Are delinquent mortgage squatters victims of intransigent banks?
People who aren’t paying their mortgages are portrayed as victims of evil bankers, but if people aren’t paying their mortgages, can we really say they are victims?
I recently wrote about a man who delivered his demolished house to repossessing bank. In that post, I recounted my belief that lenders are more culpable than borrowers in the housing debacle; however, that doesn’t absolve borrowers of all responsibility for their actions. Barry Ritholtz in Bailout Nation listed those he blames for the housing bubble, and lenders are higher up the list than borrowers; however, Mr. Ritholtz goes on,
“Regardless of how low rates got, the fact remains that many borrowers took out mortgages regardless of their own ability to repay the monthly principal and interest. This was simply reckless behavior, and should be recognized as such.
Irresponsible borrowers are like children, if you offer them something they want, no matter the terms, they will take it. The federal government realized this basic fact years ago when they passed predatory lending laws, but does that make the borrower any less responsible? No, innumeracy is no excuse. So if you offer free money to the irresponsible, what would you expect? I would expect them to spend it irresponsibly and not worry about paying it back. Is it logical to expect anything different? In my opinion, it shouldn’t have taken a rocket scientist to see abandoning lending standards was going to end badly.
That being said, when will people start being responsible for their actions? Has our entire culture become based on having victim status and not being responsible? These borrowers should not have been bailed out by any government program as it creates more dependence, but what did we do? Every few months, the government unveiled an new bailout program designed ostensibly to benefit borrowers while really bailing out the banks. These programs maximized moral hazard by encouraging both irresponsible borrowing and irresponsible lending — a lose-lose for the US taxpayer who will foot the bill now that we insure 80% or more of the mortgage loans originated.
With the proliferation of toxic mortgages, many borrowers suffer mortgage distress, and many quit paying. Bankers react to delinquent mortgages by foreclosing, negotiating a loan modification, or often by doing nothing at all. Borrowers also react in many ways: struggling to make payments, fighting foreclosure with attorneys, moving out of the property, and often by doing nothing at all; in other words, squatting. Given that delinquent mortgage squatters are living payment-free in their houses, it’s difficult to see them as victims of intransigent banks, despite efforts of reporters to portray them as such.
New York has a crisis of foreclosure limbo loans.
Tens of thousands of neighbors in the five boros and Long Island are living year-to-year as a shadow class of struggling homeowners mired in mortgages with no completed foreclosure, no expectation of making payments on the loan and no other alternative to get out from under the bad debt.
Struggling homeowners? Bullshit! They are delinquent mortgage squatters! Where is the struggle when a homeowner quits making payments and does nothing at all?
Most borrowers want to work out a deal to pay the loan, experts said. But it’s an uphill fight.
What evidence exists that these borrowers are making any effort at all? Most are gaming the system for continued free housing.
Job losses are behind many foreclosures, and the weak job market keeps borrowers unemployed or under-employed — and struggling to catch up — long-term.
This is the standard illusion proffered by the mainstream media: hard-working and honest borrowers struggling against conditions beyond their control. The reality is many, if not most, of these people were financially illiterate Ponzis who took out toxic mortgages, most often with a huge amount of cash in mortgage equity withdrawal.
In addition, when borrowers finally do sit down with their lenders at a court-appointed settlement conference, they often meet with a low-level employee who lacks the power to make decisions. This leads to still more delays. …
Delay is what these borrowers are after because it means more free housing.
The growing problem of limbo loans is unsustainable, experts said, and the day of reckoning is coming.In New York state, 48 percent of loans that are 90 days or more past due have been delinquent for more than four years, according to Fitch Ratings.
Families are trapped in debt, banks have yet to write down the bad loans, and thousands of distressed properties hang over the estate market.
“Banks can kick the can down the road, but [not] indefinitely,” said real-estate analyst Keith Jurow. “It’s going to be really ugly.”
It’s already getting ugly. (See: Foreclosures Surging in New York-New Jersey Market)
Steve Papiernik, who said he bought the home in June, was on the scene about 11 a.m. as the deputies tried to evict the man from the two-story house at 755 E. Cherry Road, near California Road, just north of Quakertown.
Deputies closed several hundred yards of East Cherry Road for about two hours as they talked to Palchanes over a loudspeaker from a cruiser with its lights flashing.
“Dan, this is Sgt. Rafferty from the sheriff’s office, you need to answer your phone. We need to talk. We are not going away.” …
He ranted about losing his property before being placed in the back of a sheriff’s cruiser.
“I have my life savings in this house,” Palchanes said before being placed in the vehicle. “I feel like a criminal, because I owned a piece of property. … My neighbors respect me because I kept the property values up, and this is what I get.“
It wasn’t keeping up the home and the neighborhood property values that caused the problems; the former owner failed to make his mortgage payments, causing the bank to call an auction.
Responsible citizens are the real victims
The moral hazards in our system of housing finance are out of control. In years gone by, people used to get home loans to acquire an asset that would otherwise take a lifetime of savings. People would borrow money and diligently work to pay it off, and the value of their home became a store of wealth. With an abundance of home equity and decreasing debts, the housing finance system was very stable; however, with the financial innovations of the housing bubble, lenders created an entire generation of Ponzis who see nothing wrong with borrowing and spending home equity, completely destabilizing housing markets. Houses become valued based on their capacity to generate HELOC money: the more prized they are, the faster then go up in value, and the more HELOC money they provide — a Ponzi scheme that goes as far as lenders allow, and now with backing of the US taxpayer, lenders have little incentive to lend prudently. Perhaps Dodd-Frank’s qualified mortgage rules provide some protections, but how long will it take for lenders to find a way around? Not very long I imagine.
The real victims of the housing bubble and bust weren’t those who lost their homes, the real victims are those responsible people who didn’t participate who are forced to pay the bills. And how are they paying? Either directly through government bailout programs, or indirectly through higher house prices caused by the endless market manipulations.