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Obama’s plan will create a floor for house values by helping restructure at risk loans. Refinancing all those homes will end up helping some speculators undeserving of assistance, but the thinking is that over all, it will do more good than bad.
Some Americans who did borrow money (speculate) on their U.S. homes in order to buy Costa Rican property (speculate again) will, in effect, have that Costa Rican land somewhat subsidized by Uncle Sam now. There may even be a minimal stabilizing effect on CR real estate from this plan since some gringo land owners may now not have to sell their land in order to keep their US properties .
Many Americans used HELOCS to fund their purchases abroad, nothing I have read about Obama’s new plan mentioned those types of facilities. In addition, my thoughts are that this is but a mere band-aid…see page 9 of this link. http://www.designs.valueinvestorinsight.com/bonus/pdf/T2_Housing_Analysis.pdf
The indications are that its going to get worse before it gets better. Housing is but one variable in this messy equation.
The details to the plan are not in yet. I can’t see why a HELOC would be excluded if all the other conditins are met. In any case, I was making a general observation without any specific data as to how many Americans have bought CR properties with refinance money. But my bet is that it is a substantial number and there will be some positive effect of this new plan felt in the CR real estate market, even if only to a small degree.
On the whole, I agree withyou. The world is in for a big change.
Edited on Feb 18, 2009 10:50
At risk loans will STILL be at risk! We’ve already seen that those loans that were modified to assist the borrower, the majority of the time fall back to being in default. Let’s face it… there were a bunch of folks that got loans that should have NEVER been given them, even if we applied the “old” standards of lending they just were NOT qualified! A market out of control where common sense and reality were ignored… because EVERYONE was making money! These folks got in the game planning on riding the increase in real estate value… many KNOWING they couldn’t handle the payments! A quick reality check tells you that no matter what you do… most will NEVER be able to carry a loan!
Now with the fall in the real estate market and job market the reality is that folks at risk really have NO chance of paying anywhere NEAR what they owe. They refi’d as the market continued to climb… took cask out and bought stuff (further over-fueling the economy of consumption)… and lived WELL beyond their means! Now short sales really aren’t even an option, they’re WAY over extended! Property taxes that rose as did home values are now WAY over priced and the size of government has grown to cobble up the tax revenues. Now governments will have to downsize as taxes are challenged or simply not paid. California is going down first.
Thus the market will have to fall and adjust to reality no matter how much money Uncle Sam throws into this black hole! Unless Uncle Sam is going to start giving away homes there isn’t much that can be done! And when that happens… the rioting really starts in the streets! Most likely a reality in the future anyway! They can’t just keep “creating” money to solve this mess!
This entire bailout package is nothing more then the next step in destroying the future of the US! The market must be allowed to correct itself… and YES… I know there is going to be a lot of pain…and people are going to get hurt… and the economy is going to go into a depression (we’re headed there no matter what Obama and the boys do!)… but to keep throwing money at these problems (ie The banks and the auto industry) will only bring down the ENTIRE economy! It only stalls what must happen…. and makes the recovery from this mess even more difficult and lengthy!
Funny how NO ONE is talking about the national debt these days! I guess it’s like someone in over their head with bills… just throw them in a shoe box and hope they go away! Washington is throwing around TRILLIONS like the zeros after the number up front mean nothing! Yesterday Detroit dropped the other shoe on what it needs… and it isn’t pretty! More good money after bad! GM is talking MAJOR cuts and yet needs another $16.6 billion dollars! And Chrysler added $2 billion dollars to what it needs like they were talking about monopoly money! Uncle Sam could just BUY the two companies for what the taxpayer is being asked to throw at them!
Iceland is a good example of where the US is headed… I remember watching a documentary on the giant dam they were building to generate power for a large Alcoa plant… claiming it would create jobs… a few thousand if I remember correctly. However, when I took the time to calculate the BILLIONS they were spending to generate the jobs… it came out to about $400,000 per job… it made NO sense! And as we see now… Iceland has collapsed!
And just as we are seeing now… Uncle Sam is throwing TRILLIONS into nothing but spending that will have to be PAID BACK in the future! Lucky for Uncle Sam… the folks that will be doing that are too young to see that their future is being stolen… or have not yet been born!
As far as the effect on real estate in CR… I think many people that have bought and built here are much smarter and conservative… and for the most part are far more intelligent (such as the folks on this site)… there will be tons of folks wiped out… and there will be an effect on the market in CR… but nothing like the US and many parts of the world are going to see!
I tend to think that there are a lot of folks (other than the flippers) that bought in CR not just because of the beauty and lower cost of living. I believe there are many folks like myself that saw what was going on and were looking for the lifeboat when things collapse… and CR in my opinion is a much more likely place to ride out the storm that’s now hitting our shores… and there a lot more pain to come!
I won’t even get into the mess with society, food, water, and the environment that will be coming to a head shortly… we’re already starting to see the signs of that disaster… and THAT will cost big money too! It’s just too much for one morning!
Imxp, you and I are in total agreement on what we sense might happen soon. Rioting in major US cities is looking more and more probable at some near future date. Uncle Sam cannot buy his way out of this mess and the Obama house rescue plan will only delay the inevitable.
However,I am not so sure of your assessment of the kind of real estate buyers who purchased in Costa Rica. I have read a few articles a while ago, 2006, 2007, which pointed out that even back then some Americans had mortgaged their homes at over valued levels and used the money to buy in Costa Rica and elsewhere. There were reports of people just walking away from their US homes to move to Costa Rica and leaving the banks to deal with the foreclosures in California or Michigan.
Wealth is always on the move. It is like a restless, hunted animal and it cannot stay put. Much of it moves between the stock market and real estate. Both of those places are dead ends right now. The consequences of this state of affairs is going to be pretty serious.
http://finance.yahoo.com/tech-ticker/article/176478/%22Worst-Is-Yet-to-CEdited on Feb 18, 2009 10:46
Edited on Feb 18, 2009 10:51
I know of two people that walked off and moved to CR from the US… both having either taken out big loans on their homes (HELOC’s)… or just giving the keys to the bank on a mortgage that was so much more than what the property securing it was worth… just as you stated! And those are the one’s that tell you their story… I’m sure there are quite a few more! CR has always been a place that people run to to escape trouble (legal and personal)… now we might have to add financial to that list!
There’s all kinds of folks in CR… for different reasons… I think we can both agree on that! Those playing the market and flipping RE for quick profit will be the ones burned… those that have made an INVESTMENT in CR for the right reasons should do fine!
Homeowners are the very thin edge of the wedge in this disaster and they are certainly getting the very thin edge of the wedge with regards to relief…
Michael Hudson captures the nature of the heist in CounterPunch on February 12th 2009
“When it comes to cleaning up the Greenspan Bubble legacy by writing down homeowner mortgage debt, the Treasury proposal offers homeowners $50 billion – just [half of one percent] of the $10 trillion Wall Street bailout to date, and less than half the amount given to AIG to pay its hedge fund speculators on their derivative gambles. The Treasury has handed out $25 billion to each and every big bank, so just two of these banks alone got as much as the reported one-quarter of all homeowners in America suffering from Negative Equity on their homes and in need of mortgage renegotiation. Yet today’s economic shrinkage cannot be reversed without a recovery in consumer demand. The economy has lost the “virtual wealth” in higher-priced homes and the stock market, and must rely on after-tax earnings. But I see little concern for wage earners in the Treasury plan. Without debt relief, consumer spending and business investment will not recover.”
Scott Oliver – Founder
WeLoveCostaRica.comWhy would the politicians care about the good folks out there working for a living, paying their bills, living within their means, providing for their children, saving for their retirement, paying the taxes, and keeping the system afloat! Those are the folks that always take it on the chin! And I for one am QUITE tired of it! Anyone want to join the revolution?
“CR has always been a place that people run to to escape trouble (legal and personal)… now we might have to add financial to that list!”
Sounds like paradise…
Those people you speak of leaving the bank high and dry are the scum of the earth, lack integrity and have absolutely no dignity.
Grfz,
A mortgage is just another financial instrument. On the bank side, the instrument is an investment designed by the bank so that it can make money…. and as all investments, it carries risk. A mortgagee walking away from a mortgage is not scum even if such action was calculated from the outset. It is no different than shorting stocks in the market. Neither action is illegal.There are only two kinds of legal players in free market capitalism; those who now how to work the system, and those who do not, commonly referred to as the hard working citizen who “follows the rules”. The worker rarely knows what the rules are and is always at a disadvantage. If you are trying to apply morality to the most evil and destructive economic system ever devised,then you are playing right into the hands of those who know the rules.
Actually, Scott, it is now $250 billion for the home rescue plan…possibly more to come. It is supposed to help almost 9 million mortgagees.
grifz77…. Yes paradise does collect a rather odd group… I guess every nice place has the same problem… be it in Central America or the South Pacific.
As for the folks leaving the banks high and dry… I’d agree, it’s not my act… but as for your description “the scum of the earth, lack integrity and have absolutely no dignity.” … I’d say the folks doing the lending fit the same bill!
The US government should change the national symbol to the condom because it more acurately reflects the government’s political stance. A condom allows for inflation, halts production, destroys the next generation, protects a bunch of pr…s and gives you the sense of security while actually being scr…d. It just doesn’t get more accurate than that.
Sprite, I know very well what a mortgage is…and walking away from your mortgage is nothing like shorting stocks. That my friend are the types of thoughts/actions that separate reputable people from scum of the earth.
Grifz, I have never done such a thing but I would not slight anyone who has. You obviously haven’t a clue as to how things have been set up to work.
Rightly or wrongly, the system is set up to benefit those who are willing to take risks. A bank loan on a house is absolutely no different than an investment in a mutual fund or stock in that both are a risk of capital for the purpose of increasing that capital. Period. The rules of both investments are spelled out clearly in contracts. The risk in loaning money for a house is clearly understood by most banks. If it is not understood, and a loss is incurred, the bank has made an error in judgement. Nobody stole money from that bank at gun point or by fraud.
The borrower also has taken a risk when he puts a down payment forward. The house and the downpayment are forfieted to the bank if the borrower decides to walk or has to walk away. These are the legal terms of the contract. The rules of the game.
Secured contractual debt takes the place of moral obligation. If your parents lend you money, you are morally obliged to pay them back. If you invest in stocks, and the stocks drop in price, nobody owes you any of your lost invesment.Do you think the comnpanies who have lost value are scum because they will not pay you back? Please define why a mortgagee who walks away from his house is scum. What law has he broken? Whom has he harmed?
Edited on Feb 19, 2009 13:43
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