Mar042010

The Face of Housing Entitlement Today

Many people currently living off the fat of the land are doomed. Like the condemned enjoying a final peaceful meal, they wait in comfort for a disheartening drop. In the meantime, we manifest a new housing entitlement in the United States; once you sign loan documents and move in, you are entitled to live in comfort indefinitely.

The amend-pretend-extend dance will continue until lenders tire of paying the piper. Shadow Inventory contains the new entitlement class; while unemployed renters sleep in shelters, unemployed homeowners squat in luxury, sustain false lives on lender largess, and exalt their status in preparation for the unceremonious fall from entitlement.

Today I want to introduce you to the one couple living off lender largess — and indirectly they’re living off you and I as taxpayers subsidizing lenders —  from the LA Times article Many borrowers in default live for free as lenders delay evictions:

Despite being months behind, many strapped residents are hanging on to their homes, essentially living rent-free. Pressure on banks to modify loans and a glut of inventory are driving the trend.

loan_owners_renters

 

[Patricia and Eugene Harrison, who bought their Perris home seven years ago, have lived there since October 2008 without making any payments on their mortgage. (Irfan Khan / Los Angeles Times / February 19, 2010)]

Do you think any unemployed renters who are failing to pay rent are living that well? Full dinner plates, a solid roof, mementos and permanent storage, comfortable surroundings; we endow these entitlements on those who own.

Often these owners foolishly over borrowed — by the way, how did the couple in the picture get that far behind on a 2002 or 2003 mortgage? These people should be renting or residing in a homeless shelter. Others use their car.

If you can sign your name to a mortgage, you no longer have to fear homelessness, and your level of entitlement increases significantly. Are you comfortable with this entitlement you as taxpayer provide? Is home ownership and loan ownership the new foundation of the American entitlement system? Does this feel just to you?

[Pictured above: Unemployed renter and family who failed to sign loan documents and squat in a house]

When you reflect on it, the threat of homelessness is the pillar of our economic system. If you don’t want to work and produce something of value to society, you endure society’s minimum standard-of-living entitlement, which isn’t a high quality of life (just ask the homeless). In the United States, we use the threat of homelessness to combat sloth; however, now that we have created a new entitled class of loan owners, we threaten the whole system. What is the incentive for couple in Perris to solve their problems and get current on their payments? That costs money. They don’t want to repay money, they only want to spend money. Isn’t their real incentive to ride out their entitled condition as long as possible?

Back to the article:

It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris home. Eleven months since the notice got slapped on their front door, warning that it would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.

HELOC_abuseAre these owners unemployed? Did they put 20% down and now they are in default on a $102,400 mortgage? Or did they HELOC themselves to oblivion and leave the bills? If they did not spend their house, why don’t they sell it and get their equity? Surely, their house is worth more than a conservative mortgage of $100K? How are they different from Bonnie and Clyde?

“We’re kind of on pins and needles, but who’d want to leave when you put this kind of energy into a house?” said Eugene Harrison, 70, gesturing toward a bucolic mural of mountains, stream and flowers the couple painted on the living room wall.

Throughout the country, people continue to default on their home loans — but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.

And with a glut of inventory in places like Southern California’s Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.

Yes, housing blogs have been describing the catastrophic effects of inventory dumping for years, and we witness the carnage in markets like Las Vegas, Phoenix, and Riverside County.

Economists say the situation won’t last forever, but in the meantime the “amnesty” may allow at least some homeowners to regain their financial footing and avoid eviction.

So while renters get evicted with nothing, squatting loan owners get to luxuriate to regain their footing.

In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it’s difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.

Did you catch that number? John Husing is describing shadow inventory, and Riverside County has a serious supply overhang. What are we going to do with 100,000 delinquent borrowers there?

“For some reason, banks are being more lenient with homeowners who are behind on their loans,” Sharga said. “Whether it’s a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure.”

For some reason? LOL! Shadow inventory is a much larger problem than bulls are willing to face. Banks are slow to foreclose for both reasons given. While the banks prepare to blast freeloading homeowners out of their bunkers of entitlement, they must figure out what they are going to do with all those properties. Not to worry, they will come up with some solution that continues to funnel your hard-earned money to their pockets.