A growing trend during the current recession is squatters moving into bank-owned homes and living in them rent and mortgage free. Although this seems astonishing, with the inflated real estate bubble not yet completely burst, lenders reluctant to recognize losses on such properties, and so many abandoned homes available, it was a likely result of the collapse.
With real estate developers having built far more houses than could ever have been sold, real homelessness does not have to be an option for foreclosed homeowners or laid-off workers. Instead, they can often just move into an empty property and take further advantage of the bubble in real estate building.
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Rents and selling prices in many areas of the nation will still need to come down to reflect a return to more reasonable real estate values. But banks, which were too willing to lend 100% of the value of an inflated property, are now reluctant to acknowledge their mistakes and allow borrowers to sell for less than the total amount owed on the mortgage.
Banks' unwillingness to allow short sales is forcing selling prices higher than the market value of properties, especially properties in default. In some areas of the country, a large number of homes are selling for $300,000 to $1 million, but rentals are available for $600 to $1,200. Landlords must be losing large amounts of money every month.
Lenders are also reluctant to help homeowners stay in their houses by modifying mortgages or offering other realistic solutions to help avoid foreclosure. This makes it almost inevitable that borrowers will have to sell, but then they run into the problem of getting a short sale approved by their mortgage company.
So real estate prices are still overvalued compared to the rents that properties are generating, and foreclosure rates are higher than they would otherwise be if banks willingly worked with homeowners. In a freer market than we have now, banks would have an incentive to work with homeowners to stop foreclosure if there was a realistic expectation of having the loan paid back in time.
For example, banks charging 6% interest on a mortgage may lower the rate temporarily to 4% or less to assist homeowners who demonstrate a long-term ability to keep their loan current. While this may be a temporary loss to the lender, it will not be a total loss, as is the case with many foreclosures. And this agreement could be worked out between the owners and bank voluntarily, with foreclosure as the last resort.
But right now, banks have every incentive not to dedicate extra resources to helping borrowers. Instead, they can let homes go into foreclosure and try to keep real estate prices artificially high. When this plan fails and they are forced to recognize total losses on loans, they simply blackmail or threaten legislators into handing over billions of dollars to paper over losses.
This keeps foreclosure rates high and pushes homeowners out of properties, all the while forcing them to contribute to the bailing out of the mortgage holders. Obviously, the banks feel entitled to looting taxpayers for trillions of dollars and Congress and the Federal Reserve acquiesce to such demands time and time again.
Thus, who can blame foreclosure victims or the unemployed for feeling as if they are entitled to share in the bank's wealth (i.e., the taxpayers' wealth) and take over bank-owned foreclosed properties? People are being forced to bail out financial institutions, so they force their own way into a piece of the bailouts by squatting and living rent free.
Either the bailouts need to stop for everyone, or everyone should get a free home. Over $10 trillion has been appropriated by Congress and the Fed for solving the financial crisis so far, which amounts to over $33,000 for every person in America. That could be enough to allow people to live mortgage and conscience free inside an empty house for a long time.
Squatting in an abandoned or foreclosed home is clearly wrong (at least morally, since legal determinations mean nothing anymore), and not an activity anyone should engage in. But banks squatting in the American economy, threatening destruction of the entire financial system, and living parasitically off of the productive is wrong on an even bigger scale. Putting an end to the latter may put an end to the former.
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