The Wall Street Journal reports that the sheriff of Philadelphia (no doubt an elected official) has refused to carry out foreclosures. If I lived there now in a mortgaged house, I’d quit paying right away. In fact, I wonder if one could acquire a mortgaged building there now, and get it free so far as the mortgaged portion is concerned? People might be doing that right now, perhaps boosting real-estate values there! Or would anyone take back a mortgage in that city now that they aren’t subject to enforcement?
Right now, I think you need a subscription to access this article (I have a subscription, so I’m not certain you can access this without one). But perhaps if the Wall Street Journal were in Philadelphia, they’d have to let anyone get at their content. That’d certainly make a sucker out of me, wouldn’t it?
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“It’s not the sheriff’s job to sell houses,” says Deputy Sheriff’s Officer Paris Washington, a veteran of the department and its head of training. “It’s the sheriff’s job to serve the people who elected him. Because he was elected by the people, he has to listen to the people. Aren’t the people the law?”
Wow, “Aren’t the people the law?” I can’t think of a more flawed concept.
Well, on the plus side, if he really feels that way then drug prosecutions should stop immediately.
I don’t understand why foreclosures can’t be carried out privately. Isn’t it something that could be agreed upon at the time of closing?
This story surprised me. This guy is basically stealing money from banks. Is it Morally OK, since the foundation of our financial system is counterfeiting?
Getting a mortgage in Philly will be very hard now. And the values of homes there will drop precipitously. I don’t think this will be good overall for Philly. But what will happen if this kind of policy spreads?
Banks are big therefore they are the bad guys. The purchasers sure liked them when they were aproved for the mortgage.
I was considering being the lender in a private mortgage. I think I will wait and see how this pans out. If this policy spreads… forget it. I hope the big banks cut off all mortgages to the area. That would open a couple of eyes.
Protect home owners. Enforce foreclosures.
Is the sherriff really doing anything wrong in this specific case? Other than taking tax dollars and enforcing bogus laws, I mean. Does he have a positive obligation to enforce these evictions? Do you?
A more interesting question is, would he step in and stop it if the bank hired private security to evict the tenants?
If I loan you my car and you don’t return it, that’s stealing.
If you eat in my restaurant but don’t pay, that’s stealing.
If you live in a house but don’t pay, then won’t leave and give the house to the bank, its owner, that’s stealing.
Why shouldn’t the Sheriff deal with this theft of property? Can I move into any house with unlocked doors and take over? Is he cool with that, too?
What if everyone stops paying rent? No evictions? How about the electric and gas bill? Guess the lights and gas can’t be turned off. I’ve got a good one. What if nobody paid their TAXES? That’ll get the sheriff hopping.
I happen to live in Philly. To suggest not paying our mortgage just because we can get away with it is ludicrous to us. We worked hard for our credit. Maybe people are getting away with this for the time being, but eventually this is going to blow up in their faces.
We have plans of moving on. I think anyone who wasn’t going to pay the mortgage wouldn’t pay it regardless if you could get away with it or not.
So I guess, my husband and I are “fools” with good credit.
Its not that they cannot pay their morgage. Its that they cannot pay the SEVERELY INFLATED interest on their variable APR loans. The banks are hurting and passing the buck to the family. I am also sure that the “variable” aspect of the loan was watered down during mortgage negotiations. “Don’t worry It will only swing a few points.” was the siren song from the shark across the table. Bravo, sheriff.
The lenders will cry, “We’ll go down the drain if we don’t!!!”. Whatever. For those too weak to weather it out. the company will dissolve and reform in some way with a different name. The larger lenders will be fine. On the other hand, lets just dump a couple hundred thousand families out on the street instead of giving them a chance to catch up with refinancing offers at (GASP!) cost or slightly below. THAT is whats best for society. Libertarians always espouse the virtues of natural market regulation, but I bet a few of you out there are in the same predicament and are desperate for assistance.
To those, welcome to the savages of pure capitalism. Sorry about your luck, here is your box. Enjoy. And don’t for get to take all your stuff with you. We’re liquidating your dream. Now thats how to run a country!
“On the other hand, lets just dump a couple hundred thousand families out on the street instead of giving them a chance to catch up with refinancing offers at (GASP!) cost or slightly below. ”
I would say that this is what is required to correct the massive malinvestment in home ownership. Put the thieves (not paying their monthlies) on the street to look for (gasp..) a place to rent. Sorry, Charlie, it’s called learning from experience.
“To those, welcome to the savages of pure capitalism.”
There is a central bank, fiat money, and mountains of regulation under pure Capitalism? I really need to do my homework.
The sheriff of Philly is acting to preserve his community. That’s admirable.
On another note it really is amazing to me how many of the “free market” types (like we have EVER had one) seem so trusting of the institutional players in the economy. The complex contracts and products added with the transfer of risk from traditional “lenders” to the market, and the commissions/incentives paid to the people selling these financial products lead to an inevitable asymmetry. The market will correct, but only at the cost of people’s lives. It really is apparent that the stock market isn’t the solution to every problem. Furthermore, clutching on to this free market at all cost dogma while people starve is a little too callous for me. The larger institutional investors, investment banks, and brokerages really caused this problem, but there is no way to hold them accountable for what’s happening. Perhaps this could sum it all up for some of the readers of this blog…The fact that the institutions and people responsible for this are losing money isn’t appropriate justice. I don’t know what would be…but some spreadsheet going red at the bottom of a column is meaningless compared to the havoc that irresponsible actors have caused. A lot of you guys seem to be hesitant to include the businesses involved…laying most of the blame with the people who took out the mortgages. They do have culpability in this…but you guys are screaming “moral hazard†and “caveat emptor†at people getting sick from snake oil.
On yet another note…most of you would be too scared to walk through an actual free market. Just take a look at some of the hotspots like Somalia or the border of Paraguay and Brazil. Free markets are where you buy a case of grenades, not a mortgage.
And to matth up at the top of the comments: Please don’t say that laws are anything more than a group concensus. There is no divinity inherent to law…And the sheriff in Philly is exercising his judegement in a tough situation…hopefully you and I never find ourselves in a similar one.
The sheriff of Philly is acting to preserve his community. That’s admirable.
On another note it really is amazing to me how many of the “free market” types (like we have EVER had one) seem so trusting of the institutional players in the economy. The complex contracts and products added with the transfer of risk from traditional “lenders” to the market, and the commissions/incentives paid to the people selling these financial products lead to an inevitable asymmetry. The market will correct, but only at the cost of people’s lives. It really is apparent that the stock market isn’t the solution to every problem. Furthermore, clutching on to this free market at all cost dogma while people starve is a little too callous for me. The larger institutional investors, investment banks, and brokerages really caused this problem, but there is no way to hold them accountable for what’s happening. Perhaps this could sum it all up for some of the readers of this blog…The fact that the institutions and people responsible for this are losing money isn’t appropriate justice. I don’t know what would be…but some spreadsheet going red at the bottom of a column is meaningless compared to the havoc that irresponsible actors have caused. A lot of you guys seem to be hesitant to include the businesses involved…laying most of the blame with the people who took out the mortgages. They do have culpability in this…but you guys are screaming “moral hazard†and “caveat emptor†at people getting sick from snake oil.
On yet another note…most of you would be too scared to walk through an actual free market. Just take a look at some of the hotspots like Somalia or the border of Paraguay and Brazil. Free markets are where you buy a case of grenades, not a mortgage.
And to matth up at the top of the comments: Please don’t say that laws are anything more than a group concensus. There is no divinity inherent to law…And the sheriff in Philly is exercising his judegement in a tough situation…hopefully you and I never find ourselves in a similar one.
In my opinion, I believe the author has a legitimate point. Essentially, when you start bailing parties out in market during a crisis, regardless of who is at fault, you have created a situation where there is no risk associated with the transaction, and the true forces of econonomics cannot prevail. for example, in a purely true market, on may have considered scarcity(their limited income), alternativeness(perhaps renting) , and self-interests(is this truely going to benefit me?) before buying a house. Due to a week monetary structure( the abilitity for banks and people to obtain money cheaply) many mistakes were made. Banks acted as traders and borrowers acted negligently. Both parties are at fault here, however, I really don’t feel bad at all if you jumped the gun and signed the note on an adjustable mortgage, because you knew that u lit the fuse to a bomb by doing so. I’t's so funny how adjustable rate mortgages are portrayed as suddenly, unexpectedly, and decievingly rise out of no where. How about if you are not in the position to take out a mortgage, try renting?! lot’s of us do it. I understand the sheriffs moral dillema, howvever by not serving evicitions , he is stalling the market and creating a system by which the only people that will pay their mortgages are the ones that will voluntarily do so, which is the point the author was trying to make.
The 1st problem is that we don’t have rule of law in this country anymore – its just a mishmash of special interest giveaways and collectivist edicts.
2nd, most of the commenters here are ignorant of the situation, but they are correct it is complex. I agree with Mike though, and ask all to ponder why there is such a thing as mortgage insurance. Maybe for cases like this? More and more companies are beginning to relize the government isn’t on their side and can’t be trusted to preform even the most basic service. Just ask google about its measures in the face of brownouts and ineffective public transit.
If people stop paying their mortgages and this sheriff does nothing (I assume, of course, that he’ll still collect the property tax portion), I would hate to be a homeowner looking to sell… better hope the buyer can pay it all upfront without needing a loan.
josh says:
“The market will correct, but only at the cost of people’s lives.”
just keep in mind that your victims got into the housing market in the first instance to make money. you made your bed, now you lie in it. socialists just can’t help infantilizing consenting adults.
I’m willing to bet that this wouldn’t be an issue at all if we just had a sound monetary policy and a true free market.
If house prices were constant, and a person takes out a 30 year mortgage and pay it for 15, it sure would be nice if they got some of that money back if they were facing foreclosure.
The rich are getting richer with all these foreclosures. They get to keep all the mortgage payments paid, and they get the house too. Unfortunately, with this rapid inflation created by the Central Bank, may more people will be finding themselves unable to keep up their mortgage payment; out of house and home. Serfdom here we come.
Wow. First off I’m not a socialist…My point was just that the businesses invloved aren’t going to recieve the same kind of come-upance that people who were DUPED into buying a lemon of a financial product are on the recieving end of. Some of you just refuse to get this…Most people who are affected by this did not buy into a mortgage to make money…they bought into it to buy a HOUSE. (The American dream bit that some of you may remember…)
Is there no solution for this? You guys aren’t positing any real fix that isn’t endless regurgitation of the same line that got us into this…and it just seems like you are all being really mean spirited…The companies that caused this bubble come away unscathed…the individuals involved get to be homeless. (Unscathed in this instance means NOT BEING HOMELESS.)
newson: Being concerned with the liberty and well-being of your fellow man is not a socialist trait by default…As a child I was told it was an American trait. Calling me a socialist reminds me of Orson Wells in Citizen Cane saying, “Call him an anarchist, loudly!”
That kind of partisan inflexibility is part of the problem. You know that there is no free market in this country…You know that there won’t be one. The deregulations in the financial sector have caused havoc, dereg in most other sectors have had a negative effect. There won’t be a “FREE MARKET” in the sense of the street markets of Mogadishu (the only real kind of free market)…yet we still need a solution. All most of you want to do is complain about people somehow getting over on you…it’s selfish.
The stock market is not the “FREE MARKET”…it’s also not the solution to every policy. That’s all I was saying.
to josh:
if you think that anyone on this site is exculpating the banks, you’ve not absorbed any of the austrian school.
the evil enriching of a few at the expense of many, thanks to an inflationary fiat money system, is at the heart of the austrian school.
that said, two wrongs don’t make a right. and the socialization of debt is morally corrupt. it’s also an insult to those less-well-off who chose to rent. why should their prudence be devalued?
damn the banks, and damn those who want to stick it to the taxpaying renters.
Allez put his finger on the issue at hand- the lack of a rule of law. The law is that the sheriff enforce evictions, but he is choosing to not enforce this law. Brent also raised a point that was unclear in the story itself- is the sheriff enforcing the payment of property tax? If he is, and I find it impossible to believe he isn’t, then his position is extremely hypocritical and self-serving.
JOSH, these people who would be foreclosed upon, would not be homeless, but would be forced to rent rather than own. I have sympathy for people who are in over their heads, but that sympathy does not entitle me to give away the property and rights of others.
Touche.
I have some friends who went for the variable APR loan at the same time I went for the fixed. They benefited in real terms from being able to live in a better house during the low interest period, throwing parties for social gain, having more room for the kids, etc. Now the conditions have changed and people are asking _me_ to help bail _them_ out? No thanks, I’ve already paid in to the system in real dollars; if they didn’t manage their economic benefit that’s not my fault.
Note to Mr. Potts – your bank loan agreement probably allows for foreclosure when you miss a certain number of payments, so as soon as a new sheriff comes to town you’re losing your gedankenhouse even if you think it wise to resume payments. This ought to be a strong disincentive for many.
To Shane et al.,
I run a hedge fund and started my career as a mortgage research analyst fourteen years ago.
In looking at the subprime, alt-A and even prime loans originated in 2004 — early 2007 that are driving delinquencies, in my opinion it is not really the mortgage resets to higher rates that are such a big problem. By and large the rates are not high by historical standards even after they reset, especially after the string of Fed rate cuts.
If you look at the loan data the actual problem is that these borrowers were NEVER, not from day one, really able to afford the principal and interest payments at any realistic interest rate. So where did these borrowers get the money to make their payments? Until recently, these borrowers were able to exploit the appreciating real estate market to repeatedly refinance their homes. Each time they refinanced they used the extra equity to dig themselves out of their unsustainable lifestyle. All this liquidity brought in more borrowers, including more second home and investor properties, which caused home price appreciation to accelerate. This is the “Boom” part of the Austrian “Boom-Bust” cycle.
As soon as prices stopped going up, delinquencies increased which caused a flood of houses on the market and then prices started to fall. Then more delinquencies, price depreciation accelerated etc. etc. This would be the “Bust” part of the cycle.
Make no mistake…this is the big one. Projections are that by end of summer 2008, bank-owned home listings will exceed listings by home owners that want to sell their houses.
This situation is indicative of the strains facing the entire credit market.
In my opinion, the fractional reserve banking, the Fed’s management of credit, and the Fed and Treasury’s special treatment the money center banks and investment banks is facing its toughest test in modern times. They have cut rates to the point where a serious loss in confidence in the Dollar has begun and they have tied up half ($400 bln I think) of their balance sheet financing impossible to value collateral for banks that nobody else will finance. They might be right on the edge of starting to lose institutional credibility.
A huge (intellectual) victory for the Austrian school could be in the offing but unfortunately with a terrible cost to people.
About five years ago, I really wanted to get a house. At the time, I wasn’t all that good about paying my bills on time and I knew that my credit record had some scars. When I went to seek financing, I was shocked at the amounts they were willing to lend to me. I was, at times, irresponsible, but I was also well aware AND REALISTIC about my shortcomings as a debtor. So, I decided not to take out a home loan at that time. Others in my situation went ahead and took the loan anyhow. Tough luck for them. They have my sympathy, but they should not be allowed to steal my wealth.
I would only support a government (taxpayer) bailout of any group if that group had in the past said “we have made a lot of money, and we would now like to give some extra to the public fund.” Since no group goes running to the government with excess profits in times of prosperity, no group should seek a bailout in a time of downturn. Since no group will socialize gains, no group should be allowed to socialize losses.
All of the emotional nonsense on this Earth can not change the fact that these defaulting homeowners are being made more wealthy than they would be without a homeowner bailout (in this case refusal to evict, this is another, more localized form of a bailout). All “bailouts” cost some other unseen or forgotten group wealth.
This issue all boils down to property rights plain and simple. The homeowners agreed to terms when they signed the contract, even if the contracts were perhaps not a good deal for them. Those who wish to violate the property rights of the “snake oil” bankers should be honest about what you are advocating; “contracts are irrelevant when settling property disputes.”
Will they still cling to such a position if the roles are reversed? Consider this fictitious case;
A bank enters into an agreement with a homeowner. Later the bank discovers that the contract will not yield profit at all, in fact this deal is a losing proposition for the bank. Even worse, these contracts might force the bank into insolvency. If this bank goes under, many others with financial ties to the bank will surely suffer. So, the bank decides to repossess the houses that were financed with these unprofitable loans, even if the home buyer never violated the agreement and never missed a payment.
Obviously, no one would seek to give legitimacy to the bank in my created situation because the debtor had fulfilled all provisions of the contract in question, even though this will cause the lender great peril (remember, in my created situation the banks had the short end of an “unfair” contract). Similarly, debtors can not be absolved of their contractual duties simply because they signed a contract that proves detrimental to their financial well being.
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