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.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.
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.
Law Professor Says Walk Away
Started by
flacorps
, Nov 29 2009 12:49 PM
109 replies to this topic
#101
Guest_CaseyKC_*
Posted 16 February 2011 - 08:49 AM
#102
Guest_CaseyKC_*
Posted 16 February 2011 - 08:55 AM
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.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.
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.
One thing people forget is that businesses walk away all the time and its seen just as part of "doing business". If its no longer a good property for their kind of business they fold up shop and not just limited as much as it is for "regular people".
If businesses can walk away because it's not serving their business, why should peoples own personal best interest be just as important and deserve no scarlet letter either?
In case no one noticed, lol, the courts and judges and attorneys are now engaging in some very underhanded and unethical and immoral conduct. The law doesn't count anymore, it's whose on top, who has the money, that's who wins and mostly we let them get away with it. I mean, for all the illegalities and questionable foreclosures, outside your big high profile figures, few (too few) are going to do any time for something you or I would get put away really fast.
#103
radi8
- Admin
-
- 27,226 posts
Posted 16 February 2011 - 10:21 PM
If businesses can walk away because it's not serving their business, why should peoples own personal best interest be just as important and deserve no scarlet letter either?
Some very large lenders have walked away from their own office buildings, stiffing the lenders in the process. I don't believe it's keeping them awake at night.
They recognize a mortgage loan for what it is- a contract. Nothing more and nothing less. When it's in their best interests to breech a contract and pay the related consequences, then they do.
Some folks make a similar decision and decide to stop paying...and the lender takes the property, exactly as agreed in the contract.
There is nothing in that paperwork that requires you to continue paying, provided you are OK with losing the house, and possibly being liable for any deficiency as you agreed. The "moral obligation" stuff that seems to only be inserted into consumer transactions is a bunch of BS. A contract is a contract is a contract.
#104
Posted 17 February 2011 - 11:51 AM
If businesses can walk away because it's not serving their business, why should peoples own personal best interest be just as important and deserve no scarlet letter either?
Some very large lenders have walked away from their own office buildings, stiffing the lenders in the process. I don't believe it's keeping them awake at night.
They recognize a mortgage loan for what it is- a contract. Nothing more and nothing less. When it's in their best interests to breech a contract and pay the related consequences, then they do.
Some folks make a similar decision and decide to stop paying...and the lender takes the property, exactly as agreed in the contract.
There is nothing in that paperwork that requires you to continue paying, provided you are OK with losing the house, and possibly being liable for any deficiency as you agreed. The "moral obligation" stuff that seems to only be inserted into consumer transactions is a bunch of BS. A contract is a contract is a contract.
Exactly. Just like marriage is a contract. Could you imagine if people were forced to stay in a bad marriage forever?
50% of people have ended that form of a contract, so why is a mortgage contract so much more obligatory?
#105
Posted 20 February 2011 - 02:44 PM
Hardship is a hard thing to prove. Just ask anyone who's tried to get a student loan partially or completely forgiven under the Brunner test.
To prove your point, it's literally impossible to do this. Even people disabled for life barely have a chance to get them forgiven.
Many of those that may be making this decision in the future are working in HAMP right now underwriting. THe irony, an underwriter denies you today for a mod. knowing the goal of the homeowner applying for a mod. based on an alleged hardship (really is it they are underwater and are creating a hardship) may be the same underwriter you see in four years trying to recreate the reason of default, a true hardship or strategic default.
I don't think it would be that difficult, just a new area in future originations underwriters will need to evaluate. Top of my head, I'd say this can be validated by a tax transcript for the year and years leading into and after foreclosure to evaluate income. If you see a homeowner that had reasonable income in the years of foreclosure, that would be an issue that could negate any claimed hardship from the borrower from lack of income to pay the mortgage to bypass the seven year penalty. Pull the credit, were there defaults across the board or only on the mortgage, a red flag for strategic default.
#106
Posted 25 February 2011 - 11:54 AM
Sounds like this law prof is preparing the next honey hole for lawyers by grooming the issues potential clients will face down the road.
#107
Posted 21 April 2012 - 08:07 PM
Mayor,
I am not sure if I understand your comment but no home owner goes to foreclosure with an intent to create a loss for the lenders. No one does. If your property is not worth keeping financially, you let go. WHy throw good money after bad investiment. You also have a loss when your have your property is forclosed although the degree varies depending on the situation, who care if these greedy lenders lose some money. They lose big time and may not be able to pay out big bonuses they aforded to pay during the real estate buble. And we are so glad!!
Hope
I am not sure if I understand your comment but no home owner goes to foreclosure with an intent to create a loss for the lenders. No one does. If your property is not worth keeping financially, you let go. WHy throw good money after bad investiment. You also have a loss when your have your property is forclosed although the degree varies depending on the situation, who care if these greedy lenders lose some money. They lose big time and may not be able to pay out big bonuses they aforded to pay during the real estate buble. And we are so glad!!
Hope
I been reading in the mortgage section it's getting stricter and stricter with mortgage loans. So, i am correct there just getting more strict with who they lend because of all the losses they have been expierencing. My other prob with all these people who go foreclosure route is that it's hurting there areas value of properties. The more forecloseures that in the area hurts the BPO for the property. My point is the banks are going to be there, your not going to get back at them just because you foreclose. A borrower may be on the streets but those banks building will still be there. It's the sad truth -- we can all see that from TARP.
IE. Maybe I come off strict or all for banks...but you have to understand I see these things on a daily basis...and I don't ALWAYS think the banks are in the right.
#108
Posted 26 April 2012 - 10:24 AM
Hardship is a hard thing to prove. Just ask anyone who's tried to get a student loan partially or completely forgiven under the Brunner test.
To prove your point, it's literally impossible to do this. Even people disabled for life barely have a chance to get them forgiven.
One thing it means is that subprime will be back. Where there is a pool of otherwise creditworthy individuals who aren't being served, someone will have the cojones to step into the breach.
Especially for higher income people that their only lates were their mortgages that went to short sales/foreclosures and kept current with all other debt. You will see soon lenders offereing to serve this market with higher interest (8-10%), 25-30% down and clauses to share appreciation on the property up to a certain mark. There is a lot less to lose with the prices of homes where it is.
#109
Posted 21 August 2012 - 11:56 AM
http://papers.ssrn.c...ract_id=1603605
Take This House and Shove It: The Emotional Drivers of Strategic Default
Take This House and Shove It: The Emotional Drivers of Strategic Default
#110
Posted 23 August 2012 - 06:44 AM
Ugh.. a 10 page paper with 20 pages of citations and 20 pages of margins. 
It is a good read though. I agree with the effects some of the recent policies have. I don't fully understand this "rent-based program" - how does it adequately address the LTV issue? I think as long as jobs aren't stable, people will be unsettled and less willing or able to stick to long term commitments like home ownership. This seems, in my eyes, to affect you more the further down you are in the income brackets.
I also agree with the idea that it seems unfair for new policies to only help those that couldn't afford their mortgage in the first place. At this stage (or even the stage of that paper, 2010) it was too little too late for these borrowers. In reality everyone has been impacted and not everyone is willing to stick it out to see if/when it will recover. If you don't address that problem, you will still have these defaults across the board. Either principle needs to match the market or the market has to catch up with the principle.
It's also pretty damning that appraisers now tend to rely on foreclosures and short sales for comps for those trying to sell the traditional way. I don't know what the answer is here. But If my home value is going to be priced based on homes that were abandoned, what reason do I have to do anything different than what they did?
It is a good read though. I agree with the effects some of the recent policies have. I don't fully understand this "rent-based program" - how does it adequately address the LTV issue? I think as long as jobs aren't stable, people will be unsettled and less willing or able to stick to long term commitments like home ownership. This seems, in my eyes, to affect you more the further down you are in the income brackets.
I also agree with the idea that it seems unfair for new policies to only help those that couldn't afford their mortgage in the first place. At this stage (or even the stage of that paper, 2010) it was too little too late for these borrowers. In reality everyone has been impacted and not everyone is willing to stick it out to see if/when it will recover. If you don't address that problem, you will still have these defaults across the board. Either principle needs to match the market or the market has to catch up with the principle.
It's also pretty damning that appraisers now tend to rely on foreclosures and short sales for comps for those trying to sell the traditional way. I don't know what the answer is here. But If my home value is going to be priced based on homes that were abandoned, what reason do I have to do anything different than what they did?
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