The Unsustainable US Economy

The Unsustainable US Economy

The US economy is not sustainable. It is like a house built on an unstable foundation. I will make this a short bullet point post.

• Nearly the entire US economy was and still is based on consumer spending (think credit cards, car loans, etc.) and real estate, which was fueled largely by debt.
• The reason so much of the economy was based on consumer spending and real estate is that we do not make anything in the US any more. Real estate, in particular, is still something that has to be "made" in the US.
• Too much money (really debt) flowed into real estate and prices reached levels that could not be supported by personal incomes (the real historic driver of real estate prices - at least if you want a sustainable market).
• Now, our government want to artificially prop the price of real estate back up with more debt via the tax credit, expanded FHA (and other low/no down payment government loan programs), increased loan purchases by Fannie Mae, Freddie Mac and Ginnie Mae and bank bailouts (i.e. TARP). In addition to these taxpayer subsidies (more debt), the government instituted new FASB accounting rules which allow financial institutions (banks) to value their loans at debt value (i.e. the amount they are owed) despite the fact that many of their assets (think 2nd and 3rd mortgage loans, HELOC's etc) are worth 0-10% of that amount due to property value declines.
• The whole premise of this government plan is that if we give money to financial institutions (banks) and allow them to "cook their books", they will start lending to consumers and on real estate again.
• The government's desired result is that real estate will start increasing in value again which will in turn make the financial institutions (banks) healthy again (by virtue of eliminating the need to "pretend" their assets are worth something close to their actual debt values), bring back the construction industry and jump start other industries that feed off of real estate.

Below are my major issues with the plan above:

• Who will make these debt payments that are artificially high due to inflated real estate prices and increased consumer debt particularly in a time when unemployment is over 10%?
• The problems that started this entire mess in the first place were too much debt and inflated real estate prices (i.e. beyond what personal incomes could support).  These two causes operated hand in hand. Now, the government wants to start it all over again. This is insanity.
• The result of these government actions will be that the US economy will go up and crash again (due to another debt bubble, asset bubble and real estate bubble) and/or the US economy will be stuck in a low/no growth state for an extended period of time (think Japan).  Either result will cause more short sales, foreclosures and bankruptcies.
• The US economy will not enjoy sustainable growth until the real problems are addressed - jobs and debt (public and private).  In order to do this, we need to correct the economic and regulatory issues causing jobs to leave the US and we need to reduce public sector debt and encourage people to reduce their individual debt.

If you are a Middle TN homeowner, property owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in and around Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN).  If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Homeowners Walking Away: Right or Wrong?

Homeowners Walking Away: Right or Wrong?

In my previous blog post, Underwater Homeowners Walking Away From Their Homes, I covered the issue of homeowners who "walk away" from their homes and mortgages (even though they can afford to pay their mortgages) due to the mortgage debt on their homes far exceeding the market value of their homes (in other words, they are "underwater"). "Walking away" is also called a "Strategic Default". That post briefly covered the fact that most homeowners view "strategic default" as being morally wrong, but despite that many homeowners would still "walk away" from their homes and mortgages if the debt to market value ratio reached a certain point. The post showed, that based on current financial research, that debt to market value ratio is somewhere around 50%. In this post I want to address the issue of whether "walking away" from a home and mortgage is Right or Wrong?

I will only state my position briefly as I would like input and comments from other people. A few years ago I would have said that "walking away" from your home and mortgage was definitely wrong. Now, I am not so sure. Real estate investors, business owners, Wall Street firms, etc. have "walked away" from debts for many, many years. If a business or investment firm cannot pay a debt, they file bankruptcy, shut down, simply do not pay, or now ask for a government bailout. Why should looking at paying debts as a business decision be OK for businesses and investment firms, but not for individuals? That is why I am no longer sure "walking away" is wrong. If buying a home is an "investment" as the National Association or REALTORS (NAR) has stated for years (they should regret that statement now) then why shouldn't a homeowner have the option to "walk away" if that so-called "investment" goes bad? After all, the mortgage lender does have contractual recourse (via the loan note and mortgage) such as reporting the lack of payment to credit reporting agencies, taking the home back via foreclosure and pursuing the delinquent homeowner for any losses not recovered by selling the foreclosed home. No where in the documents that the borrower/homeowner signed does it say that shame or moral indignation is part of that recourse. That being said, I do think that trying to sell a home via a short sale is a significantly better option for a homeowner than a "strategic default". Therefore, I would highly recommend that a homeowner try a short sale before "walking away". With that I respectfully request your comments.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including loan modifications or short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.