Armed Polite Society
Main Forums => The Roundtable => Topic started by: Grandpa Shooter on February 13, 2010, 09:34:37 PM
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I thought this was a good, simple explanation of the mortgage debacle and why it is fueling a crisis.
A growing trend among homeowners with upside-down mortgages is simply walking away from their homes without even trying to get a loan modification, according to local mortgage brokers.
Loan modification programs not cutting it
“People have gone from buying a house to raise their family in to buying a house as an investment,” said Eric Bowlby, president of Amerifirst Financial in Mesa. “We see customers all the time who come in and they’re letting their home go on purpose to the bank, and they act like the bank screwed them because it’s now upside down in value. But they pulled a line of credit out. They bought themselves an RV, a new truck, a new boat, and they think that it’s the bank’s fault that their house is upside down.”
People are being told simply walking away is the smart thing to do, even if they can afford to pay their monthly mortgage, he said.
“‘Experts’ tell people ‘well, if you’re upside down in your house $100,000 and you make $40,000 a year, you should walk away from your house,’” Bowlby said. “When you feel like it’s OK to walk away from something you committed to, the banks, because of the losses, have to start walking away from things that they committed to ... and the company that you work for may lose the ability to fund their own business, which means you’re now out of a job.”
Dan Huss, president-elect of the Arizona Association of Mortgage Brokers, said homeowners believe banks should reduce their loan balances because home prices have dropped so far below when they purchased their homes.
Those who do choose to walk away can expect their credit score to take a hit, rendering them unable to buy another home or obtain financing for what can be an extended period of time, according to financial experts. Still, that’s not keeping many from choosing to leave their home and rent another for far cheaper until their credit improves.
“The consumer sits back and says ‘OK, let’s look at it this way: I owe $400,000 on a $300,000 home. If my credit (score) was perfect, they’re not loaning me any more money, so what difference does that perfect credit mean,’” said Kevin Hardin, director of the Mortgage Mediation Group at Valley-based law firm Thomson Conant.
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Wait. These people honestly think the bank won't hire attorneys and pursue to recover the difference in the mortgage loan vs. what the devalued house will sell for afterwards?
It's already happening around here, and even on short sales of homes. It was in the newspapers not too long ago:
http://buyingsellingahome.suite101.com/article.cfm/banks-go-after-short-sellers-after-the-sale
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It seems the credit scoring system is the incentive the financial system uses to keep people paying. If it becomes no longer to the consumer's benfit to pay any attention to that credit score...what happens? Tougher system? More punishment?
ETA What he ^^ said, you could just sic a lawyer on 'em.
Not strictly relevant, but I know that many of my peers (the barely out of college crowd) are NOT buying houses, even the ones with stable, well-paying jobs. Even with those positives the risk is still gauged to be too high.
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And yet, banks and finance companies routinely walk away from underwater financing on commercial property. It is a rational decision for their financial self-interest. Should individual residential mortgages do differently?
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And yet, banks and finance companies routinely walk away from underwater financing on commercial property. It is a rational decision for their financial self-interest. Should individual residential mortgages do differently?
The difference is, banks and financial companies can hire plenty of lawyers.
Unfortunately, in this world, might does make right.
Not strictly relevant, but I know that many of my peers (the barely out of college crowd) are NOT buying houses, even the ones with stable, well-paying jobs. Even with those positives the risk is still gauged to be too high.
Heck, I'm in that boat. I make decent loot. I'm not buying a house in the near future. Dumping my surplus cash into savings, 401k, etc. Only debt I have is my car loan and what I accumulate in credit card debt since the last paycheck.
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If I walked away from my mortgage I'd moving to easy street (if you could really consider renting easy) but, I could not do that and still look in a mirror. Also couldn't handle moving into a cliff dwelling or not being to do whatever I wanted to the place. If I want to go hunting or shooting, I have only to step out the back door.
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Someone correct me if I'm wrong but the amount they borrowed from the bank hasn't fluctuated, right? They borrowed $400,000 from the bank to pay the seller for the house. Even if the house is worth $10 the bank still lent them $400,000 to pay for it. So even though the imaginary value of the house has diminished greatly the amount of money the bank gave them hasn't changed a bit. So even if the bank gets the house they take the hit on the loss in value. And the owner gets to play the risky real estate business risk free. Exactly what we are all criticizing Wall Street for doing.
Right?
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Someone correct me if I'm wrong but the amount they borrowed from the bank hasn't fluctuated, right? They borrowed $400,000 from the bank to pay the seller for the house. Even if the house is worth $10 the bank still lent them $400,000 to pay for it. So even though the imaginary value of the house has diminished greatly the amount of money the bank gave them hasn't changed a bit. So even if the bank gets the house they take the hit on the loss in value. And the owner gets to play the risky real estate business risk free. Exactly what we are all criticizing Wall Street for doing.
Right?
Exactly. That is why I posted this. It appears people are thinking that walking away is no big deal. That attitude of "me first" is among the things at the core of the problems this country has. Of course that is only my opinion.
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Phantom Warrior nails it. You borrow money, you have a moral obligation to repay it as best you can.
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And yet, banks and finance companies routinely walk away from underwater financing on commercial property. It is a rational decision for their financial self-interest. Should individual residential mortgages do differently?
So true. When banks do it, they consider a sound business practice. When you do it, it appears to be a breach of some high moral obligation.
Someone correct me if I'm wrong but the amount they borrowed from the bank hasn't fluctuated, right? They borrowed $400,000 from the bank to pay the seller for the house. Even if the house is worth $10 the bank still lent them $400,000 to pay for it. So even though the imaginary value of the house has diminished greatly the amount of money the bank gave them hasn't changed a bit. So even if the bank gets the house they take the hit on the loss in value. And the owner gets to play the risky real estate business risk free. Exactly what we are all criticizing Wall Street for doing.
Right?
The owner doesn't get to play for free. There are consequences and they are real. That several hundred thousand dollar judgment and potential bankruptcy prevent a lot of people from getting to play again. A few that manage to come into money or sweet talk more creditworthy investors often find a way back in.
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There are also sometimes nasty tax consequences to these things.
But yeah, I'm with MillCreek and crt360 on this one - how can an institution that has with certainty done this many times in the past, wave its arms with rage when consumers do it?
There wouldn't be mortgages if the system were designed around individuals paying off debts no matter what. The reason we have that device in the first place is that sometimes people don't or can't. It's up to the lender to price the asset it wishes to take as security under a mortgage.
It looks to me like banks will be asking us to bail them out because they failed to take adequate security for their loans.
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It's up to the lender to price the asset it wishes to take as security under a mortgage.
I agree with that statement. Besides institutions who make money out of money without any added value
what so ever deserve to get screwed over time and time again. No bailouts. Added value and not a [deleted] weasel mentality
"I'm so clever and always be on the winning side because the gubbermint backs me up"
In my book if you get a loan for a house which the bank keeps the title for security of you should be able to
walk away from it and let them have the house. Fair enough.
Language, folks...
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Wait. These people honestly think the bank won't hire attorneys and pursue to recover the difference in the mortgage loan vs. what the devalued house will sell for afterwards?
It's already happening around here, and even on short sales of homes. It was in the newspapers not too long ago:
http://buyingsellingahome.suite101.com/article.cfm/banks-go-after-short-sellers-after-the-sale
As with other rational financial decisions made at the corporate level, such litigation is generally only filed if the defendant has sufficient unencumbered assets to make it feasible to sue them. If they don't have money, they don't get sued. You can't get blood from a stone.
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I don't like the idea of people walking away from loans, but on the other hand, the mortgage companies were stupid for making the loans or allowing the homeowners to roll additional debt into the loans. To some extent, they are just as responsible for the housing bubble as the people buying the extra houses.
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I don't like the idea of people walking away from loans, but on the other hand, the mortgage companies were stupid for making the loans or allowing the homeowners to roll additional debt into the loans. To some extent, they are just as responsible for the housing bubble as the people buying the extra houses.
True, but why are we the taxpayers bailing out both? Why aren't Barney Frank and Chris Dodd in prison?
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To some extent, they are just as responsible for the housing bubble as the people buying the extra houses.
I'd say even more so from just the micro v macro scale. The banks and government are in a far better position to understand valuation and should be somewhat neutral parties. It makes me think of the old saying, if you owe someone a hundred dollars, you are in trouble. If you owe someone a million, they are. When you hear stories about banks giving 500k and then later when they are stuck with the property, letting it go for 5k... yah, they really dropped the ball on determining value. If you are I took such actions we would be institutionalized, in prison or a psyc ward. But... since a lot of folks are doing it and they are wearing suits, they automatically pass the sanity check. :facepalm:
I say pass the common sense standard further up the line.
But I have little faith that will happen of course. Its not rational not to take absurd risks when its someone else's money.
[tinfoil]
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Walk away from a mortgage, and go to debtor's prison.
Oh, that's right - there's no such thing anymore. =|
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The folks that would have been in them are now running our financial system.
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the mortgage companies were stupid for making the loans or allowing the homeowners to roll additional debt into the loans
how can an institution that has with certainty done this many times in the past, wave its arms with rage when consumers do it?
These points may be true, but in my opinion they are immaterial. The borrower made a deal with the bank to borrow a certain sum to be paid back with a certain interest. The bank held up its end, the borrower should too. What happened to the housing market afterwards is of no relevance to the deal that was made. The fact that the bank does it don't excuse your debt, unless maybe the lending bank did it to you personally.
The borrower should own up to his own accountability.
I'm reminded of ten years ago when Merrill Lynch sold an investor exactly the investments he asked for. The investments tanked, and the investor sued Merrill Lynch, claiming it should have known better. ;/ Sadly, the investor won his suit. ??? As in all cases of this sort, I blame the jurors. :mad:
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Someone correct me if I'm wrong but the amount they borrowed from the bank hasn't fluctuated, right? They borrowed $400,000 from the bank to pay the seller for the house. Even if the house is worth $10 the bank still lent them $400,000 to pay for it. So even though the imaginary value of the house has diminished greatly the amount of money the bank gave them hasn't changed a bit. So even if the bank gets the house they take the hit on the loss in value. And the owner gets to play the risky real estate business risk free. Exactly what we are all criticizing Wall Street for doing.
Right?
Right.
I agree with that statement. Besides institutions who make money out of money without any added value
what so ever deserve to get screwed over time and time again. No bailouts. Added value and not a [deleted] weasel mentality
"I'm so clever and always be on the winning side because the gubbermint backs me up"
In my book if you get a loan for a house which the bank keeps the title for security of you should be able to
walk away from it and let them have the house. Fair enough.
Now that's just silly. Banks and lenders add no value? Then why do people pay to use them? (Obvious answer: because banks and lenders do provide value. You may not recognize the value, but their paying customers surely do.)
The point of using the house as security is to attempt to make the lender whole again if you injure him by not honoring your contract and repaying the loan. It's their way to try to pick up the pieces after a defaulting borrower makes a mess for everyone else.
Realize that mortgage agreements are structured in the form "you will repay XYZ", not "you will either repay XYZ or give us your house, you choice, whichever you happen to feel like at the time, it's all the same to us".
And yet, banks and finance companies routinely walk away from underwater financing on commercial property. It is a rational decision for their financial self-interest. Should individual residential mortgages do differently?
Banks and developers and investors that try to pull that crap in the commercial real estate world often get hosed in court. And they get hosed in the biz community, too, losing their reputation and lessening their odds of making any profitable deals in the future. They get away with it sometimes, but not nearly as often as you'd think.
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You borrow money, you pay it back.
The value of the house vs the loan balance is irrelevant. You borrowed money with an agreement to pay it back. You choose to break the terms of that agreement? Fine. You also choose to live with all the legal and financial ramifications pertaining thereto. If you were too damn dumb to get a mortgage you could afford (vs buying based on the max available loan) then I have no sympathy.
I see a stream of idiots who, in the literal sense, have absolutely NO FRIGGIN' GRASP of what being financially responsible actually means. They will gripe and moan about three dollar gas while standing in line for five dollar coffee. They will go into fits of apoplexy about how their turd of an employer because their raise is so small they will have to wait until next year to trade in the boat for a bigger one. They will collapse into a steaming pool of goo over how much groceries cost while waiting in the supermarket checkout line with a basket full of high-dollar 'organic', luxury brand, or prepared food items.
Tough cookies folks. You get yourself into the mess, you get yourself out. Don't throw that burden on someone else's shoulders and expect folks like me to pat you on the back for doing the right thing.
Brad
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^^^ Brad, your argument can also be made about the commercial lenders and large financial houses. They got themselves into this mess, and now we the people are having to bail them out. Why the outrage over the poor financial management of individuals and not over corporations?
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The folks that would have been in them are now running our financial system.
True :mad:
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^^^ Brad, your argument can also be made about the commercial lenders and large financial houses. They got themselves into this mess, and now we the people are having to bail them out. Why the outrage over the poor financial management of individuals and not over corporations?
Because I deal with it every day. Don't take a lack of expression for lack of outrage in other areas. There is plenty of stupid to go around.
One thing that tempers my ire at larger entities is that many of the problems there can be traced to management's forced compliance with govt rules and regs, not from an endimic lack of business savvy or some kind of inherent flaw in their ethic. With individuals it's a straight-up call between Smart Decision and Blatantly Stupid but Did It Anyway.
Brad
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I hold banks responsible for their actions too. Aside from HTG you won't find many people on here who are pro-bailout.
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Brad, your argument can also be made about the commercial lenders and large financial houses. They got themselves into this mess, and now we the people are having to bail them out. Why the outrage over the poor financial management of individuals and not over corporations?
I can answer that.
Because it's addressed in a different thread, and has been here ad nauseam. The outrage is sitting over in those threads, just use the search function.
This thread is about people walking out on a mortgage as if their fecal matter won't smell bad afterwards. IOW, defaulting on a loan agreement. That warrants a separate round of outrage.
Damned skippy that banks should hire lawyers to go after them for the amount of the loan after the foreclosure sale.
Don't sign mortgage paperwork if you can't swing the loan terms. How hard is that to grok?
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I can answer that.
Because it's addressed in a different thread, and has been here ad nauseam. The outrage is sitting over in those threads, just use the search function.
This thread is about people walking out on a mortgage as if their fecal matter won't smell bad afterwards. IOW, defaulting on a loan agreement. That warrants a separate round of outrage.
Damned skippy that banks should hire lawyers to go after them for the amount of the loan after the foreclosure sale.
Don't sign mortgage paperwork if you can't swing the loan terms. How hard is that to grok?
Thank you Sir for keeping this on course, and recognizing what it is about.
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Of course, I can see how real estate people and residential mortgage people, as quoted in the original post, would decry mailing the keys back to the bank. What would happen to their business if this became common? Nothing good, I am sure.
But I work in healthcare where I see people default on their bills all the darn time. My employer is one of the largest providers of charity healthcare on the West Coast. We can't very well repossess their surgery or stuff the baby back up the pipe. What should we do to collect on the debt, especially when they refuse to pay? In this scenario, at least there is a house to repossess.
I just don't see where residential mortgage defaults should engender so much ire over and above defaulting on any kind of debt. And especially since defaulting on business mortgages is a common business practice in the commercial real estate arena. From what I read in the business press, we can likely expect a tidal wave of commercial loan defaults in the next several months.
Carrying any sort of debt carries an explicit or implicit commitment to pay it back, be it commercial lending, healthcare, housing, car, student loans or anything. If you default, you should be held accountable, be you an individual or corporation.
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MillCreek, you're not seeing the forest for the trees.
Yes, there is outrage over banks with predatory lending practices that caused the housing bubble and subsequent burst.
Yes, there is outrage over people not paying healthcare bills.
The lack of such outrage for those particular causes in this particular thread is not an explicit approval by APS members.
This thread is a stand-alone commentary about people walking away from their mortgages, and somehow thinking that they'll do so without retribution, smelling fresh as a daisy afterwards.
Far from it. They defaulted on a binding loan agreement, and their legal obligations are still in force. Banks are now hiring attorneys to recover, and very rightfully so.
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Banks are now hiring attorneys to recover, and very rightfully so.
nope you walk they take the house and its usually all over. and some lenders have covered it with insurance
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Maybe a while ago, but now they're going after the former mortgage holders for the difference in the mortgage vs. the price the bank got for the property via the county sheriff afterwards. Google "deficiency judgement in foreclosure".
You know, those sticky terms found in the mortgage.
Granted, if there's mortgage insurance still in effect and it covers the cost of the short sale or default, then all's hunky-dory. Unfortunately, that's not always the case.
More here:
http://www.nctimes.com/business/article_55ec31b7-8c9c-5479-b5de-fbf602c50a7c.html
Note to the wise after walking away from a mortgage: Don't exhibit any affluence for a long time afterwards!
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^^^ Very interesting how that article reported that threatening litigation after a short sale seems to be more of a scare tactic, at least in the northern San Diego county area. No actual cases were found. This is not an area of law that I follow or am familiar with, but I am familiar with the concept of only filing litigation if you have a reasonable hope of recovering enough to make it worth your while.
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Of course, I can see how real estate people and residential mortgage people, as quoted in the original post, would decry mailing the keys back to the bank. What would happen to their business if this became common? Nothing good, I am sure.
Actually it's better for me and the mortgage broker. Repo usually equals a slightly lower purchase price vs other comparable homes on the market. That measn easier qualification for the buyer and more surety of loan for the mortgage broker, which means more ease of purchase and surety of close for my client.
Brad
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One real estate agent who specializes in short sales, Chris Mackey of Carmel Valley, said about 50 percent of the short sale contracts he has seen include the language before he requests its removal. Banks generally have removed the language, he said.
from the article
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we had a mcmansion development near here. houses went for mid 400's several of them sold for 180 plus recently after foreclosure. i know several folks who have done short sales and have not been stuck for the shortfall. i think its up to you to check the fine print
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Actually it's better for me and the mortgage broker. Repo usually equals a slightly lower purchase price vs other comparable homes on the market. That measn easier qualification for the buyer and more surety of loan for the mortgage broker, which means more ease of purchase and surety of close for my client.
Brad
Because I like to learn something every day, and I am not expert in this area, despite owning three houses over the years, a repo is better than what for you and the broker? A short sale? Is a repo also better for the home owner who defaults? That article cited by G98 said that the lenders treat them both equally for future mortgages, except a short sale can qualify a couple of years quicker for a new loan.
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Short sale is misleading. 'Approved' short sales happen all the time. The mortgage holder approves the short sale so they can recover what funds they can and use the mortgage insurance to cover any remainder (less their deductable).
Unfortunately some people will put a home on the market as a short sale without ever contacting their mortage company about it. Getting that mortgagor's official "WTF!!??" letter a couple days before closing tends to dampen the mood a bit. The seller's usual response? "Well, I hear they've been doing it for everybody. What's the problem?" Now the dipwad is not only stuck with a pissed-off lender who probably would have short sold if they'd only been approached up front, the seller is in default if the contract does not close on time (an undisclosed title defect does not an excuse make) and is potentially liable for buyer's related expenses. Can you say 'Treble Damages' boys and girls? I knew you could.
Because I like to learn something every day, and I am not expert in this area, despite owning three houses over the years, a repo is better than what for you and the broker?
I specifically stated why it is a potential positive.
Read. It. Again.
Brad
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I specifically stated why it is a potential positive.
Read. It. Again.
Brad
I am sorry if I was unclear. You stated that a repo was a potential positive for you and a broker. I asked you if a repo was better for you and a broker than other options of dealing with a default, such as a short sale. Does a short sale make any difference whatsoever to the subsequent purchaser of a home; i.e. your client? Does it complicate the sale or mortgage process for your client?
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i think a big key is staying in touch with the mortgage company. once upon a time i got in real trouble and when i talked with the mortgage guy was completely candid. i think i almost scared him. they were quite considerate in working with me. they let me get 6 month in the hole awaiting a sale
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I am sorry if I was unclear. You stated that a repo was a potential positive for you and a broker. I asked you if a repo was better for you and a broker than other options of dealing with a default, such as a short sale. Does a short sale make any difference whatsoever to the subsequent purchaser of a home; i.e. your client? Does it complicate the sale or mortgage process for your client?
So long as the short sale has been tentively approved, no. The only hitch is that any offer made must be approved by the selling mortgagor. That normally only takes 1-2 business days. Aside from that, no, there are no problems.
A true repo is a slightly different animal. A HUD or VA repo has this nasty little clause saying that the reposessee can, within two years time, come back and satisfy the original lien against the property. If that occurs, the current owner recovers their original investment in the property and hands back the keys. (This only applies to the person who originally purchased the home as a reposessed property. If it's been sold since, all bets are off.) It's only happened once in our office during the entire time I've been in real estate. It was a mess, the owner having put some 20 grand into improvements on a $40k house. Turns out the guy was out to scam someone into giving him a free home remodel and had planned on using the clause to get the house back once someone renovated it. Unfortunately for the poor lady that was out $20k, him being a scumbag and getting cought didn't get her any of her money back.
*edit to add* My info on the buyback clause is dated by several years. They may well have changed it recently. I'd need to verify before getting into an active negotiation.
Brad
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I hold banks responsible for their actions too. Aside from HTG you won't find many people on here who are pro-bailout.
And even I'm not pro-bailout in all areas. There are good and necessary reasons to do certain things for banks (elastic money supply, prevention of cascading failures, preventing a collapse in the money supply), and there are dumbfrick stupid things to do with/for banks. Most of the things done with/for the banks during the recent economic unpleasantness have been of the latter sort.
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A HUD or VA repo has this nasty little clause saying that the reposessee can, within two years time, come back and satisfy the original lien against the property. If that occurs, the current owner recovers their original investment in the property and hands back the keys.
Ay, caramba! That is quite the little potential land mine, there. Something to bear in mind if I was ever to buy a government repo, then.
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Yep. But, again, my info is dated by several years. I haven't received any update notifications, but that's no guarantee that something hasn't changed.
Brad
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So long as the short sale has been tentively approved, no. The only hitch is that any offer made must be approved by the selling mortgagor. That normally only takes 1-2 business days. Aside from that, no, there are no problems.
There can be tax consequences to this - the amount by which your loan was forgiven can add up to a nasty tax bill.
The thing with a lawsuit against a consumer is that unless the person is either a) insured against the judgment or b) a property owner, the resulting judgment will be unsecured debt worth pennies on the dollar, if anything at all. Judgment creditors are just barely above a guy holding an overdue invoice on the food chain.
In these cases, usually the person defaulting is losing his/her only real property, or all properties. The property itself is the only thing of value you would be able to grab to satisfy the judgment.
Except for tax debts - the sovereign always has a really good position when it is the creditor, as in feudal times.
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So long as the short sale has been tentively approved, no. The only hitch is that any offer made must be approved by the selling mortgagor. That normally only takes 1-2 business days.
We're getting close to the 4 month mark for approval on ours. Other offers have been pulled after it took long to get approval. In another instance where I knew both the buyer and seller it took about 3 months for the approval to finally come through.
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There can be tax consequences to this - the amount by which your loan was forgiven can add up to a nasty tax bill.
I'm talking about the buyer side, not the seller.
We're getting close to the 4 month mark for approval on ours. Other offers have been pulled after it took long to get approval. In another instance where I knew both the buyer and seller it took about 3 months for the approval to finally come through.
I'm guessing the loan is with a bank and not with a traditional mortgage underwriter. 4 days is normally a long time with most of the major mortgage players.
Brad
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I'm guessing the loan is with a bank and not with a traditional mortgage underwriter. 4 days is normally a long time with most of the major mortgage players.
Brad
I'm actually curious about this. How many mortgages remain with a traditional underwriter after closing? We were told that our mortgage would likely be sold within 30 days.... Sure enough, it was bought by BofA within about 5 days of us closing.
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I'm guessing the loan is with a bank and not with a traditional mortgage underwriter.
Yep, one of the big banks. They move painfully slow.
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I don't understand how people can just walk away from their mortgage and think everything will be just ducky.
Their credit score will obviously take a huge hit, and whenever you apply to rent a place, the potential landlord will pull your report and see that you are a deadbeat.
Same with applying for a new job.
Sawdust
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I don't understand how people can just walk away from their mortgage and think everything will be just ducky.
Their credit score will obviously take a huge hit, and whenever you apply to rent a place, the potential landlord will pull your report and see that you are a deadbeat.
Same with applying for a new job.
Sawdust
A former co-worker of mine walked away from a house and filed for bankruptcy around the same time. That was four years ago.
He drove a used car for a while and had to rent houses, but four years later he purchased another house.
*shrug*
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If you keep your nose clean for two years after the bankruptcy is fully discharged you can qualify FHA.
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A pox on both your houses.
Both sides assume some risk in the transaction.
Thats why the lender (generally) wants to see proof of income, prior tax returns, an appraisal of the property, etc, etc, etc. There is no guarantee that they'll get their money back. In Illinois most contracts limit the lender to extent of their "secured interest" (basically the property).
The buyer isn't walking away "scot-free". They've lost whatever they've in paid mortgage payments, lost their place to live, destroyed their credit rating, etc. In some/many cases it's because they've lost their job. (Yes, there are the dirtbags that were "dumb in a no stupid zone").
Banks shouldn't get bailouts, buyers do get hammered on their credit report. And Barney Frank, Chris Dodd, et al, should be (Can't think of a punishment severe enough that still meets APS niceity rules).
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And Barney Frank, Chris Dodd, et al, should be (Can't think of a punishment severe enough that still meets APS niceity rules).
Amen to that.
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Banks shouldn't get bailouts, buyers do get hammered on their credit report. And Barney Frank, Chris Dodd, et al, should be (Can't think of a punishment severe enough that still meets APS niceity rules).
hmm, life imprisonment, the dome out of that pauly shore movie (http://www.imdb.com/title/tt0115683/).
together! [popcorn]
edit" extra "the"
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Maybe I am getting this wrong - but I can not see why you couldn't walk away from your mortgage :
wiki :
"In all but a few states, a mortgage creates a lien on the title to the mortgaged property. Foreclosure of that lien almost always requires a judicial proceeding declaring the debt to be due and in default and ordering a sale of the property to pay the debt."
So we are not speaking of a loan of money which you could spend how you saw fit. Instead they buy a house in your name keep the title until you've payed up for 30 years as if any of those houses would last that long without having to be rebuilt and taxed. To me it looks just like you payed rent to a bank as substitute to being a landlord.
Now for whatever reason, but you could guess it is the fault of banks what with bubbles, bail outs, 30% subprime credit cards
and what not, you have a case of negative equity and maybe just now you lose your job - it happens, right - how would you not walk away from it - what would be the options?
I understand the moral obligation to repay a loan of a certain value with a fixed interest rate which you need to build a business - and only then starts the added value of a loan. But if they just finance a house as if it was a car or a flatscreen
possibly without a down payment, then why not walk away?
Maybe a wrong example but would you continue paying into your 401k knowing that when you'll reach retirement age
the return would be minus 40 % of what you had contributed?
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Because, short and simply, it's wrong to walk out on a financial obligation.
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Because, short and simply, it's wrong to walk out on a financial obligation.
Yes, it is.
But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.
You turn in the keys and stop paying, they reposess the house. That is what mortgage means and should be fair enough.
Then there are short sales which is basically the same thing as walking out if I got it right. You sell the place
for an inferior price than the (virtual) amount borrowed, give the money to the bank and they accept the loss which ought to be 20 % less important then the amount obtained after a foreclosure. Doing that on an inniative from the bank confirms
the right to walk away from a bad deal, doesn't it?
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You gave your word to pay them the money. Not pay them the money or give them the house. Taking the house is the bank's only way to try and recoup the losses, but it never equals the total amount of money you gave your word to pay.
Walking out doesn't make the bank whole, and it means your word is no good.
It also says a fair bit about your honor.
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Yes, it is.
But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.
You turn in the keys and stop paying, they reposess the house. That is what mortgage means and should be fair enough.
Then there are short sales which is basically the same thing as walking out if I got it right. You sell the place
for an inferior price than the (virtual) amount borrowed, give the money to the bank and they accept the loss which ought to be 20 % less important then the amount obtained after a foreclosure. Doing that on an inniative from the bank confirms
the right to walk away from a bad deal, doesn't it?
They are not the same thing. A short sale is negotiated with the bank ahead of time. Both parties have a chance to say "no" to the deal. And a short sale will sell for more than a forclosure.
If you're desperate, you do what you have to do. But if you enter into a financial agreement with another party, and just 'walk away', you should have to pay the piper. The bank invested XXX amount of dollars into purchasing the house for you. You walk away, saying 'screw the bank'. Bank comes after you. Color me unsympathetic. Especially when there are a number of options that can be negotiated with a bank, rather than just walking away from the house.
Your statement "But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house." disturbs me. Not using the house doesnt negate the financial agreement you've entered into with another party. By your logic (or lack thereof), you can really walk away from any financial obligation if you're no longer using it. That is just wrong.
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No one would be complaining if the housing market was soaring and the banks were making huge gains. There were still foreclosures during the boom times and banks were then able to "flip" houses for more then what was originally financed.
I'm not advocating walking away, but if the bank won't work with you, that may be your only option.
The major problem is that the .gov created this mess, and now won't let the marekt correct itself as they keep meddling with it.
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And yet, for all the people who think that a residential mortgage is a moral or honor obligation, do you really think that banks and commercial lenders feel the same way about the debt that they walk away from?
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No one would be complaining if the housing market was soaring and the banks were making huge gains. There were still foreclosures during the boom times and banks were then able to "flip" houses for more then what was originally financed.
I'm not advocating walking away, but if the bank won't work with you, that may be your only option.
The major problem is that the .gov created this mess, and now won't let the marekt correct itself as they keep meddling with it.
Banks and idiot consumers and the .gov all combined to make the mess. NINJA loans? ARMs that inflate to double digit intrest rates? People cashing out the equity to buy as many toys as they can? Buying several houses, in hopes of flipping them and getting rich quick? And the list goes on and on.
When you buy a car, it loses value as soon as you leave the lot. But, you continue to make payments on it, out of obligation.
Obviously, when THSTF and you lose a job, income, etc, you do what you have to do. But there is a piper to be paid for one's actions. Nothing in life is free.
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Justice might be served when currency destroying inflation sets in?
Walked away from that $200,000 bank note? Tomorow that $200,000 might buy you a pack of gum in today's money. :laugh:
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But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.
Incorrect. They loaned you money for the purpose of purchasing a home. They secured the loan by placing a lien against the home. If you stop paying and the remaining value in the home does not satisfy their remaining interest (money which agreed to repay), they have every right to come after you for the difference.
Having a financial obligation for only as long as the home is used is the definition of a month-to-month (no contract) rental.
Brad
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But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.
No, they loan you money with the agreement you will use it to buy a house and that they will then place a lien on that house to use as collateral should you not pay back the money. Does the loan paperwork state a money amount with interest? Or does it state after X number of money paid to the bank you get a house?
You are buying a house with a loan from the bank, not moving into a house on a rent to own basis which is a completely different arrangement. Were you in a house on a rent to own basis your argument holds true.
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Walking away just because the current market value is less than your loan balance doesn't seem right to me, nor particularly smart.
OTOH, if you lose your job and don't have the money to make payments, there isn't really any choice, is there?
Home/land values are holding steady or rising around here. I've got at least $100K equity.
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Incorrect. They loaned you money for the purpose of purchasing a home. They secured the loan by placing a lien against the home. If you stop paying and the remaining value in the home does not satisfy their remaining interest (money which agreed to repay), they have every right to come after you for the difference.
Having a financial obligation for only as long as the home is used is the definition of a month-to-month (no contract) rental.
Brad
This. Just because nobody lays a stack of greenbacks in your sweaty little palm doesn't make it un-money.
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If there is no down payment from the buyer and you pay a monthly sum to the bank
which is via a lien owning your home for the next 25 or 30 years knowing that the value
is way less already now then when you bought it the day before yesterday - than how is that not rent? The ratio is 22 years of rent money vs the value of the home at the moment. Something is not adding up here. I don't know anything about the longevity of a light frame construction building but how will homes built today look like in 30 years? Those McMansions don't look so sturdy.
Unless you are into speculation or a criminal schnorrer you buy a house as your home and you sign a lending contract with your bank with the one intention of "going long" and nothing else, meaning that one day you'll own your home and it should have increased its value by then. Your signature is nothing else than a promise of good will because you have no clue what or when something good or negative will have an impact in your life down the road - like losing your job/income or getting hit by a Toyota. So far only politicians get to borrow from the future.
Now here is what the bank does: give you 400 000 virtual bucks for a 300 000 $ house
without a down payment. One housing bubble, financial crisis and lost income later
they reposess the house because you can't make the payments anymore. They now have
you owing them 400 000 minus the payments you have already made (to them!)
and they have the house. I would call that short selling. If you can swing it, do the
short sale (confusing, isn't it?) in agreement with the bank which may be difficult since you're in financial trouble already and you have no leverage. And if you have to : well just walk away - they'll be fine what with the bail out and all. Let us see how full of honour
the banks are paying back their 700 billion debt to you.
This. Just because nobody lays a stack of greenbacks in your sweaty little palm doesn't make it un-money.
Yes it does. They give you a house - and want money in return if possible way more than the house is worth. They are landlords, and not the clever ones.
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Now here is what the bank does: give you 400 000 virtual bucks for a 300 000 $ house
without a down payment.
Incorrect.
No lender will loan $400k on a house that appraises for only $300k. They will loan you only the amount for which the property will appraise becauase doing otherwise grossly jeopardizes their ability to recover their investment should you default.
This. Just because nobody lays a stack of greenbacks in your sweaty little palm doesn't make it un-money.
Yes it does. They give you a house - and want money in return if possible way more than the house is worth. They are landlords, and not the clever ones.
Incorrect.
They don't "give" you anything. They loan you money for the express intent and purpose of purchasing a home based on 1) your PROVEN ability to repay (based on what you earn, what you owe, and your financial history) and 2) the value of the property as determined by an independent appraisal at the time of purchase. You accept the loan, you accept the terms. The primary term of the loan is repayment of the principal, plus interest, on an agreed to bases no matter what may happen to the value or status of the involved security.
In other words they are making an investment. You. Lenders are not going to make that investment in you if you cannot be reasonably expect to repay, or if they cannot reasonably expect to recoup their interest via sale of the security (the home) should you default.
If you borrowed money to buy seed but the crop eventually died you'd still be obligated to repay the bank. Borrowing to purchase a home is no different. Just because the value goes down (or even goes completely away) does not change the fact that you borrowed a specific amount of money with the agreement to repay it.
Brad
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Laurent's argument appears to be that the bank is on the hook if the investment you purchased with their loaned money falters. However, they do not get to share in the profit if the venture secedes. Seems fair to the bank, doesn't it?
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So "they" give you 400 000 Dollars for a house worth 400 000 Dollars at the time of the
purchase. No down payment. One year later "they" are responsable for the house and banking crisis which brings the value of "your" house down to 300 000 Dollars and yet you still owe them 400 000 Dollars with interest.
"They" lend you money, which you'll never see on 1) your PROVEN ability to repay (based on what you earn, what you owe, and your financial history which proves absolutely nothing for the future unless you are working with a crystal ball and the mentalist) and 2) the value of the property as determined by an independent appraisal at the time of purchase and one year later "they" are responsable for the house and banking crisis which brings the value of "your" house down to 300 000 Dollars and destroys your PROVEN ability to repay because of "their" crisis and yet you still owe them 400 000 Dollars with interest.
"In other words they are making an investment. You."
Yes but they should buy me dinner first.
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I'm sorry, WHAT?
Are you really arguing that the bank doesn't have the right to make a return on a loan?
Buyer wants house. Buyer doesn't have $300,000 for house. Buyer and Bank come to terms for Bank to loan Buyer $300,000 to purchase house. Bank makes money. Buyer has purchasing power on thier word they will make payments to Bank.
I'm not sure what part of that you don't get?
Speculating on the value of a home is no gaurantee. Idiot speculative buyers are just as responsible as Banks and the .Gov in this mess (lets call it a 1/3 share for all!). Check on the occupancy rate of new developments in Nevada, California, and Florida.
Buying a home is no gaurantee of it maintaining its value. You assume a loan for the value of the loan, not for the value of the home. If you then walk away from a house payment, and the bank cannot recoup its losses, you damn well should be on the hook for at least a portion of the loss, if not, all of the loss.
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Yes, it is.
But they don't give you money, they give you a house, so there is only a financial obligation as long as you use said house.
You turn in the keys and stop paying, they reposess the house. That is what mortgage means and should be fair enough.
Doesn't work that way. The bank doesn't give you their house, the bank gives you their money which you use to buy your house. The deed to the property belongs to you, not the bank, and you're the owner even if you owe money.
In exchange for the bank's money, you give the bank a note (a contract promising to pay money to the bank under specific terms) and a lien on the property (the right to take possession of the house if the contract isn't fulfilled).
Mortgage contracts don't say the buyer has the choice between repaying or handing over the keys at their discretion. The mortgage says the buyer will pay under the specified terms. Period.
Now, if the buyer fails to honor his contract then there are certain remedies available to the bank to try to repair the damage caused by the buyer's default, such as foreclosure. But that doesn't mean the buyer has a the right to choose foreclosure over repayment if he happens to feel like it.
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Maybe they do it differently in France? :O
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I don't know anything about the longevity of a light frame construction building but how will homes built today look like in 30 years? Those McMansions don't look so sturdy.
My house was built in 1977. It is 1 year older than I am.
I had a broken hot water pipe that needed fixing last week... but other than that it is perfectly sound.
My house is predominantly seasoned 2x6 construction, though. Most McMansions and cookie-cutter neighborhoods nowadays use green 2x4's or sometimes even 2x3's.
My parents' McMansion (2800 sq ft, 3 car garage, late 1990's construction) has visible twisting of rafters and studs under the drywall, and even a couple places where the drywall is starting to separate.
It isn't going to fall down as a result of that, though. If they get really annoyed by the twisting they can have someone come in, replace the warped stud with a new one and re-drywall over the hole. It'll cost a couple grand to have that done, but it isn't an inherent structural issue. Just cosmetic.
The premise of a house as an "investment" is so faulty I can't even begin to tear it apart. A person HAS to have a roof over their head to provide for his safety and the safety of his family. You either rent, and pay the costs of maintenance as a function of free market rent prices, or own, and pay the costs of maintenance out of pocket as they come up.
The best part of a house as "investment" is if you stay in it for 20+ years. As our annual 3% (yeah, right) inflation kicks in each year, that mortgage payment is locked in and becomes a smaller and smaller piece of your monthly budget. With rent, it gets adjusted upwards every contract renegotiation.
My parents used to pay about $750 a month for our house in Minnesota in the late 1980's. I wish my mortgage were that low.
But, my $1150 mortgage right now will feel much lighter in 15-20 years.
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Why, thank you Blondie - good info. My wife sometimes watches "Extreme makeover: home edition" and to me the speedy destruction and rebuilding amazes me. Over here houses were brick build before and now are poured concrete which isn't any good for heating or a/c purposes but faster to build and less expensive.
For the Record : Laurent the Var has never missed a payment in his life and his home will be his in 17 years and has increased in value a whooping 30 % since its purchase 6 years ago.
Maybe they do it differently in France? :O
I wish =D the difference may be that banks over here insist on a 7 (?) % percent downpayment which have to be your economies (or your aunts) and not a loan/credit. All of a sudden you have a stake in the home and will likely not walk away from it to protect your investment. To me it looks that if you have no money and the bank grants you a loan or even better a sub because you have a bad record (wth?) it looks more like a lease/rent to me than a serious financing. Other than that we bail out banks all the time in Europe because guess what, people making money out of money for a living without looking
beyond the numbers and having absolute no concern for added value, are worthless imho.
Sigh, I wish I could express myself better in English but I'm getting there.
Of course a bank has the right to loan money and gain interest on it.
But that right should be null and void if they :
A) only grant you a loan to buy a certain house: they insist on X amount for Y house which means that you're dependent on their approval, and they should take some responsability for it if the value of Y sinks, especially if they proceed to
B) lessen the value of Y considerably by their unsound lending practicing
causing an economical crisis which can make you lose your job at the same time.
For me there is a direct connection here and I find it is high time to put names on the guilty and put them out of the money lending business and in prison instead of spending a gazillion dollars on a bail out.
How is that fair ?
How comes a lot of people are saying:You signed the loan with your blood and must pay it back no matter what and don't find a word for banks who wrecked your economy, lessend the value of your life time savings and then stole your tax money ?
I may be wrong but: Money has the incredible power of being used by you as you see fit
if you have it in your hands. To me that means economical freedom. A loan from a bank
meant to buy Y and nothing else could be like being chained to a sinking boat, the bank being the iceberg in time of crisis.
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OT,FAM
Laurent the Var
Not familiar with the word. What is a "Var?"
DD
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Not familiar with OT,FAM.
I live in Saint Laurent-du-Var.
The Var is a river coming out of the French Sea alps right into the mediterrenean
sea next to my home.
http://en.wikipedia.org/wiki/Var_(river) (http://en.wikipedia.org/wiki/Var_(river))
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I imagine nobody is familiar with OT,FAM since, like 87% of all statistics, it was made up on the spot. Stands for: "Off Topic, For A Moment"
Thanks for the "Var" explanation.
DD
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they should take some responsability for it if the value of Y sinks
???
Why should the bank take responsibility for falling housing values? They loaned the homeowner X amount of money to purchase a home, period. They're not clairvoyant when it comes to rising and falling home values, nor should they be. The homeowner signs on the dotted line stating they're assuming the responsibility for the amount loaned, and will repay the bank that very amount over the duration of the mortgage until it's paid off. Nothing I see in mortgages has allowances for decreasing home values which would modify the amount owed.
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We had to pay 15% down payment ;)
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The bank should take responsability for the falling of the housing values, because they are causing it. :facepalm:
They loaned the homeowner X amount of money to purchase not a home they won't let you choose any home at random,
they lend you X amount of money to purchase the Y house, period. It is like you are going to the bank saying :I've
seen this or that home and I would like to buy it with your help. Then they'll say ok or they won't.
The decreased home values are a direct result of bad business dealings of the mortgage financers. The decreased home values are not due to fatalism, they are a direct result of irresponsable business conduct of the money lenders.
I think of it like you'd buy a Volvo station wagon. You have no money but a steady income and you work at Starbucks.
Dealership guy helps you financing, everybody is happy.
One year later: Dealership guy goes nuts, he'll throw a brick through your Volvo windshield, cuts your tires and scraches your doors and so diminuishes the value of your car. He then goes to your place of work (Starbucks) and burns it down.
There you are, your car is a wreck, still worth something but in need of repair, and you're unemployed.
The day after that : Volvo Dealership guy comes a knocking on your door and insists on you keeping up your monthly
payments. And all of APS goes : yeah - You signed the contract !
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Of course a bank has the right to loan money and gain interest on it.
But that right should be null and void if they :
A) only grant you a loan to buy a certain house: they insist on X amount for Y house which means that you're dependent on their approval, and they should take some responsability for it if the value of Y sinks, especially if they proceed to
B) lessen the value of Y considerably by their unsound lending practicing
causing an economical crisis which can make you lose your job at the same time.
You are intermixing two distinctly seperate issues.
1) The banks are not forcing you to buy a certain house with the mortgage. The mortgage approval is an independent process. You can be fully approved for a mortgage before ever even looking at homes. Conversly, you can have found the home and be under contract before ever applying for a mortgage (though unlikely, as these days anyone who agrees to an offer from a seller that isn't 100% pre-approved should have their head examined). The only link between the mortgage and a specific property is that the property must appraise for at least the sales price.
2) Unsound lending practices are not the problem with home values. Consumer idiocy is.
Again, you are trying to make two things into one.
Let me ask you this... if you loaned your friend 1000 euros to buy some gold, but suddenly gold dropped and his purchase was now only worth 500 euros, would he still owe you 1000 euros? Of course he would. But using your logic he should be able to give you the gold (now worth only 500) and be able to walk away with no consequences. After all, it was you who took the risk lending to him. He didn't cause the gold to go down in price so he shouldn't be held accountable for the full amount because the investment is now lower in value.
They loaned the homeowner X amount of money to purchase not a home they won't let you choose any home at random,
That might be the way it is in your country. Not here. Again, the loan approval process is independent of the home. What home the buyer chooses is is limited only by the amount of money the lender will approve the buyer to borrow.
Brad
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Simply put, you're wrong. The banks did not cause the housing crisis, that is a misperception. Did they contribute, certainly. Idiot buyers caused it, spurred on by idiot lawmakers encouraging loans to people who shouldn't have gotten them in the first place.
Speculation was out of control, everyone assumed there was a profit to be made. Home buyers dove into the flipping and get rich quick craze. It was not a growth rate that could be sustained.
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theres a lil more gray area we had some bank loan officers go to jail for being part and parcel to the fraud. they had fool brought in and they dummied up the paperwork to run a ponzi scam of sorts
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theres a lil more gray area we had some bank loan officers go to jail for being part and parcel to the fraud. they had fool brought in and they dummied up the paperwork to run a ponzi scam of sorts
They could find ways to pump the system now, even with the market down. Thats irrelevant.
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ok, in that case: I apologize. :lol:
"If the mortgage approval is an independent process. You can be fully approved for a mortgage before ever even looking at homes."
So in that case the bank gives me a great amount of money which I'll spend on the home I see fit.
... if you loaned your friend 1000 euros to buy some gold
Those are two questions:
If I loaned my friend 1000 Euros, he better pay me back the 1000 Euros plus interest.
If I loaned my friend 1000 Euros with the obligation to buy gold and nothing else, I should win or lose depending on the
ever changing price of gold.
If I ever loaned 1000 Euros to any guy coming along asking for money so he can buy gold which will lessen the rate of gold, because now everybody can and will buy it, I guess friend n°2 won't be happy and I am on his side.
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... if you loaned your friend 1000 euros to buy some gold
Those are two questions:
If I loaned my friend 1000 Euros, he better pay me back the 1000 Euros plus interest.
Oh... now there are conditions on the loan? ;)
I should win or lose depending on the ever changing price of gold.
Again, you are putting the cart before the horse. You didn't hold him at gunpoint and say "You will take this money but only buy gold with it". He (or she) came to you and asked for the money, which you lent to them after making sure they could pay it back. You, as the lender, took a chance on the person, not the object. The lien against the object exists only to secure your interests in case of default. As the lender you are due your just returns no matter what happens to the market value of the object purchased buy the borrow. Should gold double and your friend end up with 2000 euros, will you require he split the gain with you? After all, if you expect to share in the loss you should also share in the benefits.
By the way, what you are describing is called 'net-terms' loan. Those type loans do exist but tend to be a bit more esoteric in nature and complicated in execution. The business world shuns them for more straightforward products. The first industry that comes to mind when I think of them is movies. They will put up production funds in exchange for certain ownership rights and a portion of the gross or net box office proceeds.
Brad
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Let me ask you this... if you loaned your friend 1000 euros to buy some gold, but suddenly gold dropped and his purchase was now only worth 500 euros, would he still owe you 1000 euros? Of course he would. But using your logic he should be able to give you the gold (now worth only 500) and be able to walk away with no consequences. After all, it was you who took the risk lending to him. He didn't cause the gold to go down in price so he shouldn't be held accountable for the full amount because the investment is now lower in value.
Brad
Here is the question though. If you are requiring him to pay back the 1000 Euros as part of the contract, but right after he buys his gold, you flood the market with gold that you hold, in essence, YOU are the one causing the value of the gold to drop, then there is a real gray issue. His gold is now worth crap, and it is your fault.
Maybe I am thinking wrong here BUT, follow me on this.
I loan 1000¤ (¤ is the symbol denoting currency, non-specific) to 10 differant people for the purpose of buying gold. You own the gold....so, you are now out 10 units of gold, have the same amount of cash you started with, and these 10 people owe you 1000¤ each (which is equivalent to 10 units of gold) You are breaking even (this is before we count in the interest they owe you on that loan) Now, you sell 10 units of gold to 10 other people for the same 1000¤, flooding the market, dropping the price of gold down to 500¤. The 10 people who borrowed money to buy your gold cannot get their money back for their gold now, and their ability to pay on that loan is threatened. You offer them the deal that you will pay them 150% the value of their gold for part of their loan payment, i.e. you will buy that gold back for 750¤ (which is a good deal for them, as that is alot better than 500¤) and that 750¤ gets applied to what they owe you. Each owes you 250¤ still. After you get paid back fully, you now have 10 units of gold, and 22,500¤. Now that you have taken half the gold off the market, the value of gold goes up to 750¤, you buy back your 10 units you had sold to the folks who did not borrow money from you for this price, you now have 20 units of gold and 15,000¤. You started with 20 units and 10000¤......so now you're up some money...hmmmmmnew busines model :)
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I loan 1000¤ (¤ is the symbol denoting currency, non-specific) to 10 differant people for the purpose of buying gold. You own the gold....so, you are now out 10 units of gold, have the same amount of cash you started with, and these 10 people owe you 1000¤ each (which is equivalent to 10 units of gold) You are breaking even (this is before we count in the interest they owe you on that loan) Now, you sell 10 units of gold to 10 other people for the same 1000¤, flooding the market, dropping the price of gold down to 500¤. The 10 people who borrowed money to buy your gold cannot get their money back for their gold now, and their ability to pay on that loan is threatened. You offer them the deal that you will pay them 150% the value of their gold for part of their loan payment, i.e. you will buy that gold back for 750¤ (which is a good deal for them, as that is alot better than 500¤) and that 750¤ gets applied to what they owe you. Each owes you 250¤ still. After you get paid back fully, you now have 10 units of gold, and 22,500¤. Now that you have taken half the gold off the market, the value of gold goes up to 750¤, you buy back your 10 units you had sold to the folks who did not borrow money from you for this price, you now have 20 units of gold and 15,000¤. You started with 20 units and 10000¤......so now you're up some money...hmmmmmnew busines model :)
That kind of market manipulation can, and has gotten people to change into black and white stripped outfits. One name for a variant on that it is pump-and-dump.
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A bank that lends on an asset which is going to plummet in value is just as culpable as the consumer who borrows to buy it. And it also has financial "experts" who are supposed to estimate those sorts of things, as opposed to consumers who are generally not in the business of doing long-term asset pricing.
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You started with 20 units and 10000¤......so now you're up some money...hmmmmmnew busines model :)
not so much - reminds me of short selling, you don't even need to own the gold just borrow it :
Wiki;
In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as he will pay less to buy the assets than he received on selling them. Conversely, the short seller will incur a loss if the price of the assets rises. Other costs of shorting may include a fee for borrowing the assets and payment of any dividends paid on the borrowed assets. Shorting and going short also refer to entering into any derivative or other contract
"under which the investor profits from a fall in the value of an asset." >:D
Yes SS, not only do they lend on assets which will plummet in value, they are directly responsable for the loss by their unsound business practices.
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not so much - reminds me of short selling, you don't even need to own the gold just borrow it :
Wiki;
In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as he will pay less to buy the assets than he received on selling them. Conversely, the short seller will incur a loss if the price of the assets rises. Other costs of shorting may include a fee for borrowing the assets and payment of any dividends paid on the borrowed assets. Shorting and going short also refer to entering into any derivative or other contract
"under which the investor profits from a fall in the value of an asset." >:D
Yes SS, not only do they lend on assets which will plummet in value, they are directly responsable for the loss by their unsound business practices.
Wow, so, if the house goes up in value, the bank makes a VERY small return (~6% right now) while the homeowner keeps the increase in the house price.
But, if the house goes down in value, the bank takes the loss.
Gee... that sounds like a great way to run a business.
Banks accept the small return because they are taking less risk. The owner is the one who is to benefit or suffer from wide swings in value.
Claiming the banks just have to eat the loss is a "heads I win, tails you lose" game.
It's also a great way to ensure banks won't lend money.
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A bank that lends on an asset which is going to plummet in value is just as culpable as the consumer who borrows to buy it. And it also has financial "experts" who are supposed to estimate those sorts of things, as opposed to consumers who are generally not in the business of doing long-term asset pricing.
May plummet in value, not will. And when you're talking 30-40 year loans, the average expectation is the value will increase over that time period.
Plus, here's why you're wrong: The loan isn't on the house. The loan is to the individual, who then signs the house over as collateral. The loan is not attached to the house, it is instead a lien against the house.
If you take out a car loan, there is an understanding that the value of the vehicle WILL go down. Yet you make payments on that in good faith. Stop paying, the bank takes the vehicle.
I still don’t get this whole “blame the bank” thing. It’s ALWAYS been accepted that banks are in business to turn a profit. That is assumption number one. Assumption number two, is that if a deal is too good to be true, it probably is. Let’s say the going loan rate is 6.5%. You apply for a loan, but your credit is so shoddy that they approve you at 9.9%, with a 5 year arm to a minimum of 12.5%. Would you take that deal? Consumers ASSUMED that the home values would continue to rise. So, thinking they could flip the house and take a tidy profit, they bought them.
Now, plenty of banks out there were offering really bad products. NINJA loans (no income verification), ARMS, Balloons, it goes on.
Let’s make the comparison, though, to food. If I’m running a grocery store, and all my products have expiration dates of tomorrow stamped on them, and you come in and buy $300 worth of groceries, who’s the idiot? Me for selling a crappy product, or YOU for buying more food than you could possibly consume before it expires?
The rules of Buyer Beware are always in effect. There are always scam artists out there, and they should be punished accordingly. But when an ill-informed CONSUMER enters into a financial obligation with a bank offering a CRAPPY product, the CONSUMER is certainly at fault.
In today’s day and age, with access to information being so widespread in the western world, there is no excuse to be ill informed. *expletive deleted*it, most of these people could have avoided problems with their loans simply by reading the documents they signed, and understanding that if the value of the home didn’t go up, they would still be making payments on the damn loan.
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One of the things I don't understand on the "the banks should bear the risk" side of the argument is the implication that the home's "loss of value" somehow affects the borrower's ability to pay.
The price of a house, like the price of any traded commodity, matters on two days: the day you buy it, and the day you sell it. Everything in between is purely paper gain/loss[0], and has no bearing on the borrower's cash flow.
If the paper value of my house tanks today, tomorrow I will have the same job as I have today, so why is my "ability" to pay suddenly affected by the fluctuation in house prices?
If anything, a tanked housing market should make it easier for the borrower to pay, because if the appraised value of the house goes down, then property taxes on it will go down as well.
When I bought my house, it was for $n, back in 1999. Four or five years ago, the guy across from me, with a comparable place but less land, sold for nearly $3n. I recently considered refinancing, and had an appraisal done, and it came in at ~$2n.
Yet, throughout fluctuations of greater than 100% of the original purchase price, my monthly P&I payment somehow managed to say exactly the same!
I've no sympathy for people who bought more house than they could afford, on an ARM, and are complaining about it now because they can't refi. If they signed the papers, they assumed the risk.
-BP
[0] Leaving out things like property tax assessments on the appraised interim value of the house.
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+1 to BP, with a caveat:
Some of the banks do deserve to eat the loss. Specifically, the ones that did gimicks like NINJA loans. Not making sure someone could actually pay a loan isn't really smart.
But, like BP said, if you're making $xxx dollars a month, and your loan is $xxx dollars a month payment, and the house value falls, you should still be able to pay that.
Some people have legitimate reasons to stop paying. There are also consequences to be paid for not paying your loan.
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Some of the banks do deserve to eat the loss. Specifically, the ones that did gimicks like NINJA loans. Not making sure someone could actually pay a loan isn't really smart.
I seem to recall hearing reports of at least one lender who was preying on the fact that closing on a mortgage involves signing your name to about 40000 pieces of paper; they would hide documents for a pretty nasty ARM in the middle-bottom of the stack of papers for people who had requested a fixed-rate loan. They were counting on people eventually getting tired of reading everything they were signing and going into autopilot. After closing, >oops< the fixed-rate papers went into the shredder, and the signed ARM papers were retained.
I don't have a cite, but if I'm recalling correctly and someone was doing that, that's one situation where the lender should catch it in the teeth. Yes, the borrowers should read what they sign, but the lender should not be actively trying to deceive.
When I close, I read every single page, and ask annoying questions, because I'm paranoid like that.
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I seem to recall hearing reports of at least one lender who was preying on the fact that closing on a mortgage involves signing your name to about 40000 pieces of paper; they would hide documents for a pretty nasty ARM in the middle-bottom of the stack of papers for people who had requested a fixed-rate loan.
There were. They died in the first couple of weeks after the start of the mortgage mess.
Unfortunately the consumer also bears an equal share of the blame. There is a federally required disclosure for rate and loan type that is signed at closing. It specifically states the loan type, rate, and duration. If the buyer is so uninterested in seeing to their own financial well-being that they miss that glaringly obvious page (which the title company usually makes a specific effort to point out) then my level of sympathy drops a couple of notches.
As for the "Blame the Bank" mentality, well, it's part of the social conditioning we've allowed upon ourselves. Blame the fat cats, punish success, corportations kill business, whatever you want to call it, it's all the same. People have allowed themselves to be duped into believing that any success comes at a cost to "the little guy" and it should be stopped via regulation, litigation, or legislation. Pretty sad, really. People want more than they have but will not hesitate to punish people who have actually made it happen.
Brad
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Ok, I borrow money - I'll pay it back as long as I possibly can.
I totally agree on that and do so in real life.
If you walk away from your obligations while still being in good financial shape
on purpose, if your bank has not actively sabotaged the value of your house,
doesn't seem right to me either.
But here is the crisis caused by banks and housing bubbles, you lose your job and the bank gets the house. Period. What are you supposed to do? Sell your kidneys ? Every business transaction carries a risk which has to be shared by all parties involved.
Can you say NINJA loan ? They borrow you money because you and they hope the value of bought object will rise - and when that doesn't happen only you have to carry the consequences, how could you possibly do that without any income or any assets?
And Brad you got to be kidding ? After the housing bubble and a 700 Billion Dollar bank bail out you're writing about "punishing success"? Let me ask one more question : How many borrowers will get how much money of the 700 billion Dollars which the successfull banks are getting from the government other than qualifying for another ninja loan ?
wiki:
The Emergency Economic Stabilization Act of 2008 (Division A of Pub.L. 110-343, enacted October 3, 2008), commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis authorizing the United States Secretary of the Treasury to spend up to US$700 billion to purchase distressed assets, especially mortgage-backed securities, and make capital injections into banks.
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But here is the crisis caused by banks and housing bubbles, you lose your job and the bank gets the house. Period. What are you supposed to do? Sell your kidneys ? Every business transaction carries a risk which has to be shared by all parties involved.
We are not talking about people unable to pay their mortgage.
We are talking about people choosing not to pay their mortgage. I understand that some people reach circumstances where they cannot fulfill their obligations. That is part of the risk a bank takes when lending.
What this article was talking about was "Walking away from your mortgage", i.e. you can pay it, but have decided it is not worth it to do so, so you stop paying it.
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Laurent,
Your argument is patently one-sided.
You are stating that, if there is a loss, the borrower and lender shares the burden equally. You've said nothing about what happens if there is a gain so I must presume you intend for the borrower to reap all the benefits.
Sorry, ain't happenin'. If the lender is to share in the loss, they must also share in the gain. Fair is fair. Since fair is what you claim to be proposing the you must, by definition, agree with the logic.
Brad
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I don't get this:
if your bank has not actively sabotaged the value of your house,
Huh? When does that happen? Correct me if I'm wrong, but the value of one's house fluctuates with the housing market, not some guy in a suit at a bank pushing a button and instantly knocking 6 figures or more off your home's appraised value. =|
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Why is there a loss in the first place?
Is it because of bad luck - too bad ?
Or is the bank at the very origin of the loss of the value of the house
which they helped you buy ?
If they always had correctly verified the borrowers means and income and matched it to the estimate value of an affordable house we wouldn't have this problem.
You throw Ninja money at a guy who in my book never should qualify for a loan
in the first place - he just walks out on you and calls it rent. I don't like him any better than the banks but it takes two to dance.
And actually, yes now that you've said it - if the value of the property goes up
and you have helped me correctly to buy it, why not call it an investment and share
some of the added value? And take out another loan at your place to buy the next, bigger house. I've changed from my bank of ten years to the bank who really helped me a lot
to buy my place and they are taking care of all my business now. I like them, but will leave them in a heartbeat if they are at fault for reducing the value of my home.
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Why is there a loss in the first place?
Is it because of bad luck - too bad ?
Or is the bank at the very origin of the loss of the value of the house
which they helped you buy ?
If they always had correctly verified the borrowers means and income and matched it to the estimate value of an affordable house we wouldn't have this problem.
You throw Ninja money at a guy who in my book never should qualify for a loan
in the first place - he just walks out on you and calls it rent. I don't like him any better than the banks but it takes two to dance.
And actually, yes now that you've said it - if the value of the property goes up
and you have helped me correctly to buy it, why not call it an investment and share
some of the added value? And take out another loan at your place to buy the next, bigger house. I've changed from my bank of ten years to the bank who really helped me a lot
to buy my place and they are taking care of all my business now. I like them, but will leave them in a heartbeat if they are at fault for reducing the value of my home.
So, when you sell your house and buy a smaller one, you cut a check to the bank for part of the profit, right?
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Why is there a loss in the first place?
Or is the bank at the very origin of the loss of the value of the house
which they helped you buy ?
If they always had correctly verified the borrowers means and income and matched it to the estimate value of an affordable house we wouldn't have this problem.
What?
Laurent, buddy, I'm about to start calling you some not-very-nice names. You. Need. To. Listen. We've covered this already...
Income verification is a COMPLETELY SEPERATE PROCESS from identifying the value of the property.
Verification of income is based on your... income. You supply the lender documentation of your income, your bank statements, and retirement account statements. Once those items are examined AND VERIFIED the lender will loan you money up to an amount determined by your debt-to-income ratio.
There used to be a thing called a stated income loan, but that was available only to people who had a very high credit score, no delinquincies, and no collections against them. Those three things were considered proof that you knew how to responsibly handle your finances. However, stated income loans were a very small part of the market, and were one of the first casualties of the changes in fed lending regs. They were actually a very good product with a proven record. Unfortunately, changes in lending regs BY THE GOVERNMENT caused a bunch of people to be able to qualify when they previously wouldn't have.
As for the property value, the bank doesn't just pull a number out of their butt. Property value is determined by an independent appraiser. The appraiser finds comparable properties that have sold within the last 6-12 months, determines the average value for the properties, and applies that average to the prospect property. In other words, value is determined on the bases of comparable homes recently sold in the same market. It's not a guess. It's cold numbers.
So, again, your proposition is fundamentally flawed and inherently self-limiting.
Brad
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Brad, I take that chance.
Would you please tell me about Ninja loans and how they have an impact on the value of real estate ?
I totally get it that your clients are not walking away from their houses and everything is straight on your end.
Maybe I am wrong and what I read is not relevant with the housing bubble and the bank bail out and in that case you're welcome to call me names.
Could what you said about verifiying the income, the assets and maybe asking a down payment which would keep
everybody from walking away and a totally sepperate evaluation of the value of a property lead to todays crisis ?
Or is there a relation, a direct connection between the approvals of loans and the value of the houses
on a larger scale which you can not dissociate?
Here is what I read :
Housing bubbles may occur in local or global real estate markets. In their late stages, they are typically characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This may be followed by decreases in home prices that result in many owners finding themselves in a position of negative equity—a mortgage debt higher than the value of the property. The underlying causes of the housing bubble are complex. Factors include historically low interest rates, lax lending standards, and a speculative fever.
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but that was available only to people who had a very high credit score, no delinquincies, and no collections against them.
nope i had none of the above and got a stated income. there was some real shady behavior out there. the loan officers they jailed out here were with bigger banks too
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A bank that lends on an asset which is going to plummet in value is just as culpable as the consumer who borrows to buy it.
Nope, not at all. You borrow, you repay, period. If you sign the loan, you're agreeing to pay back a certain value in Dollars, irrespective of the value of the asset. Even if the bank makes a mistake lending on a declining asset, that doesn't absolve you of your obligation to repay. The bank largely doesn't care why you're borrowing or what's going to happen to the asset. They held up their half of the bargain (they gave you their cash), so you need to hold up yours and repay.
Listen, folks. All of you who feel that the value of your house should have any bearing on your obligation to repay the loan, get it in writing. If you and your bank agree that this is the right way to do business, make sure the mortgage contract says so. Then there won't be any histrionics resulting from your default.
If you don't get this concept put into the contract, and you choose to sign it anyway, then you've agreed that the value of the house has nothing to do with the number of Dollars you've promised to repay. So man up and honor your agreement. Repay the loan in full even if your house can't sell for fifty cents on the open market.
And it also has financial "experts" who are supposed to estimate those sorts of things, as opposed to consumers who are generally not in the business of doing long-term asset pricing.
If you're not sufficiently savvy to know what you're doing, then don't do it. If you do it anyway, any problems arising from your ignorance are your fault and your mess to clean up.
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Would you please tell me about Ninja loans and how they have an impact on the value of real estate ?
Maybe I am wrong and what I read is not relevant with the housing bubble and the bank bail out and in that case you're welcome to call me names.
Could what you said about verifiying the income, the assets and maybe asking a down payment which would keep everybody from walking away and a totally sepperate evaluation of the value of a property lead to todays crisis ?
Or is there a relation, a direct connection between the approvals of loans and the value of the houses on a larger scale which you can not dissociate?
Here is what I read :
Housing bubbles may occur in local or global real estate markets. In their late stages, they are typically characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This may be followed by decreases in home prices that result in many owners finding themselves in a position of negative equity—a mortgage debt higher than the value of the property. The underlying causes of the housing bubble are complex. Factors include historically low interest rates, lax lending standards, and a speculative fever.
First, be careful what you see in the news. News outlets use the terms "bubble" and "crash" without any concern for context, or for actually being accurate. The majority of the housing provblems were limited to seven states with three of those accounting for a full 80% of foreclosures nationally. Unfortunately those three states then to drive trends, and the newsies yelling "The sky is falling!" didn't help. Those two items alone were enough to make consumer confidence do a nosedive. When confidence drops, activity follows. A slowdown in activity means fewer buyers for home, which means dropping prices. Once a trend like that is established nationally it's hard to stop. Eventually it affects markets around the country that should be in otherwise good shape, so much so that people will tell you there's a housing crisis even when you'vejust given them hard data showing the market in their area is fine. They cannot comprehend that the market in their area is actually okay because, well... "didn't you see on the news there's a housing crisis!"
You keep wanting to make the banks directly responsible for housing prices. That is incorrect. The MARKET is responsible for housing prices. The market is buyers and sellers. The banks REACT to the market, not drive it. The only thing the banks do is lend money, securing that loan with a lien against the property. The property value is verified by analyzing the sale of comparable sold properties. In other words, the banks don't set the price.
You keep wanting the loan approval to be conditional on a particular price of house, or for the lender to dictate which house shall be purchase. That is incorrect. The lender determines how much money the buyer can borrow, then the buyer goes out and chooses a house based on that amount of money plus whatever amount they want to put down in cash. The lender's only concern is that the house appraise for a market value that will cover their interests should the buyer default.
You keep trying to make the loan process dictate the value of a particular home. It does not. All the loan process does is dictate how much money a particular individual can borrow. The buyer chooses their own own, and decides how much to pay. If they want to pay more in cash to make up the difference between the loan and what the house actually costs, they can. If you want a $1 million home but only qualify for a $100,000 mortgage? Fine. Come up with $900,000 and it's yours.
Brad
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You keep wanting to make the banks directly responsible for housing prices. That is incorrect. The MARKET is responsible for housing prices. The market is buyers and sellers. The banks REACT to the market, not drive it.
That's a perfectly valid stance if we had a static money supply but we don't. Not taking the side of our overseas friend that thinks banks should just accept losses either, just trying to make a point.
When the banks started handing out loans to anybody that'd walk in the door they increased the money supply to that sector of our economy. That drove prices up. Then, when the irresponsible people that borrowed more than they could actually afford lost their homes prices crashed because there were so many of them. The responsible people that need to sell a home because their life circumstances changed are now competing against defaulted properties. It's not fun. Trust me.
You keep trying to make the loan process dictate the value of a particular home. It does not. All the loan process does is dictate how much money a particular individual can borrow.
The loan process doesn't dictate the price of a home but it certainly considers it. When I purchased my place (which I am not in the process of selling) the appraisal came in considerably higher than my purchase price. I knew the number was BS when I saw it. If the home was worth that it would have sold for that. The lender needed that number to come back to them so they sent out a guy that would give them that number. They had to because I was getting a mortgage with 0% down. They had to cook the numbers a bit to get my business. I knew it. I'm sure they knew it. I'm not angry about it either. It got me the home I wanted at a fair price. I THOUGHT I bought at the bottom of the drop-out but I was really wrong. So, I'm upside down but that's fine. I can pay the mortgage even after taking a 15% in my salary 2 weeks after I bought it.
If either party, the borrowers or the lenders, had kept their heads in the last 5 years none of this would have happened. The blame is certainly shared but I do maintain that the lenders were in a much better position to stop this madness. Every last one of them had to have known this was a bad idea.
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The one thing that everyone missed in this discussion is over-supply.
Part of what drove up housing prices is that with .gov pushing looser standards in lending via FannieMae and FreddieMac. That pushed up demand. There was money to be made in Real Estate. People bought 2, 3, 4, 12 homes to "Flip". Builders went wild throwing up houses and strove to outbid each other buying land, any land. Then suddenly when all those people that never should have bought a home or too big a house, couldn't pay their mortgage, the securities that the banks and investment firms started to collapse and only because less then 10% of the underlying mortgages were heading south, dragging the good ones down with them. Real Estate and Housing prices had become crazy stupid and rather then letting the market clean up the mess, by allowing prices to fall, and the bad loans (and banks that had been bad) be purged by failing, the .gov tried to re-inflate the bubble, which has only made matters worse, by allowing the bad loans to persist.
What could have and shold have been a short term recession, is tetering on the brink of a depression due to the unprecedented growth in the money supply, which could cause hyper-inflation.
For a historical parallel, read about the Dutch Tulip Mania, substitute the word "House" for "Tulip".
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Like Brad said, only a couple of states really caused the whole thing. In Florida, the occupancy rate in new developments is something like 25%. There are entire condo complexes that are empty. People were buying up property because of the double digit profit margins. When the slowdown started, places like that tanked, and the media fed into the frenzy.
Plus, read Scout's analysis. Pretty much spot on.
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You keep wanting to make the banks directly responsible for housing prices. That is incorrect. The MARKET is responsible for housing prices. The market is buyers and sellers. The banks REACT to the market, not drive it. The only thing the banks do is lend money, securing that loan with a lien against the property. The property value is verified by analyzing the sale of comparable sold properties. In other words, the banks don't set the price.
You keep wanting the loan approval to be conditional on a particular price of house, or for the lender to dictate which house shall be purchase. That is incorrect. The lender determines how much money the buyer can borrow, then the buyer goes out and chooses a house based on that amount of money plus whatever amount they want to put down in cash. The lender's only concern is that the house appraise for a market value that will cover their interests should the buyer default.
You keep trying to make the loan process dictate the value of a particular home. It does not. All the loan process does is dictate how much money a particular individual can borrow. The buyer chooses their own own, and decides how much to pay. If they want to pay more in cash to make up the difference between the loan and what the house actually costs, they can. If you want a $1 million home but only qualify for a $100,000 mortgage? Fine. Come up with $900,000 and it's yours.
Brad
Please mind that I am talking for quite some time about NINJA loans and nothing else. I am sure that you know way more about those loans than I could read on the net and that your answer could end all discussions quite quickly.
The topic was about people walking away from a mortgage and I assume that people wouldn't walk away from a mortgage if they had made a down payment or had any assets or justifiable income the bank could take away from them if they walked out on their obligations.
Here is what I think:
- If you grant Ninja loans more houses will be bought. The more you sell houses the cheaper they get. This is how banks influence the MARKET. They don't drive the market, otherwise they wouldn't need the 700 billion bail out, but they influence it and not in a good way.
- The loan approval must be conditional on a particular house because what else would they be looking at ? Your promising
future since you don't have a job, income or assets already ? In my opinion they used Ninjas as strawmen to buy places they "thought" would gain in value and come back to them when the Ninja disappeared into thin air.
- So how much should an individual be able to borrow ? 5 times the yearly amount of what he doesn't earn ? 9 times
the down payment he is unable to make, twice the assets he doesn't have ? Or maybe just the amount he needs to buy the big house ?
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The Ninja loans you're singling out were a small portion of the overall picture. And the real questionable and illegal stuff is an even smaller piece of the whole picture.
IMHO, a bank shouldn't have to worry about if a person can pay back a loan or not. There used to be a day when loans were made simply on a handshake in a bank office. You take out a loan, you know the terms, you do everything within your power to meet those terms. If your credit is so bad the only way you can buy a house is on a NINJA loan, high interest ARM, etc....well, maybe you shouldn't buy the house. Of course, the banks assumed that those homes would be worth more than they are, and the risk they were taking had a chance of reward either way: Buyer repays loan, or forcloses on house worth more than loan in a few years.
Most idiots took ARMs without planning for the adjustment in 3-5 years time, expecting to turn a tidy profit on the house by flipping it.
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Please mind that I am talking for quite some time about NINJA loans and nothing else. I am sure that you know way more about those loans than I could read on the net and that your answer could end all discussions quite quickly.
Like Jamis sais, NINJA loads were a tiny fraction of loans overall. The majority of loans were, and still are, one of three types - conventional, FHA insured, or VA guaranteed.
The topic was about people walking away from a mortgage and I assume that people wouldn't walk away from a mortgage if they had made a down payment or had any assets or justifiable income the bank could take away from them if they walked out on their obligations.
You assume wrong. People are not all just, reasonable, and rationed. In fact, when it comes to money a lot of people are just plain stupid. People do the darndest things for the dumbest reasons. I’ve seen people walk away from thousands of dollars in equity over a $50 light fixture.
As for the down payment or assets, to some people any amount of down payment or equity is irrelevant. All they care about is that is has become inconvenient to make that monthly payment.
- If you grant Ninja loans more houses will be bought. The more you sell houses the cheaper they get. This is how banks influence the MARKET. They don't drive the market, otherwise they wouldn't need the 700 billion bail out, but they influence it and not in a good way.
Huh? The more houses sell, the stronger the market. The stronger the market, the greater the market value growth. Basic economics.
Again, you keep coming back to your “Stick it to Big Bank” mentality. It’s laughably incorrect. And it’s getting old. You have a beef with lenders. We get that. Problem is, emotion doesn’t win a financial debate. Facts do. All emotion and no substance is fine for liberals and media hounds, but the rest of us live in this place called Reality.
The loan approval must be conditional on a particular house because what else would they be looking at ? Your promising future since you don't have a job, income or assets already ? In my opinion they used Ninjas as strawmen to buy places they "thought" would gain in value and come back to them when the Ninja disappeared into thin air.
Incorrect. The loan approval has nothing to do with a particular home. Again, you can get loan approval before ever even searching for a home. You must think I am lying to you because you keep coming back to this, and obsessively so. It’s a little scary, really, and bordering on tin-foil hattery. You are trying to make a connection that isn’t there in order to accommodate or validate your idea of some great bank conspiracy. All I can do is keep telling you it isn’t so, but if you aren't going to believe someone who lives the business everyday then I suppose you aren't going to believe anyone.
Also, you are still hung up on the NINJA loan like it's an overpowering market force. IT IS NOT. It was such a small portion of the market that I never even saw one. Heck, I never even heard of one until it was mentioned on the news many months after the mortgage mess was in full swing. They were an inconsequential part of the mortgage market. Period.
- So how much should an individual be able to borrow ? 5 times the yearly amount of what he doesn't earn ? 9 times the down payment he is unable to make, twice the assets he doesn't have ? Or maybe just the amount he needs to buy the big house ?
Again, you're obsessing over the NINJA loans like that is the kind of loan everyone has. That is incorrect, and grossly so. Most loan products still conform to a maximum of appx 50% of your gross annual income in combined debt obligations, including things like car, loan, and mortgage payments.
Laurent, I admire your zeal and tenacity, but your information is flawed and your suppositions seriously skewed by what appears to be a vendetta against banks in general. I applaud your effort, but your application leaves much to be desired.
Brad
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2) Unsound lending practices are not the problem with home values. Consumer idiocy is.
I would debate that.
Consumer idiocy can only do so much damage. For a truly great cock-up, it needs to be on both sides. Sound lending practices protect not only the lender, but the entire industry from consumer idiocy. Heck, sound lending practices protect many of those idiot consumers.
The gov't mandated unsound lending practices via legislation and threats made to lenders. Then, gov't-backed creations (Fannie & Freddie) provided a convenient place for crap loans to land after the lenders saluted the flag, did their duty, made the crap loans, and wanted to be rid of it ASAP.
The majority of the housing provblems were limited to seven states with three of those accounting for a full 80% of foreclosures nationally.
True, true.
And this can be traced down to particular cities/counties and even neighborhoods that account for the lion's share. What's more, these can be traced to particular lenders. The MSM won't dig that deep, though, as it:
1. Demonstrates how thoroughly gov't intervention screwed up the housing market
2. Shows very un-PC results that absofreakinglutely must not be examined closely to maintain the multi-cultist world view
I would suggest anyone interested in this topic to datamine Steve Sailer's website, as he has done a yeoman's job quantitatively analyzing these loans by location, income, race, etc. He dares to stuff into a spreadsheet what the MSM dares not whisper in its sleep.
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I would debate that.
Consumer idiocy can only do so much damage. For a truly great cock-up, it needs to be on both sides. Sound lending practices protect not only the lender, but the entire industry from consumer idiocy. Heck, sound lending practices protect many of those idiot consumers.
The gov't mandated unsound lending practices via legislation and threats made to lenders. Then, gov't-backed creations (Fannie & Freddie) provided a convenient place for crap loans to land after the lenders saluted the flag, did their duty, made the crap loans, and wanted to be rid of it ASAP.
True, true.
And this can be traced down to particular cities/counties and even neighborhoods that account for the lion's share. What's more, these can be traced to particular lenders. The MSM won't dig that deep, though, as it:
1. Demonstrates how thoroughly gov't intervention screwed up the housing market
2. Shows very un-PC results that absofreakinglutely must not be examined closely to maintain the multi-cultist world view
I would suggest anyone interested in this topic to datamine Steve Sailer's website, as he has done a yeoman's job quantitatively analyzing these loans by location, income, race, etc. He dares to stuff into a spreadsheet what the MSM dares not whisper in its sleep.
It's even worse:
http://www.cato.org/pubs/policy_report/v32n1/cpr32n1-1.html
From the article:
In 1988, financial regulators from the G-10 agreed on the Basel (I) Accords. Basel I was an attempt to standardize the world's bank-capital regulations, and it succeeded, spreading far beyond the G-10 countries. It differentiated among the risks presented by different types of assets. For instance, a commercial bank did not have to devote any capital to its holdings of government bonds, cash, or gold — the safest assets, in the regulators' judgment. But it had to allot 4 percent capital to each mortgage that it issued, and 8 percent to commercial loans and corporate bonds.
Each country implemented Basel I on its own schedule and with its own quirks. The United States implemented it in 1991, with several different capital cushions; a 10 percent cushion was required for "well-capitalized" commercial banks, a designation that carries privileges that most banks want. Ten years later, however, came what proved in retrospect to be the pivotal event. The FDIC, the Fed, the Comptroller of the Currency, and the Office of Thrift Supervision issued an amendment to Basel I, the Recourse Rule, that extended the accord's risk differentiations to asset-backed securities (ABS): bonds backed by credit card debt, or car loans — or mortgages — required a mere 2 percent capital cushion, as long as these bonds were rated AA or AAA or were issued by a government-sponsored enterprise (GSE), such as Fannie or Freddie. Thus, where a well-capitalized commercial bank needed to devote $10 of capital to $100 worth of commercial loans or corporate bonds, or $5 to $100 worth of mortgages, it needed to spend only $2 of capital on a mortgage-backed security (MBS) worth $100. A bank interested in reducing its capital cushion — also known as "leveraging up" — would gain a 60 percent benefit from trading its mortgages for MBSs and an 80 percent benefit for trading its commercial loans and corporate securities for MBSs.
Astute readers will smell a connection between the Recourse Rule and the financial crisis. By 2008 approximately 81 percent of all the rated MBSs held by American commercial banks were rated AAA, and 93 percent of all the MBSs that the banks held were either triple-A rated or were issued by a GSE, thus complying with the Recourse Rule. (Figures for the proportion of double-A bonds are not yet available.) According to the scholars I mentioned earlier, the lesson is clear: the commercial banks loaded up on MBSs because of the extremely favorable treatment that they received under the Recourse Rule, as long as they were issued by a GSE or were rated AA or AAA.
When subprime mortgages began to default in the summer of 2007, however, those high ratings were cast into doubt. A year later, the doubts turned into a panic. Federally mandated mark-to-market accounting — the requirement that assets be valued at the price for which they could be sold right now — translated temporary market sentiment into actual numbers on a bank's balance sheet, so when the market for MBSs dried up, Lehman Brothers went bankrupt — on paper. Mark-to-market accounting applied to commercial banks too. And it was the commercial banks' worry about their own and their counterparties' solvency, due to their MBS holdings, that caused the lending freeze and, thus, the Great Recession.
Read the whole thing.
Again, as I've said over and over, the recession was caused by the government perverting incentives.
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I would debate that.
Sorry, I should have been more specific. Consumer idiocy in that people will take on a debt obligtion they patently cannot afford to service, or take on a debt obligation with such rediculous terms as to be unworkable within their personal finances, and the general public's willing regurgitation of inflammatory news headlines as absolute and unerring fact.
Brad
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Sorry, I should have been more specific. Consumer idiocy in that people will take on a debt obligtion they patently cannot afford to service, or take on a debt obligation with such rediculous terms as to be unworkable within their personal finances, and the general public's willing regurgitation of inflammatory news headlines as absolute and unerring fact.
Brad
+1billion
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Brad,
I love this little thread here. I really do - if you would answer the questions I've asked and back your answers up with data, maybe some numbers or links - I promise I will read them.
If you believe that the entire crisis is due to consumer idiocy, fine. I like to think of customers as kings and not some sort of cheating, irresponsable illiterates.
50/50 is what I would think the real share of fault is.
If you say Ninja loans and subprimes are only a tiny fraction - good, how many are we talking? You're obviously not in one of the concerned states and have never seen one - maybe they don't even exist?
You said you've seen people walk away from thousands of dollars of equity for a 50 Dollar light fixure - did you tell the person to rather take the equity ? Or were you just snickering to yourself : Another idiot, I knew it?
Why would I be obsessed and wanting to stick it to your banks, again ? What happens here is that I keep reading articles on the internet and write about on APS and you telling me :Not true at all. You're getting it wrong. My fellow citizens are just too stupid to read a contract or unwanting to honour their obligations. I find that hard to believe.
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I'd say it's 33%/33%/33% culpability.
1. 1/3rd belongs to Democrats/Liberals loosening loaning practices under the CRA, going all the way back to Carter, ACORN et-al, and the new round of loosening runder Clinton, Bawney Fwank and co. in bed (literally) with Fannie Mae and Freddie Mac mortgage holding Co.'s.
And like literally EVERY social engineering/welfare/wealth-transfer program. (In this case, in the form of subsidized high-risk loans to inner-city minorities.) The net result just left them off worse than before. Now they're upside-down on lousy properties with ruined credit.
1a Alan Greenspan and his followers are in this first third too, treating the Fed's duty to our money supply like a mandate to try and control/protect/throttle/pump the market. The market will and should take care of itself, period. Protect the value of the dollar, and do nothing else, thanks... But obviously you couldn't.
2. 1/3rd is the banks fault. There wasn't much they could realisticaly do about the CRA, or ACORN threatening to label them as "racist" if they didn't make the junk loans. However it IS their fault for using the unintended consequences of the CRA to start trading debt insturments as high risk-high profit securities.
3. 1/3rd is the buyers fault. Buying more home than they could afford, flipping, taking shady ARM's with insane terms.
And I don't approve of ANYONE being able to "walk away". Banks, bailouts, or the individual borrowers. If it RUINS your business, your bank, or your personal life, that's GOOD. That is what will teach the overall market to DAMN WELL NOT DO IT AGAIN. :mad:
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My fellow citizens are just too stupid to read a contract or unwanting to honour their obligations. I find that hard to believe.
Yeah you need to watch Youtube, MTV, and Reality TV for a few days straight. You'll understand it.
During the meltdown, CNN had the nerve to trot some idiots out to tell us thier awful story. Thier 9% loan (going rate when they got the loan was between 5-6%), had adjusted to over 15%. They were boohooing how they couldn't pay the loan anymore. No good reason, husband still had a job.
When I got my last home loan, I saw page after page of documents with the interest rate and loan terms. Page after page.
Yes, the average American has been dumbed down to the point of not understanding a freaking contract.
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Brad,
I love this little thread here. I really do - if you would answer the questions I've asked and back your answers up with data, maybe some numbers or links - I promise I will read them.
I already have. Several times. You keep wanting me to say that the banks control the housing market and I've shown you they don't. If you refuse to listen, that's your problem.
Brad
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The Ninja loans you're singling out were a small portion of the overall picture. And the real questionable and illegal stuff is an even smaller piece of the whole picture.
IMHO, a bank shouldn't have to worry about if a person can pay back a loan or not. There used to be a day when loans were made simply on a handshake in a bank office. You take out a loan, you know the terms, you do everything within your power to meet those terms. If your credit is so bad the only way you can buy a house is on a NINJA loan, high interest ARM, etc....well, maybe you shouldn't buy the house. Of course, the banks assumed that those homes would be worth more than they are, and the risk they were taking had a chance of reward either way: Buyer repays loan, or forcloses on house worth more than loan in a few years.
Little quibble. Ninja loans were a sub-prime thing from private lenders, not FNMA or FMHLC and they weren't around long. Mostly available from turn and burn outfits at incredible point costs, the kind of places that were hiring car salesmen who didn't know diddly about real estate.
Fannie and Freddie and the larger private outfits ran lower verification loans called NINA and SISA.
You couldn't get a NINA (no income, no asset) or SISA (stated income, stated asset) loan with bad credit. Also, while your income and assets weren't verified you were required to meet pretty good loan-to-value ratios and did have to have your employment verified. The underwriting standards included market tables for various areas to make sure what you were claiming (or not claiming) was realistic compared to the monthly.
The sad fact is that, regardless of what the lender may or may not have done unethically, anything anyone who could read needed to know about not getting in over their head was available for free from the public library, the internet, competing lenders and numerous community service organizations. Every facet of the loan was disclosed to them prior to signing giveing them time to double check all the numbers.
If you got "tricked" it was because you were an idiot. As Tuco would say, you made yourself a sheep.
Also, why is the text box skipping around when I try to type rather than scrolling. It never did that before the past couple upgrades.
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Also, why is the text box skipping around when I try to type rather than scrolling. It never did that before the past couple upgrades.
I thought it was just me.....
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Windows glitch. Bugs the crap out of me but there's no fix for it.
Brad
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I thought it was just me.....
Yup. Window glitch. Hate it. Tempted to try google chrome.
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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.
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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?
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Makattak, your question seems directed at me, but I have no idea what you are talking about. ???
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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.)
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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.
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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_____)
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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.
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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?
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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.
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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.
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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?
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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.
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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.
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http://www.lewrockwell.com/dilorenzo/dilorenzo125.html
ACORN even brags about it on thier website
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??? 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.