Tuesday, July 29, 2008

American Proffessionals Contemplate Engineered Reposession

America's house price time bomb

As Bush contemplates massive intervention in the US mortgage market a little known quirk of US law threatens to drive down house prices even faster.

Posted by enuii @ 05:14 PM (1568 views)
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17 thoughts on “American Proffessionals Contemplate Engineered Reposession

  • The little-known quirk is the fact that most Americans can simply hand the keys back to the bank, thereby avoiding negative equity. Normally if the negative equity is just 5%-10% then it’s easier to just stay put and pay it off, so historically people rarely handed back the keys. However some properties have fallen 40% or more so there is a huge incentive to just give up.

    “under a legal quirk originating in the Great Depression of the 1930s, banks cannot easily pursue borrowers for any balance outstanding on the main mortgage on their homes”

    I suspect this ‘quirk’ was first introduced to help people with huge debts during the Depression; but these days in the United States business comes first and people come last.

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  • last_days_of_disco says:

    Wow, this is great. No such luck for us in the UK.

    Take direct revenge on the banks for pushing through that legislation, just refuse to pay, vote with your feet. Great.

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  • Just out of interest, does anybody know what the rules are if you emigrate and abandon a massive debt in the UK? Can UK banks pursue debtors in Australia or wherever?

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  • If I had known about the madness in the US housing market that is subprime and jinglemail I would have been a bigger bear on the whole financial system along time ago. Warren buffet might have known about CDO etc but this total lack of security if things go wrong is extraordinary

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  • It’ll be interesting to see how quickly congress acts to close this “little-known quirk”. IMHO the banks are simply reaping what they have sown; their irresponsibility is being reciprocated by the home owner.

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  • Tick Tick Tick, sad thing is many UK pension funds have bought into the US housing bubble and are going to take a massive write down when the average Joe realises that the negative equity is one cross they need not bear!

    Hell if you’re in large negative equity, you might as well clear all the other dbts before the mortgage, because they can’t hunt you down.

    This single item makes not walking away from a house in negative equity actually look like the smart thing to do, sure you get a bad credit rating for 5 years, but when no one else is going to be lending for 5years, the smart money walks.

    Gunna make the average repo rate in the US absolutely rocket and the further the market falls the more incentive to jingle yourself into rented accomodation, One can’t help but wonder if the ratings people ever factored this little bit of legislation into their AAA ratings.


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  • Evening Guys & Gals

    Been a bit busy – it was a boy !

    Drewster, I think they can pursue you – providing they can find you.

    This is quite incredible news which I guess we already new about but perhaps didn’t realise quite how it was playing out.

    BTW I went to a house auction today in London.

    I was interested in a repossession.

    4 bed det with doub garage on estate in Hampshire. Had been on the market for £370k. Apparently there was a sale going through at £350k but they had to exchange before today and didn’t (why would you?)

    Anyway auctioneer tried to get things going at 300k – no bids, 290k – no bids. 280k – a supposed bid and then one at 285k and then no more (I think these were off the back wall). The auctioneer couldn’t sell at that as the figure was nowhere near enough for the mortgage company.

    Get this – the house sold back in March 2002 for 235k (which was the sort of level I’d have been intersted at).

    So someone bought a house for 235k over 6 years ago and now the mortgage is someway north of 285k and believe me none of it was on home improvements.

    Incidently out of the 1st 55 lots virtually nothing reached a price the auctioneer could sell at on the hammer, I think 10% of lots max.

    There must be quite a cost in setting up an auction and there must come a time when auctioneers will only take things on with a realistic reserve.

    The house is empty, so if it can only achieve 285k at auction, natwest/hbos must be considering doing it up (20k) and renting it out. Outherwise they would have accepted a bid and either pursued the defaulter or written the loss off wouldn’t they ?

    Does anyone know what happens to an unsold repossession ?

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  • it_is_going_with_a_bang says:

    The lender has a responsibility to get as much as they can for a property before they settle. I would think they would try auction a couple more times then eventually settle on a whatever figure the third time.

    Having said that I bought repos on sealed bids 10 years ago. So auction is only one tool. Except youcan imagine the estate agents bribes on sealed bids. Say no more !

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  • No iigwab

    Don’t say no more, what’s the going rate for winning a sealed bid ?

    I guess my point above was, particularly in a falling market, how are they going to get anymore ?

    IMO anything that’s reached auction is unlikely to achieve anymore than it’s value back in 2002 – in this case 235k as surely some risk has to factored into an auction purchase and the property has clearly failed to sell by any other means.

    Maybe this case is exceptional as to the level of mortgage against it. But if it’s the norm then someone is going to be taking an almighty hit. Tax payer probably !

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  • I would very much like to hear from these US guys who walked out on their mortgage and purposedly defaulted how easy it will be for them to borrow money again say in 5 years time. In the UK, CCJ are supposed to be erased after 10 years I think. I can tell you that if you default on your mortgage, you will never be able to borrow money EVER from a bank. Your credit rating is blackened for ever and rightly so.

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  • 3mnths and you’ll be looking at 1998 prices at auction and then only cash/huge deposit buyers.

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  • I hope you’re right Yoss

    But what I saw today was sellers (who you would assume are on last resort) choosing not to sell.

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  • Thanks for the link, if more people walk away the financial system will become extinct.

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  • There’s nothing ‘little-known’ about this at all — it’s called ‘jingle-mail’ over here in the States and it’s a 7cking disgrace. Don’t be cheering it on with this ‘banks getting some’ nonsense. This is the very reason that Congress is voting through the taxpayer-funded bail-out of the banks — because there’s no legal (or seemingly, moral) compunction on anyone to pay their loan back if they decide that they no longer like their terms (“…ma house ain’t worth so much no more”). This model is also what Darling Alastair is seeking to emulate in attempting to foist the same public-purse funded madness of a public mortgage bail-out on all of you in the UK. If that happens I wonder how many glib comments like the above there’ll be on HPC?

    If you think ‘professionals’ walking aay from their responsibilities is bad (or funny) you haven’t heard the half of it: people over have been consolidating their debts for the past few years (car loan, credit cards, personal loans etc.) into one big debt — guess which one — that’s right, their mortgage, because they know the law gives the lender no redress.

    I’ve been highlighting this extraordinary inequity between the US and UK systems in fora online for the past year — the danger of a mortgage bail out in the UK is the one thing that might stop the UK house price crash in its tracks — something I don’t think any right-minded person wants to see. So don’t cheer this sort of thing — get on the Telegraph, Guardian, Independent (as was), Times, BBC and Mail websites and express your anger at Labour’s intentions.

    Cause it’s you next.

    (a Brit who lives in the US because he can’t afford a home in his own country)

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  • Yes, lenders can pursue you abroad if you owe money (under UK law), and the credit reference search guys are getting very slick at tracking people. Not all foreign legal systems are cooperative though.

    The emergence of an army of otherwise respectable US citizens walking calmly away from their mortgages on the other side of the pond could provoke a ‘can’t pay, won’t pay’ movement here. That would be the nightmare scenario for the UK mortgage lenders, as they know there is a limit to the number of properties that can be repo’d and sold before that market goes into saturation and prices fall through the floor.

    Expect lenders here to work overtime to encourage borrowers in negative equity to sit it out, and continue making the payments…

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  • Andy Dufresne says:


    From the Shawashank Redemption:

    Tell you where I’d go. Zihuatanejo.


    Mexico. Little place right on the
    Pacific. You know what the Mexicans
    say about the Pacific? They say it
    has no memory. That’s where I’d
    like to finish out my life, Red. A
    warm place with no memory. Open a
    little hotel right on the beach.
    Buy some worthless old boat and fix
    it up like new. Take my guests out
    charter fishing . . . . .
    I didn’t shoot my wife and
    I didn’t shoot her lover, and
    whatever mistakes I made I’ve paid
    for and then some. That hotel and
    that boat…I don’t think it’s too
    much to want. To look at the stars
    just after sunset. Touch the sand.
    Wade in the water. Feel free.

    Goddamn it, Andy, stop! Don’t do
    that to yourself! Talking shitty
    pipedreams! Mexico’s down there,
    and you’re in here, and that’s the
    way it is!

    You’re right. It’s down there, and
    I’m in here. I guess it comes down
    to a simple choice, really. Get
    busy living or get busy dying.

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  • Charlie Brooker says:

    You’d need to pick somewhere with a big population where the authorities are difficult to deal with, either by way of corruption or incompetence or both.

    Don’t pick a former commonwealth country. Ideally pick a country that has little love for the West. There’s plenty of them.

    Apparently its illegal to obtain fake ID such a fake passport but not for millions to lie to obtain a mortgages – right here in the UK right under the authorities noses.

    I guess it really depends how much debt you’re walking away from.

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