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There's another explanation which also feeds this.

Many borrowers with good credit are nonetheless finding it impossible to refinance (when you are underwater loan to val, no matter your credit rating, you're not going to be able to refi). And they are stuck in their house for the very same reason loan to val is > 100%, ie you can't sell it for what you owe (ah, debtors prison, American-style. A gilded cage, perhapsm but a cage nonetheless...)

At the same time, rental rates haven't gone up anywhere near like real estate has, and that reasonably good credit will get them into quality rental housing. And, I think we can agree that when loan to val is greater than 100%, you don't own your increasingly less valuable house, the bank does and you are simply renting from them, at a rate both higher than you can afford and higher than the market rate for a similar property if you were to go out on the rental market.

It's simply a good business decision to walk away from the house, move everything and go find a good deal on the rental market.

In fact, this is the dynamic which scares the markets far more than the so-called "subprime" mess. It's not a subprime mess, it's an attitude shift towards default on the part of the vast middle class with an average FICO of "very good". An attitude shift which is really hard to model but nonetheless is very real. Thin layers of false consciousness stripped away, gradually.

It was never primarily a subprime issue. No one cares about the poor people and their crapppy credit, they never did and now's not the time to start. Small part of the market. Rule number two in the game of US politics: when someone is talking about an issue concerning the poor, there's something more to it, look between the lines and behind the rhetoric. It's not about the poor. It's either about the middle class, or about the inability of the wealthy to soak the poor. It's never about the poor.


The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Wed Feb 13th, 2008 at 10:50:54 AM EST
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