Underwater Home-Owers: Demand Principal Reductions
The FDIC is proposing a test program of principle reduction for negative equity homeowners.
But why is the FDIC required? An intriguing private sector solution would be a negotiated principle reduction between borrower and lender — no government intervention is needed.
Let’s begin exploring this idea by looking at a Washington Post article from today (FDIC to test principal reduction for underwater borrowers):
“The Federal Deposit Insurance Corp. is developing a program to test whether cutting the mortgage balances of distressed borrowers who owe significantly more than their homes are worth is an effective method for saving homeowners from foreclosure.
The program would be aimed at a growing population of homeowners who are underwater on their loans, estimated at more than 20 percent of borrowers, or 11 million homeowners. Economists consider these borrowers among the most vulnerable to foreclosure, and some industry officials worry that more of them will simply walk away from their mortgages, or “strategically default,” rather than spend a decade or more trying to regain positive equity.
Under the FDIC program, borrowers would be eligible for a reduction in their mortgage balances if they kept up their payments on the mortgage over a long period. The performance of those borrowers would be compared with borrowers given more traditional mortgage relief packages, such as those that cut the interest rate on loans.”
It only requires basic math skills for all parties to recognize that it is in the banks interest to avoid foreclosures. Underwater borrower with this knowledge — and the cojones — should let the bank know they understand simple math: Foreclosures = 50% bank loss.
They can then “engage in an arm’s length, Wall Street style negotiation.” Not precisely a threat, but simply laying out clearly what the mortgagee’s options are.
Imagine if a negative equity home-ower said to their lender:
“The fact is you lose ~50% (40-60%) on a foreclosure sale of a 2004-08 vintage mortgage.Since Morgan Stanley and other who have defaulted and walked away from money losing commercial real estate transactions they could not renegotiate, I am going to do the same: Unless you cut a substantial percentage of the principal (~20-30%) owed, then I will choose to strategically default (walk-away).”
I suggest bypassing the FDIC and going straight to your lender. Where the FDIC could be of assistance would be to prod the lender to consider the alternative to foreclosure.
My guesstimate is that of the 5 million probable future foreclosures, this mod would be applicable to about 20% of them. Note that a recent report from the Office of the Comptroller of the Currency implies that banks have figured this out: In Q3 of 2009, 13% of loan mods included a principal reduction, up from 10% in Q2 ’09.
Of course, if Congress didn’t force FASB tio eliminate mark-to-market on holdings, the banks wouldn’t be able to, Japanese style, wait the whole mess out over the next decade or two.
There are additional elements involved.
The HAMP approach (which isn’t working very well):
“Lenders have been reluctant to cut the principal balance owed by distressed borrowers, arguing that it would encourage homeowners to become delinquent even if they can afford their mortgage. Instead, the industry has focused on providing mortgage relief by lowering a borrower’s interest rate or extending the terms of a mortgage to 40 years.
We know borrowers do not benefit much from these mods – a 1% lower, 40 year mortgage still makes most of these homes too expensive. It does little for the ability of the underwater borrower to carry the property. And these HAMPS fall into default at a very high rate — 60-80%, depending upon circumstances.
Final point:
“In some cases, a portion of the principal balance is put into a second mortgage that does not have to be paid off until the borrower sells the home or refinances.”
That was my 30-20-10 proposal some time ago. That is a good fall back proposal — move 30% of my mortgage into a 10 year, interest free 2nd mortgage.
A straight up principle reduction is the way to go, with a balloon mod an alternative option.
>
Previously:
Fixing Housing & Finance: 30/20/10 Proposal (September 22nd, 2008)
http://www.ritholtz.com/blog/2008/09/fixing-housing-finance-302010-proposal/
Strategic Defaults in Florida (October 28th, 2009)
http://www.ritholtz.com/blog/2009/10/strategic-defaults-in-florida/
Coming Soon: 5 Million More Foreclosures (February 16th, 2010)
http://www.ritholtz.com/blog/2010/02/coming-soon-more-foreclosures/
Source:
FDIC to test principal reduction for underwater borrowers
Renae Merle
Washington Post, February 26, 2010; A20
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/25/AR2010022505817.html
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February 26th, 2010 at 10:01 am
Attached is a very entertaining story of a family that was going to be foreclosed on, and how in spite of the fact that it was in no way in the bank’s best interest to foreclose on them, it was insanely difficult for their young lawyer to prevent it (and it would have been impossible for them to prevent it without a lawyer).
Warning: Profanity. Not Safe For Work. NSFW. http://www.mcsweeneys.net/links/panoramaexcerpts/Ali.html
I really, really doubt that the same banks that were stupid enough to make these loans in the first place are going to be smart enough to see their own self-interest in reducing the principal on them.
I agree that in theory, a borrower with balls should be able to make this happen: issue a credible threat, and the bank should react to cut its losses and protect its interests. But the problem is you’re dealing with entities that have already proven themselves extremely irrational. They allowed a total collapse of lending standards! They made loans to people they knew couldn’t pay them back!
This is like a cop pulling a gun on an insane person. Yes, the rational thing they should do is put their hands up. But crazy people are operating in a totally different reality. They are following rules that are very clear to them, but which are totally disconnected from the reality of the situation they’re actually in. And as a corporate entity, so are banks.
February 26th, 2010 at 10:04 am
Too bad residential mortgages are not like CRE financing. People should not be held hostage to the ‘moral obligation’ propaganda to pay at any cost. Also should let losses from the sale or RS be written off, Cap and eventually eliminate the interest expense write-off and do away with the over 55 exemption privilege.
February 26th, 2010 at 10:05 am
let’s be honest, it’s another save the banks ass program,
flour big boys in construction, going forward, ie, upcoming bids, not so good, construction can layoff in a heartbeat, and it goes downhill quickly to sub-contractors, who then become competitors and drive the prices down in what little work there is
there’s sayin in construction, u got a pick-up truck and a shovel and ur in bizz
February 26th, 2010 at 10:07 am
First, to “constant normal”: It’s a pun. “Home-owers” You know like in OWE the bank.
Now the serious stuff. The bankstas have FASB to allow them to continue the charade.
Time for some reality: Mark-to Market. Negotiate or go home ( $200 billion writedown). Too big NOT to fail( A trillion dollars of worthless paper) Lose your jet and the house in the Hamptons. Priceless!
February 26th, 2010 at 10:07 am
As the powerpoint man, says, spell cheek your stuff. Redlined hed, ooops.
~~~
BR: Its a PUN — Home OWERS they are not home owners, they have negative equity, and they own nothing.
Get it?
(See, I told ya guys I was nuanced!)
February 26th, 2010 at 10:08 am
What about inverting the amortization table for a year or two?
February 26th, 2010 at 10:13 am
This is all such a TERRIBLE idea.
1. Americans need to LEARN to be frugal and make smart financial decisions. We can’t just bail out 20 million people and peg home prices at such and such a level. All those that screwed up will have learned nothing and run out and get into debt once again (which is what Ben wants).
2. It’s ridiculously unfair to those that did NOT chase the bubble. RIDICULOUSLY SO.
3. You encourage a society of ‘everyone for themselves’. Take what you can from .gov. Instead of there being amazing concepts like ‘justice’, ‘fairness’ and ‘equality’ – we have – “YOU 50 million people must give money to THOSE 50 million people.”
Nice.
I’ve so far stopped most of my disposable spending. I will eradicate what’s left as I’m a saver and have been saving for a house for 2 years now. Let things collapse the way they should and I’ll be there with cash in hand.
Prop them up and I not only will NOT buy for a LONG time – but when I do it will be without borrowing a penny from any bank.
I’ve also educated my friends as to how badly they’re all getting shafted by this (the non home-owning friends). They’re getting pissed as well.
KNOCK OFF THE BS GAMES ALREADY
February 26th, 2010 at 10:14 am
This is when banks climb on Hank Paulson’s “moral hazard” high horse.
The banks would demand a contingency that if the house recovered value they would get it (which is actually fair) so they’d be able to carry these written down morts at full original value
Recovery of the write down amount would be fair but the homeoweers would be reluctant to maintain or improve these homes if the valuation goes to the banks.
Don’t most people move every 7 years on average , probably faster in the sand states.
February 26th, 2010 at 10:17 am
Primary residences only?
What about second mortgages, HELOCs? Those lenders would get wiped out in this scenario, they would queer these deals. Sell Wells Fargo if this happens!
February 26th, 2010 at 10:18 am
The banks don’t have much time to mull this with a big wave of option ARM resets coming, lots of 2004-2008 vintage homes into the vortex
http://www.doctorhousingbubble.com/option-arms-and-recast-shock-syndrome-toxic-financial-products-are-imploding-on-schedule-examining-the-impact-on-california/
February 26th, 2010 at 10:21 am
Mayor Quimby: Agree with #1, but that has little to do with the free market. Let the banks suffer for their bad decisions too. What we have now is the banks being propped up and a slow leak for the rest of us.
February 26th, 2010 at 10:25 am
“I suggest bypassing the FDIC and going straight to your lender.”
I think the issue here is that “the lender “is usually not an individual you can go to and appeal to based on their self interest. Instead you will go to an individual who works for that lender. That person may realize that whether you, as an individual borrower, default or get a principal reduction will not have much of an effect on their personal well-being. On the other hand, trying to arrange a principal reduction could result in a considerable level of effort, especially if such requests are not handled routinely. They might not even have any idea on how to begin processing a principal reduction, and are unlikely to fight for your principal reduction if they get pushback from a superior. It could be that the potential savings to the lender is more than that person gets paid in a year, but processing it still isn’t going to increase their pay or make the rest of the work go away for this individual. Better to just let it go to foreclosure. The problem ends up in another department where there are personnel to handle it, as well as a well-defined procedure for addressing foreclosures already in place.
Now a person of sufficient financial sophistication or with the right connections might know who to go to at the lender to avoid this institutional problem (though I doubt I would). But that probably does not describe most of the people facing foreclosure.
Now, if there is a Government program in place, there will probably be an institutional entity at the lender, or for small lenders a designated person, whose job it is to handle principle reductions in lieu of foreclosure. Their job will be to determine if principal reduction is in the lenders best interest and act on it if it is. It won’t be distraction from their real work.
That’s not to say pushing principal reduction is necessarily a good idea. It’s just saying that if it is a good idea, a formal program across the industry is not without value.
February 26th, 2010 at 10:31 am
Mayor Quimby — You are a FOOL. The government is constantly taking different peoples money to pay for some things they dont want, need, or care about. People with health problems or short life expectancy still pay social security. People who dont believe in war still pay for national defense. We all pay for corporate subsidies to rich farmers, oil drillers, polluters of all kinds. Its democracy… its about the collective good. (Not some “should” or “fair” or “lesson to learn”.)
February 26th, 2010 at 10:37 am
Capitalist thinking? You’ll probably get some negative shots now. “Barry says to walk away” I can see it already.
February 26th, 2010 at 10:40 am
Government assistance to encourage swift, broad principal reduction was ALWAYS the right solution. It works for everyone (bankers collect more, homeowners get normalcy and a roof, the community gets more stable housing prices because foreclosures are far lower).
The way I would do this, for the main “elibigle” house (bought in 2006, under 500K, 1 house per family):
1) Homeowner must bring all mortgage payments current
2) Then, for each EXTRA $1 in principal pay down by the BORROWER (up to 10% or 25k, whichever is greater)
3) Bank will MATCH that $1 with an additional $1 of principal reduction.
4) Government will MATCH both the banks $1 and the borrowers $1… with $1 of govt assistance.
So for every extra $1 small homeowners could pay off their mortage… principal would go down by $3.
Because it is just “matching”… this takes alot of paperwork, fraud, etc. It solves the problems of “can the homeowner afford the home?” “do they want to work to stay in it”? Because they have to pay extra… to get the matching benefit.
While obviously this will be easiest for the better-off homeowners. If the benefit was capped as I propose… the least well-off homeowners could try to take advantage of the $25k x 3 = $75k benefit. Those who had bought a $100k home… could pay nearly the entire mortage off with just $25k.
Banks would love this.
Sure it would truly COST $300B or so in tax payer dollars. So what! We’ve spent $1T in Iraq. Its <15% of a single year of the government budget… and the entire housing problem would be solved.
~~~
BR: Nice idea, only 10% is too little — 20% is where people begin walking away. So cap it at 8% per *(X3 =~25%) of outstanding mortgage.
February 26th, 2010 at 10:42 am
@Cognos
Agreed. Besides, who ever said life was fair? :)
PS–Michigan consumer sentiment was flat, proving that the Conference Board’s precipitous drop was just an outlier.
February 26th, 2010 at 10:44 am
Thats not a typo, it is a pun!
Negative equity means they own nothing — so we should not really call them home OWNERs;
However, they still OWE the mortgage debt —
Hence, they are home-OWERs!
(I guess that was too subtle or too clever by half)
February 26th, 2010 at 10:44 am
There is another good way to do government assistance… which is simply to provide an incentive for banks to lower the fixed long-term interest rate on a large group of mortgages from 2005-06-07.
Howabout… for ANY loan the bank will lower the fixed long-term interest rate by 1.5%… the government will match and pay a like 1.5%. So the 6% mortgage can become the 3% mortgage for troubled homeowners. (Yet… this is NOT expensive. 1.5% government match means the goverment pays 15B/yr for interest reduction on $1T in mortgages.)
February 26th, 2010 at 10:46 am
yeah-
and I demand a strawberry dipped ice cream cone-
where the fuck is it already?
also-
cognos says-
“its about the collective good”
sell that shit to the feeble minded cognos-
collective good? and I am sure you believe that- right?
talk about fools
February 26th, 2010 at 10:49 am
PS–I haven’t watched much CNBC in a while, but has Erin Burnette put on a lot of weight? Maybe Maria Bartiromo has been force feeding her hoho’s to try to undermine the competition! She’s a whale now!
February 26th, 2010 at 10:55 am
The welfare lines are getting longer and longer.
February 26th, 2010 at 10:59 am
Quimby hit it on the head! An inflated home was still a purchase. So was a new BMW. They both depreciated. Shouldn’t both be bailed out because of being underwater? Just because consumers are mimicking the actions of banks does not make this ethical.
BR – isn’t this going to prolong the housing market decline? Banks need to take the hits of foreclosure and people need to (re)purchase homes they can afford.
February 26th, 2010 at 11:06 am
I think it’s time to just give principal reductions for all. Heck, we all might as well just stop paying our mortgages. That’s gotta be next, right? Or a tripling of the housing buyer tax credit?
I bought in ’05 as well near the top of the market. Other than my mortgage, we have no debt. Where’s my reward for behaving responsibly? I want my free pony too.
Oh yeah, that’s right. We are now the “United States of Opposite”. We take the right thing and do the opposite over and over again, and expect people not to respond accordingly. It’s beyond ludicrous at this point.
February 26th, 2010 at 11:06 am
[...] Ritholtz over at The Big Pictures whittles the issue down to its essence: “It only requires basic math skills for all parties to [...]
February 26th, 2010 at 11:09 am
It’s not about “life being fair” or “not fair”. It’s about incenting the right behavior for the “collective good”. When do we stop incenting the wrong behavior and get back to incenting the right ones? If you incent the wrong behavior over and over again, we’ll continue to get that behavior and in spades and that culture only strengthens over time as these behaviors are passed down to our children. We see it everywhere in our culture now and it’s a road to ruin. Why is this so difficult to see?
February 26th, 2010 at 11:13 am
‘We are now the “United States of Opposite”’
otherwise known as the “Constanza Principle”
right manny?
lol
February 26th, 2010 at 11:15 am
That’s right, ahab. That’s what it is. It’s bizarre.
February 26th, 2010 at 11:20 am
not sure but how do you create an incentive for under water home owner (owers) to stay in their home? the economics and financial incentives show they need and should bail out (after all isn’t that why the commercial real estate owers are doing?) and if its ok for them why shouldn’t it be ok for an individual? why should they be different? while it might be better for every one for them to be able to stay (along with the business after all) , how do we encourage that? its hard to do if the economic and financial incentives encourage the opposite. and when they do bail out on the mortgage, home values will continue to crash, taking even more people with them, and fewer will interested in buying (after they can wait till it gets cheaper!)
February 26th, 2010 at 11:32 am
@Quimby: Spot On
@cognos: “It works for everyone (bankers collect more, homeowners get normalcy and a roof, the community gets more stable housing prices because foreclosures are far lower).” It does not work for everyone. It does not work for all the potential homebuyers that are shut out of the market because of ‘stable’ prices (ie artificially high prices). Everyone wants more affordable health care, more affordable energy, more affordable food, then why the hell not more affordable housing. Makes no sense.
February 26th, 2010 at 11:35 am
Barry,
I agree that what you are proposing is logical. But, as many pointed out on the comments, the banks won’t act logically.
I also think that once principal reductions are on the table then more folks will intentionally default to get the reduction. Let’s just get the short sales rolling. As you pointed out in your recent Tech Ticker appearance, healthy markets appear when the prices drop as they have in Cali and Phoenix.
I concur with MayorQuimby that this is ridiculously unfair to the 30% who rent in this country.
February 26th, 2010 at 11:43 am
I say again, if principal write-downs save money, i.e., make money, no government involvment is required. Just let the parties, like in CRE, re-negotiate.
But the FDIC is the 800lb gorilla that makes a complete mockery of the banking industry as a private market.
I’d be for the idea if the banks that take deposits, and thereby have Uncle Sam backing their stupid investments-like these houses and these home-owers (I got it first time, BR) were nationalized completely. Put the employees on a GS-scale and turn them into utilities, because essentially that’s what they are.
Then, for the investment banks, simply quit printing money. Lend from the Fed at Libor + about 250 basis points, and tell them to make money the old-fashioned way–by investing/lending on things other than just financial instruments.
But while we’re at it, we might as well bury the American dream that grit, hard work and a touch of inspiration are all that’s needed to make a way for yourself in the world. What will be needed in the future will be parasitism (for the elite) and slavery (for the masses). Indeed, I feel like such a fool for having paid off my house. I’m thinking I should lever up and quit paying until the bank takes a haircut, which will conveniently be paid for by my neighbors.
Comrades like Cognos and F411 truly scare me. Is every answer to every problem to collectivize and subsidize stupid behavior? If so, we will all become very stupid very fast. This, like the old Soviet Union, won’t end well.
February 26th, 2010 at 11:44 am
This is absurd if allowed major litigation should be filed against the homeowners and lending institutions collectively.
First off, it’s really not my business because I’m perfectly fine with the rationale that if it doesn’t affect me personally then why should I be involved in the financial dealings of others.
But what this does is it takes Contract law and turns it on it’s head.
If they don’t want to pay their agreements. That’s fine. You note on their credit the default. And you allow them to either default or file bankruptcy or whatever it is they want to do. And then you treat it like a charge off and let them seek other housing.
Simple as that.
February 26th, 2010 at 11:47 am
So let me follow your rationale. PAST dollars paid by buyers or current renters which received capital appreciation are not EQUAL to present dollars paid by buyers funded by out of control lending and ponzi schemes.
Ok noted. Anything else you’d like to teach today’s GLOBAL finance class?
February 26th, 2010 at 11:58 am
[...] Walking away and mortgage principal reductions examined. (ROI, Big Picture) [...]
February 26th, 2010 at 11:58 am
Fine. You want to do this. NO Problem. Erase ALL student loan debt in the country. And refund to anybody who paid their loans the full principal.
February 26th, 2010 at 12:01 pm
@Curm: “Become” stupid? I think we’re already there……
February 26th, 2010 at 12:08 pm
Curmudgeon — completely agree — “let the parties negotiate”. Renegotiations and modifications are constantly happening in Comm Mortgages. Which is why there are VERY FEW commercial foreclosures and almost zero senior loan losses. Its why commercial mortgages are in-comparison, a non-issue — they renegotiate.
The problem IS… you cannot have 3 lawyers and a judge involved to renegotiate a $200k mortgage. Its just too expensive ($50-100k in costs). You need a single broad solution for the 5-10M in “troubled mortgages”.
This is the WHOLE point of govt. To occassionally (every 20-50 years ok with you?) step in and provide some broad solutions that make a crisis situation better for 95% of the people. (even citizens with zero mortgage are hurt by the yo-yo in home prices).
It TRULY SCARES ME… that silly arch-capitalist “should” types dont realize that the focus is on solutions and a better life. Not “fairness” or “shoulds”. They seem to think the govt is the source of all problems despite ALL the evidence to the contrary. The seem to ignore it was the “deregulation” and “market with solve this” mindset that drove the very problems in the first place. (Just like they hate govt spending… except on their own pork).
February 26th, 2010 at 12:09 pm
I like the idea of a principal writedown, and the idea of a matching program is even better. It’s like a reverse 401k plan, or like a regular 401k plan in 2008. whatever you put in, brings down the balance.
But I do see the other side of the equation. Some of us didn’t buy more house than we could afford, signing our docs in late 2003 and taking possession the first few days of 2004. So, even though I don’t “think” I’m underwater, I have probably lost some equity, or in the least, not gained any appreciation. Appreciation, oh by the way, is never guaranteed. Depreciation of physical assets such as buildings and personal property is a fact of life and cannot be denied. The rule that land never goes down in value isn’t written anywhere.
It is and was all speculation, based on what we thought to be the rules. But it got perverted by greed and Wal mart (i blame them, even when they didn’t have a role :) ). In speculation, there are winners and losers. Most everyone who bought or re-fied a home during that period from 2000-2008 speculated, just like everyone who bought stocks during the period 1998-early 2000. Most of us got burnt then, and we are getting burned now.
The flip side is that the banks who took the risks should also be made to suffer, and they have been propped up by Uncle Stupid. This is the unfairness. Too big to fail? What if every homeowner who was 10% or more underwater just walked away? Talk about too big to fail…The government would have to prop them up because all those mortgage payments not made would KILL the lenders and those who have assumed the responsibility of collecting them. No cash, no payroll, no business.
But, getting the American public to be cohesive about anything requires someone in a turban threatening to bomb us, or a song by Toby Keith…..sigh……..
February 26th, 2010 at 12:12 pm
@cognos: Not sure who you’re referring to here, but I’m certainly not in the “silly arch-capitalist” box that you describe. In fact, I do favor gov’t involvement and smart regulations that are actually enforced when done by people and a system that’s not corrupt. We’re well past that point now though. The gov’t is a wholly-owned subsidiary of Wall Street and big corporations now and the people aren’t benefiting. It seems that you have a nasty habit of creating neat little straw men that you can then knock down. Nice debating strategy.
February 26th, 2010 at 12:13 pm
@ash: I’m probably in the same camp that you are and I agree with you 100%.
February 26th, 2010 at 12:18 pm
Mannwich –
Agree with some of your points. Notice that my basic “principal reduction” plan outline would help YOU. It actually helps people who are better off, and made better choices a little more. The “help” is more contingent on when you bought (def of “troubled mortgage” and underwater house) and not at all linked to low income or being overly indebt. (that said, it doesnt help people with zero mortgage, or those who chose not to buy).
I agree with your point on “incenting the right behavior”. Why is mortgage interest deductible? Why are children deductible? Why is health care deductible? Why is the gasoline tax so low? Why is college expensive? Why do we charge 12.4% total FICA tax on all income dollars up to $100k, even some 16 y.o. kid working at McDonalds? Why charge any tax on the first $24k of regular income?
The list of policies that incent the wrong things is LONG.
February 26th, 2010 at 12:21 pm
NOW… is too late. This issue is (for the most part) over. And so no significant principal reductions will happen and it doesnt matter because they are unnecessary. Economy is recovering. Housing is recovering. In 1-yr this will be a non-issue… banks will be through the credit losses, etc.
HOWEVER… its a shame. The volatility is great for speculators (like me) but its bad for citizens. It has huge frictional costs. And make arbitrary winners and loser based on simple things like the timing of when one decides to upgrade ones home. And then incents tough choices… like not paying the mortgage for 20 months and then walking away. (Thats what the current situation incents).
February 26th, 2010 at 12:27 pm
@cognos:
‘The problem IS… you cannot have 3 lawyers and a judge involved to renegotiate a $200k mortgage. Its just too expensive ($50-100k in costs). You need a single broad solution for the 5-10M in “troubled mortgages”. ”
You are reasoning from a flawed premise. It didn’t take three lawyers and a judge to negotiate the mortgage in the first place. Information technology now allows/ed Norwegian pension funds to invest in residential real estate in the Inland Empire of CA w/out three lawyers and a judge getting involved. How difficult could unwinding the deal be? As I said before, if there truly is money to be made in doing so, the transactions costs would not be an impediment.
And yes, you described us “silly arch-capitalist” types perfectly–we wish for everyone to be confronted with insoluble problems and no hope for a better life. (that was sarcasm, in case you didn’t get it)
I just happen to believe that it is naivete in the extreme to think that we can solve individual problems better collectively than we can as individuals. It’s been proved over and over again through history that the best economic decisions are made at the lowest level, i.e., the individual level, rather than through some bureaucracy. That’s the essence of the American ideal–that each man (not each group) is endowed with certain inalienable rights. Centralized and coerced decision-making that comes with government market tinkerings necessarily impair those rights. So, I don’t believe every problem requires a government answer. Yet, practically all of the problems of the residential mortgage market were the direct result of feckless government policies–especially of its monetary machinations. So there is a government solution here–quit doing stupid shit and let the market work things out. But then you collectivists don’t get that running to the government to fix the problems it created itself is utter insanity. Yes, Bernanke, who helped cause this problem, is now your “Man of the Year” for having appeared to have fixed it.
February 26th, 2010 at 12:31 pm
What so many people are implying is that all the “fools” who bought these over-valued homes with money they didn’t really have should be “made to pay”
I see a couple problems with that – I would hazard a guess that most of the “fools” have long since lost their homes, we’ve fallen so far and so fast that honest, fiscally responsible people are now losing their shirts as well. I also love this attitude of “I want things to crash so I can jump in with cash and buy me a house!”. I personally don’t see much difference between that kind of attitude and the average home flipper.
Ahab – “its about the collective good”
You’re older than I am, you should remember that this country has always been about the collective good. Wouldn’t you agree that the “Me first” mentality that has been so prevalent in this country since the 70′s is a big part of the reason we’re in this mess in the first place? I don’t think Cognos was trying to be a socialist or anything – at least that wasn’t my interpretation of what he said.
February 26th, 2010 at 12:31 pm
I hear you, cognos, and don’t disagree with everything you said here. There’s no perfect way to fix this mess. There are only “less bad” choices that will always piss off some group, but everything seems to be so complicated today, so it creates an atmosphere where the only winners are the ones who find how to game the system. Everything is a racket now, and that does not inspire trust & confidence in one another, two requirements for a successful capitalist system.
At some point we as a nation have to maybe take some degree of collective, shared (don’t laugh) pain and focus on incenting the right behaviors again, or the “collective” won’t endure. It will ultimately break down.
February 26th, 2010 at 12:33 pm
@Quimby and @Donald
Your arguments are fairly twisted and specious. A home and a car are two different animals. We *expect* cars to deprecate as they are consumable items that have a limited lifetime. We expect them to break down, and we expect to replace them. Homes do not fall into this category. While people should not expect an automatic return on property values, they should not also be considered “replaceable” items, prone to dramatic depreciation.
You also bring up the “moral hazard” argument in a very one-sided fashion. There are many, many people who played very much by the rules. Tried to make sound decisions in regards to financing their home, yet often they are in deep trouble for actions not of their own making. Rather it was the actions of many lenders that created the situation that formed the bubble, then popped it. At what point do the lenders reap what they have sowed? Your arguments assume that all homeowners caught up in this bubble are responsible for for creating the issue, that is simply not the case. The argument that responsible homeowners should have to be “morally responsible” for the actions of all, and have situations such as marriage, divorce, job changes, and sometimes needing to move to a safer neighbourhood affected for years to come, is an morally indefensible argument.
February 26th, 2010 at 12:36 pm
Take the fucking safety net away – then we’ll see how brilliant Jamie Dimon and Blankfein are on the high wire.
LET IT FALL. ALL OF IT. This is all WRONG.
Capitalism created a housing crisis when home prices were allowed to get beyond people’s ability to pay. What we are seeing now is NOT A CRISIS. It is the inevitable result of bad decision making at many levels.
LET IT FALL.
February 26th, 2010 at 12:38 pm
Also – if we’re going to be hard asses – if you’ve been saving for X amount of years and you still can’t afford to buy a house, I’d hazard a guess you probably shouldn’t own a home. Being upset because home prices haven’t fallen far enough so that you can afford to buy seems a little myopic to me.
February 26th, 2010 at 12:38 pm
Once the decision is made, (When,by whom,for what reason,who knows?)that we would have a society and an economy based on debt peonage,the one thing that becomes unthinkable is debt write-off or debt forgiveness even as a concept.Such a thing would screw up the whole plan.
February 26th, 2010 at 12:39 pm
What percentage of homes under a mortgage are in trouble and how many of those were purchased in the last 5 years?
I’ve read 10%. OF that 10% how many are in trouble because of unforeseen setbacks such as illnesses, unemployment, and disasters such as flooding, fire, or earthquakes?
And of the remaining % how many are due to no doc loans to the destitute?
In reality then, there are very few homes in this country in trouble so how did so few become such an albatross around the entire world’s neck?
There seems to be a lot of this unfolding story that is not being told.
February 26th, 2010 at 12:40 pm
@ Casual Onlooker. You need to go see a lawyer. Contracts are Contracts.
I have no problem with allowing the renegotiation of a Financial agreement such as this one to give people some solace and stability going forward.
NONE AT ALL. But in exchange you’re also going to eliminate another made up contract that actually bestows some benefit upon me. Because after all, this is captialism.
You give, you get. Seems simple enough.
February 26th, 2010 at 12:42 pm
Come to think of it. I’m actually rooting for this scenario more than just about anybody else in this room.
I’m all for it. And I don’t even have a Mortgage.
February 26th, 2010 at 12:43 pm
@budhakon: But contracts are broken all the time by the elites (usually against the powerless). Is it only OK for them to do it?
February 26th, 2010 at 12:45 pm
And the FDIC is involved, why, exactly?
I guess I mistakenly thought it was a quasi-governmental insurance agency that exists in order to guarantee bank depositors. Is there something in its charter about mortgage mods?
February 26th, 2010 at 12:46 pm
No mannwich I want you to do it. I’m on YOUR side. That’s perfect .
See the next couple years are going to be all about Unintended consequences and I’m finally getting onboard with the New Up and New Down.
That would help me and the very simple thing I’m trying to accomplish more than anything you could ever dream up.
I’m withdrawing my initial knee jerk disapproval and submitting a full 100% mark of approval.
February 26th, 2010 at 12:49 pm
@budhakon: OK, but I’m curious as to your rationale re: why this would help you? Just curious.
By the way, I’m not necessarily in favor of this or any of the bailouts that started back when the TARP fiasco began. I knew it would devolve into the racket free-for-all that we’re seeing now, only it’s been much worse than I thought.
February 26th, 2010 at 12:50 pm
Propping things up is complicated, expensive and creates a whole array of unintended consequences.
It is much simpler to allow the market to function as it was intended to. After all, if the “free market” is a wonderful thing on the way up, why not on the way down? Let the banks fail, we already have people buying up smaller sound banks and these institutions will become the new clean banks.
Withdraw all business from the big banks. Close your accounts and move them to a small local bank that is sound. Cut up your credit cards and don’t use their ATMs. Then we’ll see how clever the Masters of the Universe are. Use the internet to get the message out and change can be achieved peacefully. The velvet revolution.
February 26th, 2010 at 12:52 pm
The dinosaurs haven’t noticed but the climate is changing.
February 26th, 2010 at 12:53 pm
@Caual-
“Your arguments assume that all homeowners caught up in this bubble are responsible for for creating the issue, that is simply not the case.”
Are you kidding me? No one put a gun to their heads.
I’d like to ask you a question – have YOU directly handed money to anyone that is behind on their payments? Why not? But you’re 100% okay with FORCING me to eh?
@Cognos-
You’re the fool. You can’t steal from ME – the guy who saved and was frugal and did everything the right way – and then hand it to J6P with his McMansion and Hummer because if you do I:
1. Get enraged and blow and go Joe Stack or
2. Fight back by cutting back on all my spending (which is what I’m doing)
3. Learn to scam the system like the other sheeple – so I will fake my income, buy a house I can’t afford and wait 3 years for them to foreclose. Why not?
The point is – if it’s everyone for themselves – please let me know because I’m NOT going to get jacked over on account of another person’s mistakes. Fuck that shit.
“It’s all about the collective good”
Bullshit. If it was – we wouldn’t be in debt, we wouldn’t start wars with innocent nations and we wouldn’t have to slave away the best 30 years of our lives to make the banker, builder, cabinet-maker, realtor, loan officer, carpet salesman, appliance manufacturer, union property tax recipients richer and richer and richer forever and ever AMEN.
American dream = be a pawn, a battery for the ENTIRE OLIGARCHY of rich and wealthy sob’s out there leeching off all of our labor.
And the minute we all catch a break and get a slightly decent price on something – the scumbags at the top step in “OH NO YOU DON’T! We can’t have THAT now can we?! What will these slaves slave for if they have a paid off house and retirement!”
GTFO out of here with this collective bullshit. If it was about everyone’s prosperity – we’d all make the same salary. This is stealing from the poor to feed the rich and IT IS THE MOST INSANELY F*CKED UP THING I HAVE EVER SEEN IN MY LIFETIME.
February 26th, 2010 at 12:54 pm
Because I’m one of these people who literally thinks that Student Loan Debt and the attempt of my former Law School to attempt to attach this as a valid debt to my social security number is just about the most unamerican thing we’ve dreamed up in the past 100 years.
And by eliminating all reasonable financial basis for the underlying financial institutions to attempt to enforce any semblance of Contract law, you allow my point after over a decade and a half to be proven correct.
Contracts require consideration. Valuable consideration. Contracts that are executed without such consideration are invalid.
Therefore when we attempt to attach financial notes to our young people or students we commit an invalid act.
February 26th, 2010 at 12:56 pm
Anyone that agrees with quimby doesn’t understand what he said or this does. He doesn’t understand that reducing the principal on homes through loan mods will bring home prices down to where they should be. We still have homes that are overvalued. I think the program should be tied to income requirements. Forcing some people to modify then sell. Reducing the price of the home then selling to someone who can afford the home. Some foreclosures should also be allowed to happen as this also moves the process along out of the bubble that was created. Then there needs to be well established regulations to insure that the cycle isn’t repeated as home prices come down finally.
February 26th, 2010 at 1:02 pm
The FDIC is toast, folks:
http://www.mybudget360.com/the-ultimate-ponzi-scheme-fdic-is-backing-5-3-trillion-through-the-deposit-insurance-fund-that-now-has-a-balance-of-20-8-billion-fdic-has-cash-and-marketable-securities-of-66-billion-is-that/
and, by the way, AIG is gonna be wantin’ more $:
http://www.businessinsider.com/aig-loses-an-insane-amount-of-money-stock-lower-may-need-yet-even-more-government-support-to-stay-afloat-2010-2
shall we just keep printing til the dollar is worthless?
February 26th, 2010 at 1:05 pm
Well put, Quimby. This whole fiasco is a cultural problem. It ain’t going away any time soon, especially if we incent exactly this kind of behavior. The end game will be ugly.
February 26th, 2010 at 1:06 pm
Mayor – First – what’s up with all the sweeping generalizations?
“I’d like to ask you a question – have YOU directly handed money to anyone that is behind on their payments? Why not? But you’re 100% okay with FORCING me to eh?” Enough with this “collective good” paranoia. No one’s talking about collectivization or a socialist form of government. It’s the “me first” attitude that got us into this mess in the first place. More tea bagger BS.
I’m not saying I agree with the write-downs, but seriously? This is your argument? My taxes pay for the education of your children. Can I opt of out paying those taxes because I don’t have kids?
I’m with Manny, I bought my house in 2005 – I put almost 70% down on it, I did everything right. I didn’t buy a house bigger than I needed, and I didn’t buy a house that was more than I could afford. Now most of it’s gone. I’m not asking for a handout or anything, but to make a blanket assumption that implies that somehow everyone who bought a house in the last year should learn to live within their means so you can eventually afford to buy a house is pretty transparent imo.
February 26th, 2010 at 1:08 pm
my posts keep getting eaten :-(
February 26th, 2010 at 1:09 pm
There really is only one solution to this mess:
Legalized kidney sales!
yup, you’re welcome ;)
You need a single broad solution for the 5-10M in “troubled mortgages”. ”
What would a single broad know about dealing with troubled mortgages?
February 26th, 2010 at 1:10 pm
LB @ 12:50 says it exactly right-
market is great on the way up- even at breakneck speed- but on the way down- then- something is wrong- banks need to be protected-
for chumps like cognos that makes perfect sense-
when- in a nutshell- housing dilemma is solved as follows-
homeowner gives up deed- moves out- rents a place-
bank takes over property- resells- takes loss-
there- problem solved
added bonus- homes decrease in price- becoming more affordable for everyone
also-
I agree w/ MayorQ on everything he said about cognos-
cognos is truly a buffoon under the impression that he has all the wise answers-
even if he is only agreeing w/ himself
February 26th, 2010 at 1:10 pm
It’s probably the single broad Thor
February 26th, 2010 at 1:13 pm
Lastly, lookin’ back and then down the road . . .
http://www.financialarmageddon.com/
i gotta go shovel some, enjoy your weekend everyone.
February 26th, 2010 at 1:13 pm
Anybody renegotiating a mortgage better be very careful about the bank slipping in terms that allow them greater recourse to the homeowers other assets, this is not a DIY project!
February 26th, 2010 at 1:16 pm
A ‘cultural’ problem?
Don’t you even realize what you’ve done? Why is it that I , a father of two, who lives in what many of you would probably consider a less than affluent area who owns All of his property outright can see what people who you pay hundreds of thousands of dollars a year can not.
What you have really done? You have been the greatest asset to me a man could ever know.
Everything I’ve ever tried to teach you about yourselves has always been accurate despite your many attempts at denial.
I take no personal joy in such a thing. Well that’s a lie.
But what I’m saying is I’m perfectly willing in today’s society to roll with the punches, some people who haven’t been popped a few times better get used to it and REAL QUICKLY.
There’s nothing populist in my thinking. What happened was an Oligarchy was created and for years and years we allow it to perpetuate, resounding , continuing to propogate the sine wave.
And the brightest amongst you tried to show you where it all would lead, but nobody listened.
And you tried to impose false restraints upon an animal that can not be contained.
And now it’s back to bite you right where you need to be bitten. Right in the ass.
And there are people applauding daily and EVERY SINGLE thing that has gone down in the past 2 years because it couldn’t have happened to a nicer bunch of people.
February 26th, 2010 at 1:18 pm
Let’s try this again -
“You’re the fool. You can’t steal from ME – the guy who saved and was frugal and did everything the right way – and then hand it to J6P with his McMansion and Hummer because if you do I:
1. Get enraged and blow and go Joe Stack or
2. Fight back by cutting back on all my spending (which is what I’m doing)
You make these huge sweeping generalizations about pretty much everyone who bought a house over the last 10 years and then tell us that unless YOU get what YOU want you’re inclined to do X Y and Z. See the disconnect there? No, I’ll bet you don’t ;-) Let me guess, your case is totally different? If we’re talking about personal responsibility, why not acknowledge the elephant in the room – you can’t afford to own your own home, rather than blame society, or the government, or lazy, greedy Joe Six Pack, be a man and just own up to that fact
Look buddy – my taxes pay for the education – I don’t have any kids – should I be pissed because I’m paying for something that doesn’t benefit me directly? Because it steals money from me and gives it to other people’s kids?
February 26th, 2010 at 1:23 pm
“Therefore when we attempt to attach financial notes to our young people or students we commit an invalid act.”
I suppose, then, that neither should we lend them money. Did you borrow the student loan money? Did you receive that “consideration” for the contract? Did you read the contract? Did you know like any first-year law student should, that student loans are not dischargeable in bankruptcy?
A contract entered with a minor (age 19 and under in my state) is voidable, BUT, the consideration (money) received by the minor must be equitably returned in order to cancel the contract. Seems fair to me. What’s your beef?
February 26th, 2010 at 1:24 pm
“Look buddy – my taxes pay for the education – I don’t have any kids – should I be pissed because I’m paying for something that doesn’t benefit me directly? Because it steals money from me and gives it to other people’s kids?”
ABSOLUTELY.
Look – a child touches fire and gets burned. The child will not touch fire again.
This is a human truth.
If you put up with crap and let the next guy take money from you, well – he will keep doing it over and over and over again.
When you buy a house you can’t afford, you made a mistake. Roll with it. You lose the house but learned a valuable lesson. You’ll probably be much better with your finances going forward.
But to expect YOUR FELLOW MAN, NEIGHBOR, all your friends, cousins and ALL OF THEIR CHILDREN to step in and fix YOUR MISTAKE is not only unAmerican – it is FUBAR. It is the start of anarchy.
If the gvmt is seen as a gigantic robber baron that is legally allowed to steal from the poor to feed the rich we have a VERY serious problem folks. VERY SERIOUS.
“that unless YOU get what YOU want you’re inclined to do X Y and Z”
ALL I want is to NOT bail out those who overpaid for a house. ALL I want is .gov to treat my taxation and labor with respect and not reward the imprudent, criminal bankers or anyone else for that matter. I work my ass off for what little I have. Don’t piss on me for doing so.
February 26th, 2010 at 1:25 pm
If enough small animals get together they can bring down a large dinosaur fairly easily by immobilizing it.
STARVE the beasts, simply withdraw your business, take away your cash and don’t use their credit.
What have they ever done for you? Nothing. Now we owe the the same in return.
February 26th, 2010 at 1:26 pm
Curmudgeon –
I dont disagree with some of the things you said. You’re wrong on the “if theres money to be made, costs are not an impediment” … the lending/securitization contracts signed has 1 resolution mechanism, foreclosure. Its very costly to 1-off amend contracts.
Your overview of “individualism”… I agree in principle. Then the Great Depression happened. It happened because people thought exactly like you do today… “individuals will solve this”. They couldnt. The downward sprial fed on itself. Keynes wrote a book. We now understand macroeconomics and the individuals reaction function much better.
The American state is a “collective” effort. Rule of law. Public education. Public stock markets. The “bill of rights”. These are collective efforts. The founding fathers were about using the power of “community” to create a better life. There is a place (a happy place?) for collective problem solving.
There is nothing “communist” in democracy, rules, laws, taxation, and basic community efforts.
February 26th, 2010 at 1:28 pm
ONCE AGAIN people – NOTHING is stopping ANY proponent of this from paying extra on April 15th RIGHT NOW.
I ask EACH OF YOU -
Where are your voluntary contributions? How much EXTRA are you going to give to ‘the cause’ this year?
If not – then be silent because what you REALLY want is .gov to steal from ME to benefit you.
All the proponents here are probably homeowners wishing for the value of their homes to rise.
It is one giant fight for money.
Well – keep stealing and eventually the victims get pissed and fight back.
There is no way for any gvmt entity to set the price on anything. EVENTUALLY prices will correct whether you funsters want them too or not.
February 26th, 2010 at 1:28 pm
MayorQ -
I agree with the point your making, just wanted you to clarify it for me because it sounded like you would like the government to do something, in this case let things fall where they will (which I happen to strongly agree with BTW) so that you personally can reach a goal. . .
I’m not sure where this whole anti “community’ current in our culture comes from. I agree with Curmudgeon that we should all be personally responsible for our own lives – however, there are some things I think we should be calling for, as good citizens for the benefit of all of us – education for existence. . .
February 26th, 2010 at 1:28 pm
MayorQuimby –
Dont you realize “the rich” pay most of the taxes?
You might need to relax. Imagine the pacifist lawyer who pays enormous taxes and watches $700B annually get spent on US armed forces. They dont want that. But we live in a “society”… you dont get to “go Joe Stack” because you’re infuriated by some small thing.
The US govt spends$2-3T every year. None of this “principal reduction” stuff is particularly expensive.
February 26th, 2010 at 1:29 pm
No Mr Curmudgeon I did NOT BORROW The money.
And if you like I’ll stand in a Federal Court house with my hand on the bible and state that in front of any member of the Federal Bench.
(As if it matters) LOL
Oh and by the way I HAVE NO MORTGAGE , OR CAR LOANS, OR CONSUMER DEBT.
hahahahahaha. Nice FICO system you got there.
How’s that all working out for you? Your bank executives are pumping and dumping themselves millions in bonuses without running a FICO trying to doink the guy on the street for a higher rate because he’s a 680 and maybe had some problem with his landscaping business.
Meanwhile the car dealer’s just like what the F is going ON Out here? I invested blah blah blah of my daddy’s money.
And the Lawyer is like THESE clients, they hate me.
And the Doctor is like “I’m not treating any of these people, they’re insane”.
And the nurse is reading about malpractice, and the bus driver wants to know why he didn’t get his court mandated settlement.
And the CELL phone customer wants to file a class action lawsuit.
Yeah pretty cut and dry old man.
You’re all WORTHLESS AND WEAK and only the strong survive.
Good ole Capitalism.
February 26th, 2010 at 1:32 pm
@Thor: I hear what you’re saying, but I think the major distinction in your comparison is that your taxes pay for the schooling of kids is not somehow rewarding a whole group of people for their irresponsible behavior and bad choices. Look, I bought in ’05, but I’m not asking for anyone to bail me out. I was quite certain we were in a bubble (I was only wrong about just how big and bad the consequences would be), and even told my realtor so when buying the house, but my wife and I were new to the area, were tired of renting our whole lives and wanted to settle down for the long term, so we stepped up and bought the house. Luckily our area hasn’t fallen anywhere near as much as some areas. That was OUR decision to buy when we did and we intend to make our payments for as long as we can, but if the feds just bail everyone out of the bad choices, then why wouldn’t we (and everyone else) just step into the fray by looking for own handout? Don’t you see this cycle will never stop unless we all stop it at some point by incenting positive behaviors?
February 26th, 2010 at 1:36 pm
Mannwich. It’s simple business. You DO it and you don’t listen to what anybody else tells you.
You have to do what’s best for you. This is what America is all about.
Don’t let people try to impose some false sense of morality upon you that they don’t follow themselves.
Nobody’s saying to ignore the rule of law and defy police officers. You’re only talking about a civil matter. If you can get it done and it keeps more money in your family’s pocket, YOU DO IT.
It’s cut and dry.
February 26th, 2010 at 1:38 pm
Leftback — Or check out “Virgin Money”… this is a much better model.
The biggest losing trade is “money in the mattress” or “gold”. You have either invest or lend your money in order to earn a return (or “interest”).
February 26th, 2010 at 1:40 pm
Manny, could have been a lot worse – think about the people who plunked down a $1M on the Upper East Side. 50% haircuts coming for those residences before all is said and done …. once the squeegee kids are out on the streets again at every traffic light, Muffy and Chip are outta here in search of “better school districts..”
February 26th, 2010 at 1:40 pm
Manny – agree with you here – as I said in one of my eaten comments – I bought my house in 2005 as well, I but quite a bit down on it from a house I bought and held the previous 5 years. I wasn’t trying to make a bunch of money, I had rented for a year and really preferred to own – I wanted a place that was mine (excluding the mortgage).
I also knew we were in a bubble – you’d think I was a complete idiot for paying what I did for my little 1 bedroom in Hollywood – I knew the bubble would pop, I just had NO idea it was going to pop as badly as it did. Today, I’m not underwater in my mortgage, but I’m pretty darned close. I have no intention of ever walking away.
You’re right on education – I have problems with where most of my taxes end up (wars, so much defense spending, bailouts, highly inflated public employee salaries) but I do understand that SOME of my taxes are paid for what I consider good things – like education, roads, trains, etc.
February 26th, 2010 at 1:42 pm
“You have either invest or lend your money in order to earn a return (or “interest”).”
Idiot. You should sit down and have a chat with the Watanabes about their 1990s inwestments.
February 26th, 2010 at 1:44 pm
Definitely, lb. Our home is pretty modest and rentable if we have to make a dash for the Minny exits. The folks here who bought million dollar homes over the past few years are in deep do-do. Virtually none of those homes are moving off the market right now.
February 26th, 2010 at 1:46 pm
Great idea, BR, except it won’t work in practice. The problem is the asymmetry between Lender and Borrower. Any individual’s house is insignificant to the overall lender portfolio. On top of that the lender has “Processes” and “Procedures” designed to thwart exactly this kind of deal.
Consider the following — your company has a $40M loan on a commercial building that used to be worth $60M and is now worth $30M and falling. You call the bank and you can probably get the one of the top 3 execs to take your call (assuming your lender is not BofA, Citi, JPM, and if it is, probably a very significant regional exec). This would be a meaningful hit, probably jeopardizes other business with the company, and they have an incentive to move.
Now assume you’re an average home-ower, with a $250k mortgage on a house that used to be worth $300k, but is now worth $200k. Who are you going to get on the phone? And how long is it going to take before someone with any authority takes a look at this? Oh, and in the meantime, you took a pay cut at work, your wife had to go into the hospital for swine flu, and tuition at your kid’s college went up 20%.
Good luck.
If you’re a lawyer or a Wall Street type and your home lender does a lot of business with your company and you have enough clout, you can get to the decision maker. But if you’re an average guy?
February 26th, 2010 at 1:46 pm
leftback that’s EXACTLY what we’re doing.
We’re taking it down from the outside. No Food. No Monkey.
leftback’s a bright guy. It doesn’t matter. They’ll still survive. They’ll just be an even WIERDER incantation this time around.
We’ve done this before leftback. This isn’t the meek shall inherit the earth but it is entertaining to see how obvious it is to EVERYBODY who cares to look how completely hypocritical they have become.
Anarchy? We’ve had limited anarchy since the 80′s. This is different.
February 26th, 2010 at 1:49 pm
Gene. The problem then is with the LENDER and their funding.
For god’s sake, we’ve taken the lack of accountability to all new levels.
I ask you ONE simple question.
What about the homeowner who HAS no mortgage? And think about your reply before just quickly replying that this person is “rich” or something stupid like that.
February 26th, 2010 at 1:49 pm
“FDIC is proposing a test program of principle reduction ”
Principle reduction would involve some form of walking away such as jingle mail.
Serious principle reduction might even bring the homeowners down to the bankers’ level.
Principal reduction is something else.
Yup, that was nuanced :-)
February 26th, 2010 at 1:52 pm
At some point, enough people will likely wake up and just stop paying on all of the obligations, including taxes. What will happen then? Don’t think it’s not possible.
February 26th, 2010 at 1:58 pm
People have tried this as well mannwich. Like I said, ask a lawyer. There have been many MANY people who have tried that route.
This is why you have Sheriff sales for Tax Liens. It’s not really a smart way to go.
You lose everything and the county attorney gets to sell your house on behalf of the county to one of his lawyer friends at a huge discount who then hands it off to like a cousin who is either a bank loan officer or real estate agent.
But I speak beyond my place in society.
And you always have to remember, NONE OF THIS MATTERS AT ALL TO ME.
Like I said, if it keeps people safe and happy, then i’m all for it. I’ve got no complaints about my life.
February 26th, 2010 at 1:59 pm
The people who are underwater are underwater because they are stupid, stupid people. And you are wondering why they don’t make “rational” choices? Good god, these people *need* thru foreclose and/or go bankrupt. It is the best thing that could happen to them. And you want to deny them that life lesson?
The banks would go bankrupt if they do the loan mods. They are currently bankrupt, but FASB allows them to extend and pretend. Oh, and they are stupid as well, as they made these insane loans in the first place. Have you ever noticed that during home purchase and/or refi process that the collective IQ of the bank, title company, etc. is about equal that of a high school dropout?
Who is going to value the properties? The banks who f-ed up a couple years ago with that very same valuation? The current homeowners who are totally clueless about valuations? Oh, I know, maybe those wonderful appraisers who themselves very, very stupid people. Before I sold my house last may for 825K, an appraiser appraised it at 630K one month before I sold it. I asked my Realtor how show got the valuation for the transaction, her reply: “I basically had to do a lap dance for the appraiser.” Hoohaaa!
It’s tough love time, folks. But no one wants to accept that fact…yet.
February 26th, 2010 at 2:00 pm
Manny – I’d imagine taxes would be a hard one to avoid – the feds can just take it right out of your paycheck if they want to can’t they? That might be hard to avoid unless you work for yourself :-/
February 26th, 2010 at 2:03 pm
So on one hand qweekie is admitting to mortgage fraud.
And on the other hand, he’s telling us all to practice TOUGH love.
Be thankful that I am not sitting on the bench should you ever enter a courtroom they allow me to preside over.
February 26th, 2010 at 2:06 pm
@Budhakon & Thor: I’m not saying that I’M doing this, by any means, but if all social responsibility starts to break down and people do this in big numbers, what happens to the system and “collective”? They can’t kick everyone out of their homes and put everyone in jail if enough people stop paying their mortgage, taxes and other obligations. The resources aren’t there. What we are seeing is breakdown of personal responsiblity and accountability. It started with the powers-that-be, our so-called “elite”, who always set the example in society. The Sheeple are just following their lead.
February 26th, 2010 at 2:06 pm
You know some of the banter in this room makes me want to RUN right out and attach mortgage lien after lien to my property for 125 LTV and PUT IT ALL IN THE STOCK MARKET!
Not. lol
February 26th, 2010 at 2:07 pm
Good catch, budhakon. We must all look in the mirror first. It all starts there.
February 26th, 2010 at 2:08 pm
There’s no debtors prison. There are already provisions for such a thing Mannwich.
You pay your mortgage because you want to live in your house. If you don’t want to live there any longer, stop paying. Then the bank will keep everything you’ve put down and the sheriff will come to evict you.
We’ve been doing this stuff for a Long LONG time.
February 26th, 2010 at 2:09 pm
You’re still missing my point, budhakon. Let’s move on.
February 26th, 2010 at 2:18 pm
I’ve been saying since the SHTF in fall ’08: principal write-downs balance the equation between borrower and lender and acknowledge the total loss of speculative value in RRE when the bubble burst.
The bad bank/dumb borrower blame game is completely beside the point. After a 30% drop in RRE valuations the underlying assets simply cannot support the leverage piled on top of them. I can’t believe we’re even still debating this point.
On the one hand you have banks with de facto distressed mortgage assets that are allowed to mark-to-make believe the value of those assets in order to preserve the appearance of solvency. On the other hand you have underwater homeowners.
IMO, the national policy from the get-go should have been to force banks to offer principal write-downs in exchange for a combination of federal guarantees and more stringent recourse against homeowners opting in to the program. Forcing people out of homes on this scale (i.e., millions) to satisfy notions of moral righteousness isn’t creative destruction; it’s a fucking diaspora.
February 26th, 2010 at 2:20 pm
imho, this one goes a little deeper, if they end up with the banks, taxes won’t be paid for awhile, and what happens to states then, so, i guess it’s save banks and states, banks are rallying…….for now
February 26th, 2010 at 2:32 pm
Some of you guys are acting like “foreclosures” and “bank losses” are in the future.
This is not 2 years ago… this cycle has largely played itself out. This peak 1-yr ago. Banks are over-reserved against this stuff… and credit losses flat-lined the last 3 Qs… looks like its about to have peaked and be headed down fast. Classic recovery.
Its just sad the govt didnt step up and do a “shared principal reduction” incentive 18 months ago. Transor Z and I agree (for once!). Would been a far smoother ride… and far better than doing the bulk of the work through TARP, TALF, C4C, and other top-down corporate incentives.
But hey, its mainly over.
February 26th, 2010 at 2:35 pm
@Casual Onlooker,
Last time I checked, I have to pay to maintain a house AND a car. If both are financed, then I’m maintaining someone else’s asset. How are they different? In some cases, people are owning cars longer than homes. Homeowners didn’t sign mortgage papers that stated “Pay X amount of dollars per month only if your home appreciates in value.” It states only “Pay X amount per month”! If you made a rational home purchase decision, then your home will eventually recover in value.
February 26th, 2010 at 2:41 pm
I have a WAY better idea. Let’s just give every adult taxpayer in this country who makes less than 250k a year a 100k check. IT has to be applied in the following manner…
Paying down primary mortgage if you have one.
Paying down student loans if you have them.
Using as a down payment if you rent and WANT to buy.
Paying for college if you want a college degree and don’t have one.
Graduate school tuition if you would like to go back to school.
Put into a IRA on your behalf if you don’t have any debt and are employed and don’t want to return to school..
There you go, problem solved! Let the cash rain down upon us all!!!!
February 26th, 2010 at 2:44 pm
“this cycle has largely played itself out. This peak 1-yr ago.”
Option-ARMs are on the way, there are more piles of shit in the mail to the banks, or more accurately the GSEs.
“It’s mainly over”
This will not be over for years and years because there is so much impaired capital.
“Classic recovery.”
Heh heh heh…. Sure! You’re young, aren’t you? Read up on Japan and the Depression.
BTW, how do you think we can have a recovery without jobs? The usual industries (home furnishing, real estate sales, construction) are dead in the water. BTW, consumer credit is still declining. Or can’t you read?
“Forcing people out of homes on this scale (i.e., millions) to satisfy notions of moral righteousness”
That’s not happening, it’s just people who should rent becoming renters – allowing other people to buy.
We have more than enough housing in this country to keep a roof over everyone’s heads.
February 26th, 2010 at 2:45 pm
Cognos – are you being sarcastic? You honestly think foreclosures are a thing of the past? I haven’t seen an estimate (anywhere) that doesn’t think 2010 will be the worst year so far for foreclosures. I’d be curious why it is you think they’re almost over?
February 26th, 2010 at 2:53 pm
A hockey stick-style chart for cognos. Millions are still hanging onto homes by their toenails. They’ll likely let go this year – about 2012, I’m guessing.
http://2.bp.blogspot.com/_pMscxxELHEg/S4gaW084CSI/AAAAAAAAHoE/Ixj_tN6y30I/s1600-h/FreddieMacJan2010.jpg
February 26th, 2010 at 2:54 pm
Manny – well D’uh – that chart makes it so obvious – definitely over ;-)
February 26th, 2010 at 2:57 pm
@Thor: More from CR on this issue:
“Freddie Mac reported that the rate of serious delinquencies – at least 90 days behind – for conventional loans in its single-family guarantee business increased to 4.03% in January 2010, up from 3.87% in December – and up from 1.98% in January 2009.”
But somehow the “problem is over” and we are in recovery? Is cognos drunk?
February 26th, 2010 at 2:57 pm
That chart is Cognos P/L…. actually it is the copper holdings of Chinese pig farmers.
Inventory rebuild is so 2009 (or 1930).
Guess what happens next?
February 26th, 2010 at 2:58 pm
And only one way for mortgage rates to go. Guess which way? And guess what that will do to the housing market, along with ending of QE?
http://www.zerohedge.com/article/guest-post-mortgage-rates-only-one-way-go
February 26th, 2010 at 3:01 pm
Manny – speaking of CR – there was a great piece there the other day with some thoughts on what the Feds ending of MBS purchases might do to mortgage rates.
http://www.calculatedriskblog.com/2010/02/fed-mbs-purchases-and-impact-on.html
February 26th, 2010 at 3:04 pm
Thor-
answering your question-
saving the homeowners and banks from their collective idiocy is not a collective good-
contrary to how cognos may perceive it-
some people need to rent and some banks need to take losses-
capitalism in action- it’s not the end of the world
February 26th, 2010 at 3:07 pm
Principle reduction is a topic that has me completely torn. I am a firm believer in SMALL government, lower taxes, and laissez-faire. It sickens me to watch the national debt grow to unsustainable levels and wonder how the United States is going to climb out of the hole we are in. I don’t claim to understand everything in regards to the markets, government, and bailouts, but obviously the banks are not hurting from the record forclosures as just about EVERY bank stock is up 200%+ in the last year. Why should all of the relief go to the banks and none to the homeowner?
My girlfriend and I graduated college and started our careers in 2004, were married in 2005, and bought a central Florida house in 2006. We were young and naive to the process, but the advice we got was to buy now or risk never being able to afford a home. We looked at over 50 houses and finally picked the one we felt was the best deal. We thought we had a steal at $199,000. With a 6.75% interest rate, taxes, insurance, and PMI, our payment was $1,750 a month (it has come down to $1,650 as property taxes plummet). We didn’t realize how upside down we were until 2008 when I tried to take advantage of the low interest rates and were told that the house was worth about $140K and that re-financing was not an option unless we had the difference in cash. Prices are continuing to fall and it is probably worth about $100K-$120K today. Despite paying over $70K in the past 3.5 years, we still owe $190K on the mortgage.
My dilema is to walk or stay. I understand that I signed a contract, but I have to make a decision that will affect the rest of our lives. Should I continue to pay $1,650 for the next 26 years, or should I walk away, trash our credit for the short term, and rent for $900 a month? Walking away could potentially save us $230K over the course of the loan. I’ve done a lot of research on credit and as long as we keep current with all of my other obligations, a forclosure will only trash our credit for 3 years (it’s completely gone in 7 years). So long as I can mitigate the difficiency judgement with an attorney, I don’t think there’s any question that walking away is the correct financial decision for us. I wonder how many more homeowners will come to the same conclusion as me as prices continue to fall in this toxic real estate market. I read an eye-opening article at Dr. Housing Bubble:
http://www.doctorhousingbubble.com/foreclosure-box-the-most-comprehensive-shadow-inventory-housing-analysis-for-los-angeles-county-examining-269-zip-codes-and-finding-100000-shadow-properties-while-public-views-1900/
which suggests that the shadow inventories related to foreclosures in southern California represents 4-5 times the number of houses that are currently for sale on the market. This excess supply can only drive prices down further as banks finally start to release them to the market . . . that is unless the government continues to use our tax dollars to keep them off the market and prolonge this mess even further.
I like the solution that cognos mentioned. Forcing the homeowner to bring cash to the table so that the loss is shared by the borrower, lender, and government. Seeing as though all three of these groups helped create the bubble. The only thing I would add to cognos’ suggestion is that borrowers who participate in this program should see some sort of hit in their credit rating as well.
February 26th, 2010 at 3:11 pm
I find this to be shameful. These people should just walk away. The banks screwed up with their lending and should be forced to deal with this. The people screwed up by buying more house than they could afford. Neither should be bailed out and that is exactly what this is. They are letting the banks work these losses off over time and helping these people who made bad decisions get an economic benefit. Meanwhile, in the real world the rest of us are making our house/rent payments and following the rules look like suckers. There comes a point when those of us who follow the rules, pay our taxes and obey the law, finally say enough is enough. For me that means, trying to educate as many people as I can to vote libertarian, or possibly picking up and moving to another country as ours is slowly but surely descending into fascism. Unfortunately, there are a large number of souls who might decide to take action into their own hands as they are fed up with the games. Let’ pray that cooler heads prevail and that we stop the bailouts and let the natural correction take its course. Keynes has done more to destroy our economy than anyone I can think of. It is not entirely his fault, as politicians don’t build surpluses in the good years. However, without his theories of government intervention, we would not be in this position. Even though the Austrians forecast this collapse, they still are ignored and continue the same damnable policies. So long United States of America. Hello, United Sorrowful Americans.
February 26th, 2010 at 3:11 pm
my guy who buys foreclosures in bulk, 50-100 per clip, says massive amounts have been held back since march 2009, almost shutting the door, he see’s a tidal wave this year, and for the most part will be done
my sis at cap one, says it’s a clfck
February 26th, 2010 at 3:21 pm
“my sis at cap one, says it’s a clfck”
Right on, sis. They should hold mortgage rates down this summer by avoiding further QE for the time being, thereby keeping Treasuries stable. A slowing economy will lower rates at the long end of the curve, counteracting any widening in MBS spreads. Once the foreclosure wave has belched forth a large enough number of properties to lower home prices further, the FED can unload the toxic waste to the banks, which can declare BK. US mortgage rates can be allowed to rise to realistic levels (6-8%) where they SHOULD HAVE BEEN IN THE FIRST PLACE.
After that there will be no more ridiculous HOUSING BOOMS and hairdressers buying $1M beach homes. As for what happens to the big banks I could care less. Sell them off brick by brick and let others take their place.
February 26th, 2010 at 4:01 pm
A lot of talk back and forth here. A lot being made of the “end game”. I don’t buy into that rhetoric, as anyone speaking of doomsday seems to almost lose all credibility. However, our gradual slide from superpower to servant of Red China seems to be well in place. It’s not irreversible, but we’ll have to stop importing so much junk from China in order to be strong again. That’s it. It starts with jobs and income, and that begins by stopping the revolving door of manufacturers leaving the US and going to Asia. When you do that, you incent people to work, to earn, to to pay their debts, and to save. You can tax all that earnings and savings to the hilt, pay back the sovereign debt.
It starts with jobs, and ends with jobs. INCOME, INCOME, INCOME. I feel like Tony Robbins.
February 26th, 2010 at 4:07 pm
Mannwich –
Love those #s… thanks for proving my point.
%-deliquencies rose >100% from Jan 2009 to Jan 2010.
BUT ONLY rose 4% from Dec to Jan (and if you seasonally adjust this… its prob neg).
Markets “anticipate”… so %-deliquencies rose 500% off the bottom in the 2.5 year cycle from 2006-2009. Now we’re topping… and headed back down.
Once the big increase is over… expectations are worse than reality. Credit losses, defaults, etc… have all come in BETTER than expected since 1-yr ago. This is was bonds linked to credit, mortgage credit, etc are all UP 50-100% in 1-yr. They had a great Q4 last year. This year regional banks (RF, ZION) and mortgage insurers (MTG) and REITS (GGP) all have strong stock returns.
The data show the “top” of the credit losses looks like it was Q3/Q4 last year.
February 26th, 2010 at 4:17 pm
As the economy gets better… you start to have something called the “cure rate” which starts to increase rapidly as jobs come back and house prices stabilize.
February 26th, 2010 at 4:23 pm
@cognos: Home prices still declining here in the Twin Cities. Back at ’01 levels. In this environment, why would/should anyone like me spend any dough to improve our houses? I’d love to update our bathroom, which is in bad shape, but how can I justify it now? I think others will see the same thing this year and that will put a major monkey wrench into your “recovery”.
February 26th, 2010 at 4:45 pm
From Mish’s Global Economic Trend Analysis.
http://globaleconomicanalysis.blogspot.com/2010/02/obamas-micro-mismanagement-of-hamp.html
A contributor, “Grrr” writes:
“I’ve come up with a radical scheme that could possibly work to end the housing crisis:
1) People that can’t or won’t pay their mortgage lose the house.
2) The banks take the house and sell it to people who can afford it.
There are a few flaws:
1) It doesn’t require massive amounts of government money.
2) It doesn’t protect people from their mistakes.
3) It doesn’t punish responsible people who are patiently waiting for houses to become affordable.
4) It could result in the banks that helped create this mess failing.
In spite of these issues, I believe we should give it a try.”
~~~
BR: As long as banks dont have to mark to market, why would they push this? They can just wait
February 26th, 2010 at 4:55 pm
Cognos – you have suck a slim (if any) grasp on the housing market that it’s embarrassing to read.
“BUT ONLY rose 4% from Dec to Jan (and if you seasonally adjust this… its prob neg).”
You must have missed all those news articles about the banks giving people a break in December and part of January.
You see what you want to see I guess
February 26th, 2010 at 5:38 pm
Hey, BR… is that actually your quote above on “as long as banks dont have M-T-M?”
Banks report non-performing loans, credit write-offs and reserves for losses. Reserves for losses greatly exceed non-performing. Credit loss write-offs are a healthy percentage of non-performing.
The idiotic “M-T-M” for banks… was about them “marking” loans at 50 that were 100% paid and current. Seems like you dont realize this. (Of course… those marks were idiotic and just an expression of the “market in crisis” that happened 1-yr ago. Now the prices are all up 50-100%. I suspect there are more right-ups thans right-downs in the future).
February 26th, 2010 at 5:58 pm
Isn’t the problem that bondholders will sue the banks if they knock off some principal for violating the terms of their (toxic) securities (which would affect banks ability to collect on their own holdings as well, so they aren’t going to push the point)? Add the 2nd mortgage holders won’t play, etc. Isn’t something like that playing out with the Stuytown follies right now?
Pretty sure if was as simple as explaining to (whoever is on the other line during these conversations) the bank that they lose money on foreclosures this sucker would have been over years ago.
February 26th, 2010 at 6:19 pm
If I had to propose a solution that didn’t involve tough love, how about this? The government takes over the foreclosed properties like they were buying toxic debt from the banks last year. The homeowners can then pay the mortgage to the one who is really lending them the money, the US taxpayer. This will solve two problems.The bad loans will be absorbed by someone who can afford to wait and has the money and power to absorb the toxic debt. Secondly, the homeowner is more likely to pay the money to the USG knowing the money is now going back to taxpayers instead of to banking bonuses.
I think one of the main problems with the delinquencies is that people see the bankers ‘winning’ in all this and that is an immoral affront to them. If they can eliminate the middle man
(and his margin) he might be more willing to co-operate. This should help ramp up the morality for the borrower a bit
You might also want to add some patriotism into it. Lets say that money paid on the mortgage goes directly to paying off US government debt or goes to supporting a US soldier with no middle man fee. Or how about the money going straight to social security? If you empowered people to direct those funds to specific targets, how many people would jump at that chance?
And here is the best reason of all. For once in its lifetime, the USG actually gets a market ROI (assuming most foreclosures actually pay what they owe)
February 26th, 2010 at 6:36 pm
You can’t “remarket” overpriced homes to people who don’t want to buy them.
You keep the dumb bastages in the place for as much as you can get. 65% of net income monthly sounds about right.
February 26th, 2010 at 7:17 pm
Just remember everyone when you use the term government in the context of money you really mena”
“the guy next to you”
THAT’S what it means when you ask government to give you something. You are STEALING from the person next to you.
Sleep tight.
February 26th, 2010 at 7:53 pm
Imagine the pressure on appraisers…to under-deflate.
February 26th, 2010 at 8:15 pm
This sounds like an idea hatched out of an Acorn meeting. Bailing out the deadbeats while their neighbors continue to make their payments. Where is it written that everyone has to have a $200,000 , $300,000 or higher priced home. Surely the buyer should have considered what might happen if they lost their job, or what happens when the interest rates adjustments kick in. Too many got caught up in the idea that if they bought a house for a certain price, that within a few months it would be worth twice as much. What fools they were and still are.
Isn’t there insurance home buyers can purchase that protects them against hardships such as losing ones income? Many families bought homes with bot members working and they had to understand that if one lost their job, they wouldn’t be able to make the payments. Now both parties are out of work. Their really fucked.
February 26th, 2010 at 9:40 pm
I have not paid my mortgage going on 15 months. All the pretend lender has done is file a lis pendens. I am just sitting and waiting as the pretend lender is in for a fight. I have enough information to fight and drag my case along for at least 3-5 years. I will be able to save enough money over this time I will be able to buy back my place for 50 cents on dollar from these d–che bags.
February 27th, 2010 at 1:14 am
@budhak0n – you make me laugh. An “independent professional” appraiser makes a valuation that contradicts another appraisal by 25% and I’ve committed mortgage fraud? The Realtors, Banksters and the Appraisers are the frauds, I am a businessman making a business transaction in a corrupt system.
Let me make this observation: the first appraiser was hired by my then current mortgage bank to ratchet down my credit because they were about to go bankrupt. So they lean on the appraiser, “Yo, Manny, could you do us a solid?” What does the appraiser do? He has to put food on the table, right? So out pops the $630K appraisal. I met the appraiser, I gave him a tour of the house, showed him all my and my wife’s amazing remodel. I showed him the comps. And the guy undervalues my house by +20% because I don’t sign his checks. Is there any fraud here? Of course not, it’s just business and we are all growd up adults.
Now, I know this guy’s an idiot, paid to be an idiot by retarded Banksters. I see a home in my neighborhood sell for a crazy price and realize we are still in a bubble here in SD in 2009 (thank you Mr. Bernanke!). What luck, I think!! So, onto the market my home goes. And buyers come in and offer me $825K. A pair of school teachers with $700K in there pocket from a “mortgage fraud” the perpetrated in LA in ’05. I say OK. It’s May ’09 and loans are tight. My Realtor leans over and says to the appraiser, “Yo, Holmes, can you do us a solid”. He has to eat, right? His kids have to go to med school, right? What’s the poor boy going to do? Hooha, a done deal!
Now is this fraud, or is this business? You tell me.
This three ring circus side show will be performing the loan mods, right? Good luck with that.
February 27th, 2010 at 6:24 am
qweekie. It’s fraud. And it’s FRAUD that all us dumb , law school educated Easterners have paid for, PAL.
You told me that the fair appraisal was in the 6′s. Your hired agent falsifiied the appraisal in order to benefit you.
The “school teachers” funded a note they can not meet, and the bank issued the money to you by passing on securities to the federal government that are going to default.
I went to law school pal. It’s FRAUD. You know the home not to be worth what you sold it for.
And if I were king of the world, which you can thank the lord each day I am not, I would solve our little “problem” which in reality is all that it is .
It’s not the end of the world, it’s a little problem rather quickly.
So enjoy your fraudulent transaction executed on the backs of american citizens. MANY of us much more educated than yourselves.
By the time we catch up with you, your FICO score will be a mandatory 500.
February 27th, 2010 at 6:30 am
Hey if you dont’ think it’s fraud.
Do me a favor. Champ. Post your name and the address of the property in question.
February 27th, 2010 at 6:55 am
By the way, a “professional” appraiser doesn’t adjust their figures on an appraisal 25% upwards on a lap dance or whatever you want to call it you dumb arse.
The ENTIRE problem is how the rest of the country has allowed New York and California to overfund the mortgage market due to their access to the mortgage market.
Let all of the notes reset. Let the houses reset to their proper valuations. And for EVERY single one that defaults, go back INTO the bank and forcibly seize and remove the origination fees, the doc fees.
All of it. You stupid STUPID people don’t even realize that you’ve been enriching the very people who caused the problem by securitizing this supposed “RISK” and passing it on to the American taxpayer.
Simply using silly words like “derivative” doesn’t excuse the actual result. And the ONLY reason nobody has simply dropped the hammer on all of you yet , is because they hope that somehow new money will show up yet again to put stilts under the housing market.
But what they don’t realize is that not only is no new money showing up. The people who really have some serious questions about your out of control crack head behavior are showing up.
February 27th, 2010 at 7:01 am
And the absolute WORST part is that their best defense is going to be, “What do you do when the entire world goes completely mad? ”
And they might just get away with it.
So called Banks are pulling lending out of areas they believe to be less than profitable. They want to maintain their portfolios and continue along like nothing ever happened.
The “flipppers” are laying low. The skanky developers are hiding in bankruptcy. Everybody just trying to keep their heads down with the mad battle axe swinging right above your finely shaven heads.
Better be nice in the days ahead or we may just elect to drop our aim about 6 inches.
Keep your mouths shut and you’ll probably survive.
February 27th, 2010 at 7:08 am
cognos Says: ” The idiotic “M-T-M” for banks… was about them “marking” loans at 50 that were 100% paid and current. Seems like you dont realize this. (Of course… those marks were idiotic and just an expression of the “market in crisis” that happened 1-yr ago. Now the prices are all up 50-100%. I suspect there are more right-ups thans right-downs in the future).”
How much of the bailout are you saying was unnecessary? Were the banks well capitalized institutions with sound investments that would eventually return their value, but “just in case they didn’t” = TARP/ML I,II,III/TALF/PPIP/TLGP/ZIRP/TBTF/etc., etc., etc….
February 27th, 2010 at 7:33 am
I actually agree with Cognos and have been saying this since the day TARP was issued.
TARP has unintended consequences and isn’t understood by the general public.
It was just a group of bankers getting extremely cold feet because some people like me played a little game of Chicken and their models were going off the chart.
That’s why you really need to remove some of the automation you dumbcrats.
February 27th, 2010 at 7:43 am
[...] comments this week (here and here), along with occasional TBP contributor Mark Hanson, were picked up in Barron’s this [...]
February 27th, 2010 at 2:33 pm
budhak0n – Pay off your damn school loans and stopping being so angry about it. I think the property is worth about $500K. Maybe. What do I know, I’ve only lived in the area for 20 years and remodeled the house from top to bottom. But guess what my friend, I don’t decide what the valuation of the property is. Neither does the bank or the appraiser or Mr Obama. There is exactly one person who can tell us both what the value of the property is: the buyer. This is why we had mark to market. Any other valuation is a big circle jerk.
People today are still overpaying for real estate. In some cases, by quite a bite. Unbelievable, but true. Try to deal with that fact without going on a legal Jihad, ok?
And spare me your Law Skewl cred, I’m not buying it. Since when did a law school degree impart rationality to an individual? I work with lawyers. They are f*ing scumbag liars. That is what they are paid to do: lie more than the other side’s lawyers in a plausibly deniable way. I sit in court and watch Judges carry out the most insane miscarriages of justice because they don’t understand the fundamental issues in a case. Arrogance and self righteousness is their problem, instilled in them by that Law Skewl system you went thru. I can only take pity or any poor soul who finds themselves in front of the likes of you and expects to have justice dispensed.
Where is it exactly that you “practice” your craft?
February 28th, 2010 at 12:06 am
If you are thinking of walking away, think again. In some states (like CA) you are fine (as long as there is no refi or second mortgage). But in states like Florida or Virginia you are screwed. The lender can wait up to 5 years after the house is sold in forclosure to sue you for the deficiency, and you can’t win. They can sell the debt to a collection agency. They can garnish your wages for 20 years. They are already getting massive numbers of deficiency judgements in FL for loans forclosed a few years ago. Home mortgages are not like commercial property where the loans have to be rolled over every 5 years, and suing a defunct corporation for a deficiency is pointless. Homeowners are not corporations, and thus there is a real person to sue for deficiency.
Also any principal reduction or forgiveness on any loan is taxable income to the IRS, as well as a big writedown to the bank.
If any of these things are to be done and fixed on a nationwide scale, comprehensive Federal legislation will be required. Congress will have to preempt state law on deficiency judgements, and deal with the issues of bank balance sheets, taxes, Federal debt, bankruptcy, and a whole host of other issues. The current crew in Congress and the WH doesn’t seem to be up to the job. They are obsessed with siezing control of the healthcare industry, and getting campaign contributions from bailed out banksters, and could seem to care less about anything else. Most likely the US will just muddle through for the next 10 years.