Obama Unveils 'Son of Stimulus' for Housing Assistance

Critics called the administration's now-failed jobs initiative the "Son of Stimulus." And now it turns out the housing assistance program has an offspring. See Alana Goodman, "Obama’s New Housing Plan Purely Political." And Felix Salmon's not wasting any breath on it, "Obama's pathetic refinancing initiative."

But see WSJ, "Obama Housing Plan Highlights Sharp Political Split" (via Google):

President Barack Obama on Monday went where his Republican White House rivals have so far refused to go. He asserted that Washington should help Americans refinance their mortgages at lower rates.

The president's move to expand an existing, little-used program underscored his administration's belief that government has a role to play in restoring the health of the nation's broken housing market. In contrast, Republican presidential hopefuls have been loath to address the housing issue at all, in part because they blame government for causing the financial crisis and housing mess.

In 2008, Republican presidential candidate John McCain proposed that the government buy up home mortgages that exceeded the value of houses, then re-issue them at market value. "He got killed," said Douglas Holtz-Eakin, the economic adviser who had urged Mr. McCain to make the proposal.

Months later, the tea-party movement took off after CNBC analyst Rick Santelli's on-air tirade in February 2009 after the new Obama administration suggested it would try to aid homeowners. "How many of you people want to pay for your neighbor's mortgage that has an extra bathroom and can't pay their bills?" he asked.

Ever since, politicians from both parties have feared aggressive action that would smack of welfare for McMansion dwellers.

Well, yeah. Bailing out over-leveraged homeowners? Still not popular.

Down But Not Out: Investors and Home Buyers Returning to Inland Empire

From the front-page at yesterday's Los Angeles Times, "Inland Empire is showing early stirrings of recovery."

Few places have been as devastated by the Great Recession as the Inland Empire, a region of 4 million people encompassing Riverside and San Bernardino counties. Unemployment has tripled since 2006. Home values have plunged 56% in Riverside County and 60% in San Bernardino County. Nearly 12,500 foreclosure notices were filed in the three months that ended Sept. 30.

Yet amid the stillborn subdivisions, abandoned storefronts and crowded unemployment offices, there are early stirrings of recovery.

Well, praise be Obama! (Or Jerry Brown — our local Democrat messiah!)

We even had unemployment come down to 11.9 percent from 12.1 percent. Booming!

Wall Street Did It?

Don't blame big banks for the flailing economy and housing crash, notes IBD:

... based on the number of toxic loans in the system in 2008, the government was responsible for not just a simple majority, but more than two-thirds. It's quantifiable — 71% to be exact (see chart). And the remaining 29% of private-label junk was mostly attributable to Countrywide Financial, which was under the heel of HUD and its "fair-lending" edicts.

Via Memeorandum and Verum Serum.

PHOTO CREDIT: That Mr. G Guy.

Housing Downsizing!

I don't write about the housing market all that much, because, as longtime readers will remember, I've been right in the middle of the crisis. I reported on the situation a couple of times, in my 2009 New Year's Day post, for example: "American Power in 2009." Well, I'll probably feel more comfortable blogging about housing now. My wife and I sold our townhouse and we've moved into an apartment in Irvine, nearby the old neighborhood, just minutes away. (And just as we got out, the housing market shows little signs of recovery: "New-home slump keeping door shut on U.S. recovery.")

Here's our old townhouse, in Tustin, just off Harvard Avenue and Irvine Center Drive. The location allowed our boys to attend Irvine Unified. Our unit is (was) the second from right, with the brick front wall. The architecture gained accolades at the time. The Tustin Field development was in the news for building some of the first New York-style brownstones in Southern California:

Tustin Field was the first residential housing community to be built on the site of the old Tustin Marine Corps Air Station. The base is historic for the massive blimp hangers that are still standing (the hangers are a staple of automobile advertisements on television). We bought the house in 2005, about two years before the housing market peaked. The government's property at the base was being converted by the City of Tustin into a massive residential, commercial, and retail complex called Tustin Legacy. When the market crashed by 2008 or so, the city shelved plans for the development. Our old community at Tustin Field stands a mile or so from the blimp hangers, but there are a couple other developments that were built right in the shadows of the hangers. They were to be part of a huge redevelopment area of South Tustin, with a great park running through the villages along the lines of New York's Central Park. Not now though. Economic circumstances killed the grand vision. As they say, the best laid plans of mice and men meet such miserable fates sometimes.

Moving day was a week ago Friday. I've been too tired to write anything about this until now. This was the biggest move my family's ever made. If you notice the right side of the garage at the picture here, I'd just finished loading a pile of "Junk-to-the-Dump." Two Latino men loaded everything up, for $225. And that included bookcases, old computers, and my wife's old step-climber. And there was some old furniture and lighting, and a bunch of old toys and clothing. The guys loaded it up in about 45 minutes. They worked very efficiently. The truck driver spoke to his partner in Spanish. When I paid the $225 I gave them an extra $20 for "cervezas." They liked that. The gentleman thanked me, calling me "amigo," and said "God bless you." They were great guys. That's my youngest son sorting through some toys at the last minute. The pile on the left has a few family mementos so we couldn't pitch everything right then:

Walking back inside, here's my office, now with the books all stripped from the shelves and packed in boxes:

Walking back up to the second level, that's my Mom working in the kitchen. I've taken pictures of the kitchen area before so folks might remember the kitchen table and couch, a sectional over by the windows.

Here's my Mom. She turned 75 in August. I'm going to be 50 this month, so my Mom was a sweet 25 when she had me. And she's doing pretty well. The main thing bothering her is her back. She had a fractured vertebrae a while back, and it wasn't healing. She thought she was going to have surgery, but the specialist put her on some growth hormones that are supposed to speed the healing. She can't do a lot of bending or strenuous activity. She helped in the house for just an hour and I took her back to my new apartment. She's helped so much throughout my life. She's been completely unselfish of herself:

Going upstairs, here's the master bedroom. The movers are all done. We didn't have enough time to pack all that well. Normally, you wouldn't have that much stuff still around, photo albums, and what not. But we moved less than a half a mile away, so mainly we were concerned about getting all the big stuff over to the new place right then, when my wife had the day off:

We hired "Starving Students" for the move. They charge a base fee and then by the hour. My wife hired three men so the move would go quickly. They team arrived about 8:30am. It was two Latino men and a young white guy, tall, probably in his early 20s. First thing he says to my wife is that he doesn't feel well. He asks for some Tylenol. I get him some and then he goes back out to the truck because he's too sick to work. This was a Friday morning, so who knows? The guys was probably hungover after heading out to the sports bar the night before. The movers call for another man to come work with the team. About an hour later a young black guy named Michael comes. He's really friendly and energetic. But he whined and complained, especially when they moved the deluxe queen-sized bed into the new apartment. The bed has a shelving unit built-in at the base (two large shelves, his and hers, at each side). The bed must weigh a ton. So when we tell Michael that it goes upstairs at the new place, he let's out a big moan, "Ohhh, whhaaahhhaaa!!!" I couldn't believe it. If you hire on as a mover you move stuff. That's your job. My wife said she smelled marijuana on him, and he complained about how thirsty he was, so maybe he had cottonmouth. It was in the 90s last week so it was hot, but the other two fellas, both Latino, complained not a bit. The Latino men, from immigrant stock and bilingual, worked way harder than the American men, one white, one black.

Okay, still upstairs at the townhouse, here's the master bath area:

Here's the second bedroom at the third floor. We first used it as a second office, but then put twin beds in there so my boys could sleep closer to us:

My dad's painting at the top of the stairs, oil on canvas, and a baby picture, ages 6 months and 5 years:

Now here's the stairways, from the third floor down to the second, and then the second down to the first floor. That's a lot of work chugging up and down moving all that furniture, and the two Latino gentlemen just keep moving on:

Okay, back downstairs, I'm ready to take a load over to the storage unit we rented. My kid snapped this shot:

Here's the storage:

We had a couple of more loads to do. I was so tired after everything, I think I went to bed about 8:00pm all this last week, on worknights. I'm rested now and getting ready to finish unpacking. I'll post pics of the new place when we get it all set up. Until then, here's the view from the kitchen window, out to the parking lot looking South:

It's beautiful. There's a pool down the walk, and for the first time in over 10 years we're using a laundry room to clean our clothes. Reminds me of the old days, when I was in graduate school, and that's okay. It's good to be out from under that toxic mortgage.

It's the Consumer Bust, Stupid

From David Leonhardt, at New York Times, "How the Bursting of the Consumer Bubble Continues to Hold the Economy Back." (At Memeorandum.)

THERE is no shortage of explanations for the economy’s maddening inability to leave behind the Great Recession and start adding large numbers of jobs: The deficit is too big. The stimulus was flawed. China is overtaking us. Businesses are overregulated. Wall Street is underregulated.

But the real culprit — or at least the main one — has been hiding in plain sight. We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making.

The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.

The Federal Reserve Bank of New York recently published a jarring report on what it calls discretionary service spending, a category that excludes housing, food and health care and includes restaurant meals, entertainment, education and even insurance. Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover.

The past week brought more bad news. Retail sales in June were weaker than expected, and consumer confidence fell, causing economists to downgrade their estimates for economic growth yet again. It’s a familiar routine by now. Forecasters in Washington and on Wall Street keep saying the recovery’s problems are temporary — and then they redefine temporary.

If you’re looking for one overarching explanation for the still-terrible job market, it is this great consumer bust.

Well, I'd suggest that the housing crash underlies the consumer bust, and folks increasingly see this as caused by Democrat Party policies. See Glenn Reynolds, "REX MURPHY: 'If America falls, it will not be from external enemies...'."

And ICYMI: At Wall Street Journal, "A Home Is a Lousy Investment," and "The Housing Headache Felt All Over."

Democrats and the Epic Housing Crisis

A great read.

At IBD, "The Angst of Phil Angelides."

Southern California Home Sales Down 9.2 Percent in April

I might have to update my "Atlas is Shrugging" post from last month.

See Los Angeles Times, "April home sales in Southern California hit three-year low for the month":

It is shaping up to be a silent spring for the housing industry.

Warmer days and the need for many families to make a move during the summer school recess have long made spring the peak season for buying homes. But lingering economic uncertainties and the expiration of federal tax incentives — which juiced up sales last year — have turned the market soft.

April home sales in Southern California were down 9.2% from a year earlier. The figure, the lowest for April in three years, was 25.4% below the month's average since record-keeping began in 1988, DataQuick of San Diego reported Thursday.

The median price paid for a home in the region fell 1.8% from a year earlier to $280,000.

"The market is just kind of putzing along," said David Emerson, a Lakewood agent with Prudential California Realty. "This should be the hottest time of the year in terms of deals going into escrow, but — especially once you consider where interest rates are — it is still a struggling market."

More at that link above, and some graphics at "Housing Chill."

Life After Mortgage Modification

I don't write about this stuff, since I'm actually working with my lender (I'll update on New Year's Day). But this story at LAT is interesting, and no doubt resonates with a lot of folks. "Her House Was Saved But Now What?"

In the midst of a divorce and unable to afford her Torrance home, Nicole Rasmussen phoned her lender to ask for a mortgage modification.

She phoned every week for more than a year.

She also called her congressman and a senator to seek their help. Then, in desperation, she and her ex-husband — who still jointly owned the home — stopped making the payments on their $475,000 mortgage.

It was the only way, she felt, that the bank would seriously consider her pleas for a modification.

"I didn't know what was going to happen," said Rasmussen, who was frightened that she and her 7-year-old daughter would be forced out of the home. "We were living in limbo."

The risk paid off. Several weeks ago Rasmussen finalized the loan modification on the three-bedroom, 1950s ranch-style house.

Grateful to be at home for the holidays, she now looks forward to trimming the three artificial Christmas trees in the house and baking snickerdoodle cookies with her daughter.

But the mortgage mess and divorce have rocked her finances.

Like millions of other Americans, Rasmussen, 38, is facing an uncertain financial future, even with the loan modification. The only thing that's certain this holiday season is that she will have to change her financial life.

She has already started. To make the mortgage payments more manageable Rasmussen took in a roommate. She also succeeded in getting the property reassessed, resulting in a lower tax bill.

And there were smaller steps — raising the deductible on her auto insurance and canceling her Costco membership.

But there are often reminders that, though she makes a very good salary, her financial picture has changed. For example, not only was she refused when she applied for a new credit card, but a card she already had was frozen.

On her own for the first time in more than a decade, Rasmussen has to navi-

gate her finances while balancing a tenuous mixture of income, debt and assets that could all too easily unravel.

"I have a general idea of what to do, but I don't know for sure what to do," Rasmussen said.

She wants to save for emergencies and retirement and pay down her debt, but she also wants to have enough money to splurge occasionally on theater tickets and attend out-of-town artist workshops to indulge her passion for mixed-media collages.

And she wants to be able to pay a portion of college costs for her daughter, who is so academically minded that she does multiplication problems at home for fun.

Certified financial planner Dirk Huybrechts reviewed Rasmussen's financial details and drew up a plan for her ...

More at the link.

Largest U.S. Bank Halts Foreclosures in All States

Interesting story, but the longer homes are allowed to avoid foreclosure, which artificially buoys housing prices, the longer it will take for the overall economy to recover (and Harry Reid couldn't give a flying v):

The plan swept states with some of the highest foreclosure levels, including California, Nevada and Arizona, into a swelling crisis over lenders’ flawed paperwork that had been mostly confined to 23 other states that require judicial review of foreclosures.

Bank of America instituted a partial freeze last week in those 23 states, and three other major mortgage lenders have done the same. The bank’s decision on Friday increased pressure on other lenders to extend their moratoriums nationwide as well.

An immediate effect of the action will be a temporary stay of execution for hundreds of thousands of borrowers in default. The bank said it would be brief, a mere pause while it made sure its methods were in order.

But as the furor grows over lenders’ attempts to bypass legal rules in their haste to reclaim houses from delinquent owners, there is a growing expectation that foreclosures will dwindle for months as the foreclosure system is reworked.

Stan Humphries, an economist with the housing site Zillow.com, said what was initially cast as a problem of sloppy record-keeping is rapidly evolving into one that suggests the banks’ procedures for recording loans might not have followed the law.

“The former scenario represents a hiccup for the market, maybe a 30- to 90-day slowdown in foreclosure initiations,” Mr. Humphries said. “The latter scenario is more like hitting a wall.”

The uncertainty is putting the housing market in turmoil and causing vast confusion. Bank of America, for example, said it was not halting sales of foreclosed properties to new owners, but Fannie Mae, the giant mortgage holding company, is doing exactly that with properties it bought from Bank of America.

One real estate agent in Florida said Friday that he had six deals involving former Bank of America properties that had been at least temporarily scuttled. Representatives for Fannie, which was taken over by federal regulators after it failed two years ago, did not return calls.

Real estate agents said the extent of any disruption depended on how long the moratorium lasted, how many lenders ultimately participated — and what people in default decided to do.

“If it’s still January, February, March, and they’re not foreclosing, you’ll see a big effect,” said Jim Klinge, an agent in San Diego. “It’ll be a banker’s holiday, free rent for everybody and a lawyers’ gold mine.”

More on housing at Instapundit.

The Recession Hits Stogie at Saberpoint

It's a recession when your neighbor loses his job. It's a depression when you lose yours, or at least that's what they say. All I know is it's a heartbreak when your friends are losing their home. Stogie at Saberpoint's been a blog buddy of mine for roughly four years. A good guy and great patriot, facing financial hardship:

It's just a matter of weeks before I lose my home. I never, ever thought I'd be in such a predicament. This happened to other people, sure, but not to me. I am a college graduate and a CPA. Accountants were supposed to be immune from unemployment. Not any more. The fact that I am well past 50 doesn't help. Seniors and new grads are the hardest hit.

I am not feeling sorry for myself. I am pissed, but have entered a phase of my life where nothing surprises me anymore. If one could get jaded to bad news, political malfeasance and power-grabbing, I am about there. No outrage now seems to surprise me. The neo-Marxists now running the country are capable of the most outrageous usurpations of the Constitution, which in effect, is no longer the law of the land. It is merely a quaint old parchment kept under glass in the museum of history, for people to gawk at. The economy is being destroyed by fools, mostly Democrat fools, but with the assistance of RINO Republicans who haven't the sense or the gonads to resist.

Hit Stogie's tip jar if you're able.

Dude Bulldozes Home Ahead of Bank Foreclosure

From WLWT Cincinatti, "Frustrated Owner Bulldozes Home Ahead Of Foreclosure: Man Says Actions Intended To Send Message To Banks":

Like many people, Terry Hoskins has had troubles with his bank. But his solution to foreclosure might be unique.

Hoskins said he's been in a struggle with RiverHills Bank over his Clermont County home for nearly a decade, a struggle that was coming to an end as the bank began foreclosure proceedings on his $350,000 home.

"When I see I owe $160,000 on a home valued at $350,000, and someone decides they want to take it – no, I wasn't going to stand for that, so I took it down," Hoskins said.

Hoskins said the Internal Revenue Service placed liens on his carpet store and commercial property on state Route 125 after his brother, a one-time business partner, sued him.

The bank claimed his home as collateral, Hoskins said, and went after both his residential and commercial properties.

"The average homeowner that can't afford an attorney or can fight as long as we have, they don't stand a chance," he said.

Hoskins said he'd gotten a $170,000 offer from someone to pay off the house, but the bank refused, saying they could get more from selling it in foreclosure.

Hoskins told News 5's Courtis Fuller that he issued the bank an ultimatum.

"I'll tear it down before I let you take it," Hoskins told them.

And that's exactly what Hoskins did.

James Joyner has some ruminations on this.

I'm not trying to figure it out: It just sounds crazy, although I'm not surprised given our totally FUBAR housing market. (Via Memeorandum.)

Obama's 'Making Home Affordable' Program: False Hopes Among People Who Simply Cannot Afford Their Homes?

Well, I normally don't blog on this stuff, since it touches a personal nerve, but I've definitely got some insight, so what the heck?

From the New York Times, "U.S. Loan Effort Is Seen as Adding to Housing Woes" (via Memeorandum):

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”

The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

That sounds about right to me. But the administration's got an additional plan, "Foreclosure Alternatives Program." This is supposed to help banks eat their losses. But everybody hurts, so it doesn't help putting lipstick on this pig.

Anyway, while it's not something I've been blogging about, it's not as if I ignore this stuff. As Ace commenter Kreiz noted at the comments, these challenges "aren't unusual." Well, that's for sure, but then again. See these stories:

First, "My Personal Credit Crisis," from New York Times economic writer Edmund Andrews:

If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.

And some haven't been totally forthcoming. Megan McArdle, at the Altlantic, an economics writer herself, has been hammering Andrews in a series of posts. Summarized here, "'Busted' Saga Continues ... Megan McArdle Responds To NYT's Ed Andrews."

Then there's this story, which puts a different light on well-meaning folks who got little to eager to cash in on the equity boom. See, "American Dream 2: Default, Then Rent":

Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard.

But ever since they quit paying their mortgages and walked away from their homes, they've discovered that giving up on the American dream has its benefits.

Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes -- one with a pool for the kids, the other with a golf-course view -- for a fraction of their former monthly payments.

"It's just a better life. It really is," says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth.

People's increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.

Thanks to a rare confluence of factors -- mortgages that far exceed home values and bargain-basement rents -- a growing number of families are concluding that the new American dream home is a rental.

Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That's freeing up cash to use in other ways.

Ms. Richey's family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. "We're saving lots of money," Ms. Richey says ....

But then check this out:

Ms. Richey, the teacher, arrived in Palmdale in 1999. In 2004, she and her husband, Timothy, bought a two-story home on Caspian Drive, near Avenue O-8, with a no-down-payment loan. They took pride in the amenities they installed: a powder room with granite countertops, a backyard pool and play area, and the purple-and-turquoise fantasy playroom upstairs for their three daughters.

But the value of the house plunged to less than $200,000 in 2009. Their $430,000 mortgage, with its $3,700 monthly payment, began to look more like an unwanted burden. By May, amid troubles getting tenants for two rental properties she also owned, Ms. Richey decided the time had come to cut a deal with America's Servicing Co., a unit of Wells Fargo & Co. servicing the mortgage on the house.

After three months of wrangling, she says she finally received a modification approval. The new monthly payment: about $3,300, far more than she had hoped. A Wells Fargo spokesman confirmed the bank offered Ms. Richey a modification under the Obama administration's Making Home Affordable program, and said, "The Richeys turned down the lowest payment we could offer."

Ms. Richey and her husband had already been working on Plan B -- exploring the neighborhood's "For Rent" signs.

On one trip, they drove by the house at 3152 Club Rancho Drive. It was bigger than their house on Caspian, had a pool with three waterfalls, and boasted a cascading staircase that Ms. Richey says she could picture her daughters descending on prom night. The rent was $2,195 a month.

The situation presented Ms. Richey with a quandary now facing more than 10 million U.S. homeowners who owe more on their mortgages than their houses are worth.

On one hand, walking away from her home would be easy. California is one of 10 states that largely prevent mortgage lenders from going after the other assets of borrowers who default. But she also had to consider the negatives. Her credit could be tarnished for years and, perhaps most importantly, she feared her friends and neighbors might ostracize her.

"It was scary," she says, noting that people tended to keep such decisions to themselves for fear of being stigmatized. "It's still very hush-hush."

Tom Sobelman, whose family of four lives across the street from Ms. Richey, at 3127 Club Rancho Drive, sees mortgages as a moral as well as financial obligation. He's still paying the mortgage on an investment property he owns nearby, despite the fact that the rent is about $1,000 a month short of covering his costs.

I think it's a moral issue too, which is why I don't like talking about my homeownership situation. I don't think taxpayers should be on the hook for decisions made by individuals. But not everyone thinks so. See the New York Times, "Homeowners Walking Away," Also, "The Art of Strategic Mortgage Defaults: The Coming Wave of Foreclosures in California. 588,000 People Nationwide Stop Paying Their Mortgage Even Though they had Funds to Pay," and "Go Ahead, Walk Away: There is Nothing Immoral About Ditching Your Mortgage."

I guess that's supposed to ease the pain for folks.

There you go, in any case. Stayed tuned ...

RELATED: From the Los Angeles Times, "Few Troubled Mortgages Being Modified Permanently." And at Flopping Aces, "2010: A Obama/Bernanke/Geithner Housing Bubble on the Taxpayers' Dime."

Moral-Economy and the Housing Bailout

David Brooks makes a fundamental point concerning the current rage for bailout politics:

Our moral and economic system is based on individual responsibility. It’s based on the idea that people have to live with the consequences of their decisions. This makes them more careful deciders. This means that society tends toward justice — people get what they deserve as much as possible ...

That pretty much sums up my own feelings, and I'm facing some potentially wrenching personal economic change later this year, when I look to negotiate new terms with my mortgage banker, or failing that, to sell my home. Whatever I do, I'm not asking for any "bailout," and I'll accept the consequences of my own financial decisions regarding the purchase of my house.

In any case, the Los Angeles Times has a good piece on folks on both side of the debate, in Long Beach, where I teach: "Housing Relief Becomes a Fence Between Neighbors":

Ledeen Halloran and Harry Snegg live a few houses apart on Claiborne Drive in Long Beach. They both have good jobs, they both voted for John McCain -- and they both have seen their home values fall more than 40%.

But when it comes to their views on mortgage relief, these two neighbors are on different sides of the street.

Halloran, 50, is a fan of President Obama's new plan to stave off foreclosures and thinks it could provide the cushion she needs to stay in her home.

"These bad mortgages started this whole recession, and if they don't do something about it we can't turn things around," she said.

Snegg, 62, thinks the $75-billion plan amounts to a taxpayer-funded bailout for people who either couldn't manage their money or took a gamble to score easy winnings in the real estate boom.

"People should get some help, but I don't think I should have to pay for it," Snegg said.

Halloran and Snegg represent a debate that is happening across the country, although the two neighbors say they mostly keep their views to themselves.

Snegg, who is divorced, worries that talking too negatively about people who are hurting isn't very neighborly. Halloran, also divorced, said she hadn't told her mother or her friends that she was having trouble with her mortgage.

Halloran moved into the Bixby Knolls neighborhood of 1940s-era homes in 1996. In 2006, she was thinking about selling and moving to the East Coast, to be closer to her son's college. So she refinanced her 30-year fixed-rate mortgage, shifting to an adjustable rate loan and tapping some of her equity to pay for renovations.

A few months later, she borrowed against her house again to pay for more home upgrades and to cover her son's tuition.

There was one hitch, however: Her loan had an option that allowed her to pay the interest only, but when she did, the unpaid principal was added to her balance. Now her mortgage exceeds the value of her home by about $150,000, and her $3,400-a-month payment is more than an entire two-week paycheck.

"I cut out coffee. I cut out movies. I cut out all kinds of things I was buying at the grocery store," Halloran said. "But when my property tax comes due in March, I'm probably not going to be able to pay."

Gone are thoughts of selling the home, and she worries that by this summer she will fall behind on her payments and lose it to the bank.

Halloran blames herself for spending money she did not have, but she also says her mortgage broker and the bank that gave her the loan -- the now failed Downey Savings & Loan in Newport Beach -- promised lower payments. The loan documents she signed show an initial payment of $2,900 a month. Her first bill was for $4,200 a month.

"We shouldn't get help for free," Halloran said. "There should be some penalty to the homeowner, but without some help, there are going to be a lot more people losing their homes."

Officials at U.S. Bancorp, which now owns Downey, said they could not comment on Halloran's loan.

A few houses down, Snegg says he knows full well the pain of foreclosure: He went through it himself in 1995.

At that time, he said, a downturn in the economy forced his advertising firm into bankruptcy. He tried to refinance his loan but, with home values sinking, could not secure a new loan with better terms.

So when he bought his current home in 2001, Snegg said he decided to play it safe. He took out a 30-year mortgage at an interest rate of 6.5% and resisted the urge to refinance at a lower rate, avoiding the associated fees.

"Interest rates are so low I sometimes feel foolish for not refinancing," he said.

He said he doesn't want people like Halloran to be forced out of their homes, but he also doesn't want to see his taxes raised in the future to cover the expanding government debt.

"I feel for people who are having trouble," Snegg said. "I've been there. And when I was in foreclosure, there were no government bailouts."

Snegg thinks that banks that have received taxpayer dollars through the Troubled Asset Relief Plan should use some of that money to help people like Halloranby granting easier payment terms.

But having the government take the extra step of actually giving banks more money to help Halloran cover her payments seems too far, he said.

There's more at the link.

I'll be writing more about this stuff as the months go by, but see my earlier post from this morning, "Perverse Incentives in Obama's Housing Plan."

Also, see Jill at Brilliant at Breakfast, where after noting she scrimped and saved and budgeted to buy a house, we have this:

The larger picture is not "Where's my government handout?", but what the consequences are of letting millions of people be foreclosed out of their houses. What happens to a neighborhood when a third, or half, of your neighbors are forced out of their houses, which then fall into disrepair? What good is your gourmet kitchen going to do you when the house next door is boarded up after vandals come in and strip it of all the copper piping? The reality is that the age of "I got mine and fuck you" is over. The days of looking over one's shoulder to make sure that scapegoat-of-choice doesn't get a piece of the action are over. Like it or not, we are all in this mess together.

So, now we should socialize responsibility? I doubt that's the American way.

Perverse Incentives in Obama's Housing Plan

The evidence is coming in immediately for the perverse market effects of President Barack Obama's mortgage-relief plan. Check out the guy below, who's facing foreclosure, and with the announcement of the Obama plan, his mortgage company is "barrreling full-force to take me out of this house":

I wrote about the inherent inequities in the mortgage-bailout plan yesterday (lots of folks "underwater" who continue to pay the bills will get no relief). Not only that, the administration may very well be saving untold numbers of borrowers who were untruthful in their original mortgage applications; and further, the mortgage "cram-down" provisions could "would jeopardize the endangered capital of banks, pension funds and other holders of such securities, including the Federal Reserve, Fannie Mae and Freddie Mac."

As regular readers know, I'm interested to see how all of this turns out, so stay tuned ...

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The iReport link is here. It's tough to watch this guy, but be sure to read the comments for a flavor of the social divisions caused by any housing bailout.