One in four borrowers is underwater: now what?

According to a Wall Street Journal article from last week, 23 percent of US homeowners owe more on their homes than they are worth. That's nearly one in four, and by any measure it doesn't bode well.

Those figures reflect the 10.7 million US households that had negative equity in their homes in the third quarter of 2009. Fully half of those households, 5.3 million households have negative equity of at least 20 percent. Further, 520,000 of those borrowers are in default officially. Those numbers were compiled by First American Core Logic, a real estate information company in Santa Ana, CA.

I ran an article on Monday that was a reprint from the St. Petersburg Times and the article discussed what's becoming known as a strategic default on a negative equity mortgage. People are beginning to walk away from these so-called bad mortgages on purpose. These are not isolated instances either. According to a study conducted last year by Experian and the consulting firm Oliver Wyman; 588,000 borrowers who could afford to pay their mortgages walked away in 2008.

The US has exported its major manufacturing capabilities over the course of the last 30 years and such manufacturing as still exists, exists to serve the housing industry. That's a gross simplification of course, but it's not untrue either. So if housing is the new bedrock of our economy, how can all of this negative equity and a loosening stigma against default be anything but a bad thing?

My post on Monday spurred a really interesting series of comments, it's had me musing about ethics and morals ever since. I still maintain that the mortgage crisis, the financial meltdown and all of signs and symbols of the current recession are symptoms of a deeper problem. Such fixes as have been proposed and implemented seem to be slowing the slide into something truly horrific, but I don't think they're addressing any root causes. Chasing short term gains is what let to the current mess and throwing short term fixes at it is just paving the way for the next bubble.

So again, am I out to lunch with all of this? Is the mortgage meltdown an isolated event? I'm not in a negative equity situation mercifully but I know a lot of people are. If you are you have my sympathies and I'd love to hear what that's like. I mean that genuinely. It's easy for me to wring my hands over strategic defaults because it's not something I have to entertain. What's it like to walk in those shoes I wonder.

Feeling the urge to Merge

This is Merge by Erin Adams and Michael Corney for Ann Sacks.

Merge comes in three sizes and 16 colors, and they're made with and Arts and Crafts press mold technique. Though the colors and the technique hearken back to an earlier time, the effect of these tiles is right now.

Random field tiles in Azul, Copper Blue, Lapis, Winter Blue, Creamy White and Chalk

Random field tiles in Buckskin, Camel and Bamboo

Random field tiles in Storm, Straw and Creamy White

Random field tiles in Creamy White

Ann Sacks sets the standard in production tile and they prove it with each new offering. Merge illustrates that perfectly.

Walk away from your mortgage? Just do it, says one professor

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By Kenneth R. Harney, Special to the Times 

In Print: Saturday, November 28, 2009

WASHINGTON — Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it.

That's the incendiary core message of a new academic paper, "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis," by Brent T. White, a University of Arizona law school professor.

White argues that far more of the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and take a hike.

Doing so, he suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus, the penalties are nowhere near as painful or long-lasting as they might assume.

"Homeowners should be walking away in droves," White says. "But they aren't. And it's not because the financial costs of foreclosure outweigh the benefits." Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, "one can have a good credit rating again — meaning above 660 — within two years after a foreclosure."

Better yet, you can default "strategically." Buy all the major items you'll need for the next couple of years — a new car, even a new house — just before you pull the plug on your current mortgage lender.

"Most individuals should be able to plan in advance for a few years of limited credit," with minimal disruptions to their lifestyles, White says.

What kind of law school professorial advice is this? Aren't mortgages legal contracts? In an interview, White said that in so-called anti-deficiency states such as Arizona and California, mortgage lenders have limited or no legal rights to pursue defaulting homeowners' assets beyond the house itself. In other states, lenders may decide it is not worth the legal expense to pursue walkaways, or consumers may be able to find flaws in the mortgage documents, disclosures or underwriting to challenge the original contract.

The main point, he says, is that too often people's "emotions" get in the way of clear financial thinking about mortgages, turning them, as he describes, into "individuals who choose not to act in their own self-interest." Most owners are too worried about feelings of shame and embarrassment after a foreclosure, and ignore the powerful financial reasons for doing so.

Buttressing these emotions is a system that White labels "the social control of the housing crisis" — pressures and messages continually sent to consumers by the "social control agents," namely banks, government and the media. The mantra these agents — all the way to the president — pound into owners' heads, says White, is that "voluntarily defaulting on a mortgage is immoral."

Yet there is an inherent imbalance in the borrower-lender relationship that makes this morality message unfair to consumers: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks and inflated appraisals. Now that property values have dropped 20 to 50 percent in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts.

Only when homeowners cut through the emotional fog and default strategically in large numbers, White argues, will this inequitable situation be seriously addressed.

How does White's 52-page manifesto go over with mortgage lenders? Predictably, not well. Officials at Fannie Mae and Freddie Mac — investors who fund the bulk of all new mortgages in the country — disputed White's characterization of how quickly after foreclosure a walkaway borrower can obtain a new loan. It's not three years, they said; it's a minimum of five years, absent extenuating circumstances such as medical or employment problems that caused the foreclosure.

"Borrowers who walk away from their mortgage obligations face serious consequences," including severely depressed credit scores for extended periods, said Brian Faith of Fannie Mae. In addition, he said, "there's a moral dimension to this as homeowners who simply abandon their homes contribute to the destabilization of their neighborhood and community."

Lewis Ranieri, CEO of several major mortgage-related companies and one of the pioneers of the mortgage securities industry, called White's argument "incredibly irresponsible and misinformed." Not only is the professor urging consumers to break legally binding contracts, said Ranieri, but if large numbers of them did so it would send mortgage rates soaring and "tear apart the very basis" upon which mortgage lending rests — the understanding that borrowers will honor commitments and pay back the money they owe.

Ken Harney can be reached at kenharney@earthlink.net.

This article ran in the St. Petersburg Times on Saturday, 28 November. It's a pretty controversial idea and one that doesn't sit well with me. What do you think? Are you still required to be true to your word when circumstances change? Is defaulting on a mortgage due to job loss or illness more moral than "strategically" defaulting? What would you do if this described your situation? If it does describe your situation, is a planned default something you'd consider?

Dishwasher troubleshooting

The following is lifted entirely from the blog for Warner's Stellian. Warner's Stellian Appliances is a terrific, independent appliance retailer with seven Minnesota locations. Additionally, Warner's Stellian also sells over the web and delivers nationwide. Get this, if you spend more than $1999 [edited to clarify that it's not $1900 combined, that's $1900 for an appliance (which is not hard to do) --sorry for the confusion], they will ship your appliances at no charge. If you're in Minnesota and you need qualified appliance information and service, head on over to one of their locations. If you're anywhere else and looking for the same thing, spend some time on the Warner's Stellian website.

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Dishwasher troubleshooting: Dishes not clean
By Julie Warner

Thanksgiving means two things: lots of food and lots of dirty dishes. And more dirt requires more soap, right?

WRONG.

Despite what you might think, too much soap can actually prevent your dishes from getting clean —especially on the top rack.

You should only use about half the amount of detergent recommended on the package. And if you have a water softener, you need only 1-2 teaspoons of powder — even less if you use liquid.

Too much soap can cause over-sudsing. Our customer service representative Maghan explained to me that the dishwasher tries to drain as much of the soap suds and food residue as it can. But when too much soap is used and it produces  so many suds, the dishwasher can’t drain it all in the time allowed.

So instead of draining, the soap bubbles pop inside, redepositing tiny food particles back onto the dishes, which show up most on glassware and silverware.

How do you know if you’re over-sudsing? Run a cycle without any soap. If suds are left at the bottom of the tub, you’re over-sudsing.

To remedy, we suggest a “vinegar cycle”:

1. Empty any dishes and shut soap door, without adding any detergent
2. Run dishwasher until it gets to the wash cycle
3. Open the door and check if the dispenser flap has opened

• If it hasn’t, run for another minute or so until the flap opens
• If the flap has opened, add the 1 cup vinegar and run through the full cycle.

You might have to repeat the process two or three times to ensure you’ve eliminated the build up of soap. Maghan also suggests trying a dishwasher cleaner like Glisten or Dishwasher Magic.

And I’ve said it again but I will continue to harp on about using rinse aid. It’s not just for looks, people! Maghan reminds us dishwashers today come designed to use rinse aid to help dry, as they lack a built-in fan.

So remember: gorge on turkey, just go easy on the soap, OK?

This entry was posted originally on November 23, 2009 at 2:59 pm

You can follow Julie Warner on Twitter: @WarnersStellian.

It's a holiday weekend, let's watch a National G special

I have been thinking a lot about an opportunity I have to go back to Italy in 2010. This trip will have me returning to Rome, a city that affects me on a level so deep I can barely find words to describe it. The greatest repository of the the history of western civ is at the Vatican Museums in Vatican City. If you like art and if you find yourself anywhere near Rome, you owe it to yourself to explore the Vatican Museums.

So let's let National Geographic transport us to Rome today...