Here Comes the Next Mortgage Crisis

[jeffrey]

Subprime was just the beginning. Wait until California's prime borrowers start handing their keys to the bank.

California is to mortgage lending what Chicago is to pork bellies. For years, that meant it was a place with soaring house values; today, the foreclosure rate across the state is twice the national average and going up fast. Riverside County, outside Los Angeles, may be the foreclosure capital of the country, with a rate close to six times the national average. And housing prices are in freefall.

California should be the poster child for a mortgage-loan bailout. In few other places have so many taken on such onerous debts with so little equity. Unfortunately, the crisis in California is going to get much worse, and there is no bailout that will solve it. Why? Because if the first stage of the foreclosure crisis was about people who could not afford their mortgages, the next stage will be about people who have every reason not even to try to pay their mortgages.

Over the next several months, we're going to be subjected to a chorus of hand-wringing about the moral turpitude of people who walk away from their mortgages and pronouncements like last month's warning from Treasury Secretary Henry Paulson that people should honor their mortgage obligations. The problem with finger-wagging on what you "should" or "ought" to do is that, when it comes to money, you're usually given the lecture only when it's in your interest to do the opposite. Certainly, that's the case for all the California homeowners who in the next year or two are going to find themselves with the choice of whether, faced with a huge new wave of interest resets and a historic decline in the value of their homes, they will simply walk away...

Why the next mortgage crisis may be worse. - By Mark Gimein - Slate Magazine

[jIM_Ohio]

If there is little risk of people walking away, let them walk away.

Banks took on WAY too much risk in this and let the consumers get involved with way too little risk (no upfront capital).

When investing with a partner, make sure you are both sharing in the risks so you each have a vested interest to see investment through.

[Seeker]

Since everyone is quoting the California Association of Realtors percentage (loss/gain) comparison from Feb'07 to Feb'08, I'm linking it. You can view the city-by-city comparison in each county. Many of the percentage changes are not near 26%; some are over; and some are still on the rise.

Feb 2008 Median Home Prices

California is a huge state, with an economy that could be compared to a small nation. The weather is a positive that draws many people away from snowy/colder areas. The wages help a lot in what we can afford or not.

The housing situation here is a compilation of effects over the last 5 years ; some areas are more affected than others. Yes, this is a market correction long overdue. Yes, many many houses are still overpriced.