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Comment by cosmodisk | Hacker News Reader

The whole model of housing is broken in most countries,including the US. It's interesting that entire economies are willing to subsidise food to make it as available as possible, but the second most important thing in human life-shelter,is completely overlooked. I'm not arguing that everybody should live in large mansions free of charge, however the fact that people who work do struggle to keep roof over their heads either via rent or mortgages is absurd. Also,how society deals with periods of uncertainty,or difficulty. For instance someone takes a mortgage for 30 years period and then ends up having some temporary hiccups on year 5 that can be resolved in a few months ( i.e. unemployment). So instead of saying something like: 'ok, you are having difficult times,which is li ke 1% of the entire period,so you'll simply have to pay this longer', we say: 'tough luck, get out!'.

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> that can be resolved in a few months

I'm not sure about the US but I think you are not kicked out from the first day / first month. For auto-leases, the bank might wait a couple months max; but for houses it's usually negotiable with the bank. For the bank, it's a lengthy process that requires selling the house to recover their capital. It's not something they want to go through unless the economy is super strong and they can sell the house really fast.

Right now, it might be hard to 1. sell the house fast and 2. sell the house at a good enough price to recover their capital. If you are only a few months away from a job you should be able to negotiate but my guess is that some (many?) people shouldn't have gotten into these loans in the first place.

Lets say you are $150k into a $200k mortgage, then default. What prevents the bank from selling it at $50k, which is just enough to recover their principle?

Good question. I assumed that's how foreclosures work, and why you can get such good prices on them.

You get lower than market prices but there are some catches: The foreclosure is a long process because they need to wait for the highest bidder, you need to deposit something like 1/3 of the house price, you need to pay some other fees, etc...

Nothing, in fact the bank might actually make more profits from fees (and they collect the interest in advance). So while you might get away with a few months of delinquencies, it's not a situation you might even want to be in.

The sale process has to be publicized and transparent so that it reflects arm’s length, fair market value. If that’s $50k then the first owner was severely underwater in the first place.

Legally? Nothing.

Practically? There's a whole bevy of reasons why this isn't done in practice but the bottom line is it's not in the bank's best interest:

- The bank is likely mortgaging other properties in the area. They don't want the value of the housing going down.

- The bank doesn't want to slow down real estate sales with people waiting on "deals" on foreclosures. They'd just as soon be issuing new mortgages which results in more money coming in the door.

- The bank doesn't want to get a bad reputation. Look at the issues Wells Fargo is having. It's easy to lose your reputation, it's hard to get it back.

In general what happens is the property goes to auction. Because the buyer has to either pay cash or secure their own financing and be able to take quick possession of the property the house will typically sell for 17%-20% below market value.

In this example since you're $150K into a $200K mortgage let's say the house's market value is $300K. It would sell at auction for $240K. The bank will have $35K in expenses and fees and so will cut a check for $210K-$50K = $155K to the homeowner.

In general it's in your best interest to sell the house yourself before the bank forecloses. Let's look at this example again. You sell the house for $300K. Say you have $24K in closing costs, plus there's the $50K you owe the bank. You'll net $226K. That's $71K more in your pocket than letting the bank foreclose.

And in fact, by the Rule of Threes [1], depending on where you are, housing is more important than food and water.

[1] https://en.m.wikipedia.org/wiki/Rule_of_threes_(survival)

I always wondered: is it really cheaper for a bank to repossess a house than it is to pause payments for a few months? Or are they just so skittish that they're not willing to take any chance of non-payment longer than, say, a few months?

Many banks have mortgage forbearance, they recognize that life happens. Unfortunately it's not uniform, some will tack it on at the end, others will require any missed payments to be payed at the end of the forbearance.

Additionally the US does have housing programs[1], so I wouldn't call it "completely" overlooked.

[1] https://www.hud.gov/topics/rental_assistance

We've tried free and low cost housing for decades in the US and its been a disaster every single time. Every. Single. Time.

So called social housing wasn't a huge success in other countries either. However the failures aren't because of the housing per se. What a lot of those schemes did, was simply getting a large piece of land and building large, soulless housing estates and filling them with often poor people with a lot of challenges.And then everyone says: OK, this isn't working. But housing is only a part of the equation: the location, access to education,work,and health services. How dangerous and antisocial behaviour isdealt with in such estates.Can people be simply kicked out for poor behaviour instead of semi tolerated for years?

Why is this the only other option? How about removing rent controls and other regulations around building smaller low cost units and then charging a 15% vacancy tax on any unit that is empty for 3 months?

This way we are increasing supply and not encouraging hoarding.

"regulations around building smaller low cost units";

I think this is a fundamental problem for dealing with low cost housing issues. Many cities have building regulations mandating minimum sizes for apartments, and requirements for a minimum number of parking spaces, even for apartment complexes close to public transportation. This makes it impossible for builders to build low cost housing. The problem of low cost housing has been around for a long time; the pandemic is just making it a much bigger problem.

Unfortunately, building an apartment complex takes time, and if the pandemic crisis is resolved (for some definition of resolved) in a year or 18 months, the low cost housing problem will just go back to what it was before the pandemic.

I mean, to some extent, what you're saying is, "Cities require apartments to be better than prison cells, and it's hard to make massive profits making genuinely livable housing that can be provided to people who don't make much money."

Which...yeah, the purpose of low-income housing should be to provide housing that people can still thrive in, no matter their income, not to make massive profits for the real estate or construction companies.

The cities themselves should be footing the bill to make sure their people are well-cared-for. It's already been proven in multiple instances to cost less than dealing with homelessness and its consequences, even if the people they're providing housing for can't pay a single cent (at first).

>The whole model of housing is broken in most countries,including the US.

Broken? Well, as with many things, the problem is that there is a model to start with. No civilized society in my view should have income or property tax. (for the record there are no civilized societies by that definition). In a country with plenty of land, land zoning/restriction should be the bare minimum.

The collective human enterprise is messed up beyond belief.

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