‘Squatter Rent’ May Boost Spending as U.S. Mortgage Holders Bail

[Purveyor]

By Bob Willis and John Gittelsohn

May 6 (Bloomberg) -- Melissa White and her husband stopped paying their mortgage in May 2008 after it reset to $3,200 a month, more than double the original rate. That gave them extra cash to pay off debts and spend on staples until their Las Vegas home sold two years later for less than they owed.

“We didn’t pay it for about 24 months,” said White, who quit her job as a beautician during that period after becoming pregnant with her first child and experiencing medical complications. “What we had, we could put towards food and the truck payments and insurance and health things I was dealing with.”

Millions of Americans have more money to spend since they fell delinquent on their mortgages amid the worst housing collapse since the Great Depression. They are staying in their homes for free about a year and a half on average, buying time to restructure their finances and providing an unexpected support for consumer spending, which makes up about 70 percent of the economy.

So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that’s equal to about half the estimated savings generated by cuts to payroll withholding in December’s bipartisan tax plan.

MORE...

http://noir.bloomberg.com/apps/news?pid=20601109&sid=aZqgjYA25BGs&pos=10

[Skink]

1. do they not face bill collectors?

[Myrina]

2. ... too bad most of it's going toward gas ....

Would that there was a comprehensive enough public transport system that parking one's car and taking transport, walking or biking was truly a feasible option for most of us.

[dkf]

3. Renters dont get 2 years free housing when they are in trouble.

Do we really need to feel so sorry for people that lose their house considering they probably got several years of free housing?

[grasswire]

4. and what about those who are renting houses that are foreclosed?

In this instance (been there, done that) the landlord stops paying rent but continues to collect rents. Our landlady continued to rent her properties and take deposits and pocket all the rent for more than a year. Those renters keep paying and paying, and lose their deposits to boot.

[dkf]

5. Yup renters are the ones who get screwed. They don't get mortgage deductions too.

And their rent will always go up.

I don't understand why home ownership gets a break when it's the renters who really need help.

[Wilms]

6. And part of the reason rents are high is that renters are the ones PAYING the mortgages.

And the mortgages are high because of a market inflated by through the buying (and flipping) frenzy.

[CoffeeCat]

7. When this little phenomena crashes...it's going to hurt..

It's nice that people have the extra money. If they're losing their homes--I'm glad that people have a 1-2 years with that extra
cash to sort out their finances.

However, the problem is---if people are simply going out and spending recklessly at Target, Pier One and Pottery Barn--and if this spending
is partially propping up the US economy right now--then we are in for an economic shock when this trend dies.

What happens to these people after their rent-free 1-2 years has passed? They have to find somewhere to live. They'll be paying a mortgage
or rent again and the costs associated with that expense. Their extra cash will have dried up.

I really hope that, on a macro level, people are using this time to pay OFF their credit cards and other debts--so they're in a stronger
financial position when they're out of a home.

If they suddenly feel, "I'm rich!" and wildly spend on eating out at restaurants, buying expensive cars and other non-essentials--they'll
be in a worse place than they were when they couldn't pay the mortgage. They'll be deeper in debt AND without a home.

Man! Our economy is one big shell game right now...with some mirrors and wires thrown in!

[robinlynne]

9. I doubt people who are losing their homes are running to pottery barn. ...

[Commie Pinko Dirtbag]

8. Having to choose between mortgage payments and food+gas+health is a no-brainer, really.

It's quite possible they made a poor decision in buying that particular house, but who am I to judge?

Yes, I do feel sorry for the, because I have some basic human decency.