Story for George Bush, Hank Paulson, and Ben Bernanke
My wife and I are renters – we figured we never could justify paying the crazy prices we saw people charging for houses. But now the bubble burst, and we figured – OK, now’s our time.
So there’s this house my wife likes. A lot. So much so that we’ve had our eye on it for the past six months. Here’s the story. We were driving through a neighborhood she likes and saw a For Sale sign. We made an appointment and saw the house.
A week later, my wife called the woman who owned the place to discuss making an offer. We had a figure in mind that worked out to precisely the price you see on Zillow, and which, if you work backward from her property tax bill, tells you was the about the figure the property tax assessor had come up with at the last assessment. (Put another way – given the bubble burst, the bid we made was higher than I was comfortable with, but my wife really, really liked the house, and in its defense, there had been some nice work done inside.)
The woman turned down our offer. She claimed she needed to get 40% more just to pay what she owed on the house. We offered to try to deal with Countrywide to arrange a short sale but she simply stopped responding to us. It turns out the home had been up for sale for well over a year – there’s no chance she could have gotten that price even before the bubble burst.
We then learned the property was in the foreclosure process. The sheriff’s assessment of the house was actually more than 10% below the price we had offered. (And, I might add, within a few thousand dollars of the price I told my wife the house was worth when we first contacted the woman who owned it.)
So we showed up on the day of the sheriff’s auction when the home was going to be up for bid, but she had declared bankruptcy that morning, which apparently removes the home from the “to be auctioned” list. Since my wife was still interested in the home, and bankruptcy filings are public records, we took a look.
Here’s what we learned: the amount owed to Countrywide is 140% of the sheriff’s assessed value, and of course, the odds of it fetching the sheriff’s assessed value is quite low, even in good times. Plus, it seems the woman’s other debts mean her total debt is more than twice what she owes on her mortgage, and she has no job. (I’m not sure what the woman or Countrywide were thinking, but hey, this is why I didn’t buy a house before.)
So we’ve contacted Countrywide to make another offer taking into account the current circumstances. Our offer is equal to what we think that house would fetch at the auction. No “yes,” no “no,” no nothing. We contacted them repeatedly.
According to the bankruptcy filing, the woman intends to surrender the home to Countrywide. (I can’t imagine she has much of a choice in the circumstances.) So in a few weeks, they will take possession of the house. I don’t see any way that a deal can be worked out with the woman who borrowed the money to buy it in the first place. (Remember – debts equal to twice the outstanding mortgage, plus no income.) So they either sell the house, or pay for its maintenance and property taxes.
You’d think in this environment, Countrywide would have some interest in talking to eager potential buyers. You’d be wrong. Its one thing to bail out companies that got themselves in trouble doing stupid things, as we’re doing to Countrywide’s now parent-company. Its another to bail them out when they go out of their way to avoid developing a viable business model.
And its not just that the plan is rewarding companies that made insane decisions and encouraging them to make new insane decisions. It also impedes the market and ties up capital by preventing willing, responsible buyers with money in their pockets from buying homes. This is the very predictable result of the bail-out. Mission Accomplished.