Even more interesting are other charts that demonstrate borrowers…
…are intentionally defaulting to take advantage of the [HAMP] modification program. Or at least to take advantage of extra time living in the house rent free, courtesy of the modification program.
...
Amherst concludes:
Borrowers respond to their economic incentives. This has always been the case, be it for refinancing or for defaulting on mortgages that are deeply underwater. Over the past year, however, property values have been largely steady, but the environment has become much more kind to borrowers. There have been foreclosure moratoriums, the emergence of the HAMP modification effort, and the attendant increases of time spent in the delinquency/foreclosure pipeline, as well as a stretching out of the liquidation process in judicial states. As a result, borrowers can stay in their home rent free for a much longer period than was previously the case. However, few of these benefits apply to investor properties. Thus, when we look at the difference pre- and post-HAMP in the behavior of owner-occupied borrowers versus that of non-owner occupants—we find a dramatic difference in performance. Owner-occupied borrowers behave far worse than their non-owner occupied counterparts.
Reward bad behavior and it turns out you get more of it. Who knew? The governments goal of keeping housing prices high to minimize losses to the banks is in fact causing more losses. You now have a stagnant market and borrowers deciding to do what is in their best economic interest, namely live rent free and pocket the money until they get kicked out. I was in a house today that the owner had a NOD filed for over a year before getting sold, they then stayed in the house for 6 more months after the trustee sale. With an average NOD filing taking 5 months that means these people potentially lived rent free for two years. If the lenders hands are basically tied from foreclosing, and thanks to all the government interference they are, then it is the best move of the borrower live rent free for as long as possible. I also wouldn't be surprised if they get cash-for-keys at the very end. You'll find out very quickly who wants and is economically able to keep their home if you made it easier to foreclose instead of harder. Instead all the roadblocks to foreclosure have incentivized strategic default.
4 comments:
So ED I'm waiting with baited breath for your take on the new mod plan including principle reductions...is this the end time for us patient renters who were hoping for prices to drop down to realistic levels....or another innefective stop gap which will do little to stop the flow of foreclosures??
Clearly the program is working to 'keep people in their homes'. Maybe the goal should have been to keep people making payments.
Sanity would tell you this program is a total failure and the exact opposite of what should be done..... But I'm sure people in the govt are looking at this and thinking 'hey we need to expand HAMP,etc to non owner occupied homes!' Cuz its working so well to stop foreclosures (and it is!).
Each month more insanity, I see no end in sight.
djviking21,
Last I checked the underwriting details weren't out. The devil is in the details for all of these things. I don't think it'd change much from what I have read but I really need to see the underwriting. When I do I will write a post.
They should have aimed to get people out of homes they can't afford and get people who can afford them into those homes, which would have best been done by accelerating foreclosures and/or shortsales, paying a government keys-for-cash stipend to help the defaulting borrowers move on to a rental they can afford, and selling the property on the open market at it's real market price, which would likely be far lower, and thus more affordable for the next buyer.
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