And I'm still not clear about what happens to the debts if the lender goes under. If the debt isn't bought - and if it's high risk, low quality debt there may not be much interest in buying it - does that mean that the mortgage effectively lapses and title passes to the inhabitant?
Or does the title end up in legal limbo?
Isn't that the point of this bit?
The twist is that nobody knows who actually holds these assets, as they have been sold, repackaged, re sold, transferred and spread around all over the financial universe. It will take a bit of time to unwind the whole thing. Early losses and difficulties will be kept silent and absorbed by institutions that have built up comfortable cushions in the boom years, but eventually some of it will come out - in probably unexpected places.
I'm asking more about 1) qualitative features that may be common to the other countries with bubbles, and signs to watch for; 2) whether one bubble popping won't prompt smart players in other bubbles to bail out, seeding the collapse of their own bubble; 3) whether lenders in other bubbles won't become wary and more conservative, causing credit to dry up and precipitating the end of the bubble.
By the way, I'm seeing all these ads in London trying to convince people to put their savings into "Property ISAs". I don't remember similar ads last year. Is that the next (last?) layer of the Ponzi scheme?
As for your other question, a risky mortgage is still an asset and it won't simply evaporate - it will go to some creditor or other of the lender that went belly up. "It's the statue, man, The Statue."
Neighbors toot a lot coke, eh?
Rents dont seem to cover the cost of ownership in places like California where there has been steady population growth pressure. And I suspect rents way over compensate in places like Detroit where you have trouble finding a buyer. In growth markets there always seems to be pressure to get in before it goes up leading to rents being below costs.
Depends on the bankruptcy laws of the country. In the US a court will parcel out the assets of the company based on the results of a lawyer-heavy pie fight between the debt holders and stockholders. In general, the holders of debt of the corporation are preferred over the stockholders.
A mortgage is an asset of the lender.
There is a very large global market for mortgage backed securities. Somebody, somewhere, will buy the thing even if the mortgage is being paid off in rubber bananas. ;-)
[Can] the mortgage effectively lapse and title passes to the inhabitant?
No. The inhabitant has only a percentage of ownership -- the equity -- of the property. Getting that percentage and/or continuing to inhabit the property depends on the laws of the country and the mortgage contract.
In general, the inhabitant has the strengths: (1) they are in possession, (2) whoever ends up with the mortgage would rather have the stream of payments rather than the property. There are specfic actions the inhabitant can take to help ensure continue 'ownership' but these are country specific.
The title is an asset of the corporation and will flow to the entity granted the mortgage -- in the US, at least.
It does not in French law. Whether the lender is bankrupt or not does not relieve the mortgage. The good is locked up, and it will go to whoever gets the remains of the original lender... (probably unpaid creditors in the end of a couple of year bankruptcy procedure, or the State which is priority creditor if there are unpaid taxes)
The delay does mean that foreclosed goods could remain empty for several years before going back to market. During all this time, ultimate debt holder still will not know the amount of their loss. They certainly will not receive any interest. And the original inhabitants will be left in a tent under a railway bridge... Pierre
On the basis of what? If they kept making their payments nobody has a leg to stand on to evict them, especially not because the lender went bust. "It's the statue, man, The Statue."
The lender will file foreclosure requests like crazy, even under chapt. 11 protection (the judge would even require it to do so, by law !). They will keep a skeleton crew to foreclose houses by the day there is a delay in payment, "in the best interest of their creditors" (who will end up with shares in a portfolio of many many small goods of unknown condition, something very hard to value and manage). Pierre
The ebb and flow of bankruptcy is moderated by judges who sit between the contesting parties. Nothing is done until the judge allows it. The first action is always to put some entity in charge to continue the status quo... taking over the process of collecting payments while the 'players' sort out their positions.
The average guy who doesn't want to screw up his future credit (the vast majority of people) will continue to pay on time and will continue to live in the house that they have a title to.
There will be some percentage of marginal persons who can't pay, but who will go to the bank and try to work something out. They will get a degree leniency, not much in the early stages but more as the banks situation gets too grim (too many unsold houses on hand or in jeopardy of bankruptcy.) That person will get to stay in 'ownership' of their house.
There will be some percentage of persons with no foreseeable way of keeping the house who decide to walk away. It may be tied to a job in another city they have to move to, with the knowledge that they can't sell the house in a reasonable amount of time or at a price equal to or greater than their mortgage, who can't make double payments, and who just walk away, damn the consequences.
But recent crashes show (1980s) that the number of people who don't make payments and actually get thrown out on their ears by some entity because of another entity's bankruptcy are pretty small. The banks keep trying to work with people who can make any payment at all.
There is a final likely scenario, which is that the bank in charge is allowed to sell the house to someone who has the cash or credit to buy it at a firesale price. These number of these sales are moderated by several factors; first, the sales have to get approval by the bankruptcy judge, second, the banks local interest is to not crash the values in their neighborhood since they have portfolios that will look bad if too many of their good clients can't sell their houses - a dwindling spiral, but dampened. Never underestimate their intelligence, always underestimate their knowledge.
Frank Delaney ~ Ireland
This might sound somewhat apocalyptic. But if what's happening in Detroit spreads across the rest of the US, the immediate social picture is going to become a lot more important than the financial fineprint.
Remember, the secondary institutions also have their debts to pay and they will be forced into bankruptcy if they cannot meet thier obligations. When that happens you get a ripple affect as secondary and tertiary companies going belly-up. And then the brown stuff really hits the windmill.
He really describes a world of migrant homeless people who walk streets of empty, locked houses. Of hungry people who watch the government burn crops to eliminate over production and maintain grain prices after they have collapsed because nobody could afford to buy bread. Pierre
The local police aren't part of the process. So there would be a certain level of inertia in the UK which might not be present in the US.
I suspect the lending network is more closely consolidated and tied to the big-league banks. There are doubtless some micro-lenders, but generally if you take out a mortgage you're dealing with a household name for whom mortgage lending is a significant but not overwhelming income source.
The banks won't fail. They may suffer much lower profitability for a few years, but in the UK they can easily afford that.
I think we may see a 20-30% price drop here, maybe 40-50% if lots of other bad things happen at the same time. That would leave maybe half (rough guess...) of the market with some equity.
Total wipe-out seems much likelier in the US than here. We do have low-cost blighted areas, but we don't really have anywhere like Detroit where everyone is heading for the hills.
It's the sub prime firms that are toast. Those guys thought they were on easy street and will have all their equity evaporate. After their equity is gone, the rest of the loss will belong to investors who have mortgage backed securities in their portfolios because they were greedy for yield. People forget risk/reward does really mean RISK/reward. The intermediaries like MS will have to eat a little, but not much. They have good lawyers and wrote the rules of the game.
Very few homeowners are truly exposed to a wipeout. Most of us just sat by watching a paper profit make our houses double or triple in value. If it then peels back, big deal. The fear is that the debt binge fueled by people that borrowed against their equity to buy fancy cars and European vacations will hit the overall economy and trigger a recession. That could be, but it is overdue and probably needs to happen to bring the system back to a more stable position.
My guess is all those empty houses will end up occupied by the same people that owned them. Just as renters which is what they should have been in the first place.
I do feel bad for marginal buyers who were conned into buying houses they couldn't really afford at real interest rates. Those teaser rates to con people out of their down payment or closing cost fees are criminal. perhaps we should ban any loan to a homeowner without a fixed interest of at least 5 years?? And 100% loans to owner occupied units should only come from govt agencies such that buyers get as much slack as possible to recover from income hiccups.
the debt binge fueled by people that borrowed against their equity to buy fancy cars and European vacations
Now we know how Europe manages to survive - debt-fuelled American tourism! :-)
but we didn't borrow to do it. My BIL on the other hand has 3 vehicles, a travel trailer, motorcycles, every tool imaginable (and only magnesium cases to save weight). How does he do it? He was in debt up to his eyeballs as the cheezy commercial goes. Spent virtually all of the $400K his house price ran up. But at least they sold and didn't get stuck with it.
I see plenty of friends who complain about debt loads driving vehicles that cost $50K. boo hoo hoo is what I'm thinking behind the smile and the nod.
you are the media you consume.
millions of Americans living in trailer parks set up by the government
Oh, but that's worked so well in New Orleans....
The Grapes of Wrath model is wrong. In that period, the land owners wanted people off their 20 acres so that they could consolidate the land into larger farms where machinery made for higher productivity. Sorta like the Scottish highland clearances. These bubble markets are in cities. There's no upside in simply leaving housing empty vs. renting it. Ownership may change but that's about it.
