Homeowners in Foreclosure Find a Rent-Free Approach • Hacker News Board

Re: Homeowners in Foreclosure Find a Rent-Free Approach

#61

Post by anamax » Tue, Jun 01, 2010, 9:54 PM UTC

MichaelSalib wrote: post #58

yummyfajitas wrote: post #54

Earlier quoted context omitted.

Why does increasing the supply of available homes (and thereby lowering prices) hurt the rest of us?

If the former owners in question leave the houses they're occupying, then they'll go live somewhere else. Which wouldn't change the supply of available homes. It might lower prices, but I'm not sure why you would consider that a problem in and of itself: at the margin, that helps renters and hurts owners. Our society goes to great lengths to transfer cash from renters to owners, so a tiny change in the opposite direc…

> If the former owners in question leave the houses they're occupying, then they'll go live somewhere else.

> And leaving the current home they're in vacant will reduce its value.

You're assuming that these houses will be left vacant.

In almost every case (outside Detroit) there are plenty of people who would be willing to pay for those houses at the right price. Why shouldn't we let them do so?

Yes, the "right price" is probably a lot less than what the bank is owed. They should take the loss for dumb lending.

Re: Homeowners in Foreclosure Find a Rent-Free Approach

#62

Post by MichaelSalib » Tue, Jun 01, 2010, 10:24 PM UTC

anamax wrote: post #61

MichaelSalib wrote: post #58

Earlier quoted context omitted.

If the former owners in question leave the houses they're occupying, then they'll go live somewhere else. Which wouldn't change the supply of available homes. It might lower prices, but I'm not sure why you would consider that a problem in and of itself: at the margin, that helps renters and hurts owners. Our society goes to great lengths to transfer cash from renters to owners, so a tiny change in the opposite direc…

> If the former owners in question leave the houses they're occupying, then they'll go live somewhere else. > And leaving the current home they're in vacant will reduce its value. You're assuming that these houses will be left vacant. In almost every case (outside Detroit) there are plenty of people who would be willing to pay for those houses at the right price. Why shouldn't we let them do so? Yes, the "right price…

You're assuming that these houses will be left vacant.

Many will be left vacant for some time. Foreclosure is a slow process, even when the mortgage holders are not fighting you every step of the way.

In almost every case (outside Detroit) there are plenty of people who would be willing to pay for those houses at the right price. Why shouldn't we let them do so?

According to the statistics compiled by CalculatedRisk, that seems unlikely [1]. Many housing markets (not just Detroit) are still very sluggish. There may be tons of buyers for properties in hip urban areas where most HNers live/work, but most foreclosures have been happening in suburban/exurban areas whose real estate markets are still in the toilet. The national housing market has a very large stock of uncleared inventory, so vacancy should be the default assumption until that inventory returns to normal.

This article [2] suggests that you're wrong regarding homes in Ohio. If there were really "plenty of people who would be willing to pay for those houses at the right price", then I don't we'd be seeing banks walk away from foreclosed properties and abandon them.

[1] http://www.calculatedriskblog.com/2010/05/existing-home-sale...

[2] http://www.cleveland.com/news/index.ssf/2009/07/bank_walkawa...

Re: Homeowners in Foreclosure Find a Rent-Free Approach

#63

Post by yummyfajitas » Tue, Jun 01, 2010, 10:34 PM UTC

MichaelSalib wrote: post #60

yummyfajitas wrote: post #59

Earlier quoted context omitted.

If the former owner downsizes, moving from a large home to a small one, the supply of housing goes up. And I don't consider lowering prices to be a problem. Leaving immediately would encourage the bank to sell the house as quickly as possible to a new owner. The new owners would be more likely engage in maintenance of the home (why fix the roof of a house you are going to be kicked out of) and the new owners will be…

Leaving immediately would encourage the bank to sell the house as quickly as possible to a new owner. In many parts of their country, there is a large excess of supply, so it is unlikely that a quick sale is possible. Which means that the house will likely sit on the market for 6-12 months. In some areas, banks are walking away from properties they foreclosed upon, legally abandoning them. The responsibility for main…

Concerning bank abandonments, that's interesting. Obviously if the bank abandons the home, the homeowner can legitimately live there.

As for fixing the roof simply because it makes the home uninhabitable, I don't buy it. Unless the fix were cheap, I suspect most people would probably just leave. Why spend $5,000 fixing a home you will be kicked out of, rather than just move out? Or instead of moving out, you could just put a bucket under the leak and move your bed, on the theory that you'll probably be kicked out before the leak gets that much worse.

Regarding mark to market accounting, my understanding is that a mortgage is treated as a "held to maturity" asset, while a defaulted home is treated as an "available for sale" asset and must be marked to the market. Thus, the bank must mark the loss only when the home is foreclosed on (not sure when in the process this rule kicks in).

And yes, it benefits banks at the expense of investors. Personally, I see value in preventing this.

Re: Homeowners in Foreclosure Find a Rent-Free Approach

#64

Post by anamax » Wed, Jun 02, 2010, 4:22 AM UTC

MichaelSalib wrote: post #62

anamax wrote: post #61

Earlier quoted context omitted.

> If the former owners in question leave the houses they're occupying, then they'll go live somewhere else. > And leaving the current home they're in vacant will reduce its value. You're assuming that these houses will be left vacant. In almost every case (outside Detroit) there are plenty of people who would be willing to pay for those houses at the right price. Why shouldn't we let them do so? Yes, the "right price…

You're assuming that these houses will be left vacant. Many will be left vacant for some time. Foreclosure is a slow process, even when the mortgage holders are not fighting you every step of the way. In almost every case (outside Detroit) there are plenty of people who would be willing to pay for those houses at the right price. Why shouldn't we let them do so? According to the statistics compiled by CalculatedRisk,…

The CalculatedRisk stats say that houses aren't moving at current prices. That says nothing about what they'd do at lower prices.

Even if all that happens is "move up", things are better for the folks who got to move up. (And there's less net economic loss if we lose the inexpensive places than the more expensive ones.) More likely, you'll get smaller and more households, as the run-up to the burst had people living together for economic reasons.

Since I said that Detroit wasn't an exhaustive list, it's curious that another member of the list would be considered disproof.

Note that Ohio's proposal, forcing banks to offer for sale, does what I suggested - it puts things on the market.

Note that banks walk away because they let the real liabilities grow while they kept thinking that their book value mattered. Wipe out the liabilities and stop them from growing, as the Ohio proposal does, and there's something there. More to the point, there's more there the sooner that happens.

I'm sure that there are some places that won't get a bid even at 0 reserve and no liabilities. However, I see no reason to treat everything that way because most will get a bid. (I know folks who wanted to buy blocks of Detroit for the right price, but weren't willing to take the liabilities.)