The subprime mortgage crisis in just about over. Those whose loans came with usurious interest rates have, if they got behind or lost their jobs, already been foreclosed upon. Now the issue is negative equity, the fact that real estate is depreciating so fast that homes are no longer worth the price paid, even with prime interest rates. Being “upside down” and expecting a higher rate to kick in on the original price is causing more and more people to simply walk away from their mortgages.
And indeed, walking away from the debt may be the best option for people who purchased during the “bubble” of inflated valuation. Because the underlying problem the bubble was based upon – ever-increasing wages for the working classes – has dismally failed to materialize.
We’re all paying for the bubble and the ridiculous amount of side-bets that got made by financial pyramid schemers who artificially produced and inflated that bubble. When the “average” price of a below “average” home (say, 50 years old, in need of repair, in a bad neighborhood and too small for a family) rises above $120,000 in one of America’s “Officially Depressed Regions” where a majority of citizens are chronically out of work and wages hover right around minimum, you know something’s got to give. That’s how it is in my nearest county with an actual city in it – Buncombe County, NC, home to the city of Asheville (pop. less than 100,000).
See, the cost of living either keeps pace with what the semi-skilled or skilled laborer can expect to earn, or it doesn’t. Around here we’ve got a perpetual situation of “doesn’t.” This doesn’t just mean that the vast majority of the population must pay rent to the landholders who CAN afford the real estate, because the cost of rent is tied to the value of the property being rented. So if you have to pay $1200 to $1500 a month just for a kitchen, two bedrooms and a bath either way, the only difference between ownership and renting is that if you rent, the landlord has to fix the roof and furnace and plumbing. And when the average family with two full-time workers can no longer afford to live indoors and eat regularly, what are they supposed to do?
Economic greed of the sort that led us to this current “financial crisis” – is not just one of those deadly sins, it’s blind, deaf and dumb to its own interests. Stupidity of the inevitably terminal variety that we should NOT have to make good on after the crimes have been committed. A legitimate slave-owner had to provide food, clothing and ostensibly adequate shelter for his slaves. If they were starving they couldn’t work. If they were freezing or sick or naked they couldn’t work. It cost the slave owner money to replace his chattel, and the necessities of life had to come with the bargain. This hasn’t been so in America since slavery was outlawed. Of course there had to be a bad end to it all.
So now that the marginal debtors have been generally ‘liquidated’ in the first wave of cashing in our collective assets, the better debtors are scheduled to fall. As described in the Business section of the New York Times, this stage of the liquidation will cost more, be every bit as damaging, and is not expected to salvage any actual wealth for anyone but the bankers. It involves real properties so quickly falling in value that their prime mortgages are upside down enough that the debtors are simply walking away.
Those who don’t wish to walk away are being charged exorbitant fees for refinancing closer to value, and rising interest rates are also denting the effectiveness. Fannie and Freddie are big into this second wave heist, as apparently are Fed and Treasury. Just another way to clean out the higher end of the so-called “middle class.”
The bad news is that there is a building third wave building as well, as commercial properties either default or turn upside down. Soon there will be vast wastelands of once-nice suburban neighborhoods and shopping centers and malls where the homeless sleep at night sans utilities. They’ll be homeless even as millions of empty homes and apartment complexes sit dark and empty because no one owns them, they’re not worth buying and nobody’s renting.
In a future post we’ll take a look at some innovative options that abandoned property squatters can put to work for themselves toward necessary things like light, heat, cooking ability, water supply, sanitation, etc. – ways that people are either keeping the utilities on in a home they neither own nor rent/lease, or providing for themselves. Sure, these are the “future-slums” many complained they’d become when they were being built, but hundreds of thousands of once-productive Americans every month join the ranks of the “future-slum” dwellers they never thought they’d be.
To all but the top 10% of wealth-holders things are well beyond mere recession at this point, whether any talking heads want to call it that or not.
Another Scam Alert
CNN Reports that fraudulent “discount medical cards” are spreading like wildfire, and offers some hits on how to recognize a scam:
1. You learn about it from a blast fax or internet popup ad.
2. They promise a certain percentage savings.
3. They use the term “guaranteed coverage.”
4. They won’t give you a list of providers until you buy.
5. It sounds too good to be true.
Because these scams are growing and a matter of concern to law enforcement in a number of states, always check out an offer through the BBB, your state’s attorney general’s website, the Coalition Against Insurance Fraud and National Association of Insurance Commissioners.