Sunday, August 16, 2009

Two Articles on the Causes of Foreclosures

The Las Vegas Sun offers a summary of two very interesting studies.

2 comments:

Don said...

The ability to walk away largely rests on this, doesn't it?

"If the mortgage is a non-recourse debt (which is often the case with owner-occupied residential mortgages in the U.S.), lender may not go after borrower's assets to recoup his losses."

Also, I thought that you were arguing that people would choose to become unemployed or remain unemployed in order to qualify for means tested foreclosure help. I argued that there were competing incentives and disincentives, and that, overall, the program could be a plus. Note this from the article:

“If people look at walking away for purely an economic decision, we are going to have a lot more people walking away from their homes,” Aguero said."

Of course, that's an 'if'. That's because:

"The social stigma of default lessens if others are doing it, Zingales said."

That means that there is a social stigma. Believe or not, in some families, refusing to work if you can comes up against social stigma. Also:

“I think it depends on how people perceive the economy and if they see home prices rebound,” Zingales said. “They will hold off and not walk away. But it they don’t see things improving, they will lose hope, and there can be massive defaults.”

Well, the foreclosure plans that the govt offered were to help home prices stabilize, among other things. Also, that's a reason for the stimulus. If the govt is seen investing in the future, it inspires confidence. It doesn't even matter if it's a placebo effect, since, as we just read, perception of the future can influence the decision to default. The stimulus was more than infrastructure, in any case.

"So home prices in the coming months will be a clue to what happens, the experts said. It’s a function of value and how people influence one another."

That's what I've been arguing. It applies to not taking a job as well.

Finally, Las Vegas has the problem of being hemmed in by the surrounding govt land. I've yet to read a great study of how this influenced the Las Vegas market.

Don the libertarian Democrat

PS This also applies to Barro on WW II. Overall, I agree with the gist of what he recommends:

http://caseymulligan.blogspot.com/2009/01/robert-barro-looks-at-wartime.html

But, during wartime, spending is influenced by severe social stigma. What can be termed conspicuous consumption in peacetime, can be called treason during wartime. The pattern of spending is very different between peacetime and wartime. Well, at least in World Wars.

Don said...

Here's an interesting post:

http://dmarron.com/2009/08/18/the-charming-world-of-las-vegas-real-estate/

"The juiciest part of the article recounts how real estate agent Brooke Boemio advises clients to exploit the realities of the collapsed housing market:

Boemio specializes in short selling, in a particularly Vegas way. Basically, she finds clients who owe more on their house than the house is worth (and that’s about 60% of homeowners in Las Vegas) and sells them a new house similar to the one they’ve been living in at half the price they paid for their old house. Then she tells them to stop paying the mortgage on their old place until the bank becomes so fed up that it’s willing to let the owner sell the house at a huge loss rather than dragging everyone through foreclosure. Since that takes about nine months, many of the owners even rent out their old house in the interim, pocketing a profit."

Don the libertarian Democrat