Abandoned Homes

First it was homeowners walking away from foreclosures. Homeowners who knew they couldn't make their payments were walking away from their houses before they were foreclosed on, so that they could get other housing before their credit was ruined.

Now banks are walking away, as well.

The NYTimes reports that banks are finding it less valuable to take possession of a foreclosed home than to just walk away from the whole ordeal.

It sounds like this could be a silver lining for some homeowners, but that's not the case:

According to the NYT, "The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure."

Finding out who owns the mortgage is the same problem that foreclosure mitigation specialists and lawyers run into when they're trying to either have a bank with a homeowner or file a class action lawsuit.

Says one industry inside: “The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can. It’s just a sign of the times that things are so bad no one wants to take possession of the property.”

And that's crazy, that something that is most Americans' largest investment, just isn't worth the court costs and legal fees.

HUD Help with Economic Crisis

President-elect Barack Obama says that the department of Housing and Urban Development will play a key role in his plan to create or save 2.5 million jobs.

From USAToday:

"'To end this economic crisis, we must end the mortgage crisis, where it began,' Obama said during his weekly address Saturday. [Housing secrectary pick Shaun] Donovan 'knows that we can put the dream of owning a home within reach for more families so long as we're making loans in the right way.'"

The incoming administration has talked about using some of the $700 billion economic bailout fund to stem foreclosures. In addition, Obama said HUD will focus on keeping homes affordable in the first place.

It will be interesting to see what exactly that means, come January.

In Congressional hearings in June, Donovan, a New York City housing official, said that "cities like us across the country cannot preserve [affordable housing] on our own."

(Closer to home, HCD head Robert Lipscomb has told me several times that they knew foreclosures were a problem in Memphis before the larger mortgage crisis, but they couldn't do anything without backing from the federal government and that it wasn't a priority of the current administration.)

I will say, Obama was on Meet the Press two weeks ago and he drew a great analogy after Tom Brokaw asked him why homeowners who were paying their mortgages but seeing their neighbors "getting bailed out" wouldn't just walk away from their mortgages.

"We don't want what you just described, a moral hazard problem where you have incentive to act irresponsibly," Obama said. "But, you know, if my neighbor's house is on fire, even if they were smoking in the bedroom or leaving the stove on, right now my main incentive is to put out that fire so that it doesn't spread to my house."

Under Water

A story in today's Wall Street Journal says that the slide in home prices have left one in six American homeowners owing more on their mortgage than what their home is worth. The news especially bad for those homeowners who have bought in the last five years or so.

With the overall mortgage crisis, prices are back to 2004 levels in Las Vegas, Los Angeles, San Francisco, Fort Lauderdale, and Minneapolis.

From the story:

"Stephanie and Jason Kirschenman thought they were being prudent when they agreed in late 2004 to buy a new four-bedroom home in Lodi, Calif., for $458,000. They put a substantial 20% down and chose a loan with a fixed interest rate for the first 10 years. Two years later, they took out a second mortgage to pay off some bills.

At the time, the home was appraised for about $550,000. But a mortgage broker recently estimated its value at well below the $380,000 the family owes on it, says Ms. Kirschenman."

The story included a handy-dandy map, on which you might notice Memphis is a nice shade of rose, meaning that between 20 to 40 percent of people who bought their homes in the past five years now owe more than the estimated value. (That's if I decoded the color correctly, which I think I did. Judge for yourself.)

From the Wall Street Journal.

But at least it's not magenta.

And in a separate note, if I made this map, I might have used completely different colors to avoid confusion, but I guess this way you can easily see the hot spots.