Wednesday, February 3, 2010

Can Pay Won't Pay!

“People’s emotional attachment to their property is melting into the air.”

So says Sam Khater, a senior economist at the US research firm First American CoreLogic in today's New York Times. By June 2010 there'll be 5.1 million homes where the house is valued at less than 75% of the outstanding mortgage. According to Khater that's the critical point where people give up:

We’re now at the point of maximum vulnerability

What this is spawning is what many have been warning for years would happen - deliberate default by people who no longer want to live under what is called 'house arrest'. How common is this as a stategy?:

..estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation.

And that is having weeded out those who had trouble with paying other bills..

In Spain where non-payment of mortgages now reaches 5% we can only but wonder if that percentage would increase if house prices were properly being marked to market. We may soon find out.

None of this is considering how people will behave when interest rates finally go up to contract the money supply after all that printing and borrowing that has been going on. If they are considering non-payment now how much will say a 5% increase in interest rates influence their decision making?

The two principle categories of people who are walking away from their 'underwater' mortgages are those who bought just before the crash and those who refinanced their houses as the market spiked..

Naturally the bankers would like to have people stick to their agreements rather than modify the loan according to circumstances. House prices are a risk right? Well, so is selling fraudulant mortgages and derivatives but the banks got bailed-out. So, why should bank customers feel moral obligation to banks who after all caused house prices to spike because of relaxed credit standards and speculation?

Unlike banks, people are reasonable and many don't want to leave their homes. However, as banks refuse to take some responsibility for these underwater mortgages people will feel that they have tried to be reasonable and so have no loyalty to banks who have done lied and stolen from the taxpayer.

As the scale of non-payers increases so banks will lose income. The utterly stupid policy of bailing out the banks instead of mortgage holders will then come into sight. Obama, Brown, Zapatero and many more will begin to see the total stupidity of not letting the failed banks fall. As we know, the banks are still nowhere near solvent despite future generations of taxpayers money being poured into them. As debts are heaped on the taxpayer so the taxpayer will paying their mortgages. The banks are corrupted and now their customers feel no loyalty - there is a widescale collapse in values in society from top to bottom.

This process along with non payment of credit cards is becoming a major issue for the 'recovery'. Consider that and the fact that the next wave of property price collapse is just starting and you begin to understand why 'recovery' is beginning to change its definition depending on how many green-shoots the user has smoked.

With unemployment climbing, tax-take falling, debt at historic levels, local government going bankrupt, currencies losing value, geo-political tensions rising and so on and so on it really is time to wonder just how much of a toll all these economic problems are going to take on political systems and law and order.

The West is collapsing. People should not trust governments or bankers to tell the truth and prepare to protect themselves, communities and countries (Scotland for example) for a very uncertain future.

In sunny Madrid, the store security guards are now chasing shop-lifters around constantly and the police remain in or near the stores. When people need to eat and feed their kids, they'll do what they have to. For those who still have some wealth it would be wise to consider a strategy for a different economy or you may well have to beg, borrow or steal one day yourself!


Anonymous said...

I had my glasses FFSake lifted in Toulouse last week in a store.

I had to get a new prescrition and when I went to the optician for a new pair I was told that "designer" glasses (mine were Silhouette frameless varifocals) and mobile telephones are being targeted in TLS in cafés and stores.

psssssst wanna buy a set of frames?

Alex Porter said...

Sorry to hear about that.

There's lots of scams going on now. People trying to let out flats, you send them money and the send you the keys..

Seeing guys getting chased out of the metro as well.

The price of a 10 metro trips ticket went up around 20% in January..