Bankers vs Realtors – Showdown on the West Side
by ilene - June 23rd, 2010 3:13 am
Bankers vs Realtors – Showdown on the West Side
Courtesy of Joshua M Brown, The Reformed Broker
This is a bit like watching rival Mexican drug gangs fight it out for control over a border town – you hope they kill each other and it really doesn’t matter if neither of them "win".
From the New York Times:
On one side are the bankers, who say borrowers should be liable for what they owe. On the other side are real estate agents, who say those who lost their houses should not be so burdened by debt that they cannot move on.
The differences have real financial consequences: bankers want to collect on billions of dollars in outstanding loans; real estate agents want as many people as possible to return to the housing market.
For the first time, the debate is spilling into the realm of law making, with state legislators in California considering a bill that would redefine the obligations of many defaulting homeowners.
Obviously the bankers are "in the right" as far as wanting homeowners to meet their obligations. Strategic default is cute, and in some cases it is economically the smart move, although these are adults that signed their name to a piece of paper so there should be a consequence. That said, in many instances, these loans were grotesque characitures of fair contracts so it’s hard to empathize with the creditors.
The realtors on other hand will make the case that the silver lining of strategic default is that at least it keeps properties turning over and the real estate market moving. They are jackals and a rapid turnover of homes with less consequence to the defaulter leads to buy and sell commissions, which is really all they’re after.
California Bankers versus Realtors to me is like if the Hells Angels and the Mongols fought for territorial control over a gas station bathroom. Whatever.
Have at it, boys.
Source:
Battles in California Over Mortgages (NYT)
How strategic defaults are boosting consumer spending
by ilene - April 16th, 2010 12:18 am
How strategic defaults are boosting consumer spending
Courtesy of Edward Harrison at Credit Writedowns
At the end of last month I proffered three potential explanations for the continued fall in the US savings rate. The first explanation was that the economy was in a cyclical recovery predicated on asset price inflation and this gave enough troubled debtors breathing space to spend more freely. The second explanation was the opposite, that distress amongst those troubled debtors was leading them to spend a larger percentage of income. The third explanation was that strategic defaults were giving a lot of people money in their pockets that would have otherwise gone to servicing debt and this had increased consumption.
(Note: Because savings is not actually measured in the national income and product accounts as it is a residual calculated by subtracting consumption from output, I focus more on why consumption is increasing.)
Early this month, I wrote why the fall in the savings rate is not meaningless – because it gives us insight into the sustainability of this cyclical recovery. I said
Understanding why savings rates are dropping in the midst of a still severe economic shock, weak credit growth and sustained high levels of unemployment will tell you something about the durability of the policies used to goose GDP over the past three quarters.
And so I want to take another look at some of the anecdotal evidence here. I have talked a lot about the first explanation in the past. And because all measures of retail sales and consumption are increasing in the US, I don’t put a lot of stock in the second explanation. So I wanted to focus on the third explanation today, namely that people are defaulting and that is boosting spending.
Defining strategic default
Strategic default has been the subject of a lot of chatter in the media and in the blogosphere. I would define strategic default as a refusal by a debtor to make repayment of a debt obligation as contractually specified despite…