Although the change to mark-to-market accounting of financial assets has been delayed by FASB (with pressure from the U.S. Congress and bank lobbyists) if a mortgage owner (bank or investor) forecloses the process for repricing the asset begins. The loss on the asset would then reduce bank reserves and force the regulators to require the bank to add more reserves. This would not be a good thing for the bank, or for the U.S. Government (Also, think GSA insured loans).

Another sublety, as long as the bank allows the borrower in default to stay in the home the mortgage investor is not as greatly exposed to losses from theft, vandalism and gross depreciation of value due to non-maintenace of the property.

Also, by not foreclosing on borrowers in default the lender also avoids becoming the owner of the property and thus avoids property taxes, HOA Fees, and some of the newer municipality assessments being levied against foreclosed property [for instance mosquito abatement fees in some areas of California (Indio, Palm Springs, Mountain House, etc.)]

It’s logical, corrupt, but logical.

as a former general contractor/builder/remodeler and a broker/agent I have experienced many different levels of real estate, the players and participants, the joy rides/roller coaster effects and ‘the cycles’.

Someone said recently that housing values are actually positive and stable historically. What changed was ‘the bubble’.

When everybody gets a handle on greed and how it plays out in real estate everybody will be better off, imHo. We all pay for greed in one way or another.

Cork Horner

This may be due to GAAP or the tax issue mentioned above.

In any case, they want it gone as soon as it’s theirs.

“Hoping” for hyperinflation is really about all that a lot of underwater homeowners can do…which would obviously be a horrible outcome.

You’ve hit the nail on the head in that there comes a point where the rational, responsible thing for many borrowers to do is walk away. This is something that economists will never be able to quantify until after the fact.

I suspect that once foreclosure activty begins to pick up again and prices clearly resume their fall, you will see a lot more borrowers give up and decide to walk away.

I live in So. Oregon in a subdivision of 52 townhouse style homes that were being built in 2005, prices paid at the time for the first few sold were in the 205K range, but fewer than a dozen sold as the housing bubble burst. My house and the identical zero lot line place next door were REO, mine was for sale at 119K in April of ‘08. I thought great, the bubble burst and I can by for an 80 thousand plus discount. It was not quite done yet so I had them do several things to the place and then paid 129,900 with a 100% Rural Development loan.

Fast forward to June of this year, the unit next door was on the market for 129,900, then 119, 109, 99, 89,900, when a woman bought it as an investment – though the tax rolls show she paid 104,500. She rented to unbearable tenants, and I decided I had had enough, the “town” is a slum with little law enforcement and has become blighted. I have not made the July, August, or September payments.

In June my credit and income were good enough to buy a 2009 new BMW 328i, so I qualify for no modification no matter how underwater my mortgage is. Now, rates have dipped to the point where I would stay if I could refi at 4.99% (my note is at 6.5% with Chase, the biggest rip off in US banking today, and funded by Ginny Mae) but having missed those three payments precludes any new financing, and my credit is damaged, though I say again my mental hygiene is more important to me than my Beacon or FICO scores.

There is a house a few doors away here that was foreclosed upon, and the residents moved out of in August of 2008. Subsequent to confirmation that the owners actually left the place the bank stopped the foreclosure. When I go to the county assessors web page and look the house up it still shows the original family that lived there as owners, though they are more than a year gone from the place. This tells me that the bank was willing to foreclose up to the point of having the sheriff go to the house to evict the family, but it was a bluff to get them to leave while not making the bank liable for the property taxes and upkeep. I have tried to contact the original family to let them know, they could after all have been living rent free this whole last year, even rented the place out for income. But, at least they deserve to know what that dastardly bank is doing. Part of the reason I want to leave are the dozen or so unkempt properties that nobody takes care of. And all but 9 of the 52 properties are rented out to people who apparently feel nobody else in the world exists, and that rules are for idiots and suckers.

Now the rub, just since June when I decided to quit paying and rent again, rental prices here have absolutely skyrocketed, to the point where rent controls are being urgently discussed by the powers that be. It no longer makes financial sense for me to rent in the region as rent surpasses my mortgage obligation every month, yet in this neighborhood that has not happened. There are at least 10 vacant rental units. This has left me madder than hell as I worked out an agreement with Chase to resume paying, but now with damaged credit which will stay damaged for years. My only solution is for hyperinflation to give me positive equity at some point even if the buying power of that equity is not negative in real terms of purchasing power. Either that or I can just not pay till I am kicked out, then leave the region for a cheaper venue, or nation, which at this point I am ready to do.

This is called rational default by most bloggers and financial pundits. We are fast approaching some 33% of the under water mortgage market that is on the knife edge of that option as house prices no longer make sense to the owners. In my opinion 2014 might be an early estimate of hitting the bottom, prices could fall by half from where they are now and still be above the historic average in annual price gains over a 50 year period.

There are other reason why they can keep falling too, even with the wild rental price increases many markets like the one I live in still show rental to price multiples well above the traditional 100:1 having peaked a couple years ago at more than 300:1, that is the price of a month’s rent is one 300th the salable price of the house. If a house is worth 90,000 then the rent SHOULD be 900 a month. We reached a point where a 300,000 house was renting for about 850-900.

Another reason is that incomes simply cannot support the mortgage payments, if the average income is 42,000 per year then house payments (PITI) should not exceed 30%, or 12,600 per year, that is just about 1,000 per month, even in double income households you cannot get a house for that unless it is in my subdivision or substandard. It is even worse than this in major metro markets like CA and NY. Also, that 42,000 annual income is I believe badly inflated by averaging over the whole economy which has become skewed by rising income inequality, it only takes a few billionaire bankers to make incomes look a lot higher than they really are. And, in spite of the “tame” CPI, inflation is all around us. I can only provide anecdotal evidence for where I live, but I suspect others feel it as well, I live less comfortably now on 3,600 a month (tax exempt) than I did in 2006 on 2,750 a month (also exempt). Yet the combined inflation for the whole period is officially just about 4.5%.

What I see are imbalances and debt that are so vast and of a scale so inhuman that we cannot even comprehend them at this point. It cannot end well, and the powers that be are only playing for time now, one day soon “out of the blue” it will all come down and there will be either a horrific hyperinflation ala Zimbabwe in which debt can be extinguished via worthless federal reserve notes, or we will have a collapse and deflation that makes 1930 look tame. Third and least likely option is a sovereign default and introduction of a new regional Amero type currency. But do not rule that out, it might end up being the only option in a year or two.

It appears that world plutocrats are on board with the notion of a gradual USD decline. They are likely to have their way. The US still has a lot of assets backing the USD, including the middle class which has more bleeding yet to do, and a lot of geopolitical influence to be traded for support of the dollar.

As for bandits and starvation, if anywhere there’s a solution to those problems, it’s here. Prepare accordingly, and overcome.

It’ll be interesting to see whether Japan’s electioneering promises of distance from Wall Street and partial eviction of US military will come to pass. I suspect China won’t want Japan be the first out the door, and that Kim might therefore be persuaded to lob another test missile over Japan. With heightened anxiety, politicos can backpedal and keep US ties in place.

The federal reserve is refusing to disclose where the 11.8 trillion went in the bail outs.

The derivative debts are said to be over a quadrillion. China rightfully refuses to pay.

48 of the 50 states are bankrupt. Virtually every city and county across this nation are bankrupt. The FDIC is begging to borrow from bankrupt banks.

The dollar is going to blow Wiemar style probably as soon as November. When it goes, so will every other currency on this planet. China goes, Russia goes, the EU goes in a rapid chain reaction collapse that will stop all trade and bring about the death of millions.

Expect food shortages and outright famine within the USA itself. Nothing this big has ever happened in history. Obama shall be remembered by remaining survivors as a modern day Nero.

Real estate foreclosures are nothing but a single tree in the forest of economic calamity everybody is missing or pretending to ignore.

There is a solution: close the Federal reserve. Reinstate Glass/Stiegal. Let the speculators go bankrupt and throw them into prison. Reinstate the national bank; a bank for the people and by the people. Outlaw all speculation.

This is the only solution, if this is not done you will watch your family starve to death if bandits don’t get you first.

Shadow Inventory is HUGE.

That’s a bad situation.

eg – exchange half the debt for equity. that would give everyone involved skin in the game and could help stop – or at least slow down – this slow and inexorable march into bankruptcy and foreclosure.

at this rate, asset prices are headed to pre-1980 levels in a hurry