Boston Fed study finds link between appreciation, defaults

[SeanO]

From Inman News today http://www.inman.com/hstory.aspx?ID=65399

I thought this was interesting on two points:

1. Finally some recognition that price declines have been the primary driver of foreclosures to date:

"We attribute most of the dramatic rise in foreclosures in 2006 and 2007 in Massachusetts to the decline in house prices that began in the summer of 2005," the study concluded. While subprime lending played a role, the role was "in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages."

2. Another "fix" in the works:

Treasury Secretary Henry Paulson today said that the Bush administration is proposing that state and local governments be allowed to temporarily broaden tax-exempt bond programs to include mortgage refinancings. Current law allows states and localities to issue tax-exempt bonds only to assist first time homebuyers or homebuyers in designated "distressed areas."

Sean

[jk]

Re: Boston Fed study finds link between appreciation, defaults

these would be the same state and local governments with their short term funds frozen by the presence of toxic debt? [e.g. florida, montana and connecticut] with their pension plans poisoned with toxic debt? with their tax bases eroding out from under them? now they should issue bonds to fund subsidized mortgages to lock in the losses on the junk they've bought.

later: just realized some investment bank can make fees underwriting those subsidized bonds. yum.

[SeanO]

Re: Boston Fed study finds link between appreciation, defaults

these would be the same state and local governments with their short term funds frozen by the presence of toxic debt? [e.g. florida, montana and connecticut] with their pension plans poisoned with toxic debt? with their tax bases eroding out from under them? now they should issue bonds to fund subsidized mortgages to lock in the losses on the junk they've bought.

later: just realized some investment bank can make fees underwriting those subsidized bonds. yum.

Thought you'd like this one. I posted it especially for you. :-)

[metalman]

Re: Boston Fed study finds link between appreciation, defaults

From Inman News today http://www.inman.com/hstory.aspx?ID=65399

I thought this was interesting on two points:

1. Finally some recognition that price declines have been the primary driver of foreclosures to date:

"We attribute most of the dramatic rise in foreclosures in 2006 and 2007 in Massachusetts to the decline in house prices that began in the summer of 2005," the study concluded. While subprime lending played a role, the role was "in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages."

2. Another "fix" in the works:

Treasury Secretary Henry Paulson today said that the Bush administration is proposing that state and local governments be allowed to temporarily broaden tax-exempt bond programs to include mortgage refinancings. Current law allows states and localities to issue tax-exempt bonds only to assist first time homebuyers or homebuyers in designated "distressed areas."

Sean

good catch. from "Boston Fed study finds link between appreciation, defaults" the headline "Price declines will determine extent of subprime crisis" doesn't follow. they should have said, "Price declines will determine extent of mortgage debt crisis" because price declines will hit all mortgages purchased or refinanced between 2003 - 2005.

did you see hank on tv with his mortgage bailout hotline? call...

1-888-999-H-O-P-E

"hope is just a phone call away."

i'm not kidding!

i got a number for hank: 1-439-277-H-O-L-E (yeh, that's hey asshole)

he calls is and i answer. i gotta two words for him and they ain't "happy birthday"

[World Traveler]

My Experience in Houston Housing Bust

I've lived in Houston area over 30 years. As I've posted before, I got caught in '80's housing bust. We bought in 1982 (at peak) and similiar houses in our subdivision were selling for 60% of our purchase price by 1988 (40% decline).

I witnessed multiple waves of foreclosures starting 1984.

Wave 1, people who lost their jobs were the only ones who walked away.

By 1986, it was clear that "homeowners" could not get their purchase price back if they tried to sell their house. Too many bank foreclosures in the area, and banks willing to unload cheap.

So Wave 2 started. People who wanted to sell for whatever reason (re-locate, divorce, move to another part of Houston, etc.) simply left and let the bank foreclose on their house. They did not want to or could not afford to sell the house at a substantial loss, ie. they could not compete with the lowered prices caused by Wave 1.

Wave 2 was actually bigger than Wave 1. It is absolutely right that if too much house price depreciation occurs, many people find foreclosure a better option than losing a substantial sum of money by selling house.