Saturday, February 21, 2009

Sparks Along The Third Rail, Part 5

Michael Barone is nothing if not brave. He has run the numbers and discovered that the foreclosures that have been "devastating America" are a regional, not a national problem with four states- Arizona, Nevada, Florida, and California - accounting for 53%(!) of foreclosures, despite their containing just 21% of the population. On the other hand, 38 states with 60% of the population have experienced foreclosure rates that are BELOW the national average. We may have to go back to Gettysburg to resolve this.

I won't repeat Barone's analysis. You really should go check it out. But I will make the following comments:

1. Barone correctly notes that each of the Big 4 experienced property booms and, with the exception of CA, experienced a population boom as well. Actually, parts of CA like Riverside County in So. Cal. and Solano County in Nor. Cal. experienced population booms, which made up for a lot of the out flow from other parts of the state.

2. Each of the Big 4 experienced high levels of speculation in the residential real estate market.

3. Lastly, each of the Big 4 experienced high levels of Hispanic immigration. Interestingly, Texas and New Mexico, which have large populations of non-immigrant Hispanics, the foreclosure rate is well below the national average.

This touches on something that is often hinted at in coverage of the foreclosure crisis, but is rarely stated outright: that foreclosures arising from subprime originated, more often than not, with recent immigrants to the US buying homes that they couldn't afford. For example, this article in the NY Times about Washington Mutual's lax lending standards is a classic of the genre with its descriptions of subprime borrowers working as "gardeners," "maids," and even a "Mariachi singer." But no one really wants to say anything out loud because ... why, exactly?

The problem is not that immigrants were buying homes (although it was a problem that they were buying homes they couldn't afford). The real problems is the explosive mix of unscrupulous real estate sellers/speculators entering into sale agreements with immigrant buyers. I have had some exposure to the CA brand of real estate speculators through my practice. It is always a disturbing experience. These are people who literally pulled millions out of the real estate market in a short period of time. They would sell a home to anybody. They would sell a Hummer home to their grandmother if the finder's fee was high enough. For people like this, buyers with little experience with US-style mortgage financing, and poor to middling English comprehension - but who will work hard to provide a better life for their families - are a group ripe for exploitation.

Add to this the efforts of Hispanic-American politicians and pressure groups to expand home ownership, which is documented in this article, and it's hard not to make the connections: fee-hungry bankers and glory hound politicians made it much too easy for flim flammers to sell houses to people who ultimately couldn't afford them and certainly could not understand the mortgage documents that were securing the loans on their houses.

Yet, these are the groups most directly "helped" by Obama's housing plan. Three of these (bankers, politicians, speculators) are absolutely undeserving of any help, while the exploited buyers would be best helped by getting them out of those houses and into a residence that they can actually afford. The best way to do this is through foreclosure. The worst way is by "resetting" their mortgages (while retaining their artificially high valuations), so that they end up trapped in their homes as debt slaves to the banks that ripped them off in the first place.

But just as the post-9/11 TSA rules required everyone to be treated as a potential terrorist to be "fair," so the Obama housing plan insists on treating everyone - exploiters and exploited - equally out of an equally misbegotten notion of fairness. And, the 92%+ of mortgage holders who are not in default - along with all of us renters - are expected to add this to our tax bill without protest. Don't know how long that's going to last, but I wouldn't want to be the guy rattling the tin cup when Americans decide they are done with this brand of fairness.

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