It wasn’t the borrowers who stretched the truth, only their housing ambitions. Loan officers, processors, and bank underwriters took in the borrowers info, realized it didn’t meet the front & back end debt ratios, and inflated accordingly. Borrowers were never very sophisticated and that’s glaringly evident by the mess we’re all in. (Nor were brokers, processors, and U/W’s – but they were given the rulebook to the ponzi scheme).

Stu is 100% correct that bankruptcy procedures need to take place, and should be taking place in autos, airlines, banks, builders, individuals, etc. Maybe the Treasury and Fed knows the numbers would be too appalling for the American people to see. I don’t know.

I do know that companies and people can emerge from bankruptcy with a clean slate, and hopefully an education on the mistakes made in the past, leading to a better, less leveraged route in the future.

From what you have seen/heard from the modifications are people not giving income info because they stated incorrect income on their original app? If they do give it and it is obvious that they lied have you heard of them going after the borrower for fraud?

Balances need to be cut period. People cant move. At historical appreciation rates of 3% it will take 15 years or so to recoup a 50% decline in value. I say longer because of the oversupply and lack of wage growth. It leaves everybody stranded except for firsst time home buyers. The real estate/construction industry cannot survive on FTHBs alone.

Second, total mortgage debt cannot be serviced. The holders of these mortgages need to figure out how they can get the best return. Congress has passed a law that says “if you can no longer afford your mortgage, you can walk and we will not tax you for loan forgiveness.”

What more do they need?

After 5 or less years (with a lack of buyers, the foreclosure could be forgiven in as little as 3 years), they will be able to buy again when prices are much lower.

The entire world faces the same problem: Too Much Debt. Debt default is the only solution that returns us to a stable state.

What is being attempted now, creates a vast pool of unlendable money that will in the future (next 2 to 4 years) sow the seeds of hyperinflation.

For the present we have deflation. We should not fear it. We should embrace it and fear Ben Bernake and King Henry Paulson.

We are all between a rock and a hard place here. I know one thing and that is we need to get some money flowing in the economy and pronto. We are a consumer society which is 70% of our GDP.

Between the ports of LA, Long Beach and Oakland, we shipped 4.5 million TEU of empty containers in 2007. That is over 17,000 miles, enough to stack empty containers end to end completely around the boarders and coastline of the 48 states and the entire coastline of Alaska. Now that is consumerism at its best!

The economy of California heavily depends on trade and American consumerism. Trade, direct and indirect jobs is the number one employer in CA. If Americans don’t start spending, we are going to have significant slowdowns in the ports and become severely impacted in the state from trade related job losses. These job losses are of course going to result in more foreclosures reaching out far beyond the sub prime crisis.

The Federal Government has shown no ability or interest in injecting money into the economy, just trying to keep the banks, AIG floating and now it seems the auto makers. In essence then, we cannot look to the Federal Government to bail CA and CA is already broke.

That leaves the only ones left to fix the California problems is Californians themselves, or we are going to fall into the most serious depression.

I don’t know where peoples house payments end up, perhaps that is shipped to some overseas investors. Chances are that the money is not coming back to circulate in the CA economy. The people of California as a state need to get the money flowing in state and stop sending it to a bank that sends it to god knows where.

The sooner people stop making payments to the banks on underwater mortgages and start renting for less money and keeping the money local, the sooner we are going to be out of our mess. If the Federal Government feels fit to bail out the banks then so be it, let it be a Federal Problem.

There is further good news. New restrictions on loan mods with foreclosures should allow you to live rent free and stack up some emergency cash cushion, perhaps up to a year. If the bank comes around to their senses in that time and makes an offer that is acceptable to you then take it. If not, then feel proud that you have taken the initiative in support of California.

It should be apparent by now, that help is not going to come from the Federal government in any meaningful fashion, it is every man woman and child left to fend for themselves. As it is, it is going to take years for CA to come back on track and an oversupply of housing and tight lending standards should keep prices down for a long time to come.

Crime is already up significantly in my area. Today we spent a significant amount of time putting up razor wire and other security measures at work, including a decision to get a guard dog for the yard. I already know what is coming and not waiting around to become a victim.

Best of luck to you.

What they are trying to do is keep these homes off the market, reduce the glut which is distressing prices (yeah, the solution is to reinflate), and recoup this money as best as they can.

These people are renters regardless of the outcome. This solution I have to agree with as so far as I can see gives the lender the best chance at getting their money back in whole. (or at least the government which now guarantees these mtgs).

What does your crystal ball tell you about overpriced coastal real estate (1 – 1.5 million range)? I’m thinking the current crop of bailouts won’t offer much price support for this segment of the market. Conforming jumbos limits for San Diego county are dropping Jan. 1st to around 550K so that’s gotta put some downward pressure on prices, no? Maybe this is wishful thinking, but I’m really hoping that homes in this price range are in for a big down leg. They’re too expensive for Government largesse and too cheap to attract truly wealthy people with buckets of cash. What do you think? Do I have a chance of getting a deal on house in the next year or two? To date, price declines have been minimal and the only “deals” are foreclosures and short sales. But foreclosures in my ‘hood are few and far between. Short sales are more common but so far I’ve struck out on my two short sale purchase attempts after frickin’ months of waiting for an answer.

Cool website, btw.

Thanks!