Foreclosures up 90% over the year

<div class='quotetop'>QUOTE(Essayons @ Jun 14 2007, 09:03 AM) [snapback]461472[/snapback]</div>

I'm fairly sure that retirement savings are counted as part of personal savings in the official statistics. In fact, further increasing the tax advantages of those accounts is an idea that always gets kicked around as a way to raise the US personal savings rate.

But the upshot is that the US personal savings rate, defined as the portion of disposable income that isn't spent, really is as low as all the statistics suggest. The personal savings rate has been dropping for a couple of decades at least. But most studies of this most recent decline suggest that its been driven by capital gains -- that the well-to-do feel so much more wealthy due to capital gains of all types that they feel less need to save out of current income.

Here's an extended discussion by the NY Fed. The graphs at the end may be worth a look, particularly the one showing wealth as a fraction of income -- going up as savings go down, at least in recent years.

http://www.newyorkfed.org/research/current...3-4/ci13-4.html

I have a different take on this whole issue of credit quality and bankruptcy. Historically, a decline in credit quality was an excellent indicator of the end of a boom period. At some point, defaults would rise, lenders would raise barriers to borowing, the credit expansion would come to a halt, and you'd have a recession/depression for a bit.

So, you'd think that with defaults on the rise, the end of the boom has to be near. Well, maybe.

I wonder whether or not we've seen some fundamental change in how the economy operates, because default risk has been securitized, and the scope and sophistication of that has increased so markedly. Banks don't individually suffer, at least in the short run, from loan defaults. They've sold the loans, the loans have been packaged into securities, various tranches of the resulting security sell at various interest rates depending on perceived risk of that particular tranche, and ... the market now clears for crappy-quality creditors, merely at a higher rate. I believe there are now securities backed by just about any type of consumer debt you can imagine, right on down to credit card debt.

If true, then the overall bad-debt burden that the economy will tolerate may have increased permanently. The expansion of "securitization" of debt should mean a higher economy-wide tolerance for bad debt, and a higher tolerated level of default and bankruptcy. This could be a fundamental, one-time shifts in the level of bad debt and default that is considered a normal part of doing business. Lenders have rationally become more willing to lend to poor risks.

In other words, not only does it look like there's a lot more crappy debt out there, there is, and it may be a rational response to the socialization of risk due to the growth in securitization of debt. A higher proportion of poor people in big houses may have become the new norm, at least until they run out of people willing to borrow. It's kind of a race to the bottom: If bank doesn't loan to as poor a risk as its competitor, that bank loses potential profits. Because both banks can slough off all or most of the risk. Only the scrutiny of the ultimate purchases of those debt-backed securities puts a limit on the tolerable default level. And if it takes a while for the defaults to show, you can have quite a lag between decline in credit quality and any check on willingness to supply credit.

Obviously, this view of the world assumes a steady stream of people willing to go over their heads in debt, but I think that only in rare instances is that ever in short supply. Traditionally, it's not that poor risks refrained from borrowing, it's that they couldn't get their hands on the money. But increasingly sophisticated securitization of consumer debt has loosened things up a lot, and in response, we're now seeing the tail end of the demand curve being served -- those who wouldn't have qualified for credit if individual lenders held the full default risk for the loans.

And, clearly, some lenders haven't sloughed off enough of the risk, or were unable to. So, the process isn't unlimited. I just think that that the increased securitization of debt risk means that the average level of bad debt and default not only is higher, but maybe it's going to remain higher than we were used to historically.

 

Chogan,

Very interesting analysis. If what you say is right (the system can handle larger dept permanently) then the decline might be slowed down and dragged out instead of a sharp burst. The banking system doesn't seem to be seriously hurting yet. I think the banks where in a lot worse shape in the early 90's. I wonder what will happen, but so far the complete bust of the housing bubble doesn't seem to be happening.

 

<div class='quotetop'>QUOTE(Stev0 @ Jun 13 2007, 07:29 PM) [snapback]461247[/snapback]</div>

reading this befuddles me... I can read it as sarcasm but I think you're serious... as in... what a shame that joe sixpack has to pay off his mastercard after he declares bankrupcy.. Is that how you meant it?

I'm not real familiar with the bankrupcy laws, but I'm a firm believer that there should be RARE circumstances where the guy who charged all that crap up to his mastercard should be forgiven. Perhaps protected from continuing interest... or given an interest rate of 6% as terms of bankrupcy, but ABSOLUTELY he should be paying off that debt.

You, me, and Joe Sixpack all gave our word that we would pay back what we charge to our card. How about this... Let's skip the legal system... You send me a check for $10,000 and I think I'll pay you back.. Or, would you prefer a legal agreement that binds my word with laws of the land so that you get your original 10k back? Would you lend me 10k without some incentive that you might get back 10,400 or some increase, or do you think someone should be lending money, risking that I won't pay back without any potential for gain? I'd say go with free market on this and the rates would be competitive, but apparently they aren't because most are 23% or higher... Maybe this is free market competitive...

How big does a company have to be before they are strong arming you into borrowing from them to buy stuff you don't need with money you don't have? Would a 2 person outfit be so evil, or do you need it to be discover card worldwide?

Personal responsibility is becomming more rare by the week in this country. What's worse... there is no shame in having no integrity with your word to repay your debt.

 

<div class='quotetop'>QUOTE(daronspicher @ Jun 14 2007, 09:32 AM) [snapback]461509[/snapback]</div>

I take it you don't like in the United States. If you did, you'd be getting several offers for [font size=5]ZERO PERCENT INTEREST[/font][font size=1]*for the next week and a half[/font] credit cards every day. You'd be bombarded by commercials saying YOU! MUST! BUY! THIS! NEW! SUV! NOW! and news stories about how if you don't own your own house you're a TOTAL LOSER!

Now, if people were smart enough not to fall for this brainwashing, that would be one thing, but they're not.

*THIS* is why we need laws to protect people from themselves.

Visa hands out a bunch of cards to people they KNOW can't pay them? Boo-freakin'-hoo.

On the other hand, I'm all for heavy fines and prison sentences for executives who bankrupt companies (Enron, Worldcom, etc.).

 

<div class='quotetop'>QUOTE(Sufferin' Prius Envy @ Jun , 09:41 PM)</div>

Of course it includes mortgage debt. Otherwise it would be non-sequitur to this thread. I thought that was obvious. Notice the "(presumably)" in your quote above. That is where the problem lies. We as a society continue to buy up bigger and bigger houses, putting ourselves further and further into debt. At some point it will catch up with us and the housing market is going to bust. Then much of that debt, which used to be called "equity", is going to be just debt.

 

<div class='quotetop'>QUOTE(Stev0 @ Jun 14 2007, 10:05 AM) [snapback]461539[/snapback]</div>

I get so many offers I had to buy a shredder big enough to eat a whole offer in one pass. I got tired of opening them up to make several passes.

At any income level, it's possible to choose to buy more stuff than you can pay for. A guy with $1m a month salary can spend 1.5 mil a month. It has become run of the mill for people with $40,000 a year salaries to spend the whole 40k on cars and homes and then buy all kinds of other stuff they don't need on credit cards.

NO ONE IS FORCING ANYONE TO BUY CRAP ON CREDIT.

people are choosing to do so... Why is everything someone else's fault? Someone offers you a credit card, do you have to sign up for it? I don't... if you have a credit card, do you have to charge stuff to it that you can't pay for? No... but you(maybe you, maybe not you, but so many people) do it.. so you owe that money.. You borrowed it, you owe it...

Why is this (and so many other things) someone else's fault?

 

<div class='quotetop'>QUOTE(daronspicher @ Jun 14 2007, 11:18 AM) [snapback]461626[/snapback]</div>

I agree. People have to be accountable for their own actions. If they're not, things would get out of control. It's like the people who get fat and unhealthy from eating at McDonald's and then sue for this. It's a bunch of bunk. Exercise self control, get informed and take responsibility for your actions. If someone charges up to their limit on their credit card, maximizes their debt to income ratio for a big, huge house they'll have trouble affording, why should anyone else suffer when they're unable to continue to make their payments. Live within your means, or suffer the consequences when your excessive lifestyle no longer becomes affordable.

 

So the foreclosure rate increased from about 1 every 400 loans to about 2 every 400 loans. Is the sky really falling?

 

<div class='quotetop'>QUOTE(Marlin @ Jun , 09:28 AM)</div>

It is if you're one of the people being foreclosed on.

 

<div class='quotetop'>QUOTE(SSimon @ Jun 14 2007, 12:28 PM) [snapback]461636[/snapback]</div>

Yes, people do have to be accountable for their actions. However there are cases where people are ending up in massive debt not through their actions, but because of crippling medical bills.

What does someone do when they've spent all their savings & gone into debt just so they can afford their medications or treatments? Do we say, "Sorry, old boy. But this is your own fault, you know."? There must be a way to allow people who are in debt through no fault of their own to get out from under it.

 

<div class='quotetop'>QUOTE(Marlin @ Jun 14 2007, 11:28 AM) [snapback]461637[/snapback]</div>

It is in the inner city where there are whole blocks of houses under foreclosure where undereducated and low income people got caught up in the real estate 'dream' and felt compelled to buy by slick real estate people who pushed no-down payment, variable interest rate loans on overvalued real estate (some of these real estate people owned a lot of the houses that they were convincing these people to buy so that they can take the profits right before housing slumped and interest rates increased). The bank and realtors make money on the sale of the home, even though they knew that they couldn't afford it. So now, several neighborhoods are unstabilized. Are the people that bought the real estate that they couldn't afford complete victims??? Not in my opinion because they could have been more cautious, but to no small degree they were coerced by individuals making money on them and coerced by broader ideals of homeownership. People in this country (and HGTV) needs to stop pushing home ownership as the 'dream'. It takes several years, depending on lots of circumstances, to build enough equity in the home just to cover the real estate transaction costs (5 years is typical). Mortgage interests eats a ton of money. I calculated that if I 'mortgaged' my apartment at 180,000 dollars (which is comparably priced to similar sized, similar aged, and similar location condos on my block), the association costs and mortgage interest itself would outweigh the rent I pay.

 

<div class='quotetop'>QUOTE(Proco @ Jun 14 2007, 11:49 AM) [snapback]461655[/snapback]</div>

Great point Proco, I've read somewhere that the leading cause of personal bankruptcy is due to medical bills, either through sudden illness OR people loosing their medical insurance. Also, given someone who's living perfectly within their means then suddenly finds their job outsourced to India, China, Mexico, etc. they are now faced with an income at a small fraction of what it used to be. Is it then their fault they have to file chap. 7?

 

http://www.nj.com/starledger/stories/index....xml&coll=1

 

<div class='quotetop'>QUOTE(Proco @ Jun 14 2007, 11:49 AM) [snapback]461655[/snapback]</div>

I know there are certainly circumstances beyond one's control. Those that live within their means and get hit with an illness. I'm sensitive to this as we have 6 different medicals bills we're still paying off, and they keep accruing. But specifically I'm talking about the people who live beyond their means just because of their "wants". They want a big house, car, lavish furnishings, expensive vacations - all on credit as they don't have the cash. These people need to get a clue and not look towards others to fix their problem when the crap hits the fan.

 

<div class='quotetop'>QUOTE(tleonhar @ Jun 14 2007, 12:03 PM) [snapback]461672[/snapback]</div>

This is why it goes through the courts... Hopefully the judge or someone looks through what caused the bankrupcy and gives some allowance for people with these big problems that lead to it.

Any data on how many of these things happen because someone just wouldn't stop buying crap with credit cards and if you look back over the data you find the cause of the problem is living beyond your income?

I don't have the data, but I'd bet it's MOST of the personal bankrupcy.

 

<div class='quotetop'>QUOTE(daronspicher @ Jun 14 2007, 09:18 AM) [snapback]461626[/snapback]</div>

I use to get so-many-offers too . . . but I don't any more.

Several months ago, after reading this . . .
http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt063.shtm
. . . and doing the online "opt out" as mentioned . .
https://www.optoutprescreen.com/?rf=t
. . . I now get very few pre-approved offers.

It took a while for them to dry up, but after a couple of months, for those which still came, I returned the offer in the prepaid envelope [that's the best part, it's their money ] with a note scribbled with a big black felt marker . . .

REMOVE ME FROM YOUR LIST, OR GET THIS BACK EVEREY TIME!!!!

Those offers soon started clearing up too. In fact, I received a couple of corporate face saving letters stating that they have removed me from their lists as they are a good corporate . . . blah . . . blah . . . blah.

If you wish to do as I did, only send back the "detach here" part. If you stuff the envelope with everything that was in the original letter (or add confetti) as a payback, their machines weigh the envelopes and kick out the offenders, thereby negating your efforts. If you only send back the "detach here" part, someone will read your message.

Now that I have the snail-mail spam under control, you should hear me on the phone with telemarketers. :blink: :lol:
Hey, I did the national "do not call" list. If they are dumb enough to call me . . . even if they are "exempt" . . . that doesn't exempt them from me f***ing with them. Some become so confused and frustrated they just hang up. Sometimes I string them along, sometimes I put them on 'hold.' I have even gone so far as to ask them about a competitors product, totally change the subject, or pretend to try to sell them something. :lol:

P.S. daronspicher, I hope you didn't buy that shredder on credit. :lol:

 

<div class='quotetop'>QUOTE(Sufferin' Prius Envy @ Jun 14 2007, 12:29 PM) [snapback]461693[/snapback]</div>

I used to do that, too. I even had a rubber stamp made up, "Please take me off your mailing list." They kept coming. Then I started sending in rude pictures taken off the 'net. I sent them anonymously, from another city, and after a couple of months of that, the credit card offers mysteriously vanished.

 

<div class='quotetop'>QUOTE(Sufferin' Prius Envy @ Jun 14 2007, 12:29 PM) [snapback]461693[/snapback]</div>

I bought it with a no interest, no payment until 2097 credit card... If I pay it off before then, it doesn't cost me anything, but if I forget, the interest goes back all the way for 100 years at 39.85%. So, either I pay $79 now, or it's almost $39 million bucks if I screw up and miss the deadline. :lol:

 

<div class='quotetop'>QUOTE(Sufferin' Prius Envy @ Jun 13 2007, 11:41 PM) [snapback]461383[/snapback]</div>

I agree that it's not Bush's fault that people make stupid financial decisions. The reason that a record 76% of household borrowing is mortgage debt is home equity loans. People are using equity in their houses to pay off revolving debt to lower their monthly payment only to go right back out a charge the credit cards back up. This is NOT good debt. There is no good debt, some is better than others but none is still best.