208 Responses to “Effective Immediately - No Refi’s For Borrowers with Modified Loans”

1. JohnF Said:
   January 12th, 2009 5:56 pm

   Dear Mr. M:

   Please get off the “principal reduction” bandwagon. I would like to purchase a home in SoCal in the next year and would like to have plenty to choose from, instead of getting into bidding wars for the few decent homes available - like the last few years (which I refused to participate in).

   We need more inventory, more walk-aways, more foreclosures - not less. At least in the decent areas of SoCal.

   Your solution will only lead to stupid people who overpaid being able to stay in their homes at the reduced value that I am more than willing to pay. What your solution will do will be to permanently keep me from ever owning home in SoCal because there will be virtually no inventory available.

   Oh, and by the way, I will get to have my taxes raised to pay for the principal writedowns that will lead to the inevitable bank losses that the lead the feds to re-capitalize the banks.

   Does that really seem fair to you?…..really? The responsible people like me pay more taxes to make the banks whole, the irresponsible people get to stay in their homes at lower payments that I could easily afford, and unless I am willing to overbid on the remaining homes available, I am stuck in an apartment until I die, or move away from SoCal.

   Some solution……

2. » Mr. Mortgage’s Guide to the TRUTH! » Effective Immediately - No … » Second Mortgage Calculator Said:
   January 12th, 2009 6:18 pm

   [...] news by unknown « Power to Modify Mortgages Sits Well With Judges - WSJ.com Banks help Bend, Ore., [...]

3. od Said:
   January 12th, 2009 6:29 pm

   I agree. Enough with the smokey mirrors. People have to stop supporting these overly inflated prices. America needs to realize what she really can afford.
   If less than 6% of this country makes over 200k a year, then the prices need to reflect this fact.

   Affordability isn’t measured by how much debt you can hold.

4. od Said:
   January 12th, 2009 6:35 pm

   ..my only follow up question to doing all this is; What IF you get a principle reduction and the prices end up going down further?? Do you get another principle reduction? How about another bailout?

   The lack of accountability in this country amazes me.

5. voltaic Said:
   January 12th, 2009 7:57 pm

   It’s the standard screw the responsible and bailout the irresponsible. And that’s a good question; what if home prices continue their decline after the principle reduction? So the home owner gets to be bailed out when prices go down and then profit when prices go up? It’s a win win for the dumb dumb. There seems to be a complete lack of moral hazard in this scenario.

6. Tony Said:
   January 12th, 2009 8:12 pm

   JohnF, I totally agree w/ you. I appreciate the work being done by Mr. Mortgage, but I am at complete odds w/ his solutions. I have a radical idea, lets open up our immigration channels to allow better, more intelligent human beings to become part of our nation going forward, instead of the freeloaders, con artists, the serial liars, criminals (white collar/violent ones). By taking away other nations’ top talents, we can eliminate some of the outsourcing, keeping our domestic economy going, and fill up these empty homes w/ responsible immigrants who believes in hard work meritocracy. This was the basis to every great city before they get ruined by socialism/fascism. Look at San Fran, LA, NY, Miami, all once great cities, now barely inhabitable to raise a family.

7. Jonathan Said:
   January 12th, 2009 9:55 pm

   @JohnF

   I’m basically in the same boat as you, though I’m in NorCal. I also deliberately stayed on the sidelines during the bubble and waited for it to pop.

   “Your solution will only lead to stupid people who overpaid being able to stay in their homes at the reduced value that I am more than willing to pay”

   Right, that’s exactly what bothers me as well. Not only is the failed borrower getting bailed out, he’s actually getting to own his home for less than the current market price.

   To solve this issue, what I’d like to see is that if servicers make mortgage principal reductions for a failed borrower, the home and mortgage should be offered (as a package) to the market, where the highest bidder can outbid the failed borrower and take over the loan and own the house.

   For example, if my bank reduces my principal from $500,000 to $300,000, any third party should be allowed to buy the home for $300,001 through an auction process. The result is the same or better for the banks — the third party is probably in a stronger financial position than the failed borrower

   From my point of view, this is much less unfair than doling out free money in terms of principal reductions to lucky borrowers and giving them instant equity.

   Of course, my first choice is to let the market work and find the right price for housing. In my area, listing prices are just a small % lower than the peak.

8. Scotty Said:
   January 12th, 2009 10:09 pm

   Guys you are a little rough…

   if a primary homeowner (non investor) purchased a home 5
   years ago and the value has dropped in half….how much do
   you want him to bleed…again non-investor buying his dream.
   If he can afford a lower payment…do not throw him on the street with no credit…if he can afford the payment.

   between the nasty property taxes, soaring insurance, stricter
   codes requiring more investment, doubling water and utilities..that middle class homeowner needs a little help.

   If you want to just completely kill off the middle class for your financial benefit…do so…in the long run you are
   killing off yourselves…we are all part of the same food chain…get real estate stabilized and let it go flat for
   5 years…best thing that could happen at this point. Easy
   to play tough advocate but most people bought homes to live in and not flip..few of us saw a 50% correction and the
   corner you are boxed in. This economy will not turn around
   until primary home ownership finds some stability.

9. GloomBoom Said:
   January 12th, 2009 10:55 pm

   JohnF and Jonathan:
   Don’t worry about stupid homeowners “who overpaid being able to stay in their homes at the reduced value”. Most of the modifications default very quickly and many of the homeowners don’t have credit scores that are high enough to qualify anyway. Both will lose their homes.

   That’s the problem with this madness. You are starting out with a mess and trying to make it work out for the borrower and bank and it won’t work. Principal reduction is the only solution but with housing prices falling, in a year or less you are back in the same situation - upside down in an asset that is falling in value. What a mess!

10. Chill Bear Said:
    January 12th, 2009 11:31 pm

    Yeah, whatever, I’m priced out permanently due to being late middle-aged, and now out of work and unable to take advantage of house prices, at any price.

    So boo effen hoo for me.

    Just don’t see why should care whether people get tossed out of their houses for being stupid.

    Don’t see anyone helping me out for being smart.

    Guess I wasn’t so smart.

11. martin Said:
    January 13th, 2009 12:32 am

    I generally like your site but anyone who supports giving those who made bad economic decisions a “break” is going to battle with me, especially if a politician supports it.

    People who make poor economic decisions are supposed to be punished by the market place.

    By advocating CRAM DOWNS or REDUCTIONS you are effectively advocating rewarding the idiots and preventing me from moving up the economic ladder for making the right decisions.

12. martin Said:
    January 13th, 2009 12:46 am

    By the way,

    Everyone acts as if a Burger King manager making 15K a year who bought a 5O0K house with a liar loan, during the the bubble, is forced to give up his house and rent an apartment instead……….while a responsible small business owner making 70K a year who rented during the bubble because he was responsible, moves into the 500K house that dropped to 200K because housing is collapsing back to reality, WOULD BE A FREAKIN DISASTER!

    Well excuse me, it doesn’t seem that it would be a disaster but the way it should be.

13. martin Said:
    January 13th, 2009 12:55 am

    Jonathan

    I really like your idea. I will spread the idea whenever possible.

    I don’t see any downside.

14. Mike Said:
    January 13th, 2009 1:03 am

    I hate the idea of principal forgiveness, same as the other posters.

15. Dan Correspondent Said:
    January 13th, 2009 1:29 am

    I second Martin’s cheers for Jonathan’s proposal. Anyone who negotiated a principal reduction from their lender could be “outbid” by a third party. Excellent! That’d put the fear of God into homeowners looking to shirk their financial responsibility. Of course, I think that all of these proposals for principal reductions will never be implemented because even the simplest of them is too complicated for an industry as overwhelmed as the loan servicers are. Sorry Mr. Mortgage. You’re brilliant guy, but your “Crams Downs Done Right” plan is going nowhere. If you’re willing to modify my loan down to 28/36 debt ratios, can you wait a week or two until I get a job where I earn half as much money?

    The fact is that we should stop trying to “fix” housing or “fix” the foreclosure problem. It’s all fixing itself just fine already. For that matter, we should stop trying to fix the economy, too. Unfortunately, we get the government we want and the government we deserve.

16. Richard Said:
    January 13th, 2009 1:32 am

    You guys are so smart. Saw the bubble coming and kept out!! I say B.S. Easy now to see with 20/20 hindsight. I bought my house in 2004. It is worth the same now as when I bought it. The reason I bought was I kept seeing houses go up and up and said I better get in before they get too far out of sight. My friends waited a few more years and bought smack at the top. Now they are almost 200k under water. But I still remember the feeling they had that although they thought the prices were high they and you had NOW WAY to tell what the he*ll was going to happen. My point is that not all people were just reckless people. They AND their lender took a risk. The lender should share in the downside and give up some principal to make the loan a better loan for everyone long term. It benefits everybody.

17. mark Said:
    January 13th, 2009 1:33 am

    Johnf You aee a douche bag. You selfish prick you don’t get it. I say we take you in the public square a chope off you head you shitbird.

18. johnnymortgage Said:
    January 13th, 2009 1:47 am

    obviously I’m in the business, and have been a major proponent of principle reductions/wiping out 2nd mortgages, do what ever to temp. keep homeowners in their homes. How easy it is to get something in your head and go round and round with people that it is the only way out of this mess.

    Jonathan - I think you have the best of all the ideas I have heard. Maybe it would get the banks off their asses and start reducing inventory and accepting shortsales and let them be bid on. As a renter in the Silicon Valley for 18 years and the first 18 years growing up here, I’ve watched prices sky rocket, pretty much pricing anyone like me out forever. I want to start bidding!

19. SwanSong Said:
    January 13th, 2009 1:52 am

    I think cram downs can work to favor buyers as well, if owners are free to sell the home at the new crammed down price. This will possibly lead to an increase in supply and instantly bring prices closer to affordability rather then a long drawn out trickle to affordability. Everyone wins.

20. Dick Said:
    January 13th, 2009 1:57 am

    Go East, young man? Californians look for the exit

    LOS ANGELES – Mike Reilly spent his lifetime chasing the California dream. This year he’s going to look for it in Colorado.

    With a house purchase near Denver in the works, the 38-year-old engineering contractor plans to move his family 1,200 miles away from his home state’s lemon groves, sunshine and beaches. For him, years of rising taxes, dead-end schools, unchecked illegal immigration and clogged traffic have robbed the Golden State of its allure.

    Is there something left of the California dream?

    http://news.yahoo.com/s/ap/20090112/ap_on_re_us/fleeing_california;_ylt=AoMPPrv5BKgHG..GkhxS0OADW7oF

21. C.C. Said:
    January 13th, 2009 2:00 am

    “Johnf You aee a douche bag. You selfish prick you don’t get it. I say we take you in the public square a chope off you head you shitbird.”

    ‘Chope’ off you head? ‘aee’(?) ‘Shitbird’? Public square? - you mean like a good ‘ole fashioned Saudi-Arabian beheading before lunch break? Would there be refreshments during the show?

    Good Lord…

22. CH Said:
    January 13th, 2009 2:04 am

    Funny this…My wife and I live in an area of Portland, OR that has seen a modest drop in prices from the time we bought in 2005. We had put down 20% on a 10yr interest only ARM at 5.5% and I was making about $100k/yr. Now, my wife is doing great as a realtor (amazing, I know) and our income is over $200k/yr. Plus we have no debt (but our home), great credit scotes, and about $50k in cash plus a couple of rental homes (both on 30yr fix w/ 20% down but not much equity now). Seems like all’s well but the funny part of this is we’d love to move to something w/ more of a yard but our 20% equity is quickly dwindling away and even w/ the low rates the best we could do now based on 20% down is to buy pretty much the equivalent of what we’d sell or a lesser home. It’s just funny how the world has changed from a zero down, instant gratification society to a save and spend world in a years time.
    My point is that when folks who feel like their doing well are stuck in overpriced houses, the market is still completely unsustainable. Prices need to fall (not principal reductions) and hard choices need to be made. I made hard choices, saved money instead of going on expensive vacations, drove a cheap car w/ no style, etc. so I’d be ready in case of a rainy day. Still if my job is gone, I’ll be six months from making hard choices and that’s how America works. And if I can’t make it work, then the debt will be cleared and we’ll start over and hopefully build on a more sustainable footing.

23. KurtA Said:
    January 13th, 2009 2:54 am

    I would like to understand why Mr. M feels that 2003-2007 were the only bad years? What about 1999 - 2002?

    I looked at homes in my old area in 2001 about 4 years after my parents retired in 98. A home in my parents neighborhood had doubled in price from 1998. My understanding is that this bubble started in S.CA in 98 according to the Case-Schiller data I’m looking at. Under every economic model I’m familier with, that means this market probably won’t level out until it gets back down to that 1998 rate unless we fix the market with a false floor.

    I’d like to know why Mr. M doesn’t consider 1999-2002 part of the bubble?

24. Susan Day Minerly Said:
    January 13th, 2009 3:08 am

    Martin:

    The Burger King Manager making $15K a year would have already been foreclosed on, there wasn’t enough money coming into the household to pay the mortgage payment of $1,608.20 at 1% interest such as a POA. He already went back to being a renter.

    Under the defective mortgages plan and their products issued though, a “BK” manager earning $40,000. could have possibly qualified for the $500,000. with the same POA with the 50% qualifying ratio.

    Under my plan, if he was current (maybe because his mortgage hadn’t reset yet), he would be eligible for the 50% principal reduction to the current market value of $250,000 at 5.5% making his monthly P & I payment $1,419.47. He is a good credit risk, he was paying the higher payment.(I don’t know how though with a 50% qualifying ratio, there really is not enough net income to pay, but let’s say he was)

    Under my plan, if the same borrower was deliquent on his mortgage payments, he would not be eligible for a principal reduction since he would not qualify with the underwriting ratios of 33/41. The home would be foreclosed on and the homeowner would be a renter again.

    Leaving you to purchase it at the new market value of $250,000. (down payment required 3%/$7,500) Your mortgage payment based on credit and proving your $70,000. small business owner income would be at 4.5% with a $1,228.71 P & I payment. Your rate would be better as a first time homeowner.

    Jonathan:

    First let me tell you I like your name.

    But under my plan there is no “instant equity” the homeowners principal will be reduced to the current market value due to the actions of the banks. The mortgage is being recalled for being defective or underwater, as a result of the banks actions, with their prior working knowledge of how a Fair Market Value or how Appraised values is obtained. They knew what they were doing, they are the experts.

    A consumer protection law for mortgages.

    It DOES rewards the homeowners who is current and paying almost automatically with a pre-determined percentage of principal reduction to the area (location) current market value as verified by an appraisal.

    It makes the homeowner who is deliquent prove that he/she made the “right decision” and “could have afforded the home”, regardless of the mortgage product used or qualifications used, both were agreed to (contract) by the homeowner and the bank at the closing.

    If the homeowners income can re-qualify at 33/41 ratio’s at the reduced principal balance, they stay. If they can’t requalify, they are foreclosed on, they should have remain renters.

    WHAT WAS NOT AGREED TO WAS THAT BY THE BANKS ACTIONS, THE HOMES VALUES WOULD DECREASE MAKING THEM HAVE NEGATIVE EQUITY, my plan re-enforces personal responsibility at the same time of enforcing businesses responsibility and accountability.

    The housing increase and decline are a result of their actions. Obviously, as I stated, the increase was agreed on by the sellers, buyers and the banks, a mutual agreement by all parties with legal documents, contract of sale, mortgage and note, etc… I am not disputing that, nor the fact that they were over inflated and exceeded the median incomes of the areas but the agreed upon products and programs allowed it.

    The purchasers became homeowners at the agreed upon price, whether it was reasonable, a little too high, or extremely high for whatever reason, they felt they had to get in to the market when they did mostly due to the programs availability

    With my plan our government instead of bailing out the banks with taxpayers money, has to mandate that the banks have to correct their harmful and knowing actions to homeowners by recalling the defective underwater mortgages.

    The declines in values were not agreed on and they are a direct result of the banks business, marketing and underwriting decisions resulting in a massive increase of defaults (foreclosures and the banks knew the risks involved while homeowners did not) AND THE action of under selling their MASSIVE SUPPLY OF REO’s WOULD LOWER THE MARKET VALUE OF THE AREA FOR THE EXISTING HOMEOWNERS.

    My plan uses 125% of the decrease from the market peak value to the current value to be ahead of the decline.

25. Casper87 Said:
    January 13th, 2009 3:42 am

    Martin,
    The homeowner who was up sold over and over by loan officers armed with 100s of hours of training on how to make 20K the pick a pay way is out. The banks however are what Martin?, in need of billions of dollars of bailouts. Didn’t the banks make those loans and trained those loan officers?? I maybe could understand your short sided focus but the bada$$ guy on the keyboard isn’t you…

26. Susan Day Minerly Said:
    January 13th, 2009 4:13 am

    CC:

    Just so you know, I didn’t forget you, nor the remaining renters that “knew” the bubble would pop and didn’t buy, I congratulate them.

    Personal responsibility is part of the plan, but so is corporate accountability, over correcting is not.(and over correcting hurts all homeowners with and without a mortgage, as you remind me)

    The market was artifically inflated and is being artifically deflated by the actions of the banks and servicers. It is not correcting naturally but is a result of their actions.

    Read the plan, I have stated it is not a cure all for the economy but it is a beginning, a necessary beginning.

    AND I totally agree with you about the USA has to make “products” here to survive but my plan lets us survive until this happens. It will not happen over-night or within a few months.

    Since a few months won’t correct the “mistakes” made by the public and the government for the past 25-30 years (of borrowing not saving) as you state, doesn’t mean we should not do anything. Doing nothing should not even be an option, unless you really feel what this country needs is a depression to correct the “free market” or to teach us a lesson?

    You are very smart, but I am not sure what you are trying to state sometimes.

    I do agree with the “borrowing not saving” mentality USA had as a group, but I can see it is changing slowly. What else can be done to improve the USA?

    Free markets without regulation got us into this mess because the majority of us are like sheep.
    This is your basic message and I do agree basically. Oh thats right, you don’t believe the government should be involved. It was involved on the way up, promoting homeownership for all and changing regulations/laws for the financial industry, why shouldn’t it be involved on the downside protecting the consumer from the financial industry?

27. BertDilbert Said:
    January 13th, 2009 4:17 am

    Everyone might be jumping to premature conclusions. This looks like a depression and your current wage is likely to get cut. Prices are not the only thing to go down in when deflation hits, wages come down too. Existing DTI’s may get a curve ball.

    California exodus to continue, homeowners renting out rooms will keep downward pressures on rents. Nobody is going to have to worry about not getting a home below fair value, there will be lots of them.

    Harbor report, Approximately 700 ID longshoremen showed up at the hall this am. There were around 130 jobs. 570 went home. Monday is typically the busy day. No crumbs for any casuals. Looking bleak.

28. Richard Said:
    January 13th, 2009 8:48 am

    The LENDERS are most at fault. They are the pros in this arena, not the homeowners. When home prices got inflated they should have demanded much higher downpayments or told the homeowner no. If they knew the house prices would collapse then why make the loan?

    Answer me that. Wby would they make the loan if the KNEW prices would collapse? Oh they didnt know? Then why expect you average home buyer to know? You cant expect the average person to be a mortgage, real estate, and economic expert. Many people were hurt who bought with good intentions and did not do “liar loans”. They are upside down and screwed. The banks should share in the pain and forgive some of the pricipal.

29. Richard Said:
    January 13th, 2009 8:59 am

    Also why do you care if your neighbor gets bailed out? If he owes 300,000 on a 220,000 house why do you care if they reset it at 200,000? It is the bank that suffers and they where the most guilty in all of this. I for one would rather see my neighbors be able to stand on their feet and do well, not suffer. It helps us all in the end.

30. Stu Said:
    January 13th, 2009 9:21 am

    Mr. M. that is some great reporting as usual and your views are right on the money in my opinion. This all falls right in line with what is going on with Mr. Obama and his immediate request for the $350 Billion alongside the Democrats quietly meeting to hammer out “Cram Down” legislation. The Democrats already have Citi-Group in agreement, and I am most certain BofA is on board as well. This is pretty much a done deal at this point. Not that I had any doubts about it in the first place.

    We knew Fannie and Freddie would play a role somehow and off course the NEW Fannie and Freddie, the FHA was going to be included too. Once everyone realized the only thing that would work is write downs they quickly all jumped on board. Heck, Barney was drooling over the thought of this month’s ago. Maybe the first bailout was a piece of this puzzle after all. Strengthen the banks (their buddies) first and then appear to force their hand at principle write downs. I would much prefer the Government to stay entirely out of this if at all possible. It appears to me what they are doing is corralling the lenders into a situation where as they have no choice, which is what I had expected to take place.

    The MBS market is dead at current paper levels and must be offered anywhere from .30-.50 on the dollar at foreclosure in bulk or .40-.60 on the dollar through principle write downs. What do you think the lenders will decide to do? I would do the write down and only lose .40 on the dollar if their lucky. What would you do if you were a lender faced with this choice? Again I would immediately start writing down principle and selling off every note I could. What if you were a homeowner? I would demand a write down or I would walk away, it is as plain and simple as that.

    I suspect Dodd, Reid, Frank and Pelosi to take the stage soon enough to roll the legislation out and just in time for a vote on the release of the new money (all tied together in a nice neat package) to the big guy.

31. Think a Loan Modification Won't Hurt You?....think again. | ShortSaleBlogger Said:
    January 13th, 2009 9:55 am

    [...] Mr. Mortgage: At first I thought this was a GMAC specific event but in their note they specifically [...]

32. Kevin Said:
    January 13th, 2009 10:50 am

    Why write the principal just down to current market value? What if it drops another 10, 20, 30, 40, 50 percent? The obvious conclusions Mr Mortgage and his cadre of pro-bailout-the-loser team here will be that we eliminate the loans entirely. Since we don’t want them to ever have an incentive to walk away, so we simply eliminate the entire amount owed for every peak buyer, and the problem will be solved. Right? I mean, it’s the same concept you’re all talking about, just taken to the next level. That way prices will rebound, everybody can sell for a profit, and the markets will be awash in new equity money.

    Really it’s no different than what you’re suggesting. Might as well juice it up a bit. Because when prices continue to drop, you’ll propose the same thing again and again. Just propose the full-on Juche society where nobody is ever obligated to pay their debts and those who are most selfish and least responsible reap the highest rewards.

33. mo Said:
    January 13th, 2009 11:20 am

    Darwin had it all wrong after all.

    With todays main stream thinking, the weak thrive at the expense of the prudent.

    Reward the evil lenders all over again too, with brand new commissions. Brings new meaning to double whammy and double dipping. Kinda like deja-vu.

    Gawd I wish they would let me short this crap all over again.

34. Tony Said:
    January 13th, 2009 11:28 am

    I am tired of the argument Banks (bad guys) vs upside down homeowners (good guys) argument as justification for loan mod. Lets set the record straight. Both sides are BAD GUYS in my opinion and both deserve the JUSTICE of the free capitalistic society! Banks who made bad loans should go under, no taxpayer bailout, no thanks. Homeowners who went in under pretense of making a killing on the upside are gamblers and they lost, some lost big. No bailout for them either, they go back to being renters, life goes on. Meritocracy should be rewarded by a fair playing field. Those who keeps chanting for govt assistance are just as bad as the single mom w/ 4 illegitimate children from different fathers living on perpetual govt assistance. By not allowing so many “freebies” or “bailouts”, the system works and works really well. Look at gas prices!!! The economy slowed down, people cut back and drove less, then pump prices come back to earth, killing off the speculators. Imagine these same oil speculators asking for their “bailout” right now? Or how about the people who never took profits on their 401k/IRA wanting “bailout” for their wrecked retirement plans? The list goes on and on. The nation as a whole needs to grow up, wise up, and move on to a more productive future where we are not so dependent on govt “bailouts” and start to learn within their means. One of my favorite Bible quotes: Thou shall not covet thy neighbor’s house (or wife). Ahem.

35. Stu Said:
    January 13th, 2009 11:30 am

    Kevin,

    “Why write the principal just down to current market value? What if it drops another 10, 20, 30, 40, 50 percent”

    I think you are missing the point and need for the loans to be written down. The new mortgage that is written is going to take the majority out of a badly written mortgage (Option only, Alt-A etc.) and place them into a much more affordable 30-year fixed loan. Now the principle write down is to get the level of the mortgage in line with the value of the property. The lender cannot give a new mortgage to the homeowner for more than it is currently worth. So now the homeowner is in a position where they can save money, and pay down on other debt that they may have. In other words they are in a much better viable economic condition and can now weather the storm of another 10% or 20% drop. They now own a home that they can afford the payment on. They don’t want to lose their homes after all as some would suggest. They just are not going to owe $150,000.00 more than its worth with an interest only loan adjustment where they are paying $4,000.00 per month to own what has become a depreciating asset. Not when the law clearly allows them to walk away. Now they owe what the current market value dictates is owed and their payment is on a future asset of some worth down the line vs. decades in some cases of the old amount the loan ever being valued at what they owed on it.

    “The obvious conclusions Mr Mortgage and his cadre of pro-bailout-the-loser team here will be that we eliminate the loans entirely. Since we don’t want them to ever have an incentive to walk away, so we simply eliminate the entire amount owed for every peak buyer, and the problem will be solved. Right? I mean, it’s the same concept you’re all talking about, just taken to the next level. That way prices will rebound, everybody can sell for a profit, and the markets will be awash in new equity money”

    There is nothing obvious about that and that is actually quite extreme and silly from a practical standpoint. The lenders need to be able to afford the write downs first of all and I have heard nobody speak of any idea like this anywhere up and until now.

    “Really it’s no different than what you’re suggesting. Might as well juice it up a bit. Because when prices continue to drop, you’ll propose the same thing again and again. Just propose the full-on Juche society where nobody is ever obligated to pay their debts and those who are most selfish and least responsible reap the highest rewards”

    It is totally different (see above comment) as the loan now becomes affordable and it doesn’t matter if the home drops another 20% in reality. It is just on paper and has no bearing on what the homeowner can afford. Your argument has no relevant merit to it in regards to what you say will happen. That is not what will happen unless we do nothing and then yes, you would be correct that with current loan modifications written as they are this is exactly what will and actually is happening to many homeowners that got duped into them, and thet are recourse off course…

36. Kevin Said:
    January 13th, 2009 11:54 am

    There is nothing more affordable than not having a loan. Just forgive their entire amount owed. If you’re going to just give these assholes hundreds of thousands of dollars to subsidize their loans (the loans THEY opted and signed for), why object to just paying the entire thing off rather than half of it? If reducing PART of what they owe is a GOOD idea, then reducing ALL of it should be a GREAT idea.

37. Joan Jett Said:
    January 13th, 2009 11:59 am

    The ladies in my bridge club have been talking about cram-downs a lot lately. Most of us have to work to supplement our husband’s income in order to afford our current mortgage payments. SoCal housing is expensive. As soon as we are sure that judges are writing down mortgage principal we ALL will be better off quiting our jobs, as our husbands income alone will qualify us for a hardship/principal reduction.
    Why should I have to go to work every day to pay for excess principal while my neighbor gets a $200k principal reduction?

38. Stu Said:
    January 13th, 2009 12:17 pm

    Kevin, this is a deal between a lender and a borrower. It is called a contract and held to certain laws pertaining to the type of contract that it is. In this case the parties that entered into the agreement can alter the terms of said contract to make the existing deal between the two parties more workable if you will.

    Maybe if you think about this more in terms of say an automobile. The auto manufacturers gave cars to their dealerships in hopes that they will sell them. They pay down a percentage of its value upon shipment. The balance is owed upon the time of the sale. Now sales are getting much harder to make, so they tell the dealerships they will write down the value of the autos to the dealerships in an effort to spur more sales. The dealerships are given what is called incentives (lower or no interest rate, cash back or in essence principle write downs on the cars, and deals like that. Now the dealership is able to move some additional cars at the lower interest rate and reduced principle amount.

    Now picture these autos already being owned. They are lease vehicles that are coming due and the customers do not want to keep them. They start dumping them and not buying a new car or leasing one either. The dealership is getting killed with inventory and soon nothing is moving due to much higher supply at much lower prices than the new demand is at the new car prices. The auto manufacturer makes concessions to allow for less lease withdrawals and thus slow down the inventory hitting the street which is curtailing sales of the newer products.

    Same scenario in housing is taking place that’s all. We see this happen every day in all sorts of other areas from cars to computers to cell phones to big screen TVs but for some reason when it is housing everyone is in an uproar… why? It is not your contract and you don’t have a say. It is not hurting you or costing you anything. Why do you honestly care? It has absolutely nothing to do with you.

39. Kevin Said:
    January 13th, 2009 12:34 pm

    These banks cannot afford to write down everybody’s principal. It would be hundreds of billions, maybe trillions of dollars. Quantitatively there is only one entity that can pay for it, and it’s the gov’t. With the proposed bailouts intending to keep banks afloat, these principal reductions come down to one simple fact: our tax dollars will pay for assholes’ mortgages.

    So as a taxpayer, I’m absolutely opposed to it. Moreover, I was pointing out the fallacy to the proposition that if reducing some principal will keep people in their houses, make them better consumers, and give them more equity sooner, why not just write it all off? What happens when you write them down to current market value, and the values drop again? People walking away, more idiot homeowner bailouts will be called for. There is an inherent danger in setting this precedent, as well as a moral hazard and a calamity to the taxpayers. But none of that matters so long as we bail out the fraction of bubble buyers.

40. C.C. Said:
    January 13th, 2009 12:44 pm

    Susan - you’re a sweetheart. Really. I admire your dignified approach and willingness to be positive and offer up ideas to help the situation so many find themselves in.

    A positive ending to this mess is possible, if we (the government) would simply allow it. Sadly, as a whole, we as a nation have become soft. As such, we have largely lost our appetite to suffer through a cleansing process - one that doesn’t treat everybody equal on the way down, but cleans the slate for true ‘equality’ on the way back up to real prosperity.

    Towards your last paragraph:

    Oh thats right, you don’t believe the government should be involved. It was involved on the way up, promoting homeownership for all and changing regulations/laws for the financial industry, why shouldn’t it be involved on the downside protecting the consumer from the financial industry?

    I can only sum up an answer to your missive like this Susan:

    In a nation such as ours, founded on principles of rugged individualism and personal responsibility, government intervention is anathema. Of course, that is not to discount the fact that government intervention these days is just about everywhere and always, but it also doesn’t mean that we must not draw the line somewhere.

    When you ask/demand that Government must intervene to make ‘fair’ or ‘level the playing field’, what you are inviting (economically in this instance), is Centralized Planning. And I’m going to tell you right now, Yea Verily, you Do Not want centralized planning in the United States of America.

    Why? Oh you’ll get your fairness and equality - at the expense of your Freedom. Is that what you want? Can you even see that far, or are you so married to this idea of keeping people afloat in their sinking debt that you’re willing to sacrifice what’s left of your Constitutional freedoms for it?

    Understanding what I’m talking about requires a bit of U.S. - and world history to grasp, but it’s all there in black & white for anyone to see what happens when you allow the private economy to be nationalized.

    And if you don’t think that in a ‘privately’ hatched scheme of mortgage rewriting - especially the size & scope of what this mortgage crisis entails, that the Government can somehow be held at bay? I don’t know what else to say.

    Now then, here is a short lesson from a well-respected gentleman that knows a little bit about markets - and history, that may lend some credence to what I’m saying. It’s very informative and I would encourage everybody here to read it.

    http://www.merkfund.com/merk-perspective/insights/2009-01-14.html

    Peace -

    C.C.

41. od Said:
    January 13th, 2009 12:48 pm

    I’m sorry Stu, But I have to disagree with you. Tell me why the tax payer should pay for the difference in someone’s mortgage that they could never have afforded in the first place?

    I’m sorry, but if you buy something YOU CAN’T AFFORD you don’t get to go back to the store and lower the price that you initially paid for it. Now if you want to talk about changing the rules of the game, and taming down the consequences in making fiscally stupid decisions, then I’m all on board.

    How about we remove property taxes in order to help everyone?

    But to steal from Peter to pay Paul is wrong.

42. Stu Said:
    January 13th, 2009 1:12 pm

    Kevin,

    “These banks cannot afford to write down everybody’s principal. It would be hundreds of billions, maybe trillions of dollars”

    Not everybody’s principle Kevin. You also have no idea how much it is and how much specifically for which lender you are speaking about. The lenders surely know what they are dealing with here.

    “Quantitatively there is only one entity that can pay for it, and it’s the gov’t. With the proposed bailouts intending to keep banks afloat, these principal reductions come down to one simple fact: our tax dollars will pay for assholes’ mortgages”

    Well that is odd because I didn’t see you shouting about the auto manufacturers giving cash back incentives (principle reductions) to sell cars? I don’t hear you jumping on the auto manufacturers for lowering interest rates to 0% to sell cars. In fact I didn’t peep when the mattress company was selling mattresses for no payments until 2010 to get them sold due to falling sales. I bought my winter coat in October and paid 60% than I guess those prudent folks who waited until January because that is principle write down deal that they got. Funny because when the Government bails out the auto companies and some major retailers and makers of lawn tractor equipment and the like I hope you are the very first in line to scream. I mean seeing as how your screaming about some stuff now, but not others it would only be fair of you. In fact you should picket the nearest John Deere to you because they have been doing principle write downs for years. Oh and when these companies go under and can’t pay the banks what they owe and the lenders go under are you going to scream about that too, or is it too late then I suppose… quit cherry picking what you want to fight about or get behind your crusade and demand no principle write downs in any industry under any circumstances.

    “So as a taxpayer, I’m absolutely opposed to it. Moreover, I was pointing out the fallacy to the proposition that if reducing some principal will keep people in their houses, make them better consumers, and give them more equity sooner, why not just write it all off? What happens when you write them down to current market value, and the values drop again? People walking away, more idiot homeowner bailouts will be called for. There is an inherent danger in setting this precedent, as well as a moral hazard and a calamity to the taxpayers. But none of that matters so long as we bail out the fraction of bubble buyers”

    Than you are opposed to free trade and the American way of life since you were born Kevin. The fact is principle write downs have been and will continue to be a part of free enterprise. They have been going on since the beginning of time and will continue too as long as things are over sold and inventory is left that needs to move. Have you ever seen a “for sale” sign Kevin? That is a principle reduction in essence as it is an item being sold for less than its supposed value (hence “for sale”).

43. Stu Said:
    January 13th, 2009 1:20 pm

    Od,
    “Tell me why the tax payer should pay for the difference in someone’s mortgage that they could never have afforded in the first place”
    They do not have to pay one red cent! What is a matter with you people? It is between the lender and homeowner. No different than the example I just gave with a car or boat or jacket or 6-pack of beer. It is a simple transaction between the note holder (lender) and the borrower.
    “I’m sorry, but if you buy something YOU CAN’T AFFORD you don’t get to go back to the store and lower the price that you initially paid for it. Now if you want to talk about changing the rules of the game, and taming down the consequences in making fiscally stupid decisions, then I’m all on board”
    You most certainly can. You know something is going on sale for $100.00 but you can’t afford it. You go buy it anyway for $150.00 and in a few days when it goes on sale you go tell the store that you want a principle reduction of $50.00. They say yes sir and reduce it from your means of payment. You just got a $50.00 principle write down and I have done that countless times. It is called price protection od and I bet that you have done it as well. Now the seller could and has the right to say no, but you have the right to say then keep it and give me my money back.
    “How about we remove property taxes in order to help everyone”
    We are reducing them as values fall and that is helping people. A principle reduction on property taxes is happening as we speak. That is one thing that is helping to get CA into trouble in tax revenues. You see the value of your home has fallen, so in essence the town that you live in is doing a principle write down on your properties value. The net result is that you as a homeowner pay less for that piece of property now. I don’t hear anyone screaming about that principle reduction though…

44. Kevin Said:
    January 13th, 2009 1:22 pm

    “Not everybody’s principle Kevin. You also have no idea how much it is and how much specifically for which lender you are speaking about. The lenders surely know what they are dealing with here”

    Which is why they prefer to let them go into foreclosure. Say ten million people wanting principal reductions are underwater by an average of $100,000. That is a trillion dollars. Banks cannot shoulder that kind of debt.

    “Well that is odd because I didn’t see you shouting about the auto manufacturers giving cash back incentives (principle reductions) to sell cars?”

    Selling cars? That is way different than repaying those people who bought their cars. You are comparing apples and oranges. Truly awful analogy. Companies offer incentives to move inventory. One guy buys a mattress for $800, then the next guy buys it on sale for half. Of course I won’t scream about this, it’s how the grown up business world works. By your philosophy, the guy that paid $800 is now entitled to a $400 retro rebate. I’m saying: fuck that. You bought something, you pay for it. Price goes up or down, doesn’t matter, you owe what you obligated to pay. Your analogy has just made everybody that read it much dumber.

45. Kevin Said:
    January 13th, 2009 1:34 pm

    And of course the taxpayer would foot the bill. The banks and lenders clearly cannot afford principal reductions. It costs way more than the foreclosures cost and it keeps the homes in hands of risky owners. If it were cheaper, or even close to as expensive, the banks would clearly want to not repossess the properties. So if foreclosures put banks in a position where taxpayer capital is injected to keep them afloat (cover the losses), then that is the same thing as taxpayers funding principal reductions. Maybe not all of them, but whatever the banks cannot handle. That makes me sick to my stomach.

46. Tony Said:
    January 13th, 2009 1:41 pm

    Kevin, OD, JohnF, do you all get the feeling some people live in the Twilight Zone/Bizarro World where their entire thought concept is totally different than yours and mine. Sigh, no sense in arguing when people won’t admit black is black, white is white, gray is gray. Some people LOVES to say something and then add a “BUT” to it to “back track” their BS. Lets face it, democracy and free capitalism can only work when meritocracy is rewarded while all the other sinful tendencies are punished. One more time, those who shouldn’t have bought a home, who cannot afford the home, NEEDS to face up to their miscalculation and failure and go back to renting. With the down economy, I am sure there is an affordable rental somewhere that meets the budget, unless of course, the same individual is looking at an area BEYOND their means again. There, is where the heart of the problem with many home defaults. Live within your means and QUIT EXPECTING your fellow human being to cover for your ass over and over again. We all have enough problems and headaches of our own. Aside from natural disaster relief thru volunteer and donations (free will), don’t expect so DAMN much.

47. Kevin Said:
    January 13th, 2009 1:49 pm

    Tony,

    I agree with you whole-heartedly and am at an end here. I’ve been trying to no avail to explain to them that it’s immoral and detrimental to the reward/punishment meritocracy you’re speaking of (this language is of course absent from all of their arguments, and intentionally avoided).

    At the end, their rationale is that “since it fixes everything, it’s the right thing to do”. I cannot even accept the notion of principal reductions until this idea that it fixes things is even made partially clear. Quite the opposite.

    And of course we as taxpayers would foot the massive bill.

48. Javagold Said:
    January 13th, 2009 1:49 pm

    Stu,
    “How about we remove property taxes in order to help everyone”
    We are reducing them as values fall and that is helping people. A principle reduction on property taxes is happening as we speak. That is one thing that is helping to get CA into trouble in tax revenues. You see the value of your home has fallen, so in essence the town that you live in is doing a principle write down on your properties value. The net result is that you as a homeowner pay less for that piece of property now. I don’t hear anyone screaming about that principle reduction though…

    I agree with alot you post , but not this, property taxes are NOT coming down only property values are coming down

49. od Said:
    January 13th, 2009 1:53 pm

    Stu,

    So I assume I won”t be able to get my principle reduced because I live with in my means? I also won’t get my principle reduced because I work towards paying off my loan. I should have bought a home I couldn’t afford to live in.

    The only support I’d be willing to give is if EVERYBODY in the nation gets the same deal.
    IMOP, anybody with a mortgage, has a responsibility to pay and manage that obligation. You can’t just lower the principle for a select group of people, who bought at the WRONG time. Who bought something that they could not afford.

    And no, buying a home is not the same a buying a product form a company or store. We are talking about loans. If you buy a Ferrari, and can’t afford it later, you can’t just get the price reduced to a Toyota.

50. od Said:
    January 13th, 2009 2:03 pm

    Java, I said remove completely.
    If you guys want to help people , you have to help everyone. Eliminate the taxes, or at least double the amount you can write off. But if you want to lower principles, let the free market do that. Because if you artificially meddle with the markets, you are asking for trouble.

51. PN Said:
    January 13th, 2009 2:06 pm

    Javagold,

    Actually, property taxes have been lowered in CA areas that saw huge losses.

    Last tax season we saw mandatory across the board reappraisals for my county ( and others ). My property was reappraised for $60,000 less, shaving $70 off my monthly tax bill. This next year will be the same thing, mandatory reappraisals. Seeing how my property has fallen off a cliff ( about 50% loss ), I can expect another $75,000 - 80,000 reduction on the new appraisal, lowering my taxes by another $70 a month.

    So in two years time, my property taxes will have been cut by something like 45%. This is, of course, horrible news for the county coffers, and only minimally helpful to homeowners, but it is occurring…and the way values are coming down, it might continue for a couple more years.

    Pretty soon they’ll be paying me…that is if I’m still here.

52. Javagold Said:
    January 13th, 2009 2:11 pm

    od,
    not sure what you are pointing out to me…..i have been for pricipal reductions for EVERYONE based on a set formula since i got here….i know pricipal reductions are needed but its going to be a hard sale to give some reductions and not others ….also i would be concern of people who are PAYING their mortgage on time, if you piss them off or do not give them relief, we could have a revolution/civil war …..just give EVERYONE a 10, 20, 30 or even better NO INTEREST for life of the mortgage (just pick a fixed formula)

53. od Said:
    January 13th, 2009 2:13 pm

    ….if you want to start using socialist solutions for freemarket problems, then you better make sure those socialist solutions (bailouts,lowering principles etc)are applied EQUALLY for EVERYONE.

    Basically if you are going to take the Socialist path, you better use socialism correctly. Or else call it selective-socialism.

54. od Said:
    January 13th, 2009 2:20 pm

    java, you were pointing out how taxes will drop with values. I was just suggesting eliminating the property tax outright. I agree, what ever solution people propose or use, it better apply to ALL home owners and potential homeowners.

55. Dee Said:
    January 13th, 2009 2:20 pm

    I find it interesting that people are so incensed that homeowners would be given an opportunity to renegotiate a bad loan. If a loan is suppose to be between the lender and borrower, who has the right to interfere. How is the taxpayer involved in this process?

56. Stu Said:
    January 13th, 2009 2:21 pm

    Kevin,

    “Selling cars? That is way different than repaying those people who bought their cars”

    No it is not. I just proved it to you but will do it again but in more detail. Substitute home where car is written and you will get it.

    A car / home buyer leases / rents a car / home with all of the intention of buying it when the lease / interest only loan is due to reset come due. The car / home buyer realizes that the car / home is now not worth what the agreement they entered into has it valued at, and must make a choice on what to do. The car / home buyer decides to walk away from the lease / interest only agreement that they were in but claim if a more equitable deal was struck by reducing the principle on said car / home then they would enter into a subsequent agreement on the new agreed upon price and maintain ownership of said car / home. The seller agrees that the market had dried up for what they are selling and nothing is moving at the current prices that they are offering for their cars / homes. They agree that a principle write down on said car / home must be done in order to keep the existing lease / renter in that car / home. They tear up the old agreement and rewrite a new agreement with a lower interest rate and for less than they were originally asking for the car / home. The buyer agrees and signs the new deal… DONE!!!

    Happens all of the time Kevin… all of the time!

    “You are comparing apples and oranges. Truly awful analogy”

    A rather perfect analogy if you ask me. It is a direct apple’s to apples comparison of a loan and subsequent rewritten loan as a result of lowering interest rates and principle amounts in order to move the product they are selling.

    “Companies offer incentives to move inventory”

    Exactly! I think that you are getting this Kevin!!

    “One guy buys a mattress for $800, then the next guy buys it on sale for half. Of course I won’t scream about this, it’s how the grown up business world works”

    That is all I am asking of you now. To put yourself in the grown up business world that you speak of, and because one guy is getting his home for a sale price of half off 2 or 3 years later that you let it go and be the same grown up business world person you were with the mattress sale. In other words just because time has passed the conditions have changed tremendously which require some forward outside the box thinking. Let’s say mattresses have a 90 day 100% return policy for any reason, and the majority of buyers are now bringing them back for some reason. What do you think the mattress seller would have to do? Come up with a way to make people want to keep their mattresses or crumble under the weight of returns and hence inventory that could not be possibly sold and especially at the prices they were sold at. He either goes under as a business, or does a principle write down to the values of these mattresses and enters into new agreements with all of these people.

    “By your philosophy, the guy that paid $800 is now entitled to a $400 retro rebate. I’m saying: fuck that. You bought something, you pay for it. Price goes up or down, doesn’t matter, you owe what you obligated to pay. Your analogy has just made everybody that read it much dumber”

    He is if the store wants to stay in business (at least the 90 day or earlier buyers are). I would hope people are much, much wiser to what is actually going on here and now perhaps they better understand the point or situation that we are truly in, and how principle write downs will indeed change that for the better.

57. Kevin Said:
    January 13th, 2009 2:29 pm

    “not sure what you are pointing out to me…..i have been for pricipal reductions for EVERYONE based on a set formula since i got here….”

    As a renter with no principal to be reduced, I’ll point at you. Somebody gives you a massive amount of money you’re supposed to pay back. Guess what? YOU PAY IT BACK.

58. Michael Blomquist Said:
    January 13th, 2009 2:32 pm

    Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.
    John Adams

    We are not a democracy. We don’t need new legislation; we need enforcement of existing laws! We can not continue to change the laws and rules and expect to survive as a Nation.

    There is NO way to quantify the shift in logic from citizens after cram downs have been implemented. Tens of millions of borrowers either knowingly or recklessly committed loan fraud when they were not in a desperate situation; just to buy a home, bigger home, or one in a nicer neighborhood. When people become desperate who knows what they will be capable of, especially knowing that millions of others were provided hundreds of thousands in principal reductions; tax evasion, BK fraud, violent crimes (armed robbery), etc.

    Let prices fall to where they belong and then pick up the pieces. If realistic lending practices are maintained prices will still fall regardless of the cramdowns. I know of dozens of borrowers who have 12-24 months left of reserves and or credit lines unless something changes (loss of job, reduced credit line) There are undoubtedly millions in this same situation. We already have 5 million households in foreclosures; this number could easily double in the next 12 months, especially if cram downs are implemented. Everyone will stop paying mortgages and hoard cash.

    First and foremost all the executives from the Lenders, I-banks and NRSROs should be disgorged and removed from office. In addition, Servicers should be precluded from excessive foreclosure fees, prepayment penalties, etc. in the event of short sales or realistic, voluntary loan mods. The investors and ultimately the PBGC or other government entity should not be taking the hit for these reckless practices. Lenders like Citigroup or GMAC will not be the ones taking the hit for cram downs; it will be pension, mutual, insurance, sovereign funds and ultimately, US, the government.

    America will unite knowing that rule of law has been restored. Regardless if the executives are convicted on criminal charges they have been unjustly enriched and clearly inept at running their companies. There are no irreplaceable executives. T executives’ efforts will undoubtedly be focused on covering up their crimes rather than implementing sound policies.

    Instead of cram downs facilitate housing for foreclosure victims according to what they can pay. The investors who own the foreclosed home will receive 33% of the foreclosure victims income and the foreclosure victims must provide access to the home after 24 hours to show the homes being sold. This plan would only be implemented in areas with massive vacancies.

    If a foreclosure victim’s income is well below market rents; bring in a Katrina trailer. Most of the hardest hit areas are in areas with abundant land. The government could acquire property via eminent domain to house foreclosure victims until they can afford other housing. We cannot reward criminal behavior!

    NO $100k, $200k,+ cram downs. Use a portion of that money to re-educate “victims”. “Give a man a fish…”

    The investors can fight it out with the lenders in court. If a borrower was damaged by their fiduciary (agent) let them fight it out in court. Provide more judges and perhaps allow some of these issues in small claims for rescission, TILA, RESPA, etc.

    If the borrowers’ problems are limited to back end ratios than send them to bankruptcy to eliminate the car loans and credit cards. If necessary give them $3k for a beater car to get to and from work, but NOT a $200k+ principal reduction. Cash for keys at BK court to provide the foreclosure victim some help according to costs in the neighborhood. Move around trailers from Katrina, but NOT $200k+ principal reductions.

    Perhaps BK cram downs for short-sales, but NOT to the existing home owner. This proposal is asinine and will result in anarchy and enormous costs. As soon as citizens see that others who most likely committed fraud and inflated home values are receiving hundreds of thousands of dollars in principal reductions; they will demand compensation as well.

    We are talking about enormous sums of money that would take most citizens their entire lives to save. Even if a household is making $140k; depending upon their expenses, taxes, etc. they could be saving only $10k per year. Clearly, most are not making $140k per year.

    Cram downs will
    1) Dramatically increase bankruptcies. Instead of borrowers inflating incomes; they will be purposely deflating incomes to receive more help. More fraud.

    2) Encourage predatory and reckless loan mods. As Mr. M points out; loan mods are being black balled so the object is to avoid loan mods and bk court. It will be cheaper to extend a $10k -$50k equity line or credit card until the loan can be sold. This is a much cheaper solution than a loan mod with a $100-$200k principal reduction. Wells and others were already doing this at the end of the bubble.

    There will always be a way to end around legislation, especially when it is not enforced.

    We are a Nation of laws; IT IS TIME TO ENFORCE THEM NOT AVOID THEM!

59. Stu Said:
    January 13th, 2009 2:36 pm

    Javagold,

    “property taxes are NOT coming down only property values are coming down”

    Well in fact they are Java. You answered it in your own comment to me. Values are going down. So let’s do an equation to show you what I mean because I think your getting caught up in the Government is rasing your taxes. In some cases they are, but you are still paying less. Let me explain.

    2008 tax rate of .05 on a home value of 1,000 = 5.00 taxes due.

    2009 tax rate of .05 on a home value of 900 = 4.50 taxes due

    Your taxes just went down as did your value. Now the Government (no longer apples to apples) raises your tax rate to .06.

    2009 tax rate of .06 on a home value of 900 = 5.40 taxes due.

    See the differnece? You are still paying less taxes on your homes actual value that decreased if not for the government raising your tax baseline.

60. Kevin Said:
    January 13th, 2009 2:40 pm

    “I find it interesting that people are so incensed that homeowners would be given an opportunity to renegotiate a bad loan. If a loan is suppose to be between the lender and borrower, who has the right to interfere. How is the taxpayer involved in this process?”

    We’re not incensed about renegotiating a bad loan. We’re infuriated over the concept of principal reductions just because the house lost value. It is fucking bullshit, pardon my French. And by your definition, “bad loan” must include everybody that’s underwater. Which is stupid.

61. Kevin Said:
    January 13th, 2009 2:44 pm

    Stu,

    “I would hope people are much, much wiser to what is actually going on here and now perhaps they better understand the point or situation that we are truly in, and how principle write downs will indeed change that for the better.”

    I feel like an idiot. You’ve been playing me from the beginning. Well played, sir, I commend you.

62. Stu Said:
    January 13th, 2009 2:44 pm

    od, talk about socialistic agendas… you said:

    “If you guys want to help people, you have to help everyone. Eliminate the taxes, or at least double the amount you can write off. But if you want to lower principles, let the free market do that. Because if you artificially meddle with the markets, you are asking for trouble”

    Not everyone needs help and not everyone is underwater and considering walking away.

    Everyone doesn’t have health insurance either but do we place everyone on Medicare and Medicaid because of it? Off course not as that would be counter productive. Use logic when considering blanket statements. This cannot be handled in such a socialist way or with such a socialist agenda. This is to prevent that from happening because it could come to that in the end if we don’t address this problem at some point soon in my opinion.

    I am allowing the free market to work within the laws we have void of any Government intervention or anyone else for that matter. Anyone not a part of the negotiations (seller borrower) really is meddling because it is none of their business.

63. Dan Correspondent Said:
    January 13th, 2009 2:46 pm

    Stop fixing things! Let things fix themselves. if you do’t pay your mortgage, you get foreclosed. The bank re-sells it (usually for a huge loss). Problem solved.

64. Dee Said:
    January 13th, 2009 2:48 pm

    And by your definition, “bad loan” must include everybody that’s underwater. Which is stupid.
    My definition of a bad loan is a loan that the lender and borrower agree is a bad loan.

65. Javagold Said:
    January 13th, 2009 3:09 pm

    this is why you cant just let the borrower and the lender “work it out” without a STRICT GUIDELINES

    That’s because none of the efforts so far have had much impact. The Hope for Homeowners program, which offers banks a government guarantee in exchange for reducing the principal on mortgages, has led to just four hundred loan modifications out of an estimated 400,000.

    THATS 400 OUT 400,000 !!!!!!!…..AND THATS THE BEST OUR GOVERNMENT HAS COME UP WITH…..DISGUSTING DOESNT BEGIN TO STATE WHAT THIS IS, IF I REALLY SAID WHAT I BELIEVE , I WOULD START SOUNDING LIKE KEVIN

66. Stu Said:
    January 13th, 2009 3:11 pm

    MB, I agree 100% with what you said BEFORE the first bailout was engineered. Before Fannie and Freddie were bailed out. Before AIG and the auto manufacturers were helped. Pandora’s Box has been opened and the lid cannot be placed back on. So now we have to enter an area that I don’t want to see, but do feel we need to see. It sucks, but things were not left alone to fall and grow back up as should have happened. Now we have to deal with it entirely differently in my opinion or get dragged right off of the ledge with the people in power who placed us p here in the first place. So either brings us back down (i.e. principle write downs), or just give us a push and let’s gets it over with and go directly into a depression and subsequent financial melt down of epic proportions in our nation.

    1. Cram downs will
    1) Dramatically increase bankruptcies. Instead of borrowers inflating incomes; they will be purposely deflating incomes to receive more help. More fraud.

    Paperwork is not able to be manipulated. You need to show clean and clear records. 2 years tax returns, 2 months of pay stubs, an appraisal from the lending institution, etc. Ni liar loans and stated income allowed. Those programs are long gone.

    2) Encourage predatory and reckless loan mods. As Mr. M points out; loan mods are being black balled so the object is to avoid loan mods and bk court. It will be cheaper to extend a $10k -$50k equity line or credit card until the loan can be sold. This is a much cheaper solution than a loan mod with a $100-$200k principal reduction. Wells and others were already doing this at the end of the bubble.

    How can a loan mod be reckless? It either fits into the parameters or not. If not then the homeowner losses the home to foreclosure and if so then they do the modification. Nothing predatory here or even reckless.

    Dan,

    Yes but when 5 million people on top of the 3 million we just witnessed are about to do it something needs to be done. If nothing was done and it was left alone to repair itself we would probably be 2/3’s done by now and in bad shape but close to a bottoming out. With 3 times as many foreclosures on their way and nearly a years worth of inventory already on the books with hardly any buyers, I think something needs to be done differently. We were placed into this position by Government and I certainlky do not want them getting us out of it!!! This way gives us some breathing space and I dare say Obama’s stimulus plan to start working. I don’t believe in it either, but it is happening whether I agree or not so I might as well embrace it just the same. I can be a part of the soplution or a part of the problem. I prefer to be the former because I kind of like this country I live in.

    Dee,

    “My definition of a bad loan is a loan that the lender and borrower agree is a bad loan”

    Exactly!! A voice of logic and reason… Thanks!!!

67. Tony Said:
    January 13th, 2009 3:19 pm

    I am going to say this once: A loan mod between a bank and a borrower is private and if no taxpayer money is involved, fine. The problem is that most loan mod will only occur WITH GOVT HELP. No lender will do it out of good conscience unless they are compensated by our govt or they are doing it to postpone the day of reckoning so that the management can continue to milk the bank for benefits, salaries, etc. This brings back full circle to this “bailout” issue. There is another scenario just around the horizon and I bet very few people grasp what’s happening. Massive layoffs across the board will begin soon if the economy don’t pick up by June of this yr. In case you haven’t noticed, each time you hear of layoffs, the number somehow falls within “10%”. The next round of “10%” will HURT. When that happens, are we expected to bailout the “layoffs” as well with govt funding? I hope some of you selfish socialists out there will see what you are asking, and no prudent American should stand for it.

68. mo Said:
    January 13th, 2009 3:35 pm

    Dan correspondent,

    What a novel approach. Lets try and let the markets sort through all this, after all; isn’t this exactly what ‘free markets’ do?

    I never thought I would see the day where failure gets rewarded, and excellence gets punished. Funny times these times…

69. Stu Said:
    January 13th, 2009 3:41 pm

    Tony,

    “I am going to say this once: A loan mod between a bank and a borrower is private and if no taxpayer money is involved, fine”

    I agree and that is how it should be in a free market.

    “The problem is that most loan mod will only occur WITH GOVT HELP”

    Says who? The current BS loan modifications are that way, but I am by no means offering up this sort of behavior. I don’t even want the Obama bailout to be quite honest.

    “No lender will do it out of good conscience unless they are compensated by our govt”

    If it makes sense they will do it and it is beginning to look like it is the only thing that does make sense. To the lenders, Government, and borrowers at this point it is becoming clear that this must be done.

    “or they are doing it to postpone the day of reckoning so that the management can continue to milk the bank for benefits, salaries, etc.”

    Any loss by law from a principle write down must be recorded by the lenders at the time of the actual write down. They are clearly not putting anything off by doing this and in fact they have been hesitant to do it for this reason amongst others I have defined already.

    “This brings back full circle to this “bailout” issue”

    It points out the fact that we probably really never needed the bailout proposal if things were handled differently, but they were not, so here we are…

    “There is another scenario just around the horizon and I bet very few people grasp what’s happening. Massive layoffs across the board will begin soon if the economy don’t pick up by June of this yr. In case you haven’t noticed, each time you hear of layoffs, the number somehow falls within “10%”. The next round of “10%” will HURT. When that happens, are we expected to bailout the “layoffs” as well with govt funding? I hope some of you selfish socialists out there will see what you are asking, and no prudent American should stand for it”

    I guess this will do wonders to help the strain of this possible scenario and it should actually help this situation out a bit I would guess. Let’s deal with the issue at hand and get it resolved and as a result many other areas of our economy placed back on solid footing. We can address a lot more as a strong society than as a very anemic one which is what we are fast becoming. I am saying to control what we can and right that part of the equation. You will be surprised what that might do to some other areas in terms of helping out to strengthen them.

70. Kevin Said:
    January 13th, 2009 3:48 pm

    Tony, don’t fall for Stu’s bait. He had me running for a while, but he’s clearly just trolling. A good troll, but still a troll.

71. Stu Said:
    January 13th, 2009 4:05 pm

    Kevin, I have been for principle write downs for a long time now. I understand the need and logic for them. I am not a troll by ant stretch and have been posting here with the same stance since day 1. I do not use vulgarity or make silly comments but rather look to discuss the facts and the merits of my stance.

    We differ mostly because you have blinders on and cannot see past your anger on this subject. You refuse to be anything but one way in your belief and as a result you cannot see past a solution other than as you say “let it correct itself” which by the way is not a solution at all. It was in the beginning, but we are well past that point now.

    You need to be able to think outside the box and be much more flexible if you want to debate on a topic such as this. There is no perfect answer or solution, but to do nothing is being foolishly optimistic that everything will just figure itself out. Too much has changed for that to occur at this point. We own half the mortgages through Fannie and Freddie already. AIG was heavily involved in MBS as well. The bailout placed billion if not trillions in these banks to assist the mortgage market in repairing itself. This is a way for the lenders to do so. Do you think you can just take all of that money back now?

    This is a huge and what is becoming a dire issue to our nation’s health and well being. It will eventually force our hand in many areas that I don’t think we want to go down as a country. This will not get better if nothing is done and will only get much, much worse now. In fact even if something is done it will not stop things from getting bad, but keep them from getting a whole lot worse. A floor in home prices and families to know they are secure in their homes and their ability to pay for them will be mementus moving this country forward in any meaningful way.

72. Tony Said:
    January 13th, 2009 4:05 pm

    Sounds to me like Barney Frank talk. Such sick mentality, totally removed from the Founding Fathers’ principles. SELF RELIANCE and being responsible and honorable is totally absent from the “bailout” talks. Here is a better solution, lets take a vote to the “bailout”. Those who favors can have a set amount taken out of their paycheck to go toward this “bailout’(the amount will be so big there will be nothing left for leisure). Those who oppose will not need to participate (which is how it should be). Lets see how far the “bailout” will run without the support of the TRUE hardworking Americans who live within their own means. Quit whining and go “RENT”, end of story.

73. Dee Said:
    January 13th, 2009 4:14 pm

    “The problem is that most loan mod will only occur WITH GOVT HELP”
    The government’s role should be to enact laws and oversight necessary to level the field. Borrowers don’t have the protection and resources to encourage lenders to negotiate equitable terms.

74. Partyboy Said:
    January 13th, 2009 4:44 pm

    In response to some of the debate regarding property taxes, I believe that there is a limit of 1% for property tax. That being said, there are unlimited ways they can tax property owners. And while the “property tax” may lower (based on 1% of the assessed value), the overall tax rate will increase because all other fees are unrelated to property value.

    For example, if a home was bought for $500k, had a 1% tax rate and $5000 a year in other fees (local assessments, fire station tax, etc.), the total rate paid would be 2%. Now if that home gets the value reassessed down to $250k, the owner is paying $7500 a year (1% of $250k + $5000 in other fees). This is now a 3% “tax rate”.

    In my opinion, if rents drop to levels which make buying a home an attractive option, the fact that taxes and insurance will be nearly as much as P&I will make people think twice about buying. And if the home values go down even further, the tax rate percentage will continue to rise, possibly to the point where it is even higher than P&I (unlikely but possible).

    Of course this is mainly applicable to extreme bubble areas, but it is a problem. The inland empire has been stealing from Peter to pay Paul for the past few years and it is going to have dire effects for a long long time.

75. Kevin Said:
    January 13th, 2009 4:49 pm

    Stu,

    “Kevin, I have been for principle write downs for a long time now. I understand the need and logic for them. I am not a troll by ant stretch and have been posting here with the same stance since day 1. I do not use vulgarity or make silly comments but rather look to discuss the facts and the merits of my stance.

    We differ mostly because you have blinders on and cannot see past your anger on this subject. You refuse to be anything but one way in your belief and as a result you cannot see past a solution other than as you say “let it correct itself” which by the way is not a solution at all. It was in the beginning, but we are well past that point now.”

    That is not true at all. I’ve said that if lenders/banks want to modify loans, defer principal, extend term to 40/50/60 years, fine. But bottom line is that the banks cannot afford principal reductions. As it is now, they need federally funded cash injections just to operate with foreclosures. At least the houses are selling to people that can afford them. The alternative, principal reductions, would cost far more and go to reward those that least deserve it. You have to be able to see this.

    Dee,

    “The government’s role should be to enact laws and oversight necessary to level the field. Borrowers don’t have the protection and resources to encourage lenders to negotiate equitable terms.”

    Level the field? Protection? They were given massive amounts of money!!!! Stop this sympathetic sob orgy, it is SO insulting. Some idiot with a $50k salary buys a $500k house, and we need to level the field so he can keep the house? You people are sick.

76. benzy Said:
    January 13th, 2009 5:24 pm

    “Level the field? Protection? They were given massive amounts of money!!!! Stop this sympathetic sob orgy, it is SO insulting. Some idiot with a $50k salary buys a $500k house, and we need to level the field so he can keep the house? You people are sick”

    Kevin, that borrower is being flushed out if he hasn’t already been, and will be renting soon enough. We’re on to the more important borrower - the one who has the 6-figure household income but cant find a lender who will refinance his 500k loan.

    If this lender is forced out of his home, everyone loses -home values plummet to 1990 levels, banks sell off property at prices that make 2003 levels look inflated, property tax revenue dries up… that’s up to 60 % of Californians contributing NOTHING to local government!

    So, Kevin. Do you think those of you who buy up the 4000 sq ft homes in Marin for 300k are going to foot the bill for all the obligations California has?

    I don’t see a single person (short-term owner, long-term owner, renter, future homeowner) harmed by principal reductions considering that:

    1. A lender would make less on foreclosure sale than they would from a principal reduction.
    2. Principal reductions effectively slide home values back to 2003 levels.
    3. Government involvement is limited to regulating the process and not wholly funding the capital depreciation.
    4. This is a one-time correction based on sound principals (i.e income verification, 28/36 ratios, etc)

    Opposing such a plan that adheres to the above is in my opinion born out of malice and grudge.

    This is a lending-born crisis. Only a lending-born solution will correct it.

77. Jorge Said:
    January 13th, 2009 5:30 pm

    There’s no doubt Mr. Mortgage is right when he says that mass cram-downs, or the “undoing” of most 2003-2007 loans will greatly speed up the recovery of the housing sector. It would do that. But I will always say that it is just not right to condemn our country to:

    a. - a loss of faith in US contract law. Contracts will be for suckers, the “smart” people will find a way out of their word.

    b. - the resulting higher interest rates on all loans for GENERATIONS (due to the increased lender risk now that lending rules are subject to “after-the-fact” changes by a judge’s or politician’s whim.)

    c. - the general (and outrageous) unfairness to those who were responsible borrowers or say, those who bought a house in December 2002. Or… simply those who rented instead of signing a foolish contract, knowing that the price to income ratio has been absurd for ten years.

    ….sacrificing all those present and future people for the sake of getting the housing bubble and economy inflated a year or two faster than it would naturally take, is something I could never agree with. even if it saved my own job.

    Proponents of this short-term fix (at the expense of all future borrowers and Americans) are employing the same Baby-Boomer mentality that has caused most of the “kick the can” problems that Generations X and Y will have to suffer with for the next 50 years.

    In America it’s Have your cake today, eat it today, and others will pay for it later. That’s just great.

78. Jefe Said:
    January 13th, 2009 5:44 pm

    @Kevin - I couldn’t agree more.

    “It’s all there, black and white, clear as crystal! You stole fizzy lifting drinks made bad financial decisions. You bumped into the ceiling which now has to be washed and sterilized drank from the cool-aid and expected real estate to always go “UP”, and now the taxpayer must foot the bill for your losses, so you get *NOTHING*! You lose! Good day sir!”

    Let the market to it’s job…please?

79. Kevin Said:
    January 13th, 2009 5:48 pm

    benzy , “If this lender is forced out of his home, everyone loses -home values plummet to 1990 levels, banks sell off property at prices that make 2003 levels look inflated, property tax revenue dries up… that’s up to 60 % of Californians contributing NOTHING to local government!”

    I don’t think they’ll drop to 1990 levels. Buy still, we haven’t yet corrected from the bubble (started circa 1998), so let’s not try to fix something that aint broken. I’m pretty sure that when prices hit fundamentally supported levels, we’ll level off. If we over-correct, then I’ll worry and maybe get on your “bail out the selfish asshole” program. Until then, stop the doomsday talk.

    “1. A lender would make less on foreclosure sale than they would from a principal reduction.”

    That is complete garbage. If that were true, banks and lenders would be lowering principal balances all over the place. Fact is that only a fraction of people are foreclosing, so the banks eat it there. You have to know that the numbers who would opt for principal reductions would be substantially higher. Maybe even everybody would do it. So it’s pretty hard to argue that foreclosure is the more expensive option.

    “2. Principal reductions effectively slide home values back to 2003 levels.”

    You don’t know much about the housing bubble. Started long before 2003.

    “3. Government involvement is limited to regulating the process and not wholly funding the capital depreciation.”

    TARP, all those bank bailouts are to keep the banks liquid, solvent. In the case of mass foreclosure, that means eating the bank’s losses. In the case of principal reductions, that is fundamentally subsidizing the portion of the principal being forgiven. Taxpayers should NOT pay for some selfish prick’s home loan.

    “This is a one-time correction based on sound principals (i.e income verification, 28/36 ratios, etc)”

    Right. Keep believing that. It sets a precedent for perpetuatual principal reductions.

    “Opposing such a plan that adheres to the above is in my opinion born out of malice and grudge.”

    I believe in personal responsibility. It is not malicious to be disgusted at the notion that those who were most greedy and irresponsible get the equivalent of $200k cash. That’s an absolute outrage and how dare you accuse me of malice, you marxist asshole.

80. Stu Said:
    January 13th, 2009 5:49 pm

    Tony,
    Barney Frank talk now that is funny. Isn’t he the guy that gets re-elected every time with 80% + of the vote? Why yes, that would be him. I guess the public does care more than you think and will get right behind this as you say… I vote YES!

    Dee,
    that is what the “Cram Down” legislation is meant to do. The only Government involvement comes after the lender and borrower try to come to equitable terms within the guidelines off course, on a principle write down and new terms and fail. The bully pulpit exist but only has to brought in if required and then must operate themselves within the manner of guidelines on their ruling. It takes out the second guessing and allows a free society to exist with some regulation involved to protect both parties during their negotiations. Should be quick to do so given the parameters don’t you think?

    Kevin,
    “That is not true at all. I’ve said that if lenders/banks want to modify loans, defer principal, extend term to 40/50/60 years, fine. But bottom line is that the banks cannot afford principal reductions. As it is now, they need federally funded cash injections just to operate with foreclosures. At least the houses are selling to people that can afford them. The alternative, principal reductions, would cost far more and go to reward those that least deserve it. You have to be able to see this”

    OK, here is where I wanted you earlier and not where you thought. So your saying you have no problems with the lender and borrower modifying their loans. You also said that you don’t mind extending terms either. I will this back up in a minute.

    You said lenders can’t afford to do principle reductions now because of the foreclosure levels. You also said that principle write downs cost far more (which is not true by the way) and reward those that least deserve it.

    My opinion on your thoughts:

    1. I agree and also want the lender and borrower to modify their loan.

    2. I will also go along with extending terms to 35 or 40 years tops and only in extreme bubble states with massive reductions needing to occur. I am open minded to see the reason for this short term to cleanse those very specific areas.

    3. I agree foreclosures need to slow down to a crawl before this can be done. By doing it this way and passing a 60 or 90 day moratorium while it kicks off would be a good approach. Foreclosures will stop in droves once this plan is in place. A moratorium could solve that problem right away while we allow for a work through to be done.

    4. I disagree that the least deserving would be helped the most although some would be I would imagine as in any approach to a severe crisis will yield. Look at Katrina for crying out loud.

    So the people we are helping are current homeowners with families and ties to the community. These least deserving as you say are part of the very fabric of our country. They have children that go to schools and shop in your local grocery store. The REO and distressed sales are made up mostly of speculators and investors. The deserving crown as you call them I guess. Yes, these same people sold the houses in the first place and were a very big part of why things were allowed to get so ugly in the first place. These are your deserving folks that should buy these homes at less than market value under distressed sales over the families that live in them today of which many just made poor decisions, some were hoodwinked by society while others chased the american dream our government played for them time and time again. These lest than fortunate members of society should be ridiculed and baste sized and I propose in front of these lenders and speculators that sold them the homes and now are taking them back would be sort of novel, don’t you think Kevin?

    So if we can come together (even a little for now) on #4 we would be closer on a solution we both may like in the end. We have time but need to determine whom the deserving people are. If you do not see my take on this and agree to some degree with it then we cannot move ahead. No way are the majority of buyers of most of these distressed sales first time homeowners. In fact many are companies that buy in bulk and then go fix them up and sell them at an obviously higher price.

81. Stu Said:
    January 13th, 2009 6:02 pm

    Jorge

    Q1 - a loss of faith in US contract law. Contracts will be for suckers, the “smart” people will find a way out of their word.

    A1 - This is a temporary ruling. The ability to do this by judges at the end of the year go away. They use guidelines set that are strict and easily adhered to. Just a legal ruling is all that we are looking for and just for a very short period of time.

    Q2 - the resulting higher interest rates on all loans for GENERATIONS (due to the increased lender risk now that lending rules are subject to “after-the-fact” changes by a judge’s or politician’s whim.)

    A2 - Again it is temporary and besides that we desperately need higher interest rates sometime soon or inflation will be an absolute nightmare moving forward. Lender risk aside we will have higher interest rates and inflation before getting through this regardless of what we do now.

    Q3 - the general (and outrageous) unfairness to those who were responsible borrowers or say, those who bought a house in December 2002. Or… simply those who rented instead of signing a foolish contract, knowing that the price to income ratio has been absurd for ten years.

    A3 - Many that didn’t buy was not because they knew anything and in fact with 70% homeownership in this county in may even be the other way around. Lax lending standards and faulty regulation and ratings allowed for anyone that wanted to buy to buy and so they did.

    “sacrificing all those present and future people for the sake of getting the housing bubble and economy inflated a year or two faster than it would naturally take, is something I could never agree with. even if it saved my own job.”

    I find that a true act of heroism even if you don’t really mean it. Your job loss and susequesnt home loss would have you singing an entirely different tune. I am not in trouble personally but see this as a way for me to stay out of trouble by helping me to keep my job and home because of it being done.

    “Proponents of this short-term fix (at the expense of all future borrowers and Americans) are employing the same Baby-Boomer mentality that has caused most of the “kick the can” problems that Generations X and Y will have to suffer with for the next 50 years”

    No voting these same morons back into office year after year is what has caused this to happen. We americans deserve in a large part what is going on here. We voted Frank, Dodd, Pelosi, Reid, Kennedy, Bush, etc. back into office overwhelmingly because things were going so good. Lets see how they all fair in the next elections shall we? Reccesions and especially depressions have a way of changing the landscape of your leaders as soon as possible.

82. benzy Said:
    January 13th, 2009 6:06 pm

    Kevin, I’ll pretty much accuse you of whatever the hell I want.

    I also believe in personal responsibility. That’s exactly why I believe a viable option may be for the banks to be compelled to take responsibility and eat the lost capital that was created as a result of them lending money to people without income.

    All aside, feast away Kevin. I’d say it is the Marxist who takes pleasure from an impaired ownership class, not the other way around.

83. Kevin Said:
    January 13th, 2009 6:07 pm

    Stu,

    “These least deserving as you say are part of the very fabric of our country. They have children that go to schools and shop in your local grocery store.”

    And none of this will change. They’re a small fraction of the population that can go rent for cheap and buy again when they become responsible.

    “The REO and distressed sales are made up mostly of speculators and investors. The deserving crown as you call them I guess. Yes, these same people sold the houses in the first place and were a very big part of why things were allowed to get so ugly in the first place. These are your deserving folks that should buy these homes at less than market value under distressed sales over the families that live in them today of which many just made poor decisions, some were hoodwinked by society while others chased the american dream our government played for them time and time again.”

    Not all of them are flippers and investors. I view those folks with disgust and hope they get hurt trying to turn a profit in this market. Stop saying “below market value”. Fact is that these houses are still selling at prices far above the bubble-levels (see OFHEO, case-shiller S&P indexes, adjusted for inflation). The people that are deserving are those that have lived within their means, saved, and didn’t lie on their mortgage applications.

    As far as point four goes, I cannot come to terms with the notion that the people getting principal reductions are anything other than the least deserving of it. How about the poor? The disabled? The folks losing their jobs? Those with family illnesses? People who were actually dealt a blow in life and are having to cope. You’re talking about people borrowing a LOT of money that shouldn’t have to pay it back. They are above and beyond the least deserving of more money.

84. Dee Said:
    January 13th, 2009 6:09 pm

    “They were given massive amounts of money!!!!”
    Lent.. to the detriment of both parties

85. Stu Said:
    January 13th, 2009 6:49 pm

    As a result BOTH paties must pay for their mistake and betterment of society.

    That is the definition of a “Cram Down”

    Where as the deal to write down the debt and interest rate for the borrower to make the deal more equitable for both parties involved is ordered. In essence it is crammed down the throats of the lenders.

86. Dee Said:
    January 13th, 2009 6:53 pm

    Stu: It takes out the second guessing and allows a free society to exist with some regulation involved to protect both parties during their negotiations
    Should have been done long ago. Unfortunate so many will be left out. There’s always the front line casualties in any conflict

87. C.C. Said:
    January 13th, 2009 7:33 pm

    I think housing prices across the land will decline to levels most here would find (at this point in time) laughable. ‘Support levels’ are going to drop one by one, month by month. What you thought might be a floor, will 90 days hence become yet another leg down.

    Why? Because there is a new Sheriff in town, and his name is Unemployment. Unemployment will dictate prices and flush both good & bad down with it. Rejuvenation of a strong domestic economy is the only adversary standing in unemployment’s path. And rejuvenation won’t happen in a year, or two, or even 3. Mr. Obama’s infrastructure public works projects may help some, but public works projects don’t export anything and hence, do nothing to balance account deficits and bring real prosperity.

    A borrow & spend economy has now given way and nothing is going to stop this train from running its course. Private and/or Government work-outs may forestall it, but they’ll do nothing to mitigate the structural damage done from too many years of borrowing and spending. They’ll do even less to re-promote lending. Savings will be the new en-vogue trend among the masses, as trivial things - such as eating and a roof, will supplant a new mortgage or trip to the mall.

    C.C.

88. od Said:
    January 13th, 2009 8:13 pm

    First of all what exactly is a “bad loan”? These option arms were not just invented recently.
    THE LAW states that if you sign a contract, any contract without understanding what you are signing you are STILL legaly binded to the contract!

    Stop all this crying about “predatory lending”.
    Ignorance and greed are not good excuses.

89. Andy_S Said:
    January 13th, 2009 8:19 pm

    Mr-M wrote “sell the property at today’s prices. This sure seems more prudent to me than to collect monthly payments from trapped borrowers on modified mortgages with teaser rates for years or have to foreclosure years from now when house prices may be double-digit percentages lower.”

    I disagree. Many a lender will say that collecting money today (and worrying tomorrow) is much more appealing than taking a write-off today! If the lender can kick the can down the road and keep collecting cash, they will. Isn’t that how we got here? They knew it was unsustainable and steamed forward anyway, damning any torpedos in the way?

90. Housing and Gasoline News January 14, 2009 » Harry Tran’s Daily 101 » Blog Archive Said:
    January 13th, 2009 8:24 pm

    [...] News Go East, Californians look for the exit Effective Immediately - No Refi’s For Borrowers with Modified Loans Just the 2nd Downtown Key Wet Home I’ve Seen Asking Less Than $200,000 since the 1990s! David [...]

91. Javagold Said:
    January 13th, 2009 8:32 pm

    i think everyone should just “forget” to pay their income tax as the incoming treasury secretary did and we have been told by Obama and Reid that its nothing more then a bump in the road……always good to know

92. Dee Said:
    January 13th, 2009 8:52 pm

    “THE LAW states that if you sign a contract, any contract without understanding what you are signing you are STILL legaly binded to the contract!”
    Really? Looks like we’re doomed.

93. Kevin Said:
    January 13th, 2009 8:59 pm

    You people really are twisted. Let’s write down the principal of people’s mortgages. Which ones? The ones that overbought!

    Seriously… wtf

94. Kevin Said:
    January 13th, 2009 9:02 pm

    Let’s write down the principal of people’s mortgages. Which ones? The ones that dropped in value!

    At least Marx didn’t have an inverse meritocracy where the truly stupid were promoted and rewarded where the prudent were fleeced.

95. Partyboy Said:
    January 13th, 2009 9:08 pm

    The legal binding in the case of a foreclosure simply means the borrower has to move out and has bad credit for a while. This in exchange for the forgiveness of a couple hundred thousand in mortgage debt. Not a terrible bind to be in for the borrower. Just be sure to sock away some cash now so you can buy back your house in a few years…and for less than it’s worth right now. If the walk away haters and staunch opponents of principle reductions at the banks expense seem pissed now, just wait until the walkers are buying again in a few years with a decent down payment…which they accumulated while defaulting on their mortgages today.

96. Michael Blomquist Said:
    January 13th, 2009 9:19 pm

    Option ARMs and liar loans have been around for decades, but not in their current form.

    Here is what the inventor of Option ARMs / Pick-A-Pay loans has to say about their recent changes. Ironically, World Savings and even Wachovia continued to provide deep discounted teaser rates of 1.95%.

    Sandler’s comments were provided weeks before the announced $25 billion dollar acquisition of World Savings by Wachovia.

    “The traditional Option ARM product is essentially unchanged since 1981. What has changed in the last few years, particularly since the emergence of a securitization market…”

    http://www.michaelblomquist.com/complaint/sandlercomments.htm
    pg 4

    Disgorgement and rule of law. Prices will return to affordable levels regardless of cram downs or not. Unfortunately, we will overshoot affordable levels because of all the fraud.

    No cram downs.

    Stu cram downs are NOT shoved down lenders throats they will be crammed down taxpayers throats via pension funds, insurance companies and other idiots who invested in the toxic debt.

97. benzy Said:
    January 13th, 2009 9:19 pm

    THE LAW states that if you sign a contract, any contract without understanding what you are signing you are STILL legaly binded to the contract!”

    Not really, od. One can walk, and that is the crux of the problem. If no lending based solution (be it cramdowns or not) is introduced then prime borrowers will walk. The result - prime and sub-prime borrowers will be one in the same. There will be nobody left to buy homes (except for Kevin, et al. who are frothing at the carnage).

    There are two viable solutions:

    1. Physically tie people to their homes with chains, rope, monitoring devices - whatever works - and force them to make their monthly payments. Jail them if they disobey.

    2. Assist the prime borrower somehow.

    I’ll say it again: This is a lending born problem which requires a lending based solution.

    We are experiencing the ill effects of the sub-prime borrower dropping out of the economy. Imagine the cascade that will transcend over all economic classes once the prime borrower is frozen out of credit markets because they had no choice but to abandon his mortgage.

    No cars, no retail, no travel. If you work for a company that makes or serves something, chances are you will lose your employment. You will suffer irrespective of your involvement in the RE market.

98. Richard Said:
    January 13th, 2009 9:30 pm

    So people who bought at the top are at fault? How were they supposed to know it was the top?? I dont fault anybody trying to buy a home that was affordable but now owns a home that is seriously under water and cant afford to move, refi, sell for family sickness etc.. as my friends now cant. The lender (the pro) should have known more than the borrower (the rookie) and not lent them money for a house that was about to collapse in price.

99. Spectator Said:
    January 13th, 2009 9:31 pm

    The more I think about the mortgage crisis, it reminds me of an Ultimate Fighting match. The lender and borrower are the fighters and the government is the referee. The fight is mainly unregulated (no biting or eye gouging, I believe) and continues until one side taps out or gets knocked out.

    The people who are walking away are like the undersized fighter (homeowner) who gets a much bigger opponent (the bank) in a bad position and just keeps hitting him in the marble bag. Some people would look at this and say it is just not right to fight this way. But it is legal and a good way to try to win the fight. Now the banks have some pretty big balls, so they can take the beating for a long time and hope the small guy’s arms get tired so he can get back on his feet and kill the little man who has been causing him all this pain. Maybe the ref will step in and bail him out from this awful position. Even though this move is within the rules of the fight, the bank didn’t think it would find itself in this position and it not happy about it. The little guy wants to call a truce and work out a deal but the bank is just too damn stubborn to end this situation so he commits to sticking it out, hoping it will end soon. Maybe the bank offers some sort of lopsided deal hoping to gain leverage on the little guy, but he is not buying. Some spectators are amused and some are disgusted by the events taking place in front of them. Some people want the ref to break it up and some want the ref to leave the fight completely unregulated and let it work itself out. No matter what their opinion of the fight, they have two things in common…they are passionate about it and glad they are not in it. No one knows how it will end, but they know it will be ugly. And while they want to turn away they are morbidly addicted…stay tuned addicts.

100. Dee Said:
     January 13th, 2009 9:36 pm

     “Let’s write down the principal of people’s mortgages. Which ones?”
     The loans that need to be re-written to prevent utter collapse in the market and economy…as many as it takes with prudent guidelines and regulations that allow homeowners and lenders to negotiate in good faith and on equal terms.

101. Jorge Said:
     January 13th, 2009 9:36 pm

     Richard, I would love to meet that (pro) lender who would tell a borrower, “oh you really shouldn’t borrow this much from me, the house you want is waaaay too overpriced.”

102. od Said:
     January 13th, 2009 10:14 pm

     LOL!. He called a broker a pro. LOL!

103. mike Said:
     January 13th, 2009 10:16 pm

     Would some of you people please get a dictionary and learn the difference between ‘principle’ and ‘principal’. You come across as a total idiot, especially if you represent yourself as being ‘in the industry’.

104. C.C. Said:
     January 13th, 2009 10:28 pm

     “We are experiencing the ill effects of the sub-prime borrower dropping out of the economy. Imagine the cascade that will transcend over all economic classes once the prime borrower is frozen out of credit markets because they had no choice but to abandon his mortgage.

     No cars, no retail, no travel. If you work for a company that makes or serves something, chances are you will lose your employment. You will suffer irrespective of your involvement in the RE market.”

     benzy:

     That ‘cascade’ you speak of is coming. And there isn’t anything that anyone is going to be able to do to stop it. Call my comments what you will. Watch it play out.

     ‘No cars’? We don’t need any more cars. There’s an over abundance of them right now. There’s over-capacity in just about every sector of mfg’d goods.

     ‘No retail’? We’re ‘retailed’ out. The ‘Consumer’ is BROKE. And so is the Nation.

     ‘No travel’? The disposable income to allow travel is down the sh!tter along with retail for the aforementioned reasons. Recently added baggage fees, airline bankruptcies and consolidations underscore this.

     Flooring borrowers with a re-write isn’t going to stop this train of deflation and the asset Destruction left in its wake.

     And if that’s not enough, watch what happens when the boomerang of Deflation turns into Hyper-Inflation once all this printed money (backed by nothing) filters into the system. Too many $$ chasing after too few goods anyone…? Price fixing? Shortages?

     It’s all related.

     C.C.

105. HousingRealist Said:
     January 13th, 2009 10:31 pm

     Mr. M - Question for you

     1.) Is there a service that will allow a search of a particular zip code, where the type of loan (POA, ARM, Fixed rate, etc) and vintage of loan is available? Thereby getting an idea of when/if a neighborhood is about to implode.

106. Richard Said:
     January 13th, 2009 11:10 pm

     Jorge, the house was not overpriced at the time. But according to this board the banks, etc. knew that the housing was about to collapse. Why would they lend money for housing that was about to collapse?

107. JJ Said:
     January 13th, 2009 11:18 pm

     Kevin, stick with us, you are right even if most here are looking for the free handouts.

     I will make two points tonite:

     (1) Once again, if a bank or lender deems it to be in its best interest to modify or reduce principal on a mortgage, then they can do so and that is good for the borrower. If it was so good to do so, banks would be doing this rather than foreclosing right now (there may be some argument that they are overwhelmed and don’t want to recognize the loss so they are holding off) but they are not doing it.

     However, the Federal government and taxpayers like myself should not participate nor should we fund or backstop these principal reductions in any way at all. Us hardworking, taxpaying, SUV-driving, energy hog Texans should not have to participate in a bailout of homeowners in a state like California that is anti-business and created an artificial real estate bubble that everyone wants relief from. Looks like with the weight of all of the underwater homes, all the shit in the US is now running downhill into California.

     (2) I don’t think a cram-down bill is going to pass Congress. The mortgage market is going to react unfavorably to this and it will increase rates unless the Feds just put the full faith and credit of the US by every friggin’ home loan made, which is probably Obama’s stimulus package #3.

     Citigroup is going to agree to just about anything the Feds want to stay afloat - I don’t think many others are going to accept it. The homebuilders will accept anything that keeps them in business and so will the realtors. All of these clowns will agree to anything, even the violation of principle of contract law, just to try and keep the bubble going.

108. HousingRealist Said:
     January 13th, 2009 11:19 pm

     I think we give every tax paying American 50K. That would be fair. Once again the prudent paying the price for the dumb shits( I mean imprudent).

109. Susan Day Minerly Said:
     January 13th, 2009 11:28 pm

     Hello all:

     I am against cram downs and modifications because they only pertain to the deliquent homeowners. They re-enforce the above mentioned sentiments as correct, reward the deliquent / irresponsible homeowners with a “benefit” and punish the responsible/paying homeowners with “nothing”. This invites moral hazard.

     I am all for principal writedowns to the current market value as determined by appraisal though, in a stablized market.

     Consumer Protection for negative equity mortgages.

     Bottom line- no matter when, where, how, amount or with what product, the mortgage and all of its componets was given and agreed to by both parties, bank and homeowner.

     Now there should be a mandate/law that protects the homeowner from the action of the banks harming them financially after accepting and paying on said mortgage.

     Due to the MASSIVE amount of defaults (a result of the banks lax lending and exotic mortgage products), the banks undersold/discounted their REO’s under the “market price” (regardless of whether it was inflated or not, IT WAS THE MARKET PRICE), they did this with the knowledge that their own actions would lower the values of the area harming the homeowners who had mortgages higher than their own sales amount financially.(this was done for corporate profits at the remaining homeowners expense) (The banks and non banks are and were aware of how the fair market value of an area is obtained with comparable sales, they are the mortgage experts)

     Massive is explained by:

     2003- foreclosures were 0.54%
     2004- foreclosures were 0.81%
     2005- foreclosures were 1.59%
     2006- foreclosures were 4.21%
     2007- foreclosures were 5.12%
     2008- the last reported fiqure was 6.43% *and climbing and there was a halt placed on proceedings

     My plan corrects the banks action( negative equity) for ALL homeowner who are current.

     My plan will also correct the banks action
     for deliquent borrowers if they can prove income with ratios of 33/41 or they will be foreclosed on.

     Here is the sticky part, the foreclosures that will occur from my plan will be from homeowners who:

     *can’t afford their home any longer–lost of income/job

     *over bought their home—never could have afforded the home under regular underwriting standards, but the affordability and availabilty was offered with the mortgage products/programs given to them WHETHER they lied about their income or not on the applicaton

     *expected to make a quick profit–if their sole reason of purchasing was to sell at a profit.

     * made a bad decision- expected life (income) to improve before their adjustable payment reset enabling them to refinance.(took a risk)

     *or were just plain stupid for dreaming of owning their own home and the availability was there during the past few years. If they couldn’t afford it, they should have remained renters.

     The homes that were foreclosed on, along with the homes previously foreclosed upon will be sold/auctioned off to the general public at the New acknowledged reduced market value, as if the NEW PURCHASER received the principal reduction themself. Discounting REO’s must stop for prices to stablize.

     Well here is the real sticky part, if 70% of the population already owns a home, that only leaves 30% of the population not owning a home.

     Out of that 30% of the population, how many can really afford income-wise to purchase and pay a mortgage payment instead of a rental payment, with 12% approximately of that 30% population at or under poverty level incomes?

     To aid the lower income borrowers, the government could purchase the unsold homes after a certain period of time, and auction them off with a subsity grant.

     The cost of doing the above is roughly less than 1.5 Trillion Dollars.

     There are 12.1 Trillion Dollars worth of outstanding mortgages with estimated that 20-25% of them are already underwater (negative equity). There is currently approximately 10% of the outstanding mortgages deliquent or having trouble maintaining their payments from that 20-25% homeowner group. ( both percentages increases as values continue to decline)

     The cost or loss to the banks is roughly 1.5 Trillion Dollars if they reduce the principal balance on the entire 25% of homeowners by the decrease of 50% in value.

     Just for your information:

     The 1.5 Trillion Dollar lost to be absorbed as the cost of doing business for the financial sector is the same amount of money that was paid to 600 executives for 2007.

     And in place of the taxpayers bail out of the financial sector, they are allowed to write down up to 3 x the loss on their balance sheets and tax returns.

110. benzy Said:
     January 14th, 2009 12:35 am

     “However, the Federal government and taxpayers like myself should not participate nor should we fund or backstop these principal reductions in any way at all. Us hardworking, taxpaying, SUV-driving, energy hog Texans should not have to participate in a bailout of homeowners in a state like California”

     JJ- For every one dollar Californians are taxed by the Fed they get 0.75 back. You haystack jumping rednecks are supporting nobody. I assure you of that.

111. Brock Sampson Said:
     January 14th, 2009 12:36 am

     Like many of you I’m a saver and don’t have any debts, but I don’t understand why you have such hatred for people who aren’t that way. The world needs people who spend money they don’t have and will buy any damn thing that catches their eye. Just think what a boring life it would be if everyone just sat on their cash and didn’t buy things they don’t really need. Bye-bye satellite TV, bye-bye iPods, bye-bye everything fun. You guys really want to go back to subsistence farming? Because that’s pretty much what you’re arguing for.

112. HousingRealist Said:
     January 14th, 2009 1:14 am

     Susan Day - I like a lot of what you say, however I think you are off by a 0 or two on your comment that 1.5T was earned by 600 execs. That would be 2.5B per exec. They received big paydays, but not that big.

113. C.C. Said:
     January 14th, 2009 1:14 am

     No hatred here Brock.

     Actually though, your comment about farming is quite appropriate, as food & water are going to prove very good investment vehicles for people (like you) who don’t have any debts, and presumably have capital to invest.

     ‘Boring life’ if everyone sat on their cash? Au contraire… People who’s first inclination is to Save rather than spend, find themselves in a much better position to purchase high-ticket items (cars, durable goods, houses, etc.), than the dolt who spends every penny earned on ‘bling’ items - like iPods for example. Or, who thinks that everything can be purchased on credit, with no Sweat equity in the pot.

     It’s amazing really, just how much the Consumerism ethos has permeated the lifestyles of the average American. Thankfully though, that’s coming to a rather rapid close. And the retail numbers that keep coming in only underscore my point.

     I’m shaking my head as I write this… Most on this forum have absolutely no idea of what’s directly in front of them - economically speaking. You’re worried about being upside down in a mortgage? All I can say is, standard-of-living expectations are going to drop - Drastically in the coming year. Wonk away at the numbers - knock yourself out. In or about a year from now, re-underwriting a mortgage will be the last thing on your mind.

     C.C.

114. Jonathan Said:
     January 14th, 2009 7:43 am

     @DaveW

     I greatly appreciate your honesty and openness in your reply. Although I’m not certain that a middle ground can be reached, polite discussion seems to be the only possible road to get there.

     I have good news for you –
     Despite what you have heard in the media, you have not lost your 64k down payment. You traded it for a house and a mortgage. You are much more fortunate than the folks that invested 64k in beanie babies, or canadian oil sands, or pets.com.
     You can afford your mortgage, so you have the option to stay in your home. You also have the option to walk away.

     The only thing that has changed is that you will have to hold onto your house for about 7-8 years in order to sell at a profit. Since this is how long most people stay in their homes anyway, you have nothing to worry about. So, as far as *owning* a home, you have a clean bill of health.

     Now, as far as *investing* in a home, you have a negative liquidation value on your asset. That may change in time, but for now, your bet has not paid off. Do not make me pay it off with my and my grandchildren’s tax dollars.

     I sense that you are forming a deep anger at banks, brokers, appraisers, realtors, etc.
     I share this anger with you. I think quite a few banks and such acted greedily and dishonestly and screwed America, and deserve to go bankrupt.
     But they screwed America one EAGER BUYER AT A TIME. Nobody forced anyone to sign a mortgage contract.

     You may feel that you were deceived. In real estate, there is a profit motive to get buyers to buy, so, just as a used car salesman has a profit motive to get you to drive off the lot with an overpriced clunker. Consider that it is entirely possible that the appraiser, realtor, etc. that you worked with were as caught up in the bubble mentality as anyone else — and they had a profit motive. Caveat Emptor.

     I am more than happy to help in any way to extract as much blood from dishonest banks, brokers, realtors, etc, whether through lawsuits, or perhaps even by supporting cramdowns (I’m still thinking it over). However, I do not think their punishment should necessarily be your gain.

     I do draw the line at using taxpayer dollars to in any way pay for your mortgage. I’m curious if you agree or disagree with that?

     Thanks again for your willingness to actually discuss.

115. Jonathan Said:
     January 14th, 2009 7:46 am

     Stu,

     I’m assuming you are an actual interested party and not a troll trying to provoke hyperbolic commentary.

     Would you be willing to draw the line here: taxpayer dollars should not be used in any way to reduce principal for people who can currently afford their mortgage? (let’s leave out the rest for now)

     (I’d also be interested to hear from Javagold)

116. Jonathan Said:
     January 14th, 2009 8:00 am

     Sorry, by “let’s leave out the rest for now”, I mean, let’s try to find some common ground for the other situations later, e.g. when someone can’t afford their mortgage.

     I think about 90% of the “personal responsibility” camp has no objection when banks/servicers modify mortgages themselves. I think we can mostly put it to rest.

     But most take great objection to either the gov’t taking the loss (meaning, you, me, and all of our grandkids), or the federal reserve covering up the loss by printing more dollars (meaning, taxing everyone in the world who holds dollars).

     Also, most would fully support lawsuits against unscrupulous brokers, banks, appraisers, realtors, etc., that did not operate in good faith. Many such organizations should certainly take their losses, be forced out of business, etc.
     In fact, if Susan’s number is correct (I must admit, I think she probably added an extra 0) then underwater borrowers should be suing the CEOs of banks to get your “bailout”.

     My personal belief (and I would say it is simple arithmetic, but I may be a bit presumptuous) is that banks CANNOT afford to write down mortgage principal without going into bankruptcy. All you have to do is look at Mr.M’s bank capitalization spreadsheets and you’ll see that they are already incredibly overleveraged. I wouldn’t at all mind forcing them to take as much of the loss as possible, if their underwriting was poor.

117. Jonathan Said:
     January 14th, 2009 8:11 am

     I’d also be interested to hear from any person that believes in a taxpayer-funded principal writedown.

     If the gov’t were to pay to write down your principal from $500,000 to $300,000, at taxpayer expense (wholly or partial), why shouldn’t I be allowed to buy your house for (say) $350,000?

     This would…
     (a) save your house from foreclosure,
     (b) slow/stop the housing decline (by accelerating price discovery) and get us closer to a recovery
     (c) reduce taxpayer expenses by $50,000, where otherwise it would be given to someone who did not earn it.

     You might respond, “then where do I live?”

     Well, you could buy my house (which is old and small, but cheap and safe). Or, you could easily buy a foreclosure at interest rates less than 5%. It may be a downgrade, but remember, you got to walk away from a huge debt.

118. Stu Said:
     January 14th, 2009 8:56 am

     Jonathan,

     “Would you be willing to draw the line here: taxpayer dollars should not be used in any way to reduce principal for people who can currently afford their mortgage? (let’s leave out the rest for now”

     Absolutely!! I don’t want to pay for a dime of any of this. I don’t care if they can or can’t pay their loan as that is irrelevant to me. I want this transactio0n to be completely between the borrower and the lender period. If they cannot work it out together then the borrower can walk or seek chapter 13 in which a judge with limited and restricted power can “cram down” the lenders throat what a fair contract should be based upon the guidelines that have been established ahead of time.

     “But most take great objection to either the gov’t taking the loss (meaning, you, me, and all of our grandkids), or the federal reserve covering up the loss by printing more dollars (meaning, taxing everyone in the world who holds dollars”

     “My personal belief (and I would say it is simple arithmetic, but I may be a bit presumptuous) is that banks CANNOT afford to write down mortgage principal without going into bankruptcy”

     The losses are going to be their whether through foreclosures or principal write downs, and that is a fact. As CC says, and I agree, you can’t really stop this recessionary period we are experiencing and will be experiencing for quite sometime. So we must figure out the best way to slow it down for the betterment of the overall society and eventually put a floor under it which requires principal reductions. The lenders really cannot afford not to do this. Despite what you have heard or read by posters on this board principal write downs are far less costly to the lender than bankruptcy. The proof is in each and every single transaction you see in the foreclosure process due to a walk away, when compared to what you see in what it would take to keep the borrower in their home through a write down. It is a no brainer for all parties involved period. The issue with lenders not wanting to do them is that they must take the write down by law as an immediate hit on their books. They don’t want to do that right now. Instead of moratoriums on foreclosures we should put a moratorium on when these hits would apply. Say by quarter instead of immediate for calendar year 2009 only. Maybe? Like I said we need to think outside of the box to address all of this to be able to get a handle on things. Right now we are just throwing money at everything and we all know that doesn’t work.

     “I’d also be interested to hear from any person that believes in a taxpayer-funded principal write down”

     NO! End of that discussion. I in now way want one cent of tax payer money to go to bailout anyone for anything and at any time. I am even opposed to the Obama plan due to the pork barrel spending contained within it to appease both party lines to capture the needed votes. I do think a public works project to gainfully employ people is needed right now and tax relief in the way lowering taxes, and perhaps tax credits for businesses that develop long term manufacturing jobs for our country which we desperately require, but no tax payer money under any circumstances should be used for bailing out the likes of Fannie, Freddie, AIG, Auto Manufacturers etc. That has got to stop ASAP!!! It is shear and utter madness to me that they have continued to do this in spite of the peoples 60% opposition. Like I said however, Americans voted this idiots right back into office so we are getting what we truly deserve as a democracy is constituted. The majority’s wishes rule and the people who do not agree (minority) suffer in defeat. I am OK with that, but I wish we would become more educated voters so I feel like I am losing for a true reason and not people voting with their feet, for a name, or personal benefit and rather vote for the good of our country!!!

119. Kevin Said:
     January 14th, 2009 9:21 am

     Stu,

     I’m willing to bet a thousand dollars that principal write downs would ultimately be funded by our tax dollars. If I had any doubt about this, I wouldn’t make such a stink about it, other than the stupidity of it.

120. Richard Said:
     January 14th, 2009 9:54 am

     I think it should be strictly between the banks/investors/servicers and the borrower. Period. No tax money, no government with the exception of providing guidelines and homeowner info/support. Like a Hope Now situation.

     If the bank looks at a mod and sums up the difference between that and a foreclosure they should do what is best for them money wise. Simple dollars and cents decision. Modify or foreclosure. I think many banks, if they had the man power, would modify. It would cost them less in the long run in most cases in my opinion.

121. Stu Said:
     January 14th, 2009 10:15 am

     Kevin,

     If you truly believe that then you would also acknowledge that foreclosures will end up being funded by tax payers as well. With that being said, why not help the situation rather than have it destroy our countries economy and housing?

     Please look at this more from a humanitarian approach for a second. Consider all of the uprooted families and the cost (not just financial) of their relocation. The hit to consumer confidence and the job looses as a result of that. Think of the benefits we gain by saving families and allowing them to remain in their homes.

     Even if foreclosures caused the same ultimate cost that write downs did you would agree that the weight and burden of foreclosures will cripple the lenders just as the lenders would be crippled with write downs. Foreclosures now need to be purchased however and sit and decay if they are not. They require maintenance at the lenders expense and heat in the winter to avoid pipes from freezing. They need electricity to remain on to sell them. Keeping families in their homes through write downs is far less disrupting to the lender and our economy.

     Just consider the damage this causes throughout society. Children displaced then act out in defiance on a large scale. The added cost of medical for these situations to be dealt with is a drain on the states budgets. The area takes a financial hit due to lots of people moving out at once. This snowballs into job losses in the economy etc. I could go on and on as to why it simply makes sense even though it is a bitter pill to swallow.

     It just makes sense to do it one way vs. the other even if the end result is the same in terms of the lenders going under and the tax payers footing the bill. I hope and pray it doesn’t come to that, but if it does due to foreclosures then in my opinion it could have maybe been avoided doing it this way instead. Off course I also argue that due to foreclosures it will happen and doing it this way may allow us the opportunity to avoid or at least dilute the overall damage thus saving the tax payer money in the end.

122. Kevin Said:
     January 14th, 2009 10:24 am

     “If you truly believe that then you would also acknowledge that foreclosures will end up being funded by tax payers as well. With that being said, why not help the situation rather than have it destroy our countries economy and housing?”

     Yes I do believe that. A fraction underwater will foreclose. That’s expensive. Paying everybody’s principal that is underwater will be MUCH MORE expensive, and give our tax dollars to those idiots who bought too much.

     I am looking at this from the humanitarian perspective. Some 10 million people are underwater. That’s 3.3% of the population. You want to sandbag everybody else with trillions of dollars to subsidize the luxuries of 3.3% of the people. Hardly humanitarian. FUCK THAT.

123. Stu Said:
     January 14th, 2009 10:51 am

     No I want to approach this dilemma in a way that is the most logical and that will serve this countries interest in the best way possinle at the least expense to our country economically, socially and limit the tax payer exposure to risk.

     By allowing (forcing) lenders to write down principal it alleviates a lot of the strain that is causing the major issues facing our country right now.

     P.S. it is 10 million people underwater based on homeowners in this country not the population. I believe it is closer if not higher than 20% today and some estimates I have seen call for 30% + by years end. That is a rather significant number. Also 18 - 20 million empty homes sit today and that number is estimated to climb much higher as we move forward. You prefer 30% + of the homeowners to be underwater and to walk away and 20-25 million empty home to litter the landscapes of America vs. the alternative?

124. Javagold Said:
     January 14th, 2009 11:37 am

     Jonathan,
     if i understand your question correctly then NO i do not agree that you cannot help people who can afford their mortgage now, in my opinion, i think you need to include these people even more than people who are behind on their mortgage as if they feel deceived and or wronged for paying on time each month (and at a higher rate as most took out 30 year fixed then exocti teasers) then you will have a much bigger problem of civil unrest on your hands…i dont think you can reward bad behavior and discount good behavior , just for the good of the country, as in the big picture it will be alot worse for the country

     granted i am in that 2nd group, but thats why i am able to speak from that point of view…..i agree prinicpal reductions are needed and most likely the only solution at this point, i also but most if not even ALL the blame on the lenders (i dont want to hear about any guns to peopls heads) HOWEVER if Congress does not allow for reductions FOR ALL MORTGAGES , underwater/not underwater, adjustable/fixed, behind payments/on time then i dont think its fair and nor do i think it will be in the best interest of the country

     i am sure i am naive and i dont trust a ken lewis as far as i can spit in the wind, but i dont understand why A FORMULA for all to follow (banks/homeowners or lenders/borrowers) cant be enacted and reductions across the board happen , to help home owners stay in their homes, help them have additional money each month (hopefully to spend elsewhere) and probably most importantly to mark the properties at actually prices (probably 2003 prices) and put a floor into this ponzi scheme/downward spiral (tha most homeowners had no knowledge of)

125. benzy Said:
     January 14th, 2009 1:30 pm

     “i think you need to include these people even more than people who are behind on their mortgage…”

     The prime borrower must be helped or game over. This group is by and large the people who earn, borrow and buy the widget your company makes. If they are removed from credit markets the economic condition you are experiencing today will seem like a lottery winner’s existence.

126. Kevin Said:
     January 14th, 2009 1:53 pm

     “The prime borrower must be helped or game over.”

     Yeah right. This country’s wealth has never been based on people always having positive equity. I’ll take that chance.

127. Jonathan Said:
     January 14th, 2009 2:02 pm

     Hi Javagold,

     I probably haven’t had enough coffee this morning so I’m having trouble parsing your reply.

     I think you are saying you agree with this statement:

     “taxpayer dollars should not be spent to reduce principal for borrowers who CAN afford their mortgages”

     (we will consider borrowers who cannot afford their mortgages separately to avoid confusion)

128. Jonathan Said:
     January 14th, 2009 2:07 pm

     @Benzy,

     Isn’t it possible that many of the prime borrowers have put themselves into so much debt that they do not want to take on more debt, just to consume more?

     Clearly if I gave you a credit card with 5% interest with a $50,000 limit, you might want to spend money on it. But, at some point, even if I increased the limit to $1,000,000 you would stop charging more on the card.
     That is, if you actually planned to pay back and not to default on the debt.

     This works exactly the same way in macroeconomics as it does for your personal finances. At some point, we cannot force consumers to borrow more money to consume, and we hit an event called “credit revulsion”. It is impossible to stop unless credit cards have negative interest rates.

129. Jonathan Said:
     January 14th, 2009 2:13 pm

     Shoving another donut down the throat of a fat man who has already eaten 100 donuts is not the same thing as “curing hunger”.

     Likewise, trying to convince Americans to take on more debt in the name of saving the economy is a false path to prosperity. The debt we take on simply makes the richest 1% of America even richer, since they are the masters of our debt.

     The real path to prosperity for any country is: a solid currency, work, exports, savings, and market based interest rates.

130. C.C. Said:
     January 14th, 2009 2:14 pm

     Game is already over.

     Most simply can’t get a grip on it or, are too afraid to see things for what they are.

     Putting a floor underneath borrowers isn’t going to drive them to the malls to purchase more widgets, let alone durable goods, because:

     #1. By virtue of the fact they ‘need’ a write-down means they’re already in financial straits with nary two pennies to rub together for discretionary purchases, such as iPods and TV boxes, etc.

     #2. A rapidly sweeping change of thought is taking hold across America. The change is called: Saving money. Some might call it a return to good ‘ole fashioned Yankee frugality. Call it what you like, the mental shift away from frivolous spending and towards hard-core saving has already taken root and is well on its way to 10% or better of gross income.

     #3. The credit markets will again broadly lend, just not in the immediate future. Risk aversion is the new game in town for banks & lenders and unemployment will lead the trend to or from lending.

     C.C.

131. Jonathan Said:
     January 14th, 2009 2:27 pm

     I have to agree with C.C. on this point, regardless of whether it’s morally right or wrong to bail out borrowers, or whether the banks can even afford it, I don’t believe principal reductions will fix the economy.

     Those in financial dire straits will benefit the economy more if they have discretionary income. As Mr. Mortgage has already made clear, any sort of principal writedown will almost certainly still leave the borrower overleveraged, (unless we’re talking fantasy land where some magical entity could actually afford to pay everyone’s mortgage down by 50% in that case, we’ll all be millionaires I guess)

     If the home is foreclosed and sold, the bank takes a hit.
     But the borrower can get out from underneath and rent, and the wonderful thing is that all over America it’s cheaper to rent right now than to buy — this is why bubblesitters tried to tell everyone about rent vs. own ratios back starting in 2003 (or earlier).

     When that homeowner is deleveraged, and housed at a reasonable price, they can then resume buying their normal crapola (aka “helping the economy”)

     CC -
     I call it “Scottish cheapness” but I’m entitled because I’m part Scottish.

132. C.C. Said:
     January 14th, 2009 2:42 pm

     Jonathan:

     “Scottish cheapness”? I’ll take it!!

     You know, it’s tough to call this mess in manner that comes across as cold or hard-hearted. But it is what it is. This is the end of easy credit and the (easier) spending that it spawned. There’s a reason this site is called the ‘implode-O-meter’. Our phony economy of the recent - and not-so-recent past, is Imploding before our very eyes. I don’t think too many people out there get it. It is simply going to take its course and there will be wailing, gnashing of teeth and fingernails-on-chalkboard all the stinking way down.

     If we make it out of this with a Republic still in tact, I think everyone - renters, owners and prospective buyers alike, are going to be in a much better and Fairer economic position. Until then, it’s $ave, $ave $ave.

     C.C.

133. Michael Blomquist Said:
     January 14th, 2009 2:51 pm

     Stu,

     Where do you get this data? 18 to 20 million vacant homes? Cmon’

     Javagold
     Why don’t you sue your agent who misrepresented or omitted the fact that rampant fraud had grossly, intentionally and temporarily inflated home values. Legal precedent dictates that agents are required to be well informed of market conditions, provide full material disclosures to all parties and to place the interests of their clients before their own.

     I closed my office with dozens of agents in Jan 2004 in one of the most expensive markets in the country for fear of what is happening now and your claims.

     Besides being “contractually” required to repurchase fraudulent loans where the loans were funded; I was required to do all of the above. As a broker I was required to make sure my agents did the same. If you have lost $100k+ and nothing was ever said about the value of homes being inflated you could have a case.

     In fact, I have seen many borrowers with “unclean hands” receive huge awards because their agents coerced them to commit fraud. Similar claims should apply for agents who did not provide adequate disclosure. In fact, there are many cases where written disclosures were provided, but the clients were verbally misinformed about the contents of the disclosure.

     I have alleged that in my area appx 50% of all loan originations starting in 2004 were done under fraudulent terms. Clearly, loan fraud is not a viable business model.

     Furthermore I have alleged that the lenders, particularly the executives knew this was happening and did nothing. In fact, I have alleged that the lenders, i-banks and NRSROs all conspired to perpetrate this criminal enterprise.

     Median home prices in my county, Santa Clara have fallen by $300k from $865k to $550k. This was extremely foreseeable and devastating for buyers, especially first time buyers who purchased after 2004.

     The executives set the new guidelines which were contrary to regulated safety and soundness lending guidelines. There was NO reason to provide stated income loans to borrowers whose sole source of income was a W-2 other than to encourage fraud and turn the American Dream of Homeownership into a giant Ponzi scheme.

     The executives can NOT dramatically and recklessly alter lending guidelines with no audits and expect to impute liability to others. In essence what they have done was hire loan originators to commit their crimes similar to when people hire hit-men.

     Thus far I have been proceeding on my own - per se, but if we could get a class action it would be much easier to find representation.

134. benzy Said:
     January 14th, 2009 2:52 pm

     Jonathan, I am not talking about consumers taking on more debt. I am talking about the all but required facet of our economy - the ability for businesses and consumers to obtain loans.

     Considerthe following all but certain scenario (1-3 has already happened, 4 is ongoing):

     1. Sub-prime borrowers are foreclosed on.
     2. influx of foreclosures in the market have a downward force on home values. Home values reset to 2003 Levels.
     3. Prime borrower’s (PBs) can’t sell or refinance below 7.5% because of poor L/V ratios.
     4. PBs’ loans are reset.
     5. PB is now fleeced and overextended.
     6. PB walks.
     7. Influx of more foreclosures in the market have a downward force on home values. Home values reset to 1990’s Levels.
     8. PB has no ability to obtain credit, as are sub-prime borrowers. All sectors of the economy are effected. Mass layoffs ensue.
     9. Property tax revenue dries up. Social services are eliminated.
     …
     …

     Are you ready for a massive readjustment. I think C.C. is painting a pretty picture compared to what I am predicting.

135. Kevin Said:
     January 14th, 2009 2:59 pm

     benzy, the market is overinflated. people shouldn’t get all pissy because we can’t sustain our peak bubble values.

136. benzy Said:
     January 14th, 2009 3:14 pm

     Kevin, I’m worried about sustaining 1990’s values.

137. Kevin Said:
     January 14th, 2009 3:30 pm

     benzy,

     more affordable housing is better for the country. helps a family of six eat better when their rent or mortgage is only $600/mo.

138. Jonathan Said:
     January 14th, 2009 3:50 pm

     @benzy,

     I am going to consider what you have said. I really like being able to have a discussion and not just a shouting match so I appreciate that you are sticking to a more point-by-point approach.

     I think this is your scenario: A PB’s loan recasts to a fully amortizing payment, but the PB can’t afford the fully amortizing payment. I presume they put little down because if they had put 20% down, they’d still be ok.

     Pardon me for being simplistic, but I must resort to simple principles here.

     If the PB could never really afford the fully amortizing payment, they could never really afford the home.
     By sheer coincidence, they were allowed to live in a home for less than the actual payment — they should look at that as being a fortunate fluke.

     They should ask the lender for a mod, execute a short sale, or walk, and go back to where they were living before and/or buy an home that they can afford.

     What entitles them to this particular home if they did not sacrifice for it the same way as the person who put 20% down and used a 30 year fixed mortgage?

139. Jonathan Said:
     January 14th, 2009 4:01 pm

     @Benzy,

     Oddly enough, there are plenty of things that cost less now than they did in 1990, even in terms of nominal dollars.
     If houses also went back to 1900 prices, there are a lot of young families that would be able to get a start without being up to their eyeballs in debt. I think you believe the economy will be toast, and we’ll have total anarchy. I disagree. Look at Las Vegas, where (according to what data you are looking at) house prices are down anywhere from 25-50% I don’t think there are riots or civil unrest anywhere to be seen.

     Is there any reason that each successive generation must leverage themselves even more (even adjusting for inflation) to buy the same sticks and bricks and mortar and dirt? In asian contries, where folks do not shrug off their debts, during housing booms, mortgages were extended out to 100 years and inter-generational mortgages came into being. Imagine saddling your kids and grandkids with debt to own the stinking home you picked out — and they have no say in the matter.

     The only alternative is already occurring — people stop paying ever increasingly ridiculous sums, leveraged deeper and deeper by the banks, for houses.

140. Jonathan Said:
     January 14th, 2009 4:13 pm

     @Michael Blomquist

     Since you are (or have been?) in the industry, I’d be grateful if you could answer a question for me.

     What is your opinion about what banks and servicers are doing with REO? Why do I still see 2006 prices for REO homes? Why won’t they get serious about pricing?

     Are there some realtors with the right connections that are getting seriously low prices on REO and the transaction occurs without listing?

     Here are the causes I suspect for the banks lack of denial of reality…
     1) they are hoping for another taxpayer funded bailout or some other radical solution
     2) they can’t afford to take the losses, else they face public insolvency
     3) they are bound by some sort of servicing covenant that I don’t understand
     4) they believe interest rates will fall even more, or that some event will touch off massive inflation
     5) They have payments coming in from PMI for part of the deficiency, so why bother for a few months..?

141. Jonathan Said:
     January 14th, 2009 4:14 pm

     oops. lack of denial of reality

142. benzy Said:
     January 14th, 2009 4:27 pm

     “if they had put 20% down, they’d still be ok.”

     In CA, unless you put 40-50% down, you’re not ok.

143. C.C. Said:
     January 14th, 2009 4:27 pm

     Guys -

     Catch the retail (and banking sector) data today…? Retail data and commercial real estate data are your Canaries-in-the-coal-mine going forward. Pay-Option? Prime borrowers? Commercial real estate dwarfs ‘em all. These numbers should tell you what to prepare for - and what’s ahead for mortgage bailouts.

     No, the gift that’s coming from the banks is going to be what is termed a ‘Bank Holiday’. Look it up -

     Quote from AP wire today:

     “Analysts expect investors to refrain from buying until they have a better picture of companies’ forecasts for 2009, which so far aren’t looking too bright.

     Investors are also increasingly uneasy about the financial industry. Deutsche Bank AG’s announcement that it lost an estimated $6.4 billion in the fourth quarter intensified the market’s concerns that banks in general are still suffering and will need more government help.

     “People were thinking we were coming toward the end of this financial meltdown, but as you can tell from the news today, we’re not even close to the end yet,” said Dave Rovelli, managing director of trading at brokerage Canaccord Adams. “Financials are the backbone of the economy. If they aren’t stable, you aren’t going to see a sustainable rally.”

     The only place where Mr. Rovelli gets it wrong is where he says that ‘Financials’ are the backbone of the economy. Wrongo, little Bongo! They were the backbone of our phony economy. Fact is, Manufacturing and Exports should have been the backbone, but that’s a story for another day. Suffice to say that with or without financials we are now, ‘Spineless’.

     Has a certain ring to it, no?

     C.C.

144. benzy Said:
     January 14th, 2009 4:28 pm

     “more affordable housing … helps a family of six eat better when their rent or mortgage is only $600/mo.”

     Not if they’re unemployed.

145. Kevin Said:
     January 14th, 2009 4:41 pm

     benzy, stop making foreclosure the unemployment boogie man. we were due for this severe recession eight years ago and were brought out of it by the housing bubble. so i know you and your cohorts here want more bubble equity to prop up the bogus spending markets, but that’s just foolish.

146. Jonathan Said:
     January 14th, 2009 4:50 pm

     @benzy,

     In the most bubbly areas, you are correct that even with 20% down, you would not be allowed to re-fi without bringing cash to the table.

     I guess we would all agree now that most any mortgage other than 20% down FRM is probably a bad idea?

     Do you have some thoughts on the rest of the idea — if someone used a very imprudent Option ARM which has recast (to historically low interest rates!) but they were not able to afford more than the initial teaser rate, why do they deserve to stay in the house?
     (I’m not being rhetorical. I’m interested to get your opinion)

     I’m also interested to hear whether you think the taxpayer should pay for principal writedowns?

147. BertDilbert Said:
     January 14th, 2009 4:51 pm

     C.C.

     “Wrongo, little Bongo! They were the backbone of our phony economy. Fact is, Manufacturing and Exports should have been the backbone, but that’s a story for another day. Suffice to say that with or without financials we are now, ‘Spineless’.”

     It is amazing how many people can’t figure it out. So far it looks like they are going to keep the high dollar plan and keep Americans out of real jobs. The competitive dollar would be too costly, while piling trillions onto the national debt in favor of government created jobs…. Eventually the debt will overtake the benefits of the high dollar and it is lights out.

148. Jonathan Said:
     January 14th, 2009 4:58 pm

     @ benzy

     suggesting some possible answers to my question to see if it sparks anyone to chime in…

     Do you have some thoughts on the rest of the idea — if someone used a very imprudent Option ARM which has recast (to historically low interest rates!) but they were not able to afford more than the initial teaser rate, why do they deserve to stay in the house?
     (I’m not being rhetorical. I’m interested to get your opinion)

     The only ideas I can come up with are:
     1) the borrower didn’t understand that the teaser rate was just a teaser (in such a case)

     2) if the bank committed fraud of some sort, in which the borrower was not complicit

     3) the borrower expected an never-falling housing market

     4) the borrower expected an never changing interest rate environment (for their re-fi)

     I’d be interested if anyone could add to or expound upon this list.

149. Stu Said:
     January 14th, 2009 4:59 pm

     MB, as of today the Wonkette is reporting vacant homes has reached 18.6 million. I know this is quite a jump from the 17.2 million last year, but quite plausible given the circumstances wouldn’t you say? I say if you add into this figure the shadow inventory then 20 million is about right as of today anyway. This figure will obviously climb as we move forward.

150. Stu Said:
     January 14th, 2009 5:08 pm

     Jonathan, while I appreciate you trying to figure out why this happened and what the borrowers did or didn’t do, we need to do something now about it. Your points are valid and need to be left for the courts to decide, but right now we need to get this train wreck slowed down to a crawl before it hits the wall and brings down everyone with it. We need action and not bailout action, but legal action through write downs by lenders or forced through judges upon them.

     It is this simple folks. The lenders lent the money recklessly and have no legal right to make the borrowers pay in most states. The borrowers therefore have all the cards in their hands. Lenders bring down the principal or borrowers walk away leaving the lenders to bankruptcy. That simple people!

     When you are all alone and on the wrong side of the equation it is typically best to just do what it takes to coreect the situation. This is one time when the squeaky wheel best not get the oil that they seek…

151. Jonathan Said:
     January 14th, 2009 5:19 pm

     @Stu,

     Since I believe you mentioned in a previous thread that you are not an underwater borrower and don’t need help, I’m interested to know what you envisioned as a worst case scenario that prompted you to such vigorous belief in the need for en-masse principal reductions?

     As I may have mentioned, I’ve recently been in places such as Tracy, CA (which has taken about a 50% hit), and I still see people walking their dogs, enjoying picnics, and jogging. Friends of mine there are a little sad about being suckered into the market, but are planning to hold on and are not asking for a bailout (and hate bailouts of all sorts).

     What sort of price declines would it take to get to “Mad Max”, with riots, rampant violence, etc?
     And please don’t use Detroit as an example, if you don’t mind, since it was practically “Mad Max” since the 80’s.

     My personal belief is that we’ll only see “Mad Max” if 5% of homeowners are bailed out at the expense of all of our grandchildren. I’ll even get a machine gun and strip the panels off my truck.

152. Stu Said:
     January 14th, 2009 5:33 pm

     Purely for the financial stability of this country and thus me and my family. I truly belive we are going to tank economically if something is not done. What you see today is not reality. It takes about 6 months to a year for many of these issues to work through the economy. In ther words the damage is being done now why we walk our dogs and enjot a picnic, but 1 year from now that has all changed due to what is happening today. There is quite a lag for things to be truly felt.

     Layoff announcements of 10’s of thouands does not mean tomorrow a company lets go of 20K people. It means over the course of 1 year or sometimes 2 or even 3 years this will occur. In the case of stalled sales and decreased profits doesn’t mean these companies are broke and close their doors tomorrow, but in 6 months to a year if things don’t pick up many will close 10’s of thousands of stores if not go bankrupt themselves. I don’t want to sit by and watch this slow moving train wreck until it hits the wall and it is too late to do something, so I think we need to act today as a country to avoid that situation from developing at all cost. NOT through bailouts mind you!

     My opinion off course, but I don’t want to risk being proven wrong and / or others being proven correct conidering what the cost will be for all of us.

153. benzy Said:
     January 14th, 2009 5:35 pm

     “Do you have some thoughts on the rest of the idea — if someone used a very imprudent Option ARM which has recast (to historically low interest rates!) but they were not able to afford more than the initial teaser rate, why do they deserve to stay in the house?”

     In short, they don’t deserve to stay in their home. Like I’ve said. Assistance must be offered to the prime borrower. And this is where I differ from Mr M’s plan to assess income and re-underwrite to 28/36. THAT would reward the imprudent and invite income fraud.

     What I suggest would be to compel banks to reset home values to 2003 levels across the board (compelling the banks includes withholding the remaining 350b in aid). If you could meet some credit guidelines and can afford the payment on a standard 30-year you keep your home. This would in one month erase the fraud perpetrated on the prime borrower by the lenders.

     In all likelihood, the borrower who could only afford the teaser rate would not be able to afford the fully amortized payment on 2/3 of the initial principal i.e. the 2003 level.

     Property values would be reset across the board, allowing the “prudent” renter access to 2003 prices as well. Allow 1st time buyers a subsidized loan.

     Those who’ve owned for 10+ years benefit from the stop gap in spiraling home values.

     Banks avoid the inevitable influx of foreclosures, and confidence is restored to credit markets.

     This would cost the Government nothing but administrative costs (beyond the aid already pledged).

     I’m afraid that those adamantly opposed to any crutch on the RE market fail to realize that we’re all on the same sinking ship. The outcome is going to be experienced collectively. It’s a matter of where you want the bottom to be.

154. Michael Blomquist Said:
     January 14th, 2009 5:41 pm

     Jonathan,

     I understand that once a bank takes back a property they have up to 5 years to dispose of that home. It is also clear that the initial 5 years can be extended. Obviously, this is much more attractive than a short sale for the bank; at least in terms of capital ratio shenanigans; before we the people come to the rescue.

     http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00000029—-000-.html

     Scary!!! Even worse is that the banks value the foreclosure at the amount of the loan +

     “All other “Other Real Estate Owned” should be accounted for individually at the lower of “recorded investment in the loan satisfied” or its fair value on the date of transfer to that category. The recorded investment in the loan satisfied is the unpaid balance of the loan, increased by accrued and uncollected interest, unamortized premium, and loan acquisition costs, if any, and decreased by previous direct write down, finance charges, and unamortized discount, if any.”

     http://www.occ.treas.gov/handbook/oreo1.pdf
     (pg 2 bottom)

     Unpaid balance undoubtedly includes neg-am. As shown above does include uncollected interest (countless borrowers not paying for 6-12 months, foreclosure fees, etc. all boost the value of the asset). It looks as though they write off the foreclosure expense during that quarter, but it still boosts the value of the asset.

     Important!!!
     “and decreased by previous direct write down, finance charges, and unamortized discount, if any.”

     This is probably more the reason why loans with modifications are the plague. Undoubtedly, the data on re-defaults is horrific, but this is an accounting tsunami! WTF!

     Most likely write downs/loan mods are amortized losses for the banks or the OCC would not require the banks to decrease the value of the REO by previous write downs. Who the hell would want to buy previously modified loans when the re-default data is horrific and then they also have to account for the accounting.

     Does this mean that the value of the pool still reflects the face value of the note minus amortized write downs or the full writedown? Obviously, the true values are completely unknown, but you start tweeking the accounting as well and we will never get to the bottom of this mess.

     Holly shite. I was under the impression that the loan mod was a full write down in that quarter. This makes our situation MUCH MUCH MUCH MUCHO worse than I thought.

155. Stu Said:
     January 14th, 2009 5:49 pm

     Benzy, you said: “I’m worried about sustaining 1990’s values”

     Their is the entire debate in a nutshell. You hit the nail on the head!! We all go down together and nobody wins unless we modify the smaller percentages at the greater good of the masses. Hey, we all messed up here so disbelievers don’t be so almighty on your high horses. Who did you vote for? Did you take a loan out in the past 7 years? Most importantly did you actually say or do anything while this was happening to prevent it? If not then you are what is commonly referred to as an accomplice. In other words you own some blame in the outcome of this event. Now you have some responsibility in cleaning it up. Do you choose to do it with the lenders money or the tax payers money is the question? I vote strongly for the lenders money!

156. Jonathan Said:
     January 14th, 2009 5:55 pm

     @Benzy,

     Thanks for sharing you plan. It is worth thinking about.
     However, I’m concerned about something. A few folks here say that prices may well return to 1990’s level.

     If you arbitrarily reset prices to 2003, how do you ensure that this will not eventually lead to another wave of foreclosures, after a few years of no true recovery? In fact, setting prices back to 2003 may make people panic even more and defer their purchases, since clearly such price fixing has never been tried before in this country, even during the depression.

     Also, if you want to set prices back to 2003 level, how would you know if you got an accurate appraisal or advice from real estate professionals, being that they deserve so much of the blame (according to many here) ?

     The plan would also simply reward those that bought in 2003, and actually does nothing for people that bought before, despite your words to the contrary, unless you can tell me with certainty what actual sales prices will be after the plan is implemented.

     In fact, by creating a fake propped up price scheme, we may very well be putting off a true recovery for 30 years.

157. Jonathan Said:
     January 14th, 2009 6:00 pm

     not to mention that there is absolutely no way that the lenders could take a >$1 trillion dollar hit.

     Prime borrowers are typically people of either some means, or wherewithal, or both. If someone took their house, they can reboot and start over.

     Could we perhaps get consensus that people with houses worth over, say, $1Million should not be allowed to get a house price reset to 2003 or any other sort of principal reduction?

     Benzy and Stu, what do you think?

158. Jonathan Said:
     January 14th, 2009 6:06 pm

     Most importantly did you actually say or do anything while this was happening to prevent it? If not then you are what is commonly referred to as an accomplice.
     

     I made myself look like the only idiot in the room at every party or family gathering, or Friday beer day since about 2003.

     When I counselled people to think about the price (not just monthly payment), to not assume that easy money will last forever, or to look how far housing prices had deviated from the mean, here’s the answer that I got…

     “But my realtor says that housing prices always go up”
     Or, “don’t worry, even if other people are taking out those crazy loans, I’ll be OK.”
     Or “If home prices go down, I’ll just sell… so simple”

     I don’t think I met anyone else besides Stu’s and Benzy’s and DaveW’s (sorry to pick on you guys). Just that this is what they were like in 2003.

159. Jonathan Said:
     January 14th, 2009 6:14 pm

     
     Hey, we all messed up here so disbelievers don’t be so almighty on your high horses. Who did you vote for? Did you take a loan out in the past 7 years?
     

     I don’t think you messed up, Stu, or at least not too badly. Apparently you might be a bit underwater but you can afford your payments (according to a previous thread). Your plan to pay over the term of the mortgage is still fully functional, and the equation still has exactly the same numbers as it did before.

     Stu, why do you (personally) need a bailout to support the economy?
     If it does not even make sense for you, why does it make sense for everyone?

     
     …unless we modify the smaller percentages at the greater good of the masses
     

     Please, do not mention the greater good. My wife’s grandparents were shot because of it in China.

160. benzy Said:
     January 14th, 2009 7:01 pm

     I don’t think you messed up, Stu, or at least not too badly. Apparently you might be a bit underwater…”

     Why would Stu stay in his home when his neighbor is going to buy the same home for half the price?

     Do you expect integrity and loyalty to ones lender to rule the day? Stu should and will bounce on his home, regardless of his ability to pay. And, I’m afraid to say Stu is not going to be alone.

     I’m sorry, but if you wanted to buy a house between 2003 and 2007 you had to get a loan and pay a price. Yes, we can chuck around some little debate here and pride ourselves or kick ourselves because of how we read the market.

     But imagine the troves of people who don’t analyze the RE market at any level. They just applied for a standard 5/1 arm and moved in as people have been doing for years. If the market lost 10 percent, then so be it. They’d adjust, but they’d have a home.

     The market has lost up to 50 percent because of bank fraud. This my friend is a special circumstance.

     The banks didn’t say, “yes, you have the loan. But I’ll warn you. I just gave the same loan to a burger flipper. All indicators point to your home being overvalued”.

     In fact the opposite happened. A bank sent out an appraiser who said the home was worth more!

161. Jonathan Said:
     January 14th, 2009 7:20 pm

     @ Benzy

     Why would Stu stay in his home when his neighbor is going to buy the same home for half the price?

     Why, for all of the same reasons he bought it to begin with, of course. If you had asked him at the time, he’s say that it was worth the price. What does it matter what another person pays for a similar house?

     I think what Stu wants is to walk away and buy again, but doesn’t have the stones to do it, so he wants us all to pay for his principal reduction instead.

     
     Do you expect integrity and loyalty to ones lender to rule the day?
     
     Absolutely not. I don’t have loyalty toward my lender any more than I have loyalty to a particular ATM machine.

     If someone wants to walk, they should walk. Don’t make my grandkids pay just because you don’t want your credit hurt for a couple of years.

     A 5/1 arm is not standard, by the way. A 30 year conforming FRM with 20% down is standard if you go back further than 10 years.

     And no, not many parts of the market have lost 50% yet.
     But give it time. Changing the free market system should require more justification than we see now. Lots of people are still asking $700/sq foot in my area!

     
     The banks didn’t say, “yes, you have the loan. But I’ll warn you. I just gave the same loan to a burger flipper. All indicators point to your home being overvalued”.
     
     The banks have absolutely no right or obligation to disclose the details of other contracts that you are not party to. It would, perhaps, be a good thing to add in future legislation.

     And besides, let’s be honest. We both know you would have bought the home anyway.

162. Jonathan Said:
     January 14th, 2009 7:27 pm

     
     I’m sorry, but if you wanted to buy a house between 2003 and 2007 you had to get a loan and pay a price
     

     Ah, price insensitive buyers.
     If you *ever* see this particular sentiment again in the market, then please save your cash and short some banks (or whatever’s left). This only happens once in a generation.

     From my point of view, these people were desperate to get in and couldn’t care less about the price.
     Since they didn’t care much about price at that time, then why start now?

163. Jonathan Said:
     January 14th, 2009 7:38 pm

     Let me tell you a story about my neighbor that may give some hint about the psychology of a bubble.

     He speaks no english, lives with his family of 6 in a 2 bedroom condo. He and his wife work very hard cooking food in a cafeteria. Total income could not be $40,000.

     He bought the place next door for 40% over the previous sale price (which 3 years previous) and lived for two years in it. Then, in 2004 he bought a house for $575,000 down the street.

     He clearly had no plans to actually pay, but was able to live in the house for over a year before he was evicted. All the while, he kept the place next door to mine.

     Now the funny thing is, I told this story in 2005, 2006, 2007, and 2008. I told it to two couples that are very close friends. I begged and pleaded with them to see that prices are being inflated because of people like my neighbor.

     Guess what they did…

     They bought houses anyway.

     I am starting to see the root cause.
     Buyers now believe that they should not have been given exactly what they were desperate for — easy access to credit.

164. Jorge Said:
     January 14th, 2009 7:53 pm

     Stu:

     “You prefer 30% + of the homeowners to be underwater and to walk away and 20-25 million empty home to litter the landscapes of America vs. the alternative?

     Yes, it might get that way. but I would not worry, it would just be a “temporary” circumstance, as you like to say. The nation will recover. Stu, It’s just my opinion but your vision (like that of politicians) only seems to extend into the immediate future, not the lives of future Americans. We are experiencing the hangover this nation needs to hopefully learn it’s lesson for another 80 years and not repeat any more credit bubbles. Of course it will anyway, due to human greed and the herd mentality, but undoubtedly it will not take 80 years the next time, it will be less.

165. Jorge Said:
     January 14th, 2009 8:03 pm

     Anyone who believes that a lender will ever “eat” the cost of a congessionally-forced loan modification must have grown up on a different planet than the one I did. The taxpayer has become the ONLY entity in recent memory that is ever forced to “EAT IT”. Just like the Fannie and Freddie fraud, everyone finds a crooked way to pass the sack until Uncle Sam is the last one holding it.

166. Javagold Said:
     January 14th, 2009 8:10 pm

     Jonathan,
     1. No i do Not Agree with You (thats as easy as i can make it without losing my readers…LOL)

     my dad is a real estate attorney who saw this disaster coming 7 years ago !! when he tried warning his clients (and some of his children) he was told that the brokers/agents/lenders etc…. were telling everyone just to refinance at same or better rates when its time to

     4. The borrower expected an never changing interest rate environment (for their re-fi)

     so your answer would be #4

167. Jonathan Said:
     January 14th, 2009 8:24 pm

     So, Javagold, you are saying that you want taxpayers to pay for principal reductions? I am surprised, I thought it would be quite the opposite, and for that reason thought I must be misreading you.

     (maybe you missed the ‘not’? Re-read my comment at January 14th, 2009 2:02 pm)

     And, you believe that the reason that we taxpayers should be liable to pay for principal reductions is for reason #4, that many brokers suggested re-fi was an option.

     (I absolutely do not want to put words in your mouth. If I still have not captured it, please paste one of the following…

     1. I WANT taxpayers to pay for principal reductions for those that CAN AFFORD their mortgages

     2. I DO NOT WANT taxpayers to pay for principal reductions for those that CAN AFFORD their mortgages.

     I believe most everyone so far DOES NOT want taxpayers to pay for principal reductions.

168. Javagold Said:
     January 14th, 2009 8:32 pm

     its not that i WANT taxpayers to pay, HOWEVER

     it that i want principal reductions for EVERYONE and INCLUDING principal reductions for those that CAN AFFORD their mortgages (as i believe that is very important and a must)

     now if that comes from taxpayers or lenders, i dont know, I WOULD PREFER LENDERS FOR SURE

169. Jonathan Said:
     January 14th, 2009 8:45 pm

     I appreciate your clarification.
     Of course everyone would prefer this to come from banks.
     You may be the lone champion of the across-the-board taxpayer funded principal reduction (including people that both can and cannot pay their mortgages).

     If the entire mortgage market is 10.8 trillion dollars, do you think the problem might actually be unsolveable with direct principal writedowns?
     Do you think we would not be able to float 1 or 2 trillions in new treasury issues without destroying the world bond market, especially when foreign capital reserves are quickly diminishing (i.e. china can’t sell us their stuff, so they can’t buy our bonds)?

170. Stu Said:
     January 14th, 2009 8:52 pm

     Jonathan,

     “not to mention that there is absolutely no way that the lenders could take a >$1 trillion dollar hit”

     I don’t know what they can take for a hit, but whatever the hit is it will be more dealing with millions of foreclosures and dumping homes at fire sale prices in a down market with no buyers. I say the smart money is spent keeping those home buyers in their homes rather than finding new ones that don’t exist.

     “Prime borrowers are typically people of either some means, or wherewithal, or both. If someone took their house, they can reboot and start over”

     In the past I would agree, but in this era they just leveredged higher priced homes with Alt-A, Pay Option ARM’s and Prime and Prime Jumbo loans. I think in some ways they could be worse in terms of what they ultimately owe and borrowed vs. subprime borrowers.

     “Could we perhaps get consensus that people with houses worth over, say, $1Million should not be allowed to get a house price reset to 2003 or any other sort of principal reduction”

     No, the landscape is different in CA vs. AK for example. You need to have a Regional approach to this issue if you want to be successful in my opinion.

171. Stu Said:
     January 14th, 2009 8:54 pm

     Jonathan,

     “I made myself look like the only idiot in the room”

     Fair enough… my bad. You are not the norm, just so you know.

172. Stu Said:
     January 14th, 2009 9:00 pm

     Jonathan,

     “I don’t think you messed up, Stu, or at least not too badly. Apparently you might be a bit underwater but you can afford your payments (according to a previous thread). Your plan to pay over the term of the mortgage is still fully functional, and the equation still has exactly the same numbers as it did before”

     Not at all, and I am more than likely slightly underwater right now. I am not looking to sell as it is my retirement home I purchased as such, and I will leave it to my children. I could care less about prices except that I hope my home is worth more than it is worth now when I die so my children don’t inherit debt from me. That would suck!!

     “Stu, why do you (personally) need a bailout to support the economy?
     If it does not even make sense for you, why does it make sense for everyone”

     I don’t need a bailout by any stretch to be quite honest. I think that there are many who do however and I also live in the Northeast so we are hardly phased by this up here. California, Florida, Arizona & Nevada are hurting terribly and that hurts the rest of the country in economic ways that will eventually begin to affect me and my family members. I don’t want to see that happen. That would be very bad for not only me, but the entire country in my opinion at that point.

173. Stu Said:
     January 14th, 2009 9:11 pm

     Jorge,

     “Yes, it might get that way. but I would not worry, it would just be a “temporary” circumstance, as you like to say. The nation will recover”

     Well off course it will and that is why I am buying more stocks than I did last year, but that has nothing to do with this. Recover “how” is my issue. I don’t want to see it recover 20 years from now. I don’t want to see 30% unemployment or higher and 25 million empty home littering the landscapes of America. I don’t want to drive by the homeless every day and see people begging for food. I don’t want to see crime from despair rise and creep into homes across the country just because tof the need to survive. Temporary as it may be I don’t want that even for a minute.

     “Stu, It’s just my opinion but your vision (like that of politicians) only seems to extend into the immediate future, not the lives of future Americans. We are experiencing the hangover this nation needs to hopefully learn it’s lesson for another 80 years and not repeat any more credit bubbles. Of course it will anyway, due to human greed and the herd mentality, but undoubtedly it will not take 80 years the next time, it will be less”

     I agree and yes if we do something or nothing it will happen again anyway. We are products of our environment and our past. I speak nothing like a bailout politician… well I may sound like a few that agree with me in that no tax money for anyone under any circumstance should be used as bailout money with no gaurantee of even getting it back. I am looking forward trust me as I want to enjoy my retirement years when I finally get there.

174. Jonathan Said:
     January 14th, 2009 9:31 pm

     I think new buyers exist and are out there, at 3x-5x median income multiples. That is all that should be asked of someone to pay for boards and nails and bricks and dirt.

     Wanting to sustain prices higher than that means that we encourage people to take on a crushing debt burden, which hurts families, particularly those just starting out, and their livelihood and well being.

     I think trying to prevent prices from falling is like wishing a burden to be placed on your fellow man.

     So, why don’t we aim to let house prices fall to around 3x the median income (for whatever area under consideration?). In my area, it’s still 7x-8x median. Yes, I realize that not all income earners are homeowners.

175. Susan Day Minerly Said:
     January 14th, 2009 9:34 pm

     Hello all:

     I hope you are all warm, it is getting a little cold here, NY.

     Capitalism is the risk/ability to produce, manufacturer or sell a product/service for the potential of earning profits (company retained) with the possibility of loss(company paid)involved.

     If there is a harmful/safety issue involved to the consumer, the product is recalled for correction at the expense of the company, not the government.

     No company/investor wants to admit to a bad business decision or willingly lose money, which is the reason why the modifications offered and the cram downs will not stop the foreclosures nor the declining home prices, BESIDES the fact that both only address the deliquent homeowners.

     The government, as a very smart poster here stated, is the gorilla needed to correct the downward slide of home prices.

     (The more values slide, the more the defaults rises with a trickle over effect to the rest of the economy, that is increasing to a stream no longer a trickle, the government needs to get involved before it becomes “to big to manage/save” by becoming the ocean itself )

     Consumer Protection for negative equity mortgages: there is to be an immediate recall of all mortgages experiencing negative equity, since it has been shown, explained,disclosed, researched and fully documented to this government that the lenders had prior working knowledge that not only were their previous issued mortgage products, harmful to the housing market by artificially inflating prices (injected here that both parties to the transaction, borrower and bank, did agree to the price and value given)

     BUT their actions of continuing to discount their massive inventory of REO’s (which occurred to their prior bad business decisions of mortgage products offered) into the market is constantly lowering housing values COSTING direct harm financially to homeowners that have mortgage balances over the discounted amount, thereby creating negative equity. The banks were and are fully aware of the impact of discounting REO’s under the “market price” will lower all homeowners property values in the area in questioned. The continuation spoken of is that the holders of said mortgages are discounting the REO’s under the New market values that they themselves created to continue to sell their never ending supply of foreclosures lowering values further.
     (the national decrease in values is approximately 25% while the bubble states experienced approximately 50% decrease in values)

     1-all homeowners will be entitled to a principal reduction to the current appraised value, regardless of type of mortgage or date purchased

     The appraisal must include 3 resales and 3 REO’s as comparable sales to be considered the actual true fair market value of the property.

     The homeowners are entitled to this reduction at the expense of all participating lenders and investors of said mortgage backed securities.

     If the homeowner is current with their mortgage payments, a new mortgage will be issued at the prevailing rate of interest based on individuals credit score per chart for a 30 yr fixed rate mortgage at the reduced appraised value. NO income qualification is necessary, they have exhibited themselves as a good credit risk. The new reduced mortgage issued is at 100% of the current appraised value, the monthly mortgage payment should be reduced, the homeowner will not be able to “turn around tomorrow or in the next few years” sell the home at a profit in the current housing market.

     If the homeowner is deliquent with their mortgage payments, a new mortgage CAN be issued at the set rate of interest for a 30 yr fixed rate mortgage IF the homeowner is able to provide sufficient income proof to qualify for the new reduced mortgage payment at 33/41% ratios.

     To further stablize the market, effective immediately all defaults will be reviewed according to the recall, if the homeowner can not qualify a foreclosure must occur. The foreclosure will be offered for sale AT THE NEW REDUCED MARKET VALUE PRICE without further discounting allowed or the benefit of 3x the loss may not be taken.

     The government is aware that forcing members of the financial sector to conform to the above recall might be a hardship on them directly. That is why for every reduced refinanced mortgage, the “holder” of the affected underwater mortgage, will be able to on their balance sheet and tax return at the time of the “refinance” take up to 3 times the dollar amount of loss to offset their over leveraging and “poor” accounting standards that has been done to date.

     The balance of the TARP funds will not be paid to said banks, and the funds and guarantees previously issued of TAXPAYERS FUNDS totalling over 7 Trillion dollars will be recalled, subject to total participation in the recall of the negative equity mortgages for said consumers.

     I am not underwater nor will I ever be.

     But the bottom line, is while these homeowners did agree to the price/value given at time of purchase, the had the right to believe that they would not lose their initial value by purchasing a home.

176. Susan Day Minerly Said:
     January 14th, 2009 10:26 pm

     Jonathan:

     I’ll take a stab at your questions:

     The first question about serious pricing of REO’s, the market has already shown you that the REO’s with the short sales already make up over 50% of the total sales activity because of their discounting or underselling. They are definately selling them under the listing price or better said the mortgage balance price, half a loaf is better than no loaf theory.

     1- Yes, its coming in the form of more taxpayer money
     2- Yes, that is why all of the taxpayer quarantees were issued and the cash was given to boost their capital reserve requirements besides for the acceptance of these toxic mortgages at the window.
     3- cash flow ( the profit retained part of capitalism) of the 90% of homeowners that have continued to pay their mortgage on time. Why upset the apple cart, as long as they can postpone having to address the remaining 10-15% of underwater homeowners that are still paying, leave it alone. Get the government involved to protect their investment on the 10% of homeowners who are deliquent based on their own actions.
     4-they really don’t care, the losses were guarantee by the taxpayer or will be entirely soon/ and not just Real Estate but all of their business losses (Citigroup=$306 billion, they are splitting and selling with the taxpayers guarantee of losses being transferred)
     5- some from PMI, but most from the taxpayers

     If I understand, you are against principal reductions for homeowners, correct?

     Why when the financial sector is receiving more in taxpayers funds than what the total principal reductions would cost them ? Some banks will fail but not all and it would not just be the “chosen” ones, it would be based on pure capitalism or free market.

177. Jonathan Said:
     January 14th, 2009 10:27 pm

     @Michael B
     Excellent info. Thanks a lot.

178. Jorge Said:
     January 14th, 2009 10:38 pm

     ANY principal reduction of ANY kind is unfair to anyone who has either

     1)paid off their mortgage.
     2)bought at a different “ineligible” time
     3)has simply waited to buy until the market cooled.

     It’s really that simple. I wish people would stop trying to offer plans on who to re-write the rules. I’d love to see which rules they happen to “like” and then offer up plans on how they should be modified by the governemnt. Unfortunately, to the dismay of many, Mr. Market does indeed have a mean side too, and people should just deal with it.

     Much of the world’s wealth is based on Investment (risk) and for that to work, there have to be RULES. Otherwise risk become too incalculable and the reward needed to offset unknown risk (interest) will grow out of control.

     One a mortgage modification is a legitimized and acceptable concept in the American psyche, that genie will NEVER go back into the bottle. It will not be a temporary, one-time thing, as some claim.

179. Michael Blomquist Said:
     January 14th, 2009 10:41 pm

     I have figured it out. The Fed and Treasury provide a 2 million to every “legal” American household as lottery incomes. Divorce rates would skyrocket (prior married couples could double up winnings)and the 18-20 million vacant homes could be filled.

     The government taxes the winnings to pay down the deficits and hide the creation of gazillions to all foreign banks.

     Per option ARMs should borrowers really believe they were receiving 1% mortgages when CDs and saving accounts were paying appx 3%?

     Rule of law people. Send the message to your reps. Disgorgement, indictments and or remove these crooks from office.

     http://www.congress.org/congressorg/home/

     If buyers felt they were mislead by their agents that is between them and the agents not the buyers and taxpayers.

     Taxpayers wake up! Send your representatives a message that they must disgorge and indict these crooks. No more TARP money until they are removed from office. After they are removed from office - DISGORGE!

180. Stu Said:
     January 14th, 2009 10:54 pm

     Jorge,

     “Much of the world’s wealth is based on Investment (risk) and for that to work, there have to be RULES. Otherwise risk become too incalculable and the reward needed to offset unknown risk (interest) will grow out of control”

     BINGO!!!

     The rules were broken by the people who make the rules. Things have become out of control and I want the lenders to FIX IT!!!

     This didn’t affect 1) because they were not part of that era. It came back full circle as if they were standing still during that time, or 2) for that matter (self explained). 3) should rejoice because it didn’t affect them at all (except the wait which is now over. They can now afford a home at todays prices. What happened didn’t cost them anything financially so no gripe except their time (use your votes more wisely next time if you want true change make it happen).

     Yeah, its that simple…

     P.S. you said:

     “One a mortgage modification is a legitimized and acceptable concept in the American psyche, that genie will NEVER go back into the bottle. It will not be a temporary, one-time thing, as some claim”

     Well you need to sit back and realize what the “true” market will allow to be out of the bottle. Everything still evolves around credit and markets can’t simply create that by themselves… and neither can tax payers.

181. Jonathan Said:
     January 14th, 2009 11:44 pm

     @Stu

     You mentioned “fire sale prices” in the previous thread.
     I’ve suspected for a while that some miscommunication here could be entirely due to where people live.

     Can you describe what you think a “fire sale price” would be on a house, e.g. sq footage, bedrooms, and price?
     Best would be if you could link to a listing (e.g. on Redfin)

     In my area, the only places I’m seeing “fire sale prices” are homes where certainly the place would be worth more if it were *actually* set on fire.

     (check out burbed.com sometime for lots of examples of what I mean)

     In my area, we need to fall a lot more to get back to fundamentals ~3x median income, ~150 price/rent ratio, etc.

182. guy1 Said:
     January 15th, 2009 3:02 am

     Mr. Mortgage,

     Go fuck yourself. No principal reductions for anyone. Burn, burn, burn, all you stupid fucks who over paid.

     Well said.

183. BertDilbert Said:
     January 15th, 2009 3:37 am

     guy1 it is better for the banks to be seeing to make mods than be sued for manipulating the market and have the taxpayers bail out the banks on the lawsuit so “YES” to principal reductions.

184. get real Said:
     January 15th, 2009 4:02 am

     This is exactly the reason mortgage mods and principal write downs will not work. No investor in their right mind is going to pay any decent money for loans that have been modified nor will they want to “refi” these knowing that refi loans are even riskier than purchase loans because they are NON RECOURSE. They can’t collect any deficiency from the borrower. In addition, they will be revisiting the troubled modified loan over.. and over… and over again everytime prices drop and the borrower wants another break.

     More than half of modified loans fail again, and its not just because the modification was “not enough” of a break. What seems like a good deal to a borrower today, quickly becomes a bad deal in hindsight in six months when prices continue to drop and INTEREST RATES ARE DOWN AT AN ALL TIME LOW. The “great deal” you thought you got on your mod 6 months ago now seems rather shabby. The borrower has nothing to lose by going back for round 2, or 3, or 4 because their credit is already shot from the first mod in most cases. Why would any investor in their right mind buy these or refi them? The GSE’s are clueless, but even they have to figure on either collecting the payments at some point or selling these loans to some investor down the road.

     Large scale loan modifications ESPECIALLY PRINCIPAL WRITEDOWNS cannot work. Human nature dictates that when given a break, people will continue to EXPECT to be bailed out, and that even those who are not in trouble will want THEIR share of the bailout and stop paying to get the mod their neighbor got.

     Business absolutely cannot function this way. The banks have to foreclose, it is the only bullet in their arsenal when dealing with a borrower in default. They have to take the loss now and sell the property at today’s prices to a new buyer with a vested interest (their 20-25% downpayment and their good FICO) in honoring their contractual obligations. New buyers will still be vested in the deal even if prices drop another 20%. Clearing the inventory even at firesale prices and letting borrowers know what they can expect is the only way to stop this insanity.

185. get real Said:
     January 15th, 2009 4:19 am

     Also, there has been some discussion here about the banks/lenders selling their REO’s at “under” market price and harming other homeowners. I would like to know what you consider “under” market price to mean in this context. Market price is the price a good will bring on the open market. I think we can all agree that sales numbers of homes i.e. closed transactions are still at pitiful lows when compared to the average over years. This to me means that the good has not yet reached “market price” because there is no market for most of the goods at current prices.

     In addition, listing prices are not the market price. If a good is offered for sale at a too low a price, (i.e. truly “under” market price) then that good will most likely be bid up to close to the “market price” by people who know a good deal when they see it. Therefore, the idea that banks are causing the drops in prices by selling under “market price” does not hold water. If there were willing buyers at a higher price, they would no doubt be selling for higher prices.

     The real problem with the “under”-market-price-bank-REO’s-hurting-my-home-value theory is that most people in California, especially those that own, have lost sight of what these properties should be bringing in a non-bubble, normal market based on healthy fundamentals. Instead of looking top down approach (”We’re 30-40% off peak prices so we’re “under” market price!!!), people should be looking at prices from the historical norms. From that angle, it is clear that with the financing available and the underwriting standards in place today, we are still no where near “normal” market prices, much less “under” market price, in most areas of California today.

186. get real Said:
     January 15th, 2009 5:11 am

     Yikes, typo. Meant to say above that “No investor in their right mind is going to pay any decent money for loans that have been modified nor will they want to “refi” these knowing that modified loans are even riskier since purchase loans are NON RECOURSE.”

     Basically, taking on a borrower who was already high risk and asked for a modification = even higher risk on new loan IMO.

187. Michael Blomquist Said:
     January 15th, 2009 11:03 am

     Get real… good stuff.

     I think the canary is that the loan mods/principal reductions are amortized by the lenders. When modified loans become REOs the lenders are required to decrease the value by the amount of the amortized loss. Current accounting practices allow the lenders to value the REO as the total outstanding balance of the loan (neg-am, past due interest, foreclosure fees, etc.) The lenders are required to expense foreclosures fees during that quarter, but all other costs are added to the value of the asset. RIDICULOUS! The law states they are supposed to value at the lesser of the loan amount (including neg-am, past due interest, etc.) or market value, but who wants to bet they are valuing at the loan amount???

     Due to more accounting shenanigans the lenders’ losses will continue for many years if not decades.

     IMHO this is the real problem behind modified loans; obviously the re-default data is very alarming, but the accounting practices have completely destroyed any hope of realistic valuations and are an accounting nightmare.

188. Stu Said:
     January 15th, 2009 11:07 am

     Get real, you make some good points, but I do disagree with your assertions of market price vs. foreclosure price. Allow me to explain.

     “Also there has been some discussion here about the banks/lenders selling their REO’s at “under” market price and harming other homeowners. I would like to know what you consider “under” market price to mean in this context”

     I mean that the lenders are selling the properties in bulk (not to individual buyers) at prices far less than what market prices are on individual sales by Realtors. Normal sales, meaning non-distressed sales are true market value. The market (individual home sellers) cannot compete with the lenders due to the shear number of homes they are selling and at the deflated values due to bulk sales and no individual buyers to sell them too. Distressed sales are like pawn shop bargains. So because you can go into a pawn shop and buy a diamond for $500 but for that same diamond in every jewelry store within 10 miles it would cost you between $750 - $1000 the real market value of the diamond is $500 because a distress sale on a estate sale created a deal for the pawn shop owner who bought all of the jewelry on the cheap? So because Costco sells 100 rolls of paper towels for .49 in bulk if you have the money, but every store within 10 miles sells the individual rolls for .75 the real value for the towels is .49? In both these examples I am trying to point out that in bulk things are generally cheaper, but it is because you are buying so much of something and not that you are buying at market price. You are in fact buying at bulk market price. That is the problem we are in right now with foreclosure sales being under true market value in my opinion. These distressed sales are adjusting prices further downward to levels well below market prices. I agree market prices do need to come down further, but not too distressed sales levels. They are only at these low levels because they can only sell them in bulk and at distressed sales levels right now because there are just too many of them to sell and not enough qualified individual buyers to buy them.

     This now gives the appearance that we are reaching a bottom or true market value when all we have done is artificially pulled prices down to a level far below what their reasonable and fair value should actually be in normal times (individual sales as the overall market) due to the number of bulk purchases. This skews the true market and hurts everybody’s values as a result. By principal reductions you are lowering the amount of distressed sales by keeping people in their homes. Fewer bulk distressed sales mean prices will revert back to individual market prices or a true floor in prices (whatever that ultimately becomes). Back to the pawn shop example we see that if 75 pawn shops opened tomorrow within that 10 mile radius the market price for that diamond would become $500 due to all of the available diamonds bought at bulk prices by these shops. So what will now happen to diamonds prices when all are bought and no more bulk sales exist? The pawn shops close up shop and the prices revert back to what they were at individual sale prices.

     Let’s hope in that example that the pawn shops didn’t put most of the jewelry stores out of business during this period of time. In our current situation with homes it is the distressed sales putting homeowners out of business (foreclosures) so to speak. I am just advocating that keeping the pawn shops (foreclosures) to a limited number by limiting bulk purchases will decrease the chance of the spiral affect of falling prices to occur. By doing so we can reach a true floor more rapidly without damaging everything else around us before we get there.

     MB, great point on accounting practices really playing into this as well. They are in many cases making up the minds of what these lenders are doing instead of what makes sense. People are indeed suffering as a result.

189. admin Said:
     January 15th, 2009 11:15 am

     I have a lot of data and research on servicers discounts, third party sales, REO etc. The fact is the servicers rely on loss severity models for EACH loan or MBS owners. They are all over the map as to how they price their property at the opening bid. We all know modeling is a disaster. So is the market. We are screwed for a decade - you watch. This will be a long hockeystick.

190. Stu Said:
     January 15th, 2009 11:26 am

     I came across this from an article in 6/2005 and found it fitting to what has been discussed here.

     “The housing market has played such a big role in propping up America’s economy that a sharp slowdown in house prices is likely to have severe consequences. Over the past four years, consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking”

     This is the kind of disruption we are talking about. A fall in the GDP of what 75$-85% perhaps from this mess, and for what maybe 3-5 years in time at least? Employment drops in the range of 40% from peak. What will this do to the national unemployment rate? Could we see 25% unemployment by 2011 perhaps? Who know what will happen, but we all can agree I am sure that this is BIG!!!

     Mr. M. you say that they are all of the map in the way they price their properties, but are the buyers all over the map in what they are paying for these properties? That is the data I would like to see.

191. Kevin Said:
     January 15th, 2009 11:49 am

     Get real, Michael Blomquist, Jonathon, guy1,

     I adamantly agree with all of you. This “plan” of principal reductions is just disgusting. It would cost so much more than foreclosures, be drastically unfair to those who have been responsible, and would certainly come from the tax payers. These sick fucks wanting principal reductions cannot see the massive housing bubble. They talk about “fire sales” and “below market values” like idiots at a department store thinking the “sales” are really discounts. Just discounts of over-valued crap. You cannot double or triple the value of something in a short amount of time, then discount it 30%, and call that “fire sale”.

     There is a market correction under way. Nothing will stop prices from reaching fundamentally supported levels. God forbid houses are become affordable again.

192. get real Said:
     January 16th, 2009 4:15 am

     Stu,

     I found your take on market value and I see your point but I have some questions. I, like everyone, have heard about these “bulk sales” happening at “big” discounts, but the details are never really discussed and deals seem to be done under the radar so it is unclear how many cents on the dollar these are really discounted.

     However, it is my understanding that the batches are priced as just that… X dollars per batch, so individual unit prices cannot be known and are not reflected on mls sales price data. ARE there individual price data available??? If an investor buys a batch and sells them individually, I suppose then you would get the price on the mls, but if they are listing them that much cheaper, a truly “underpriced” home would get bid up anyway to pretty close to “market” value when sold to an individual buyer.

     I can’t imagine what else bulk buyers/investors would be doing with them if not selling them (eventually, at the end of the line) one by one. Mass rentals still wouldn’t make much sense taking into consideration management expenses, maintenance, etc… Maybe you have access to data on bulk sales but I have not seen anyone who offers that, and if it isn’t available to Joe homebuyer on the street how is it affecting the neighborhood values? If the bulk sale data is available publicly, where can it be obtained?

193. get real Said:
     January 16th, 2009 4:22 am

     Michael Blomquist,

     Accounting “practices”… Don’t even get me started. My middle class dad told me years ago that “if you can’t understand the books (accounting records) of a business … don’t invest your money there!”

     He said it like it was an Ancient Chinese Secret.

     If I cooked my books and tax returns the way these big corporations calculate their stuff, I’d be in jail.

194. Stu Said:
     January 16th, 2009 10:09 am

     Get real, are you familiar with the ABX Indices? If not, that is a great place to start with to get a handle of what the paper these banks are holding is worth. The MBS have fallen like a rock and that is why much of it sits in L3 on these lenders books. There have been many articles on bulk sales, but a really good one for you to read would be from the WSJ (a tad older 12/2) called “lenders tiptoe into bulk sales” I will give you some snippets from the article below.

     1. As the glut of foreclosed homes swells, banks and other lenders are starting to warm to the idea of selling some of the homes in bulk to investors.

     2. For the past year, investors have been eager to buy large numbers of homes from lenders at knockdown prices.

     3. Barclays Capital estimates that banks and loan investors owned 871,000 foreclosed homes as of Nov. 1, up from 414,000 a year earlier.

     4. The banks say they can get more money for most homes selling them through local agents.

     5. James Odell Barnes, an investor in South Carolina, says he and a group of investor partners recently paid about $1.2 million for a bulk purchase of about 800 homes from Fannie Mae. That works out to about $1,500 apiece on average.

     6. Fannie Mae has acknowledged openness to considering bulk sales. Fannie has a huge and expanding backlog of homes to sell. It reported last month that its inventory of single-family foreclosed homes on Sept. 30 was 67,519.

     7. Fannie’s main rival, Freddie Mac, says it is open to bulk sales but hasn’t been able to reach acceptable terms. “We don’t accept 20 or 30 cents on the dollar,” says James “Chris” Bowden, a Freddie vice president.

     8. Some homes get sold at least twice before new occupants move in. An example is a three-bedroom house on Burnt Leaf Lane in Snellville, Ga., a suburb of Atlanta. The home had sold in March 2007 for $116,900. After the owners defaulted, Saxon Mortgage, owned by Morgan Stanley, acquired it through foreclosure in April 2008. Saxon sold the home to Gibraltar for $39,000.

     9. Housing and Neighborhood Development Services, Orange, N.J., is setting up a nonprofit company to pursue such deals. Harold Simon, executive director of the new company, says it is negotiating to buy mortgages backed by about 100 homes, mostly in northern New Jersey. He declined to identify the seller of those loans.

     There are many articles out there like this one, but the bottom line is bulk sales of foreclosed properties are pulling values down exponentially. This is resulting in huge amounts of homes being placed back onto the market by these investors at prices typical home sellers (one on one) cannot compete with. These comps then curtail any chance of future sales from the residents in these areas due to lack of equity that they have. My thought is that principal reductions by the lender to the current homeowners not only slows the level of foreclosures, but keeps homeowners in their homes. This places a floor under the market so it can still absorb these comps without upending total neighborhoods as a result. There are still plenty of homes for the first time buyer to purchase with 4 million homes foreclosed on over the past two years, and investors to buy helping the lenders to rid themselves of this unwanted inventory which is at record levels.

     BofA just got billions more from the Fed and as of early December they were not doing bulk sales of their foreclosures. Perhaps this is one of the strings attached with this new bailout money. I suspect CW came with its fair share of foreclosures that need to be sold off and the sooner the better. Remember while this lenders hold back from selling it is no different than a single homeowner catching a falling knife by not lowering their price and selling. The longer these lenders wait the less the value of their holdings. Selling in bulk addresses that situation in a hurry. Fannie and Freddie will continue to do this as they have been and so will all the major lenders before too long, if they are not doing so already.

     This is why foreclosures are far more damaging to lenders than principal write downs. They are not only far more costly, but they make for more inventory at far lower values which leaves the lender competing with themsleves to sell even more of their inventory which now results in even lower prices. It is a death trap for the lenders which is one reaon they have resisted doing bulk sales. Now it has gotten to the point where they simply have no choice.

195. ex_owner_now_renter Said:
     January 16th, 2009 11:08 am

     Just think what a strong economy we will have when things turn around!! (when ever that happens..right after the bottom) .. and think what you’re leaving for the FUTURE GENERATIONS!! r u thinking OR r u still GREEDY?????

     It’s our choice:
     - we can hit rock bottom within 2 years, and start RECOVERY
     OR
     - we can strech it out the bottom (longer than we can imagine), and get more in debt.. screwing up future generations

     Your choice?

196. ex_owner_now_renter Said:
     January 16th, 2009 11:17 am

     CHANGE WE NEED:

     - transform the economy model from a consumer based economy based on debt
     to
     - invent, produce, export, saving, educate, colaborate, lead, rebuilt, etc

     EMANCIPATE!

197. C.C. Said:
     January 16th, 2009 11:55 am

     Mr. Mortgage:

     “We all know modeling is a disaster. So is the market. We are screwed for a decade - you watch. This will be a long hockeystick.”

     Amen.

     Concentric circles.

     - Outer circles represent distressed neighborhoods/communities/high-unemployment, etc. Being knocked down fast (prices).

     - Inner circles represent more stable employment (Employment is the Driver now, not prices), higher per-capita income, etc.

     - As unemployment continues to rise (a direct result of drastically reduced consumer spending), along with pro-active decisions based on fear in the commercial business sector, the inner circles begin to collapse as well.

     - That means heretofore ‘unaffected’ communities - aka: Los Gatos, Palo Alto, Menlo Park, Saratoga, Marin county, etc., will soon begin to see the effects on (previously SICK) real estate prices.

     - No community (at least in Ca) will be left unaffected by this ‘reset’. And what a Glorious reset it is going to be. No more S-class sedans parked in front of Alain Pinel. No more ’suits’ chatting it up at Steamers over $250 lunches. No more B.S. about their 20% annual returns from Goldman Sachs investments…

     Yep, the phoniness is over. From the jerk-wad who bought way too much house he could never afford, to the slimy C_ck-sucker on Wall Street, to the Plucky blond from Campi Properties - with all her fake tan from the salon.

     You know - in that light, it ain’t so bad after all.

     C.C.

198. Michael Blomquist Said:
     January 16th, 2009 3:15 pm

     C.C.

     Thank you! That was a good one; I needed a good laugh. You must also live in the South Bay/Peninsula.

     Stu
     I must say if our choices are only cram downs and allowing “investors” to purchase homes for pennies on the dollar; I might chose cram downs.

     We need to do something to eliminate bulk, deeply discounted sales and avoid bailing out fraudsters. Allowing defaulting homeowners to remain as renters in certain circumstances is the way to go. Defaulting homeowners must cooperate in the sale of their homes to others.

     As with the RTC many of the sales will be most likely well under market to those with connections. This MUST be avoided at all costs.

     We must let the banks fail. In the long run it will be much cheaper to bail out depositors, pension funds, etc. now than later. Foreign investors can be protected to legally permitted amounts per SIPC, but that is it.

     What we have seen in losses is only a drop in the bucket compared to what will be in store. If the prior 1990 real estate correction is any indication loan defaults did not peak for appx 4-5 years after the recession began.

     Clearly, using the relatively small 1990 recession would NOT be a good indicator.

     The only thing we really have left in our country is our Constitution and legal system. We must keep these in tact if our Nation is to survive.

199. benzy Said:
     January 16th, 2009 5:04 pm

     And what a Glorious reset it is going to be.

     You are gleeful at sacrificing the “outer circle” to spite a few well to doers? This is glorious to you?

     The one driving an S-Class will be driving a used Honda and renting a 2500 sq ft home. The guy driving the Honda will be cast away.

     C.C., you need to get a grip.

200. C.C. Said:
     January 16th, 2009 6:03 pm

     Hey Benzy -

     My ‘grip’ is there, just fine. Aside from the physical, it’s in the secure knowledge that I have nary a payment; No credit cards, no mortgage, no car payments, no liabilities, no Debt - No Shit Sherlock.

     I don’t mean any ill will by my sarcastic/cynical comments - they are simply observations with a sneer tossed in. Because if one cannot at least sneer at the shenanigans and chicanery that has passed for our economy over the past few years, then one is truly lost.

     Michael Blomquist:

     Yeah buddy, we’re down here in the belly of it all! You know, I saw (and heard it incessantly) during the dot-com era. The ‘day trading’, my ‘portfolio this and my portfolio that’ - every single G-damned day. So when I saw this happening all over again in the real estate market - except this time on Growth Hormone, it was enough to make one almost insane from it all.

     Lord have mercy, it’s over with now. At least until the next bubble, or whatever the Fed may find to inflate. Hey! How ’bout that bond market…

     Gawd…

     C.C.

201. Stu Said:
     January 16th, 2009 7:46 pm

     MB,

     “I must say if our choices are only cram downs and allowing “investors” to purchase homes for pennies on the dollar; I might chose cram downs”

     That is your only choice at this moment in time.

     “We need to do something to eliminate bulk, deeply discounted sales and avoid bailing out fraudsters”

     I agree, and principal write downs do just that.

     “Allowing defaulting homeowners to remain as renters in certain circumstances is the way to go. Defaulting homeowners must cooperate in the sale of their homes to others”

     I agree, and especially for those that do not qualify for a write-down

     “We must let the banks fail”

     I agree that roughly 2,000 banks need to go under in the next calendar year… minimum.

     “What we have seen in losses is only a drop in the bucket compared to what will be in store”

     There will be much more pain to come I agree…

     “The only thing we really have left in our country is our Constitution and legal system. We must keep these in tact if our Nation is to survive”

     I totally agree with you on that!!!

202. Adam Said:
     January 18th, 2009 1:29 am

     All these soothsayers want to throw ALL homeowners who want a principal reduction into the streets while they have their $70k/yr job or more.

     By the way is that income really so secure in this economy?

     Many of these responsible folks were making great money but lost their job or had large reductions in pay, like myself so a modification is warranted. You can call us stupid all you like (sticks and stones!) but We’re not lazy.

     Please, no one saw 50 to 70% off in values coming.
     This is unprecedented as was the surge in prices from those toxic 100% No Doc Loans. The lenders do have a responsibility as do the buyers. I say reduce it; but the lender shares partial equity up to the original purchase price. A kinder version of the Hope Now program.

     Like other soothsayers from the 70’s saying any year now we’ll be in a bear stock market. I see it coming, Well, it happened in 2000 and again in 2007. Now you got your real estate buyer’s market.

     Dive in! or will you procrastinate again?

     Or you want it to be picture perfect?

     I do agree prices were out of whack. What I didn’t see was loan programs virtually drying up. This is killing any type of base.

     Why buy now when rates are low and rates can now only go up which means what for housing prices? Yes, tough times for another 5 years people.

     Some good reading is patrick.net and Harry Dent

     good luck

203. Jonathan Said:
     January 19th, 2009 6:59 am

     Adam,

     Layoffs are a normal part of the ebb and flow of business. A prudent borrower should be able to cover their basic expenses for 6 months with savings. If they are in a job with more specialized skills, where it may be more difficult to find new employment, 12 months of savings is recommended.

     I do not want to throw anyone into the streets. Those that can pay their mortgage, which appears to be everyone posting here, should continue to do so. Why shouldn’t they? They wanted *that* house at *that* price, irrespective of anything else that occurred.

     As for interest rates, I will gladly buy when interest rates (and credit standards) are high, since in these times of “joe howmuchamonth”, interest rates are inversely proportional to housing prices. And, I won’t be competing my hard-earned dollars against folks with no skin in the game, and no financial sense to know a good investment from a bad one.

204. BertDilbert Said:
     January 19th, 2009 12:11 pm

     Jonathan Said:

     “A prudent borrower should be able to cover their basic expenses for 6 months with savings. If they are in a job with more specialized skills, where it may be more difficult to find new employment, 12 months of savings is recommended.”

     “Those that can pay their mortgage, which appears to be everyone posting here,should continue to do so. Why shouldn’t they? They wanted *that* house at *that* price, irrespective of anything else that occurred.”

     Johnathan, if someone is short that 6-12 month cushion that you recommend, do you think they should walk and build their cushion now? Also if they now find that they don’t want *that* house at *that* price should they not walk as well? Dr. Housing Bubble posts that the average downturn is 5-6 years based on his research. That would put us until mid 2012 before anything happens *upside*.

205. C.C. Said:
     January 19th, 2009 1:50 pm

     Bert -

     I would tend to agree with the 5 - 6 year downturn time frame - in a normal market correction.

     Question: Based on the charts, graphs, comparisons, readings (?), empirical data, etc., is what’s happening out there right now a ‘normal’ market correction? Is this your ‘average’ garden variety downturn?

     Here’s the down-low:

     Where is the sector of the economy right now that poses relief soon? Which sector of the economy is shining a light as the next ‘boom’ to underpin a healthy and real recovery? Web 2.0? ‘Financials’? (sarcasm off)

     When outsourcing of major manufacturing capacity reverses and returns to domestic shores, that is when you will see a turnaround. That ‘metric’ will be your canary in the coal mine of better times on the horizon.

     Until then, it’s going to be a dark & cold corner as far as the eye can see.

     We’re only in the first few innings of a major turn-around in mindset from consumerism to savings, let alone to where the masses will be able (or willing) to take on a mortgage debt-load.

     We could easily see - and experience, housing prices decline to late 1970’s averages. Crazy, yeah? Keep an eye on commercial real estate (office buildings and malls for starters) numbers as your guidepost to foretell the immediate future - after the coronation tomorrow and ~90 day honeymoon that follows…

     -C.C. (aka Mr. negativity)

206. Stu Said:
     January 19th, 2009 2:57 pm

     C.C.,

     “Where is the sector of the economy right now that poses relief soon? Which sector of the economy is shining a light as the next ‘boom’ to underpin a healthy and real recovery”

     I don’t see one do you? I think healthcare, due to the boomers, will thrive moving forward, but this is hardly new. The going green initiatives will add jobs, but because nobody can afford the cost it can only go so far. Military is shrinking and so will our Government as a reult of this downturn and fitingly so.

     “When outsourcing of major manufacturing capacity reverses and returns to domestic shores, that is when you will see a turnaround. That ‘metric’ will be your canary in the coal mine of better times on the horizon”

     I totally agree which is why I call for massive tax subsidies for companies employing workers in this country. Give credits to those building long term jobs that will allow our economy to prosper again. The only problem will be finding people who can afford to buy the stuff we produce.

     “Until then, it’s going to be a dark & cold corner as far as the eye can see”

     Everywhere and not just here mind you.

     “We’re only in the first few innings of a major turn-around in mindset from consumerism to savings, let alone to where the masses will be able (or willing) to take on a mortgage debt-load”

     I agree and see a very hard landing for much of the elderly and much of the young in this country. Off course we will all suffer but much of the elderly were reliant on their home values for retirement, and mush of the young did not anticipate needing 40K-50K to plunk down in order to buy a home. Most simply just don’t have it and may not have it for decades to come. See what havoc that reeks on housings recovery plans.

     “We could easily see - and experience, housing prices decline to late 1970’s averages. Crazy, yeah? Keep an eye on commercial real estate (office buildings and malls for starters) numbers as your guidepost to foretell the immediate future - after the coronation tomorrow and ~90 day honeymoon that follows”

     That sounds a tad eager to me, but check out deadmalls.com in terms of your other point on CRE. This will be the demise of 100’s upon 100’s of much smaller regional lenders. The FDIC will surely be busy in 2009.

     On top of all of this we are going to see even more handouts and more bailouts in just a matter of days. This will ensure housing doesn’t recover for a decade or more. Nobody has money and after paying for all of these bailouts neither will the tax payers of future generations. We are just making sure that we are broke and will stay broke for a long, long time to come.

207. Jonathan Said:
     January 19th, 2009 5:22 pm

     @BertDilbert,

     
     Johnathan, if someone is short that 6-12 month cushion that you recommend, do you think they should walk and build their cushion now? Also if they now find that they don’t want *that* house at *that* price should they not walk as well? Dr. Housing Bubble posts that the average downturn is 5-6 years based on his research. That would put us until mid 2012 before anything happens *upside*.
     

     Good questions.

     A lot of people can hold until 2012 and beyond, and they will eventually see the market come back.

     For those that can’t, I don’t see why they don’t start walking… I can’t think of anyone who can stop them. Although I don’t think that walking is the most honorable course of action, it’s still slightly more honorable than begging for taxpayer funded bailouts.

     So, we actually have 3 groups here…

     1) of the underwater borrowers, some are brave enough to walk. They will likely be rewarded by cutting their losses, and they will be able to buy again sooner. They’ll be smarter the next time (which I hope also includes saving more money)

     2) the underwater borrowers who can’t afford their mortgages who pathetically wish for a bailout will end up paying on their mortgage a little longer, and then still ultimately be foreclosed on, after suffering much distress.

     3) the the underwater borrowers who CAN afford their mortgages but are not brave enough to walk, some will beg for others to give them free money. But in general they will end up holding their properties until the market turns around.

     (Of course I can’t legally recommend that anyone takes any course of financial action.)

208. Jonathan Said:
     January 19th, 2009 5:44 pm

     @Stu

     I agree with most of what you have written in this last post.
     It will be painful, but it’s entirely proportional to the irresponsible excesses we have engaged in as a country. I think it will only be counterproductive to try to prevent this economic correction from occurring — we’ll just make it slower and more painful and screw up more peoples’ life plans.

     principal reductions are the same as bailouts —
     people in denial about the fundamental changes that are underway think they can prevent them from occurring. It’s futile. And it wastes resources we will need to use to recover once we are through this mess.

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