Ken’s Take: This is a very insightful, must read analysis … one of many that Team Obama seems to have missed.
Big idea: Federal subsidies to bailout delinquent homeowners will not often involve helping “neighbors” but rather those who live thousands of miles away, mainly in just five states: California, Florida, Arizona, Nevada, and Michigan.
In truth, Obama’s “Homeowner Affordability and Stability Plan” compels taxpayers in most states to help those in just a few. And,there is neither evidence nor logic that suggests a drop in property values in those 5 states impact property values in the other 45 states.
Foreclosures aren’t a national problem — they’re an isolated regional problem and, of course, a personal problem for overstretched borrowers.
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Excerpted from NY Post, “The Foreclosure Five”, Reynolds, Feb 21, 2009
When President Obama discusses his $275 billion mortgage bailout, he talks as if it was a national problem, caused by a national decline in home prices. “We must stem the spread of foreclosures and falling home values for all Americans,” he says.
But there is no national market for homes and no national price for homes. Instead, most of the United States will pay for the folly of few.
The beneficiaries of taxpayer charity will be highly concentrated in just five states – California, Nevada, Arizona, Florida and Michigan. That is not because the subsidized homeowners are poor (Californians with $700,000 mortgages are not poor), but because they took on too much debt, often by refinancing in risky ways to “cash out” thousands more than the original loan. Nearly all subprime loans were for refinancing, not buying a home.
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Foreclosure Rates
One out of 76 homes in Nevada went into foreclosure in January, for example, compared with one out of 173 in California, with Arizona and Florida close behind.
But,nationwide, foreclosures fell 10% in January, to one out of every 466 homes … in the 25th ranked “median” state, only one out of 949 homes was in foreclosure – just one-tenth of 1% … in New York, by contrast, only 1 out of 2,271 homes went into foreclosure … in Vermont, foreclosures amounted to just one out of 51,906 homes
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Home Prices
As of the third quarter of 2008, home prices were still higher than a year before in 18 states, and down less than 2% in a dozen others. Double-digit declines in home prices were confined to just four states – surprise, every one of the Foreclosure Five except Michigan.
Even though California home prices fell 20.8% over the year ending in the fall of 2008, however, they were still 50% higher than they were just five years ago.
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Underwater Mortgages
Obama is particularly interested in mortgages that are underwater – that is, larger than the value of the home.
But again, this varies enormously by state. The state with the tenth highest percentage of underwater mortgages, Texas, has the same 16.5% underwater as the so-called national average. The other 40 states have a below-average percentage of homes that are worth less than their mortgages, which means the mean average is not at all typical of most states.
Only 4.4% of New York mortgages are underwater, not even a tenth as many as in Nevada.
Full article:
http://www.nypost.com/seven/02212009/postopinion/opedcolumnists/the_foreclosure_five_156287.htm?&page=0
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