109 replies to this topic

[flacorps]

A law professor is advocating that debtors do unto banks as he feels that banks are doing to them, and he says just walk away and leave the bank with the property:

http://www.latimes.c...0,3801270.story

Could be worse, he could be saying hire a lawyer to gum up the foreclosure works while you live in the house rent-free, then trash it on your way out the door. Some homeowners do that.

[tommyleo]

A law professor is advocating that debtors do unto banks as he feels that banks are doing to them, and he says just walk away and leave the bank with the property:

http://www.latimes.c...0,3801270.story

Could be worse, he could be saying hire a lawyer to gum up the foreclosure works while you live in the house rent-free, then trash it on your way out the door. Some homeowners do that.

While the prof is correct in saying that it's in the underwater homeowner's financial interest to walk away, he supports his "no shame" belief with this rubbish:

"Yet there is an inherent imbalance in the borrower-lender relationship that makes this morality message unfair to consumers, White says: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks and inflated appraisals. Now that property values have dropped 20% to 50% in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts."

That's garbage. The banks still offered traditional mortgages. But many homebuyers decided to take the riskier mortgages in hopes of making a bigger profit on future resale and/or buying a much larger home than they should have. Except in rare circumstances, foreclosure is shameful and selfish.

[flacorps]

I'll believe shame has returned to this land when Springer goes off the air.

[caffeinekid]

A law professor is advocating that debtors do unto banks as he feels that banks are doing to them, and he says just walk away and leave the bank with the property:

http://www.latimes.c...0,3801270.story

Could be worse, he could be saying hire a lawyer to gum up the foreclosure works while you live in the house rent-free, then trash it on your way out the door. Some homeowners do that.

While the prof is correct in saying that it's in the underwater homeowner's financial interest to walk away, he supports his "no shame" belief with this rubbish:

"Yet there is an inherent imbalance in the borrower-lender relationship that makes this morality message unfair to consumers, White says: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks and inflated appraisals. Now that property values have dropped 20% to 50% in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts."

That's garbage. The banks still offered traditional mortgages. But many homebuyers decided to take the riskier mortgages in hopes of making a bigger profit on future resale and/or buying a much larger home than they should have. Except in rare circumstances, foreclosure is shameful and selfish.

This is true, but guess what?

IT ISN'T THE SUB-PRIMERS ANYMORE and hasn't been for a while now. How long does it take for some people to get this through their heads? Geez.

This thing has reached well enough into the prime market to touch MANY people who did everything that they were supposed to. And it continues to get worse. And it was the cheap credit that artificially inflated EVERYTHING, not just home values, so saying that it was a "consumer problem" is far less accurate than blaming it on the fractional reserve system and wall street crooks.

Also, if you'll do a search through the forums here, you will see that this professor's suggestion is hardly new.

[flacorps]

Also, if you'll do a search through the forums here, you will see that this professor's suggestion is hardly new.

What is new is that it's coming from a law professor. There is a fundamental shift taking place here, as can be witnessed in the judge in NY who just relieved a homeowner of $525k in debt. Welcome to "El Barzon" American-style.

[Marty716]

Also, if you'll do a search through the forums here, you will see that this professor's suggestion is hardly new.

What is new is that it's coming from a law professor. There is a fundamental shift taking place here, as can be witnessed in the judge in NY who just relieved a homeowner of $525k in debt. Welcome to "El Barzon" American-style.

And just what is that fundamental shift that so worries you?

[tommyleo]

A law professor is advocating that debtors do unto banks as he feels that banks are doing to them, and he says just walk away and leave the bank with the property:

http://www.latimes.c...0,3801270.story

Could be worse, he could be saying hire a lawyer to gum up the foreclosure works while you live in the house rent-free, then trash it on your way out the door. Some homeowners do that.

While the prof is correct in saying that it's in the underwater homeowner's financial interest to walk away, he supports his "no shame" belief with this rubbish:

"Yet there is an inherent imbalance in the borrower-lender relationship that makes this morality message unfair to consumers, White says: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks and inflated appraisals. Now that property values have dropped 20% to 50% in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts."

That's garbage. The banks still offered traditional mortgages. But many homebuyers decided to take the riskier mortgages in hopes of making a bigger profit on future resale and/or buying a much larger home than they should have. Except in rare circumstances, foreclosure is shameful and selfish.

This is true, but guess what?

IT ISN'T THE SUB-PRIMERS ANYMORE and hasn't been for a while now. How long does it take for some people to get this through their heads? Geez.

This thing has reached well enough into the prime market to touch MANY people who did everything that they were supposed to. And it continues to get worse. And it was the cheap credit that artificially inflated EVERYTHING, not just home values, so saying that it was a "consumer problem" is far less accurate than blaming it on the fractional reserve system and wall street crooks.

Also, if you'll do a search through the forums here, you will see that this professor's suggestion is hardly new.

I never suggested it was only the sub-primers who are being affected. But despite what the NAR told everyone, housing prices do go down -- sometimes a lot. And any time you buy a house, it is very possible that you will have negative equity soon after. That's the risk/reward of buying a house: you could profit a lot or lose a lot. If a homebuyer doesn't like that risk, then rent. But if a home is bought and you have negative equity, suck it up and pay your mortgage (assuming you can afford the payments). People who can afford their mortgage payments yet walk away from their homes because they have negative equity are selfish and deserve to all the shame we can put on them.

In the early 90's, many people had negative equity in their homes. As long as they could afford their mortgage payments, they paid their mortgages. No one suggested that they walk away then. Yet today, it's becoming ok to screw your neighbors. That's sad.

[flacorps]

Also, if you'll do a search through the forums here, you will see that this professor's suggestion is hardly new.

What is new is that it's coming from a law professor. There is a fundamental shift taking place here, as can be witnessed in the judge in NY who just relieved a homeowner of $525k in debt. Welcome to "El Barzon" American-style.

And just what is that fundamental shift that so worries you?

I'm all in favor of an American "El Barzon" ... what concerns me is that it be a reformative force and not a reactionary one. The former would seek to pay back debt at a reasonable rate following concessions from the lenders who took unfair advantage in one way or another. The latter would be what we're seeing from that judge and that law professor: a wholesale repudiation of obligations in favor of a "catch-me-if-you-can" approach to debt.

Some folks erroneously believe, for instance that my book (linked below) advocates the latter approach. In fact it advocates the former.

[Gryffindor]

I never suggested it was only the sub-primers who are being affected. But despite what the NAR told everyone, housing prices do go down -- sometimes a lot. And any time you buy a house, it is very possible that you will have negative equity soon after. That's the risk/reward of buying a house: you could profit a lot or lose a lot. If a homebuyer doesn't like that risk, then rent. But if a home is bought and you have negative equity, suck it up and pay your mortgage (assuming you can afford the payments). People who can afford their mortgage payments yet walk away from their homes because they have negative equity are selfish and deserve to all the shame we can put on them.

In the early 90's, many people had negative equity in their homes. As long as they could afford their mortgage payments, they paid their mortgages. No one suggested that they walk away then. Yet today, it's becoming ok to screw your neighbors. That's sad.

So, what you're saying is that the Investor's interest is more important than that of the homeowner? The Investor took the same risks as the homeowner by backing the loan.

The big difference here is that the Investor won't be homeless.

If the banks would simply follow the guidelines set forth by HAMP there would be far fewer foreclosures. Not everyone wants to walk away from their home, even if they are in the negative. But, every time that a bank refuses to work with a homeowner, that in turn lowers the property values of the homes surrounding that property and encourages even more people to simply walk away.

[flacorps]

But, every time that a bank refuses to work with a homeowner, that in turn lowers the property values of the homes surrounding that property and encourages even more people to simply walk away.

Exactly. And allowing "cram down" in Chapter 13 would go a long way toward making those banks voluntarily work with homeowners, because they would of course be working with them involuntarily anyway in Chapter 13.

If it isn't countermanded by Congress, the choice on the part of banks to reject allowing Chapter 13 cramdown will go down in history as one of the most short-sighted, pig-headed, self-destructive ones in the history of the Republic.

[tommyleo]

I never suggested it was only the sub-primers who are being affected. But despite what the NAR told everyone, housing prices do go down -- sometimes a lot. And any time you buy a house, it is very possible that you will have negative equity soon after. That's the risk/reward of buying a house: you could profit a lot or lose a lot. If a homebuyer doesn't like that risk, then rent. But if a home is bought and you have negative equity, suck it up and pay your mortgage (assuming you can afford the payments). People who can afford their mortgage payments yet walk away from their homes because they have negative equity are selfish and deserve to all the shame we can put on them.

In the early 90's, many people had negative equity in their homes. As long as they could afford their mortgage payments, they paid their mortgages. No one suggested that they walk away then. Yet today, it's becoming ok to screw your neighbors. That's sad.

So, what you're saying is that the Investor's interest is more important than that of the homeowner? The Investor took the same risks as the homeowner by backing the loan.

The big difference here is that the Investor won't be homeless.

If the banks would simply follow the guidelines set forth by HAMP there would be far fewer foreclosures. Not everyone wants to walk away from their home, even if they are in the negative. But, every time that a bank refuses to work with a homeowner, that in turn lowers the property values of the homes surrounding that property and encourages even more people to simply walk away.

More rubbish.

I never said anything about the lender's interest vs. the borrower's, so why deflect the debate with that statement? But if you insist, then take your point to its logical conclusion.

Before we get to that, stop calling only the lender the "investor". The borrower is an investor, too. I'm tired of hearing from homeowners who bought their homes as "investments" several years ago and are now calling themselves "victims." Just as investors who lost a lot of money in the dot-com bubble were not victims, neither are those who lost money in the RE bubble (with the exception of those who were clearly defrauded by having their loan documents changed). If you bought a house in the last few years and you now have negative equity, it is not the banks' fault. It's yours. You bought an asset during a bubble. And when you do, you get burned.

Second, the lender and the borrower do not, as you claim, have the same risk. Such a statement shows your ignorance of simple finance. The lender is looking for either a fixed return or for a future opportunity to sell the loan at a modest profit. The borrower, on the other hand, has (theoretically) unlimited profit potential because he is buying an asset with debt. The downside, of course, is that the borrower's potential for loss is very steep.

The logical conclusion? Well, what if the RE bubble continued for many years, and some of these homeowners sold their homes for huge profits (which, btw, is exactly what many people did before the bubble popped)? Do you think the sellers would have shared their profits with the lenders who lent them the money? Of course not. But now that the borrower's investments (that is, their homes) are losing value, you want the banks to modify the terms of the loans? That's hypocrisy. Yet it's exactly what many of the enablers of the victim mentality are preaching these days.

And let's stop with the foreclosure = "homeless" fallacy. None of the people who are walking away from their homes are going to homeless. Instead, they will be doing what they should have done in the first place: renting!! (Or, if they have no shame, they are buying a cheaper home before walking away from their present property with negative equity.) Remember, these people can still afford to pay their mortgages. But they'd rather throw a hissy fit and walk away.

We also hear about how some people can no longer afford their mortgages because the monthly payments increased too much. We are often told that these people will be "homeless". Again, that's baloney. Yes, they will lose their homes (that they never should have bought in the first place). But since they could still afford the monthly payments before the payments increased, these people can still afford to rent.

The only people for whom I have pity are those who have lost their jobs and can't afford to pay their mortgage. But they can't afford rent either, so for these unfortunate people even a loan modification wouldn't help.

Edited by tommyleo, 30 November 2009 - 04:25 PM.

[caffeinekid]

I never suggested it was only the sub-primers who are being affected. But despite what the NAR told everyone, housing prices do go down -- sometimes a lot. And any time you buy a house, it is very possible that you will have negative equity soon after. That's the risk/reward of buying a house: you could profit a lot or lose a lot. If a homebuyer doesn't like that risk, then rent. But if a home is bought and you have negative equity, suck it up and pay your mortgage (assuming you can afford the payments). People who can afford their mortgage payments yet walk away from their homes because they have negative equity are selfish and deserve to all the shame we can put on them.

In the early 90's, many people had negative equity in their homes. As long as they could afford their mortgage payments, they paid their mortgages. No one suggested that they walk away then. Yet today, it's becoming ok to screw your neighbors. That's sad.

So, what you're saying is that the Investor's interest is more important than that of the homeowner? The Investor took the same risks as the homeowner by backing the loan.

The big difference here is that the Investor won't be homeless.

If the banks would simply follow the guidelines set forth by HAMP there would be far fewer foreclosures. Not everyone wants to walk away from their home, even if they are in the negative. But, every time that a bank refuses to work with a homeowner, that in turn lowers the property values of the homes surrounding that property and encourages even more people to simply walk away.

More rubbish.

I never said anything about the lender's interest vs. the borrower's, so why deflect the debate with that statement? But if you insist, then take your point to its logical conclusion.

Before we get to that, stop calling only the lender the "investor". The borrower is an investor, too. I'm tired of hearing from homeowners who bought their homes as "investments" several years ago and are now calling themselves "victims." Just as investors who lost a lot of money in the dot-com bubble were not victims, neither are those who lost money in the RE bubble (with the exception of those who were clearly defrauded by having their loan documents changed). If you bought a house in the last few years and you now have negative equity, it is not the banks' fault. It's yours. You bought an asset during a bubble. And when you do, you get burned.

Second, the lender and the borrower do not, as you claim, have the same risk. Such a statement shows your ignorance of simple finance. The lender is looking for either a fixed return or for a future opportunity to sell the loan at a modest profit. The borrower, on the other hand, has (theoretically) unlimited profit potential because he is buying an asset with debt. The downside, of course, is that the borrower's potential for loss is very steep.

The logical conclusion? Well, what if the RE bubble continued for many years, and some of these homeowners sold their homes for huge profits (which, btw, is exactly what many people did before the bubble popped)? Do you think the sellers would have shared their profits with the lenders who lent them the money? Of course not. But now that the borrower's investments (that is, their homes) are losing value, you want the banks to modify the terms of the loans? That's hypocrisy. Yet it's exactly what many of the enablers of the victim mentality are preaching these days.

And let's stop with the foreclosure = "homeless" fallacy. None of the people who are walking away from their homes are going to homeless. Instead, they will be doing what they should have done in the first place: renting!! (Or, if they have no shame, they are buying a cheaper home before walking away from their present property with negative equity.) Remember, these people can still afford to pay their mortgages. But they'd rather throw a hissy fit and walk away.

We also hear about how some people can no longer afford their mortgages because the monthly payments increased too much. We are often told that these people will be "homeless". Again, that's baloney. Yes, they will lose their homes (that they never should have bought in the first place). But since they could still afford the monthly payments before the payments increased, these people can still afford to rent.

The only people for whom I have pity are those who have lost their jobs and can't afford to pay their mortgage. But they can't afford rent either, so for these unfortunate people even a loan modification wouldn't help.

Not to beat a dead horse, but again- let's get real. The people losing their homes at this stage in the game (and from here on out) are largely doing so because of the inherent job losses and income reductions resulting from the bursting of the "cheap credit" bubble, NOT the housing bubble, which was a mere symptom of the larger crime. It would be really nice if the media would actually report this little "minor" detail once in a while. The fact is that the real crooks in this game have already made off in the dark and will not be held accountable. Many of those neighbors, family members and friends of ours who are walking away are making a strategic decision. They see their vulnerability written on the wall. Do they wait until they in turn suffer a debilitating income reduction, job loss or depleted savings before they walk? Or do they walk away now and save as much as possible to weather the next 3-7years...risking the possibility of having to file BK in order to avoid any judgements against them? For many, this risk is well worth it. Sure sounds better than being on the hook for tens or hundreds of thousands of dollars in monopoly money.

This isn't about crooks and gamers anymore. People are wising up to the game.

[caffeinekid]

In the early 90's, many people had negative equity in their homes. As long as they could afford their mortgage payments, they paid their mortgages. No one suggested that they walk away then. Yet today, it's becoming ok to screw your neighbors. That's sad.

There is a lot of difference between now and the early 90s. And in the late 80s when oil went bust and a gallon of gas was under a dollar, people were walking away from their homes then too...at least in oil country. And a lot of people squatted in their homes for over a year at the time. Then came the 90s with the tech bubble and cheap credit injected by our enemies which saved the day, not to mention China being accepted into the WTO.

The economy that pays those house notes in question isn't real and certainly doesn't support all "honest folk" holding to their ideals. Those people aren't as stupid as some may think. They/we are wising up to this fundamental sham. The more people realize this, the less respect they have and the greater the numbers offering a dirty finger to the players. I think we all know whats in the cards in the near future.

Just wait until the private equity shoe drops.

Edited by caffeinekid, 30 November 2009 - 05:10 PM.

[tommyleo]

I never suggested it was only the sub-primers who are being affected. But despite what the NAR told everyone, housing prices do go down -- sometimes a lot. And any time you buy a house, it is very possible that you will have negative equity soon after. That's the risk/reward of buying a house: you could profit a lot or lose a lot. If a homebuyer doesn't like that risk, then rent. But if a home is bought and you have negative equity, suck it up and pay your mortgage (assuming you can afford the payments). People who can afford their mortgage payments yet walk away from their homes because they have negative equity are selfish and deserve to all the shame we can put on them.

In the early 90's, many people had negative equity in their homes. As long as they could afford their mortgage payments, they paid their mortgages. No one suggested that they walk away then. Yet today, it's becoming ok to screw your neighbors. That's sad.

So, what you're saying is that the Investor's interest is more important than that of the homeowner? The Investor took the same risks as the homeowner by backing the loan.

The big difference here is that the Investor won't be homeless.

If the banks would simply follow the guidelines set forth by HAMP there would be far fewer foreclosures. Not everyone wants to walk away from their home, even if they are in the negative. But, every time that a bank refuses to work with a homeowner, that in turn lowers the property values of the homes surrounding that property and encourages even more people to simply walk away.

More rubbish.

I never said anything about the lender's interest vs. the borrower's, so why deflect the debate with that statement? But if you insist, then take your point to its logical conclusion.

Before we get to that, stop calling only the lender the "investor". The borrower is an investor, too. I'm tired of hearing from homeowners who bought their homes as "investments" several years ago and are now calling themselves "victims." Just as investors who lost a lot of money in the dot-com bubble were not victims, neither are those who lost money in the RE bubble (with the exception of those who were clearly defrauded by having their loan documents changed). If you bought a house in the last few years and you now have negative equity, it is not the banks' fault. It's yours. You bought an asset during a bubble. And when you do, you get burned.

Second, the lender and the borrower do not, as you claim, have the same risk. Such a statement shows your ignorance of simple finance. The lender is looking for either a fixed return or for a future opportunity to sell the loan at a modest profit. The borrower, on the other hand, has (theoretically) unlimited profit potential because he is buying an asset with debt. The downside, of course, is that the borrower's potential for loss is very steep.

The logical conclusion? Well, what if the RE bubble continued for many years, and some of these homeowners sold their homes for huge profits (which, btw, is exactly what many people did before the bubble popped)? Do you think the sellers would have shared their profits with the lenders who lent them the money? Of course not. But now that the borrower's investments (that is, their homes) are losing value, you want the banks to modify the terms of the loans? That's hypocrisy. Yet it's exactly what many of the enablers of the victim mentality are preaching these days.

And let's stop with the foreclosure = "homeless" fallacy. None of the people who are walking away from their homes are going to homeless. Instead, they will be doing what they should have done in the first place: renting!! (Or, if they have no shame, they are buying a cheaper home before walking away from their present property with negative equity.) Remember, these people can still afford to pay their mortgages. But they'd rather throw a hissy fit and walk away.

We also hear about how some people can no longer afford their mortgages because the monthly payments increased too much. We are often told that these people will be "homeless". Again, that's baloney. Yes, they will lose their homes (that they never should have bought in the first place). But since they could still afford the monthly payments before the payments increased, these people can still afford to rent.

The only people for whom I have pity are those who have lost their jobs and can't afford to pay their mortgage. But they can't afford rent either, so for these unfortunate people even a loan modification wouldn't help.

Not to beat a dead horse, but again- let's get real. The people losing their homes at this stage in the game (and from here on out) are largely doing so because of the inherent job losses and income reductions resulting from the bursting of the "cheap credit" bubble, NOT the housing bubble, which was a mere symptom of the larger crime. It would be really nice if the media would actually report this little "minor" detail once in a while. The fact is that the real crooks in this game have already made off in the dark and will not be held accountable. Many of those neighbors, family members and friends of ours who are walking away are making a strategic decision. They see their vulnerability written on the wall. Do they wait until they in turn suffer a debilitating income reduction, job loss or depleted savings before they walk? Or do they walk away now and save as much as possible to weather the next 3-7years...risking the possibility of having to file BK in order to avoid any judgements against them? For many, this risk is well worth it. Sure sounds better than being on the hook for tens or hundreds of thousands of dollars in monopoly money.

This isn't about crooks and gamers anymore. People are wising up to the game.

You pretty much ignored my last post. That's fine.

As for your assertion that it's OK for people to be walking from their homes because they are worried about future loss of job/savings, that's dangerous. If walking is OK, then shouldn't all homeowners with a mortgage (even those with equity) do the same? If you lose your job and can't pay your mortgage, it's not going to matter if you have positive or negative equity: the bank takes your home. Yet you think it's OK for those who have negative equity to walk away now -- just in case things get bad later. If you truly believe that, then you have to also expect all mortgage holders to walk in order to protect themselves. And if all mortgage holders walked, you'd see a housing crash the likes of which none of us ever imagined.

Try extrapolating what you suggest, or be careful what you wish for.

And what exactly is the "crime" that you keep referring to? Easy credit? Well, if the banks' providing easy credit is a crime, then all of the borrowers are guilty of receiving illegal funds.

It's too easy to blame only the "big, bad banks" and cast the borrowers as victims. If so, you've just insulted the intelligence of every person who bought a home with "easy credit" over the last several years. As I wrote earlier, borrowers knew what they were doing and were just being greedy, too. And the lucky/smart ones who sold their homes before the crash made a lot of money. But I don't see you demanding those borrowers to return their profits, which were only made possible by the "crime" of easy credit.

BTW, I agree that easy credit is the cause of the housing crash. But no one forced borrowers to borrow so recklessly. Everyone is guilty: the lenders and the borrowers.

Edited by tommyleo, 30 November 2009 - 08:48 PM.

[Mayor]

I never suggested it was only the sub-primers who are being affected. But despite what the NAR told everyone, housing prices do go down -- sometimes a lot. And any time you buy a house, it is very possible that you will have negative equity soon after. That's the risk/reward of buying a house: you could profit a lot or lose a lot. If a homebuyer doesn't like that risk, then rent. But if a home is bought and you have negative equity, suck it up and pay your mortgage (assuming you can afford the payments). People who can afford their mortgage payments yet walk away from their homes because they have negative equity are selfish and deserve to all the shame we can put on them.

In the early 90's, many people had negative equity in their homes. As long as they could afford their mortgage payments, they paid their mortgages. No one suggested that they walk away then. Yet today, it's becoming ok to screw your neighbors. That's sad.

So, what you're saying is that the Investor's interest is more important than that of the homeowner? The Investor took the same risks as the homeowner by backing the loan.

The big difference here is that the Investor won't be homeless.

If the banks would simply follow the guidelines set forth by HAMP there would be far fewer foreclosures. Not everyone wants to walk away from their home, even if they are in the negative. But, every time that a bank refuses to work with a homeowner, that in turn lowers the property values of the homes surrounding that property and encourages even more people to simply walk away.

More rubbish.

I never said anything about the lender's interest vs. the borrower's, so why deflect the debate with that statement? But if you insist, then take your point to its logical conclusion.

Before we get to that, stop calling only the lender the "investor". The borrower is an investor, too. I'm tired of hearing from homeowners who bought their homes as "investments" several years ago and are now calling themselves "victims." Just as investors who lost a lot of money in the dot-com bubble were not victims, neither are those who lost money in the RE bubble (with the exception of those who were clearly defrauded by having their loan documents changed). If you bought a house in the last few years and you now have negative equity, it is not the banks' fault. It's yours. You bought an asset during a bubble. And when you do, you get burned.

Second, the lender and the borrower do not, as you claim, have the same risk. Such a statement shows your ignorance of simple finance. The lender is looking for either a fixed return or for a future opportunity to sell the loan at a modest profit. The borrower, on the other hand, has (theoretically) unlimited profit potential because he is buying an asset with debt. The downside, of course, is that the borrower's potential for loss is very steep.

The logical conclusion? Well, what if the RE bubble continued for many years, and some of these homeowners sold their homes for huge profits (which, btw, is exactly what many people did before the bubble popped)? Do you think the sellers would have shared their profits with the lenders who lent them the money? Of course not. But now that the borrower's investments (that is, their homes) are losing value, you want the banks to modify the terms of the loans? That's hypocrisy. Yet it's exactly what many of the enablers of the victim mentality are preaching these days.

And let's stop with the foreclosure = "homeless" fallacy. None of the people who are walking away from their homes are going to homeless. Instead, they will be doing what they should have done in the first place: renting!! (Or, if they have no shame, they are buying a cheaper home before walking away from their present property with negative equity.) Remember, these people can still afford to pay their mortgages. But they'd rather throw a hissy fit and walk away.

We also hear about how some people can no longer afford their mortgages because the monthly payments increased too much. We are often told that these people will be "homeless". Again, that's baloney. Yes, they will lose their homes (that they never should have bought in the first place). But since they could still afford the monthly payments before the payments increased, these people can still afford to rent.

The only people for whom I have pity are those who have lost their jobs and can't afford to pay their mortgage. But they can't afford rent either, so for these unfortunate people even a loan modification wouldn't help.

Not to beat a dead horse, but again- let's get real. The people losing their homes at this stage in the game (and from here on out) are largely doing so because of the inherent job losses and income reductions resulting from the bursting of the "cheap credit" bubble, NOT the housing bubble, which was a mere symptom of the larger crime. It would be really nice if the media would actually report this little "minor" detail once in a while. The fact is that the real crooks in this game have already made off in the dark and will not be held accountable. Many of those neighbors, family members and friends of ours who are walking away are making a strategic decision. They see their vulnerability written on the wall. Do they wait until they in turn suffer a debilitating income reduction, job loss or depleted savings before they walk? Or do they walk away now and save as much as possible to weather the next 3-7years...risking the possibility of having to file BK in order to avoid any judgements against them? For many, this risk is well worth it. Sure sounds better than being on the hook for tens or hundreds of thousands of dollars in monopoly money.

This isn't about crooks and gamers anymore. People are wising up to the game.

You pretty much ignored my last post. That's fine.

As for your assertion that it's OK for people to be walking from their homes because they are worried about future loss of job/savings, that's dangerous. If walking is OK, then shouldn't all homeowners with a mortgage (even those with equity) do the same? If you lose your job and can't pay your mortgage, it's not going to matter if you have positive or negative equity: the bank takes your home. Yet you think it's OK for those who have negative equity to walk away now -- just in case things get bad later. If you truly believe that, then you have to also expect all mortgage holders to walk in order to protect themselves. And if all mortgage holders walked, you'd see a housing crash the likes of which none of us ever imagined.

Try extrapolating what you suggest, or be careful what you wish for.

And what exactly is the "crime" that you keep referring to? Easy credit? Well, if the banks' providing easy credit is a crime, then all of the borrowers are guilty of receiving illegal funds.

It's too easy to blame only the "big, bad banks" and cast the borrowers as victims. If so, you've just insulted the intelligence of every person who bought a home with "easy credit" over the last several years. As I wrote earlier, borrowers knew what they were doing and were just being greedy, too. And the lucky/smart ones who sold their homes before the crash made a lot of money. But I don't see you demanding those borrowers to return their profits, which were only made possible by the "crime" of easy credit.

BTW, I agree that easy credit is the cause of the housing crash. But no one forced borrowers to borrow so recklessly. Everyone is guilty: the lenders and the borrowers.

That's so true, it's always the big banks fault. The borrower is never in the wrong! It's the big banks fault you can make your payment. It's the banks fault they won't modify a loan you actually signed you would agree to. It's always the banks fault.

[caffeinekid]

That's so true, it's always the big banks fault. The borrower is never in the wrong! It's the big banks fault you can make your payment. It's the banks fault they won't modify a loan you actually signed you would agree to. It's always the banks fault.

Eh. Don't lump me in with that crowd either. I would simply point out that there is less of a balance of power between the lenders and consumers than some people propose...people such as those coming down on homeowners making strategic decisions regarding default. Trust is imperative. Consumers cannot trust banks, so it only goes to reason that banks should not expect to trust consumers either. The consumer demand in the case of many things over the last decade was driven by cheap money. Where exactly did that cheap money come from? Consumers surely didn't create it. Banks and governments did. Consumers by and large don't have lofty advisers and discovery boards advising them on how to scheme the system. Banks do. Consumers cannot lend out exponentially against what they have in reserves while collecting very REAL returns. Banks can. And this is not to say that the consumer is the victim (as in adhering to a victim mentality) either, unless you are referring to the butterfly effect. In that case, as we are dealing with at this point in time, yeah- I do blame the banks, Wall Street and K Street FAR more than the consumer. As I posted before, the people now suffering are the ones who DID put down their 20% + and didn't buy above their means, yet thanks to the carpet being yanked out from under them now find themselves with reduced income or jobless altogether and a very unkindly employment market. After all, that cheap money employed people too.

We watched this whole thing pan out. We warned it was coming when it ramped up in the late 1990s and started really getting it's legs back around 2000. And I gather that it doesn't take much more insight to know what the purpose was. Knowing this, I support this professor's suggestion. And again, he isn't the first to put it out there. As usual, CB was ahead of the curve in that respect and other venues also had it pegged dead to rights.

Oh. And let's not forget that the "big banks" got a ledger full of monopoly money in order to keep the illusion going a little longer. Our monetary system actually already failed, so we are merely delaying the inevitable. All that people are asking is that if they are going to be allegedly paying for the service, that the banks stand by the terms. To some of us, it is kind of like calling the banks' bluff. We know that they don't really have the money and that their compadres are merely using the opportunity to pillage what is left before it all collapses. Some of us are merely saying- Bring it on! The sooner the dollar collapses, the better chance we have of shaking out the parasites that infect us. Every day that we wait, we lose more of what little potential advantage remains.

[flacorps]

Pottersville is on its way to a neighborhood near you.

Edited by flacorps, 01 December 2009 - 08:27 AM.

[sirrowan]

What I haven't seen in this thread (maybe cuz I didn't read it all, lol) is the fact that the banks/lenders, in most instances, sold these mortgages as securities. They were paid numerous times over what the actual debt was. The result? These mortgages are actually paid in full.

If my mom has a mortgage on her house and I pay the payments, or just pay it off, does that mean that it's not paid off? Um no. That means its paid off.

That's a partial purpose for MERS. Who paid for what is hidden. I *think* IIRC, this isht is off balance sheet transactions. You may be able to find your loan initiallly in some pool, but good luck following it. It takes someone who really really reallly knows what they are doing.

There was some new reporting guidelines that were passed recently and go into effect shortly regarding reporting-meaning they have to put this crap on their BS's. Talk about whining.....I saw a certain bank who keep transferring assets to a subsidiary over and over. It's really wierd.

Anyways, the worst it yet to come. When people realize just how bad they've been eff'd, it's gonna get seriously ugly.

[flacorps]

The subject of securities and swaps could take days to explain even to someone reasonably up to speed on the subject of high finance.

Michael Millken was the first to conceive of slicing securities into "tranches" and financially what he discovered was the equivalent of the wheel, or fire or nuclear fission. And it had just as much potential for good ... or evil.

When it began to be used for mortgages and not just junk bonds, nothing about that changed.

Used properly, borrowers can be offered a better deal because lenders' risk is minimized. Used improperly and without understanding, a new risk creeps in: counterparty risk--the risk that somebody on the other side of the transaction won't be able to perform their obligation in the future.

In the current crisis, the counterparties that created the most trouble were insurers: AMBAC, MBIA and AIG.

Meanwhile, lenders needed to accept more and more risk just to make the next deal happen. They were building a dizzying ziggarut of cards, climbing higher and higher as they wound around an ever-shakier financial structure. We all know the rest.

The fact that the mortgages have been paid for in no way means that they have been paid in full. They just have new owners. And, unfortunately, the new owners own different parts rather than the whole.

Suppose you discover that a 100-story skyscraper is unsound and that by dismantling the top 30 stories it can be saved. The trouble is Alf owns the first 20 stories, Bob owns 21-74, and Charlie owns 75-100. Is it possible to get everyone to agree on fixing it, or does it need to come down and everyone just gets the value of the scrap iron and the real estate the building stood on. That's the problem with the mortgage securities.

[Mayor]

The subject of securities and swaps could take days to explain even to someone reasonably up to speed on the subject of high finance.

Michael Millken was the first to conceive of slicing securities into "tranches" and financially what he discovered was the equivalent of the wheel, or fire or nuclear fission. And it had just as much potential for good ... or evil.

When it began to be used for mortgages and not just junk bonds, nothing about that changed.

Used properly, borrowers can be offered a better deal because lenders' risk is minimized. Used improperly and without understanding, a new risk creeps in: counterparty risk--the risk that somebody on the other side of the transaction won't be able to perform their obligation in the future.

In the current crisis, the counterparties that created the most trouble were insurers: AMBAC, MBIA and AIG.

Meanwhile, lenders needed to accept more and more risk just to make the next deal happen. They were building a dizzying ziggarut of cards, climbing higher and higher as they wound around an ever-shakier financial structure. We all know the rest.

The fact that the mortgages have been paid for in no way means that they have been paid in full. They just have new owners. And, unfortunately, the new owners own different parts rather than the whole.

Suppose you discover that a 100-story skyscraper is unsound and that by dismantling the top 30 stories it can be saved. The trouble is Alf owns the first 20 stories, Bob owns 21-74, and Charlie owns 75-100. Is it possible to get everyone to agree on fixing it, or does it need to come down and everyone just gets the value of the scrap iron and the real estate the building stood on. That's the problem with the mortgage securities.

[caffeinekid]

I remember the Junk Bond King. Don't get me started. A lot of good American businesses were destroyed by that drek.

What is it about these finance crooks that has such a familiar ring every time one hits the news? Oy vey!

[flacorps]

I remember the Junk Bond King. Don't get me started. A lot of good American businesses were destroyed by that drek.

Remember that what sent him to prison was corruption related to the position of power he had achieved, not misuse of what he had invented.

And the ills that his invention produced were done by others. He described watching it happen as being a great surgeon locked out of the operating room watching through the gallery glass as others botched the operations they were performing... His deals didn't blow up.

[Onwards]

That's garbage. The banks still offered traditional mortgages. But many homebuyers decided to take the riskier mortgages in hopes of making a bigger profit on future resale and/or buying a much larger home than they should have. Except in rare circumstances, foreclosure is shameful and selfish.

Did you read the article?

I really recommend it. Here is the beginning of chapter 6, page 35:

One obvious response to the above discussion is that society benefits when people honor their financial obligations and behave according to social and moral norms, rather than strictly legal or market norms. This may be true if lenders behaved according to the same social and moral norms. In the case of lender-borrower behavior, however, there is a clear imbalance in placing personal responsibility on the borrower to honor their “promise to pay” in order to relieve the lender of their agreement to take back the home in lieu of payment. Given lenders generally superior knowledge and understanding of both mortgage instruments and valuation of real estate, it seems only fair to hold them to the benefit of their bargain. At a basic level, sound underwriting of mortgage loans requires lenders to ensure that a loan is sufficiently collateralized in the event of default. In other words, in appraising a home the lender should ensure that the loan amount, at the least, does not exceed the intrinsic market value of the home.

As discussed above, a textbook premise of economics is that a home’s value, even an owner occupied one, is “the current value of the rent payments that could be earned from renting the
property at market prices.” As such, historical home prices have hewed nationally to a price-to-annual-rent ratio of roughly 15-to-1. At the peak of the market, however, price-to-rent ratios reached 38-to-1 in the most inflated markets, and the national average reached 23-to-1. If personal responsibility is the operative value, then lenders who ignored basic economic principles (of which they should have been aware) should bear at least equal responsibility to homeowners for issuing collateralized loans that were far in excess of the intrinsic value of the home.

I have attempted to make this point repeatedly to my lenders, wish this article was available then. This point is amazingly important yet seems lost in the whole discussion; in the end lenders behaved even more irresponsibly than borrowers did, which is what caused the bubble to inflate in the first place. Put another way, as a consumer I know very little about high finance or financial risk management; if I put my trust in multiple parties that know better - my agent, broker and banker - and they all say in concert that the loan I'm taking makes sense, then I have no reason to disbelieve them when there is no obvious method for me to figure it out. They, on the other hand, have risk departments whose entire reason for existence is to make sure collateralized loans are securitized soundly. They failed, big time. They need to pay the price. I am entirely on the side of Prof White.

Edited by Onwards, 03 January 2010 - 09:32 PM.

[Hanover]

Im thinking of walking away.

My PMI is $500 a month due to a banker telling me I could reduce it by raising my equity in 5 to 10% increments. He no longer works at Sun Trust and SunTrust sold my mortgage to Litton Loan. Nobody knows what he was talking about (guess I should have asked for it in writing, but you know, I thought I could trust him).

So I'm stuck paying $1700 a month and took on a roommate to help offset the cost. I went through some unemployment and when you're paying $1700 you get VERY behind in your payments a hurry.

Litton refused any sort of modification since I can afford (barely) the $1700. So now I'm VERY behind and they approved me for HomeSavers Advance....unfortunately even though I signed the paperwork and sent it back, they seem to be dragging their feet on that now and it's almost like they never sent me the application.

By walking away, I can save up to $20k a year which would put me out of debt in less than a year for all my other debts. I could rent a pretty big house or a nice condo if I really wanted for less for what I was paying for my Mortgage...the more I think about it, the more I realize that no matter how much I love my house, it makes no sense for me to stay there anymore.

I understand that way of thinking completely. Sure it might be irresponsible, but when you asked the bank for help and you're not getting it...and paying a rediculous amount of PMI...that everyone gasps at when I talk about it..walking away sounds like a big exhale and relief.

[SportsNut]

Im thinking of walking away.

I understand that way of thinking completely. Sure it might be irresponsible, but when you asked the bank for help and you're not getting it...and paying a rediculous amount of PMI...that everyone gasps at when I talk about it..walking away sounds like a big exhale and relief.

Hanover:

I can understand your frustration with Litton. Most servicers are cr*p, and that is being complimentary.

I do recommend that you read the link below concerning PMI cos that are coming after those that have defaulted and left a deficeit behind. Just so you understand the potential of PMI turning into collections wolf, before you go thinking that you walk away, payoff all debt within a year and ALL troubles solved. Wish it were that easy.

http://creditboards....howtopic=422647