from the irrepressible Karl Denninger ...
(snip)"Mark Hanson (of Hanson Advisors) once again digs up a gem.
He's been on the HAMP/HAFA nonsense since it began, but today I would like to focus on one snippet out of his latest missive, to be found right here:
Uh, yeah.
Gross debt-to-income ratios of 59.8% after modification?
Folks, do you understand what this means? The average gross income of these folks is $2,702, or $32,433 annually. But their debt-service ratio, or amount of debt post-modification, is 59.8%.
That means they're spending almost as much on their other debts as they are on their house payment, even after modification.
Let's break this down.
The person with a $2,702 monthly income has the following "come out" of their check:
•Their debt service of $1,616, of which half, roughly, is their (modified) house payment.
•FICA and Medicare tax of 6.2 and 1.45% respectively, or $206.70.
•Federal withholding of approximately 10% (slightly more, actually) assuming a married person, or approximately $300. (If single head-of-household it is somewhat higher, if married with dependents it is somewhat lower.)
This "average person" has $579.30 once their mandatory debt service and withheld taxes are deducted, and from this they must pay:
•Electrical, water, sewer, and garbage disposal services.
•Health costs, if any (including deductions from their paycheck, co-pays, etc)
•Automobile insurance for their car, along with gasoline.
•Food
•Hazard insurance on the house (if not included in the back end ratio, and it frequently is not.)
•Any other expenses (e.g. clothing, school supplies if there are kids in the home, any sort of recreational activities, etc.)
All on $600 a month for a family of four? You're joking, right?
Good luck just buying your food and paying the electric bill on what's left!
These people are economic zombies. HAMP has utterly failed to change the outcome for these individuals nor can it because their total debt load is impossibly high.
What these people need is an expedited bankruptcy procedure that clears their balance sheet - but our lawmakers refuse to do that because that would force the LENDERS to eat their irresponsible loans at the same time the consumer went through Chapter 7!
We cannot solve this problem until home prices are allowed to contract to the point that people can afford them - and the rest of their debts are similarly defaulted!
These statistics show that of those who are in the HAMP program most of them are over-levered all the way across the board. There is no "solution" for them - they were enticed by (and bit on) the bogus claim that they could "have it all" throughout their lives, and as such are deeply in debt.
Remember, these are averages. That means that a large percentage of the people coming out of "HAMP" are in worse shape!
A person with $30,000 a year in income that is carrying eight hundred dollars of non-housing related mandatory debt service has, typically, a moderately-priced "new car loan" and a couple hundred bucks of mandatory credit-card payments (totaling some $5,000 in debt.) They can't afford this - not with a house payment of some $800 on top of it.
Not a prayer in hell.
The issue isn't just excessive debt in their house - it is excessive debt everywhere. We keep hearing bleating about how "underserved" and "lower income" people need "more access" to credit."(snip)
from
Bottom line is that present US 'working class' standards of living are simply no longer economically sustainable. And while the HAMP mortgage subsidy program ( along with the 'cash for clunkers' program, the 'making work pay' tax credit and other gov't subsidy payments ) have allowed a 'day of reckoning' to be avoided in the short term (at the expense of future taxpayers), it cannot be avoided indefinitely. And when it does finally happen, that 'day of reckoning' will not only profoundly affect 'working class' Americans, but also the banks and investors ( and, increasingly, net taxpayers) who are on the hook for the accumulated 'working class' debts that can never be repaid.
~



Reply With Quote
Bookmarks