Forgive Them


I don’t know much about the fine details of the real estate market troubles in the U.S. Like many I just see and hear about a very large financial mess.

However, David Streitfeld of the New York Times had something to say about the real estate meltdown making note of a paradox – “the more money you borrowed, the less likely you will have to pay up”.

Quick Notes

Liberally quoting Streitfeld:

  • during the housing boom, trillions of dollars were borrowed using soaring house values as security

  • deliquency of home equity loans is higher than any other type of loan
  • banks can’t collect – reasons, the homeowners threaten bankruptcy and the home values has disappeared
  • in 2009, $11.1 billion in home equity and $19.9 billion in home equity lines of credit are considered uncollectible
  • currently, the trend is the same with $7.88 billion written off in the first quarter
  • odds of collecting if successful is about 10 cents on the dollar

State of the Union

Streitfeld refers to a statement by Christopher A. Coombs, a real estate lawyer,who says

“People got 90 cents free.” The system “rewards immorality”.

Moral Question

Since most of us live within a few miles of the border is it remotely possible that we here in Canada could be as Coombs suggests – immoral.

Are we?

Assuming that strategic mortgages existed in Canada, would you walk away from your mortgage? Would we be any different in our view of the world then our neighbours to the south?

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

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*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

jesse Says:
August 14th, 2010 at 7:31 am

There was an American economics/finance cartoon I remember seeing about 3 years ago where a banker and borrower are pictured sitting in an office and the borrower, looking at the contract, says, “So you will give me half a million dollars to buy this house and you can’t force me to pay it back?”

The subtitle on the frame is “Spot the sucker in the room.”

August 14th, 2010 at 8:02 am

With the understanding that hindsight is perfect and to your point, I’m sure wise sages of financial wisdoms were out there asking everyone to give their heads a shake when this was going on.

What continually amazes me is the overall euphoria evidenced in the belief of so many at every level of society thinking it would never end. From that perspective alone, I’m certain the psychologists of the future will look back to this event for centuries to come as they try to understand that mindset. I remain uncertain if it was hope for the many, greed for some or simply everybody being foolish? As well, I have yet to understand why all the safety checks designed to preclude this problem were systematically removed.

Further, let’s not forget the other side of the coin, a lot of people came out of this doing very well financially. Fascinating comment on a society I think!

Last note: Rumors abound that what was and is going on in Greece makes the US debacle look like a K1 class. You got any thoughts on that?

jesse Says:
August 14th, 2010 at 3:15 pm

@Larry YatKowski, I think while many people have profited by asset price rises, it is, for the most part, a zero sum game. That is, to pick on housing because this is a real estate blog, one person sells and another buys. The transaction does not in and of itself produce any value; but the transaction redistributes capital towards those who, at least hopefully, can use it to better advantages.

An assumed asset bubble in housing has done not much more than allocate capital to those smart or lucky enough to be on the sell side. But if one believes that this is actually a misallocation of resources, it is long-term bad for the economy. I think the US is going to be dealing with these imbalances for many years to come. I think many sub markets in the US will see prices fall further in the next few years.

In any case, I think those who have truly profited (i.e. those who sold and have garnered commissions of said sales) have been able to reap fungible benefits and those who bought will be at a permanent disadvantage. JMHO. Being on the winning side of that trade is good of course but I wouldn’t bet on it continuing ad infinitum; maybe it’s time for many to look elsewhere for profits.

I don’t know much about Greece other than their government lied to gain entry into the EU. The country has had a long history of accepting foreign and domestic debt and defaulting, often by devaluing the currency.

It reminds me a lot of some of these serial mining stocks on the old VSE that continually recycle the same plot of land over and over again. They get pumped up by decent salesmanship and marginal discounts relative to other investments and they always managed to find someone to give them money. In the end all that’s left is the same worthless plot of goldless land and bankruptcy proceedings. The amazing thing? They continue even when most of us know better. Greece was a mining stock. And its normal stock exchange of choice isn’t open any more.

August 14th, 2010 at 4:25 pm

yah just had to put the fork into commissions 🙂
Strange it is to me that a number of Realtor® types I know south of the border bought into the frenzy as well. I never had the guts to ask them directly but I often wondered if they felt they had to do it just to be able to convince others. The entire issue from top to bottom is actually quite sad on any number of levels.

Thanks for your insight.

jesse Says:
August 16th, 2010 at 12:07 pm

@Larry, no fork implied with commissions. It is, in my view, completely reasonable to have a selling agent paid on commission, either fully or in part. I would almost certainly employ one if I decide to sell property in the coming years.

August 16th, 2010 at 4:59 pm

no harm – no foul

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