Mortgage too much? Join the crowd, walk away

[Brad Johnson]

Windows glitch.  Bugs the crap out of me but there's no fix for it.

Brad

[Jamisjockey]

I thought it was just me.....

Yup.  Window glitch.  Hate it.  Tempted to try google chrome.

[zxcvbob]

I've only read the first page of this thread, so sorry if I'm late.  The buyer made a promise to repay the loan or forfeit the collateral.  Either one satisfies the debt (morally if not legally.)  The buyer should not shoulder *all* of the risk of a down market.  The bankers never should have loaned on the inflated values without sufficient down payment to secure the loan.  Screw 'em.

My house is paid for; I have no skin in this game.  And I kind of resent current borrowers getting bailed out because I busted my butt to pay my mortgage, but everything is being done to protect the banks here and the banks already have the advantage.  Some of you are falling for it.

[makattak]

I've only read the first page of this thread, so sorry if I'm late.  The buyer made a promise to repay the loan or forfeit the collateral.  Either one satisfies the debt (morally if not legally.)  The buyer should not shoulder *all* of the risk of a down market.  The bankers never should have loaned on the inflated values without sufficient down payment to secure the loan.  Screw 'em.

My house is paid for; I have no skin in this game.  And I kind of resent current borrowers getting bailed out because I busted my butt to pay my mortgage, but everything is being done to protect the banks here and the banks already have the advantage.  Some of you are falling for it.

You signed a contract. PENALTY for breach of contract is forfeiture of the collateral. It's not a "either/or" choice.

However, since you seem to think it's fine for the bank to take the house, perhaps you'll support the bank in all these stories about people who have 50% equity in the house, but can no longer pay and the bank forecloses. Of course you support the bank, right?

[zxcvbob]

Makattak, your question seems directed at me, but I have no idea what you are talking about.   

[De Selby]

The fact is, the housing policies of the .gov were not the reason the banks made tons of bad loans.  The "innovative" securities devices that let the banks unload garbage debt as AAA rated paper on wall street was why they did it; bad loan or good, the banks were unloading them as fast as they could write them.  It was short term cash for the lender, and went on until the markets finally figured out that they were buying junk debt in unknown quantities.

That is another tick for "bank culpable", imo, although borrowers who didn't do the math also bear responsibility (which they pay out in terms of ruined credit and lost homes.)

[GigaBuist]

The "innovative" securities devices that let the banks unload garbage debt as AAA rated paper on wall street was why they did it; bad loan or good, the banks were unloading them as fast as they could write them.

Indeed. I never made a single payment to the bank that originally paid for my house.  They sold it before the 1st payment was even due.

[makattak]

The fact is, the housing policies of the .gov were not the reason the banks made tons of bad loans.  The "innovative" securities devices that let the banks unload garbage debt as AAA rated paper on wall street was why they did it; bad loan or good, the banks were unloading them as fast as they could write them.  It was short term cash for the lender, and went on until the markets finally figured out that they were buying junk debt in unknown quantities.

That is another tick for "bank culpable", imo, although borrowers who didn't do the math also bear responsibility (which they pay out in terms of ruined credit and lost homes.)

So, SinS, why were those "innovative" securities devices (i.e. mortgage backed derivatives) able to get a AAA rating?

Or, to put it simply, what government entities were backing these derivatives with the implicit guarantee of the Federal Government? (Here's a hint: F_____ M_____ and F_____ M_____)

[De Selby]

So, SinS, why were those "innovative" securities devices (i.e. mortgage backed derivatives) able to get a AAA rating?

Or, to put it simply, what government entities were backing these derivatives with the implicit guarantee of the Federal Government? (Here's a hint: F_____ M_____ and F_____ M_____)

Yeah, sorry, but Government guarantees had nothing to do with the shoddy and unscrupulous rating practices that enabled risky (ie, not guaranteed at all) loans on homes to be sold as top flight debt to investors.  Ratings were done without any information at all on the actual mortgages in many cases.  That happened because the financial incentive for everyone involved was great - most knew it would come to an end, but as long as you got your money before the gig was up, you could reap enormous profits. 

The only roundabout way you can blame the government for this is perhaps its failure to use the SEC to crack down on the investment scamming that underpinned the housing bubble. 

The financial incentives to turn over thousands of risky mortgages were entirely free market in nature - you make a risky loan, sell the debt to someone else, that guy does the same, and so on.....until the music stops, and someone gets left without a chair.

[Jamisjockey]

Yeah, sorry, but Government guarantees had nothing to do with the shoddy and unscrupulous rating practices that enabled risky (ie, not guaranteed at all) loans on homes to be sold as top flight debt to investors.  Ratings were done without any information at all on the actual mortgages in many cases.  That happened because the financial incentive for everyone involved was great - most knew it would come to an end, but as long as you got your money before the gig was up, you could reap enormous profits. 
The only roundabout way you can blame the government for this is perhaps its failure to use the SEC to crack down on the investment scamming that underpinned the housing bubble. 
The financial incentives to turn over thousands of risky mortgages were entirely free market in nature - you make a risky loan, sell the debt to someone else, that guy does the same, and so on.....until the music stops, and someone gets left without a chair.

Wrong! First, read up on the CRA.  Then, follow the money.  In 1995, the GSEs like Fannie Mae began receiving government tax incentives for purchasing mortgage backed securities which included loans to low income borrowers.  When Government incentives industry to do the wrong thing, well now, how can they not share in the blame?

[De Selby]

The Government didn't pay Moody's to rate all that paper, nor did loans to low income buyers (which, if guaranteed or regulated through some sort of federal assistance, aren't that risky on the investment end) drive the mortgage-backed securities markets.  That was all private business.

You could cut loans affected by the CRA completely out of the picture and still find exactly the same scam.  The markets incentivized any loan, good, bad, and ugly, because the participants simply passed the paper along, facilitated by privately-funded credit ratings to lure investment cash.  And even investors who knew the securities were bunk had financial incentives to trade in them.  

There's simply no convincing way to lay all of that on Government's doorstep, unless you happen to be making the criticism that Government didn't regulate enough.

[Jamisjockey]

 

The CRA forced, and then later incentivized private business to give out crappy loans.  All the paper shuffling was later figured out as a way to get rid of the crappy loans.  The same lawmakers who were suppossed to oversee Fannie and Freddy recieved large campaign contributions from both.  The government shares a piece of the pie, sorry you can't see the forest for the trees.

[De Selby]

The CRA forced, and then later incentivized private business to give out crappy loans.  All the paper shuffling was later figured out as a way to get rid of the crappy loans.  The same lawmakers who were suppossed to oversee Fannie and Freddy recieved large campaign contributions from both.  The government shares a piece of the pie, sorry you can't see the forest for the trees.

The interesting thing is that all the evidence I'm finding says that CRA regulated institutions made decent loans; those ones aren't that risky, even now.  Pretty detailed compilation here:  http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf

Do you have any stats on how many CRA-affected loans actually went bad? 

[Jamisjockey]

You're skipping over my point.  The CRA created subprime loans.  The government created the vehicle which then was used to create the loans that were fed into the mortgage backed securities. 

[De Selby]

You're skipping over my point.  The CRA created subprime loans.  The government created the vehicle which then was used to create the loans that were fed into the mortgage backed securities. 

How did the CRA 'create subprime loans'?  Not sure I see how that works. 

[Jamisjockey]

http://www.lewrockwell.com/dilorenzo/dilorenzo125.html

ACORN even brags about it on thier website

[roo_ster]

How did the CRA 'create subprime loans'?  Not sure I see how that works. 

The only way to be compliant with CRA was to grant subprime loans.

Previous to CRA, NAM(1) borrowers who came in for a loan who satisfied the previous lending standards got a loan.  They were not held to a higher standard and discriminated against, as default rates for NAM borrowers was roughly equivalent to other borrowers(2).

Problem was, the proportion of NAM borrowers who met the previous lending standards was significantly smaller than the proportion of other borrowers.  <----THIS is what CRA & the gov't regulators targeted. Rep. Bawney Fwank (D-Getyofreakon) was explicit in his aim to reduce the lending standards and take on greater risk.

The only way to make more NAM loans was to loosen the standards.  By means of law (CRA), the banks' hands were forced.  By means of threats by gov't regulators, the non-bank mort brokers' hands were forced.  Into this latter category fits Countrywide.  Surely, you have heard heard of Countrywide, the originator of the largest number of subprime loans on the face of the Earth?  The same Countrywide that gave Sen. Chris Dodd (D-Countrywide) "Friends of Angelo" sweetheart loans on some of his (several) homes?

Once again, I would heartily suggest anyone who wants a quantitative analysis of this debacle of gov't intervention in the economy to datamine http://isteve.blogspot.com/ .








(1) Non-Asian Minority.  IOW, black, hispanic, etc. minorities that usually qualify for affirmative action.

(2) Had they been required to meet higher standards, NAM loan default rates would have been less than the mean.