Arnold Kling  

The Suffering of Mortgage Borrowers

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Caplan-Miller in the WSJ... Will Eisner's The Plot...

The Wall Street Journal reports,


The average borrower in the foreclosure process hadn't made a payment in 492 days as of the end of October, according to LPS. That compares to 382 days a year ago and a low of 244 days in August 2007.

In other words, people who default on their mortgages can reasonably expect, on average, to stay in their homes rent-free more than 16 months. In some states such as New York and Florida, the number is closer to 20 months.

It was Tyler Cowen who coined the term "predatory borrowing." It is a term that deserves to catch on.


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COMMENTS (6 to date)
Doc Merlin writes:

Coase theorem suggests that the problem isn't that borrowers own the home or that lenders own the home, but rather that we don't know who exactly owns the home.

Property rights in being in limbo is very very very bad.

cew writes:
"In other words, people who default on their mortgages can reasonably expect, on average, to stay in their homes rent-free more than 16 months. In some states such as New York and Florida, the number is closer to 20 months."

It's probably less. Borrowers who spend more time in the foreclosure process will be overrepresented in a static count. For example, the borrower who stays in his house for a year after his last payment is twice as likely to be counted as the borrower who stays for six months.

steve writes:

These were clever people if that was their plan all along. In which case, the phrase predatory borrowing would be appropriate.

Steve

rjs writes:

yep. it's predatory borrowing followed by predatory unemployment followed by predatory health problems; lock em all up!

Tom Grey writes:

The rational thing to do seems to be to mostly save money by not paying the mortgage, but occasionally write sad sob-story apologies, with some small $100-$300 payment as an "attempt" to "pay what you can", to avoid the process starting.

In the meantime, save the mortgage to become a downpayment on the next house, when the market has clearly bottomed out; but wait until they take the keys to move into a low cost rental (where you can save more effectively).

justin writes:

I'd call it rational borrowing.

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