The coming crisis that ‘no bailout will solve’
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We’re at a point in the housing crisis where some stories have been written again and again and again (The Coming Option ARM Reset Crisis!). Sometimes, though, a new and compelling version of an old story comes along that is worth reading -- and this particular version of the ‘coming Option ARM crisis’ story, from Slate.com, is worth the effort.
We all know of the massive pile of ARMs due to reset, with bad consequences. The Slate story stresses a new angle: The biggest, baddest, stinkiest pile of ARMs due to reset is in California, and home prices in California are dropping rapidly. Do the math: resetting mortgage payments plus recession plus falling home values equals... a potentially huge wave of homeowners walking away from their mortgages: ‘Unfortunately, the crisis in California is going to get much worse, and there is no bailout that will solve it. Why? Because if the first stage of the foreclosure crisis was about people who could not afford their mortgages, the next stage will be about people who have every reason not even to try to pay their mortgages.’
More from Slate.com’s Mark Gimein: ‘Over the next several months, we’re going to be subjected to a chorus of hand-wringing about the moral turpitude of people who walk away from their mortgage...’
We’ve discussed this issue at length here, and many of you have argued that this is an economic issue, not a moral or ethical one. The lenders knew the risk when they made these loans that one day they might end up owning the house. That day is coming: ‘Lenders had no reservations about selling borrowers loans with rising payments that would be poisonous in a rising market. Now it seems borrowers have no reservations about leaving those lenders with the risks they begged to take.’
This is the wave of jingle mail that scares Washington and Wall Street and is motivating federal policy discussion right now.
Worth reading. Your thoughts? Comments? Email story tips to peter.viles@latimes.com.
Hat tip: PS via email, others via comments.
Photo Credit: LATimes