I have posted numerous times about the impacts of the defacto-squatter economic “policy.” I say policy because I truly feel this is a deliberate and flawed attempt to socialize more losses, leaving the burden for taxpayers, Treasury creditors and future generations, in much the same way that losses to banksters were socialized. I use the word “squatter” loosely to include those who have no intention of fulfilling their contracts and are mostly just exploiting the lax approach taken to remove them.
The latest data released last week by the Mortgage Bankers Association shows that as of July 31, roughly 4.5 million borrowers were 90 days or more delinquent on their mortgages. By contrast, foreclosures were initiated on just 612,000 homes. Of the 2.3 million homes that received foreclosure notices last year, only a third were actually repossessed by year end, according to RealtyTrac. As of 2Q (see chart), only 440,000 were in REO status.
Allowing squatters to persist not only postpones the day of reckoning but is costly in terms of bank cure (loan recovery) rates. The average time to actually complete a foreclosure is now is a whopping 469 days, affording lots of opportunity for squatters to capitalize on the situation and “make the best” of it. The banks are bad enough, but the GSEs are the ones really missing in action.
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Squatter successes no doubt encourage even more squatting by others. Basically, this means that if the average mortgage is $1,200 a month, the squatter gets $12,000 in free housing per year. Multiplied by all 4.5 million “beneficiaries” of squatting, it equals about $70 billion annually that is freed up to cover other debt payments and cover other bills. Combined with never ending unemployment benefits now received by 4.9 million, many Americans have found a nice gig for the time being. I wonder how much double dipping from both sources there is? Does this help fill gasoline tanks? I think so, as gasoline demand is still running high, as is gas inflation.
Even as there is inflation in some essentials that non-squatters use, there is definitely deflation elsewhere, such as in housing. The thinking must be that somehow by keeping distressed sales off the market, housing prices will avert further collapse. In reality, what happens is that 4.5 million squatters who should be renter, don’t have to pay for rent and no longer represent economic demand or support for the sector. As if a glut of housing isn’t bad enough, now we see in this Real Estate Channel article just how lousy the rental market is and how many vacancies there are.
Is this really a big surprise or mystery? I couldn’t think of a better policy to ensure that those who are trying to ride this out via renting out properties are pressed to the wall. Want to end this vicious cycle? Might I then suggest ending the squatter racket and putting these people back into the rental demand market. In other words, clear the market or expect more maladjustments. What investor in their right mind would bid for rental properties with this going on? If I were a major homebuilder or apartment commercial real estate kingpin, I would be lobbying hard for this to end.
As far as housing prices go, economists at Morgan Stanley said it best:
We do not believe that prices are actually improving for any part of the housing market, except possibly certain foreclosure markets due to a shortage of foreclosed inventory from the recent drop-off in liquidations. … This drop-off has nothing to do with fewer people becoming delinquent. … Instead, it has to do with banks and servicers reducing the rate at which they take back the properties.
All this goes along way toward fouling attitudes among homeowners as well. With nearly 30% underwater anyway, what percentage might be tempted to try the roulette wheel of squat versus pay. The signals are pretty convincing.
- A survey conducted by Harris Interactive for the National Apartment Association in May 2010 found that 76% of those surveyed now believe that renting is a better option than buying in the current real estate market, up from 71% in 2008. Especially sobering was the fact that 78% of those surveyed were homeowners.
I end with an article concerning the fine print on three of the TBTF banks’ financial supplement reports. It seems these $60 billion in NPL are “unidentified” Gumnut-sponsored agencies’ problems.
- From article: There in footnote (a) is your answer and prima facie evidence of the next bank bailout. These bad loans are insured by U.S. government agencies. Which agencies, you ask? So do I, because the bank doesn’t identify them. But the most likely culprit is the Federal Housing Administration (FHA), which insures residential mortgages.
Disclosure: Author holds a position in DSCP
