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Foreclosure Externalities:

Two recent articles have raised an issue that I've been thinking about as well. First this one by Jim Prevor and this one by Alan Reynolds in the New York Post.

The basic issue raised by these articles as whether there is a "foreclosure externality" from a house going into foreclosure and thereby reducing property values for neighboring houses. The point here is different from one simply of supply and demand. The argument is not that a foreclosure increases the number of houses for sale and thereby depresses prices. But rather that an abandoned house brings disrepair, crime, and other problems that depress surrounding houses. A lot of weight has been placed on one article that finds a $3000 negative externality for surrounding houses. As Prevor notes, however, this is probably overstated for several reasons.

One reason is that any effect appears to be temporary, not permanent. There are widespread reports now of foreclosed houses turning over in resale markets, so it may be that the duration of any externality is much shorter-lived than previously thought.

We also don't know whether the marginal negative value is actually linear or whether it has declining negative marginal value. Thus, even if the third foreclosure depresses prices $3000, what about the thirteenth? The twenty-third? It seems implausible to think that the marginal negative value remains constant. Finally, that study was conducted when house prices were at their peak; now that home prices have fallen dramatically, it may be that the negative foreclosure effect is much smaller.

Reynolds notes that the foreclosure problem is not uniform across the country, but that there are actually a handful of states and other hotspots around the country with unusually high levels of foreclosures. This suggests that if there is a foreclosure externality it is concentrated in a few places--the overwhelming number of Americans, however, suffer no foreclosure externality.

Why does this matter? Because the presence of a foreclosure externality has been advanced as an argument for reducing the number of foreclosures as an end in itself, rather than trying to distinguish between "worthy" and "unworthy" homeowners. In particular, I think that this goes to the question of whether we should allow principal write-downs in order to eliminate the incentives for a homeowner to walk away from an underwater mortgage.

We can think conceptually about two groups of people: those who want to keep their houses but can't afford it (say because they had an increase in their interest rate on an ARM) and those who could afford to keep their houses but are making a rational economic calculation to walk away because the house is under water. These are stylized differences of course--both elements are present to different degrees in different cases. There seems to be some popular support for helping the first type of homeowner and foreclosure rescue plans to date have focused on that issue. But the second type of person can be helped only if we are willing to allow a write-down of principal. Foreclosure rescue plans to date have generally refused to bail-out the second person by allowing principal write-down.

If there is a modest or non-existent foreclosure externality, then the case for reducing the number of foreclosures as an end in itself becomes weaker, and instead we may want a more nuanced plan that focuses on helping some homeowners but not others. If a person could make his payments, but chooses not to because the home is underwater, then the question is whether we should essentially bribe him not to walk away from his home. The only real reason to do this is if his walk away will hurt the rest of us--what amounts to essentially an extortion threat. If that threat is largely toothless, however, then the argument for giving in is hard to see.

Without some sort of foreclosure externality, what is going on in many of the markets where we see large-scale foreclosures is nothing more than supply and demand—there are simply too many homes that were built and prices have to fall to their market levels. This seems to explain the situation in the exurbs in California, Las Vegas, Phoenix, Tampa, etc. Prices have fallen because there are just too many houses, not because of foreclosure externalities. And we can't repeal the laws of supply and demand.

Thus we are left with a bit of a conundrum. There are undoubtedly many people who we think worthy of helping stay in their houses, such as those who have had a sudden unexpected increase in an ARM and want to keep their homes but can't afford it. If we can help get those people into a lower-interest fixed mortgage, then great, that seems like a worthwhile foreclosure-rescue plan to me.

But there are a lot of other people—-perhaps a majority in some places at this point-—who are walking away as a rational response to the incentives they have, some of which are pernicious incentives established by state law, such as state antideficiency laws that let them walk.

So we are left with the possibility that if we help everyone we think is worth helping (and only those worth helping, we will help a lot of worthy people but will only make a small dent in the foreclosure problem. To make a substantial reduction in the foreclosure numbers we would have to be willing to write-down principal and give in to the threat that those who are underwater will walk away.

So far policymakers have generally resisted allowing massive principal write-downs, including the most recent Obama proposal. The Obama plan focuses on making payments more affordable, and in so doing, may deliver help to those we think we want to help--those who want to keep their homes but are unable to afford it. But it does not allow principal write-down and so thus eschews giving relief to those who could afford to keep their home but choose not to. If this is so, it may result in helping many people but doing little to staunch the overall tide of foreclosures.

In the end, however, this may be a completely defensible compromise--do everything we can to help make payments affordable but not allow principal write-down which would essentially be a bribe to those who are walking away from their homes as a rational economic calculation because they are underwater. With respect to the latter group, the market seems to be working sufficiently fine to recycle these houses back onto the market in foreclosure sales.

Richard Aubrey (mail):
I know a couple of realtors who have gone into the business of buying foreclosed houses.
The places are still empty. The realtor is trying to sell them which means the maintenance is probably better than if the bank owns it while remaining clueless. But, since the sales aren't going all that well, especially in areas where sales aren't going all that well because, among other things, there are so many people in house trouble, the realtors are stretched to keep the things presentable for as long as they need to.
The externality may be reduced incrementally, but the sales of foreclosed properties are not always to families who immediately reverse the externality. The number of sales remarked in the post should be modified to take into account the realtors holding--desperately--to empty houses.
3.2.2009 8:17am
ghh:
I don't agree that everyone with a resetting ARM is somehow worthy of anyone's help. A lot of people (including some sympathetically portrayed by the media) have acknowledged that they bought figuring they would resale at a profit before the interest rate would change. And they would have too, if prices hadn't dropped. So, they make a nice profit as long as it worked out, and we bail them out when it stopped.
3.2.2009 8:39am
ghh:
resell
3.2.2009 8:39am
RomeoW (mail):
"Thus we are left with a bit of a conundrum. There are undoubtedly many people who we think worthy of helping stay in their houses, such as those who have had a sudden unexpected increase in an ARM and want to keep their homes but can't afford it. If we can help get those people into a lower-interest fixed mortgage, then great, that seems like a worthwhile foreclosure-rescue plan to me."

Unexpected meaning according to the terms in the contract?

I live in a neighborhood with a couple of foreclosed homes, and the argument that it has negatively impacted me rings hollow. It hasn't. No matter how much some politician or talking head says is will, it hasn't. I bought 8 years ago in NOVA, and intended to stay in my house until I paid the 30 year mortgage off. The foreclosed houses aren't falling down, there aren't crackheads hanging out in them, and pretty much everything I hear will happen to the neighborhood hasn't happened. So I'll believe my own eyes before any "expert" opinion on what it will do to my home.
3.2.2009 9:02am
Happyshooter:
Romeo, I live in Michigan. The state has been doing this several years longer than the rest of the nation.

Without fail, within five years the foreclosed homes above a level I am not sure of leads directly to crime infestation. A friend purchased a home in the nicer area of the nearby city. The foreclosure wave started.

He now can't sell, has had to put an alarm system in, and they just converted the 7-11 on the corner to a circle seven (when a 7-11 gets robbed too many tmes and has city residents sitting in the lot drinking even in the winter, the company releases the store and lets them become a circle seven).

I don't know what the critical mass is, but I know that about 1/5 seems to do it and tip the block into crime and dregs acting like criminals which causes everyone else to flee.
3.2.2009 9:13am
Kenvee:
I've got to agree with ghh. People knew what the interest rates were going into it, and they figured that they would sell off at a nice profit before there was any problem. I, on the other hand, thought that was too risky and held off buying a home until the bubble burst and rates were what I considered reasonable. We both made choices. Both choices had the possibility of a risk and a reward. I happened to make the right choice this time, so I should be able to enjoy my reward of buying a home at a reasonable cost with a reasonable interest rate. Instead, I'll be taxed to give the people who made the WRONG choice the same reward. So what's the point in trying to make the right choices?
3.2.2009 9:16am
Houston Lawyer:
When I got out of school in 1985, mortgages were available at around 14%. I can't understand why 30-year fixed mortgages are now available at below 5%. It seems highly likely that we are in for a strong round of inflation resulting from unprecedented levels of government spending. Those ARMs are going to look a lot worse before they get better.

Foreclosures can be a problem, but allowing someone with no equity in a home to remain there can be just as bad.
3.2.2009 9:21am
Allan (mail):
What would any reasonable business do if it borrowed 100% of money needed to purchase asset and then the asset lost 50% of its value, with not chance of that the asset would regain its formal value? The business would give the asset to the lender and force the lender to become an unsecured creditor for the remainder.

Why, pray tell, do you ask homeowners to take on more responsibility than businesses?
3.2.2009 9:25am
mls (www):
Heres my question. Doesn't the government spend a lot of money to build "affordable housing"? Is it still doing that? Is it possible that the government is spending tons of money to keep the value of housing artificially high, while at the same time spending tons of money to create new housing for low income people? Just wondering.
3.2.2009 9:45am
corneille1640 (mail):

Instead, I'll be taxed to give the people who made the WRONG choice the same reward. So what's the point in trying to make the right choices?

For me, it probably depends on how much of an increase in taxes you'll personally have to pay. If you benefit a lot from your right choice and yet face a huge increase in taxes, then making the "right choice" did not work for you. If the increase in taxes is more modest, then it's at least more debatable that the "right choice" was still beneficial for you. I obviously don't know your situation well enough to know if it is as stark as you present it in your comment. If it is so stark, then my condolences.

Also, anyone living in the US makes economic choices under the possibility that the government will somehow interfere with the economy. That's been true ever since Hamilton decided that the US should assume state debts. That should be just as much of a calculation as whether interest rates will go up or down or whether a "bubble" will burst or not. Maybe this is not the way things should be, but that's how they are.
3.2.2009 9:50am
JKB:
The large wave of foreclosures is just the adjustment of the false prices in the market. In some areas, a significant amount of real estate was "sold" to people with no hope of paying for it, driving prices to false levels. This created comparables that self-perpetuated the false prices. The ponzi scheme broke and now the true prices are being revealed as capable buyers reveal the prices they are willing to pay. Trying to keep the false prices is futile unless you can find another wave of incapable buyers. Unlikely, since the true buyers in such situations, the lenders, are not willing and unlikely to for a long time, to pay false, inflated prices since the insanity burst. Sure the Administration is trying to keep the lie going by forcing the GSEs to buy at false prices but the insanity requires all players to be crazy otherwise you just have delaying the adjustment to true prices based on capable purchasers.
3.2.2009 10:08am
byomtov (mail):
To make a substantial reduction in the foreclosure numbers we would have to be willing to write-down principal and give in to the threat that those who are underwater will walk away.

I don't see the distinction between a principal writedown and a refinancing at a lower rate. For example, if you have 20 years to go on a 6% mortgage and can reduce the rate to 4% you'll reduce your payments by about 15%, just as you would if you kept the 6% rate but reduced the principal 15%.

I suppose in some cases we are talking about huge write-downs, where no reasonable interest rate reduction is comparable, but in general it's an artificial distinction, except for tax effects.
3.2.2009 10:08am
Phil72 (mail):
If you are having difficulty paying your interest rate and are concerned about possible foreclosure, visit http://advocateforyourhome.net/. Are professionals specializes not only in forensic loan audits, but loan modifications as well. Let us negotiate with your bank to find the best interest rate for you.
3.2.2009 10:49am
Allan (mail):
Wow, VC is now a place to pander. I hope Phil is paying you something.
3.2.2009 11:03am
Thales (mail) (www):
I'm not sure that the talk of a negative externality in terms of current home prices is apt. Externalities are negative (or positive) changes in social wealth not accurately reflected by nominal prices. But the wave of foreclosures and consequent diminution in home prices may just have the effect of transferring wealth from sellers or owners of homes to buyers. Is it really clear that social wealth overall has diminished from buyers getting great deals? It is economics 101 that mere transfers of wealth by themselves neither increase nor decrease social welfare.

Put another way, under your argument was the real estate bubble and the pricing of some (sensible or poor) buyers out of the market a negative externality of cheap credit?
3.2.2009 11:16am
ChrisTS (mail):
Instead, I'll be taxed to give the people who made the WRONG choice the same reward. So what's the point in trying to make the right choices?

Aside from corneille1640's point the extent to which you are suffering from any aid to the bad choosers, I find this kind of comment perplexing. I don't mean to be offensive, but it has a rather childish ring to it: "why should I be good if others are not being as good?" Or, as some students would have it, "why shouldn't I cheat if others are cheating?"

Those who make bad choices and, somehow, escape the penalty we see as most fitting are likely not having lives that we ought to envy; rather, they have all the stress of living with their bad choices. That they get helped out of a serious jam does not eradicate the misery of having been in a serious jam.

More to the point, the primary reason to make good choices is that one has the reward of knowing one is running one's own life well. Why focus on how the others are faring if it has no significant consequences for your life? Why not be content with your own successes rather than feeling put upon whenver someone who screwed up is not penalized to the maximum?
3.2.2009 11:33am
Richard Aubrey (mail):
ChristTS.
Your point is well made except for the important part, which is that the folks wondering about "help" are going to be assessed in order to provide the "help".
It's one thing to look at the emotional and philosophical issues.
It's another to know that one may not be able to provide for one's children as planned because the feckless and dishonest are going to be "helped".
Think about that and get back to us.
3.2.2009 11:52am
Linda F (mail) (www):
Your analogy is faulty. The cheater doesn't take away any part of the grade of the non-cheater. Both receive their grade, although the non-cheater deserved his/hers/

What the current situation is more like is taking away points, and lowering the grade of the good student, and giving those points to the cheater - for free.

Most non-cheaters wouldn't go for that. Neither do the mortgage payers.
3.2.2009 11:59am
Richard Aubrey (mail):
Linda.
You think Chris missed this on purpose? Seems pretty simple.
3.2.2009 12:38pm
NickM (mail) (www):
The neighborhoods with large concentrations of foreclosures have also seen significant drops in home prices - in some cases, 2/3 from the peak. It doesn't matter how much you might want to stay in your home if the interest rate were reduced on an ARM, it would still be economically rational to walk away from a 0% interest mortgage on 3x the price that it currently sells for - unless you consider historically high inflation a fait accompli for the next 30 years.

Nick
3.2.2009 12:39pm
Ben P:

Your analogy is faulty. The cheater doesn't take away any part of the grade of the non-cheater. Both receive their grade, although the non-cheater deserved his/hers/

What the current situation is more like is taking away points, and lowering the grade of the good student, and giving those points to the cheater - for free.

Most non-cheaters wouldn't go for that. Neither do the mortgage payers.


But that doesn't quite work either. Although I have the feeling this is drifting more into the realm of debating the analogy rather than the circumstances.

The very point of the externalities is that it costs the "non-cheaters" money anyway. The question is how much, and whether the cost of helping the "cheaters" is better overall.

If we were going to try to stretch this cheating analogy, here's what I think is closer.

The teacher catches one student cheating, and knows that the cheater collaborated with many other students, (Say at least a third of the class) but in the absence of more information the teacher has no way of determining who cheated and who got honest good grades.

What are the teacher's options? he could fail everyone? but that's not fair, he could fail those he thinks cheated? but without information there's a high probability one or more will be wrongfully targeted. He could fail the known cheater and let all the others stand, but that rewards "bad behavior" and throws the results of the test into disrepute. No impartial observer can use those as an authoritative test because it's tainted by cheating.

So the teacher decides to force the entire class to take a second test.

Does this "cost" the honest students with good grades? Sure, they have to put more time and effort into studying for a second test. Does it reward the honest students who got poor grades with a second chance? Sure. Does it reward the unknown cheaters? yeah, they don't stand a chance of failing if caught.

It may force the honest to "pay" for the actions of the dishonest or the lazy, but it's probably the best solution overall.


I think it's undisputed that there are *some* foreclosure externalities. The question is how serious they are and where any slopes in the curve of foreclosures versus externalities are.
3.2.2009 12:51pm
Andy Freeman (mail):
Note that a vacant house is a choice by the owner and the foreclosure process which "the rest of us" have decided upon. The duration of the foreclosure process is pretty much on us.

I mention this because many of the foreclosure discussions seem to assume that almost everything is written in stone. It isn't. The procedures that have bad consequences can be changed.
3.2.2009 1:02pm
Richard Aubrey (mail):
Ben P.
Interesting analogy about cheating. But there are a couple of problems.
The honest kids who studied hard and did well the first timie have to review for the second time. Which reduces the time and energy available for other classes.
So it has more than an annoyance cost.
And they, however you call it a best-of-bad solution, have a legitimate right to bitch about it.
And, given some mechanism, to strive to change it.
3.2.2009 1:55pm
Ben P:

The honest kids who studied hard and did well the first timie have to review for the second time. Which reduces the time and energy available for other classes.
So it has more than an annoyance cost.


Considering the analogue is either higher tax payments or the slightly less tangible higher share of the government's debt I'd agree there's a cost.


And they, however you call it a best-of-bad solution, have a legitimate right to bitch about it.
And, given some mechanism, to strive to change it


Oh sure. I freely admit they have a right to bitch about it. Any plan that says "you sacrifice now and you'll be better off in the end" is still a bitter pill to swallow, and I'd want to be damn sure I actually will be better off in the end.
3.2.2009 2:29pm
Richard Aubrey (mail):
Ben.
The plan says you sacrifice now and somebody else will be better off in the end.
What makes it particularly galling is that you got to this point by sacrifice and the folks who are going to be helped got to their point by not sacrificing.
It's a two-fer. You sacrifice twice, they refuse to sacrifice twice, and they win.
What could possibly be wrong with that?
3.2.2009 2:37pm
Soronel Haetir (mail):
And all this doesn't even take into account the people living in areas that didn't see insane housing inflation. Those people too are being told to pay up to fix problems caused by recklessness in entirely different areas. It's one thing to be told pay higher taxes in order to prop up your own home's value, it's a different thing entirely to be told pay higher taxes to prop up housing markets a thousand miles away.

Although I suppose the city folks retort would be the rural subsidy.
3.2.2009 2:38pm
Kenvee:
Oh sure. I freely admit they have a right to bitch about it. Any plan that says "you sacrifice now and you'll be better off in the end" is still a bitter pill to swallow, and I'd want to be damn sure I actually will be better off in the end.

And that's the part that I have absolutely zero faith in. So far the "solution" to these problems is "let's give them some money." When that doesn't work, they give some more money. And when it still doesn't work, more money! Just take a look at AIG.

So when you're sitting there weighing your options, you see on the one hand you can work really hard, struggle to succeed, and wind up with a great big success . . . that you promptly have to give away to people who've been sitting around on their hands, and on the other hand, you can sit around on your hands until you get given money. That's not a choice that seems likely to encourage economic stimulus to me. "Throw money at it" is a solution that just breeds more of the same problem.
3.2.2009 2:40pm
Ben P:

The plan says you sacrifice now and somebody else will be better off in the end.
What makes it particularly galling is that you got to this point by sacrifice and the folks who are going to be helped got to their point by not sacrificing.
It's a two-fer. You sacrifice twice, they refuse to sacrifice twice, and they win.
What could possibly be wrong with that?



Not necessarily. That's the point of attempting to measure the externalities.

If the externalities are sufficiently bad, (IE house prices and crime moving high enough due to a critical mass of foreclosures) then everyone ends up worse off if the action isn't taken. At that point if's refusing to help yourself out of spite for the others because they were irresponsible.

But if the externalities aren't that bad, then you are right. You're asking the honest to sacrifice to help the dishonest, and I see no reason why people wouldn't complain about it.
3.2.2009 2:46pm
wooga:

The neighborhoods with large concentrations of foreclosures have also seen significant drops in home prices - in some cases, 2/3 from the peak. It doesn't matter how much you might want to stay in your home if the interest rate were reduced on an ARM, it would still be economically rational to walk away from a 0% interest mortgage on 3x the price that it currently sells for - unless you consider historically high inflation a fait accompli for the next 30 years.


NickM's point is key. This is true in my area (Southern California). All of the plans to 'refinance' mortgages by lowering the interest rate and stringing payments out further are foolish. Only an economic imbecile would agree to 'refinance' his $150k home with a $400k mortgage (yes, those are real numbers I'm using). Couple this with the "nonrecourse" statute in California, and the imbecile would also have to be drunk to accept the refinance plan. You are guaranteeing that the house will remain underwater.

So, going back to Todd Zywicki's two "types" of people, it seems like public sympathy is (as to Nevada, Arizona, and California) for the monumentally stupid.

The question should simply be one of whether we should accept write-downs of principal, and under what conditions. The only palatable government subsidy scheme I can think of is to give the gov't an ownership stake in any bailed out home, such that the gov't gets a cut of any eventual sale. This would also act to discourage people from selling such homes, which would have a beneficial side effect of reducing the number of homes on the market.
3.2.2009 2:48pm
Ben P:

The only palatable government subsidy scheme I can think of is to give the gov't an ownership stake in any bailed out home, such that the gov't gets a cut of any eventual sale.


That's actually almost exactly the scheme that the *last* housing rescue bill espoused. If you met the standards under the hope for homeowners act then you could get a government sponsored refinance at 90% of your homes value. But if you sold your home within a certain time period. (5 years as I recall) you were obligated to pay back any profit on the home.

Except it was voluntary for lenders to participate in, and the soaking they took by participating in it made it so that virtually none of them chose to do so.
3.2.2009 2:55pm
Ak Mike (mail):
A word on externalities - I live in Alaska, which had a huge real estate collapse in the late 1980's. Most of the banks in the state failed, there was a substantial population drop as people left the state, and there were thousands of residential foreclosures (in a low-population region). Prices fell 40% to 85%, depending on the kind of residence.

Still, our experience was quite different from that of Happyshooter in Michigan. The foreclosed homes remained in good shape and were absorbed by the market within a couple of years. The neighborhoods remained pretty good, and I would say that despite the massive impact of this economic contraction, foreclosures led to little in the way of externalities.

Possibly the difference is that Michigan itself is in long term economic decay, so that perhaps the decaying neighborhoods result from gradual deterioration of the economic base of the community, rather than specifically from the shock of foreclosures.
3.2.2009 3:25pm
Michelle Dulak Thomson (mail):
Allan,

What would any reasonable business do if it borrowed 100% of money needed to purchase asset and then the asset lost 50% of its value, with no chance that the asset would regain its formal value? The business would give the asset to the lender and force the lender to become an unsecured creditor for the remainder.

Why, pray tell, do you ask homeowners to take on more responsibility than businesses?

You know, I'm trying to imagine a situation in which a business could (a) buy an "asset" entirely on borrowed money; and (b) see it depreciate immediately by 50% with no hope of recovery. There are assets that have done that sort of thing — it would suck to have stocked up on crude oil half a year ago, say — but did anyone ever buy a lake of oil entirely on credit?

There are two separable situations with foreclosures. There are places where no sane person would have built anything but for the speculative fever of 2005-6. The few unfortunates who actually bought in these new developments are seriously screwed, because they aren't going to have legitimate neighbors even if the prices do fall by half. There's a case for buying out these people, if only because then you could bulldoze the whole damn subdivision afterwards.

But elsewhere, the main problem with foreclosures is that they aren't priced low enough. People will buy these houses; they're just waiting for the prices to drop a bit more — which they will, just not soon enough for the neighbors' comfort.
3.2.2009 5:01pm
Happyshooter:
Possibly the difference is that Michigan itself is in long term economic decay, so that perhaps the decaying neighborhoods result from gradual deterioration of the economic base of the community, rather than specifically from the shock of foreclosures.

We also have a lot of race and criminal subculture mixed in up here. My entire life had been a pattern of moving outward from large cities further and further. As each ring community gets cheaper to purchase it also heads directly into a pit of crime and third world type educational systems.

I moved near my current city to get away from that, but as soon as the latest economic crisis hit so hard, starting about 2003, the houses in the middle of the city just went straight to the dogs. The area I posted about went from middle class to violent in just five or six years.

Like I said, I don't where where the tipping point is, but 20% seems to doom the block.
3.2.2009 5:03pm
gasman (mail):
Somewhat surprising is the lack of apparent arson stories. Whether it works or not, it seems to be the sort of thing people resorted to in the past when they thought they could get some insurance money.
And a secondary pool of home arsonists now potentially exists; homes on your street in foreclosure, and are depressing the value of the neighborhood, then make them disappear. viola, vacant home gone, no crack house possible, no extra housing capacity, and a hazard that the insurer or city will have to clear to make play space for the kids.
Or if you don't like playing with matches, the neighbors should buy up the distressed properties at mortgage sale prices and decommission them the legal way. The houses in my neighborhood that developers were buying for knockdown/rebuilds at 250K a few years ago I'm getting for under 100 and land banking after the bulldozer. (with what I save on property tax by removing the house, it makes the hassle of renting not worth it. once the city realizes the revenue they loose here maybe they will start cutting me a deal to leave them standing).
3.2.2009 5:05pm
Happyshooter:
Somewhat surprising is the lack of apparent arson stories. ***Or if you don't like playing with matches, the neighbors should buy up the distressed properties at mortgage sale prices and decommission them the legal way.

1. Any structual insurance loss goes directly to the special investigation unit. People used to burn the night prior to Halloween (Devil's Night) and overwhelm the unit, but now there are extra patrols and pastors on patrol on every block.

2. Michigan's laws are screwy. The most common event is that the mortgage holder bids full value of the note plus foreclosure expenses for a legal reason that makes no real life sense other than it is the law. They bid that by mail when they send in the foreclosure package. Because of that, no one bothers to attend the sale. Why would I bid and pay $170k, on a house that has $150k left on the note, when the FMV is $100K?
3.2.2009 5:15pm
Ak Mike (mail):
Happyshooter - bidding full price usually makes sense. It doesn't cost the lender anything, and it allows the lender to take possession, maybe fix the place up a bit, and sell it for more than it would fetch at a sheriff's sale.
3.2.2009 5:35pm
Michelle Dulak Thomson (mail):
gasman,

viola, vacant home gone, no crack house possible, no extra housing capacity, and a hazard that the insurer or city will have to clear to make play space for the kids.

As a violist, I'm touched by your confidence in us. But "you played as though you were on fire!" is just an expression. Truly.
3.2.2009 7:39pm
Richard Aubrey (mail):
Happy is referring, oh so peripherally, to the non-PC relationship between Section 8 housing and crime.
3.2.2009 8:45pm
Happyshooter:
Happyshooter - bidding full price usually makes sense. It doesn't cost the lender anything, and it allows the lender to take possession, maybe fix the place up a bit, and sell it for more than it would fetch at a sheriff's sale.

Ak, you are right, except...

In Michigan the home owner then has six months after recording and service of the auction deed to live in the house. On top of that, if they have changed the locks there is an extra month for notice to quit and filing of an eviction case. That is seven or right months the house sits, usually the home owner trashes the place first, and even floods floors so they rot for the 6 months.

There is a way around the wait if the home owner has left, but it involves a private investigator and extra court work, so the banks don't do it where a private purchaser would.
3.3.2009 8:50am
Happyshooter:
This may explain some of the political issues I was talking about better than I can. It was in the Detroit News this morning.



Commentary: Elect a crazy council, get crazy results

Nowhere is Michigan's brain drain on greater display than in the Detroit City Council chambers.

My hopes for Detroit's future faded as I watched the tape of last Tuesday's council meeting, the one that considered the Cobo Center expansion deal.

It was a tragic circus, a festival of ignorance that confirmed the No. 1 obstacle to Detroit's progress is the bargain basement leaders that city voters elect. The black nationalism that is now the dominant ideology of the council was on proud display, both at the table and in the audience.

Speakers advocating for the deal were taunted by the crowd and cut short by Council President Monica Conyers, who presided over the hearing like an angry bulldog; whites were advised by the citizens to, "Go home."

Opponents were allowed to rant and ramble on uninterrupted about "those people" who want to steal Detroit's assets and profit from the city's labors.

A pitiful Teamster official who practically crawled to the table on his knees expressing profuse respect for this disrespectful body was battered by both the crowd and the council.

When he dared suggest that an improved Cobo Center would create more good-paying jobs for union workers, Conyers reminded him, "Those workers look like you; they don't look like me."

Desperate, he invoked President Barack Obama's message of unity and was angrily warned, "Don't you say his name here."

Juxtapose the place and the faces and imagine a white Livonia City Council treating a black union representative with such overt racial hostility. The Justice Department would swoop down like a hawk, and the Rev. Al Sharpton would clog Five Mile Road with protesters.

But in Detroit, dealing with the council's bigotry is part of the cost of doing business. As is dealing with its incompetence. (I'll pause here and excuse from that indictment Sheila Cockrel and Brenda Jones, who supported the Cobo deal, as did Kwame Kenyatta, who although he's an avowed nationalist, most often votes in the city's best interests.)

Emmet Moten, the developer who just opened the Fort Shelby Hotel downtown, was at the meeting and found it appalling. Moten went to Lansing in 1983 on behalf of Mayor Coleman Young to successfully lobby for a regional tax to support Cobo.

"And now we're saying, 'We don't want your money,'" Moten says. "If Coleman were alive today, he'd be outraged. It hurts, it really hurts."

Now, Moten says, "we Detroiters gotta be outraged."

Outraged enough to go to the polls in November and elect a brighter, more responsible council. Moten and others I talked with this week are encouraged that mayoral primary voters picked Dave Bing and Ken Cockrel Jr., the two most rational candidates on the ballot.

The test now will be whether it's those primary voters or the angry council crowd who represent the real Detroit.

As Moten notes, "You can't fix this for us. We have to fix it ourselves."

Nobody can help Detroit if voters again elect a City Council composed of separatists, clueless dowagers and the apparently insane.
3.3.2009 9:07am
Richard Aubrey (mail):
Happy.
I saw that. He ought to quit being so circumspect.
However, there is a talk radio show on 1200 AM, in the AM, run by Mildred Gaddis (sp?) who is black and has mostly black callers. They sound like Rush Limbaugh, and they didn't give Kwame any slack at all. None.
Unfortunately, the folks in Detroit who are up that early--which is to say, probably productive--are not going to win many elections with their numbers.
3.3.2009 9:37am
ChrisTS (mail):
It's probably past the point of any interest, now, but my point (way back when last night) was that we should not look too quickly to others' behavior to provide reasons for our own. At any rate, one should do what one believes to be right whether or not others are doing the same. The post to which I responded suggested that there is no reason to conduct one's life wisely and justly if others do not.

No one wants to be a sucker, of course. But to do what one believes is wrong either 'just because' others are doing so or to avoid some small 'costs' to oneself is to confuse internal reasons for conducting one's life a certain way with external incentives and disincentives.
3.3.2009 1:43pm
Richard Aubrey (mail):
ChrisTS.
You still don't get it.
The point is, some folks are going to be relieved of money they thought they'd be able to keep.
It's going to people who did the opposite of "play by the rules".
So there are two problems. One is some folks are having money taken away from them and the other is that it seems to be an illegitimate reason.
And who said anything about doing what one believes is wrong?
3.3.2009 1:54pm
ChrisTS (mail):
R Aubrey: Sigh. Someone way up thread asked something to the effect of, "Why should I be XYZ (I've forgotten what the virtues in question were) if other people are not XYZ and are getting away with it?" I was responding to that - it seemed to me to suggest that other people's misconduct subverts one's own reasons for doing as one believes right.

As for the 'taking my money for illegitimate reasons arguemnt,' I do get it. I'm not convinced that letting the housing market stay in free fall is in anyone's best interest or that any one of us is going to pay very much to stop it. But, that is a separate matter.
3.3.2009 8:27pm
Mikee (mail):
The tax appraisers in Williamson County, Texas, will NOT use the foreclosure auction price of a home for comparables in a neighborhood unless and until there are 50% foreclosures in the neighborhood. Why? Because it would decrease home price appraisals and lower tax revenues to do so.
3.4.2009 9:07am

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