Tuesday, February 5, 2008

US Mortgage holders don’t tough it out anymore, but we do

US Homeowners Confound Predictions

"When American households have faced hard times in previous decades, they tended to default on unsecured loans such as credit cards and car loans first – and stopped paying their mortgage only as a last resort. However, in the last couple of years households have become delinquent on their mortgages much faster than trends in the wider economy might suggest... So there has been a failure in some of the key assumptions which supported banks analysis and modelling" I wonder, will the UK follow this trend and so will UK models need revision? Perhaps the resilience of our housing market is that we have not changed yet. It is still a case of "An Englishman's Home is his Castle"?

Posted by happyrenterz @ 08:35 PM (671 views)
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5 thoughts on “US Mortgage holders don’t tough it out anymore, but we do

  • little professor says:

    The key difference is that US investors can simply walk away from properties that are worth less than the mortgage secured on them, and not be chased for the shortfall. Negative equity as it exists here doesn’t happen in the US.

    Whereas here if the lender does not recoup the full value of the mortgage at repossession, it can chase the buyer for the outstanding amount till kingdom come.

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  • LP – I find that hard to believe – can anyone else confirm, and/or point to evidence of this?

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  • little professor says:

    Oooh, so many sources:
    http://business.theage.com.au/americans-walk-from-loans/20071223-1iqr.html
    The depth of the housing crisis was underscored by the head of one of America’s largest banks, Bank of America, the straight-speaking Kenneth Lewis, who warned of a completely new attitude by Americans to their homes amid fears that as many as 20 million householders may “walk” from them, further deepening the crisis.

    Lewis’ comments came as a new expression – “jingle mail” – referring to the growing trend where Americans simply mail the keys to their homes to the lenders before vacating, entered the US lexicon.

    http://calculatedrisk.blogspot.com/2008/01/wachovia-homeowners-just-walking-away.html
    Part of the challenge is a lot of these current losses have been coming out of California, and they’ve been from people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties
    One of the greatest fears for lenders (and investors in mortgage backed securities) is that it will become socially acceptable for upside down middle class Americans to walk away from their homes. These are homeowners with the “capacity to pay, but have basically just decided not to”.

    Also:
    http://www.housingwire.com/2008/02/01/fitch-places-139-billion-of-subprime-rmbs-on-negative-watch-cites-walk-aways/
    In Fitch’s opinion the contraction in the mortgage markets has contributed to an acceleration and deepening of home price declines, and has eliminated the option to sell or refinance a home to avoid foreclosure for many borrowers. Additionally, the apparent willingness of borrowers to ‘walk away’ from mortgage debt has contributed to extraordinarily high levels of early default, which is particularly noticeable in the 2007 vintage mortgages.

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  • little professor says:

    Wow, can’t believe I managed to get do all my HTML properly this tiem.

    Try this for a frightening account of how this could blow up in the US:

    http://latimesblogs.latimes.com/laland/2008/01/a-tipping-point.html

    This is the reason the global credit system is tanking. It’s America’s dodgy lending. Most American mortgages are non-recourse, meaning the lender has nowhere to go once it has foreclosed the house and made a loss at auction.

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  • That’s the trouble – houses are no longer homes. If they were, the owners would try to hang on to them. Because houses are now seen as investments, they get dumped when the value of the investment is pointing earthward.

    In the UK this will be far, far worse given the size of the BTL problem. How many years ago was it that FTBers all but disappeared from the market? Everything since then has been speculation. Whether or not people can be chased for outstanding money is irrelevant – they will still be handing the keys to the bank in a vain attempt to try to stop losing money on their ‘investment’.

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