Home owners and loan owners are different. Both experience changes to their net worth from fluctuations in the resale prices of houses, but beyond that, people who own property don’t benefit from the various bailouts designed to keep loan owners paying their mortgages. Most people who own a loan erroneously think of themselves as home owners. They are not. They are money renters who hold title only as long as they continue to pay the rent on the money they borrowed. Let’s review from Money rentership: housing and the new American dream:
Over the years, the slow erosion of property rights has made the distinctions between owning and renting less dramatic, particularly in renter-friendly cities in California. Owners have few rights renters don’t, and with exception of equity participation, owners obtain few benefits to outweigh the burdens of ownership, and over the last few years, equity participation has not been a bonus.
The mortgage encumbrance gets to the core of the unnoticed change in people’s concept of property ownership; people who have little or no equity stake in a property have no ownership despite what legal documents may say. What they have is money rentership and the illusion of home ownership. Emotionally, they still feel like homeowners; they still behave and believe like homeowners, but they’re not home owners. They own a loan; they’re loan owners.
At some level, people know this, and we observe high default rates once borrowers fall underwater. Despite the Government’s best efforts, people are walking away because once they no longer own, they see money rentership for what it is, and unless the cost is less than a comparable rental — which it rarely is — then people walk.
Money rentership — the antithesis of owning — is the California conception of home ownership.
The distinction between home owners and loan owners is important because both renters and home owners have one thing in common; neither receives benefits for their tax dollars bailing out loan owners. In other words, renters and home owners are ripped off by banksters and loan owners.
Renters need to flex muscle in U.S. housing debate
08 February 2012 | By Agnes T. Crane
Though America’s mortgage system subsidizes homebuyers, its dysfunction has cost all taxpayers dearly. Few constituencies with much clout are pushing for change. But the nation’s 39 million rental households – often an afterthought in the housing debate – ought to be up in arms.
Renters are not an afterthought, they are no thought at all. Renters are the subhuman class called upon to pay the bills of the upper classes of loan owners when loan owners cannot pay their own bills. Renters benefit in no way from the bailouts. In fact, renters who would like to be home owners someday are hurt by efforts to keep prices high and unaffordable. Renters money diverted through bailouts to loan owners actually costs them more in the future price of a home. Further, since the bailouts keep loan owners in properties they could never afford, renters who would like to buy are crowded out of the properties they want because these properties are still occupied by loan owners. Renters get screwed every way possible.
They might find unlikely allies, too.
Renters may be the only big group in the United States that isn’t invested in the status quo. Homeowners, realtors, homebuilders and banks all benefit from the government’s hand in housing, exercised through Fannie Mae and Freddie Mac, which buy and guarantee mortgages, through other federal vehicles, and through tax rules that subsidize mortgage interest.
This makes home financing cheaper and, usually, more liquid, which in turn makes homes of any given price more affordable and potentially easier to sell on. Banks and investors, meanwhile, are wedded to the security a government guarantee brings to their respective loans and bond investments. And politicians, who have long extolled the virtues of homeownership, are loath to do anything that would make it more difficult for voters to achieve their idea of the American Dream. The trouble is, that’s what would happen if reforms are introduced that reduce or scrap the role of the government’s money and policy objectives in the market.
Dismantling the plethora of government subsidies would not prevent anyone from owning a home. It would lower prices, but once prices found their new equilibrium, home ownership would go on as before. Many countries around the world have similar home ownership rates as the United States without the subsidies and programs in place to encourage it. Our subsidization of home ownership has merely inflated the prices and made prices unstable.
But rent-payers ought to like that idea. They miss out on the huge tax deductions mortgage interest payers get. And their savings bring in more return when the Federal Reserve hikes interest rates, in contrast to households with equity in homes that in theory go up in value when the Fed pushes lending rates lower and lower. Meanwhile, renters have been hurt by fallout from the housing bust. As taxpayers, they are set to suffer the costs of the government’s attempts to shore up housing – more than $150 billion and counting in losses at Fannie and Freddie alone. And as struggling homeowners hit the rental market, rents are going up too.
The bulk sales of REO to investors will soften the rent increases. Each foreclosure creates another renter, but it should also create another rental unit. That hasn’t been happening because banks are trying to sell to owner occupants. This has created an imbalance forcing rents up and resale prices own. That imbalance will be corrected by bulk sales to be held as rentals.
At the same time, the ranks of renters are filling up with younger Americans who have witnessed the nightmare of homeownership rather than the dream espoused by older generations. The 44-and-under crowd has been hard hit, with their homeownership rate falling by more than seven percentage points since 2005 to 62.3 percent, according to the U.S. Census Bureau. This matters since they will tell their tales for years to come, potentially undermining the belief that homeownership is part and parcel of American prosperity.
Meanwhile, borrowers who owe more than their home is worth are weakening a key supposed advantage of homeownership: that mortgage deeds bring good deeds to a neighborhood. That probably still applies when someone has a chunky equity stake in their home. But more than a quarter of homeowners now do not. This group is much less likely to fork over, say, $20,000 to fix a leaky roof if it’ll only help the bank’s bottom line rather than their own. Underwater homeowners look a lot like renters with giant mortgage millstones hanging around their necks.
Despite all this, and the likelihood that mortgage reform would save the government money, the policy debate is still aimed at restoring the idea of homeownership to its inflated pre-crisis glory. That has delayed efforts to even consider dismantling the likes of Fannie and Freddie, and diluted the potential for moves like slashing mortgage tax breaks.
Politicians exacerbate problems by trying to keep home ownership rates at artificially high levels. Politicians should focus on an orderly transition from ownership to rentership. If politicians were really progressive, they could invest in training people on proper financial management to sustain home ownership. Instead politicians squander money on subsidies facilitating home ownership for those who lack the capacity to sustain it.
A rhetorical uprising of renters could refocus and reinvigorate this discussion. They lack the artificial aura of maturity and material success that seems to attach to owning a home in the United States.
Most of the qualities formerly associated with home ownership were completely lacking during the housing bubble. The generation of Ponzis lenders created clearly lack the financial management skills necessary to sustain home ownership. Poisoned by Ponzis, home ownership lost its revered place in our society.
But that perception of renting could change. Just look at Germany. It’s an economic powerhouse, even now in troubled Europe, and less than half of its households own a home, against 66 percent in the United States.
The renter lobby may even find friends in strange places. Wealthier or older homeowners who have paid off their mortgages can’t be happy about the likelihood of forking over higher taxes to pay for the last decade’s excesses.
Nobody is excited about the prospect of paying off the Ponzi’s tab. Retirees pay the bills now. Most retirees expected to earn interest on their savings in their retirement to supplement their income. Instead this money is being diverted to banks to help them repair their balance sheets. Even if politicians don’t directly raise taxes, we will get inflation which is a stealth tax on wealth that requires no politician to cast an unpopular vote.
Of the 75 million homeowning American households, roughly a third don’t have a mortgage, if the findings from a 2009 American Housing Survey still hold.
True homeowners — the people on title who don’t have a mortgage — pay the bills of Ponzis though higher taxes and various bailouts. Most homeowners tolerate this because they hope the government’s efforts will help make house prices go up and make them richer. So far, it hasn’t worked out that way.
In addition, market-friendly conservatives, at least in better economic times, have long advocated the demise of Fannie and Freddie in favor of freer markets for homes and the loans needed to buy them. It might seem a slightly odd coalition. But if renters, retirees and red-staters got together, they could become a force to be reckoned with in the housing debate.
Conservatives can’t be counted on to side with renters. Traitors like OC Republican John Campbell who successfully lobbies for more government handouts is a prime example. Renters, retirees and true home owners all should be frustrated and upset with their government’s efforts to subsidize and bail out loan owners. I know I am.
Proprietary OC Housing News home purchase analysis 
427 IRIS St Corona Del Mar, CA 92625
$1,100,000 …….. Asking Price
$1,500,000 ………. Purchase Price
9/21/2006 ………. Purchase Date
($400,000) ………. Gross Gain (Loss)
($120,000) ………… Commissions and Costs at 8%
============================================
($520,000) ………. Net Gain (Loss)
============================================
-26.7% ………. Gross Percent Change
-34.7% ………. Net Percent Change
-5.6% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$1,100,000 …….. Asking Price
$220,000 ………… 20% Down Conventional
4.39% …………. Mortgage Interest Rate
30 ……………… Number of Years
$880,000 …….. Mortgage
$217,929 ………. Income Requirement
$4,401 ………… Monthly Mortgage Payment
$953 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$275 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$5,630 ………. Monthly Cash Outlays
($1,168) ………. Tax Savings
($1,182) ………. Equity Hidden in Payment
$353 ………….. Lost Income to Down Payment
$295 ………….. Maintenance and Replacement Reserves
============================================
$3,928 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$12,500 ………… Furnishing and Move In at 1% + $1,500
$12,500 ………… Closing Costs at 1% + $1,500
$8,800 ………… Interest Points
$220,000 ………… Down Payment
============================================
$253,800 ………. Total Cash Costs
$60,200 ………. Emergency Cash Reserves
============================================
$314,000 ………. Total Savings Needed
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
We're sorry, but we couldn't find MLS # U12000606 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
Competing Listings
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$2,575,000 300 JASMINE Ave |
0.2 miles 4 bd / 3 ba 2,235 Sq. Ft. |
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$1,550,000 428 MARGUERITE Ave |
0.21 miles 4 bd / 4 ba 2,225 Sq. Ft. |
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$1,199,000 719 HELIOTROPE Ave |
0.25 miles 4 bd / 3 ba 2,147 Sq. Ft. |
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$1,795,000 424 MARIGOLD Ave |
0.26 miles 4 bd / 3 ba 1,800 Sq. Ft. |
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$4,095,000 210 LARKSPUR Ave |
0.29 miles 4 bd / 3.5 ba 2,523 Sq. Ft. |
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$6,500,000 2908 OCEAN Blvd |
0.3 miles 3 bd / 2.5 ba 2,188 Sq. Ft. |
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$5,595,000 301 CARNATION |
0.33 miles 2 bd / 2.5 ba - Sq. Ft. |
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$1,999,000 708 ORCHID |
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$1,499,000 602 POINSETTIA Ave |
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0.56 miles 3 bd / 2.5 ba 2,400 Sq. Ft. |
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27 Responses to “Renters and home owners are ripped off by banksters and loan owners”
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FHA Financially on the ropes; gets robo-signing bailout
by Mike at North Orange Housing News
Two news articles came out on Valentine’s Day. The first story from the WSJ detailed the declining reserves at FHA due to losses and loans that they insured. The second news story is from Bankrate and it covered the immediate FHA fees increase now and then again in a few months.
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After Two-Year Lull, Delinquencies Rise for Second Straight Quarter
The national mortgage delinquency rate rose during the fourth quarter of 2011, TransUnion reported Tuesday, marking only the second time since the end of 2009 the Chicago-based credit bureau has recorded an increase in its quarterly assessment of past due mortgage payments.
The first was during the third quarter of 2011, with the succession signaling what could be a troubling trend in the making.
TransUnion calculates the mortgage delinquency rate as the percentage of borrowers 60 or more days behind on their payments, excluding those that are already in foreclosure.
The rate increased from 5.88 percent at the end of the third quarter to 6.01 percent as of the end of the fourth.
Between the third and fourth quarters of 2011, all but 13 states experienced increases in their mortgage delinquency rates, according to TransUnion’s study.
On a more granular level, 64 percent of metropolitan areas saw increases in mortgage delinquencies during the final three months of last year. The previous three months also had the distinction of increases in 64 percent of metros. That’s up from only 21 percent during the second quarter of 2011.
“To see that, quarter over quarter, fewer homeowners were able to make their mortgage payments is not welcome news. However, it was not unexpected,” said Tim
Martin, group vice president of U.S. housing in TransUnion’s financial services business unit.
Martin explained that there tends to be a natural seasonality – which was evident well before the recession – of higher delinquencies during the fourth quarter period of any year, perhaps because borrowers must balance holiday spending versus debt payments.
More intrinsic to the current conditions, Martin noted that on top of the seasonal flux, home prices continued to deteriorate in the fourth quarter of 2011 and unemployment remained stubbornly high.
“This combination leads to more negative equity in homes and reduced real personal income that can affect borrowers’ ability and willingness to pay their mortgages,” he said.
Martin does see some “more encouraging news” behind the numbers in TransUnion’s latest report – when looking at the data year-over-year, more homeowners are now making their mortgage payments on time, as evidenced by the 6 percent drop in the national delinquency rate since the fourth quarter of 2010.
“While it is certainly good to see the rate dropping, at this pace it will take a very long time for mortgage delinquencies to get back to normal,” Martin said.
The highest mortgage delinquency rates during the fourth quarter were found in Florida (14.27%), Nevada (12.08%), New Jersey (8.32%), and Arizona (7.50%).
States with the lowest mortgage delinquency rates included North Dakota (1.50%), South Dakota (2.45%), Nebraska (2.57%), and Alaska (2.77%).
TransUnion’s forecast calls for mortgage delinquency rates to drift downward marginally in 2012 as the economic environment begins to modestly improve.
In the meantime, however, the agency says the industry may see a quarter or two more of slightly elevated nonpayment rates as some consumers are not able to, or decide not to, repay their mortgage debt obligations in light of the uncertain economic outlook.
Negative equity plus, FHA fee increases, Fannie and Freddie fee increase, and the mortgage tax is putting pressure on the market. Even with the FHA bailout, we won’t see a Spring bump however, we might see more closed sales. There has been a decrease in purchase loans.
Five reasons there will be no price appreciation this spring
Home ownership in general is just a myth.
Even mort-free so-called ‘owners’ are not really owners because they’re technically leasers; ie., they merely lease the land infinitas from the local taxing authority.
Look folks…. politicians, their sell-side constituents and banks generate loads of ‘buy now’ propaganda (myths) to incentivize ownership, because they’re the ones who benefit most by it.
BTW, anyone buying a home because they think it will go up in price is not ‘investing’ in a home, they’re merely ‘speculating’ in a home. Forget the myth of ‘investing’ in a home… it’s nothing more than a sell-side lie which has been sold to Americans for far too long.
Fair distinction on investing vs. speculating, but does it matter what you call it? Are you investing when you buy Apple shares, or speculating? Are you investing when you pay for college, or speculating? If the outcome is not certain, and quite fuzzy in fact, then everything we do is speculating on the future. Therefore, the distinction is unnecessary and not really helpful.
The distinction is helpful for those who are concerned about where their expected returns are going to come from. Hoping for an increase in the value of an asset is guessing about the future. Buying a stable income stream is far less speculative. An investor in cashflow is still speculating on the stability of the income stream, but changes in asset value are not important to the overall returns. Cashflow investing is more stable and predictable than speculating on the change in asset prices.
While I agree that we should eliminate all housing subsidies, it should be done over a long period of time (20 years?). Decisions to purchase a house are done with consideration of these subsidies continuing. Nothing would do more to make housing more affordable to all, than to eliminate all of the subsidies.
It’s also disingenuous to suggest renters do not benefit from all of these recent programs to “help” mortgage borrowers. It’s not easy to calculate, but that doesn’t negate its existence. The economy is a complicated web.
The complaints about these mortgage borrower plans is no different than the complaints high taxpayers have. My wife and I paid $48K in federal income tax alone in 2011. What do I personally have to show for that? Well, it’s hard to calculate, but that doesn’t mean we haven’t benefited.
“Nothing would do more to make housing more affordable to all, than to eliminate all of the subsidies.”
I agree. And I also agree that it should be done over a long period otherwise it negates a benefit people were counting on when the obtained a mortgage and unfairly hurts them.
“It’s also disingenuous to suggest renters do not benefit from all of these recent programs to “help” mortgage borrowers.”
I can’t see any way renters benefit from these programs.
I hear legend of certain markets like Vegas where it’s far cheaper to own than rent. But in our SoCal realm, this seems like a myth. Right now the reality is slim pickings of over-priced houses with few homes my family would ever consider buying. Ponzi borrowers-turned-landlords are asking for insane rents to cover the costs of their over-leveraged homes, and good rentals that aren’t apartments are hard to find. Is this what we can expect for the foreseeable future – a reality in which six figure wage earners are forced to choose between cramming their families into apartments or condos, or going into massive debt to buy a POS house? That doesn’t seem at all sustainable to me, but looking at the slow grind to market equilibrium it appears that this will be the case for several more years at least.
“looking at the slow grind to market equilibrium it appears that this will be the case for several more years at least.”
That is what I believe is going to happen to the high end. Anything priced over $750,000 is going to experience a long slow grind downward for several years until we regain a viable move-up market.
Great points by Pwned. My family and I are about to move into a $2500/mo rental condo in Woodbury (about 1500 sf.), but based on recent sales comps in the same neighborhood, monthly cost of ownership (PITI + HOA) if I were to right now buy a similar property would be in the $3200/mo range, even with only 3.5% down and a 30-year fixed at 3.8% APR. Why on earth would we ever consider buying until we could get the same place at a good 15% lower than rental parity? At about a $2100/mo cost of ownership, we’d consider buying a place like this, in exchange for losing flexibility and the fact that we’d have to live in a small condo for at least 10 years while our family grows in order to absorb the 6% sale and resale costs in addition to the monthly ownership cost.
Wow… based on a $2100/mo cost of ownership calc, I would have to see my exact rental condo for sale for $280-290K before I’d pull the trigger to buy it. Based on recent comps, it’d probably be listed around $460K.
Is there something wrong with this picture? Either rents have to go up (and I’m already writhing in pain thinking about $2500/month) or home prices have to come down, and down even more drastically if interest rates rise.
I think I want search the internet posts back to 2006 and read the writings of those then who were adamant there was absolutely no housing bubble, and that home prices never go down. I need a good laugh right now.
Yeah – if we put 20% down on a $500k house we’d still be paying more than we pay now to rent a 1,600 square-footer, especially when maintenance/repairs get factored in. Good luck finding anything close to $500k anywhere near where we live tho. Even tear-downs get listed in the high 600s and sell in the low 600s.
“Why on earth would we ever consider buying until we could get the same place at a good 15% lower than rental parity?”
When was the last time this was possible in OC?
It may have been the case in 1996-1998, but my records only go back to 2000 when it was at rental parity. Before that perhaps in the 1984-1986 period and before that prior to 1976. If it does happen, it isn’t very often.
Hey pal, I see you’re still dreaming of the good ‘ol days. Reminder: They’re long gone mi amigo
BTW….since….
1) current OC prices are heavily distorted, fundamentals completely trumped by central bank intervention
2) current price model is based on the continuance of negative real rates
3) structural failures that caused the downturn have not been resolved
….. actually, 25-30% below parity would be a good time to consider buying.
In other news:
Investors hammer SoCal home prices
http://lansner.ocregister.com/2012/02/15/investors-hammer-socal-home-prices/158670/
I think your (1) is a very important point often forgotten, el. People say stuff like the market is recovering slowly, returning to normal — and it is, but only “normal” with respect to a completely bizarre and abnormal interest rate environment that is kept afloat by crazy monetary policy at the national level.
IF we could count on the real price of borrowing money to be essentially negative forever, then, sure, this could easily be the bottom of real estate prices.
But this interest rate environment is wholly unsustainable. It will and must collapse — and then what? What will happen when interest rates bounce back up to 6 or 7 or overshoot to 9 or 10? You could’ve put 30% down on your OC house and *still* be unable to find a buyer in that new environment that could get you out with a net profit.
That’s the scary scenario.
“….. actually, 25-30% below parity would be a good time to consider buying.”
There are already condos available at this price point. I would venture to guess OC as a whole is probably somewhere between 0-5% below rental parity. High end areas obviously aren’t there, but they are a small slice of the overall market.
There is a problem with rent gouging that needs to be addressed. And there needs to be some way to protect renters from “owners” who are not, or become not current on their mortages….leading to foreclosure…then eviction of innocent renters.
The latter issue has never been property addressed. With the millions of rent-skimming delinquent mortgage holders, this is an issue that should be addressed, but nobody seems to want to tackle it.
I know UGLY when I see it …
http://lansner.ocregister.com/2012/02/15/o-c-home-prices-at-33-month-low/158640/
oh my!
When it finally blows through the 2009 lows, it will be a 133 month low.
LOL… Good point.
How close are we to the 2009 lows? FYI the OCR mood ring is now pure red.
Case Shiller shows LA/OC still 2-3% above the low. Of course the most recent reading is an average of Sept-Nov. We may have breached the ’09 low in Dec/Jan but it won’t show up for several more months.
Get ready…it’s almost time to short REIT’s; ie. evidently, the sell-side is signaling they’re ready to book profits, aka- sell into any rallies.
REITs Find ‘Perfect Storm’ to Ride Real Estate Wave
http://www.cnbc.com/id/46399838
Will 2012 be the last attempt to Re-inflate the Housing Bubble?
By Mike at North Orange County Housing News
Since 2008, there have been tax incentives, refinance programs, mortgage modifications programs, mortgage rate manipulations, tax forgiveness, debt forgiveness to get this bubble re-inflated. I was wondering how long are the politicians, banks, and the Federal Reserve going to try and keep the bubble inflated. I could be wrong, maybe their policy now is to slow the price declines so the banks don’t have major losses.
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