[Marxism] Chris Bray on foreclosures

Louis Proyect lnp3 at panix.com
Sun Aug 12 20:16:24 MDT 2007


(From the always interesting Chris Bray, a member of the Cliopatria 
group blog. Bray was a graduate student who served with the military in 
Iraq. A very sharp guy, even when his politics are suspect.)


http://hnn.us/blogs/entries/41800.html
Chris Bray
Bleeding Past Empty

How much pain?

As subprime mortgages crater, here's one of the likely -- and 
as-yet-undiscussed -- consequences: Deficiency judgments, and perhaps a 
massive wave of them.

Here's how it works: Buying a $500,000 house, you put $50,000 down and 
take out an interest-only housing loan for $450,000. Then you can't make 
your house payments, two or three years later, and the bank forecloses. 
But the foreclosure is part of an enormous set of regional and national 
foreclosures, dumping houses on the market while mortgage lenders are 
cutting back sharply on new home loans. Far fewer buyers are chasing far 
more homes, so housing prices fall sharply; the bank sells your $500,000 
house for $375,000.

You're out of a home -- and you're still carrying $75,000 in 
interest-bearing debt.

Where have we seen this dynamic before? Here's one noteworthy example:

In his 1965 book The Cornbelt Rebellion: The Farmer's Holiday 
Association, the historian John Shover discussed the metastasizing farm 
foreclosures in Depression-era Iowa, which (among other things) followed 
the burst of a farm-buying bubble caused by the decline of European 
grain production during the First World War. American farmers rushed to 
buy up land on borrowed money so they could expand their production for 
hungry European markets; fifteen years later, still carrying debt, they 
found themselves caught in a cycle of sharply declining crop prices. And 
then the trap closed.

 From pages 16-17:

     Between 1921 and 1933, 13 percent of Iowa farmland was sold at 
foreclosure. Yet at the end of 1932, one billion dollars of debt was 
still outstanding on 45 percent of the land in the state...Land values 
had declined so greatly (from $140 per acre in the late twenties to $92 
per acre in 1932) that proceeds from a forced sale usually did not cover 
the full amount of the debt. As a result, the debtor was left with a 
deficiency judgment to cover the balance. In 1921, 26.5 percent of 
foreclosures in eighteen sampled Iowa counties ended with a bid for less 
than the amount of the debt; in 1932, 74 percent carried a deficiency 
judgment.

This number will be worth watching in the years to come, but here's my 
guess: A significant number of families who took out subprime housing 
loans will not only lose their homes, but will be left with a crushing 
load of debt that will inhibit their recovery and hamper their ability 
to find new housing.

Posted on Sunday, August 12, 2007 at 6:33 PM | Comments




More information about the Marxism mailing list