Results 1 to 8 of 8

Thread: a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a notch

  1. #1
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a notch

    from

    (snip)"The new 2008 year will smash that notion, as an absolute avalanche of failed mortgages will slam the bank system and financial sector in general, the majority being prime mortgages. SHOCK & AWE IS RIGHT AROUND THE CORNER ON PRIME MORTGAGES, A FACT THE BANKERS ARE KEENLY AWARE OF!!! The villainous failed mortgages have a few traits in common. These primes are adjustable rate mortgages (ARMs) with harsh resets. They contain destructive features certain to cause as much pain as laughter for their insanity. Recall they are prime mortgages with lax features resembling subprime loans without the higher rates. A reaction to the incredibly flimsy inadequate Subprime Mortgage Freeze Plan, with dire descriptions of the prime mortgage avalanche can be found in the December special report to the Hat Trick Letter, entitled "National Bailout & Looming Mortgage Disaster."

    Only 150 to 225 thousand subprime mortgages will be addressed by this flimsy HOPE NOW freeze plan, and nothing among the looming prime mortgages heading for certain default. The innovative mortgage products face ruin. Large cross sections of newer mortgages, written since year 2000, are under-water badly. Their loan balances are much greater than their home values. THE NEW PHENOMENON IN 2008 IS RECOGNITION OF ZOMBIE LOANS, ZOMBIE HOMEOWNERS, ZOMBIE CONSUMERS, AND ZOMBIE BANKS. They are bankrupt without declaration; they are walking dead. "(snip)

    (snip)"Wall Street and other major bankers continue to soil their pants. They realize several looming tragedies:

    * Prime 'AAA' mortgage bonds have lost roughly 20% of value
    * Innovative flexible adjustable mortgages are due to default in droves
    * Enormous growing list of under-water mortgages are beyond rescue
    * Big banks are facing dire insolvency threats, as new defaults approach
    * Enormous bond writedowns have only begun for big banks
    * Insolvency can turn to bankruptcy with more debt rating agency downgrades
    * Mortgage bond investors contemplate lawsuits, accusing Wall Street fraud
    * Wall Street banks face the prospect of over $1 trillion in mortgage bond buybacks
    * Rescue & remedy will trash the USDollar and catapult the gold price

    As a preface, one should know that politicians did not advance this plan. The key initiators of the HOPE NOW project were three banks. It was an alliance led by the Federal Deposit Insurance Corp (insurer of banks), along with big banks and their lobbyists from Citigroup, JPMorgan, and Wells Fargo. These banks in my opinion are insolvent, soon to be forced into bankruptcy as the next round of the mortgage debacle unfolds from the 'innovative' adjustable and option laden mortgages. They all face bankruptcy, insured by the FDIC. If lawsuits are filed and that road is traveled, declared bankruptcy is assured. The rescues to save the Ruling Elite will lift gold and trash the USDollar, as much from a new unprecedented round of monetary inflation, as from destroyed image of the US financial system. Freezes never work. When in college, my memory is vivid of the lunatic Nixon Wage Price Freeze. When it lifted, the price inflation rampage was the worst in modern history. My suspicion is that when any mortgage freeze is lifted, both mortgage rates will rise sharply and mortgage bonds will fall sharply in value.

    Few have bothered to think about the infectious disease of moral hazard, to consumer and household reactions. Many economic participants will feel left out with the current rescue, against a backdrop of watching colossal fraud go unpunished. They will possibly act destructively, an intentional effort to destroy their credit rating so they can participate in national bailouts. Many live in homes with negative home equity. They might feel above the rules, immune to impact of their actions, engrained in destructive habits, feel powerful from a reprieve, want to be included, or just not care. They will feel they have nothing to lose. The likelihood that property taxes will be paid, water & sewer fees paid, lawns mowed, hedges & trees pruned, garbage removed, broken windows repaired, holes in walls filled, driveway cracks filled, shingles straightened, liens on the property resolved, these are all in doubt in my book. Pride in ownership will turn ugly, into a free ride game. Practicalities are strained to the extreme. A zombie comes to learn to act with disregard, disrespect, and disobedience. Henry David Thoreau wrote 'Civil Disobedience' almost two centuries ago in response to the Spanish Civil War, yet another false flag self-inflicted attack. That was done to the USS Maine vessel off the Cuban coastline. Expect such disobedience to be practiced widely in reaction."(snip)


    While author Jim Willie is often overly pessimistic, his point about moral hazard is well taken. The recently announced 'subprime mortgage bailout' plan offers huge positives for the narrow group of homeowners that qualify for benefits, among them ...

    - officially reducing the total amount of dollars the homeowner must pay to his mortgage lender over the life of his mortgage ( and by a signficant amount i.e. $100k on a $500k mortgage), or put another way the actual total purchase price of his home will be officially reduced.

    - implied 'insurance' that if / when a bailed out homeowner is unable to afford his property taxes and/or home maintenance, that state / local gov'ts will step in and cover ( after all a state / local gov't doesn't want to be responsible for evicting a bailed out homeowner after the federal gov't just rescued him )

    However, in order to qualify for the gov't bailout plan, the homeowner's credit must be sufficiently bad that they have no chance of refinancing through normal channels. But as the author points out, it's fairly easy for a stressed homeowner to 'ruin' what's left of his credit ... and enjoy a few luxuries in the process ! And after 'ruining' his credit, he gets to pocket a 20% savings on the total price of his house, plus a good possibility of having somebody else pick up the tab for his property taxes / home repairs etc. As the author points out, the moral hazard that was clearly established via the mortgage bailout plan has the potential to morph into a huge 'free ride game' with little or no additional downside for the additional stressed homeowners who attempt to play this game.

    Of course, there's no such thing as a 'free ride' ...

    !
    Last edited by Melonie; 12-13-2007 at 02:23 PM.

  2. #2
    Banned Katrine's Avatar
    Joined
    Nov 2003
    Posts
    13,855
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a n

    Isn't this the same guy you referenced a few weeks ago warning his readers that the country was going to crash on a Monday?

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

  3. #3
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a n

    ^^^ as I said, Jim Willie tends to be overly pessimistic. However his point about financial zombies, who are bankrupt in all but name, is definitely valid. Also his speculation about shaky homeowners deliberately trashing their credit ratings in order to become eligible for gov't bailouts worth tens of thousands of dollars to their own pockets is probably valid as well.

  4. #4
    Banned Katrine's Avatar
    Joined
    Nov 2003
    Posts
    13,855
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a n

    Quote Originally Posted by Melonie View Post
    ^^^ as I said, Jim Willie tends to be overly pessimistic. However his point about financial zombies, who are bankrupt in all but name, is definitely valid. Also his speculation about shaky homeowners deliberately trashing their credit ratings in order to become eligible for gov't bailouts worth tens of thousands of dollars to their own pockets is probably valid as well.
    When you state it as such, it makes sense. I have observed these people. However, a good majority of them aren't going to be willing to destroy their credit and future earnings potential for this free gov. money. Some will, of course, but I am going to be optimistic and hope its not a majority.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

  5. #5
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a n

    unfortunately ...

    (snip)" Just talked to a realtor neighbor.

    She is under the impression I have been looking for a house (as I pick her brains).

    She has had some clients who are stuck with two homes (bought one before selling the other).

    I asked her for an update.

    She said they still have two houses.

    She said she is trying to convince them to borrow out as much money (HELOC I guess) as possible and then short sell or walk away.

    If this is being spread about among realtors then watch out.

    There may be alot of people who would like to "cash out" right now who are more likely to get big bucks by mortgaging to the hilt and then walking away, rather than trying to sell in this market. Perhaps you can borrow $200,000 grand on your house but may only get $100,000 grand if you priced it to sell

    The hit to FICO will probably be shortlived in this world.

    It's interesting that a realtor is not only thinking this way, but also recommending it as a strategy for her clients. "(snip)

    from a professional investor's BBS


    as to 'destroying their credit and future earnings potential', this is also likely to be subject to a sort of 'gov't bailout' a few years down the road. If one of every 10 homeowners (or higher) winds up being caught in the mortgage vise, at some point the gov't is likely to mandate that employers cannot use past credit history as legitimate grounds for 'discrimination' re new hires etc. As to the consequences of a 'fair' credit rating versus a 'bad' credit rating a year or two from now, it probably won't matter much since lenders will turn down applications from both ... and only approve 'cream puff' loan applicants with high credit ratings plus high equity / down payment money anyhow. So in reality, what has a strapped homeowner really got to lose by attempting to pocket $50k-$100k in gov't sponsored 'debt relief'.

  6. #6
    God/dess Deogol's Avatar
    Joined
    Dec 2003
    Posts
    5,493
    Thanks
    120
    Thanked 50 Times in 35 Posts

    Default Re: a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a n

    It is unsettling to think people may take that strategy, but it could also backfire in ways we never saw. Though many saw the bubble bursting and people ending up in this condition - who knows what the consequences might be for people who decide to cash out in this manner.

  7. #7
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a n

    ^^^ well, political realities being what they are, it's highly UNlikely that the potential 2 million 'zombie' homeowners will be allowed to become 'criminals'. It is also a virtual certainty that congress will permanently change IRS rules that currently consider loan forgiveness / short sale dollar gap etc. as taxable income. Thus it would appear to be a win / win situation for underwater homeowners in a gov't 'bailout' scenario, and a lose / lose situation for the mortgage investors as well as for US taxpayers and for future mortgage loan applicants.

    The 'tin foil hat' crowd will tell you that the various proposals already floating around the US congress give a pretty clear indication as to how this will eventually turn out. Fannie Mae / Freddie Mac are being positioned to become the US taxpayer guaranteed 'buyer of last resort' for all sorts of additional shaky mortgages beyond the ones that they already hold - including future mortgages that have their terms forcibly modified thus causing losses to the mortgage investor. Bankruptcy judges will be given the power to 'cram down' both the outstanding balance of existing mortgages ( to match current market values most likely ) as well as the de-facto interest rate (i.e. size of monthly payment the homeowner can actually afford to pay ).

  8. #8
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: a brand new classification - Zombie Homeowners ... plus Moral Hazard kicks up a n

    nobody really wanted to believe that Americans would take the 'easy money' zero pride cut your losses route, but ...



    (snip)"Bank of America chief executive Ken Lewis told editors of the Wall Street Journal that he's worried about borrowers with strong credit scores not making loan payments if the housing crisis worsens.

    Such concerns by the head of California's largest bank could trigger a tightening of credit availability beyond the subprime customer base.

    "There's been a change in social attitudes toward default," Lewis told the Wall Street Journal. "We're seeing people who are current on their credit cards but are defaulting on their mortgages. I'm astonished that people would walk away from their homes."

    Apparently even borrowers with strong credit scores are finding it easier to walk away from their mortgages, especially if they put little or no money down on houses and condos purchased for investment purposes.

    Lewis' remarks are all the more striking because Bank of America (NYSE: BAC) exited the subprime lending business in 2001 after deciding the risks of participating in this segment of the market weren't attractive. Not to mention the public relations black eye the bank risked by offering credit to subprime customers. "(snip)

Similar Threads

  1. Replies: 0
    Last Post: 06-29-2011, 02:29 PM
  2. Replies: 2
    Last Post: 09-15-2010, 02:56 PM
  3. Replies: 1
    Last Post: 04-29-2009, 03:32 PM
  4. Replies: 0
    Last Post: 10-04-2008, 02:10 AM
  5. Replies: 0
    Last Post: 12-16-2007, 01:49 PM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •