The tilting point will be when housing prices on interest only loans drop below the amount owed. The following defaults will start the bubble popping. If Fannie Mae and Freddie Mac get in trouble anything goes. This could make the .com bubble seem like nothing.
The driving force of defaults is the ratio of expenses to income. It's irrelevant if prices fall below the amount owed if mortgage payments can be maintained. Defaults will only occur among those homeowners who are unable to sustain the payments. The danger with interest only loans and ARM's in general is a marginal increase in payments reducing monthly income below expenditures and forcing the homeowner to utilize assets, including equity, to subsidize the difference. It's when savings are depleted that the danger of default becomes danferously high but not unavoidable in the short term. In an underperforming housing environment lenders are reluctant to increase REOs and often offer a payment moratorium or other methods to avoid moving a loan to a non performing asset. Unlike the great depression, congress is unlikely to allow housing forefeitures significant enough to initiate a depression.
I am not sure about this, but I gather that different states have different rules about defaulting.
In some you can walk away debt-free by handing in the keys, and in others you can't and the banks will shake you out.
If you do not own much of the house (i.e. with an interest only loan or if you've just moved in), and you live in a place where banks only get the house when you default, it might be cheaper for you to default than to sell the house with a loss. Especially in a falling market: the longer you wait, the bigger the loss.
In such a situation default might make sense even for people who can afford their monthly payments.
(Of course, their credit ratings are going to suck for quite a while. But then the wise thing to do in a falling housing market is to rent.)
Dear Mr. Emmering,
My name is Julia Romano, and I am a researcher with ProCon.org, a site dedicated to presenting the pros and cons of controversial issues, like euthanasia. I have used an excerpt from your blog, "In Defense of the Groningen Protocol." For each source quoted on our site, we put together biographical information. I was wondering if you could help me. I am looking for information on where you attended school, what awards/ honors you have received, and your employment history. If you would, please email me at julia@procon.org so we might continue our discussion.
Thank you very much, I look forward to hearing from you,
Julia Romano
Euro geht langsam als papier
von Raivo Pommer
Ulrich Nußbaum wird neuer Finanzsenator
Der frühere Bremer Finanzsenator Ulrich Nußbaum (parteilos) wird neuer Finanzsenator in Berlin. Das gab der Regierende Bürgermeister Klaus Wowereit (SPD) bekannt. Der 51 Jahre alte Jurist war von 2003 bis 2007 Finanzsenator in Bremen. Er war außerdem als Rechtsanwalt tätig und ist Vizepräsident der Handelskammer Bremerhaven. Er folgt Thilo Sarrazin nach, der zum 1. Mai in den Vorstand der Bundesbank in Frankfurt/Main wechselt.
Sarrazin war sieben Jahre Finanzsenator in Berlin. Der Regierende Bürgermeister Wowereit sagte, Nußbaum kenne sichals früherer Finanzsenator von Bremen mit Problemen wie Verschuldungund Länderfinanzausgleich bestens aus.
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