Modern finance
Atrios makes a good point: with mortgages loans chopped up into little pieces, rebundled with pieces of other loans, and sold to various financial institutions and investment funds, there is nobody left to negotiate with when circumstances force the homeowner into financial difficulties:
But, there's also a related problem. There's a house down the street from me (I've mentioned it here before) that went on the market about 16 months ago for $1,250,000. It sat on the market for the better part of a year until last Spring, when the "for sale" sign came down. Since then, the house has just sat there unoccupied and unattended throughout the rest of the Spring and the Summer. The grass and weeds in the lawn are now over four feet high. Vines are growing over the windows in the sun room to the point of completely covering them. Weeds are growing in the gutters and in the swimming pool. The whole place, which was in near perfect condition a year or so ago now looks as though it's about to fall down. It wouldn't surprise me if teenage kids have broken in and used it as a pot house either.
Now, who would let a $1,250,000 house (or maybe it was over-priced, so let's call it a $1,000,000 house) fall into ruin like that? My best guess is that the owner had a mortgage on the place for more than he could sell it for and was forced to "give it back to the bank" as a real-estate developer friend of mine was want to call it when times got tough.
The problem is, the bank is not the bank. There's no one there to arrange to look after the property because the loan is broken up into small pieces, none of which are individually worth taking the time to follow up on. Hence, the house that might have been sold for $1,000,000 or more in a distress sale six months ago is now rapidly becoming worthless. This is clearly not in anyone's interests -- lender or borrower -- yet it happens regularly. There are at least six or seven other similar situations I can point to in my own little town here in New Jersey, and they must be replicated many times over around the country.
It seems to me something is wrong, but how to fix it?
The other part of the housing/mortgage meltdown is coming out - when your loans are bundled up and resold there's no one to negotiate with.
But, there's also a related problem. There's a house down the street from me (I've mentioned it here before) that went on the market about 16 months ago for $1,250,000. It sat on the market for the better part of a year until last Spring, when the "for sale" sign came down. Since then, the house has just sat there unoccupied and unattended throughout the rest of the Spring and the Summer. The grass and weeds in the lawn are now over four feet high. Vines are growing over the windows in the sun room to the point of completely covering them. Weeds are growing in the gutters and in the swimming pool. The whole place, which was in near perfect condition a year or so ago now looks as though it's about to fall down. It wouldn't surprise me if teenage kids have broken in and used it as a pot house either.
Now, who would let a $1,250,000 house (or maybe it was over-priced, so let's call it a $1,000,000 house) fall into ruin like that? My best guess is that the owner had a mortgage on the place for more than he could sell it for and was forced to "give it back to the bank" as a real-estate developer friend of mine was want to call it when times got tough.
The problem is, the bank is not the bank. There's no one there to arrange to look after the property because the loan is broken up into small pieces, none of which are individually worth taking the time to follow up on. Hence, the house that might have been sold for $1,000,000 or more in a distress sale six months ago is now rapidly becoming worthless. This is clearly not in anyone's interests -- lender or borrower -- yet it happens regularly. There are at least six or seven other similar situations I can point to in my own little town here in New Jersey, and they must be replicated many times over around the country.
It seems to me something is wrong, but how to fix it?
posted by walldon | 11:51 AM
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