The Associated Press writes about homeless people taking advantage of the surge in foreclosures. With more empty houses sitting around, it makes sense that homeless people would sneak in and squat in these houses.
Short term, it makes sense for lenders to foreclose on houses, and it makes sense for the homeless to squat in abandoned homes. Long term, it probably leads to an overall decline in value. Though, I guess this hurts the lenders more than it hurts the homeless who, presumably, don’t have a lot to lose in any case. But, it seems that we have a significant disconnect in resource allocation.
It’s just lose-lose for the lenders. They have property that’s not returning revenue on their investment. There is no one living in it, so the potential for destruction (by the homeless, the weather, rampaging bands of teenagers, whatever) increases. I would think that empty houses in the neighborhood result in a decline in surrounding home values. Seems like there ought to be a way to lease these homes to people without homes at a price that at least mitigates the lender’s losses if not eliminating them entirely. As a financial investment, you probably don’t want to lend to the sorts of people who are squatting in them right now, even if they could come up with the rent money — mentally ill drug abusers tend not to have the most pride in ownership. But, there has to be a non-trivial segment of the population that is responsible but simply can’t afford the mortgage on these kinds of property who would show some pride in ownership, pay a chunk of the rent, and keep squatters away. Just a thought.
Most “lenders” aren’t losing anything. They sold the paper immediately after closing. Investors are taking the hit not the lender. Between PMI and FHA most lenders cash out immediately or are insured for the spread on the deficit balance.
Well, sure. I use “lenders” generically to avoid going too deep into the weeds where I’m not terribly familiar with the terrain. Presumably whoever currently holds the notes secured by the real estate gave value for them and is currently losing money on those notes due to the vacancies.
“I would think that empty houses in the neighborhood result in a decline in surrounding home values.”
I can tell you first hand that it is true. In the past 2 years, 4 houses foreclosed on my block. There are two houses that have been empty and for sale for over a year. A recent bank appraisal late last year marked my homes value at 18% lower than just 3 years ago.
I’ll bet it’s at least a double whammy. First, you have sales at distressed levels, probably making for reduced comparables in the neighborhood. Then, you have the more indirect effects of vacancies – more haphazard maintenance and increased opportunities for various sorts of crimes.
Vacant homes cost more in police services also — meaning the possibility that record numbers of foreclosures will increase the strain on law enforcement budgets.
Before we moved, a house in our old neighborhood was abandoned. Scrappers came in and stripped everything of value out of it — even stealing the lock on the front door and the bathtub, according to neighbors.
The police were called out multiple times to check on the house by concerned neighbors who worried that teens or scrappers might be hanging out inside of the house.
A neighbor who went over one time when the police were there said the floors of the house had warped from exposure to the elements (the utilities had been cut off) and that he thought that the house would have to be torn down because of all of the damage.
Of course, my wife and I were trying to sell our house just up the street from the abandoned house. We sold our house, but after reducing our selling price a couple of times — I’m sure having an abandoned home a few doors down didn’t help much.
The costs of vacant homes affect everyone, sometimes in ways that aren’t so obvious.
Fire hazards probably increase too.
I have also run into this situation with a house I’m selling for an estate. The house wasn’t selling at the appraised rate from last March, so I had a new appraisal. The value of the house fell 5% in less than one year.
Keep you fingers crossed-I do have a buyer who offered exactly the new appraised amount!
It’s a lovely thought, but not only can people not afford the mortgages, they can’t afford the utilities. Someone lived in a vacant house on my street without water service for several months… the cleaning crew wore hazmat suits.
Ponzi schemes suck when they implode like that. Now even legitimate homeowners who have to sell due to relocation for employment, etc., have to take losses because of the flippers, the paycheck-to-paycheck McMansion buyers, and the crappy lenders.
<a href=”http://bluecountyredstate.blogspot.com/2008/02/subprime-crisis-comes-to-munster.html”Buzzcut’s tale of subprime woe.
Buzzcut’s tale of subprime woe.
Jesus, how did I mess that tag up so bad?
One more time.
here
Been out of town for a week so I’m late to this one, but I wanted to take the opportunity to second what Tim Zank said.
(Yes, we did have a lunar eclipse this week–that must explain it. ;-) )
The mortgage market hasn’t been behaving the way you’d expect it to because the securitization of mortgages has created a lemon market. I believe Paul Krugman has written about this from an informed perspective but I am unable to find the URL. :-/