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June 01, 2010

NYT: Don't worry, be happy about foreclosure
Stop paying that pesky mortgage and enjoy the good things in life

A while ago, I and others suggested a non-trivial chunk of this supposed "recovery" was being fueled by mortgage payments being redeployed towards other things as people shucked away the now (apparently) obsolete traditional social mores that (in the past) would have relegated such defaulters to significantly lower social strata and significantly diminished lifestyle.

The government of course didn't and doesn't want to believe that sort of mechanism might even exist as a theory let alone be in actual operation out in the wild.

Well, that wild crazy talk just got the imprimatur of the, ahem, Newspaper of Record.

...Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads...

...More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier...

...They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local television. Word apparently got around, because the business is recovering...

Forget non-existent SBA loans made out of unobtanium. Apparently the fastest way to infuse your small business with cash is to default on your mortgage.

One doesn't need a crystal ball to see where this leads. At some point the lenders have to foreclose because the tax bills keep coming due. They've been hoping for some sort of rebound to mute the damage, but that's clearly not happening in the foreseeable future. Massive losses will have to be taken and written down. Stage 2: everyone who is doing what the people in the NYT article are doing WILL have that written down debt reported as income to Uncle Sugar. Similarly massive IRS bills will result when that happens.

[UPDATE] Some additional lucid commentary from Prof Mondo worth reading.

WE'VE ENTERED THE "NEW NORMAL"

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posted by Purp at 07:27 AM

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