European Tribune - Community, Politics & Progress.

inflated prices, not places, obviously.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Mon Oct 12th, 2009 at 05:44:57 PM EST
[ Parent ]

True, but on net, it's mostly a transfer from bankers to those former homeowners. If most of the bankers are the wealthy, undertaxed people we often assume, and most of the "last owners" are common, working people, then the crisis has been largely a windfall for many commoners at the expense of mostly wealthy investors.

by santiago on Mon Oct 12th, 2009 at 06:44:58 PM EST
[ Parent ]

This presupposes two things: That there was a large number of "commoners" who sold out of the housing market or traded down before the crash, and that the financial products created were sold mostly to wealthy investors (not for instance to pension funds looking for AAA rated investments). Both need to be supported by data.

On top of that you have the cost of the stimulus and rescue packages, which will be borne mostly by the people actually paying tax. (I.e. not wealthy investors.)

by Trond Ove on Wed Oct 14th, 2009 at 09:14:50 AM EST
[ Parent ]

The argument I'm making is that evidence has also not been presented to justify the claim that easy lending has been bad for the poor. The alternative claim that it has been good for the poor would also need supportive data, but this doesn't mean that the easy-lending-is-bad argument is true by default.

The recession is distinct from the bubble. Obviously, losing jobs is bad, especially in absence of generous welfare policies. However, the burdens of stimulus and bailout packages are almost certainly going to be carried more by the rich than anyone else. (That's who has the the taxable wealth, after all.)

by santiago on Wed Oct 14th, 2009 at 10:06:44 AM EST
[ Parent ]

The recession is distinct from the bubble.

In the same way and to the same extent that the flooding of New Orleans is distinct from the poor design and maintenance of the levees.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 14th, 2009 at 10:22:06 AM EST
[ Parent ]

No, in the same way that the flowing tide is distinct from the ebbing tide.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 10:24:21 AM EST
[ Parent ]

No, it is distinct because the recession may not have been an inevitable outcome of the housing bubble, even if it was made more likely because of it. The relationship between some poor people gaining wealth due to the housing bubble and others losing it due to losing jobs later is a probabilistic relationship, not a deterministic one, so thinking about the two together would require discounting the cost of job loss due to the bubble by some amount. The result could still very well indicate that, on average, the poor could be better off in the history that really occurred rather than an alternative history where they were restricted from owning their own homes.

This means that the claim that easy lending has been bad for most people is the one that needs support of data before it should be accepted as true.

by santiago on Wed Oct 14th, 2009 at 10:53:17 AM EST
[ Parent ]

Re: Bad for whom? (4.00 / 3)

the recession may not have been an inevitable outcome of the housing bubble

I'm sorry, but every business cycle consists of a growth phase, a crisis phase, and a recession phase. The growth phase of a business cycle is associated with a credit bubble. The crisis phase is associated with cascading default. And the recession phase is the period of sluggish credit creation before a new credit bubble sets off.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 10:56:33 AM EST
[ Parent ]

That's not a description of business cycles that enjoys a lot of support. Not saying it's not true, but it's a claim about business cycles on your part that accounts for credit in the economy in an unconventional way. The conventional description of business cycles -- assuming such things even exist -- is that inventory of real goods build up due either changing tastes, technology, or public policies, and firms that produce things people no longer purchase have to close down. That credit has a causal relationship with this, and not just a symptomatic one, seems harder to support, at least with existing research.

The better argument for the deterministic case is that the present recession is NOT a business cycle at all, and neither was the Great Depression. (There aren't excess inventories of unsold goods, for example.) Rather, the present is an extraordinary recession caused by collapses in the financial system. Very few recessions are associated with general collapses of the financial sector. There does seem to be good reason to believe that financial system collapses have a high probability of resulting in economic decline. However, there is a lower correlation between asset bubble collapse and financial system collapse. So, without more research it is difficult to make deterministic claims about bubbles and unemployment, which is what I think you're trying to imply.

by santiago on Wed Oct 14th, 2009 at 11:12:13 AM EST
[ Parent ]

What is the conventional description of credit in the economy?

That credit has a causal relationship with this, and not just a symptomatic one, seems harder to support, at least with existing research.

Is that because there is no research on the topic, or because the research that there is doesn't support it?

The view I have summarised above is unconventional, but it was expounded by a well-known economist 100 years ago. As I am not too familiar with the academic literature, may I ask you if you know of some contemporary heterodoc economists who might agree with the view I proposed rather than with the conventional one which, if your summary is fair, seems to postulate that credit is incidental to the business cycle and not even part of a feedback loop?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 05:00:48 PM EST
[ Parent ]

The relationship between some poor people gaining wealth due to the housing bubble and others losing it due to losing jobs later is a probabilistic relationship, not a deterministic one, so thinking about the two together would require discounting the cost of job loss due to the bubble by some amount.

By that reasoning we can't use the kinetic theory of gases to derive fluid mechanics from the statistical mechanics of particles.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 11:06:05 AM EST
[ Parent ]

No, it just means that you have to explicitly account for probabilities of less than 1 when trying make an argument about causality.

by santiago on Wed Oct 14th, 2009 at 11:14:53 AM EST
[ Parent ]

by santiago on Wed Oct 14th, 2009 at 10:07:02 AM EST
[ Parent ]

This requires substantiation (4.00 / 5)

The great majority of people who received "easy mortgages" over the last 15 years, or even the last 5 years, still own their properties and have benefited from gaining access to living conditions or wealth they might not otherwise have achieved, even in cases of notoriously irresponsible sub-prime lending. Of those who don't still own their homes, a large number (perhaps a majority but no analysis has yet been performed that I've seen) still benefited from the transfer of wealth from wealthy investors in mortgage backed securities to them.

As far as I can tell:

1) around 60% of subprimes have been or are in default - while some may wiggle out of foreclosure, surely the majority of these 60% will not own anything at the end of the process;

2) the net equity ownership of their homes by Americans has fallen to a record low in recent years - and as prices go down (and debt doesn't), that proportion is going to go even lower

Generally, using incompressible debt to buy volatile assets is not the way to build wealth...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Oct 12th, 2009 at 04:43:01 PM EST
[ Parent ]

Re: This requires substantiation (4.00 / 3)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Oct 12th, 2009 at 04:44:13 PM EST
[ Parent ]

Re: This requires substantiation (4.00 / 4)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Oct 12th, 2009 at 05:18:46 PM EST
[ Parent ]

Re: This requires substantiation (none / 0)

These are all valid points, but they don't address the question I've posed well enough. How do we know that the financial crisis (and here I am distinguishing it from the recession), which includes the bubble as well as the fall, has actually been bad for poor people and not instead windfall benefit? I just don't have the data on hand right now to be sure, but neither do those who assert so definitively that the crisis has hurt lower income people more than it has helped them, on average.

The sub-prime chart you show clearly shows that the majority of sub prime loans result have not resulted in foreclosures. Even if 40% of the present loans are in currently delinquent (that is actually the expected delinquency rate after 5 years for the average sub prime portfolio -- its not a surprise) a very large number of the original loans have already paid off through refinancing (as almost 1/4 do within 3 years) when people's credit characteristics have improved, as they usually do. This means that even in the worse case situation like now when refinancing has dried up, it is likely that most people who have taken out sub-prime loans will still repay them in full.

That, however, is really a transfer of wealth from the poor to the rich, on average. The poor win when they can gain access to wealth and consumption that they would not otherwise have. Foreclosures and bankruptcies are where wealth really gets transferred to commoners more radically, as long as it remains true that most lenders are wealthy and most sub-prime borrowers are of lower income profiles.

Net equity in one's real estate is only one measure of wealth. Consumption is another measure, and if lower income people have been able to enjoy upper-income consumption standards, even if for just a few years and at the expense of the bankers who gave them the money to do it, then the decline of the real estate market may really have been a transfer of wealth from the rich to the not-so-rich. And quite of few of the more entrepreneurial poor, such as many immigrants, have been able to capitalize on the easy lending in true equity-building ways -- maxing out their loan limits on real estate, then using the loan proceeds for other investments or remittances and leaving the bank with the investment properties (a very large share of the sub-prime foreclosures are investment properties previously owned by small-time landlords and slumlords).

Really, it's a way of stealing from the bank, but although considered bad for obvious ethical and practical reasons, bank robbery usually isn't considered anything other than what it is -- a transfer of wealth from rich bankers to usually not-so-rich bank robbers.

Again, we need data to know, but this is still a wide open question: who won and who lost in the housing bubble?

by santiago on Mon Oct 12th, 2009 at 07:07:59 PM EST
[ Parent ]

Re: This requires substantiation (4.00 / 3)

Three critical items are neglected here:

It's not just an investment object. It's a home. There is a tangible, but not monetised, loss in a foreclosure that may easily surpass the "gain" from having the negative equity wiped out.
The Lord he giveth with one hand and taketh with the other. You cannot view the housing boom and bust in isolation from the rest of the economy. It comes as part of a package, in which property values were permitted to inflate in order to cover a wage gap. So the alternative scenario with which you have to compare is that wages had not been deliberately suppressed, and housing prices had not been inflated.
The banks are currently being bailed out (and not actually even the banks - the banksters are being bailed out) to the tune of a perceptible fraction of the yearly OECD GDP. At taxpayer's expense. This is so massively regressive a move that it will more than compensate for any notional wealth transfer the other way, by way of foreclosures and bankruptcies.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Oct 13th, 2009 at 03:00:12 AM EST
[ Parent ]

Re: This requires substantiation (4.00 / 2)

Good points.

JakeS:

It's not just an investment object. It's a home. There is a tangible, but not monetised, loss in a foreclosure that may easily surpass the "gain" from having the negative equity wiped out.

It should be a home. But buying to 'flip' and buying to let have become all too prevalent.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Tue Oct 13th, 2009 at 04:43:45 AM EST
[ Parent ]

Re: This requires substantiation (none / 1)

Because, in fact, buying to let and buying to flip are both more beneficial to the lender than buying to live.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 06:29:57 AM EST
[ Parent ]

Three valid points (none / 0)

But there still isn't the data to support the claim that the housing bubble has been worse for poor and working class people, as a category, than the alternative of restrictive lending. Even the bailout of banks is likely to be paid for by increasing taxes on the rich and not the poor, so a long as more people have better homes (and I mean homes in your sense as well as investment equity) than they would have without "easy lending," even after adjusting to some losses in homes to due foreclosures, then we have an argument that easy lending has been better for the poor and common people because it transfers wealth from the rich to them.

There might be less traumatic and less stochastic means of transferring wealth that we can imagine, such as more generous wage and welfare policies, but if those policies are not politically feasibile, then wealth transfer through easy lending can result in greater social justice than restrictive lending policies.

Banking system solvency shouldn't be the standard for determining social justice. If social rules have been set up to be less generous to the poor than they should be, I just don't see how occasional massive bank robberies can be all that bad. It's the same as the jubilee concept that people promote on this site frequently.

by santiago on Wed Oct 14th, 2009 at 09:52:01 AM EST
[ Parent ]

Re: Three valid points (none / 1)

There might be less traumatic and less stochastic means of transferring wealth that we can imagine, such as more generous wage and welfare policies, but if those policies are not politically feasibile, then wealth transfer through easy lending can result in greater social justice than restrictive lending policies.

In a restrictive lending regime, those policies will have a better prospect of becoming politically feasible. A major point of legalising casino loans and inflating a bubble was to give people fake wealth so they wouldn't notice that their real wealth was being stolen.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 14th, 2009 at 10:26:33 AM EST
[ Parent ]

Re: Three valid points (4.00 / 3)

wealth transfer through easy lending

always ends up redistributing wealth to the creditors because the inevitable wave of default results in a redistribution of claims on property from the borrowers who used the property as collateral (and this includes mortgage liens) towards the lenders. When some lenders go bankrupt, the redistribution is towards these lenders' creditors. The lenders' mortgages are transferred to their creditor.

Only when failing businesses which are considered systemically important are nationalised is there redistribution of claims favouring the community at large and, vicariously, the poorer members of it who can now share in that nationalised wealth.

But when failing businesses which would otherwise be liquidated or nationalised are bailed out with a gift of public funds, there is even more redistribution than usual towards the creditors, this time not from the borrowers but from the community at large.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 10:47:03 AM EST
[ Parent ]

I don't think that's true (none / 0)

When borrowers go bankrupt, they retain the assets and the lender loses wealth. It redistributes claims on real resources from the lender to the debtor. Even if a failed lendor's mortgages get transferred to their eventual buyer (or creditor), if the mortgagee -- the homeowner -- files bankruptcy or defaults the net claims to the property get transferred away from the lenders and to homeowners. In the case of bankruptcy, it gets transferred to the current homeowner. In the case of default, the difference between the devalued foreclosed property value and the original loan amount (almost always less than 60%, even in good times) goes to the previous homeowner who sold the home to the defaulting at the higher price. On net, lenders lose and property owners gain when property owners fail to repay their loans.

by santiago on Wed Oct 14th, 2009 at 11:26:18 AM EST
[ Parent ]

Re: I don't think that's true (4.00 / 3)

When borrowers go bankrupt, they retain the assets and the lender loses wealth

I'm sorry? When borrowers go bankrupt they get foreclosed so the assets or claims on the assets get transferred to the lender and the bankrupt borrower is left with nothing.

The lender loses in that the capitalised value of the assets is lower than the amount of the loan, generally. But he's the one to whom the claim on real assets are transferred. He owns what used to be his stuff, plus the stuff that used to belog to the borrower. It's just that what he owns has a smaller capitalised value.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 12:11:07 PM EST
[ Parent ]

No, bankruptcy almost always protects homeowners' right to retain the property, at the expense of the lender. It is how homeowners can avoid foreclosure and it transfers the ownership of the property from the bank to the borrower, with some restrictions.

In a foreclosure, it is true that the bank retains the right to the property, but the net value of the property was transferred, through an exchange of cash during the last sale of the home, to the previous homeowner. The current lender lost and the previous homeowner gained by the exact amount of the present value of the foreclosed home and the last sale price of the home.

by santiago on Wed Oct 14th, 2009 at 12:19:55 PM EST
[ Parent ]

bankruptcy almost always protects homeowners' right to retain the property

Maybe in the US it does.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 12:25:37 PM EST
[ Parent ]

Re: I don't think that's true (none / 1)

And even there, the homestead exemptions usually apply to homeowners; if the bank has a lien on the house, you don't usually own it.

by gk (g k quattro due due sette "at" gmail.com) on Wed Oct 14th, 2009 at 01:06:25 PM EST
[ Parent ]

If the bank has a lien against your house, you do own it for the purposes of being protected against the holder of that lien during a bankruptcy -- you won't be forced to lose your home except in rare cases where you might choose to do that instead of other options. It doesn't mean that you will be able to get out of paying the banker who holds the lien enitrely, but it does mean that, on net, either that creditor or others with less secure liens against your property, will have to forgive some or all of your debt -- usually some, not all. However you add it up though, it's a transfer of wealth from creditors to debtors.

by santiago on Wed Oct 14th, 2009 at 03:56:53 PM EST
[ Parent ]

Do you have a reference for that. The link I gave says explicitly

In most cases, homestead exemptions do not apply to forced sales to satisfy mortgages, mechanics liens, or sales to pay property taxes.

I'd be more comfortable if there were better links on this page, but here's another random quote which confirms what I said.

Texas Homestead Exemption also prevents the forced sale of a home to meet the demands of creditors, with the exception of mortgage holders, note holders and tax authorities.

I can't find a really authorative source right now, but I've found no sources at all that contradict this (though Wikipedia does suggest that in a very few states you may be right).

by gk (g k quattro due due sette "at" gmail.com) on Wed Oct 14th, 2009 at 04:33:18 PM EST
[ Parent ]

When I google the words "bankruptcy lose my home," I come up with thousands of links regarding US and other areas, that all essentially say the same thing -- bankruptcy allows you to alleviate debt in a way that usually keeps you in your house. That's what I mean by "ownership." If you satisfy the conditions for bankruptcy, it's really hard for a creditor to take your home from you.

In addition to bankruptcy, there are other, less onerous legal means, such as debt renegotiation, that can also reduce debt to a manageable level and prevent foreclosure.

Nonetheless, many foreclosures obviously occur, and this is because the conditions that allow bankruptcy to save one's home are not available to everyone -- some people lose their jobs as well as their net worth at the same time, so they escape debt by walking away from everything. (This is still a net transfer of wealth from the creditor to the previous homeowner, however -- it harms the creditor as much, if not more, than the debtor.) But I would be surprised, in any industrialized country, if there were ever many cases of individuals filing for personal bankruptcy and also losing their home. I can't find any sources that say otherwise.

by santiago on Wed Oct 14th, 2009 at 06:38:44 PM EST
[ Parent ]

Here's the Spanish situation, from an article in El Mundo a couple of years ago when Euribor was around 4% and climbing. When a borrower defaults on mortgage payments, the bank will negotiate with the borrower to make the debt more affordable, but if the negotiation fails the bank "executes" the lien through the court system and in 12 to 18 months the court forecloses and repossesses the home. No ifs or buts, in Spain if you don't pay your mortgage you're evicted within 2 years at the latest (because court processes take long).

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 06:46:33 PM EST
[ Parent ]

Though recently a new law has made it possible for individuals to suspend payments and reorganize their debt like a private firm would, thus bringing the situation closer to what you describe - you don't lose your home but the court confiscates and manages your income, giving you a living allowance and dividing up the rest among your creditors.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 06:48:53 PM EST
[ Parent ]

The relevent question is ... (none / 0)

In how many cases do people ever end up getting kicked out of their homes? If the cases are few and far between, as I expect they are, this means that even Spain's bankruptcy laws provide practical escape from debt and security of home ownership. I.e., a practical transfer of wealth from creditors to debtors.

by santiago on Wed Oct 14th, 2009 at 06:51:19 PM EST
[ Parent ]

Re: The relevent question is ... (4.00 / 3)

Spanish banks have acquired so many properties through foreclosure and repossession in the last year or two that they have set up special real estate subsidiaries to sell their stock of foreclosed property. I don't have statistics on the number of repossessions, though.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 07:00:34 PM EST
[ Parent ]

Re: The relevent question is ... (none / 0)

Just like the Swedish banks 15 years ago.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Thu Oct 15th, 2009 at 10:32:18 AM EST
[ Parent ]

Re: The relevent question is ... (none / 1)

Okay, here's a source: La Verdad, a regional newspaper from Alicante.

The article claims that the number of foreclosed and repossessed homes in the province of Alicante in the first 9 months of 2009 is 2257, 65% higher than the previous year, and that around 6000 more families are "at risk". The population of the province of Alicante is 1.9 million.

Also, in July the governing body of the Spanish Judiciary published a report claiming that the number of foreclosures in the first half of the year had doubled from one year earlier and forecast that in 2009 there would be 160,000 foreclosures nationally. A separate report claimed each additional percentage point of the Euribor would result in 50,000 additional repossessions. The population of Spain is under 47 million.

Even though Euribor is now at historical lows (about 1%) a year ago it was 5% and the resulting wave of repossessions is only now reaching the courts.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 14th, 2009 at 07:09:52 PM EST
[ Parent ]

I meant (none / 0)

in cases of bankruptcy proceedings, how many end up in people losing their homes. Foreclosures are up everywhere, but, as I said before, foreclosures are almost always a net transfer of wealth from bankers to homeowners -- in this case to the previous homeowner who sold the home to the one who eventually lost it to foreclosure.

by santiago on Wed Oct 14th, 2009 at 07:55:33 PM EST
[ Parent ]

Re: I meant (none / 0)

Not if the bank gets bailed out with taxpayer money.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 14th, 2009 at 08:45:10 PM EST
[ Parent ]

Even then, (none / 0)

Unless the bailout were completely funded by taxing the poor instead of the rich. This is unlikely to be the case because progressive taxation exists in all OECD countries (even in the US, since taxation is even more progressive in the US than Europe, oddly enough), and any tax increases to pay for stimulus deficits will almost certainly have to come in the form of increasing taxes on wealthier people. This means that bank bailouts effectively tax most wealthy people in order to bail out some wealthy people, so I think it is still is unlikely to affect the net distribution of wealth to the poor in the form of loan write offs.

by santiago on Thu Oct 15th, 2009 at 10:29:42 AM EST
[ Parent ]

Re: I meant (none / 1)

The point is, it didn't use to be possible for individuals to save their home by filing for bankruptcy. If you didn't pay your mortgage you got foreclosed and repossessed, period. That's what secured credit means.

foreclosures are almost always a net transfer of wealth from bankers to homeowners

With the foreclosed person as collateral damage?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Thu Oct 15th, 2009 at 02:16:11 AM EST
[ Parent ]

Re: I meant (none / 1)

it didn't use to be possible for individuals to save their home by filing for bankruptcy.

As far as I know, it's still not, at least in the US. The home exemption means that other creditors cannot force you to sell your home as an asset to pay them. Only a certain amount of equity is exempt. The mortgage is a different story -- you can't discharge it in bankruptcy and banks can foreclose and take their asset back, although I think they have to wait until the other debt is discharged before they proceed.

Maybe we can eventually make language a complete impediment to understanding. -Hobbes

by Izzy (izzy at eurotrib dot com) on Thu Oct 15th, 2009 at 03:01:37 AM EST
[ Parent ]

Re: I meant (4.00 / 2)

According to a rather poorly sourced Wikipedia link I posted on another thread, there are actually a few states in which the homestead exemption even applies to mortgages. I haven't been able to figure out which states, if any, this applies to.

by gk (g k quattro due due sette "at" gmail.com) on Thu Oct 15th, 2009 at 03:22:05 AM EST
[ Parent ]

See the discussion up thread (none / 0)

Especially in the US, bankruptcy is the policy means available to individuals to reduce debt and save their homes. Very few bankruptcies in the US occur in which individuals lose their homes, and the reason most people file for bankruptcy is to save their homes (while escaping from their medical bills).

by santiago on Thu Oct 15th, 2009 at 10:33:07 AM EST
[ Parent ]

Re: See the discussion up thread (none / 0)

Just as long as you continue paying your mortgage, you won't lose your home in bankruptcy proceedings in the US, that is true.

But when people default on their mortgage they can get foreclosed and repossessed, and they will unless the bank has inexplicably (heh) misplaced the loan documents.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Thu Oct 15th, 2009 at 10:36:00 AM EST
[ Parent ]

Re: See the discussion up thread (none / 0)

Yes, this is exactly how it works in the US.

by santiago on Thu Oct 15th, 2009 at 10:42:33 AM EST
[ Parent ]

Re: I meant (none / 0)

I think the argument I'm trying to make is that whether or not there are specific provisions in bankruptcy laws that protect home-ownership rights above creditors' rights, the effective use of individual bankruptcy has always been to save people's homes. Filing for bankruptcy allows individuals to be forgiven other debts in order to be able to afford to pay -- usually also under reduced conditions -- their primary, secured debt in their own home. It's still a net transfer of wealth from creditors to debtors. In fact, some recent US Fed research blamed popping of the housing bubble on the new bankruptcy laws in the US which made it more difficult for people to escape credit card debt by filing for bankruptcy (which meant they started paying the credit cards instead of their home mortgages, causing delinquency to spike soon after the new bankruptcy law went into effect).

by santiago on Thu Oct 15th, 2009 at 10:41:50 AM EST
[ Parent ]

Re: I meant (none / 0)

Repossessions forecast 'overestimated', say mortgage lenders | Money | guardian.co.uk

the new bankruptcy laws in the US which made it more difficult for people to escape credit card debt by filing for bankruptcy

I remember the heavy debate on those laws when I was in the US in the early noughties. It makes you wonder whether the lobbyists who made the new bankruptcy laws happen were consciously laying the groundwork for the subprime bubble.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Thu Oct 15th, 2009 at 10:47:21 AM EST
[ Parent ]

Re: The relevent question is ... (4.00 / 2)

More homeowners are likely to avoid repossession than previously expected during the recession, according to the Council of Mortgage Lenders. But the CML's announcement today that it had overestimated the number of people likely to lose their home this year coincided with data showing the number of actual repossessions in the first three months were 62% higher than a year earlier.
The CML has cut its estimate for the number of homeowners facing repossession this year to 65,000, from its previous estimate of 75,000. However, the new figure is still the highest since 1992.

If you're not part of the solution, you're part of the precipitate.

by ceebs (ceebs (at) eurotrib (dot) com) on Wed Oct 14th, 2009 at 11:22:27 PM EST
[ Parent ]

I tried the a random link that result, that wasn't an obvious U.K. site and got

If your property serves as collateral for a loan, you need to timely pay all monthly payments on these loans in order to keep the property.

Which makes exactly the point I was making, that a mortgage in the U,S, is different from other bankruptcy laws. You seem to be completely ignoring my references to the homestead exemption that makes a clear distinction between bankruptcy and foreclosure. This discussion seems to be switching back ad forth between the two, causing hopeless confusion, at least as far as the U.S. is concerned.

An additional point is that filing for bankruptcy has, in the U.S., been made much harder, so people might just be walking away from their homes without filing, while being (informally) bankrupt.

by gk (g k quattro due due sette "at" gmail.com) on Wed Oct 14th, 2009 at 11:00:01 PM EST
[ Parent ]

Re: I don't think that's true (4.00 / 3)

I'm sorry santiago, but I think you have it precisely 100% wrong.

The lender has security over the property which is superior to the claim of the owner. In a bankruptcy, the title in the asset passes to a trustee in bankruptcy (not sure what the US equivalent is called), but the bankrupt may well stay on there as a 'debtor in possession', provided he pays the mortgage.

If he doesn't then he'll be out on his arse.

Debtor in possession financing is a huge business in the US in relation to the financing of assets which are in Chapter 11 - ie corporate insolvency.

If there is no equity in the property, then the bank may well decide to let the borrower stay on in the property, provided he pays the mortgage loan and interest.

But the property does NOT - unless US law is diametrically opposed to UK law - become that of the bankrupt free of mortgage, which appears to be what your are suggesting.

FWIW my first job was as an Examiner in Insolvency - working for the Official Receiver (an officer of the court) - and I've dealt at least a hundred individual bankruptcies, and a few dozen corporate insolvencies, with some interesting wrinkles.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Wed Oct 14th, 2009 at 01:27:00 PM EST
[ Parent ]