The Great Mortgage Modification Pump – GOD SAVE US ALL!
Posted on November 19th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
As you all know, this is a hot topic for me. All of these proactive loan modification efforts now coming out of the woodwork by every bank, regulator and government agency is destined to keep the housing market completely depressed and turn home owners trapped renters, unable to sell or refinance, for decades. Why in the world would any home owner want to go this route?
It is obvious why the institutions are pushing for this. They are rushing out with modification plans because higher paper grades are now defaulting at a staggering rate due to negative equity and home owners finding it better to walk away from all that debt and rent.
What’s worse is that over the past five years there was a fundamental shift of how people viewed their home – from ‘a place to live’ to their single ‘largest investment’.How could they not when all loan programs from Subprime to Prime allowed 50% of gross income (greater when considering limited income doc loans) to be used towards debt. In the good ‘ol days when housing was viewed as a place to live financing was sound with down payments required and no more than 28% of gross income going towards housing debt. 50% debt-to-income ratios changed the game.
Make no mistake about it – MOST BORROWERS ARE NOT WALKING BECAUSE THE CAN’T AFFORD THE PAYMENTS. They are walking because all of their after-tax income each month is going out in bills and the largest portion is going to a home worth half of what they owe. When they are spending such a large portion of their income on a massively depreciating asset, it makes good financial sense to dump that asset. When you can’t sell, that means walk away.
50% debt-to-income ratios means that most after-tax income is going out each month to pay bills with the house payment being the largest piece. This is a tough nut to swallow when your house is down 50% in value and you are 30% upside down in your mortgage…yes, these are 20% down prime borrowers I am talking about. This makes the decision to walk all the easier. The easiest and quickest way for the underwater, over-leveraged home owner to stop the pain is to walk. The new modification plans are designed to make that less attractive by playing the ‘low monthly payment’ game.
That being said, there are many who can’t afford their payments because of an ARM adjustment. But at one time they were qualified by the bank and given the way the loan was structured they could in fact afford the loan. Banks and Realtors in every city in the nation used high-leverage, exotic loans in order get people to qualify for ever increasing loan amounts. By 2005, interest only was industry standard, so was stated income. But lenders didn’t worry what happened to the loan after a few months because the loan was sold and they lose all liability. The 2/28 Subprime ARM was a perfect example of a loan program not designed to hold over the initial teaser period and one the lender didn’t care about because most were sold and securitized.
But even the securities investors never planned on holding these long. 2/28’s and alike were always meant to be temporary loans. Exotic loans with teasers were sold as a ‘way to get into the home more cheaply’ or a ‘way to improve your credit then refi into something better a couple of years from now’. This philosophy was not isolated to Subprime 2/28’s either – Prime 5/1 interest only ARMs and Pay Option ARMs were also sold the same way.
I have been telling all of you for a long time that banks will have to MODIFY EVERY LOAN made between the bubble years of 2003-2007 in order to fix this problem, but I never dreamed they would do it this way. Reworking loans to make ‘payments affordable’ without permanently reducing principal balances is the worst possible thing that can be done because it ensures the housing and foreclosure crisis will be with us for a long time. If these programs are widely accepted, housing is a dead asset class indefinitely.
However, they are accomplishing one thing by keeping borrowers leveraged-up, paying low monthly payments and adding all of that deferred interest and payments to the back of the loan – that’s bailing out the banks.
This style of modification does not sit well with owners of mortgage securities either, which make up the bulk of distressed mortgages. This is because deferred interest, 40-year terms and interest only teaser periods greatly reduces the cash flows and lengthens the duration of the security. For many securities owners, its better to have the home sold in foreclosure so they can recoup at least part of their investment. Again, the new plans only help the banks and the whole loans they own. These plans allow the bank to avoid a write down – the banks get their money cheap enough to offer 1.5% and still make money.
Homeowners – SMARTEN UP!The FDIC program keeps you fully in debt, renting your home for the rest of your life. This is a terrible solution. This is no different than other programs being offered by banks such as Chase, BofA and Wachovia. Why in the world would a sensible person accept such a program?
WITHOUT A PERMANENT PRINCIPAL BALANCE REDUCTION, NO MORTGAGE MODIFICATION PROGRAM WILL EVER WORK. Period…end of story.
If you walk away now your credit will be ruined for 5-10 years. So what. It will take much longer than that for home prices to ‘come back’. It will take even longer for borrowers to pay off the original mortgage loan amount, which could be 100% higher than the present value of the property. And if borrowers accept this they will have to pay down the loan because you are upside down and can’t sell!
Think about it folks! If your home value is down or you are underwater by 50%, which is not too bad especially is many areas in the bubble states, YOUR VALUE HAS TO GO UP 100% for you to break even or for your home price to ‘come back’. Quit dreaming. It ain’t gonna happen.
If house prices stopped going down this very minute and started rising at a historical 5%-7% per year based upon a good overall economy, low interest rates, strong sentiment and rental rates it would take years for prices to get back to where they were. And we don’t have a good economy, low mortgage rates, strong sentiment or rising rental rates.
These mortgage modification efforts only lower monthly payments. They are no better than the toxic loans that caused all of this mess in the first place. They only kick the can down the road. They rely upon ‘extend terms to 40-years, deferred interest and low introductory rates’. THIS IS HOW WE GOT HERE IN THE FIRST PLACE – they were called ‘2/28s’, ‘interest only’ and ‘Pay Option ARMs’.
What they are trying to do is simple – play with monthly payments so borrowers find it easier to stay than walk away and rent. IT IS A TRICK, just like when the car salesman asks ‘how much can you afford to pay each month?‘ Then the payment comes in low but your term is 84 months. You never end up getting right side up. As a society we need to break the ‘monthly payment’ habit and get back to reality which is saving money and spending less.
The fact is when you accept this type of modification YOU ARE RENTING. It is WORSE THAN RENTING because when you walk away and rent you don’t have the debt any longer. With these new mortgage modification programs, all of the debt stays with you forever. What happens down the road when you do lose your job, become ill or are having a rough time meeting your obligations – you walk because you are upside down and you have no skin in the game. What motivation are you going to have to spend money maintaining the property? Five years from now you will be able to drive down any street and pick out the homes with an FDIC modification – they will be the ones with overgrown yards, broken fences and faded paint.
AMERICA DESERVES PRINCIPAL BALANCE REDUCTIONS – YOU WERE DECEIVED. GET IT?!?
It is time for the banks to write down principal.
The greatest real estate bubble of all time was only able to occur because of the bank’s allowing home owners to use extraordinary leverage created through exotic loan programs and easy credit that never existed before and never will again.
From 2003 through 2007 everyone made $150k a year for the purposes of buying a home. Home prices responded by surging higher to meet the new found nationally high affordability level.
Banks did not care about the structure or long-term viability of the loans because most were sold and securitized shortly after funding. Typically after six months, the originating or securitizing lender has no more responsibility for the outcome. Therefore, who cares about creating loans that will last – just make loans that will last at least six months.
Everyone was suckered, as these loan programs became the norm. Folks who really earned $150k a year went out and bought over priced homes based upon flawed and temporary fundamentals not knowing they were being suckered. Now they too are upside down in their home by 50% and have seen their life savings go up in smoke. They overpaid because the janitor was bidding against them using a stated income 100% interest only combo. Hey, the loan officer at the bank and the Realtor told the janitor that ‘based upon his income and credit you qualify for this loan’. Why should he argue with his bank? They know best. They are the experts.
But now it is obvious that the past six years was an illusion and none of those easy credit, high-leverage programs exist any longer. Prices are coming down to the real affordability levels using 15 and 30-year fixed rate loans and a down payment, which has rendered the nations financial institutions and millions of home owners instantly insolvent. The same household that earns $75k per year that two years ago could buy a $650k home with no money down can now buy a $275k home with 10% down. It now takes at least $150k a year and a large down payment to buy a $650k home.
100% stated interest only and Pay option ARMs will not return. Nor will 100% HELOCs. They were doomed to fail from their creation. The banks had modeling systems that they never stress tested. You mean to tell me that it never occurred to the smartest guys in the room to plug into the model that home prices could actually fall? That was a fatal error that the world is paying for. But the banks will never pay if everyone gets an FDIC or bank designed mortgage modification because they make the borrower take 100% of the hit.
Yes, there were people who took advantage of the system. But, that was a small percentage of everyone who bought a home on flawed and temporary market fundamentals induced by easy credit and exotic loan programs that never should have existed in the first place. This five year period of absolute recklessness and blind greed on the bank’s part was the real driver of home prices. Taking that away is ‘going straight’ is the leading driver for the destruction of the housing market and consumer.
THE SOLUTION
If not for the unregulated institutions providing unlimited and irresponsible credit and leverage to every household in America this never would have happened.
First off, I am a fan of letting the market work and the housing/foreclosure crisis clearing itself up on its own. We are already seeing positive signs that the Subprime crisis is on the other side of the hill mostly on its own. The problem is that the Alt-A, Jumbo Prime and Prime mountains lie ahead. However, if the government and banks are hell bent on modifications, I am going to use whatever voice I have to try to convince as many as possible to do it the right way.
This blame does mostly lie with the banks, law makers, and regulators (including Greenspan) who branded and endorsed these loans as mainstream until 80% of all loans in the state of CA in 2006 were exotic by definition. This is very similar to the cigarette makers not telling the American consumer for decades that Cigarettes were highly addictive and cause cancer. They were branded as the ‘cool thing to do’ and then lied about the health effects and addictive qualities in nicotine for two decades until science caught up.
To fix the housing market and greatly aid the economy you must focus on two important segments that made up 80% of all housing activity – the refinancer and move-up buyer. Now they are the minority. This is a major problem. We need to get these people back into the market. Investors, vacation home buyers, renters and first-time home buyers have always been the smallest segments of the market and now they its primary participants. The may be great for low priced homes in foreclosure epicenters, but as the problem jumps tracks into Alt-A, Jumbo Prime and Prime, higher end areas will follow down the same path. Without any reasonable financing available for loans over $417k, it is already a foregone conclusion.
Prices are coming down fast and the market will clear at some point and at some level. But that level could be years away. The banks, regulators and lawmakers with all of their terrible loan modification plans will ensure it takes two decades for this to happen. See ‘The Great Loan Modification Pump- God Save Us All! for the reason why. Recidivism rate after loan mod is 50% because most loan mods keep the borrowers levered up and underwater in their homes. The plans by FDIC, banks and lawmakers do exactly this. My plan will achieve the same within a couple of years. Yes, there will be pain but much less. As with the financial institutions, the quicker the borrowers de-lever and raise cash the better for the housing market and economy in general.
It is time for the very same financial institutions that created all of this to do what’s right and re-underwrite every loan originated between 2003 – 2007 using prudent underwriting guidelines. Then, they must reduce the principal balance to what the borrower really earns using a 28% housing and 36% total debt-to-income ratio at a market rate 30-year fixed loan. When home owners are levered at 28/36 they are able to save money and live a decent lifestyle. If they go upside down in their property who cares – they are still able to save money. At 28/36, their home once again becomes a place to live.
If reducing the principal balance to 28/36 on a market rate 30-year fixed loan is $100k lower than the present value of the home, the bank can take can take the differential through a second mortgage or equity warrant. if the borrower sells or walks away then, the banks gets paid. But the home owner gets all of the upside. If the borrowers can’t prove income, then they need to leave the house and rent. They should have been renters all along. Anything less and the program will fail.
This will not prevent housing prices from coming down substantially over the next few years especially considering the massive multi-year foreclosure overhang, gross amount of negative equity across all paper grades and terrible mortgage modifications that the banks and regulatory agencies are now trying to push. But at least it would be the best way to begin to undo the irresponsibility of the past five years and get back to basics where prices are based primarily on traditional factors such as incomes, interest rates, macroeconomic conditions, sentiment and rental rates. - Best, Mr Mortgage
AN ALTERNATIVE PLAN by CR Harrington
Here is my solution to our problem… Give homeowners who are in default on their mortgages, $1000 from the treasury to be payable directly to an attorney who understands predatory lending. If the mortgage closing paperwork audit reveals any violation of Respa, TILA, etc, and further identifies any potential lending violations, especially on exotic mortgages (option ARM, Alt A, Interest only, Neg am, etc.) then allow an additional $9000 flat fee to the attorney to SUE the bank for fraudulent business practices, deceptive loan practices, concealment, theft by deception, whatever…. What if 70% of all loans between 2003-2007 were illegal? What if the banks don’t even own the loans beyond servicing, and the true holder of the note has imploded? Give the homeowners a year in the house during the lawsuit (to save up some money and keep one less house on the market) and then give the homeowners who win their homes in successful lawsuits, a free house – free and clear. Then they can sell their home for 50 – 60 (market value?) cents on the dollar to pay off their credit card bills and whatever is left over can be a sizable down payment on an owner financed home. Also, keep $10,000 at closing to pay back the Treasury to recycle back into the DISTRESSED HOMEOWNER LEGAL BAILOUT FUND!!! Home values will stabilize – (its a start….,) more money from home sales gets put back into the economy, everybody wins (except the criminals on Wall Street and defrauded investors who are going to sue anyways – they then can win and get the leftover homes that weren’t contested.) This is “trickle-up” and makes for a common sense solution that does not burden the tax-payer – very much.
More Mr Mortgage & Mortgage Modifications
- FDIC (and everyone else’s) Mortgage Mod Plans (61)
Posted on November 15, 2008 12:36 PM - For Many, 20% Down Payment Is All That’s Left (30)
Posted on November 11, 2008 6:35 PM - FanFred’s NEW PLAN Keeps Borrowers Underwater in Neg-Am’s & Teasers (27)
Posted on November 11, 2008 3:23 PM - Banks Giving 1-2% Teaser Rates as Modifications (18)
Posted on November 11, 2008 12:26 PM - Bubble-States Awash in Negative-Equity (12)
Posted on November 10, 2008 6:44 PM - NO MORE MORTGAGE PAYMENTS SOON – Get Ready to Default! (64)
Posted on November 4, 2008 5:20 PM - Mortgage Early Payment Defaults Surge in 2008 (8)
Posted on November 4, 2008 12:32 PM
November 19th, 2008 12:34 pm
I know it’s been quoted before, but these kinds of modifications Thomas Jefferson’s warning is starting to look like prophecy:
“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”
November 19th, 2008 12:54 pm
This is not fair.
An IT middle manager and a janitor both bought $650k houses. Now the janitor can afford it no longer and should get a principal reduction to a level “he can afford”, while the IT manager should continue being debt enslaved forever? Where is the logic here?
Why must we “prevent” foreclosures? It’s a natural consequence of all that stupidity. Let them foreclose. Who cares? Why is having a house somehow morally superior to renting? Makes no sense. You keep people in their houses, all you’re doing is perpetuating the status quo where a normal middle class family cannot afford to buy a modest house.
November 19th, 2008 1:12 pm
Mr. Mortgage,
This is the best post i have ever read on the internet, it is exactly right in every word. They are going to try and trick the public, which they may be able to do, by becoming car salesman and putting everyone into an affordable “monthly lease” because we know no one can afford the monthly purchase price of that overpriced piece of junk with 4 wheels…its why the Big 3 havent sold a car in last 2 months since no one could get a lease and no could afford to buy the overpriced cars !!
There is no reason why someone as myself, and many millions more, should have overpaid for my 2007 home, which i put 20% down and took a 30 year FIXED…thus i have already been paying more per month instead of taking a 2 year teaser rate and now a year later i am under water (WITH A 20 % down payment) and i want to rip some talking heads i see on tv say , its too bad for me as it was just bad timing…..BULLSH*T, IT WAS FRAUD and no one cared, the brokers, realtors or banks because they were making all their fees, commisions and bonuses….i am lucky that i am still able to afford my moretgage and being underwater doesnt really affect me right now, but knowing that over 100,000 of my down payement has disappeared on paper , pisses me off more every day …..keep spreading the word for A PERMANENT PRINCIPAL BALANCE REDUCTION as no one i see i speaking for the people who are in 30 fixed/20% down who are upside dow but of course why would they, they dont see us as “victims” just as someone who timed the market wrong !!!!
November 19th, 2008 1:16 pm
Susan,
Most likely the janitor still will not be able to afford the house HOWEVER the IT guy will be paying a mortgage that he should have been FAIRLY PAYING ALL ALONG at the actual market price (to say nothing about the extra money he has been monthly for the last 1-3 years )…..THATS WHAT IS FAIR ABOUT THAT, how come everyone sees it from the janitors side, but never the IT guys side ?
November 19th, 2008 1:20 pm
Hey Java – don’t go overboard. By the way, what is your address so I can send you the $50 I said I would for saying such great things. Haha.
Everything over the past several years was fraud which artificially pumped up prices and suckered in everyone. The ones who created the leverage and artificial prices are the ones to blame. Not the ones who did not understand.
November 19th, 2008 1:20 pm
Mr. Hell, meet handbasket.
November 19th, 2008 1:28 pm
Wait a minute. A scumbag asking for a $500k loan which is really an empty parking lot is fraud BOTH ways. Criminal asking, bank approving.
However. Some dude buying at peak and now saying “Cannot afford, reduce principal, I’m a victim” — what? Sorry, you were not a victim. You honestly thought buying a shack in SF for $650k was a good idea? Well, then you get to eat it. I don’t understand.
November 19th, 2008 1:30 pm
Well Mr. Mortgage, My husband and I finally did the right thing this month and stopped paying the mortgage. We’ve fretted about it for the last 6 months. Will we or won’t we. Should we or shouldn’t we.
Our home in the Central Valley of CA has lost 50% of it’s value in a little over a year’s time, and our debt to income ratio is close to 50% as well. This was our first house, and we thought we did our homework before we purchased, but apparently not enough, because we weren’t aware the housing market had already started to decline in June of 2007 when we bought ( and, of course, our agent never mentioned it – he, in fact, kept trying to steer us into higher & higher priced properties ), or what a DTI ratio even was or should be. You can bet we sure know now though.
So, walking away from the house is the RIGHT thing to do, because continuing to pay the mortgage simply props up unrealistic house values and is unfair to people who want to buy now and shouldn’t overpay like we and so many others did. It took us a long time to come to terms with that fact.
So, we will save some money for a few months and then move. I have zero faith that the mortgage companies will accept that reducing principle balances is the only solution. They can’t seem to let go of the scam. They just keep coming up with new scams to make more money off the old scams. They’ve made soo much money off our backs for soo many years, and they just can’t accept that the jig’s up…
November 19th, 2008 1:31 pm
The other thing that will happen the faster the banks and the people get deleverage the fast the economy will improve. People that where making a house payment for $2000 now make one for $1000. $1000 extra a month is alot to save, pay off credit cards, and spend on goods and services to get people working again. As long as people dump money in a black hole. AKA their house payment on a upside down home this will never correct. The goverment is making this mess so much worse that it needs to be. LET THE MARKET CORRECT.
Thanks Mr Mortgage. You logic is what America needs.
Don
November 19th, 2008 1:35 pm
So, Sarah — you bought a house in CA at peak, not knowing where the market is, not knowing what a DTI is, let yourself get suckered in by an agent and NOW you’re looking for a moral justification so you can say “walking away is the ‘RIGHT’ thing to do?”
Yeah. Whatever.
November 19th, 2008 1:43 pm
I don’t agree.
If they can’t pay the note, foreclose.
Anything else is madness.
I believed I was being prudent by not mortgaging the rest of my life. Bailing people out on their principal just makes me look like a chump. I would have been better off buying a million dollar house in San Francisco. Let the taxpayers pick up the difference.
November 19th, 2008 1:45 pm
We reward people for greed and stupidity then reap what we sow. Why is this a surprise?
November 19th, 2008 1:56 pm
I disagree as well with the principle reduction scenario. California will not take the rest of us down. If thye are too far upside down, foreclose, period.
Mr Mortgage, please check out the string entitled Real Economic Stimulous package. We are sending it out today. Your vast audience could certainly help.
November 19th, 2008 1:57 pm
So Susan, bitter much?
I don’t understand the anger of holier than thou people like you. I’ll just bet your property ( if you have one ) isn’t down 50% in a year. When that happens, see you how you feel then about propping up this ponzi scheme any further.
Are you just here to try and kick people like us when we are already down? This decision has been the most stressful of our entire lives, and will have a massive impact on us for the rest of our lives. So, I think you know what you can do with your judgments…
The research we did was on types of mortgages and how they work. I didn’t realize I’d have to guard against fraud on a massive scale like this that has been perpetrated by the mortgage companies, the realtors, the agents, and supported by the government. How naive of me. I should have known EVERYTHING out there in life was a scam. But hey, they don’t teach that in school.
I’m glad there are smart people out there like you Susan to tell the rest of us scum how awful we are.
Thanks so much,
Sarah
November 19th, 2008 1:57 pm
Susan, life is not always fair…
The janitor will need documented income to verify he/she can afford the home even at the reduced amount. I highly doubt he/she will qualify for a 650K home that is written down to say 550K, do you? So the janitor is out on his butt foreclosed on. It is really that simple. The IT manager is in an affordable home and is making payments so he/she stays and is fine. This is using your own example however.
I think you are upset because their may be that IT worker (non manager) let’s say that is just under water now due to a recent reset for example and they would write down say 40K of his/her principle to make his/her loan affordable so that they will stay put. If that is the true scenario that upsets you as I am sure it is, then you need to step back and look at the big picture here.
First of all, we can’t have everyone just be foreclosed on that is in trouble. You would be talking upwards of 10 million before this was all said and done. Do you know how crazy that would be to the economy and how much permanent damage it would cause? The comps alone would force millions more to walk as well truly creating devastation in housing. That IT manager would eventually be hit because his neighborhood as most would with this kind of number of foreclosures will drop his value and everyone else not foreclosed on to a level that would have them all walk too. Do you really want this type of housing crash? I would certainly hope not. This is what we call a dire situation and it needs to be addressed. Just because some will make out better than others you don’t agree? In some ways we are truly all in this together now. I could care less if someone gets a 40K principle reduction as long as my mortgage stays the same and my home doesn’t tank in value because I have 6 out of 10 homes on my street go into foreclosure. Due to the shear number of foreclosures already and the new ones coming from people like the janitor in your example their will be plenty of distressed sales that first time buyers and middle class families can afford on the market. Sales are actually increasing in some of the hardest hit areas for this very reason.
We don’t need to find fault any longer because it is too late for that. The damage is done and we need to now find solutions. The lenders are all looking for solutions to make them the most money that they possibly can… go figure. The FDIC is looking to save as much money as it can… go figure. The principle reduction is a way for the banks to take a hit and the FDIC to save money with fewer defaults. The banks will take a much bigger hit if they foreclose on all of these people and it will be very costly to the FDIC (hence us tax payers). So we allow for those that can be saved a small write down on their principle… is that really so bad? Some get paid now so to speak or we all pay dearly later, but the bill will get paid. It always does…
November 19th, 2008 2:02 pm
You can achieve much more if you don’t forgive principal but reduce rates.
1) Declare all interest charged above Fed Funds (1%) plus a 3% margin (total 4%) as usury, subject to 110% recapture by the Government. This means all loans, commercial and residential will be lowered to 4% which frees up available cash for other purposes.
2) Don’t have a mortgage on your property? How about a $25k tax credit, payable over 5 years. This then helps all property owners.
3) Cap all sale prices of Real Estate at point of purchase price ($400k in 2001) plus rate of inflation (so roughly $490k in 2008). A buyer can pay more for the property, but the profit over and above the $490k is split 50/50 with the seller. Of that 50% to the Government 1/2 goes to the Feds, 1/2 goes to the banks that reduced the rates on the loans.
4) Pay cash for the home and no recapture is required.
5) Want to now cash out that home in a refi? Fine, but only to 50% LTV.
6) All new loan products are priced at Fed Funds, plus 3% with a universal fee of “X”. “X” to be determined.
7) Home sale commissions are capped at 3% of selling price. No more, no less.
Banks and Realtards can live off of a 3% profit margin. Sellers can still sell at a higher than inflation adjusted price. Buyers can still get “affordable” loans. Lawyers are not involved…
Contrary to popular belief, home ownership is not a constitutionally protected right. It’s a choice.
My .02 SGIP
November 19th, 2008 2:03 pm
the fighting over the scraps in the garbage dump has begun. without some measure of compassion in the dialogue/debate, we are headed for “the road”. i for one am in awe of the mortgage brokers in my small town who laid this worldwide financial economy low.
November 19th, 2008 2:05 pm
“It is time for the very same financial institutions that created all of this to do what’s right and reduce the principal balance of every mortgage in America obtained from 2003-2007 to what the borrower really earns using a 28% housing and 36% total debt-to-income ratio at a market rate 30-year fixed loan”
Yer dreamin’
Ain’t gonna happen.
It *will* happen for those that are underwater (to my everlasting disgust). But if you’re not underwater, no candy for you.
And of course if you’re renter you get *bupkis* in the candy department. But that’s ok, renters are just poor people, young people, immigrants, etc., pretty much the lowest form of life in the petri dish of our society. What do we care about them!
November 19th, 2008 2:22 pm
Susan: you are right on.
dennis black: Dude, that’s tough choice between Cormac’s “The Road” and Soylent’s utopian vision of nanny statism. I’ll have to think about that one.
Stu and Javagold: you guys (gender neutral!) are great. I disagree with you %100, but at least you’re consistent.
November 19th, 2008 2:30 pm
Green,
I agree, my suggestion of nanny statism for real estate is just that. I’m a free marketeer myself but know we are heading down the road of socializing risk so that nobody ever gets into trouble or harm (which, as we all know, is impossible)America has become a society of entitlement mentality Useful Idiots. The Rubicon has been crossed with TARP and all prior modification plans by FDIC and others, which will not stem the problem or turn the tide.
Since Nanny Statism is the “Change” we all voted for, I’d expect something fairly close to my first post to come forward in the first few months of the new administration. Bold steps, roughly taken to say the least, and anti-capitalism that empowers collectivism is the likely path ahead – much to the detriment of our once grand nation.
SGIP
November 19th, 2008 2:36 pm
Susan,
I guess then, we must be a nation of scumbags
November 19th, 2008 2:38 pm
Reduce the principal?! Are you stupid? Reward these morons who bit off more than they could chew? You keep blaming lenders and letting borrowers off the hook. You talk as if these people were innocent victims. Everyone who bought a home in the past 5 years thought they could double their money in one year and make out like bandits. They gambled. They lost. End of story. No loan modifications. No reduction of principal. No bailouts. No nothing. No freaking way. If I have to suffer, everyone has to suffer. I scrimped. I saved and now my money is worth nothing because of these imbeciles. You also fail to mention that because of these people we’ll all be renting for a very long time. At least with these 40 year modifications their rent will never go up. Unlike mine. Which will go up $150 a year for the rest of my life. Stop bing such a freaking jerk!
November 19th, 2008 2:38 pm
Green Flipper,
take me out of the equation and just go by what Mr. Mortgage is stating correctly, this mess WILL NOT be fixed unless we have A PERMANENT PRINCIPAL BALANCE REDUCTION……simple as that !
November 19th, 2008 2:44 pm
Marc, it would seem to me that based on all the data, the history of asset bubbles, that the person working for the government rewriting the loans is actually performing a disservice. In essence, bailout monies are banker subsidies and not actual help to the person living in the home.
My idea of help is entirely different. It would be education in which is the better option, continuing a bad deal or defaulting. A simple calculator would seem to do the trick. As we know, the majority of a house payment in the beginning is primarily interest. Moving a loan out to 40 years only decreases the amount of principle being applied to the balance of the loan. This now makes renting an even better option given current rents verses your house payment on your overpriced out of the money mortgage.
Playing with the following might do a home holder good.
Home Holder Worksheet
Current Mortgage balance.
Principle reduction in next five years.
Estimated home value in five years.
Current house payment x 60 months
Current rents x 60 months
Difference between renting and home payment for 60 months.
Compare that to your principle reduction on loan balance.
Questions
1. After 5 years of continual payments are you still underwater?
2. Assuming you were to save the difference between house payment and rental savings, which option would give you the higher net worth in 5 years?
3. Would the amount saved give you enough for a new down payment?
4. If your answer to question 3 was yes, what would your loan balance be after your new down.
5. How does your new loan balance you are getting five years from now compare to your loan balance in five years if you kept making payments on your current mortgage? Your offered 40 year mod mortgage?
6. Sweetener. likely 8 months of rent free living less moving expenses while you default. Don’t feel guilty, the bankers manipulated the market. If someone manipulated securities, they would be brought up on charges and disgorged of their profits. Unfortunately what we see is our government helping the bankers. Not only that, the bankers have engaged public servants to assist in screwing you further under the guise of “Help”.
7. Vote with your feet.
Note, I am winging it and could have missed something obvious, chime in with comments!
Note 2 Freaking great post Marc! Attaboy! The truth will set you free.
November 19th, 2008 2:46 pm
So what your saying is after you borrowed a lot money that you could have never aforded to pay back demand that the bank that lent it to you forgives a portion of it?
November 19th, 2008 2:46 pm
Fred you are wrong.
1850 – 2002…most prevalent loan was a 30-yr fixed with a down payment. Home prices increased and decreased according to the broader economy, interest rates, sentiment, rental rates ect with some bubble period but nothing like the past 5 years
2002-2003….new, highly exotic, high leverage loan programs were introduced by the investment banks. This created affordibility never before seen and housing skyrocketed. The affordability was really there through these programs.
2004-2007…banks introduced their versions of the investment banks exotic loans and interest only, stated income, 100% helocs etc were branded as the standard. By 2006, 75% of all loans in the state of CA were NOT 30-year fixed.
Highly exotic high leverage loans became the norm because the financial institutions branded them that way. Consumers bought what they were sold. Banks pushed these loans hard. Consumers listen to the expert bank loan officers and realtors.
How many people actually had the insight to say ‘humm, well if Jose Chavez is buying the home next door he much be using a loan allowing him artificial leverage therefore I better not buy or refinance because if home prices stop going up or these loan programs ever go away I may be caught upside down in my house unable to sell or refinance’.
Gimme a break. The banks made this.
November 19th, 2008 2:48 pm
They cannot reduce principal because they don’t know how to track which “traunche” or SIV/CDO or other instrument that each individual mortgees loan ended up peing a part of. Some SIV’s have divided partial interests in individual loans. This mess cannot be unwound….that is the crux of the situation. Yes, GOD help us all.
November 19th, 2008 2:58 pm
The answer is not to reward the people who knowingly or unknowingly entered into a bad loan by reducing loan principle or more. This will only cause more problems like more people walking away from loans that they could afford. The answer might be for the banks to take back the bad loans and homes and pay back to the borrower the money they spent on the loan above a reasonable rent cost. Then the bank can eat the loss.
November 19th, 2008 3:03 pm
Why so many of you are so upset with this is really quite interesting to me. I am not happy about it myself, but something needs to get done that will work.
This is not everybody under water we are talking about here. This is not speculators we are talking about here. This is not investors we are talking about here. This is and I repeat NOT EVERYONE in the country who got a loan.
We are talking the plumber whose business is off by 40% due to what is happening in housing. We are talking about the furniture salesman, car salesman and airline pilot.
My god don’t you people have any compassion?
I am not advocating stopping the bleeding, but merely slowing it down with a tourniquet for those deserving of one. These are your family members, friends and neighbors we are talking about for crying out loud. Far be it for me to watch those around me suffer because I want mine too. Do you have a home, a job and are making ends meet? Then be quiet and let’s get this thing turned around for those deserving to get back on their feet…
November 19th, 2008 3:04 pm
Denial is the most powerful emotion. When will the scheme-fruad ridden institutions realize that they cannot prop up these stupid debt-ridden, hyper-inflationary prices. THE MARKET NEEDS TO DEFLATE!
The banks and our gov’t would rather enslave the people of this country before shutting down this scheme.
Welcome back to indentured servitude!
November 19th, 2008 3:20 pm
what no one, including our fearless mr, has mentioned is the distinct possibility of hyperinflation. turning the loans recourse is the dealbreaker for me. but for people who can hold onto their current underwater mortgages, and hyperinflation kicks in, they may get their nearly “free” house even paying the entire balance off. if they walk away, they will most likely never get back in if the dollar inflates away. as a renter during the bubble(7 years no rent increase), i now have to keep a lookout to see if i will have to buy to lock in shelter cost against hyperinflation. it sure isn’t happening now, but things change fast.
November 19th, 2008 3:20 pm
od
Unfortunately interest now consumes our GDP and the system is caving in on itself. Sad. Our government now runs around being banker puppets.
November 19th, 2008 3:23 pm
I’m sorry Sarah — why would I NOT be bitter? My family income puts us in the top 9th percentile in this country, yet our entire lives together (6 yrs) we’ve been renting. Why? Because people like you kept buying and buying and buying, driving the prices ever higher and squeezing all other risk averse people OUT.
Face it, you gambled, you lost. Tough. It may make perfect sense for you to walk away from your mortgage but let’s face it — SOMEBODY will pay. Somebody always pays. Your bank is simply going to dip that much more into TARP, which is by the way, tax payers’ money.
So, I’m sorry for your predicament but I don’t know why I should be subsidizing your imprudent financial decisions.
November 19th, 2008 3:25 pm
I tend to take these types of post more seriously when you dont push Green Credit Solutions. Usually when you make a post about loan mods with GCS in the mix, I dismiss it as an ad.
November 19th, 2008 3:31 pm
also, to say it’s “all banks fault” is misleading. So what if the bankers “were pushing it?” Car salesmen push their garbage all the time. Doesn’t mean the CONSUMERS are absolved of the responsibilities of doing their own math. Everytime I go buy a car, they always start with, “What’s the monthly payment you can afford?” So what? That is their job, to be slimy salesmen. You still have to be diligent.
November 19th, 2008 3:38 pm
Susan, ironically the ONLY way you are not going to subsidize these defaults is with principle write downs. Otherwise to your point they will tarp themselves to death and once they faulter the Tax Payer foots the bill. Would you rather not pay a dime now and let the banks write down principle so that you never have to pay a dime or let it all go to hell and pay 100% of the damamge? Your children’s children will thank you I am sure…
November 19th, 2008 3:39 pm
Mr. Mortgage,
First off, I think you write great articles and have many valid points, but the whole idea of principal reduction being the only modification answer is rediculous and faulty when you understand that people by homes to live in them. While we hope the home appreciates, it is never a guarantee.
But before you shoot off about balance reductions being the only answer to modifications, you need to know peoples goals. Let’s face it, probably over 75% to 80% of people live within 30 miles of where they grew up. So why will they need to “sell” the house and move in the next 5 to 10 years?
If rates are reduced rather than balance, the individuals will pay LESS for the house over time. So if they need the mortgage modified because it was their “Dream Home” and the banks toxic mortgage screwed them (which it did not, but that is a whole other issue. If you sign a note for a large debt, maybe you should read it – after all it is only 3 pages long!!)
But anyway, let’s actually do the math. If I financed $400K at 6%, my principal and interest payment would be $2,386.27. If I stayed in the loan for 30 years, making every payment on time then I would pay back $859,057.47
If the modification offer is to reduce the rate to 2% and not reduce my balance of $400K but put me on a 30 year note of Principal and Interest, then the monthly payment would be reduced to $1476.02 total payback on the loan would be $531,367.20
Now let’s say that they leave the rate at 6%, but cut your balance by 25% to $300,000. Your payment would be $1789.70 and your total payback would be $644,293.10!! That’s almost a difference of paying $115K more for the home!!
If the borrower having their loan modified can afford the $1789 payment which you feel is the better option because the balance is less, then they could make that payment on the loan with the higher balance and lower rate, reducing the the term from 360 months to 280 months and only paying back $501,116. In that scenario, they will have kept an additional $143K over that 280 months in addition to saving 80 months of a $1789 payment for an additional $143K. So tell me, who couldn’t use an additional $300K 30 years from now?
I could go on and show you several other reasons, but the principal balance of the modification is a flawed argument. What you owe on a house has nothing to do with what it is worth, it is what the other homes around you sell for. A candidate for modification should be willing to stay in the home. It should not be for the purpose of reducing the balance so they have the ability to sell the home without any personal ramifications. That just hurts neighborhood values, while keeping the borrower safe because it does not affect their credit. While much of these issues are due to bankers greed, they are also due to consumer negligence and the sociological issues of wanting everything bigger and better than the guy next door.
Lastly, on the issue of ratios. Those guidelines were put into place when you purchased homes for $60K – $80K and individuals didn’t leave school $40K in debt. Be realistic. If my total allowable housing ratio is 28% and I make $60K a year, then that allows for a $1400 payment with Principal, Interest, Taxes, Insurance, and Mortgage Insurance provided I do not have 20% down. Realistically the Insurance premiums and taxes will be $400 of the payment, so that leaves $1000 left over for a PI payment. That puts you at an affordable mortgage to carry of just under $177K if rates are at 5.5%.
Where does that mean home values need to be in your area??
And I was using an upper income range, because realistically only 10% of the population makes $60K a year as taxable income which is used to determine loan approval. Also, the back-end ratio of 36% only leaves the borrower the ability to have 8% of yearly income going towards other creditors for an auto payment, student loans, and any small revolving balances. On that same $60K that comes to $400 a month.
Many people graduating college who will be in the salary range discussed above will have close to that in student loan payments alone.
November 19th, 2008 3:40 pm
Right on Bro, this is the best summation of the refi meltdown nightmare scenario I have ever seen. I AM AN APPRAISER, AN HONEST ONE – ONE OF THE FEW. I saw the nightmare unfolding from the beginning, I saw it coming. I reluctantly appraised absolute dogpiles in Pacoima, CA being refinanced for $550K, meanwhile there was no money to pay for the appraisal meanwhile the kitchen floor was dirt 80 year old cabs falling off the hinges, claw footed tubs falling through the floors, meanwhile the Media Center in the living room with the 80 inch big screen and 10,000 channels and the AC were going full blast. Deferred maintenance? No of course not, not with the broker’s metaphorical gun to my head. Everybody was in on the carnage to come. My take on all this: CAPITALISM WILL ALWAYS REQUIRE THE EXPLOITATION OF NEW MARKETS BY ANY MEANS NECESSARY. SOMEBODY WILL FIGURE OUT HOW TO DO IT AND MAKE MONEY FROM IT NO MATTER WHAT “THE DEAL”.
November 19th, 2008 3:40 pm
“This is not everybody under water we are talking about here. This is not speculators we are talking about here. This is not investors we are talking about here. This is and I repeat NOT EVERYONE in the country who got a loan.”
Hi Stu,
Do you really think the Government (or the banks at the insistence of the gov) is going to discriminate between those who are deserving and those who are not?
They will not. For every borrower truly down on their luck who gets a hand from Uncle Sam, there will be several who are gaming the system. How do I know this? I live in So Cal, the homeland of cunning people who know how to game the system. This is the MAJORITY of the people here. Are they evil? No. Are they good at getting their piece of the pie, and then some? You betcha.
If you really want an equitable bailout, why not support the Dem’s in their efforts to allow bankruptcy cramdowns? It’s still wrongheaded, but at least it attempts to discriminate between the “good guys” and the “bad guys”. Presumably, most judges would not be very sympathetic toward someone who cashed out all the equity in their home to invest in a dozen preconstruction condos in Las Vegas vs. the guy with two kids who got cancer, couldn’t work, and ultimately couldn’t keep up with house payments.
Just a thought.
November 19th, 2008 3:43 pm
please, no more mandates. not to reduce principal, not to feed the starving lawyers.
“Give homeowners who are in default on their mortgages, $1000 from the treasury to be payable directly to an attorney who understands predatory lending.”
did anyone else think Mr. Mortgage got a ghost writer to do this one?
November 19th, 2008 3:45 pm
Do the math – perhaps that was their original intent and perhaps that is what they have always done in the past, but the past five years was different. ‘Your home was your single largest investment’.
In decades prior when you were not allowed to leverage is high in real estate due to more prudent lending standards the home was not viewed as an investment. But this time around with all of your disposable income allowed to be used to debt with housing being the largest nut to crack each month, it promoted speculation.
As values ran up millions took out home equity lines and leveraged their home even higher in order to spend or invest the equity.
It does not really matter how their view their home even though I think you are wrong in the idea that people thin kof their home as a place to live. It comes down to simple economics – due to reckless lending and mega-leverage home owners were able to do things they were never able to do before – and they did it.
Due to this, even the 20% down 30-year fixed borrowers who bought 2-years ago are underwater, paying out all of their disposable income each month to debt and are walking.
November 19th, 2008 3:47 pm
I do agree that people should have payments they can afford. But why does the janitor’s family get to have a house they can’t really afford at a payment they can afford? IOW they lied to get in over their heads and now we have to do everything we can to keep them there, just to prop up unsupportable prices as long as possible?
But if I, who continued renting because I wasn’t about to overpay even tho someone said I could, want to buy something I can afford and I make the same salary as the janitor, do I get the same fancy house? Hell, no. I’m stuck with some dump that a lying borrower trashed on his way out.
I have no problem with making people who borrowed $750K pay back $750K with interest, no matter what the collateral is worth today, even if it takes them the rest of their lives and even if it’s decades after they sell the house at a loss. And they should be taxed on the forgiven debt as well. We are doing nothing but enabling and encouraging and rewarding fraud and, at the very least, irresponsibility and naivete.
November 19th, 2008 3:55 pm
“They cannot reduce principal…”
Money Man:
Oh that that were true, mon frere.
Amongst the innovative ideas that I’ve seen from super-genius economists:
1. Use eminent domain laws, as a loophole around a couple hundred years of contracts law, to seize underwater properties and resell them back to original owner at market prices, thereby stiffing the state retirement fund of Finland (or whoever is unfortunate enough to hold the paper). Clever! From a law professor, natch.
2. Saw this one a couple of days ago: Gov sells $1.1 trillion in new bonds and simply buys up all underwater mortgages and then sells them back to lottery winners at market prices. No mention of who’s going to buy the $1.1T in bonds, but hey, that’s no problem… Foreigners will always want to lend us money, right?
November 19th, 2008 4:00 pm
Green, the banks most certainly will distinguish and it is really quite easy to do so. You need to show 2 or 3 years of tax returns and copies of pay stubs going back 6 months to a year for starters. Try gaming that information… most don’t have the knowledge on where to get stuff like that and certainly not the capability to do it themselves. Besides they are not gaming anything but staying in their homes at a more affordable level of payments. This is between the lenders and the homeowners and not the Democrats or any politicians for that matter. I don’t want laws changed empowering our judges to do that for starters and I don’t want my tax payer money bailing out toxic garbage on banks books either (another democrat bright idea). I want banks earning less on the loans they gave out at there expense and the homeowners that deserve to stay in their homes at an affordable mortgage level. I want to be kept out of it is all I am saying. I don’t care if someone gets 250K written off of their principle as long as it comes out of the lenders profits and not my wallet.
Linda, the janitor doesn’t get to stay. They get foreclosed on as they should because they simply cannot be saved. This is only for those that it will presumably work for. You know people with a job and income that supports the new mortage payment. Many are still going to lose their homes because many just cannot be saved. Foreclosures are not going away no matter what we do, but this can slow this train wreck down a bit and at a cost only to the banks. That is a good thing don’t you think?
November 19th, 2008 4:02 pm
The banks (and brokers, and real estate agents) may have loaded the gun and left it on the table, but the home buyers out there are still responsible for picking it up and shooting themselves in the foot. Not “everyone” was deceived into paying too much or stretching too far because a home salesman said home prices always go up.
You know what? It doesn’t matter. The blame goes to everyone. Everyone’s going to take the fall. No matter who you hand the money to, banks are going to suffer, homeowners are going to suffer, even people who did everything right are going to suffer. The bubble has burst and is now taking the entire economy down with it.
My number one concern is making sure THIS NEVER HAPPENS AGAIN. Home prices got dangerously high because banks were loaning the money to everyone, and everyone thought they could make a free fortune by flipping a house. Both sides saw a home as a magic ATM machine. If a bunch of people lose homes they never should have lived in in the first place, and if the banks lose a crapload of money they never should have loaned out, then maybe both sides will be more cautious in the future and things can return to normal.
I know people will lose their homes. I’m sorry. But did they honestly think it could last? A lot of people bought at the wrong time and lost money in the dot-com crash too, but I don’t think we should have reimbursed them to save them from suffering in a non-bubble reality.
November 19th, 2008 4:09 pm
At this level or price drops, the government would be better off letting lenders whack 30% off principal (and let them book the loss) and let them jack the interest rate UP to 2.25% above market. This lowers the payments for the borrower and keeps the interest income roughly the same for the lender. The only way to do this fairly is to let taxpayers either choose a 30% principal slice OR an additional $2,000 standard deduction.
It’ll never happen, the government would have to cut spending for a year. And the last thing management wants is price discovery.
November 19th, 2008 4:11 pm
Ok Susan,
This is my last response to you.
First off, I was a renter for 17 years, so don’t try that disenfranchised renter attitude on me. Being a renter is great. It is freedom and choice, and saving money. If you feel inferior as a renter, that’s your problem.
Secondly, my husband and I waited and watched other people buying homes for many years before finally deciding to take the plunge. This is our first home as I said, as it was for a lot of buyers like us.
Thirdly, I ( and others like me )are NOT responsible for driving housing prices up and creating this bubble. The greedy lenders did that through exotic and unsustainable financing.
Fourth, it’s oh so easy for someone like you to say “I gambled”, now that the bottom has fallen out and there is enough time and distance from it to see what happened to get us here, but housing didn’t used to be a gamble. It used to be a fairly safe investment. What has happened now is like nothing else we’ve seen before. I’m sure from here on out housing will be considered a gamble though.
Fifth, the notion that everyone who finds themselves in this awful situation somehow brought it on themselves says way more about you than about me and people like me. We are subsidizing this mess as much as you are, except that for the last 15 months we’ve ALSO been paying a mortgage, property taxes and the like. As a renter, you are exempt from those additional taxes, yet still benefit from them.
To sum up,
You should be ecstatic this whole thing happened before you were able to buy a home, and that as a result of it, housing prices will eventually come down to a reality they haven’t seen for many years, which will benefit people like you for years to come in the form of lowered mortgage payments and the increased quality of life and piece of mind that additional money in your pocket every month brings. The only reason I could see you might be unhappy would be that you now have to come up with a down payment and get a fixed rate mortgage before you can buy.
So, in fact, PEOPLE LIKE US are paying for PEOPLE LIKE YOU to reap the benefits this will eventually bestow on the housing market, and gee, the only thing it cost us was our otherwise good credit records, all the money thrown away on mortgage payments and interest and taxes, and insurance, and, of course, the unmeasurable effects the stress from all this will have on our bodies and minds for years to come.
Renters like you have ZERO to complain about. You should be thanking people like us who are walking away, instead of propping up artificial values any longer. We are the ones making it affordable for you to buy a home in the next year or two. If I was still a renter, this would be a godsend.
November 19th, 2008 4:23 pm
Sara,
i wouldnt waste your breath (or fingers) Suasan…you did nothing wrong as a MAJORITY of homeowners dod NOTHING wrong as well…..sure people gamed the system but most of them are long gone, either with the money or foreclosed….moving foward, my best guess, is most of the people in trouble AND THOSE WHO WILL BE IN TROUBLESHORTLY are people who did the right thing and want to STAY IN THEIR HOUSE….helping them as well, makes sense and IS THE RIGHT THING TO DO
why that pisses some people off around here, i have no idea why that is
November 19th, 2008 4:26 pm
I wish you luck, Sarah, I really do. I’m sure it’s an incredible stress to go through what you are going.
That said, you have to know that MANY people in this country will find your decision highly immoral, myself included. Because you gambled, of course you did.
You LIVE in your house, right? So, what does it matter how much it costs NOW? You can afford to make your payments, keep making them, what’s the problem?
Ah but see here, you thought your house would be a prudent investment, right? You thought you’d buy it for N now and it’d be worth 2xN in the future. You have to be honest here. And now you find its worth to be N/2 and you’re walking away. OK, that’s your prerogative but the truth is that the taxpayers are now on the hook for your gamble.
November 19th, 2008 4:26 pm
1850 – 2002…most prevalent loan was a 30-yr fixed with a down payment.
Just to correct for fatual accuracy….
30-year fixed was only prevalent from 1933 (or so) to 2002. Prior to the depression, the typical residential mortgage was a 50% down 10-year adjustable interest-only with a lump sum payment of principal at then end. Building & Loans did provide self-amortizing loans for longer terms, but these were the minority of house loans. That’s where the habit of savings accounts came in – you needed to save for that lump sum payment. And that’s why bank failures in the 30’s were so ruinous – imagine your lump sum payment going up in smoke with one year to go on your loan. (Thus the rationale for self-amortizing loans.)
November 19th, 2008 4:28 pm
you are correct Joe
November 19th, 2008 4:29 pm
People are pissed because Sarah bought a house and now she doesn’t like its value. So Sarah turns around to the bank and says, “Here you go, your house back.” The bank says, “WTF am I gonna do with a house??” dumps it at loss, turns around to Congress and says, “Gimme money!!!” And Congress rolls over and TARPs the losses.
THAT is why people are pissed.
November 19th, 2008 4:35 pm
Sara,
Thru no fault of her own, yes we can argue that for days, bought an overpriced house that was fraudently inflated….reduce her mortgage balance to the correct market value today and/or lower the interest rate to a fixed 3-4% AND MAKE HER STAY IN HER HOME if she wants/can afford at those figures….do not let her sell the house at a profit for X number of years , if you like….that helps her, the banks and the country…..plus i will say it again, ITS THE RIGHT THING TO DO, she was duped on the price (as were many others)
November 19th, 2008 4:42 pm
If you cannot deduce where the losses lay…How can you assign or define which organizations get the write offs….even if you find the “pot-o-gold”? The derivatives market is the problem not the underwater mortgages, for your principal reduction pipe dream. However, the REAL underlying problem still falls back to reality…the….here it comes…..wait…..just a minute more……the….BORROWERS!
November 19th, 2008 4:48 pm
I have to say I agree with the principal reduction when the house has lost a huge amount of value. Yes the reality is that your credit will be better before that value returns. However, I do not agree with bailing out someone who bought a million dollar home on a option arm and now can’t afford it due to a reset. 100% of those people bet on values going up and being able to refi. They took a gamble and lost.
November 19th, 2008 4:48 pm
I think they should just go all accross the board and do Credit Cards, Student Loans, Car Loans and Personal Loans. This way everybody gets a bailout and nobody complains.
November 19th, 2008 4:49 pm
Susan, pecking order
Bank regulator – Federal Reserve – Shepard
Bank
homeowner – sheeple
I don’t think it is fair to blame the lowest on the totem pole, the sheeple, for getting stuck in the briar patch. Nor do I think it is fair for the Federal Reserve who is the overseer of banking to remain unscathed.
If the Federal Reserve saw conditions that endangered the banks assets then they should have come in and harnessed loan programs. Then we would not have had banks and sheeple in the briar patch.
November 19th, 2008 4:57 pm
Susan,
Ok, I was wrong I do have one more thing to say to say to you.
The reason we are in this situation at all is because my husband and I need to move closer to his employer, as his work load has increased dramatically over the last 6 months and combined with his commute, has become unmanageable for him ( how ’bout you try 16 hour days, and four hours of sleep a night, then get back to me ).
It used to be that people who found themselves in this situation had relative freedom of job movement. If their job became harder or too demanding, they would find another one. But, with the collapse of the economy, quitting your job is obviously not an option anymore, especially when soo many people are losing their jobs or are already unemployed.
So, if we could have simply sold the house, we,of course, would have. But mercy me, it’s now worth half of what we paid for it. That’s $150,000 upside down.
See, my reasons didn’t really matter before because the obviousness of this ponzi-styled situation has affected everyone negatively, and I truly believe we are all in this together for better or worse. I hold no ill will towards those who did Alt-A loans or sub prime financing. This mess is not their fault or mine.
But, when you accuse me, and those like me, of purchasing a home cause I though it’d be worth 2X more in the future, that’s insulting. Of course there were flippers, but there were also a large amount of people like us. We bought a home because we’d been renting for 17 years, and wanted a place of our own. We thought it would be great…a new chapter in our lives, but it’s turned into a nightmare. We didn’t partake of an Alt-A loan or the like. No, we have a 30 year fixed, 6% rate mortgage. No seconds. No Helocs. But yet here we are.
So, once again, your holier than thou attitude is ALL wrong, as holier than thou attitudes tend to be.
You should be ashamed of yourself for judging others till you’ve walked in their shoes.
After all, you could end up with my old house. If so, I hope you enjoy all the sweat equity improvements my husband and I have done over the last year, while we move back into an apartment.
November 19th, 2008 5:00 pm
I’m not sure Mr. Mortgage and I agree, but my suggestion is a 30% reduction on ALL outstanding principal on ALL mortgages, not just delinquent mortgages. Everyone is taking a 30% haircut in property value, a principal reduction only recognizes it officially. Those who bought before the boom might actually make out better, those who never bought in the first place or are doing fine with their present mortgage could therefore take the additional standard deduction instead. At least banks and their investors would know exactly what mark-down to expect and price discovery would happen sooner; right now everyone is guessing what the markdown is and no one trusts each other’s figures. Yet we all acknowledge that real estate values have dropped by 30% or more in 90% of the country. So why don’t we just acknowledge it on the books? I suppose there are some international finance arrangements that confuse matters – but that’s exactly what G20 meetings are for.
November 19th, 2008 5:03 pm
Hi Joe- an arbitrary 30% without restructuring the loans to 28/36 still will leave people underwater in their homes and prone to default.
November 19th, 2008 5:07 pm
So whats Average Joe To do?
Average Joe bought a $250k house with 50k down on a 30 year fixed 5 years ago, saw the house go up to $315k in ‘07 now its worth around $260k.
What does He do?
a. sell and try to protect his down payment?
b. wait and see.
Then what?
a. Rent till the S*&T hits the fan and scoop up a house for $40/sqft
b. Buy a foreclosure now for $80/sqft
Assuming main residence of suburb in “non-bubble” city
November 19th, 2008 5:16 pm
Mr. M,
I don’t disagree with anything you said, however how does being underwater create people to start walking if they can afford the payment? If they bought the home as an investment, then staying put with the lowest overall cost makes sense financially.
You seem to contradict yourself in that you say it is all about the ratios vs the balance. Ratios are based on affordability. If they can afford the payment, then at the end of the loan period they will have no more payments.
If the loan is modified to the rate and makes it just as affordable as moving and renting. Why would you dump the house to rent, in hopes of purchasing in the future when your not saving anything on a monthly basis? The market will turn, and granted values were out of wack, especially in areas that had 30% to 50% appreciation. It may take 10 years, but with the fed printing money like they are running the top big story for the New York times, inflation will start to rise and unfortunately, it may be at a very rapid pace
Average Americans live in communities, they have friends, they have family close by, they have children in school, they belong to a congregation. These things are part of the decision. It’s like buying a stock at it’s high point and then it comes crashing down. Is that when you sell? No, you wait it out for the long haul. To those who bought a home to raise a family, it is not about speculation.
I know a lot of people bought on speculation, but I don’t think it was the people who put 20% down on 30 year fixed rate loans. Even if those individuals are underwater, they bought because they had the intention of owning the home free and clear one day. That is why they chose the 30 year fixed rate loan. Granted other issues like job loss, or a sick family member are not part of the equation, those people are staying if they can afford the payment.
What was the catalyst to all of this? Adjusting payments that became unaffordable. If payments never adjusted and property values started to decline, people wouldn’t stop making their housing payments. It comes back to affordability, and what actually leaves your pocket. This is why there is more than one way to skin a cat. And for the record, I’m not talking about the short-term modifications that consumers are getting by contacting the loss mit departments on their own, they need attorney assistance so that the modification is done in their best interest and not the banks.
A major part of the problem is educating the public. You have a great forum here that many are looking to for information. The reason for my initial post here was to let you know that you have a responsibilty to give both sides of the equation. At the end of the day, most people do not know how, or do not take the time to do the math! My original example showed exactly why on a long-term strategy, the rate mod (as long as it is FIXED) is far more beneficial than the balance mod.
If a borrower’s real intentions are to stay in the house as I have stated, how do you disagree that an extremely low rate reduction would not work and that only the banks writing off a portion of the principal is the only solution?
November 19th, 2008 5:22 pm
I love all of the different opinions and the passion you all have on this blog. But I don’t get why so many people are consumed with who is to blame and who is right or wrong.
It seems to me that the banks making modifications of some sort is the most sensible thing to do. There are a very limited number of ways a real estate transaction can go.
In very basic terms, the bank makes a loan and either the buyer pays on it or they don’t. The value of the house either goes up or down. This presents four possible scenarios:
Value goes up and buyer pays – Bank wins and buyer wins.
Value goes up and buyer does not pay – Bank wins and buyer loses.
Value goes down and buyer pays – Bank wins and buyer is somewhat neutral.
Value goes down and buyer does not pay – Bank loses and buyer is somewhat neutral.
In the case where value is down and the buyer doesn’t pay, both parties are going to lose. But by modifying the loan, they both have a chance to hedge their losses. And to keep this transaction in house (ie. between the two parties) simply makes the most sense. In my opinion, a decent modification (and for the record I lean towards the mathematical arguement made in an earlier post for rate reduction) is less of a loss to the bank than foreclosure and is a better alternative than foreclosure to the buyer. A permanent rate reduction makes a ton of sense to me. It may make them attached to the house for a very long time, but the lower monthly payments can allow them to keep paying (good for both parties) and can open up the possiblity of renting the house out if they need or want to move in the future. It does remove the possibility of selling the house, but that is certainly not the end of the world.
The bottom line is that a real estate transaction is, and should remain, a business deal between the lender and the buyer and whatever plan they work out together really shouldn’t bother anyone who is not involved. It is not based on morality or what is right or wrong. Both parties are gambling and are taking a chance. The banks are betting on home values increasing because they will either make money on the interest payments they receive or they will foreclose and sell at a higher price than the loan. In today’s market though, prices are plummeting and they actually face a scenario in which they may lose. It is really one of the very few times that the buyer can exercise some amount of control over the how the banks fare and many people are exercising that option. We’ll just have to wait and see who is the better negotiator and who has the stones to hold their ground. Should be a very interesting next few years.
It’s funny to me to read posts from people who are angry about people walking, saying that these people gambled and lost and now want a modification. Why are the renters so angry? They gambled that prices would go down, which they have. Shouldn’t they be happy since they gambled and won? I guess some people just aren’t happy unless they can be bitter and angry.
November 19th, 2008 5:28 pm
Partyboy, you nailed it!
November 19th, 2008 5:31 pm
Thanks bro
November 19th, 2008 5:35 pm
Do the Math
that would be great if they are moding loans to a 2% rate but they are not. i work in a mod dept and we are doing the rates of 6% to 5.5% so your MATH would not be correct. so reducing your balance would be best.
November 19th, 2008 5:46 pm
If the mod dept is only reducing rates to 5.5 or 6% then why are they there in the first place? Is this actually having an impact on troubled situations? Maybe you can answer that Bob. What kind of wage does a modification worker make and how much money do their efforts actually bring back to the bank? Judging by most of what I have read on these blogs, mod departments seem to move very slowly and don’t close a lot of deals. Where is the return on the banks’ labor investment in regards to modification departments? Can you shed some light on this?
November 19th, 2008 5:52 pm
Stop wasting time on requalifying everyone. Need a nationwide stimulus.
Refinance everyone that owns a home and has a mortgage to 4%, 30 year fixed. No appraisal and no requalifying as long as you have paid your mortgage on time for the past 12 months. Do not write principle down, the market will come back. For new home purchases, 10% down and full income and appraisal required, for the 4% 30 year fixed program. We need to stop the bleeding at the source, before anyone becomes deliquent. The chances of a deliquent borrower to redefault is greater than those that are current and are “pay on time” borrowers. Need to sell people on staying in their home on monthly payment and long term plan, then current value of home.
Saving a homeowner $300/month on a mortgage payment over 30 years is a larger and more effective stimulus plan then cutting checks directly to tax payers or TARP(aka TERD, just flushing money down the toilet).
Paste and copy this solution to your elected officials!!!!!
November 19th, 2008 5:54 pm
an arbitrary 30% without restructuring the loans to 28/36 still will leave people underwater in their homes and prone to default.
I know of no way to prevent ALL defaults from happening, nor do I think that would even be a good thing. We could leave principal alone and reduce interest rates to zero and there are still people in houses they can’t afford at a 40-year term; those people NEED to default because the only reason they are in those houses in the first place is because of unrealistic expectations of appreciation (on all sides of the transaction).
A 30% cut does get people closer to 28/36 a lot better than the FDIC et al workouts that are bandied about. If a 30% cut still puts them in say 36/50 territory, we need to get them foreclosed instead of offering them false hope; everyone in personal bankruptcy would still be able to take an extra 2K standard deduction instead. If the knockoff gets them to 31/45, they have a choice to make.
If you suggest a principal reduction plan where this guy gets a 20% reduction, this guy gets a 60% reduction, this guy gets nothing… you’ll never even get started. I suppose you could offer something like a .0075 increase in interest rate for every 1% shaved off the principal (knock off 10% of principal and your interest rate goes from 5.25% to 6%, 20% and it goes to 6.75%), but even then you’re going to have such a nightmare on account maintenance that you might not even get started.
I’m open to other suggestions. I’m of the mind that 30-year mortgages are a bad deal for most people to begin with; they made sense at the time in order to work out of the crisis of the 1930’s – but it should never have become the norm. Now we’re trying to workout 1933’s workout. It’s absurd.
November 19th, 2008 6:07 pm
Another idea perhaps. The Janitor sited above is over his head in this mortgage so the bank could give him a principle adjustment downwards (which many people here seem to feel unfair) OR they could simply put him in a home of lesser value (of which I’m sure they have several on their books) which he can afford. Call it a downward house adjustment. Because if he is foreclosed on and left to find future housing on his own he suddenly becomes a “non-buyer” for 4 years(?)because of his credit rating as I understand it. I know this wouldn’t help everyone but maybe 10 to 15% ???
November 19th, 2008 6:07 pm
Bob
Of course you aren’t doing mods to 2%, you work in the mod department of the bank!! Your workouts are in the banks best interest not the consumer calling. You don’t see the 2% mods because you don’t work in the legal department and your not dealing with the customers attorney, your dealing with the customer. You are incorrect, they are doing mods that low, it’s just not done in the former refi center that’s been turned into a call center for loss mitigation.
November 19th, 2008 6:19 pm
A permanent rate reduction makes a ton of sense to me. It may make them attached to the house for a very long time, but the lower monthly payments can allow them to keep paying (good for both parties) and can open up the possiblity of renting the house out if they need or want to move in the future. It does remove the possibility of selling the house, but that is certainly not the end of the world.
Rate reductions are what caused the problem in the first place. Interest rates are a price – the price of the risk. The result of underpricing the risk was overpricing of the property. And then it began to feed on itself – to afford an overpriced property interest rates were further reduced (but only for an introductory period) with “exotic” loans.
The goal should be to get people as close to 28/36 as we can. Maintaining interest rates rooted in fiction will result in property prices rooted in fiction – meaning we STILL avoid price discovery. Forcing people to own a house they don’t want is just as bad as convincing them to flip houses on spec (and you get an absentee owner problem which is a risk that normally gets priced in that won’t get priced in).
Principal reductions DON’T play games with the price – they mark down the prices to closer-to-realistic levels. Aren’t we going through this crisis in part because banks refuse to mark to market? Rate reductions mark down rates to farther-from-realistic levels. Which is why I proposed significant principal reductions in conjuction with interest rate increases – both prices get closer to reality and the market can start clearing at its usual level.
November 19th, 2008 6:30 pm
rate reductions and thwarting foreclosures artificially pumps up home prices on those who can’t get those low of rates when purchasing. It screws up the affordability metrics. When I put 20% down and get a 30-year fixed I want to make sure everyone in the housing market is on the same playing field. Teaser rates, 40-yr amort, deferred interest is what got us here in the first place.
November 19th, 2008 6:30 pm
What ever happened to being responsible for your actions?
Those who played the game of buying a home – you signed the contract, you (theoretically) knew the risks.
This is the big problem with America. If you take a risk and are right, you’re a hero and are rewarded. If you take a risk and lose, you’re a victim and need a handout.
Apparently those who get the most out of life are those who throw caution to the wind.
Javagold – why should you be GIVEN money? You chose the payment, you know what you could afford.
Why shouldnt the government reduce my car loan to the current market value? I didnt want to overpay on an SUV that has lost more value than I expected.
While I rented, saving $30k/yr for a down payment (living off of <50% of my income) and dealt with shitty apartments – all these people bought on a whim and didnt think of the repercussions. And now they’re being GIVEN money cause of their bad decisions.
All mortgage mods need 2 things:
1. Recourse on any principal reduction. You’re being GIVEN money after all…
2. Mandatory fraud investigation – both on the lender and the borrower (hows this for creating jobs?). If someone inflated their income on a NoDoc, they need to be punished for FRAUD. Thank them for inflating your prices.
November 19th, 2008 6:30 pm
This is the same trick the Japanese banks did in the 1990’s – not writing down the value of the loans on their books – if they got 10 Yen a month payment, they considered it a performing loan. . .folks – just tell the banks you can afford only $800 a month, and they will probably go for it. . .as for Japan – 16 years of declining real estate prices.
As for the economy, here is a Bloomberg quote that speaks for itself:
Prices are in a virtual freefall,” (bond prices) said Martin Fridson, chief executive officer of money management firm Fridson Investment Advisors in New York.
Depression-Level Defaults?
“Either the market is right and expecting a default rate considerably higher than it was in the Great Depression, or we have such profound dislocations and selling pressures going on that it really is creating extraordinary fundamental value.”
November 19th, 2008 6:41 pm
“I’m not sure Mr. Mortgage and I agree, but my suggestion is a 30% reduction on ALL outstanding principal on ALL mortgages, not just delinquent mortgages.”
Joe:
26% own their homes w/no mortgage. 31% rent. Don’t you think there’s going to be some resistance to your plan to give free candy to everyone with a mortgaged house?
Why would a bank offer a principal writedown to a borrower who was not even close to being underwater? They would just foreclose, as they should.
November 19th, 2008 6:51 pm
26% own their homes w/no mortgage. 31% rent. Don’t you think there’s going to be some resistance to your plan to give free candy to everyone with a mortgaged house?
Absolutely. That’s why I proposed that everyone else gets an additional standard deduction on their income tax returns. The government will take a revenue hit, no question; but they’re volunteering a revenue hit with the bailout plans anyway. Better to have a plan that addresses reality rather than a plan that attempts to sweep the problem under the tarp.
November 19th, 2008 7:21 pm
Why would a bank offer a principal writedown to a borrower who was not even close to being underwater? They would just foreclose, as they should.
I propsed than any principal writedown be coupled with a significant increase in interest rate.
To address your underwater question, I’ll use me as an example. Six+ years to go on my mortgage, no danger of foreclosure: a 30% reduction in principal might not be worth the additional 3% interest I’d have to pay VERSUS taking an additional standard deduction on my income taxes for that same term (basically because with only six years to go, I get very little in interest deduction). So I’d opt out of the principal reduction in order to get the standard deduction and my choice leaves the owner of the mortgage (in this case FNMA) as-is on this particular mortgage. Once my mortgage is up, the additional standard deduction is eliminated.
I’ve only thought this through for first mortgages, second liens I haven’t addressed (and those might be the real killer). For people with Option ARMs etc, any principal reduction means going to a 30-year fixed (at a higher rate than the typical 30-year fixed rate). If that still makes them too far from 28/36, then foreclosure should proceed.
If we could get through the high volume of foreclosures as quickly as we could get through a low volume of foreclosures, then there would be no need to do anything. But the volume of foreclosures and the solvency of the banks is making the system run very slowly – and while I think judge-mandated cramdowns are a step in the right direction, I think they’ll slow the system down even more; might as well cram down everything and toss bones to those who have no need for a cramdown in the first place. The whole catch here is marking down the portfolio puts banks in danger of insolvency, although marking to market is doing the same thing anyway.
November 19th, 2008 7:21 pm
Is the additional standard deduction going to be, you know, like $50,000 (or whatever the average principal writedown works out to be)? You’re talking trillions of dollars. Crazy talk, in my opinion.
Are you fairly confident that your plan will be adopted?
I’ll stick with my original prediction that, by and large, only underwater homeowners are going to get free candy.
November 19th, 2008 7:23 pm
Joe the assman,
“Rate reductions are what caused the problem in the first place. Interest rates are a price – the price of the risk. The result of underpricing the risk was overpricing of the property. And then it began to feed on itself – to afford an overpriced property interest rates were further reduced (but only for an introductory period) with “exotic” loans.”
I don’t understand your point here. Rate reductions were not the problem, rate resets are. The low teaser rates opened the floodgates, but most people are not foreclosing until the teaser rate resets. If this is true, then a rate reduction would be a viable long term solution.
Mr. M,
The arguement between rate reductions and principal reductions is only a portion of the solution. Either one could be a step in the right direction but it must be combined with DTI ratio standards, income verification, etc. There is no way to “level the playing field”. What you will end up with if banks embrace permanent rate reductions are some owners with a high principal and a low rate and some people with a low principal and a high rate (realtively speaking). That’s about as close to equal as we can realistically aspire to have. In addition, you seemed to make a correlation between a rate reduction and a teaser rate in your last post. The difference is that a teaser rate expires and resets and a rate reduction stays the same for the duration of the loan. That is a very big difference when talking about long term solutions. Great blog though, I really appreciate having this forum to read and discuss things.
November 19th, 2008 7:25 pm
That’s what I don’t understand, Sarah. Why do you think you’ve been victimized? Where was the fraud in your mortgage? Did they dupe you? Did they LIE to you on the paperwork? Did they promise one thing and gave you another?
No. You bought a house knowing how much it’ll cost to pay for it. Nothing’s changed. you’re saying your husband’s commute is long. Well, you should try my commute. I’m on the road 3 days a week AWAY from home and my husband. I only see him Fri-Sun. Then Mon morning, it’s back to the airport. Not my ideal job but what’re you gonna do? This is the economy we’re in.
I’m not celebrating your misfortune, I’m simply objecting to your sense of victimhood. You entered into a financial transaction KNOWING FULL WELL the costs and the risks. And now you’re trying to say you were lied to or whatever. That’s incorrect.
November 19th, 2008 7:28 pm
Joe,
“I propsed than any principal writedown be coupled with a significant increase in interest rate.”
I love this idea because for me (27+ years to go on my mortgage), I could have my principal reduced and interest rate increased which would give me a higher tax deduction at the end of the year and bring me closer to a mortgage balance which would allow me the ability to sell if need be. I would get increased flexiblity and a bigger tax break. This seems to be a double-edged sword to the govt because they would lose tax income and they would probably end up paying for some of the principal reduction. I just don’t see that happening. Creative idea though.
November 19th, 2008 7:32 pm
So, can someone tell me what the big deal is with mass deflation? When prices get low enough, who is going to be able to resist buying? There is a bottom, why is everyone afraid of finding it?
The sooner we get to it, the faster we can move on. I mean this is how Wall Street looks at it.
November 19th, 2008 7:35 pm
“I propsed than any principal writedown be coupled with a significant increase in interest rate. ”
Joe, you are obviously a very thoughtful person with good intentions.
But I hope to God your ideas aren’t adopted as public policy.
I have no problem with banks who haven’t signed Faustian agreements with Uncle Sam (TARP) concocting whatever loan workout plans they deem to be in their best interest. But that is a small number of banks, decreasing by the day.
November 19th, 2008 7:37 pm
Is the additional standard deduction going to be, you know, like $50,000 (or whatever the average principal writedown works out to be)? You’re talking trillions of dollars. Crazy talk, in my opinion.
Nah, more like 5K. (Maybe 50K total in 5K increments for 10 years makes sense, but not 5K in perpetuity, although you have to admit the standard income tax deduction has never been tied to a rising CPI.)
Are you fairly confident that your plan will be adopted?
Hell no. Just mental masturbation on my part, hoping people will think rather than act with envy.
I’ll stick with my original prediction that, by and large, only underwater homeowners are going to get free candy.
As far as predictions go, I agree with you.
November 19th, 2008 7:40 pm
“I love this idea because for me (27+ years to go on my mortgage), I could have my principal reduced and interest rate increased which would give me a higher tax deduction at the end of the year and bring me closer to a mortgage balance which would allow me the ability to sell if need be.”
Wouldn’t you just refi into a market rate loan?
Oh, I suppose there’s a lockup period or something, right Joe?
Oh what a tangled web we weave, when first we practice to give away other people’s money.
November 19th, 2008 7:45 pm
The problem is once again this rewards those who overbought by letting them stay in homes they can’t afford. It tells me I should have bought twice the house and then I’d have a nicer place to live and rent because I was foolish with getting a loan. You defer the problem but don’t solve it.
I’ll say it again, we are at the point where the public says “If someone else gets a break for being greedy or lying on a loan app, I need to get a break too”
November 19th, 2008 7:51 pm
Rate reductions were not the problem, rate resets are. The low teaser rates opened the floodgates, but most people are not foreclosing until the teaser rate resets. If this is true, then a rate reduction would be a viable long term solution.
Sorry, but no.
The rate resets aren’t the problem, the resetting merely brings the interest rate closer to the true price of the credit risk. The fact that people hadn’t been accounting for the reset proves the point that people were taking these loans out with zero intention of hanging on to the property long enough for the rate reset to occur. (At best, people counted on price appreciation to refi before the reset, meaning they had no intention of hanging on to the original mortgage.)
If not for the low teaser rate, the property would never have sold at that high a price in the first place. IOW, if the only loans out there were 30-year fixed with the interest rate being higher according to the riskiness of the borrower’s credit (and the relative supply of credit), there’s no way prices would have ever inflated to this extreme – the demand wouldn’t have been there.
November 19th, 2008 7:55 pm
Oh Susan,
I don’t recall referring to myself as a victim, but I must say that your lack of compassion for other people dealing with this is almost as disturbing as your unexplained hostility towards them.
Why are you such an angry renter? Unless, of course, what I said before is correct. The fact that because of this whole mess, the lending standards have been significantly tightened and you ( because of a less than optimal credit score, lack of down payment funds, or a combination of both ) potentially can no longer qualify for a loan at all.
Otherwise, like I said, this whole mess only benefits renters who want to/or will become buyers in the next couple of years. You know, those smart renters who’ve been theoretically saving their money, building their credit scores, and biding their time.
Susan, if you are indeed one of those savvy renters, then why the irrepressible anger?
Anyway, the legal contract I entered into with my lender clearly spelled out what would happen if I was to default, namely my credit record being stained for 7 years. In all honesty, I don’t owe you or anybody else an explanation. I make a decision, and I deal with the consequences. Your need to judge me and others in my situation seems…curious.
So, if the banks aren’t willing to make real loan modifications, via principle reductions, then I guess they will, accordingly, deal with the consequences. They made crappy, unsustainable loans and sucked up their profits from them without a thought to the future effect on the housing market. Now, the bill has come due…of course, they are only used to us paying them, which could be why they’re soo confused by what’s happened.
So, I’m done with you Susan. You’re all right and we’re all wrong. Pat yourself on the back, and enjoy your black and white world. When it fades to gray though, don’t expect any support from the rest of us. After all, we’re just not on your level.
I’ll step back into the shadows now to observe and learn new info where I can ( as I did before ), because I truly do appreciate all the information, support, and advice from those who understand what is going on.
Thanks, Mr. Mortgage.
Sorry for the drama. This is such an emotional thing for me and a lot of us.
November 19th, 2008 8:03 pm
Sheeple – quit arguing with each other. The banks perpetrated the biggest fraud of the century. One day you will find that the most banks(many are now under or bought out) broke every rule and law regarding predatory lending. They did so with the knowledge that:
1- Consumers are stupid and won’t sue.
2- The banks had no risk in securitization and the CEO’s were already packing their parachutes…
3- The banks were encouraged (suckered) by Wall Street (through securitization) who would soon be the new owners of the old banks at deep discount prices with your taxpayer money.
4- Wall Street and the banks shared in the wealth packaging up the securities and then SHORTING their own stocks and bonds on the down-slide…
5- The gov turned a blind eye to keep the bubble economy alive for the last 10 years? 20 years? More?
6- Your wealth has been stolen from you.
7- The gov/wall street cartel knew you would all blame each other (as they padded their accounts and put in their markers/resumes for future post-gov careers with Wall Street.) This is evidenced by your comments on this site.
Now, be mad at and blame yourselves for not insisting that these criminals be charged with the crimes against you and your kids… and their kids…
-or- just simply continue to blame each other. Which CHOICE best serves your future?
Sheeple!
November 19th, 2008 8:04 pm
bottom line is someone, somewhere, better do something quickly as has anyone here looked at the stock prices of all the financials , things are getting awfully ugly and soon its going to be too late
November 19th, 2008 8:04 pm
Wouldn’t you just refi into a market rate loan?
Oh, I suppose there’s a lockup period or something, right Joe?
I’m assuming if you take the principal reduction, you have a say five-year freeze on your ability to refi, though you could sell without penalty. (And yes, games could be played with that, nuttin’s perfect.)
November 19th, 2008 8:08 pm
You implied you were a victim of fraud:
“I didn’t realize I’d have to guard against fraud on a massive scale like this that has been perpetrated by the mortgage companies, the realtors, the agents, and supported by the government. How naive of me. I should have known EVERYTHING out there in life was a scam. But hey, they don’t teach that in school.”
These are your words, not mine. So, I’m curious, why do you see yourself as being scammed? I don’t get it. Did you purchase a house and got a portable toilet instead? You got what you purchased, fair & square, where is the fraud here? Where is the scam? How were you lied to? I’m confused.
I want to say again that I wish you no ill. However, I think you need to accept some responsibility for what happened. You’re walking away from a house you can afford simply because its value dropped and you’re sticking the taxpayers with the bill. I hope you understand that. Your decision is your decision, in fact it’s a financially correct decision but let’s not pretend that you were some poor rube who got swindled out of her life savings. You have to be honest here.
November 19th, 2008 8:12 pm
I don’t know what a sheeple is but I do know that when I see people clamoring for principal reductions, I get very angry. Because instead of dumping those houses on the market, thereby bringing down prices to the sane levels, IRRESPONSIBLE owners will be rewarded with a principal reduction, thereby staying in their house.
That, in turn, will perpetuate the status quo that squeezes even upper middle class folks like me right outta the market, forget the middle class (which, btw, I was just a few short years ago.)
November 19th, 2008 8:12 pm
Joe,
I agree with you that the teaser rates jacked up home prices. But I think that you are giving a lot of people too much credit for thinking far enough ahead to consider refi’s from their teaser rates. You may be right, but I think that most people were simply ignorant. On the other hand, a lot of people did probably think that the property would appreciate and they could refi into a 30-year fixed before the rate reset.
It’s likely true that IF the teaser rates and other exotic loans never existed we would not be in this mess. But unless you can jump in your Delorean, hit 88 MPH and fix the past, it’s not constructive to discuss it. We all need to accept where we are and figure out what the best thing to do is going forward. I don’t think that rate reductions are going to increase house prices because NEW loans will not get that benefit. They will be subject to a significant down payment, good credit and verifiable income. These “strict” requirements will hold down prices as it will likely keep many people out of the market. It may not be completely fair, but the one thing I would be willing to bet on in today’s market is that NO PLAN WILL BE UNIVERSALLY FAIR. It just isn’t feasible. The banks, govt, and owners just need to make decisions to get past all of the uncertainty we are wallowing in right now. Regardless of what decisions are made, this is what it will take to move on to the next stage in our economy…grim as that unknown future may be.
November 19th, 2008 8:19 pm
my dad is a real estate attorney and he told me about 4 years ago that there was going to be a serious problem down the road as he never in his life saw some of the teaser rates and interest only mortgages that people were bringing to him to closing….he tried to warn , but people laughed at him as a conservative old fool….guess he was a conservative wise fool …. however he is not laughing today as his business has dropped over 50%…so even the smart who saw the writing on the wall, have been caught up in this mess
PS while he hated these teasers, he did say to me that people while “stupid” were TOLD DO NOT WORRY YOU WILL BE ABBLE TO REFINANCE IN 2 YEARS BEFORE THE RESETS, THIS WAS THE STANDARD GUARENTEE BY ALL BROKERS, ALTHOUGH VERBAL, THAT GOT THE FISH TO BITE THE HOOK
November 19th, 2008 8:27 pm
Yup.
Hook, line, sinker…… here comes the crash.
November 19th, 2008 8:33 pm
IRRESPONSIBLE owners will be rewarded with a principal reduction, thereby staying in their house.
How is that a reward? Their house is NOT worth the 650K they paid (borrowed) for it, it is worth 400K and their principal would be reduced to 450K. If they still can’t afford it, they still get foreclosed. There’s no “free candy” there. It’s not like $200,000 magically appeared in their wallets.
Now, if they did a cash-out refi, the 200K in equity DID appear in their wallets. In my proposal, a prinicpal reduction means an interest rate increase. If there’s any free candy there, it’s a few Snickers bars instead of a few cases of Snickers bars. To compenate you for your envy, in my propsal you also get a few Snickers bars by either taking an additional standard deduction or your own principal reduction.
I understand the frustration and I’d prefer the typical foreclosure proceedings and contract law cases take care of matters as designed. If AccountTemps has a few thousand bankruptcy judges looking for temp work, we could open up some makeshift bankruptcy-&-foreclosure courts in unused office space to take care of the backlog of cases until we get back to a typical level. Short of that, we’re in for several years of molasses-type liquidity if the price-avoidance/solvency problem isn’t addressed in other ways.
November 19th, 2008 8:40 pm
SarahJ & Susan will be meeting in the “First Ever ML-Implode.com Celebrity Respondent Death Match” to be held in the Fresno Armory on Saturday November 29th at 7pm. Mr. Mortgage will be the MC and Mills Lane will be officiating.
Both of you rented forever – congratulations, you’ll receive an honorary medal for your diligence at the event.
You each will be docked points to start out:
SarahJ – you’ll be docked points starting off because you bought at the wrong time, in the Cental Valley of all places, and your research failed to include underwriters and honest brokers who would have told you that everyone was doing stated income loans, claiming to make $150,000 with real DTI’s of 65% or higher, and that the only affordable loan for most of these people was the 1% payment part of the Option ARM. One strike against you.
Susan, you’ll be docked because you’ve rented for 6 years as a family and were too risk averse for the times. Sorry, prudence must be docked since had you acted “foolishly,” you would be in line for a bailout of some sort. One strike against you too.
Bert Dilbert and Stu will be announcing since they are the two who actually “get it” the most and have moved beyond passing blame. Their voices are needed on a bigger scale. What better place than the Death Match?
Matt Schwartz will have a display of all the Pacoima dumps that he appraised for $550,000, which are probably now selling for $160,000 in foreclosure sale right now. (Like you, my appraiser always included photos of the Plasma TV’s, shiny rims on the Hummer, along with the third world country filth many people lived in.)
Joe the Proctologist will be in the stands eating corkscrew pasta. Word of advice: never leave his side, since every story begins with “It was a one in a million chance Doc. One in a million.”
See you all there.
November 19th, 2008 8:45 pm
Ok, even though I’m still in the shadows, I am soo laughing my ass of right now…too funny.
November 19th, 2008 9:09 pm
There is a small wrinkle in the “debt forgiveness” plan as well:
“To be sure, private efforts to modify mortgages have increased recently; Citigroup, JPMorgan Chase and Bank of America have all announced plans to restructure troubled borrowers’ loans. So have Fannie Mae and Freddie Mac.
But these efforts are limited to loans that these institutions hold. They don’t address the millions of loans sitting in securitization pools, those profitable instruments cobbled together by Wall Street that are collapsing en masse.
Wall Street engineering has created an epic problem: restructuring loans bundled into pools of securities is much thornier than simply changing the terms of individual loans residing inside individual banks.
Not only do such changes require the approval of hard-to-identify investors who essentially control the mortgages, but also many pools were designed with rules that limit the numbers of loans that can be modified.
Securitization trusts hold $1.5 trillion of subprime and alt-A loans. As of late August, according to figures from the Securities Industry and Financial Markets Association, roughly $400 billion of the loans were delinquent and $1.1 trillion were current on interest and principal payments.
But that latter group of loans could become troubled as well if more borrowers become unable to pay (which rising unemployment figures suggest might be the case).
To make matters worse, many borrowers will face severe interest rate resets on their adjustable-rate mortgages next year and beyond. A new report from Demos, a public policy research group in New York, points out that millions of mortgages are ticking toward a possible explosion”
Oh-Oh!
November 19th, 2008 9:11 pm
My trustee sell was yesterday.. I tried to get a loan refi in January, it didn’t work..no waving off my penalty fees..from Carington!! my loan would have been above 417K.. my rate did’t go up, was fixed in a 40 year loan @ 7.5%.. I’ve paid that for 2 years on time, .. just could NOT pay it anymore, spent my savings, paid for babysiting, maxed my cards, wife lost her job, ..spent a lot on gas.. I was left with no choice but forclose.. Who helped me?? I’ve made a decission to walk by no other choice, rent, save, be close to work, enjoy my family more.
What hepends with the rest of ex owners that lost?? no candy for them? Tell you what .. this market has crashed! and the more solutions come to it.. if they’re not FAIR the more will crash..until market will bottom.. it’s best to let the market decide.. if you can’t pay anymore..understand like me that you/I made a bad purchase/investment.. and live with it! and try to fix in the future, if there’s more appetite to buy a house. The problem is that banks do not acknowledge their fault.. they’re into finance, right? and allow these type of loans! Why could they not just say NO! YOU CAN’T AFFORD IT.. sorry, you can’t buy that house.. like it hapend in ‘97, they’ve turned me down then.. but not in 2006?
The faster the correction to afordability.. the faster we can turn this housing market, and economy around!
And if you’re talking solutions.. talk about ALL people in US.. give candy to ALL!!! or none.
- lower interest
- lower principals
- help ex owners get back in BEFORE 3 years after forclosure
- help renters buy a home, or credit to them
- help the poor, the sick
- this will create jobs in finance, constructions, goods,
- this will get spending again
- this will change perception, people will switch to optimism from pesimitic views.
- this will teach us all a finance lesson.
- yes this send deflate the dollar, due to much spending to turn around everything, but debt will be cheaper to be paid of.
SWITCH FROM CREATIVE FINANCING TO CREATIVE ACTION
November 19th, 2008 9:16 pm
I don’t think that rate reductions are going to increase house prices because NEW loans will not get that benefit.
A 300K house at 8% is the exact same house priced at 600K for 2% – monthly payment is the same. Credit is shrinking (insolvency will do that) so interest rates go up, and rising interest rates means lower prices.
So the new loans at higher rates will push prices down because new loans will be closer to 8% than 2% so the value of the house will be closer to 300K than 600K. Pushing prices down makes the owner more underwater.
November 19th, 2008 9:19 pm
Wall Street engineering has created an epic problem: restructuring loans bundled into pools of securities is much thornier than simply changing the terms of individual loans residing inside individual banks.
Somehow these securities seemed to work themselves out when people do refis or sell their houses. Why is it suddenly so difficult to find these mortgage owners when it’s a workout mod?
November 19th, 2008 9:25 pm
It’s simple answer Joe: you do it for one, you have to do it for all… the loss to the banks/investor would much greater than short sells/forclosures… you see you’re making the owner think.. do I want to forclose/shortsell and ruin my credit wait to buy another home for years? or is this market going to turn around.. or is goverment going to help? so people wait/strugle more..I guess untill they can’t anymore… it’s a poker game! Just think if they reduce the balance.. to all..thinks of the loss!
November 19th, 2008 9:26 pm
GREED!
November 19th, 2008 9:28 pm
SarahJ, Glad I can help. Enjoy your foreclosure process and all the interesting things you’ll learn. Remember, the person on the other end of the phone probably hates their $12/hr job. Don’t let them get under your skin.
Mr. Mortgage is 100% accurate that the entire thing was a fraud of massive proportions and principle reduction is the only answer. How to pay for it is a different story.
Michael Lewis (Moneyball, Liar’s Poker), wrote in Portfolio Magazine last week the best explanation of what happened and how so many people who should have understood the housing bubble fraud didn’t understand, including the CEO of Moody’s, as you’ll see in the article. Every Mr. Mortgage reader should read it:
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom
November 19th, 2008 10:02 pm
Dear Citigroup Customer ….
I have a friend “SK” who is a Certified Mortgage Planning Specialist in California. He has clients in existing ARMs with Citigroup. Those ARMs are about to reset and Citigroup has been sending out “Dear Customer” letters warning them of increases in loan rates.
This is where it gets interesting.
Citigroup has been warning customers of higher rates and is offering existing customers fixed rate mortgages at “special rates”. The problem with the offer is the rates in question are about to reset lower, not higher. Yes I have proof.
Exhibit A
click on chart for sharper image
The above document shows a letter that was sent out on March 21, 2008. The small red oval says “The rates in this example were current as of 2/27/2008″.
Exhibit B
Exhibit B is simply a blowup of a portion of Exhibit A.
Key Points
1) The area at the top states “Projected Loan After Next Reset”
2) The projected rate of 2/27/2008 is 6.303%.
Exhibit C
click on chart for sharper image
Exhibit C states the loan in question is based on one-year LIBOR + 2.25%
Exhibit D
click on chart for sharper image
Exhibit D shows the LIBOR rate as of February 27, 2008.
Let’s be generous to Citigroup and call the rate 2.85
Now let’s add the index amount from Exhibit C to the base rate from Exhibit D (2.85 + 2.25) to arrive at a projected customer rate for this loan.
My math says 2.85 + 2.25 = 5.1%
Citi’s math (from exhibits A and B) says 2.85 +2.25 = 6.303%
LIBOR (and therefore the projected loan rate) is even lower today.
Exhibit E
Exhibit E is from another client of “SK”. It is an Email is discussing correspondence between “SK’s” client and Citigroup, as well as an actual conference call between “SK”, his client, and Citigroup.
Hey “SK”,
Sorry for the delay and thank-you for your help with Citi.
The following is a re-cap our March 17th, 2008 correspondence with Citi,:
As a preferred customer of Citi Mortgage, we called to inquire about our options on our 3/1 arm that has a fast approaching anniversary. We received the following information.
Question 1. What happens to our loan on the anniversary? Will it go down?
Answer: It is very unlikely that it will go down. Would you like to refinance?
Question 2. If we refinance should we stick with an arm or go to a fixed mortgage?
Answer: You do not want an arm you want a fixed. We used a 15 yr. fixed as a example;
We were quoted: 15 yr fixed-5.5 with an Apr of 5.65 and a $4400.00 fee.
We asked for a good faith FAX and she said they do not give those.
We said thank you but we are going to shop.
That is when we called you for help.
We did not know if we were tied to the Libor or the Treasury. A call was placed to Citi and after much reluctance, they reveal we were tied to the T-bill with a 2.75 pt. spread and again we received a higher percentage rate quote.
A conference call was then made between you, a Citi loan officer and myself. Again they were quoting a percentage rate higher than 4.75 which it should have been on that day. We then asked for a supervisor and we were transfer to another loan officer of the same level. When asked if he was a supervisor, he said “no” and another request was made for a supervisor and they hung up on us.
We are seriously questioning Citi Mortgage’s ethical practices.
Thank you for your help. We do appreciate doing business with you.
Let’s look at Q&A #1 again.
Question 1. What happens to our loan on the anniversary? Will it go down?
Answer: It is very unlikely that it will go down. Would you like to refinance?
By the way the existing rate on the loan in the Email above is 6.00%. That rate is based on the one-year treasury rate plus an index of 2.75. On March 17, the one-year T-Bill rate was 1.53 as quoted during the conference call. Let’s do the math. 1.53 + 2.75 = 4.28 (rounded to the nearest higher 1/8 would be 4.375). Citigroup told the client the new rate would be above 6.00%
The above conversation, in conjunction with the documented hard evidence above, suggests a pattern deceit by Citigroup. I am wondering how many Citigroup customers have refinanced to a higher rate and payment based on inaccurate rate quotes from Citigroup mortgage specialists.
I am not a lawyer. I do not know if any of this violates truth in lending laws, fair lending practices laws, or any other laws. However, I do know this is a mess, and if I was a customer of Citigroup I would be questioning whether or not I could believe anything they say.
In the sake of fairness, if Citigroup has a different explanation for the above examples, I will post it.
Addendum 3:
Inquiring minds may wish to read Operational Risk – Improper Disclosure By Citigroup Mortgage. The article discusses a potentially serious breach of fiduciary responsibility by Citigroup, possible RESPA violations, potential violations of Reg. Z, and likely violations of internal procedures.
Addendum 2:
Anyone who feels aggrieved by the actions of Citigroup may contact http://www.consumergripes.net/
This addendum is not associated with Addendum 1 posted previously.
Addendum 1:
I received an Email from a lawyer who writes:
I am a lawyer. And, you don’t need to be a lawyer to KNOW fraud when you see it, and I’d say that what you describe – deliberately misquoting rates, etc. is fraud (there are two types of fraud – fraud in fact and fraud in the inducement, but we don’t have to get in to that, and you may well know the difference (and I suspect you do)).
Most law is “common sense” and if something screams “fraud” it most likely is – under whatever particular law – whether statutory law or common law.
If Citi KNOWS the rate is going lower, but says “it is most likely to go higher” and doesn’t give a straight answer, and is stupid enough to have third party witnesses listen to the misrepresentations and/or put them in writing and or have them recorded (and I assume Citi records a lot of stuff by law or company policy), then they deserve to be sued by a lot people.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
November 19th, 2008 10:04 pm
http://globaleconomicanalysis.blogspot.com/2008/03/dear-citigroup-customer.html
OOPS – Mish’s Website
November 19th, 2008 10:07 pm
We’re heading into a deflationary period which is great for savers. But hurts the debtor. Since we’ve seen greater numbers of people in debt and the amount of debt skyrocket over the last 10 years, it is time to inflate. If we continue to deflate that means people’s wages will go down. We can’t have that since that makes these houses and all debt cost more. We must hyper-inflate. Those that have saved, sorry, you’re out of luck.
November 19th, 2008 10:14 pm
It doesn’t matter if some of these ARMs are adjusting slightly downward, borrowers are still upside down in their home, likely qualified at the maximum DTI available at the time, probably took on more debt in the past 3 years.
What that post fails to say is the payment goes from an interest only to a fully amortized loan so even if the rate drops slightly the payment can still rise.
November 19th, 2008 10:27 pm
We’re about to entere 1929! I mean 2009 .. hyper inflate? I don’t think so, as salaries would need to keep up, and imports would cost more, credit would cost more .. inflate? for sure.. when we’re done deflating! I’ll keep saving.. as I’ve learned my lesson.
November 19th, 2008 10:31 pm
the wall street journal just confirmed by view – I swear Ruth Simon steals my stuff. Thats ok though – I like her.
* NOVEMBER 20, 2008
New Tack in Default Battle: Cutting Mortgage Principal
By RUTH SIMON
As home prices slide and loan defaults pile up, some mortgage companies are slashing the amount that borrowers owe, deciding that a permanent cut in the loan balance may pay off if that helps teetering borrowers avoid foreclosure.
The small but growing push sharply contrasts with most loan-modification programs. Borrowers often get a lower interest rate or years longer to pay off their mortgage. But such changes may not be enough to make the loan payment affordable and don’t fix the problem of borrowers owing more than their home is worth.
Reducing the principal on mortgages is “a last resort,” says Paul Koches, executive vice president at Ocwen Financial Corp., a West Palm Beach, Fla., loan servicer that has shrunk the amount owed on 10,884 delinquent mortgages as of Sept. 30. That is 23% of all the loans modified by Ocwen so far this year.
On average, such borrowers saw their loan payments drop by 20% to 40%, typically by lowering the loan balance and interest rate. Ocwen estimates that the savings for investors who own the mortgages vary from a nominal amount to more than $325,000 per loan compared with the likely return if the loans wound up in foreclosure.
Many mortgage lenders and servicers have been reluctant to drastically change loan terms, in part because of worries that would antagonize investors who own securities tied to the loans. Mortgage servicers are responsible for collecting mortgage payments and working with troubled borrowers.
Not everyone agrees reducing the loan balance is the right move. J.P. Morgan Chase & Co.’s new effort to restructure as much as $70 billion in mortgage loans doesn’t include principal write-downs. Instead, J.P. Morgan will sometimes base new loan payments on a smaller loan balance, while requiring that the full loan amount be repaid when the borrower refinances or sells the home. This approach lets the bank benefit from any subsequent increase in home values, a spokesman says.
But as foreclosures mount and the economy worsens, there is “a begrudging acceptance…that this is the way things have to move,” says Sharon Greenberg, a mortgage strategist with Barclays Capital, a unit of Barclays PLC.
Ocwen estimates the company’s foreclosures result in an average loss of $122,000, or 59% of the loan amount. The figure has more than doubled since last year, causing Ocwen to look harder at lowering principal payments.
Early trends are encouraging. A recent study by Credit Suisse found that roughly 12% of Ocwen borrowers who had their loan balances reduced in April were at least 60 days past due five months later. In comparison, the default rate on less-aggressive loan modifications was 22% or more.
Though more data are needed, Ocwen’s results “show that principal modifications are worth another look,” says Rod Dubitsky, head of asset-backed securities research at Credit Suisse. “There are still some lingering concerns but, in six months what Ocwen is doing could become standard operating procedure.”
Loan-principal reductions might be more effective than other strategies partly because borrowers are likely to work harder to stay current on their loans if they aren’t underwater, he adds.
Ocwen is the nation’s sixth-largest subprime-mortgage servicer, according to Inside Mortgage Finance, with about $45 billion of mortgages under management.
Some investors remain skeptical of Ocwen’s approach because they fear that the write-downs have been driven by Ocwen’s own financial needs rather than investors’ best interests. Write-downs can help Ocwen reduce its cash outlays on loans it services. Financing these outlays, known as advances, has become more costly and more difficult as credit markets have tightened.
“To the extent that we can reduce delinquencies and achieve positive results for investors and homeowners alike, that also redounds to the benefit of the servicer,” Mr. Koches says.
The long-term impact of erasing principal from mortgages will depend on borrowers such as Bruce Moreau, who lives in Merrimack, N.H. Mr. Moreau was five months behind on his mortgage payments when Ocwen canceled a planned foreclosure and agreed to modify his loan. In January, the company reduced Mr. Moreau’s loan balance by $47,000, to $177,000, and converted his 8.65% adjustable-rate mortgage to a fixed-rate loan with the same interest rate. The new arrangement cut Mr. Moreau’s payments by more than $800, to roughly $1,830.
Mr. Moreau, a laborer for the New Hampshire highway department, made the next several payments on time, but slipped behind again in October because his pay is barely enough to cover his expenses. “I am looking forward to the winter because we have a lot of overtime,” he says.
Write to Ruth Simon at ruth.simon@wsj.com
November 19th, 2008 10:46 pm
this as we know.. will cause every homeowner to become a teetering borrower and get their loan adjusted too. Some banks will do it, some will be late in doing it, and some might not? in between more forclosures will happen. Prices will continue do go down for some time. This might be part of solution for housing, but not a fix. Doesn’t anyone get this? Is not just about homeowners..or housing? It’s about all of us.. economy, businesses, jobs..and families? Are we all greedy? and not recongizing.. amazing.
November 19th, 2008 10:47 pm
But the last example of Mr Moreau is why they must cut principal to 28/36.
November 19th, 2008 10:47 pm
Exowner – that is why I said we have to re-underwrite every loan made during the fraudulent lending years of 2003-2007. And give everyone immunity from any loan fraud.
November 19th, 2008 11:03 pm
I don’t know MM, if this is really the solution..
all loans? even those that refied/took money out?
we’re leaving out:
people that bought in 2008 and are upside down
people that bought 1998-2002, that could soon be down ( in 2009?)
people that bought way before and refied during 2003-2008
and yeah (if any exist).. people that bought in 2003-2007 with cash?
but those people won’t walk, cause they got a good loan, and they know the market will bottom in 2009 right? and the cash people are not that many..
Time will tell, but what may seem like a solution.. may cause more problems.. my .02 cents
November 19th, 2008 11:06 pm
http://mrmortgage.ml-implode.com/2008/11/19/the-great-mortgage-modification-pump-god-save-us-all/#comment-8427
November 19th, 2008 11:07 pm
sorry about posting your link above.. you were getting some err 500
_______________________________________
I don’t know MM, if this is really the solution..
all loans? even those that refied/took money out?
we’re leaving out:
people that bought in 2008 and are upside down
people that bought 1998-2002, that could soon be down ( in 2009?)
people that bought way before and refied during 2003-2008
and yeah (if any exist).. people that bought in 2003-2007 with cash?
but those people won’t walk, cause they got a good loan, and they know the market will bottom in 2009 right? and the cash people are not that many..
Time will tell, but what may seem like a solution.. may cause more problems.. my .02 cents
November 19th, 2008 11:19 pm
Bull Sh#t every American deserves a principle reduction. Why the hell doesn’t anyone have to live with consequences. Yes, some people were deceived, but the “lion’s share” of people spent their homes via cash out refi’s, or bot for “investment” purposes. Neither the gov’t nor banks can afford to write off 5,000,000 loans at $200,000 per. That would be $1,000,000,000 loss. I think a reasonable approach would be for every party to participate in the loss. 1.) 15% to homeowver, leave them 15% underwater. 2.) 25% loss to banks 3.) Balance taken by the gov’t. If the government let each institution write down the mortgage by 25%, and then refied into FHA at a 4% fixed for 30. That should take care of most of the problems. Why should I and the others who didn’t buy have the same outcome as all the dumb Fu#$s who purchased homes. By the way if, if we implemented the above program, the CDS problems who gone overnight. No more default risk on RMBS or on individual corp. insolvency. I talked to a guy who bot a home in 2004, he’s upside down by 140K. He states he has a good loan, at 5.5% int. only for 10 years fixed for 30 at 5.5%. He has a “stable” gov’t job and can afford the payments as his dti is 30%. Why should he get a modification? No good reason!
November 19th, 2008 11:40 pm
Blogger rule #37
Never say “This will be my last post on this issue.”
1. What you have done is issued a challange to whomever you were discussing with to say something that is surefire to have you return for more.
2. If your opponent was successful in drawing you back in, you lost points in not being a person of your word.
Minus two points. One for putting your self in a bad position in the first place and the second for giving your opponent a free point.
Art, we probably know each other from another life….
From my observations over the last few weeks considering mods, ALL STOP. The programs that are being presented to you are nothing but bankster loans in sheep’s clothing. Chances are you got into the worst hell in your life without someone in your corner. Chances are you are emotionally attached to “your home” and whomever you are dealing with is trained to use that against you.
By all means, don’t try to modify you own deal unless you are damn good and by that I mean 1 out of 100. Get an expert and one that will evaluate the best possible deal verses walking and is prepared to make a walk recommendation and does not just judge success by moding a loan.
Last few days I have been reminded by one of those dumb Bible stories. It is the one where the guy worked for this rancher dude for 7 years so he could marry his daughter. After the seven years there was a wedding and the sneaky dad had his daughter wear a veil. After the wedding the veil came off and the guy found he had married the older sister! Cheated! He however still loved the younger daughter and worked another 7 years. He got the best of that rancher dude though….
This housing thing kind of reminds me of that. The trick financing placed a veil over the true value of the house and once the financing was pulled your house bride got ugly real quick!
November 19th, 2008 11:50 pm
I like my approach to this problem… start with every refinance done during the last 3 years… find any and all truth in lending violations, rescind each loan, give them 20 days to respond and then sue them. Sue them in Federal court. You wont get a trial date until late in 2010 or 2011, do a ton of discovery… meanwhile your client is not making any payments to them but is paying a lawyer 2k a month for a year to jam it to them. Sounds harsh???? They wont do the right thing… litigate them into oblivion!
November 19th, 2008 11:52 pm
Bert Dilbert – What’s interesting about your analogy to Jacob in the bible. Is that yes, jacob had to work twice as long for the wife he really wanted. However, in his youth he cheated his older brother Esau out of his inheritance/birthright. So, there was some what of a come uppance. He ended up paying for his youthful deceipt with having to work twice as hard. However, in the end, he became a very wealthy man, with his 12 sons making up the 12 tribes of Israel.
November 20th, 2008 12:07 am
Just walk away. Bank takes the loss. Who cares?
Renting is not a sin.
November 20th, 2008 12:10 am
Umm, well…
What if everyone, or a least a noticible percentage of everyone, did not pay their mortgage payment for one month? – with prior notice that (X) month is going to be a protest month.
That would get someone’s attention.
Revolution anyone?
November 20th, 2008 12:22 am
Wow Mr. M. you certainly struck a chord with this story line…
Let me make this simple for all of you naysayers. Only one thing needs to be done here. Nothing else has to be done to correct a huge part of the problem at hand. ONE DAMN THING is all that it takes to correct, I would guess, at least 30% – 40% of the problems we are facing in housing. This is so simple and easy to do as well.
Reduce principle on underwater homes that can show they can afford the reworked loan to current industry standards or better yet even tougher standards. Bank takes the hit on the loan and the homeowner is back closer to square and in an affordable loan moving forward.
WOW!!! I think I just did brain surgury here…
What don’t you people understand here? I mean seriously it is sooooo simple even a cave man… er I digress.
Seriously this is so easy to spell out. NO Tax Payer Bail Out needed. No Tax Payer funds required. No saving the scumbags that raped the system. No harm to comps or values. The only one that pays is the lenders in a simple principle reduction.
THAT’S IT!!! Nothing more or less… VERY, VERY SIMPLE PEOPLE!!!
November 20th, 2008 1:05 am
Great post Mr. M. You hit the nail on the head with this one. I have been a fan of your site for a while. I feel compelled to post the following after reading all the replies:
“Susan” – Get a clue! Are you serious with your attack on “SarahJ”? I cannot believe your “holier then thou” attitude. It is repulsive. The American people were duped. You dare to question “morality” on this? Unbelievable! I am beyond words!
November 20th, 2008 1:09 am
PartyBoy:
“Why are the renters so angry? They gambled that prices would go down, which they have. Shouldn’t they be happy since they gambled and won?”
I’m angry that tax dollars are potentially going from people who couldn’t afford a home to people who could – like some bizarre reverse Robin-hood scheme.
I’m angry that investors of stocks and bonds are losing 40-50% of their portfolios and no one is talking about reimbursing *them* because, hey, they *knew* the risk when they invested, but everyone thinks we should save the people who bought homes because, hey, they had *no way to know* that the value of their home could drop.
I’m angry that homeowners suffering in this recession thinks they’re entitled to have money they lost returned to them, when everyone else suffering in this recession still has to pay all of their debts.
Mostly I’m angry that a housing bubble even existed. It made a lot of people rich on the way up, and now it’s inevitably making a lot of people poor on the way down.
Yeah, as a renter it’s easy for me to say all that. I did the right thing and didn’t buy a place. Once housing prices normalize I’ll be able to buy the same thing I could have bought if prices had never gotten out of hand in the first place. I’ve been able to spend the last few years living cheap, working extra hours, and saving money for a down-payment, and I was lucky to not fall for what every mortgage broker, real estate agent, and author guru was trying to tell me. (Which was “screw saving for a down-payment! You have to buy NOW NOW NOW!”)
But I think there’s just something *wrong* with letting people walk away, without consequences, from debt they signed up for. People take on car loans, student loans, and credit card debt for all kinds of things that lose value, so why should homeowners – who have been enjoying their homes and taking money out of them – be the one privileged class that gets their debt forgiven?
November 20th, 2008 1:09 am
Oh, I’m sorry – I meant to address “Susan UPPER MIDDLE CLASS” not just plain “Susan – USED TO BE MIDDLE CLASS just a few short years ago….
November 20th, 2008 1:19 am
Once again, I am a fool for living within my means and taking out a responsible loan. I should have got the biggest house I qualified for, sucked all of the cash out on refinancings and then started to default so that I could keep everything I have ALL AT THE COST OF JUST 28% OF MONTHLY GROSS!!!!!!
Come on down, your the next contestant on “How to screw responsible homeowners!”
November 20th, 2008 1:22 am
Karen, it is the “law” and it simply is what it is. So when the rules are what they are:
You can walk non-recourse, and start over from scratch at the price of $0.00.
Then you do what makes the most economical, well being decision, for your family. You walk unless something makes more sense. The FDIC plan and every other plan I have seen to date sucks, so YOU WALK!!! It’s the law so your not doing anything wrong here.
Now it can be different however… the lender can offer to deal with you and take a stake in this most unfortunate dilemma that you are in. Write down 10% of the principle for joe and jane. Write down 15% for Jim and Julie. The point is get it DONE!!!
The lenders just need to stop being greedy and realize that they are not going to make a lot of profit over the next few years, but they will survive.
DEAL DONE!!!
November 20th, 2008 1:50 am
Mortgage Litigation Expert:
Dude, you’re gonna need to hire a *lot* of associates.
November 20th, 2008 1:57 am
American deserves principal writedowns??
Huh? since when. Americans that bought way more house than they could ever afford deserve to be foreclosed upon. There are plenty of people out there that would like to buy homes. Homes that are fairly priced. And the only way that will happen is for the banks/investors to take the loss and sell those homes are fair market value. They gambled and they lost. Take the losses and move on. All these bailouts and workouts will do is stretch this debacle out for a decade or more. You know most of those modified loans will eventually default anyway. It’s just prolonging the agony.
November 20th, 2008 1:58 am
“Mr. Moreau, a laborer for the New Hampshire highway department, made the next several payments on time, but slipped behind again in October because his pay is barely enough to cover his expenses…”
I have a nagging suspicion that Mr. Moreau, like so many lottery winners, is going to end up broke whether you write his loan down to 28/36, 24/32, 20/28, or you just start shoveling money onto his doorstep. I don’t know why it is. It just seems to be one of those sad truths. I have a few Mr. Moreaus in my family. I stopped lending them money a long time ago.
November 20th, 2008 2:05 am
“Reduce principle on underwater homes that can show they can afford the reworked loan to current industry standards or better yet even tougher standards”
Yes, Stu, we need to reduce our principles so we can reduce our principal.
November 20th, 2008 2:14 am
You are wrong – they could afford it. Make no mistake about it – BORROWERS ARE NOT WALKING BECAUSE THE CAN’T AFFORD THE PAYMENTS. They are walking because all of their after-tax income each month is going out in bills and the largest portion is going to a home worth half of what they owe.
That being said, there are many who can’t afford their payments because of an ARM adjustment. But at one time they were qualified by the bank and given the way the loan was structured they could in fact afford the loan. Banks and Realtors in every city in the nation used high-leverage, exotic loans in order get people to qualify for ever increasing loan amounts. By 2005, interest only was industry standard, so was stated income. But lenders didn’t worry what happened to the loan after a few months because the loan was sold and they lose all liability. The 2/28 Subprime ARM was a perfect example of a loan program not designed to hold over the initial teaser period and one the lender didn’t care about because most were sold and securitized.
November 20th, 2008 2:15 am
I don’t know what to do… my house is upside down, not late yet, don’t want to ruin my credit, I’m at 90 DTI etc…
I need a reduction on principal and rate cut.
Can anyone help here???
And No I can’t afford a $5k loan mod fee.
November 20th, 2008 3:27 am
Stu
I think the powers that be are so gripped by fear they do not know what to do.
1. They have to lower debt to GDP ratio. It is strangling the economy.
2. They need to do it fast.
3. Rip the banks apart. Not so that we are saying never again, but so that the banks say never again. The banks are going to be beset with so many lawsuits by the time it is over there will likely not be a common shareholder left standing with a claim to anything. The claims are just too potentially monstrous.
4. Anyone read that G20 statement? What a bunch of weak assed losers we have for world leadership. Don’t expect change, just more of the same dished out to you in the future.
5. In my initial analysis of the housing situation in May, I pegged asset based players to be affected the most. Those are banks, insurance companies and pension funds. Unfortunately that just happens to be all the money in the world in those three groups. That my friends is likely the problem. All the money in the world arrayed at the little guy.
6. We have to have rule of law. I am sorry but we need to go bottom up and top down and pick out the the bad guys. Even if it works out to community service, picking up leaves on the side of the road for a couple of weekends. We cannot let honest people down and just let everybody walk. This country is way too soft on white collar crime. A repeat shoplifter has more troubles than someone who cheats people out of millions of dollars.
7. Has anyone met any of these dishonest appraisers? I have met a few appraisers lately and they all assert that they were one of the good guys…. Apparently the in the pocket appraisers was all just a myth like naked shorters being the problem on Wall Street. What would happen though if you wired them all up to a lie detector and one by one brought out each appraisal over the bubble years, I wonder…. Of course if you were to interview 100 convicts, all would assert that they are good persons…. (100 honest appraisers will suddenly appear..)
8. It is late, Marc, this would be a good You Tube candidate, seems to be a subject with a lot of interest. One of the most lively in a long time. You brought out the lurkers…
9. If they do not handle this default problem it is not just home asset prices they have to worry about, the issue left unresolved will bring down all assets prices. That leaves all the money in the world at risk. Banks, insurance companies and pension funds. You cannot save the banks(common shareholders) but you could try to save the other two. Banks will never survive the legals.
10. Why can’t hash browns just be the crispy part?
11. We are in a deflationary period. Get rid of your debts as fast as possible. Money becomes worth more. People are going to be subject to reduced hours, layoffs and pay cuts. Employers will have the upper hand, huge labor pool and they are not subject to wage pressures. If you get hit with any of the three, you will soon discover how your debt just increased. You never want to get caught with debt in a deflation. As an aside to that, when you have inflation, being leveraged to a house is in your favor as the asset increases in value and your payments become less over time as you get inflationary wage increases. Levered to an asset in a deflation is hell.
12. If you live in a bubble state you are probably going to stand a greater chance of job loss and the prospects of having to move out of state to find employment are greater. This is where the no principle reduction will kill you because you are stuck with a mortgage that is worth more than the home. If the stack of orders are dwindling, expect the number of employees to as well. Make yourself absolutely indispensable. Don’t stack a bunch of stuff on your desk and make it look like you are working, bosses are a lot smarter than you think. Try this instead. “Hey boss, is there anything that has been bugging you that I can take off your hands?” Look for ways to save your boss money like “I just did a cost analysis of Prime Pay verses Paychex and our savings over the course of the year would fund our annual Christmas party”, Because right now he is probably wondering whether he should have one. If you are one of those “That is not my job” or “That was not what I was hired on to do” people, you just informed your boss you are handicapped. Your boss probably knows lots of employees who are not… Fact is that you boss probably cleaned toilets at some point in his life and is not impressed with handicaps. You will be seeing the door shortly.
And if you ever did say something like that to your boss, he never forgot you said that. When you did say that, this is what was going through his mind. “I have done every job imaginable at this company at one time in my life and I do crap all day long that I don’t like to do, but I do them because they have to get done. Because they get done, your sorry butt has a job…”
So now things are getting a little slow.. We are going to have to reduce numbers, some employees will have to assimilate duties that were previously done by others. One employee has indicated previosly that they are not flexible. Those three words “not my job” have now become your ticket to head of the breadline.
November 20th, 2008 4:47 am
Karen
You said..
“But I think there’s just something *wrong* with letting people walk away, without consequences, from debt they signed up for. People take on car loans, student loans, and credit card debt for all kinds of things that lose value, so why should homeowners – who have been enjoying their homes and taking money out of them – be the one privileged class that gets their debt forgiven?”
Karen, this is one of the features of non recourse that should in fact have made a safe playing field for homeowners. It is the fact that it is incumbent on the bank to make safe loans because if they do not they get left holding the bag.
By rights, the Federal Reserve should have stepped in when they saw that home prices were rapidly exceeding income gains and demanded increased down payments just like the Federal Reserve is in charge of margin for the stock market. Unfortunately there were no down payments required!
There is also supposed to be honest appraisers which serve to protect both the bank and the homeowner with a bonafide appraisal and not a “make the deal” number. Yet we all know what happened there.
Karen, as much as you may not like the non recourse provision, it is the buyers right and should have worked to ensure a safe market. In a normal market where there are full downs and not borrowed, the 20% will cover market fluctuations and cost of foreclosure. The 20% covers the risk of default.
Unfortunately the banks products created a bubble and bubbles always have disastrous endings. The Federal Reserve is charged with asset bubbles and is authorized to close the discount window to banks that make bad loans. Do you think anyone got cut off?
Banks threw all risk out the window and operated with inadequate supervision, again the Federal Reserve. Crying now because consumers are exercising their rights because the banks were reckless and stupid is inappropriate once you are educated in how things work.
Non recourse is a provision that should remain and in real life would have acted as a safety to a fair market. If there is no supervision and the risk book is thrown out the window, those should be the issues, not a safety provision that was dysfunctional due to negligence on the part of the bankers.
The other loans you mention are either not asset backed loans with the exception of a car loan but a car is not comparable as an asset to a long term fixed asset such as land and building. The auto depreciates greatly the moment it is driven off the lot and continues with every mile and age. The home however appreciates over time except in deflation.
If I buy flowers on a credit card or eat out every night or book a Hawaiian vacation, how would the bank recover that? As to a student loan, assuming the value has been transferred to your brain, how would the bank recover that? So they are in no way comparable types of debt. Thus it would be impossible to issue those types of debt as non recourse.
I was thinking though,if you would like to make me a non recourse loan for say 5k for anything I want to spend he money on, I am all over it…
November 20th, 2008 8:28 am
2 years ago, the banks would foreclose on home owners with little hesitation. They didn’t care if you weren’t paying because you couldn’t afford it in the first place or you got your arms chopped off. It was a correct financial decision for them.
Walking away from your property is not illegal. I would treat the banks the way they treat me: as a business decision.
Moral? Who cares what other people think. Make the best decision for your family.
November 20th, 2008 9:04 am
” house prices stopped going down this very minute and started rising at a historical 5%-7% per year based upon a good overall economy, low interest rates, strong sentiment and rental rates it would take years for prices to get back to where they were. And we don’t have a good economy, low mortgage rates, strong sentiment or rising rental rates.”
mr mortgage, in your article you quote a historical home appreciation rate at 5 to 7 %
prof. schiller of the case schiller index uses a 3 to 4 % (going back 150yrs) historical rate
which one is right?
obviously if pro. schiller is right those calculations you make would have to be substantially changed
November 20th, 2008 12:15 pm
You can’t just lower principal for people. Why would people in the midwest have to help the idiots in California that lived way beyond their means and thought they were rich when they really had nothing? GIVE ME A BREAK!! California needs to take it’s medicine. Welcome to the real world.
November 20th, 2008 12:30 pm
Steve – CA, AZ, NV and FL are in most need for the banks to do this. These states collectively make up 65% of all defaults and foreclosures and a huge amount of the nations economy. These states were mostly responsible for the real estate wealth effect that everyone benefited from over the past several years. If you fix these states you fix the housing market and lay the first steps to fixing the overall economy.
November 20th, 2008 12:34 pm
Exactly!
I feel like such an idiot saving money all this time.
I too, could have gotten a mansion for $650k, taken out a HELOC, get me a boat, a European vacation and all that and now throw my arms up, declare myself a victim and walk away.
So? At least I would have lived an awesome 6 years.
to carrie — “American people were duped?” ARE YOU SERIOUS??? Gimme a break here, nobody was duped. They all signed on the dotted line. THEY ALL knew what house they were buying for how much. I’m sick and tired of hearing, “I’m a victim here, I need help.”
Eh.. NO YOU DON’T. You bought a house you couldn’t afford, it came back to bite you in the rear, DEAL WITH IT. Be an adult and accept the consequences, stop acting like a victim when you AREN’T.
November 20th, 2008 12:55 pm
Dave, its easy to just use an equation to determine when a home would return to its original value (pre inflation). Original value = New Value(1+Annual appreciation)^Years
So, if your home lost 50% of its value, and now appreciates at 3% per year, you would have 2=1(1.03)^X, where X is time in years.
Solve for X, and you have 23 years. This does not account for inflation, just for original value.
All mortgage holders underwater need to find out when they would reach positive equity again, with and without a mortgage modification. If your interest rate is 5%, and 3% annual appreciation, it would take about 10 years until you could sell without having remaining debt on the mortgage. That is a very long time, and if you defaulted now, you would have 10 years to build up savings.
November 20th, 2008 12:57 pm
Admin,
You need to understand that there was no real wealth. Artificially inflating home prices above what the average person in California can truly afford based on their actual income is not REAL wealth. This false sense of wealh is why we are in the situation we are in now. The only way for the economy to recover is to let the false wealth states crash and burn until they pay for their mistakes. This is the only way they will learn and change their behavior patterns. Only then will they go back to buying a home to live in for the next 30 yrs and not to subsidize their over spending/living beyond their means. I know it will be rough for them, but they need it. I have seen how much fun California was having during the boom. You know it is true. People in the midwest didn’t waste all that money. Californians did. And now, Californians must learn a lesson. Just like a kid that ran up a credit card. Giving them another card to pay off the old one will not help them. Cutting up their card and making them work to pay it off, will!
November 20th, 2008 1:04 pm
Joe,
You said, “A 300K house at 8% is the exact same house priced at 600K for 2% – monthly payment is the same. Credit is shrinking (insolvency will do that) so interest rates go up, and rising interest rates means lower prices.
So the new loans at higher rates will push prices down because new loans will be closer to 8% than 2% so the value of the house will be closer to 300K than 600K. Pushing prices down makes the owner more underwater.”
I don’t see why this is a problem. It seems as though most people who are in trouble with their homes would be given a viable option to stay in their homes without any principal forgiveness. This would be a bailout of sorts without negatively impacting the renters who are waiting to buy. In your statement, you imply that it would be a problem because owners would still be underwater. I don’t think we need to help people get out from being underwater as the only ones that would really impact are the ones looking to sell their property. Helping people keep a home which is being used as a primary residence is something I can get behind. Providing a bailout to put someone in the black doesn’t make a lot of sense to me. Personally, I have more empathy for people trying to keep a residence than for someone trying to get modified to prevent losing their ass on a flip.
November 20th, 2008 1:04 pm
not only CA. What about Phoenix? Miami? They don’t call them “the sand states” for nothing. Miami was a particularly egregious example, I think. I mean, what IDIOT thought that all those condos selling for $700k would actually hold their value?? It was insane. All they were doing is having a bunch of shmoes stand in line and have shmoe N buy it and turn around and sell it to shmoe N+1. And on it went. Until last shmoe turned around and … OOPS.
November 20th, 2008 1:09 pm
Susan,
You said, “I too, could have gotten a mansion for $650k, taken out a HELOC, get me a boat, a European vacation and all that and now throw my arms up, declare myself a victim and walk away.”
This is partially untrue. Yes, you can walk away from a house without any further financial obligation to the bank. But only if the money owed on the house is original purchase money which has not been refinanced. HELOCs are recourse loans which means that even if you walk, the bank can come after you. Yes, the house is used as collateral for the loan in a HELOC but it is used as a way to lower the risk of the loan. The only people who are able to walk from a home and completely stick it to the bank are people who never refinanced, never took out a HELOC, and I believe that they have to had used the home as their primary residence. Someone please correct me if I am incorrect on this.
November 20th, 2008 1:15 pm
It’s time for everyone to grow up. No more bailouts and no more victims. The sooner we let the economy free fall the sooner it will be over. Why does everyone want to make the pain last longer? I say let’s get it over with. The cards will fall where they should fall. Everyone will hurt, some more than others. Too bad we already bailed out the people most responsible…The Banks!! Example…Say my neighbor asked me to lend him $3,000 to buy a car and I give him the cash at 10% interest. Later it turns out that he can’t pay me back because he can’t afford it. Would you feel sorry for me?? I’m the one who had the final say and didn’t make sure that he could afford to pay me back. I knew that I was taking a risk on him for a chance to make 10% on my money. Should I be bailed out?? LOL WHAT A JOKE!
November 20th, 2008 1:19 pm
Mr. M,
I have to partially disagree with you on this point, “Make no mistake about it – BORROWERS ARE NOT WALKING BECAUSE THE CAN’T AFFORD THE PAYMENTS. They are walking because all of their after-tax income each month is going out in bills and the largest portion is going to a home worth half of what they owe.”
If you are seperating two groups of foreclosures in to those who are walking (voluntary foreclosures) and those who are being foreclosed on (involuntary foreclosures), then I would agree with you. There absolutely are households who are leaving their homes because they cannot afford them. And of course there are people who fit your description as well. But lowering an owner’s payment to what renting a similar place would cost achieves the same end result as walking away except that staying in the house gives them a tax break each year, locks in their “rent” payment long term (assuming a fixed rate mortgage), and prevents them from having a foreclosure on their credit report. If a modified mortgage allows them the same payment as walking and renting would, wouldn’t they be able to save just as much money each month?
November 20th, 2008 1:25 pm
What is the problem with being underwater in a home? Adjusting payments to affordable levels helps to provide the gap between monthly earnings and monthly expenditures, right? It seems to me that being underwater simply makes a home impossible to sell. If you walk away and rent, you still have nothing to sell so what’s the difference? This is why I don’t get the viewpoint of reducing principle as the only viable solution. That being said, I would gladly accept a principle reduction if offered…
November 20th, 2008 1:38 pm
Question? About the reduction of principal… Suppose I have a home worth $150K in Texas that I put 20% down and am making payments fine. Now I find out that my bank has reduced the principal on a home in San Diego from $850K to $700K on someone who put nothing down and couldn’t afford the payments. Why would I feel that I owe the bank ny money for my home in Texas? Since they gifted $150K to the irresponsible person in San Diego I would demand the same reduction in my principal or I’ll just stop paying them. Or maybe I could sue them for discriminating against people who can afford the home they purchased? It’s a mess…. That’s why you can’t do it! You have to let the homes be foreclosed on and resold to someone who can afford it. Probably at a much more reasonable price.
November 20th, 2008 1:49 pm
Steve,
You said something very interesting that I have thought about quite a bit, “Or maybe I could sue them for discriminating against people who can afford the home they purchased?”
How does the Fairness In Lending Act in Illinois play into this whole mess? In Illinois (other states may have similar laws):
The Illinois Fairness in Lending Act prohibits the following acts in contemplation of making any loan to any person:
Deny or VARY the terms of a loan on the basis that a specific parcel of real estate
offered as security is located in a specific geographical area.
Deny or VARY the terms of a loan without having considered all of the regular
and dependable income of each person who would be liable for repayment of the loan.
Deny or VARY the terms of a loan on the sole basis of the childbearing capacity of an applicant or an applicant’s spouse.
Utilize lending standards that have no economic basis and which are discriminatory in effect.
If a lender has issued loans in Illinois as well as other parts of the country, would they be opening themselves up to litigation by modifying terms of loans, say in CA?
November 20th, 2008 1:49 pm
Partyboy,
exactly. Prima facie, there’s nothing wrong with being underwater. However, people are still walking away? Why? Because they thought their home would be a good investment, that’s why! They can’t stomach the drop in price, so they’re leaving.
The whole underwater thing is nothing but a fig leaf so that people can paint themselves as victims. I mean, why should it matter, right? If I bought a house for $650k, I should be able to afford it. Then and now. If the house is now magically worth $300k, how does that affect my ability to pay? It doesn’t, of course.
November 20th, 2008 1:53 pm
Ok, I have to chime in here. This business about borrowers being fooled and therefore it’s the bank’s fault is nonsense. People need to be responsible for their actions and everyone knows most of them thought it was the right thing to do because they saw dollar signs in their eyes. Nobody forced them to sign the papers and despite the “pumping by the banks”, people have a brain and can make a choice. This country is about being able to make choices, but also about bearing the consequences. Personal responsibility has to be a factor here.
Those rooting to see principal reduction and giving a thumbs up in these comments undoubtedly are the ones who bought during the 2003-2007 period, so of course they want free money. I put myself in the boat of the ones who are angry about such proposals because we acted prudently and do not want to be stuck with the bill. It’s my belief there is a huge silent majority in the latter category vs. the former.
The solution to this problem to me seems very simple. Start by not acting as though the borrowers are the victims and make it onerous on them to default. No matter what, houses will come down in value and those losses will borne by someone. I’m angry the taxpayer is taking the hit as much as we are, but there is no avoiding the losses. Now, how do we limit these losses as best as possible? You do that by not creating perverse incentives for people to walk away. In fact, you do the opposite by punishing those who do. People who don’t need to walk away will think twice about doing it. Those who need to walk away take the hit and will have to live with their decision and the consequences. There will still be many foreclosures as the market continues to correct, no doubt, but at least they will be limited to those who really had no choice. A significant hit to the credit report and no free money (and possibly even a small debt still being owed) is not a huge price to pay for the borrower given the losses we are talking about.
The cynic in me says it doesn’t matter what we say here anyway. The banks own the politicians and in the end they are the ones who are going to be protected at the expense of *everyone* else; our future generations included. So if it’s in the bank’s best interest for a global principal reduction you will see it occur. That may happen, and heaven help us if it does, but either way it won’t be on the bank’s dime (i.e. you and I will be footing the bill).
p.s. Susan, you are my hero!
November 20th, 2008 1:59 pm
I get why you guys (Susan and Phil) don’t like the fact that people can simply walk from their non-recourse loans with nothing but ruined credit to show for it. But it is a legal and a valid choice for them to make. I don’t like the fact that a woman can decide to have sex and then just have an abortion if she doesn’t like the end result, getting knocked up. But regardless of how I feel, it is a legal option and although I don’t like it, all I can do is cast my vote and let the chips fall where they may. It’s all just a matter of perspective.
November 20th, 2008 2:29 pm
Hey Sarah J,
Your are an adult and responsible for your own actions. Stop blaming others (like your real estate agent or mortgage company) for your decisions/mistakes. We all make bad decisions every now and then, and I sincerely feel bad for folks going through a touch time (I am goingthroug one myself). Acting like you are a victim and suggesting that you got “BAMBOOZLED” into making such a high ticket item purchase is crazy. When you buy a home, you sign a million pieces of paper…both during the negotiation process to purchase the home and the mortgage process. You knew ahead of time whenther you could afford the home or not.
November 20th, 2008 2:30 pm
Partyboy, it is not the fact that folks like Sarahj are walking away from their homes because their gambles failed that is so annoying – it is their insistence on portraying themselves as being victims of anything and everything but their own poor judgement. If Sarahj had come on here and had the balls to say “it is a valid and legal choice” for me to walk away from a house I promised to pay for because it will not provide the return I expected, then we could not like it, but accept it as her choice – so long as she was willing to accept the consequences for her action. Sarahj, however, wants to be a victim and wants to offload any responsibility for her actions. Leaving people like myself (and maybe Susan and Phil) to conclude that not only is she incredibly stupid for putting herself in this position, but she is also bereft of morals and courage.
November 20th, 2008 2:33 pm
I don’t see why this is a problem.
Me neither.
November 20th, 2008 2:48 pm
It seems as though most people who are in trouble with their homes would be given a viable option to stay in their homes without any principal forgiveness.
As I said many posts before, you could push a troubled borrower’s rate to zero and they still can’t afford the house if the principal is so high relative to their income. A 30-year 600K loan zero percent is a higher monthly payment than a 30-year 300K loan at 5%. The person paying off 600K at zero percent needs to be making over 70K annually to get that 600K loan performing at 28/36. At a mere 2%, that 600K loan only performs at 28/36 if the borrower is making 100K annually. 100K anual household income is in the top quintile of all households.
So we’re either foregiving principal or we’re foregiving interest. The free candy is identical. So we might as well put BOTH the principal and interest at sensible levels and get on with the proper business of price discovery (and the business of finding which banks are really solvent).
November 20th, 2008 3:09 pm
Joe,
I am coming to the realization that you and I are not on completely different pages here. I agree with quite a bit of what you say. But I think that the percentage of people who could not afford their mortgages at 0% 30-yr fixed is very small. The reason that the principle reduction is tough to stomach is that it would give some people the chance to sell their house at a break-even price and get out with no pain to themselves. I don’t wish ill will on anyone but if they get out of this without any suffering it won’t teach them a lesson at all. I think that everyone who was irresponsible needs to feel some of the pain to help mitigate the likelihood of grossly irresponsible behavior in the future.
November 20th, 2008 3:12 pm
Hello everyone again,
Had another thought. The facts are very simple. No one made people borrow money to buy a home (this is the borrower’s fault). No one made banks loan money to these people (this is the Bank’s fault). They both should lose everything they gambled. The problem is….now we have saved all the banks that took the same risks as the borrowers. We should have let them all fail.. By the way, THEY ARE ALL BANKRUPT!! that is why the fed will not disclose who got what money and open the banks books. They say they don’t want people to know which banks are in trouble so they gave the money to all of the big banks. total lie…The truth is, they don’t want the American public to know that they were ALL in trouble and needed the bailout. So here is the problem now…How can a bankrupt bank that couldn’t pay it’s bills steal money from the taxpayer and now tell a family that can’t pay it’s bills to pay them or else?? It’s really quite funny!! I say, if you can’t pay them..don’t…they didn’t. If you can pay them…do. Good credit will pay off in 7-10 years when the home prices bottom.
November 20th, 2008 3:20 pm
First of all…. 50% DTI? Fannie Mae and Freddie Mac were taking 65% DTI loans “full doc” up until 2007. As long as it got an automated underwriting approval they would do these loans. Throw stated income into the mix and the “real DTI” of many homeowners was well over 50%.
That said, while there were victims of fraud and pushy salespeople… your whole argument rests upon the idea that people were innocent victims and should be forgiven. Much like the banks and now auto industry want a bailout. Sorry, you made the mistake and sometimes bankruptcy is the solution.
Too many years of bad financial management from consumers up to CEOs. Buyers KNEW they could not pay the mortgage payment or show the income required to qualify. They KNEW if the ARM reset in 2 years they could not pay. They still bought because of the same greed as the Realtor, lender, loan officer, appraiser, attorney and so on.
The blame is for everyone to share. If the bank can not take the losses, go bankrupt and do not get a bailout. If someone can not pay a home unless we cut their rate to 3% and reduce their balance by 50%, same thing. Foreclosure and bankruptcy are there for a reason and we need to own up to our situation.
How does cutting the balance of someones loan by 50% make things “fair”? You are just penalizing those living in their means that rented or bought lower priced homes and letting those that were greedy keep what they couldn’t afford at the price/terms they signed a contract for. If there was fraud or deception… it should be prosecuted. Those that got us in this mess should be thrown out of the industry, but consumers that were willing participants should not be treated as innocent victims.
November 20th, 2008 3:56 pm
Susan,
By your posts, you are obviously of “higher” moral ground, more intelligent and of a higher class (”upper middle-class” to quote you) of all those who disagree with you. Just so you know, just because someone disagrees with you does not mean that they are in lower socio-economic class, blue collar (i.e.: “janitor”), or a “scumbag” or bought at the wrong time and knew they could not afford the $700,000 condo built on a sandbar. I find it repulsive that it is so easy for you to pass judgement and make assumptions just because someone does not think the same as you.
November 20th, 2008 4:03 pm
And just so you know… I, too, am tired of the victim roles. People need to be held accountable for their situation and not blame all on those around them. However, the system was gamed. Yes, people signed on the dotted line… BUT… the system is not transparent and the investment very was very, very complex.
November 20th, 2008 4:21 pm
Agreed Carrie. It is impossible for any of us to say what caused any particular situation and what the best course of action is with any real conviction. Opinions shared among open-minded individuals is entertaining and sometimes educational but vilifying specific people whose situation you don’t really know is in poor taste at best. Instead, let’s focus our hate on the real villians…the interior decorators who made the model homes look so nice that they hypnotized people into buying them.
November 20th, 2008 4:35 pm
Partyboy,
Agreed!
November 20th, 2008 4:54 pm
I am not a victim. My house purchased in 2006 for $520K now sells in our neghborhood for $259K. I can afford my mortgage payment, now. Walk, run, stay??
Zero Down 35 yr 5.75%, 5 yr I/O
Don’t want to walk, want to be able to tell my kids to stick it out when things get tough and be sincere. But seriously considering it. Afraid of layoff and forced foreclosure. Tired of sleepness nights. Tired of worrying about this shit.
We made our decision to buy and were not victims. We will probably also make our decision to walk and deal with the consequences.
Bring it on Susan/Phil. You don’t get that thsi affects everyone, the blame game ship has sailed.
November 20th, 2008 4:57 pm
Carrie, the investment was not complex at all, it simply was that people bought into the bubble and believed prices can only go up (or at least they never go down). Bubbles have happened a lot through history and in the end we have to preach personal responsibility to the participants. The 2000 stock bubble is a fine example. People wanted to believe a pets.com could be worth billions but failed to realize there was never enough business in the world to justify those prices. No bailouts went to those who bought pets.com at super inflated prices, but I contend an even stronger argument could be made that understanding a business’s balance sheet and deriving their true value is way more complex.
All that people had to do was ask themselves what would happen if prices went down. If you didn’t ask yourself that question, who can you blame?
And by the way, I don’t necessarily object to SarahJ’s decision to walk away. The CA legislature made this a non-recourse state for a valid reason. The banks are in a better position to gauge the market, so if they loan out money they have more responsibility in the transaction. But my sympathy ends there. No bailouts for homeowners (or banks either imo) and those who get foreclosed upon must take their licks. Overall, there is a lot of blame to go around, but the borrowers have to accept their piece. And their penalties are actually pretty small compared to the losses being borne by others, so they shouldn’t complain. But to say they are a victim and they have no culpability? That’s ludicrous.
November 20th, 2008 5:09 pm
ncb,
Just a shot in the dark, but is your house in the IE? Your situation sounds like virtually everyone I know and I am in the IE as well. I am sure you have f’in ridiculous property taxes/mello roos as well. Just curious.
November 20th, 2008 5:10 pm
east bay area 1.25% property taxes
November 20th, 2008 5:34 pm
IE (Inland Empire – SE of LA and N of SD) has several places near 2% property tax. Tack that onto the mortgage of a $500k place and you are hurting to the tune of $850/month before even touching P&I. No wonder the market is crashing. The fact that unpaid property taxes remain attached to the house and do not follow the foreclosed owner means that there will be thousands of homes with large tax liens on them which will have to be paid by the bank or by the new owners. Not to mention the revenue losses to the local govt. Perhaps Arnold shouldn’t have counted on the property tax revenue from grossly exaggerated home prices when developing the state budget. The effects of this crisis are neverending…
November 20th, 2008 5:54 pm
Not to mention the revenue losses to the local govt.
Those aren’t revenue losses. The local government needs to markt to market just like the banks.
November 20th, 2008 5:58 pm
Sort of. The govt uses expected property tax revenue for budgetting purposes. If those taxes are not paid, they get less money. Although the taxes will certainly eventually get paid so it is really more of a deferment than a loss. The only way they will mark to market is if the assessor’s office gives a realistic assessed value of homes. They were quick to reassess on the way up but slow as hell on the way down. Especially when they refuse to consider short sales and foreclosures in their value assessments. What the hell else is there? Regardless, it is certainly not a mark to market.
November 20th, 2008 6:21 pm
Phil,
50% price decline in a year in parts of the US? Are you kidding me? You think people really planned for a 50% loss in a year. Give me a break. I think some people prepared for a storm, but not a Tsunami!
November 20th, 2008 6:33 pm
The govt uses expected property tax revenue for budgetting purposes.
I should’ve said “ought to mark to market, just like the banks.”
November 20th, 2008 6:37 pm
Thanks to Mr. Mortgage for a great site ! So many great
comments too by interesting people. Susan, my hat off to you.
Matt Schwarts said : “Capitalism will always require the
exploitation of new markets by any means necessary….”
Makes one sniff a criminal element ? However, we do not
have capitalism in this country today, but a Mixed Economy; i.e. a mix of socialism and capitalism. One philosopher once said that a Mixed Economy is one which is
in the process of committing suicide. Looks like she was
right for when bureaucrats and politicians mess with the
market, for their own purposes, we get what we have today ?
November 20th, 2008 7:11 pm
[...] Comments Trude Blomsoy on The Great Mortgage Modification Pump – GOD SAVE US ALL!Richard Estes on America’s Mark-to-Model Banking System (revisited)Joe the Proctologist on The [...]
November 20th, 2008 7:13 pm
Actually, the IE houses with tax liens will eventually be foreclosed by the local government, if the banks don’t pay. Buyers in foreclosure auctions beware…property tax liens follow the property.
November 20th, 2008 7:18 pm
Carrie, 50% is harsh, but not as bad as 90%+ seen during the stock market bubble drop. By your logic, the bigger the bubble (and therefore the bigger the fall) the less culpable the participants are?
Why should housing be treated any differently than any other commodity?
November 20th, 2008 7:22 pm
“You can walk non-recourse, and start over from scratch at the price of $0.00. Then you do what makes the most economical, well being decision, for your family. You walk unless something makes more sense. The FDIC plan and every other plan I have seen to date sucks, so YOU WALK!!! It’s the law so your not doing anything wrong here.”
I’m actually fine with people walking. They lose the house they couldn’t really afford, the bank gets it in the balls for money they never should have loaned out, and new buyers have access to an affordable home. (And buyers are *really* responding to those affordable homes.)
November 20th, 2008 7:23 pm
I am in the same situation as Sarah, just w/ a bigger loan. I have quit paying my mortgage 6 months ago. I’m tired of dedicating 50% of our gross income to housing interest taxes and insurance. This is our first house, and the F-ed up part is that if this were normal times I would be able to afford the house i am living in. Before the bubble it was at 350k, I got it at 780k. We are professionals and our income is 150k a yr which would have been enough for a 350k house. I am pissed off that everyone in the Real estate biz inflated the home prices to bubble proportions. Yes I do feel like a victim. I thought we were living the same cycle as the older generation were…go to college, graduate, get married, have kids.. BUY A HOUSE!! This is how it’s supposed to happen right? Well becuase of the scum bags in the real estate industry I have to add “foreclosure” to the usual progression of life. My response to those renters out there criticizing people like me and sarah is “sorry I was in the wrong place at the wrong time, but I am not going to screw up my family’s future so these banks can keep collecting on their portfolios.
November 20th, 2008 7:23 pm
Hi NCB,
I just read about your situation you posted. Let the home go back to the bank. Use the money you save during the foreclosure to pay off all of your other debts. Unfortunately, this has been a lesson for a lot of people in the need to prepare for the potential worst case scenario. By not putting 20% down and having a fixed 30 yr note, you couldn’t afford the home that you purchased. Prices will not recover to what you paid for 20-30 years most likely. I’m assuming that you can not afford to pay the mortgage when it resets after your teaser rate. The good news is, your one of millions that are in the same situation. We all have to take our lumps and lessons, live in smaller homes, and save money. It’s a national situation, nothing to be embarrassed about. Life goes on. I say you need to realize the situation and get on with it. Why keep feeding all that money to a home that you will never be able to afford after a rate reset. Save your money and payoff everything else. Do not hope for the real estate market to turn around, IT WON’T UNTIL THE AVERAGE INCOME IN YOUR CITY IS 1/3 OF THE AVERAGE HOME PRICE.
November 20th, 2008 7:29 pm
Well said Steve.
November 20th, 2008 8:33 pm
Thanks Partyboy.
Tell proudhomeowner that losing your home is not fun at all. It’s no free pass. If he doesn’t have to sell his home and can afford to keep it to maturity, congratultions! People like that will have great opportunities to make some money when the market finally hits bottom. The people walking are not going to be able to jump back in and capitalize on the downturn. That’s how it works and it is working just fine. Stop the bailouts and let the market work. It is working just fine. Nobody said that the free market doesn’t produce losers. Unfortunately, it produces just as many losers as it does winners. That’s why we have to stop trying to stop the only logical solution. Prices need to fall and those who can’t survive the crash will lose. Those who can will win. What is so wrong with more people being able to afford a home because the price now makes sense? I love when the gov’t says that we have to stop home prices falling to save homeowners. What about the young people in college today that might actually be able to afford a home someday if prices keep falling?? Did they forget about them? Not everyone is going to be better off if we stop home price declines. Alot of people that aren’t involved will only be prevented from ever being able to afford a home. That’s fair?? Kind of ironic that the majority of young people voted for the Democratic Party and now the Democratic Party (and alot of Republicans) are trying to make sure they can never afford to buy a home.
I’m independent by the way. Don’t like either side that much.
November 20th, 2008 9:39 pm
Nathan, do not worry.. I’m another one like you. I’ve spent my savings 80K, did the landscaping.. bought almost the top (2006).. and paid on time for 2 years (never late)..din’t refi.. they would NOTwave the penalty fees.. (so I would have been above 417K) maybe was a blessing in disguise.. It would have become a recourse loan.. I’ve learned more in 1 year, that they could teach in college in regards to housing, financing, budgeting.. and yeah.. I’m enjoy my life again, I see my kids in the morning, lunch and dinner versus no time but weekends.. I’ve reduced my gas consumption by 95%, my tear on the car, I’ve paid off cards, I’ve started saving again.. it’s a new start..good luck to all!
November 20th, 2008 9:56 pm
Steve,
I agree with almost everything that you have said except that I think the people who walk now will have served their time in “bad credit prison” and be back on their feet with a good credit score by the time the bottom really hits and we are just starting on the way back up. I think that Obama’s administration will try several things to stabilize the market and they won’t work. All their efforts will do is maintain the fragile and crashing market for a while and then it will hit bottom in about 4-5 years. Regardless of what happens, millions of people will learn a very good lesson as alluded to by ex_owner…He makes some great points as well.
November 20th, 2008 10:40 pm
While I have no solution to today’s problem, I suggest something for the future:
- People take a financing course, and then pass a test, before major purchases… no more of I didn’t know, I didn’t see it coming
- The government to develop a new “preventing” org, that should overlook all sectors of economy, and do a lot of what/if, versus react to problems.. no more of: was asleep at the wheel, didn’t see it coming, kept the rates too low, raise the rates too much.. we killed the econmoy with 16 raises of .25 intead of colling it off
November 20th, 2008 10:41 pm
correction: cooling it off
November 21st, 2008 12:43 am
Partyboy – in many if not most bubble areas it is extremely rare for post-tax benefit homowner monthly outflow to be in line with rents for comparable properties, particularly for the most problematic 80/20 burdened properties. The simple math indicates that a homeowner, even if he can afford his monthly nut, can rent a place down the street and net and extra four figures a month in his pocket. This is in addition to wiping out six figures of negative net worth by walking away. Financially it is a no-brainer.
I think that it is unlikely that a lender is going to lower rates/payments to such a degree that net outflow will be comparable to rents. So when confronting the possibility of wiping out say $200K in negative net worth, living for free for 6-12 months while waiting for foreclosure and stashing that money, then renting and netting another $1K/month going forward, well you don’t need a degree from MIT to figure out what is the right financial move.
Even if you assume arguendo that mortgage payments are reduced in line with rents, if someone is $200K upside down and getting further upside down every month with no realistic hope to get back to even anytime soon, the best course of action is to walk, wipe out the entire debt load, and start rebuilding the credit score. In three years they are back in business and can get into a comparable property at fmv instead of being probably $300K upside down by that point in time. It is a clear no-brainer when you are dealing with such massive negative equity.
November 21st, 2008 12:59 am
Realtors didn’t defraud buyers by selling artificially overpriced homes. That is a ludicrous notion: here is why. Realtors are salespeople, in most states it is illegal for them to predict future profits to a client. And in most cases they do not. They can help determine the value of a property during a defined point in time, but , predicting the market is a fools game. You can’t do it, CNBC can’t do it, the Federal Gov’t can’t do it. But, the idiots on this website who want to portray themselves as victims, are only scapegoating ; they think Realtors should have been able to predict the foreclosure tsunami that is crashing upon us now. In 2006 it was apparent that the bubble had ended-not burst. No one, not a talking head, not your accountant,financial planner, wall street guru, Jim Cramer ; nobody, but, nobody predicted the collapse. As we enter a new phase, the churning phase- where even normal stable types are considering walking away- we see, once again, nobody predicted it. But you “coastal” geniuses have damaged wallets and damaged ego’s you need to blame someone other than yourselves. So, you decide that the Realtor (who probably has a high school diploma and some community college) should be able to predict for you. “You bought at the wrong time” period, that is the answer. If you had bought in 2000 and reaped the profits by selling to another “coastal” genius, you would be singing a different tune. First, since you would be the seller, you wouldn’t feel any moral/ethical discomfort that you made a 100% profit- you know, supply and demand and all that rot, to say nothing of timing. So, since you couldn’t read the tea leaves (and it was your responsibility) you decided to buy. No one forced you to, no one even pressured you to. You thought it would be a good idea. Apparently in your vast educational experience you never heard of the Tulip bubble. But, I’m sure you did (you feign ignorance when you try to blame others). Your idea was to buy high and then sell higher. Of course, you new you would have to sell before the bubble burst. Every high school grad knows that historically it will burst. But, you needed a Realtor to alert you.
The banks are greedy, and the moronic buyers that bought $650k houses they couldn’t afford are just as greedy. You are all a bunch of lying babies. I’m going to go pay off my house now. Just taxes and insurance for me and my house. You know the place where I can live til I die, renovate any way I like, raise my child in a consistent, stable environment next to neighbors I like, yeah , you know, it’s a house and a home. I know your not suppose to pay them off (OPM), not a good return. But, it sure feels nice, livin within your means (what a concept). Who will rent to you boneheads anyway. I’ve owned rental property and I always figuted that if the tenant didn’t pay the last guy, why would he pay me–and, if he did pay the last guy, why wouldn’t he pay me. Simple but true.
How about this model, use some due dilligence, have a job, buy the middle or low end of the neighborhood, keep your ratio’s under 30% (I’m a midwesterner we do it all the time), you don’t need to put 20% down, 5-10% will do, don’t worry about the P.M.I. ( your stepping over dollars to pick up dimes), and chill out. If it goes down and somehow you are upside down , then you are a renter until it comes back- walk away if it suits you.
November 21st, 2008 12:59 am
Hey Nathan,
I understand your anger. I really do. We all bought in to the frenzy of real estate. But I do know that people were sounding the warning signs a long time ago, we just weren’t listening. Probably because times just seemed so good! But that still doesn’t make us a victim. We could have done the math and realized that if prices dropped we couldn’t afford to stay in our house. YES, it is the banks fault that things got out of control, but yes it is your fault that you can’t pay off your loan and didn’t realize that everything was was over priced. You can’t blame realtors, builders, and mortgage brokers, they just sell things for a living. Like the person that sells you a shirt at a store. It’s the banks fault for blowing up the balloon, and its your fault for buying into it. There were alot of people who were tempted, but didn’t take the bait.
November 21st, 2008 10:41 am
I think that the old addage, “Fool me once, shame on you. Fool me twice, shame on me.” is really applicable today. I do think that most people who bought during the bubble are culpable but virtually every single person involved with selling hosues at completely ridiculous prices is also to blame. The thing to focus on though is not who was to blame for what has already transpired, but preventing getting fooled again. This should be heeded by everyone who is approached by their lender to accept a modification on their property. I think that there will be much less sympathy for people who claim to be victims of their modification in a couple of years when they realize their new crappy RECOURSE loan on a depreciating asset is too much to bear.
November 21st, 2008 11:22 am
The prices were not rediculous given the financing involved. At the time they got the loan they could afford it.
Exotic, interest only, stated income 100% loans were branded as industry standard. They pushed the value of all homes up across the nation. Prices are what they are. Affordability was out of control due to this financing that the banks had to know could cause major problems. Now all that financing is gone and affordability has dropped by 75% and housing prices are following.
November 21st, 2008 11:38 am
Everyone needs to remember one thing in the future. If you are financing anything in the future, only have a fixed rate and a fixed pmt. I don’t care if it is a car, house, whatever. Fixed rate with constant payments that never increase…It’s that simple…If you have to sign a loan with initially lower pmts that grow over time, YOU CAN NOT AFFORD IT!! I repeat YOU CAN NOT AFFORD IT!! “But what if I think prices are going to go up over the next……….” NO!! I REPEAT AGAIN. YOU CAN NOT AFFORD IT!! LOL
November 21st, 2008 11:45 am
As a matter of fact, home prices are more expensive today relative to affordability than they were back in 2006 when you can do 100% stated interest only.
November 21st, 2008 12:25 pm
Hi Partyboy,
Too many bong hits at the frat house? Dude? You say,” virtually every single person involved with selling houses at completely ridiculous prices is also to blame”. By that I think you mean, Realtors, Lenders, Appraisers, Building Inspectors, Title Companies, Insurance Companies, and by extension the owner/sellers as well.
So, explain this to me, if you (partyboy) buy anything, anywhere at anytime for $100k and you are fortunate to see the value, in a free market, go up to $200k, what will you sell it for? Less than what you can get? Really? Out of pure altruism you’ll decide that the market value is just too much and you’ll give the buyer a break? How much? $180k, $160k, why not $100k (that’s what you paid)? Maybe you should insure the next guy against any erosion in value? When you cash a $100 check at the bank, do you say to the teller, “just give me $80, the U.S. dollar is artificially overpriced by those money traders, in good conscience I can only take $80″. How noble, such lies.
No,actually you wouldn’t do any of these. When you sell your newly minted $200k house you will call up a Realtor and you will review the comps and they will show $200k makes sense. Again, you won’t tell the Realtor $180 will do, I’m the nicest guy in the world, I am Santa Claus. Actually you will try for more. The Realtor will take the listing, it makes sense. The buyer that has decided to buy now has looked at a lot of homes. Generally, buyers know value pretty well. Remember they are looking at all the competing homes in a given area. So, the buyer- in a transparent, arms length transaction comes to realize that ,if they are buying now, they should expect a certain range. It isn’t hard at all. So, the buyer buys for $200k (of course he would pay less if he could, but just can’t find that sweet deal). The appraiser looks at the same comps. It isn’t hard, a child could do it. The comps show $200k is good. And so it continues in a hot market, what seller wouldn’t take more, if the appraiser refuses to appraise for more as prices rise (because he has a crystal ball and has arbitrarily decided that prices are about to fall) then that would truly be unjust.
Now , you apparently require prescience from the people you do business with. Maybe your doctor should predict the day of your death, your attorney should say,”let’s skip the trial, I already know how this ends”, when you go to college, your counselor should predict where you will work, how much you will make, with precision. So on and so on. Partyboy, get a grip, you are an American, you should understand capitalism, supply and demand baby. With your logic you must be a terrible businessman.
You know enough to discern some things about the marketplace, until it doesn’t work out for you, then it must be someone elses fault. People like you shouldn’t invest in anything, you don’t get it, risk & reward. I know, I know, you will take the reward, just not the failure and then in failure you will talk like you wouldn’t have taken the windfall profits of the reward.
Pigs eat, hogs get slaughter. And that’s what has happened to all you babies.
November 21st, 2008 12:44 pm
The prices absolutely were ridiculous. The exotic loans were an enabling tool to justify the jacking up of prices and orchestrate the facade of affordability. Too much focus, well virtually all focus, was being given to the monthly payment over the first few years instead of looking ahead and determining whether probably pay increases would allow for long term performance on the loan. I guess that if you are considering only immediate affordability you can make a case. But long term affordability was out of the question for most people given the cost of homes in 2006. No question about it. You may be right about homes being less affordable today than in 2006, but ONLY if you restrict your arguement to a snapshot of immediate cost. Any loan which has a teaser rate and will reset is undoubtedly going to become unaffordable or at least negate the benefit of owning a home during an inflationary time. When we hit a stretch of hyper-inflation in the next few years, homes bought now at a fixed rate will become much more affordable. Even if we do have a very high rate of inflation, I think it is unlikely that the toxic loans resetting to very high rates will be any more affordable than they are today.
November 21st, 2008 1:15 pm
Partyboy,
You don’t know, oh great predicting one. If your foresight is so great and your snapshot of the market at all times, so sound. Why would you have anyone to blame? You know more than they anyway. Maybe you should have worked diligently and tirelessly to inform the so-called real estate professionals of the impending disaster, oh oracle of all things financial.
November 21st, 2008 1:47 pm
It is not a prediction so much as it is a reference to what the govt has done in the past to try to compensate for massive debt. I certainly don’t have a crystal ball, but I think it is very likely that the govt will print more money which in turn will cause inflation. If we have inflation, prices will go up along with wages. If you have a fixed rate mortgage, it will not increase will inflation and relatively speaking, it will be more affordable. If you have an adjustable rate loan, and your mortgage payment increases along with everything else, it will effectively remain the same. This is not rocket science, just a bit of common sense. But as is everyone’s predictions as to what will happen, it is no more than an educated guess.
November 21st, 2008 2:13 pm
this is awesome- lets keep fighting each other -that solves everything- do you feel better now?
The bailout has happened- so save your “no bailout” breath. While you sit here and argue the gov. is handing our tax money to the same people who created this mess. If you’re not gonna be a part of the solution just shut up!!
November 21st, 2008 2:33 pm
How about this?
A+ 2/28 XP Full Doc 40/30 1st
6 Month LIBOR – What’s a LIBOR??
Margin 6.99%
Ceiling 15.95%
1st Rate Change 24 months 3%
Regular rate change 6 months 1.5%
No prepayment penalty (how generous)
November 21st, 2008 3:00 pm
Baboo, I just saw your first post so I will respond to it. My previous post was written without seeing your original.
You are partially correct in saying that I feel that all of the people you referenced had a hand in the the over inflation of the market. I think the people to blame are the buyer’s agent, and everyone involved with funding the loans. Not the home inspectors, not the seller’s agent and certainly not the seller. But the seller is hands off in the transaction and the rest of them skew numbers, help/encourage the buyers to exaggerate income (which is also the buyer’s fault, absolutely), and say just about anything to help their commision get bumped just a little higher. Because all of the people working the transaction get paid based on closing the deal and the amount it closes for, many of them (not all) were financially tempted into what basically amounts to fraud. And while I do put some of the blame on them, I get it. It is a self-serving move to try to get the buyers approved when you know they shouldn’t be because it makes you more money. Serving yourself is the driving force behind capitalism and I think that it is great. But not when you have to lie and cheat to succeed.
Your second paragraph is predicated on your false assumptions in the first so I won’t address it except to say that I would sell at the highest price I could, just like anyone else. I have no problem with the seller’s agent trying to get the most they can for the house, but when the buyer’s agent also gets a bigger payday when the house sells for a higher price, you have a conflict of interest.
To address your last two paragraphs, I would like to let you know that I don’t expect prescience from people I do business with but I would expect that if I was buying a home, MY realtor would be acting on MY behalf and would be willing to give sound advice. I don’t think that is too much to ask. It is a very poor financial model to have a person representing you who makes more by getting you a worse deal. This is not necessarily the realtor’s fault, but it does open the door to corruption.
I actaully find your comments pretty funny and would be somewhat founded if you had made correct assumptions. However, I do not feel victimized in this market and I never have claimed to be. I do just fine for myself now and will be fine when this is over.
November 21st, 2008 3:11 pm
Baboo,
I forgot to admit, stating that “virtually every single person involved with selling hosues at completely ridiculous prices is also to blame” was an overstatement. You are right about that. It was a bit much.
November 21st, 2008 5:32 pm
Partyboy,
O.K. but only slightly maybe.
Here is the deal. I am a Realtor in St.Louis. I have represented buyers and sellers in nearly 1000 transactions. I have owned 35 foreclosed properties that I renovated and sold. I only own my personal residence now and probably won’t buy investment property for 6-12 months, it is a little difficult to forecast the market and make good decisions right now when you are flipping. As a personal residence purchase it is not as tough here, but a buyer & agent better do their homework and get the better side of the deal.
Now there are all kinds of people in real estate, some good, some bad, some competent and some are really nice people but incompetent as well. Compensation in real estate has been evolving since I became a real estate guy in the mid-80’s. And although imperfect, it works pretty well. To your notion that the buyer’s agent has an incentive to run up the price and sell out their clients and ignore their fidiciary responsibility, I will say this. I am sure some guttersnipes will do just that- very few will do it often. I am sure some agents are so greedy that the extra $15-$30 bucks they make per thousand is worth their integrity. But, I , and almost all of the people I know don’t work that way. Whether you believe this or not doesn’t particularly matter in this diatribe. But, when I am working with a buyer, I treat the deal like I am the buyer. It really isn’t that hard. It can be exciting to see a buyer bring the seller to reality and get the property at a price that makes sense. Imagine I lose $30 bucks per thousand, and since the buyer trusts me and thinks I am competent, I get the listing some time later and I make $9k and my buyer now a seller makes money and life is good.
So, I don’t know what Realtors have apparently done to you. I suspect you may be hanging with the wrong cats. Also, what I think you are experiencing is a unique market- probably Southern Cal. and we are not talking the difference of $5-10k. Rather, you guys are losing $100-400k on houses that were purchased from $400k-1 million. I don’t know California well, maybe a little San Diego. I have family and friends in R.E. in Vegas. So, I have a pretty good idea of how outrageous things are there in that region. In a normal market being a little off , say 3-5% , is commonplace- poll 100 people and your confidence interval will be just that. What you are experiencing is a market shift of biblical proportions. You seem to think that when you or others decided to buy, your Realtor should have been able to say “don’t buy now, in a year this property will be down $150k-300k”. How would they know that? In Vegas, in 2003- I and everyone else was amazed at the market and no one knew where it would top out. We talked about bubbles, everyone talked about bubbles. We talked to our clients about bubbles. But, if you thought it topped out in 03 , you would have been wrong and you would have looked like Chicken Little and your client(still on the sidelines) would be upset, feeling they had missed the boat. Builders have the most acute sense of the market, they see it everyday in everyway. They are usually the first to get it. They didn’t. Some of the big ones, like Toll Bros. made 100’s of millions, and now they are giving some back. The grand architect of Levittown,(Levitt Bros,)filed for bankruptcy after 80 years of biz this year. So, I think you approach this buyer’s agent corruption too simply. I’ve actually told people while negotiating an offer that they should wait, the seller demands are unreasonable, wait through the holidays or whatever, they’ll (the seller) will get lonely and wish they had been more reasonable. Some are willing to wait and succeed just this way, others are not- they are fearful someone else will buy it, or they are just motivated to do it now. So, what is an ethical Realtor to do, tell them they can’t buy- like I’m their daddy. I suspect alot of So.Cal. deals transpired just that way. The whole question can be turned the other way, Sellers sometimes feel their Realtor wants to get the price too low. Because, afterall, their agent only gets paid if they sell it at some price. Suddenly the notion of an extra $15-30 bucks per thousand evaporates in the equation ( do you see that) poof.
At times, I’ll tell a seller to hold their price, wait, don’t drop so much, so fast- sometimes they are good with that and sometimes they are, in fact, to fearful to lose the deal. What’s a brother to do? Seems to me I’m supposed to give my honest,educated take of the situation and it is theirs to tell me what to legally do. Here is a real world take of pricing opinions from high to low:
Sellers
Appraisers
Realtors
Buyers
Here is why- sellers have a harder time handling the truth, they are often in denial, buyers, realtors, everyone ignores what they put into it, plus they are paying a commission the size of a brand new Lexus. Also, sellers almost always underprice repairs needed. They lived with the leaking faucet why should’nt the next guy.
Appraisers- the numbers don’t lie, during a given time frame. The weakness of an appraiser is they don’t forecast anything. They are always in the past. But, unless the numbers are at least 5% out of line (probably more) they will ratify it.
Realtors: they know it has to sell to someone, and just about nobody will pay more than the comps, and usually a buyer will fight for less. They are in the market everyday, they know the stories that go with the numbers. In truth, and in general they have the most accurate viewpoint. So, many of them are just plain idiots that you have to be careful.
Buyers: the world is their oyster and they have the luxury of being flippant and unreasonable. They almost always undervalue property and almost always overprice repairs.
I don’t know for certain why so many buyers ran through all the stop signs. Especially, like I say, in Vegas (not here so much). But, my guess would be they were afraid to miss out. In the end houses are a commodity. If I invest in stocks and lose 100 grand no one is going to cry for me and no one is going to say I was robbed. But curiously, people are trying to do that with homes. Nobody forced anyone to buy, in Vegas a person could have rented. But remember, most of these people had no real savings. So, they could continue to rent without saving as they already had, or buy before the prices went up $150k in a year. I know these people first hand, they have a curious stupidity about them, they want what they want when they want it. You could not talk to them, no empirical evidence would do. And why didn’t the 02 buyers sell and then rent in 04. You can lead a horse to water…
And finally, sometimes a buyer’s agent should be telling the buyer to pay more. In the hot, hot market of 2003 I had a buyer, wanted to buy now, didn’t understand the market that I had prepared him for. Didn’t really believe it. So, I told him with clarity that he needed to offer more. Was I trying to make an extra $300 bucks? No, he wanted the house, I wanted him to have what he wanted. The seller didn’t
need his lousy offer. Others would pay more.This buyer was crestfallen
So, again, your notion is an oversimplification. Buyers, sellers, realtors, we all have opinions about the macro and micro ways we are pulled and prodded in a deal. But your notion that the buyer’s agent didn’t do their fiduciary job and that’s why people lost $300k is way more often than not, simply false. A complete idiot cannot make a $300k mistake because an agent didn’t forecast the market. Only an complete and greedy idiot can do that.
Also, sorry about the bong hit joke. I thought it was funny, but, it was probably wrong.
G’day
November 21st, 2008 6:08 pm
Hey admin,
I just came back and saw your affordability comment. You still have to understand that if you are in an interest only loan, you are a renter not a buyer. So being able to afford only interest and having no actual pay off date where you own the home free and clear is not even to be used as a measure of affordability. If you think that paying interest only is actually buying a home, then you still do not understand the problem. That is the flawed math that was used to cause the problem. So I will repeat my point….If you can’t pay fixed regular never to change payments and own your home free and clear of all loans in 30 yrs, then you can not afford the home. period! No exceptions!! Any financing that doesn’t end with you owning the home free and clear of loans by paying steady never to change (Variable, ARM’s, etc)pmts, is not buying a home. It is renting from the bank.
November 21st, 2008 6:41 pm
Partyboy,
Oh and by the way. I’m uncertain what you mean by skewing numbers. When I sell a house, the buyer wants real market activity ; comparables, mnarket history, under contract properties etc. Nothing is skewed, everything available to me is available to them-unfiltered.
Also, the market data in my M.L.S. is rarely inaccurate- easily confirmed by comparing The County tax records to the listings. Easy as pie.
As,to aiding a buyer in defrauding lenders- you must be hanging with the wrong cats, cause some of those folks are going to Federal prison.
Of course, there is a percentage (very small) of ne’erdowells that will engage in this activity. I can’t imagine anyone really doing business that would have a reason to commit a felony for a deal, large or small.
Partyboy, I think your perview on this matter is strikingly limited. You seem to think that “real” real estate people are so hungry for deals that they will do anything to cobble them together. They won’t. There is plenty of good business in any market, up or down. Are you projecting your own negative ideas on reality? I wonder?
Remember, if someone asks you to break the law, run don’t walk. Look for a different brand of Realtor than you currently seem to know. It isn’t hard to confirm that a person has your interest at heart, it takes some time, but, anyone decent in this biz can find enough time to communicate their sincerity and back it up.
Over and out
November 21st, 2008 7:44 pm
Words of Wisdom…
A Buyers agent is NEVER working on the buyers behalf, they are working on the AGENTS behalf
November 21st, 2008 8:46 pm
Javagold,
I am not accepting “words of wisdom” from a guy whose main claim on his financial resume is that he lost $100k on his house. I don’t know how people do it, wow. I’ve owned 38 houses total, made plenty on 37, lost $500, that’s five hundred U.S. on one. You know, the market crash has been brutal- I lost $500 bucks- it’s eatin me up inside.
I mean, I want financial advice from someone that’s making good deals.
I had a friend in real estate once and he said it like this,”you don’t have to have a nice car to sell real estate but it helps. See if you pull up in a 92 Accord with the muffler hanging by a wire, faded paint,broken antenna, and a crack across the windshield ; a reasonable person has to ask- if this guy can’t take care of himself, how can he take care of me”.
It’s the same with Javagold- he lost $100k, but he has all the answers.
November 21st, 2008 9:07 pm
Javagold,
Sorry, that was too harsh, uncalled for. I am sure it would be tough to have lost money that way. I just don’t get the conspiracy. Anyway, please accept my apology.
November 21st, 2008 9:42 pm
baboo,
i understand some of what you are saying. some of it seems true the rest not certain. you should show more sympathy for the circumstances of others.
November 21st, 2008 9:50 pm
Jugdish,
You are right, I should and actually I do sympathize. My, hyperbolic, overstated rant is a reaction to , what I consider, the unfair scapegoating of Realtors. I think most people lost money because of bad timimg, overextension and the mother of all crashing markets. Most people made money because of good timing and the mother of all up markets. Not because one was smart and the other not.
But, I will tone it down. I’m not exactly Warren Buffet either.
Mahalo,
November 22nd, 2008 1:22 am
Baboo, I Never said anything about conspiracy, just the agent has his best interest at hand, if he didnt, i would think he is a moron ….as for my financial resume, unlike you i dont need to brag, but its a good looking one and realtor would never even come close to being on my resume, even as a referal……you just keep overcharging your 6% and enjoy your current status, of now below used car salesman
November 22nd, 2008 2:56 am
When you look at the bigger picture, you’ll see that this goes far beyond housing or mortgage adjustments. Has anyone wondered how the stock market could go from 2500 in 1990 to 11,000 by 1999 (a 440% in only 9 years)? Then on to 15,000 in 2007. How about oil going from $30 to $147 in 4 years? …while you’re at it, take a look at gold…or ANY commodity. Astronomical housing prices were just another consequence of the U.S. policy to keep spending way beyond its means through deficit spending and pushing the consumer to spend, spend, spend to keep the economy growing at all costs.
This is 30 years in the making and now ALL asset prices are rapidly deflating. It’s just the beginning of what is called DE-flation and it’s caused by excessive credit expansion. Money from here and abroad was pumped into the U.S. for ‘investment’, but there are too many dollars (credit) and prices of all assets had no choice but to go up. The bubble has finally popped.
This economy cannot be fixed through adjusting any mortgages; only through a dramatic change in economic policy (stop deficit spending!!!). All of these ‘bail-outs’ are like giving the alcoholic more alcohol to cure his hangover. It’s only going to get worse when the Obama administration decides to continue its deficit spending (a projected astounding $1 TRILLION).
Buckle up — it’s going to be a long, bumpy ride and probably the end of the U.S. as the global superpower within 7 years. (see Japan)
November 22nd, 2008 11:04 am
Everyone is seems to be getting on the bandwagon for reducing principle and/or other forgiveness antics because “the devil made me to it” (over bid for a home in a frenzy of excitement).
The same logic applies to all forms of crime. If you were greedy and stupid enough to bid up home prices in hopes of “fast money” and buy it under any conditions, you fully qualified to accept all of the the downside benefits of “no money”. Get a grip on life! The banks, hedge funds, investors are getting exactly what they wanted….risk/reward. They took the risk and now they are benefiting from the rewards. Spend money you did not have. The Grim Reaper is knocking.
November 23rd, 2008 12:00 am
Tommyts,
Would unburdening ourselves of superpowerdom necessarily be a bad thing?
Maybe it would be nice to be little like Australia, a little outside historys’ crosshairs.
What say you?
November 23rd, 2008 3:03 am
‘Superpowerdom’… I like that turn of phrase.
Worry not that we should ‘unburden’ ourselves of the aforementioned status. It’s going to happen whether we like it or not, because when the screw turns (on or about next spring by my watch) and the countries with savings, surpluses and natural resources developed and ready to export, decide they’ve had enough of our bonds and want to spend down what they got… Well, you get the drift.
Mortgage crisis? Wait until this phony dollar rally turns over and what was a liquidity/credit crisis, turns into a Currency crisis.
Oh my…
Don’t have an answers? Here’s one:
Domestic Manufacturing.
That would be a nice fallback to this maelstrom of economic decay. Problem is, there isn’t any. What are 50k+ people from Citi gonna do – get a ’service sector’ job…? GM employees? Buffet’s insurance companies?
By the way, wasn’t it sweet that the wise old sage who coined the term ‘Weapons of mass financial destruction’ in regard to credit derivatives, just got $30B haircut from the little do-wah-diddy with said instruments via Goldman?
Nice.
28 years folks. 28 years of borrowing and spending is coming to an end. It took a long time. For many throwbacks (such as myself), you couldn’t argue the ’success’ of the past couple of decades – especially when it was rip-roaring. But the underlying fundamentals of the economic grim-reaper will not be denied any further.
- Loss of manufacturing
- The advent of borrow & spend vs. save & produce
- Balance sheet economics trashed for Debt-based economics
- Fast money & phony wealth preferred over laying one brick of wealth at a time in the mortar of time-tested fundamentals.
Let us hope that we can pull together and preserve this Republic through what is dead ahead. If we don’t, the last thing you’re gonna be worrying about a year from now is a mortgage -
Peace -
C.C.
November 23rd, 2008 8:10 am
[...] here for the full [...]
November 23rd, 2008 2:59 pm
C.C.
Well said. Still we have a well educated population- lots of dummies too, I’ll admit.
I know we rank low in international rankings, math scores etc.
But, we have a huge population with large swaths pulling down the average. But, once you get to college, the cream rises. At least nearly everyone can read. We still are a fertile land for innovation. I know the Chinese will land on the moon soon, but they have complex problems as well. The Russians still abuse their citizens. The Europeans are overwhelmed by the nanny state. India, for Chrissakes, you think we have problems. We still out produce the larger European Union, by a lot.
I know there are benefits to being numero uno. But, it seems to me, Great Britain has gotten along quite nicely without an empire.
November 23rd, 2008 6:43 pm
baboo
GDP 2007 per IMF
European Union $US 16.8 TRILLION
United States $US 13.8 TRILLION
We are not big guy on the block anymore.
November 23rd, 2008 7:42 pm
Hi BertDilbert
What is the population of the EU?
November 23rd, 2008 7:45 pm
BertDilbert
Wikipedia says, 500 million. And, of course, it’s not the United States of Europe. Just a thought, well, two anyway.
later
November 23rd, 2008 8:10 pm
TO ELIMINATE ALL NEGATIVE EQUITY FROM ALL HOMEOWNERS AT 60% OF THE MARKET PEAKED WOULD COST 1.473 TRILLION DOLLARS OR
THE REDUCTION OF 30 COMPENSATION PACKAGES OF THE CEO’S OF THE FINANCIAL COMPANIES THAT CAUSED THE MESS.
PROBLEM SOLVED
November 23rd, 2008 8:37 pm
Susan Day Minerly,
That was easy. Are you saying the 1.473trillion/30= CEO packages? Is that right?
November 23rd, 2008 9:13 pm
YES TO ELIMINATE NEGATIVE EQUITY FROM EVERY HOMEOWNER EQUALS REDUCING THE COMPENSATION PACKAGE OF JUST 30 CEO’S TO $500,000
I DON’T EXPECT THEM TO WORK FOR NOTHING.
TO TAKE IT ONE STEP FURTHER, CAN YOU IMAGINE THE SHARE-HOLDERS PROFITS FOR THESE SAME COMPANIES, IF ALL SALARIES AND BONUSES WERE REDUCED TO PERFORMANCE(MAKING THE COMPANY A PROFIT ) VERSUS COSTING THEM MONEY.
November 23rd, 2008 9:49 pm
[...] and Freddie suspend foreclosures to Jan 2009 Japan economists call for ‘Obama bonds’ The Great Mortgage Modification Pump American taxpayers are getting [...]
November 23rd, 2008 9:53 pm
Susan, you need to work on your zeros.
http://www.forbes.com/lists/2008/12/lead_bestbosses08_CEO-Compensation_Compen_Total5Yr.html
But I do think shareholders and boards of directors are foolish for allowing executive compensation to reach such silly levels.
November 23rd, 2008 10:56 pm
30 x 50 billion = 1.5 trillion
that would be the net worth of 30 Warren Buffets. We don’t have 30 CEO’s with that net worth and your only talking compensation not net worth. The numbers don’t add up even if you took everything they owned, that means everything, golf clubs, lava lamps, massage chair, baseball card collection, autographed pictures with Bob Rueben, Robert Reich and Ben Bernanke playing monopoly with a Labrador Retriever, a dachsund, and a chihuahua.
1,500,000,000,000 is a very large number, 30 peeps can’t make it up.
More likely to pay it off with those Salvation Army Kettles. If negative amortization is ever paid off, which it won’t be, I’ll be wishing I had purchased that $6,000,000 fixer upper in the Hamptons that I couldn’t afford the utilities on. Maybe, make two payments and wait for the Salvation Arny Calvary to come save me. Sweeeet!
November 23rd, 2008 11:00 pm
GREEN,
MY APOLOGIES FOR RUSHING WITH THE COMPENSATION NUMBERS, IT SHOULD HAVE BEEN REDUCING JUST 30 CEO’S COMPENSATION PACKAGES EQUAL 1.473 BILLION DOLLARS, NOT TRILLION.
THERE IS ALMOST 11.3 TRILLION DOLLARS OF OUTSTANDING MORTGAGE LOANS OF WHICH CURRENTLY APPROXIMATELY 9% IS DELINQUENT. I USED 33% OF THE OUTSTANDING LOANS ARE UNDERWATER OR CLOSE TO BEING UNDERWATER TIMES 40% REDUCTION TO THE MARKET PEAKED EQUALS 1.473 TRILLION DOLLARS. IF IT WAS 11.3 EXACTLY THAT WOULD MAKE THE COST TO CURE 1.492 TRILLION DOLLARS.
I AM QUITE SURE THAT IF THE SHAREHOLDERS AND BOARD OF DIRECTORS OF EVERY COMPANY REDUCED THE SALARY OF EVERY CEO ALONG WITH MIDDLE AND UPPER EXECUTIVES, TO MATCH PERFORMANCE QUITE A BIT MORE MONEY WOULD BE FOUND.
THANK YOU FOR THE WEBSITE ON CEO’S, DO YOU KNOW ANOTHER ONE THAT SHOWS EXECUTIVES SALARIES? IN ONE OF THE ARTICLES ABOUT CITI, IT SHOWS THAT THREE EXECUTIVES RECEIVED SALARIES OF 92 MILLION DOLLARS A YEAR. OKAY, THEY ARE BEING LAID OFF BUT STILL HOW MUCH IS STILL BEING PAID OUT DURING THIS TIME?
AGAIN MY APOLOGIES AND THANKS FOR CATCHING IT.
November 24th, 2008 12:32 am
Green,
Did the aforementioned CEO’s break a law? Did their boards legally authorize their compensation? Does Dick Cheney have his own batcave?
November 24th, 2008 2:39 am
Proof positive that we have not had deep enough recessions (deep enough) along the way is look what has happened to executive pay. Watch how attitudes change as we move forward. Anything that appears wasteful and extravagant will get signaled out and it will become politically incorrect to be insensitive to the plight of fellow Americans.
Oh and if you do happen to be in that upper 90% tax bracket and prone to showing off, ditch the luxury car for one that says “I ain’t got no money, find someone else to rob.”
November 24th, 2008 3:04 am
EXTRAVAGANT- HOW DOES AN ADDITIONAL 20 BILLION IN CASH SOUND, THAT IS WHAT PAULSON JUST GAVE CITI FROM TARP, BESIDES FOR A GUARANTEE ON THE 306 BILLION DOLLAR PORFOLIO OF RESIDENTIAL, COMMERCIAL AND CHARGE CARDS, ALLOWED TO BE KEPT ON THEIR BOOKS SO THEY REMAIN SOLVENT.
THEY DO HAVE TO TAKE THE FIRST 56 MILLION IN LOSSES AFTER THAT ITS THE GOVERNMENTS OR SHOULD I SAY TAXPAYERS MONEY?
November 24th, 2008 3:44 am
But Susan, Paulson just got through saying they were done…. What can 20 billion do against this?
http://www.bloomberg.com/apps/data?pid=avimage&iid=iotLcq3doU6I
No wonder they were fighting the Autos so hard, they are going to need every penny for the banks….
November 24th, 2008 5:40 am
LETS DO SOME MATH, AND I KNOW I WILL HAVE HELP, SO THANK YOU ALL IN ADVANCE.
THERE IS 11.3 TRILLION DOLLARS IN OUTSTANDING MORTGAGES TOTAL FOR BOTH GSE’S,ALL BANKS, FINANCIAL ENTITIES AND PRIVATE INVESTORS. DO WE STILL AGREE?
NDYMAC, AND THE FEDERAL BANKS INCLUDING BOTH GSE’S HOLD OR SERVICE 60% OF THEM, MOSTLY FOR PRIVATE INVESTORS. DO WE STILL AGREE?
THAT LEAVES 40% OF THE OUTSTANDING MORTGAGES BEING HELD BY ALL OF THE BANKS COMBINED OR THE TOTAL OF 4.52 TRILLION DOLLARS OF OUTSTANDING MORTGAGES BEING HELD BY ALL BANKS COMBINED. DO WE STILL AGREE?
USING THE VERY HIGH RATIO OF 33% OF ALL HOMEOWNERS BEING UNDER WATER OF THAT 4.52 TRILLION DOLLARS, OR 1 OUT OF EVERY 3 HOMEOWNERS, THAT RECIEVES A PRINCIPAL MORTGAGE REDUCTION OF 40% OF THE MARKET PEAK OF BEING “ONLY” IN THE BANKS PORFOLIO’S, THAT IS A TOTAL LOSS OF 1.492 TRILLION DOLLARS COMBINED BETWEEN ALL THE BANKS. THIS IS IF INDYMAC, FNMA, FREDDIE, AND ALL THE FEDERAL RESERVE BANKS DO NOT HAVE ANY UNDERWATER OR DELINQUENT HOMEOWNERS. WHICH THEY SAY THEY DO,HEX THE REASON FOR INDY’S LOAN MODIFICATION PROGRAM, THAT THEY WANT THE GSE’S TO FOLLOW. NOTICE I DIDN’T ASK IF WE AGREED, BECAUSE I KNOW THAT IS TO HIGH A PERCENTAGE FOR THE BANKS LOSS.
1.492 TRILLION DOLLARS DIVIDED INTO HOW MANY BANKS, EXACTLY WHAT PERCENTAGE OF LOSS ARE WE TALKING ABOUT ? IF THEY KNEW THEIR BUSINESS DECISIONS WEREN’T OF SOUND MIND SPLIT BETWEEN OVER 8500 BANKS THAT RESULTS IN LESS THAN WHAT DOLLAR LOSS PER BANK????
IT WOULD PAY TO JUST TAKE THE LOSS AND PUSH IT UNDER THE RUG. THEY ALREADY TOOK WRITE DOWNS OF 666 BILLION DOLLARS, WHICH IS A LITTLE LESS THAN HALF OF THE CURRENT TOTAL OF LOSS WE ARE TALKING ABOUT, THINK ABOUT IT.
NOW, FOR THE REAL REASON, IF IT WAS ONLY ABOUT MORTGAGE INCOME LOSS FOR THEM, THE BANKS WOULD HAVE ALREADY REDUCED THE HOMEOWNERS PAYMENTS OR PRINCIPAL BALANCE IN A HEARTBEAT WITHOUT ANYONE INCLUDING THE PUBLIC BEING THE WISER. WHEN THE DELINQUENCY RATE WAS 4.21% IN 2006, IT WOULD HAVE ONLY COST THEM A MAXIMUM OF 169 BILLION DOLLARS ACROSS THE BOARD FOR ALL BANKS, GSES’, AND INVESTORS BASED ON MARKET VALUES THEN AND THEY WERE FULLY AWARE OF THE AFFECT OF THEIR FORECLOSURES ON THE MARKET CREATING A DEFLATIONARY CYCLE LOWERING PRICES, NOT A CORRECTION, AS WELL AS THE GOVERNMENT, BUT THEY COULDN’T.
THE GOVERNMENT, MAINLY PAULSON, IS TRYING TO PROTECT THE SHADOW MARKET OF CREDIT DEFAULT SWAPS OR DERIVATIVES, WHICH IS A BET OR GAMBLE PLACED AGAINST A PRODUCT DEFAULTING SUCH AS A MORTGAGE BACKED SECURITY POOL. THE SWAP GIVES “INSURANCE” FOR A PREMIUM PAID UP FRONT AND USUALLY MONTHLY GENERATING INCOME WITH A SMALL RISK INVOLVED.–HERE’S THE KICKER THE INSURER COLLECTING THE PREMIUM DIDN’T HAVE TO BE A PART OF THE ORIGINAL OUTLAY OF PRINCIPAL FOR THE PRODUCT, JUST STATE THEY WOULD INSURE IT AGAINST DEFAULTS.
THE PROBLEM MULTIPLIES BECAUSE THE “SWAP” CAN BE SWAPPED OVER AND OVER AGAIN DIVERSIFING OR SPREADING THE RISK BUT NOT THE PREMIUMS PAID, IT GETS PAID AGAIN AND AGAIN TO DIFFERENT INSURERS. CITIBANK AND JPMORGAN ARE TWO OF BIGGEST INSURERS. LEHMAN HAD ALOT BUT WASN’T IN THE TOP 10 INSURERS. SURPRISE AIG IS THOUGH.
SINCE CREDIT DEFAULTS SWAPS ARE NOT REALLY BANKING OR INSURANCE OR TRADING NO AGENCY IS IN CHARGE OF THEM, THERE IS NO REGULATION OR REPORTING BEING DONE, IT WAS JUST A WAY TO MAKE PROFITS WITHOUT THE PUBLIC BEING AWARE, NOR A PART OF.
THE GOVERNMENT DOES NOT EVEN KNOW THE NUMBER OF CREDIT DEFAULTS SWAPS INVOLVED BUT IT IS ESTIMATED TO BE FROM 50 TO 70 TRILLION DOLLARS BASED MOSTLY ON VARIOUS MORTGAGE BACKED SECURITIES OF 11.3 TRILLION DOLLARS AND IT ALSO INCLUDES COMMERICIAL MORTGAGES, CREDIT CARD CHARGES AND BANK OPERATING EXPENSES THAT WERE PACKAGED INTO CDO’S OR SIV’S.
I FEEL LIKE I AM EXTREMELY FAIR, SOMEWHAT SMART BUT I CAN NOT FIQURE OUT HOW TO REPAY ALL THE CDS AND DERIVATIVES WITHOUT QUITE A FEW BANKS CLOSING, UNLESS THE GOVERNMENT TAKES A STEP BACK AND ALLOWS FOR A GENERAL WASHING OUT TO BE DONE, WHICH WILL CLOSE QUITE A FEW BANKS ANYWAY. * LEHMAN HAD A MASSIVE AMOUNT OF CDS AND MOSTLY THEY WASHED OUT.
IT IS MY OPINION THAT NOT ONLY SHOULD ALL SALARIES, BONUSES AND COMPENSATION PACKAGES OF ALL MIDDLE AND UPPER LEVEL EMPLOYEE OF ANY FINANCIAL ENTITY INVOLVED WITH MORTGAGES OR CREDIT DEFAULT SWAPS INCLUDING DERIVATIVES BE REDUCED, THEY SHOULD BE DAMN GLAD I AM NOT AN ATTORNEY LOOKING TO PRESS CRIMINAL CHARGES FOR TRYING TO BANKRUPT THE USA FOR THEIR PROFIT.
SECONDLY, THE GOVERNMENT SHOULD MANDATED THAT ALL HOLDERS OF ANY SECURITIZATION VEHICLE USED FOR UNDERWATER HOMEOWNERS OR ADJUSTABLE MORTGAGES WILL BE REPLACED WITH A NEW MORTGAGE LOAN THAT HAS BEEN REDUCED TO 60% OF THE MARKET PEAK VALUE DEPENDING ON THE AREA, ENSURING A POSITIVE CASH VERSUS A FORECLOSURE, USUALLY A POSITIVE CASH FLOW IS GREATER THAN A PAID OFF FORECLOSURE AT LESS THEN 60 CENTS ON THE DOLLAR, THIS WOULD INSTILL CONFIDENCE TO THE MAJORITY OF CONSUMERS AND THE RETURN OF INVESTORS TO THE MARKET, NOT JSUT THE ELITE FEW OF THE ” CREDIT DEFAULT SWAP” PLAYERS THAT JUST KEPT RE-ISSUING INSURANCE FOR PREMIUMS PAID.TRANSLATION- BANKS WOULD HAVE TO FOLD OR MERGE BASED ON THEIR PAST BUSINESS DECISIONS.
WELL I WROTE AWHILE AND I AM SURE I HAVE IRKED A FEW PEOPLE, SO LET ME SAY IN ADVANCE I AM SORRY BUT YOU REALLY SHOULD STOP AND THINK ABOUT THE BIG PICTURE.
IF YOUR THINKING CAME UP WITH ANY GREAT OR EVEN GOOD IDEAS OUT OF THIS MESS, PLEASE LET ME KNOW.
November 24th, 2008 6:03 am
Susan, this just came out November 13, ending June 30th, update on derivatives from the BIS. Little change in notational value on CDS’s
Over 50% Jump in market value to almost 3.2T
http://www.bis.org/statistics/otcder/dt1920a.pdf
November 24th, 2008 12:19 pm
baboo:
I’m in competition for the most laissez faire poster on this thread. I certainly hope I didn’t give the impression that I’m in favor of government regulation of executive compensation — I’m not. That said, I reserve the right call boards “silly” when they everpay their executives.
Anyhow, to answer your questions:
>> Did the aforementioned CEO’s break a law?
Probably. Almost everyone does (jay-walking, speeding, etc.) Oh, you mean criminal acts? Probably not
>> Did their boards legally authorize their compensation?
In all likelyhood.
>> Does Dick Cheney have his own batcave?
Yes, it’s quite nice. I was at a rave there last week and let me tell you, the old man can dance.
Susan:
I don’t know, offhand, of a site the lists compensation for other company officers. But since that information is available from the sec filings of public companies, I’m guessing there is such a website.
November 24th, 2008 12:28 pm
“IF YOUR THINKING CAME UP WITH ANY GREAT OR EVEN GOOD IDEAS OUT OF THIS MESS, PLEASE LET ME KNOW”
Greetings Susan,
Here now, the ‘big’ picture. We have had almost (30) years of borrow & spend economics. Much of it NOT for capital expenditure to produce goods for internal consumption and export.
The fear in your posts Susan is palpable, but not unreasonable. Many share this fear. My reason for tension lies in the social ramifications of events unfolding now. In short order, those will supersede economic fears as the demographics and disparate value systems therein, begin to clash under the common burden of hard times.
Good ideas? The first place to start is to shuck off any notion of trying to scurry up a quick fix by way of CEO/upper management redistributions. Nice fantasy, but not reality.
Short answer? Healing will take place when domestic manufacturing again reigns supreme over ‘outsourcing’ and the middle class begins to re-emerge. The problem is, we’ve had over a generation of ‘offshoring’ to a degree where most people under 40 years of age think that sending your manufacturing off to rock-island nations while your natural-resource blessed land lies dormant because government intervention, bureaucracy, special interests, eco-freaks, political correctness and all other maladies of a generation lacking a good ass-whipping, have come to dominate the economic thought-process, is the norm.
It isn’t. And we’re getting our collective ass-whipping now.
The ‘rant’ above is necessary because to discuss the matters at hand in the context of a few simple years is misleading and inaccurate. What we’re experiencing now runs much deeper than the ‘mortgage crisis’. And it is very disconcerting to witness a sea of people thinking that there is somehow a quick fix to these problems, or that a single politician with oratory skills can somehow lead the nation back to glory.
Not going to happen.
Baboo is right: We have the people, the skills, the ideas, the resourcefulness and the inventiveness to bring America back to the fore, but it is going to be a long and painful process to get us back to sound economic fundamentals. We didn’t toss our base away for the ‘new paradigm’ in a period of weeks. It took years to get where we’re at now and it will take a portion of those years to regain what has been lost (and in many cases, given away for sake of quarterly earnings reports to shareholders.)
Bright spot?
The new generation of kids is going to be taught to save now, spend much later. Much like we did as recent as the early 70’s.
That in itself gives me great hope.
Peace – (and Liberty)
C.C.
November 24th, 2008 1:16 pm
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November 24th, 2008 3:02 pm
Save the Flippers & C.C.
STF- of course you have the right to call them silly. Not that my approval means anything- didn’t mean to suggest you shouldn’t. Clearly, there has been lots of silliness, in my view.
In any event, I am glad you are not letting these things keep you from getting out to a rave in a cave now and again. Funny stuff.
C.C. you might be smarter than me, so I’ll have to reread your posts. However, I am teaching my child to save and be pragmatic. I am not a Puritan, but that wacky work ethic and resistance to wordly overconsumption , sure seems to work at times ; irons out the rough spots. It has a surprising internal logic that overcomes uncertain times.
I am thinking I might sell my house ( I still have some nice equity) and then reinvest in an Amish village and work as a woodworker through my latter years. Or else, I’ll sell everything and walk the earth, well, after I pay for my child’s college anyway.
November 24th, 2008 3:19 pm
C.C.
Wait, Obama wants us to be a green nation…. That means make nothing and sit back and let the rest of the world ship us their stuff in exchange for dollars. Don’t tell people what has to happen because they get real quiet, don’t want to hear the reality. They would rather things stay as they are.
We will not change until the world tells us we have to.
November 24th, 2008 4:36 pm
So, things always go from bad to worse, much faster than they go from good to better. This is the past of every human now respiring or expiring on this earth.
Now, in that context, many, most-all?, believed in the new economy. Tulip bulbs will heretofore, always be worth more than they were, every man and woman chasing every last dollar, believing they would not be the one holding the bag. If they believed that then the previous guy would have been the last, on and on, ad nauseaum. So, we where a hopeful clan, seduced, desperate and hoping. But, now we believe the worst. Those times, the bubble times were unigue ; these times are uniquer still. Is it a depression, a great depression, the greatest depression. Who knows?
Nobody saw the Black Plague coming. Are we lemmings, shallow, superficial lemmings at that? Some, most, not all. I go into some of the worst and best homes in my town and the most prominent magazine (the one getting read) is People. Don’t get me wrong, I like People too, I’m people who need people. I’m just saying, we are culturally lazy. And so are the French- they just do it better. It’s probably never been much different- These are the best of times and the worst of times. Two big financial stories- Greed, power, opportunity at the top- the demands from the middle class for more growth- at the bottom- sheer desire for the masses to pull themselves into the real estate owning, stock investing middle class; grab the lion by the tail and in a year all homes will be worth $100k more, and now you have a nest egg- problem is many of these folks had no money. The bottom seems a little less honorable to me, the victimhood, no one told them the truth, they didn’t know, they were defrauded. Ouch. The top make a similar claim, no one told them that hubris and greed could make them Maxiavellian misanthropes, they didn’t know either. The difference is, at the end of the day, they will be able to pay their bills. It’s like a rock star drug addict- you can slide the problem under the carpet as long as the money is rolling in. Be a drug addict and a pauper, that’s tough, the problem is truly exposed then.
If you owe the bank a billion, it’s the banks problem, if you home the bank 100k , it’s your problem.
November 24th, 2008 8:51 pm
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November 25th, 2008 8:59 am
This is similar to the burned/gray yard.. just paint it green to look nice/change perception.. but you know the fundamentals are rotten!
Does anyone figure that in a high % inflation (coming, two year away)(or even hyper inflation) ..everything will inflate but hard assets (houses, stocks, etc) .. there will be barely enough money to live!
..but who cares about that.. since this will put a bottom in home prices eventually.. do you not think about the future (your kids).. only think about today.. ?
BOTTOM IN HOME PRICES WILL COME ANYWAY at one point! why try to stop it now? with 2018′tomorow’s money?? and if it fails?? or the pump brakes??
Home prices will go up, after inflation slows down.. and that is 10 – 18 years away.
Here’s my solution besides the BAILOUTS, LOAN MODS:
HELP ALL ALL THE EX HOME OWNERS THAT LOST THEIR HOME GET BACK IN THE GAME NOW (THAT WOULD BE A LOTS OF BUYERS)..
we may create a bottom in pricing then, and we can have a reasonable inflation start now, versus a high inflation two years from now!
November 25th, 2008 9:06 am
MM/admin.. if you believe all loans should be redone during the fraudlent years 2003-2007, then I believe you agree.. that all home owners that lost thier home.. should also get a chance to get back in now, correct? Tell me you see both sides..
November 25th, 2008 9:10 am
Yous server is acting up.. again error 500.. you may want to check the HTTP’s server logs, or your WebSphere’s logs, or what ever Application server you got.. if you need help.. let me know!
anyway, here’s my post again:
MM/admin.. if you believe all loans should be redone during the fraudlent years 2003-2007, then I believe you agree.. that all home owners that lost thier home.. should also get a chance to get back in now, correct? Tell me you see both sides..
November 27th, 2008 2:47 am
Waaah waaah or should I say baaa baaa
We bought a home in 2001 in TX. Moved and did not want to sell for less than we paid, so became accidental landlords from long distance. Eventually sold after spending seveal thousands to clean up after dirtbag renters and took a loss. Yes, took the loss. No bailout. Just humility and lessons learned.
No pricincipal reductions. Foreclosure. No changing the rules as we go along. Take your lumps, no matter what your sob story is, and that is what it is. Life provides lessons, some painful. Learn from them.
November 27th, 2008 1:28 pm
Johnny B……Good
I think you are right.
To others in similar circumstances: I once read a real estate book and the writer said the following–
Never, ever own rental properties more than 30 miles from your home.
Unless, you are real rich, like a $10 millionaire or something, don’t do it.
Good luck, Johnny B. I hope and expect your attitude will pull you through; live to fight another day. Happy Thanksgiving.
December 4th, 2008 10:20 am
I think a possible safe and inexpensive exit is to provide 10 yr mortgages tied to the 10-year TREASURY NOTES (CURRENTLY AT 2.6%). Most people’s life conditions change in 10 years anyways (marriage, kids, more kids, kids leave, job transfer or changes, retirement, up or down income change etc…) all require collapse of the initial 30 year mtg well before it expires. A 30 yr mortgage is a dinosaur product that mostly benefits the mortgage “industry”.
Gov could underwrite 10 yr mortgages at 3% (say) and finance it with the treasury notes sales.
December 4th, 2008 11:44 am
giving away lots of free and clear houses that can be sold for 60k is going to destroy comps and create a black hole
everyone gets sucked in
stipulate they can refi only and cannot sell for less than 100% of appraised value and it might make sense.
December 14th, 2008 12:32 am
My plan would be to have a principle only moritorium.
This would last between 3 to 5 year and would allow people to pay down on their principle to get it to more affordable levels. Then after that period they should be allowed to lock in on a 15 or 30 year fixed low interest
loan.