The much anticipated rebate checks start going out today. In fact, over the next few weeks $110 billion will be sent out to the American public. This week, only electronic deposits will occur with paper checks being sent out later. There seems to be a contingency of people who believe that this is enough to turn the economy positive and avoid a recession. I’m not sure how that will be the case since our employment situation is precarious at best.

“NEW YORK (CNNMoney.com) — Tax rebates are starting to arrive in bank accounts. But many economists doubt that they will keep the economy from recession.

The stimulus package, passed with overwhelming bipartisan support earlier this year, will give rebates to about 130 million Americans, costing the U.S. Treasury more than $110 billion. Married taxpayers earning $150,000 or less will get up to $1200 while single taxpayers earning $75,000 will receive up to $600.

But since the measure passed Congress, there have been growing signs that the U.S. economy has already fallen into recession.”

Of course given the state of the economy and that we are in an election year, this passed with very little hesitation. Yet the impact of this rebate will hardly do anything since our economy is $13.84 trillion dollars strong. The fact that Americans are spending themselves into the ground will not be stymied by $600 or $1,200. It will feel good no doubt but this is only going to add additional fuel to the already present inflation we are seeing.

The main goal of course from the administration was to get people out there spending since 70 percent of our economy is based on consumption. Yet this may turnout to be a harder goal to achieve:

With the rebate being electronically deposited into taxpayers’ accounts as soon as today, area residents said they are leaning toward saving for a rainy day or paying debt rather than making a big purchase.

“I know what the goal is for the stimulus, but I’m more than likely to invest it and try to make more money that way,” said Pinkie Shuler of Winston-Salem.

Trean Ellis of Denton said that she and her husband are putting their stimulus money toward a down payment for a home they are planning to build in Lexington.

“It may end up being a small part of what we need, but every bit helps in this economy with gas prices being the way they are and both of us commuting to work,” Ellis said. “It would be nice to buy a big-screen TV but we’ve got other priorities now.”

The rebate is part of a $168 billion economic-stimulus plan approved by Congress in February. The amount ranges from $300 to $600 for individuals and from $600 to $1,200 for couples, plus $300 for each child.”

People have larger issues on their mind and will probably use the rebate to pay off debt, save for a rainy day (which given our economy is today), and other priorities. In fact, people are already shifting their purchasing habits to daily necessities. Kroger and Wal-mart are gearing up for incentives to bring in rebate ready buyers to their stores:

“If big retailers have their say, every dime of your tax rebate will be spent. Many retailers are offering incentives to trade in rebate checks.

Grocery chains Albertsons and Kroger and department stores Sears and Kmart are offering consumers an extra 10 percent for every $300 gift certificate they buy.

Home Depot is going green, urging customers to stretch their tax rebate dollars by investing in energy-saving products. Some retailers, like Walmart, are even considering a plan to cash tax rebates checks at no charge.”

So they want you to come in and blow your money on things you’ll already be buying. The only question is, will people respond accordingly. Ironically, the timing couldn’t be worse given the summer driving season and practically dollar for dollar that rebate will be consumed by higher fuel costs:

“Gasoline nationally is in an accelerated upswing, having jumped to $3.58 a gallon from $3.50 in just the past week. In some parts of the country, including New York City and the West Coast, gas is already sporting a price tag above $4 a gallon. There was a pray-in at a Chevron station in San Francisco on Friday led by a minister asking God for cheaper gas, and an Arco gas station in San Mateo, Calif., has already raised its price to a sky-high $4.62.

In Manhattan, at a Mobil gas station at York Avenue and East 61st Street, premium gas is now $4.03 a gallon. Two days ago, it was $3.96. Why such a high price? “Blame the people at STOPEC (he meant OPEC) and the oil companies,” an attendant there told me.”

This is too little too late given the current housing debacle which has already erased $2 trillion in equity. Do people really think that this is going to stop people walking away from mortgage obligations in states like California and Florida where homes have dropped from $100,000 to $200,000 in one year? Enjoy the money in your account but make no mistake that this will do nothing to change the landscape of our economic troubles.

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I’ve been reading many articles talking about those that are currently “walking away” from their homes. It is now common knowledge that some people are intentionally walking away from their mortgage commitments. When we talk about walking away, we are talking about a very specific group that can pay but is choosing not to do so. Of course choosing to pay can be an argument in itself; are we talking about someone who just had their rate reset and is going to pay 80 percent of their net income to their housing payment or are we talking about a speculator who realizes he cannot sell his home and is now simply letting the mortgage go into foreclosure?

I’ve also seen another argument stating that this group is hard to measure and how can someone argue from a group that has no hard data. This stems from the fact that there is relatively little data collected from this subset of borrowers that are now walking away. However saying that this is a small group is like saying there are no drug dealers simply because we cannot measure them statistically.

It is easy to measure home inventory, sales, and defaults for example because this is hard data that is easily accessed. But given that we are only a short time into this housing bust, this is a new phenomenon so we are only going by leading indicators. Take a look at the incredible jump in foreclosures and notice of defaults for California:

“Sinking home values and the collapse of flimsy mortgages fueled a record number of foreclosures in California in the first three months of this year, dimming prospects for any quick recovery in the housing market.

The number of homes lost to foreclosure rose to a record 47,171, more than four times as many as a year earlier.

Default notices — the first step toward foreclosure — were sent to owners of 110,000 California homes from Jan. 1 to March 31, according to La Jolla- based DataQuick Information Systems. That’s about 1.4% of the homes in the state.

Defaults are up 143% from the same period last year. Homeowners in default can avoid foreclosure by catching up on payments, refinancing or selling. But fewer are doing so.

Just 32% of the properties in default will avoid foreclosure, DataQuick estimates, down from 52% a year ago.”

That 32 percent number is stunning. Obviously the inverse of this is true meaning 68 percent of those properties will end up in foreclosure. Now how many of these people are defaulting intentionally or are actually losing their home and are struggling to maintain the current payment? In California many lenders that try to contact borrowers in trouble simply do not respond to any form of help:

“Lenders have asserted that some homeowners simply choose to abandon homes with declining values, even if they can afford to make payments.

Babette Heimbuch, chief executive of FirstFed Financial Corp. of Los Angeles, says about 50% of her company’s delinquent borrowers do not respond to requests to discuss modifying their loans.”

Now that is a hard number we can use and deduce what is occurring. It should be rather apparent that someone that is not making payments and is choosing not to respond to the lender is either consciously choosing to avoid payments or is for whatever reason, refusing to open a line of dialogue. But 50 percent is a very large number of delinquent borrowers that are choosing not to respond here in California. What this is telling us is programs such as Hope Now are not as effective as they should be because in states like California that had enormous price gains many owners are simply choosing to let their homes go. Can we give a hard number to this? Of course not and we probably will never have any hard data on this. At the end of the day, we will have foreclosure and notice of default numbers but this group does not lend itself to sampling. After all, even the lenders are having a hard time reaching them.

This isn’t only happening in California. In Florida we are seeing condo speculators “walking away” as well. Take a look at some numbers for Florida:

“According to a recent Internet survey of 487 Florida condo and homeowner associations by the Hollywood-based law firm of Becker & Poliakoff:

• 51 percent said that mortgage foreclosures were creating a revenue shortfall and a burden on the association’s finances.
• 37 percent said they have raised maintenance fees to cover the shortfall.
• 43 percent said they have units that have been unoccupied for at least six months because of mortgage foreclosures.

And that’s a small sampling. There are 7,149 condo associations in Miami-Dade and Broward counties alone, according to the Florida Department of Business and Professional Regulation.

Kelly Ladwig, treasurer of the Townhouses of Plantation, said her board recently doubled maintenance fees after taking over the association from the developer, who converted it from rentals to condominiums.

And even with the higher fees, the community may yet have problems because so many people — possibly as many as 50 percent — haven’t been paying.

”A lot of people bought here as investors, and they were not able to sell. We now have a high foreclosure rate/nonpayment rate,” said Ladwig, whose day job is as a financial analyst for a commercial real estate firm. “That’s directly affecting the financials.”

Even if unit owners can find a buyer, Ladwig said, some banks are looking at the association’s books and refusing to make the loans.

This could also block condo owners who try to refinance their loans.”

Again, we don’t have a hard number giving us an exact percentage of how many people are walking away but we can figure out that many speculators bought, realized they paid way too much and now are underwater, and are left with the choice of feeding a property alligator or hoping that eventually the market will turn around. The data is showing us that many people paid way too much and realize this (after all these were supposedly investors so numbers do matter to them) and they are running the numbers and understand that they will not break even. How many of these are “walk aways?” I would venture to guess in areas like Las Vegas, California, and Florida the number is very large. It is nearly impossible to poll a group of investors and ask them, are you choosing to consciously allow your home to foreclose? Of course this data is not easily accessible. Walking away at least from the person doing it isn’t exactly something most want to cheer about. Especially for an investor because it makes you look not so intelligent. How many people bragged about the tens of thousands they lost in playing the technology bubble? Yet we know trillions evaporated and someone was putting that money in.

I doubt we’ll ever have a hard number of those walking away but by looking at ancillary data and news stories, we know many are.

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