years, when I see someone who stole $422,400 and squatted for almost 2 years, I am rather numb to it all.”

Apart from free squating, the loss to the bank will be a lot less than $422,400 if the house sells for $675,000. Also, why use the word “stole” in this case?

IrvineRenter,
The Delorean case was totally different.  The defense was that an agent of the US govt. threaten Delorean with death and the death of his family if he did not smuggle the cocaine and that there was bad faith prosecution (misconduct) in claiming the govt did not have those death threat audio recording.

The squatters do not have a right to squat for years of taxpayer funder rent.  The years of squatting is a post-contract benefit given by the bank.  The banks can FC after 90 days in CA for the NOD followed with a TS sale or use a judical FC.  The years of squatting is a benefit or more of a CO-CONSPIRACY to keep up the high house prices and to transfer upon a regular sale/mortgage to liability from the banks to the taxpayers.  The non-paying borrower is benefiting with free rent and taxes, the banks are benefiting from recognizing the loss on the house.  Banksters (the leaders) and sqatters (the followers) are co-conspirators.  The taxpayers will get hosed again (post election).

The wild cards are retroactive changing of the law by the legistrators or by local judges in making formerly non-recourse loans into recourse loans or removing the single action clauses.  Even if the ruling are won of appeals, it the indivdual case is not appealed on time, then tough luck for the debtor. 

Either way, my predictions are at least 5 huge hosing for the taxpayers.  Bush’s 1.5 trillion was the first, Obama’s 3 trillion was the second, commerical RE will be the third, European & CA sovereign debts will be the forth, roosting of the new home loans will be the fifth. 

Swiller,
You’re in grave error on the Democrats vs. Republicans.  There both with the banksters.  Read on what FDR did for large business vs. what Teddy Roosevelt did.  Then looks at what both parties did post WWII.  JFK might be the most economically conservative president in the 20th century.

All this talk about how horrible these borrowers are make me sick.  Of course they made a stupid decision, haven’t we all?  I am sure they are not proud of what they did and are constantly surrounded by guilt, shame, and hopelessness.  So is it good to kick a dog while he’s down?  These people need help, no matter what they did in the past.  This is the perfect opportunity for people to show compassion; instead of complaining about the situation, help someone organize their finances, instead of spewing hatred, try to realize you might be in their shoes one day (bad business deal, health issues, being sued, etc.), instead of being condemning, realize these people are human beings and deserve a chance to redeem themselves.  Or you could just continue to boast in your superior intelligence and financial know-how while you mock all those who are not like you.  If you are the latter, you will be forgotten before your funeral is over.

IR,
  You started this post w/a pet peeve of mine -
“many know it’s not too late and their walking away”

Don’t you mean “they’re” instead? You talk about wanting to improve your writing but you’re having problems w/this & w/spelling? (Last post had an “and” when you meant “an”) Yeah it’s a nitpick but every time I see a “their/there/they’re” or similar oops it makes it tough to resume reading…

You write: “I like the idea of rent-based payment cram downs. Underwater loan owners are renting from the bank anyway. If lenders believed their loans could get crammed down to rental equivalence levels.”  ... Yes, I like them too, but I don’t think that is what is going to happen. I think a black-swan event is coming soon, like out of the blue, and then a liquidity evaportation. Over at Stockcharts.com, the ten year US Note ETF, IEF, was barely up on a down stock market day; its chart pattern looks weak; so I look for a number of failed Treasury Auction failures; and an economic breakdown; and then, the banks, I think, will force the squatters out and lease the properties.   

A rent-based payment cram-down would cause an immediate reduction of book value on the bank’s balance sheet; where as on a lease program, perhaps the bank can keep the property inflated at the current mark to fantasy allowed under FASB 157.

You have mentioned in previous articles that you favor debt elimination/debt liquidation. I’ve been following the Greek Debt Crisis quite a bit, and believe Global Governance is coming to Europe, and yes soon to the US as well.

I have reference by link the article entitled   Greece Reschedules Hospital Debt by Alex Korbel; it relates that Greece as a nation is simply going to write off, eliminate and liquidate billions it owes to pharmaceutical companies. I wonder how the companies and share holders feel about that.

You write: “If someone had told me these would be commonly accepted actions a few years ago, I wouldn’t have thought it possible. Yet here we are. I am uncomfortably numb” ...  When I first read about the interpretation and application of FASB 157, I was shocked, I was stunned. It took me several weeks to come to accept the truth and its implications. Now, I think to my self at times, I wish, I could have been so shrew as to act on the FASB 157 entitlement. But then again, I am thankful for the little place I rent, and the privacy and simple comforts I have, and I know this world is soon passing away and I will be departing for a better age.