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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (34834)	7/8/2009 5:57:48 AM
From: Madharry	Read Replies (1) \| Respond to of 78728

Up to 26% of U.S. homeowners who stop paying their mortgage may be doing so intentionally, not because they can't make the payments but because they don't want to put money into a house that's worth less than what they owe. That finding, from a paper by economists at the University of Chicago, Northwestern University and the European University Institute, raises some doubt about the approach the Obama Administration has taken toward stabilizing the housing market. The current approach focuses on whether or not homeowners can afford their monthly payments, and largely ignores the fact that some 20% of homeowners owe more than their house is worth — a situation known as negative equity, or being "underwater," which, according to the paper's findings, may itself trigger default. Related Specials High-End Homes That Won't Sell Photos Renting a Modernist House More Related * When Mortgage Assistance Does Not Work * These houses were made for walking * House of Cards: The Faces Behind Foreclosures The paper's authors caution that their statistics are not exact and should be taken primarily as an indication that there is a looming problem, one that needs to be addressed. The 26% figure comes from a series of consumer surveys that feed into the Booth Chicago/Kellogg School Financial Trust Index. In December 2008 and again in March 2009, 1,000 people were surveyed and asked, among other things, if they knew anyone who had defaulted on a mortgage, and if they knew anyone who had defaulted on a mortgage even if he or she could afford to make the monthly payment. By taking the ratio of the two answers, the economists calculated that more than a quarter of defaults are, as they put it, "strategic." (Read "Home Sales Perk Up, but Expensive Houses Languish.") "They can still afford to pay but they decide not to," says Paola Sapienza, a finance professor at Northwestern University and one of the paper's authors. "It's very easy to do this in the U.S." Even though there are serious consequences to reneging on a home loan — including wrecked credit, not being able to buy another house for years to come, the cost of moving and the social stigma associated with being a person who does not honor one's commitments — lenders tend not to pursue former homeowners for the money they are owed because of the prohibitive cost of tracking down such people and suing them. Notably, other survey data included in the paper suggest the percentage of intentional defaults may be much lower than 26%. The researchers also asked if respondents themselves would welsh on their mortgages if they were $50,000 underwater. Among the people for whom $50,000 represented less than 10% of their home's value, none would walk away. However, once $50,000 represented between 10% and 20% of the house's value, 5% said they would walk away, and when the shortfall reached 50% of home's value, a full 17% said they would. (See "Renting a Modernist House.") When the shortfall amount in question was $100,000, the walk-away responses accelerated at a faster rate. Some 7% of people said they would intentionally default when a $100,000 shortfall represented less than 10% of their house's value. Once that shortfall represented between 50% and 60% of the home's value, an entire 25% of respondents said they would walk away. The hesitation to intentionally default when the theoretical amount of negative equity was $50,000, even when representing the same percentage of a home's value, may relate to the high fixed costs that come with walking away, such as moving.

To: Paul Senior who wrote (34834)	7/9/2009 10:23:47 AM
From: Spekulatius	Respond to of 78728

TRV - bought some TRV at 38.4$. Essentially trading at tangible book and quite profitable (5$ in estimated earnigns) is good enough for me. I am still interested in ALL, since they can do 4-5$ in a decent year and currently trade at 23.XX$. Tangible book is down to 20$, though. The question is what sort of assets does ALL hold and how are they valued. if they are temporarily impaired then book should bounce back, because spreads have narrowed. if it's truly junk then maybe not. I think i'll wait for the next 10Q to make a decision. If they continue to bleed book value they'll have to do a secondary very soon and that won't be pretty.