146 Responses to “The End of Large-Bank Wholesale Lending – Time For the Mortgage Banker”

1. Michael Blomquist Said:
   January 16th, 2009 4:26 pm

   Thanks again Mr. M. This is your most important post to date to help save the mortgage broker industry. Sure there were bad apples, but as a percentage there were/are more bad apples within the Lenders and mortgage bankers.

   This is a huge problem for consumers and competition. Senators Sherman and Clayton recognized these concern over 100 years ago when they promulgated the Antitrust laws.

   http://en.wikipedia.org/wiki/Sherman_Act

   Clearly, if lenders are willing to toss aside proven, regulated lending guidelines they will be willing to set prices. This is a huge no/no for obvious reasons…more Antitrust violations.

   Antitrust laws were intended to protect consumers, promote FAIR competition, low prices and restrict the concentration of wealth within the hands of a few.

   Lenders recklessly altered “regulated” safety and soundness guidelines to encourage fraud and turn the American Dream of Home ownership into a giant Ponzi scheme. Clearly, higher property values means bigger loans for buyers and existing homeowners which translates into more MSRs and bonuses.

   http://www.fdic.gov/regulations/laws/rules/2000-8630.html#2000appendixatopart364

   Unqualified borrowers became the most profitable, especially those with pre-pays. Most loans were sold to investors so the risk of loss was very small; until now. As the servicer the lenders always knew via pay-offs if the borrower was refinancing and in the event of a loan with a pre-pay they could waive the pre-pay or were entitled to collect the prepay. “Tying?” The servicer NOT the investor receives the pre-pay penalty. Servicers also receive the late fees, foreclosure fees, etc. and now they want the investors to take the hit for cram downs. Amazing… Disgorge and indict.

   Not only did appreciation mask defaults, but appreciation motivated buyers through fear and greed. Fear of forever being priced out of the market and greed for want of “tax-free” appreciation.

   Lenders essentially hired loan originators both in house and independent to become their economic hit-men.

   There was NO reason to provide wage earners whose only source of income was a w-2 to obtain stated income financing other than to encourage fraud. PERIOD.

   As a broker I was contractually liable to repurchase any loans that were originated by myself or agents under fraudulent terms. In addition, the terms of the contract clearly indicated that I was responsible to collect and analyze the borrowers’ income to determine the loan the applicant could afford. I have argued that the lenders dramatic, unnecessary and unlawful changes altered my position to risk.

   “One who practices a deceit with intent to defraud the public, or a particular class of persons, is deemed to have intended to defraud every individual in that class, who is actually misled by the deceit.” ( Civ. Code, § 1711.) Moreover, the intent need not be to defraud, but merely to cause another to alter his position to his risk. Section 1709, Civil Code, provides: “One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.” Nathanson v. Murphy 132 Cal. App. 2d 363, 369 (1955)

   Citation available at,
   http://michaelblomquist.com/Authorities/SAC/a/NathansonvMurphy.PDF

   I have alleged that appx 50% of all loans originated in Santa Clara County during 2004-2007 were originated under fraudulent terms. Most qualified, existing homeowners had refinanced during the 2003 refi boom. The remaining buyers were deceived as to the true value of the homes they were purchasing because fraud became the industry standard.

   Home prices peaked in the county at $865k in Oct 2007 and by Oct 2008 had fallen below $550k. A drop of over $300k in one year. Many move up borrowers had place all of their equity from their first home and have since lost it all. Many bought over their heads and increased both their debt service and property taxes by 3x and now have no/little reserves.

   This price correction was highly foreseeable and an enormous breach of fiduciary duty to omit this info.

   I have seen countless loans whereby borrowers had inflated incomes by 300-500% to qualify. The courts will always side with these borrowers for RESPA violations, non-dischargeable bk claims, fiduciary breaches, etc. Clearly, if your income needs to be inflated 100% you should know you cannot afford the home.

   The real borrower victims are those who were qualified, but misled about property values being intentionally, grossly, temporarily and fraudulently inflated. Class actions should be filed by qualified borrowers; in fact if you are a qualified, deceived borrower drop me a line

   michaelsblomquist@gmail.com

   The law is clear on these types of conspiracies.

   It is settled, however, that “If the realizable likelihood that a third person may act in a particular manner is the hazard or one of the hazards which makes the actor negligent, such an act whether innocent, negligent, intentionally tortious or criminal does not prevent the actor from being liable for harm caused thereby.” Richardson v. Ham 44 Cal. 2d 772, 777 (1955)

   The link to the citation is available at,
   http://michaelblomquist.com/Authorities/SAC/a/RichardsonvHam.PDF

   C’mon did it not appear to the executives that loan originators and borrowers would commit fraud in order to obtain $500k + loans. Dramatic changes in underwriting guidelines required a little due diligence after origination to make sure borrowers under the knew guidelines were qualified. Almost every single loan file had IRS form 4056-T available for easy verification of income.

   What’s next the banks will leave piles of money in their lobbies and then collect inflated insurance claims when the money disappears.

   In addition, the lenders structured commissions in violation of RESPA. Option ARMs and loans with pre-pays which are not in the best interests of clients were provided the highest rebates.

   Corporate Stranglehold
   Jobs and wages have been destroyed for years as a result of terrible public policy that have outsourced our jobs to other countries. The touted benefits have been lower consumer prices.

   What has happened in the real estate industry is not just horrific public policy, but a criminal conspiracy. Regardless if these “executives” are found guilty of criminal charges they must be disgorged!

   We would have been much better off if these crooks would have had the balls to embezzle the money instead of this outrageous Ponzi scheme. Tens of trillions in fraudulent loans were created by mostly after tax money and then all that wealth destroyed so the execs could make a few percent from the total. OUTRAGEOUS!!!

   We must send the message to Congress that this was not bad business decisions, but fraud!!! Plain and simple.

   The recent suit by NAMB against HUD for rebate disclosures also addresses this issue. All loan originators and brokers should send Jim Otto at the NAMB an email to expand their suit to encourage antitrust claims for boycotting.

   jotto@namb.org

   Corporate America is destroying our job base by hook or crook. Not only has Congress sat idly and watched this happen, but they are now bailing them out as the lenders continue to boycott us. INSANE!

   Existing laws not only protect against unfair competition, but also actions that would lead to illegal conduct. Boycotting brokers is a per se antitrust violation. In other words if it can be proven that lenders conspired to boycott a particular class of competitors there is no other evidence needed.

   Although it is clear that many borrowers and loan originators committed fraud, prudent public policy should NOT bail out crooks.

2. admin Said:
   January 16th, 2009 11:42 pm

   Great comments Michael.

   Hey Gang – read what Bloomquist has to say. I have learned alot from this crazy son of a bitch. Hey knows this stuff cold. He forgot more about WaMu’s shady practices than all of us know combined.

3. Average Jane Said:
   January 17th, 2009 12:17 am

   Michael, how about RICO? Has a nice ring to it.

   You go, girl. Get your message out. You are doing a great service for the Public, we the unwashed masses.

4. MDR Said:
   January 17th, 2009 12:55 am

   Great info, thanks Mr. Mortgage.

5. Michael Blomquist Said:
   January 17th, 2009 12:47 pm

   Thanks Mr. M.

   I have learned from you as well. I wish CNBC would have you on more often. “Investors” both in real estate and securities are going to get hosed if they don’t do their research.

   As you and others have noted Option ARMs will be exponentially worse than subprime or anything we have seen to date. We are many years from a sustainable bottom and people should be warned.

   You have provided all the necessary warnings; hopefully people will listen and start to demand justice.

6. johnnymortgage Said:
   January 17th, 2009 3:47 pm

   Michael,

   Can you speak to the lawsuit NAMB is filing? I sat on a CAMB conference call yesterday, and heard a very convoluted description of how we, as brokers, will need to proceed regarding crediting YSPs to borrowers. Essentially, wiping out YSPs, as they will have to be credited in full to the borrowers.

   And back to the subject…let’s not forget the incredibly inept retail loan officers, who seem to know exactly when a current client is entertaining the possibility of refinancing w/ a broker. I was working with a client on a 1.5 Mil. refinance; trying to get it in before some guideline changes would make it impossible for the borrower to move forward. Enter some jackass at Wells quoting sub 6% int. only for 5 or 7 years! Needless to say, the borrower delayed, missed my window, and this WF dummy has yet to call her back. Funny…Wells wholesale doesn’t even offer loans over GSE limits, essentially. Oh yeah…this jackass had no idea what her debt-structure is, or what she owes. Probably figured he could have wrangled her into a conforming before they reset the limits this year (w/ no idea of current subordinate financing, etc). Oh yeah… interesting that I pulled her credit report on Saturday and she got a phone call from this wanker that Monday morning (her current 1st is w/ Wells, of course). I am considering walking into the branch and smacking him! These people are no more than glorified data entry clerks.

   ANYWAYS…there should be a law prohibiting retailers from monitoring the pulling of credit reports, and even better, calling my clients halfway through a refinance even when the loan is going to the same bank through wholesale.

7. Stu Said:
   January 17th, 2009 5:08 pm

   MB,

   A very good read!

   I am interested to know how many of these “qualified, deceived borrower”s you think there are, and what percentage will ultimately file a suit. I would suspect that these folks made up the majority of loans.

   I would also like to know how you think this may or may not play into principal write downs and the lenders increased desire to do them. Will it be a big enough bully pulpit for which to speak from for borrowers in order to get their lenders listening?

   Could this possibly be the fly in the ointment?

8. benzy Said:
   January 17th, 2009 6:39 pm

   The real borrower victims are those who were qualified, but misled about property values being intentionally, grossly, temporarily and fraudulently inflated.

   I obviously agree with this statement. It is the crux of my argument.

   There are hundreds of thousands of us who put 20+% down, borrowed at a conservative (for the time) price/income and could afford our homes at 5,6 and 7%. Our 5/1 ARMs are going to adjust and we simply cannot find financing at any rate.

   The fact that I will not likely be able to find financing for my home is of no consequence to my actions. It is the product of the fraud perpetrated by mortgage lenders. This I wont budge on.

   I do though take my obligations seriously, and I want to continue to live in my home.

   My wife and I have been running scenarios through and through over the past week. We’ve committed to staying. We’ve committed to selling and taking a nominal loss – 30k – out of our retirement. This would equate to taking a 160k loss out of a home we can still make payments on and are able to afford if only we could find a competitive loan. And, now were back to staying.

   It’s a game of predicting what the bottom value of our home will be while hedging that there will be some method to finance in the future.

   Regardless, I am really shaking my head at those who are calling for blood. I fail to see where greed or delusion plays into it. Some can pride themselves under the benefit of hindsight, but the fact remains that they had no better foresight then any of us. If they did, they would have see spectacular profits from speculating.

9. HousingRealist Said:
   January 17th, 2009 8:01 pm

   Mr. M – What would you say is the total volume of POAs originated since 2000? Is there a way to determine the number of those loans that have blown up, and therefore be able to determine how many have yet to blow up?

10. Jonathan Said:
    January 17th, 2009 8:22 pm

    Hi Benzy,

    What is your 5/1 ARM indexed to? MTA or libor? MTA is within a 1/2 point of 20 year lows. Libor is still attractively low, too.
    When did you buy? And what was your margin over the index?
    It’s hard to believe that with interest rates so low that the adjustment would be fatal to your financial position. I can only picture you must have stretched pretty far to get into your house. If not, could you please describe the situation? (index,margin,amt. borrowed, income). Unless you’ve been paying 3% for the last few years (no different than a teaser rate, IMO) I don’t see how this adjustment would knock you out.

    
    but the fact remains that they had no better foresight then any of us. If they did, they would have see spectacular profits from speculating.
    

    I never thought it would last for 4 years. Each year we hit a new unbelieveable levels of insanity, and at each point it seemed so painfully obvious that it was bound to fall apart in short order; the market would run out of greater fools.

    So, since I was reasonably comfortable in my little condo and had no interest in being the bagholder, I stayed out and tried to get other people to see what was happening.

    Here’s the one thing I agree with Keynes on: “The market can remain irrational longer than you can remain solvent”

11. Dick Said:
    January 17th, 2009 9:17 pm

    I agree. I had a 5/1 ARM and when it reset it just turned into a 1 YR ARM. Benzy’s i rate should still be very very low based on current rates. Give us more information pls?

12. benzy Said:
    January 18th, 2009 12:42 am

    The index is the 1 year CMT and the margin is 2.75. The reset is in July 2010, so I am likely to see a drop. I wont get into income, but we’re not stretched.

    The sliding plan (as of Saturday) is to hammer down even more principal to prepare for the the carnage of 2011. At that point we should be under about 10 percent.

    The CMT at that point? After bombing down the principal will my reward be still being locked out of a potential refinance, I don’t know. If that happens I may have no choice but to walk. That is after having put a tremendous amount of resources into the home and postponing what may be inevitable – foreclosure.

    My story is somewhat representative of over half of my extended circle of friends and colleagues. Is our situation not just steaming of greed?

13. C.C. Said:
    January 18th, 2009 2:24 am

    Benzy:

    “I do though take my obligations seriously, and I want to continue to live in my home.

    My wife and I have been running scenarios through and through over the past week. We’ve committed to staying. We’ve committed to selling and taking a nominal loss – 30k – out of our retirement. This would equate to taking a 160k loss out of a home we can still make payments on and are able to afford if only we could find a competitive loan. And, now were back to staying.

    It’s a game of predicting what the bottom value of our home will be while hedging that there will be some method to finance in the future.

    Regardless, I am really shaking my head at those who are calling for blood. I fail to see where greed or delusion plays into it. Some can pride themselves under the benefit of hindsight, but the fact remains that they had no better foresight then any of us. If they did, they would have see spectacular profits from speculating.”
    ______________________

    You sound like an honorable – and reasonable man. I will state right here & now, that I myself, am not calling for yours (or anybody else’) blood. Look at what I set in bold of your quote above. Do yourself, your wife and your future a favor: If you are not financially equipped to weather another 25 – 40 % drop in value, and/or do not have a slam-dunk source of stable income for the next (5) years, get out Now. While you can.

    Do NOT ‘bet’ on anything in this current economy, lest you get chewed up & spit out with haste.

    I would normally never advise anyone to renege on an obligation, but I do understand that circumstances dictate many shades, not just black & white. Prudent and pragmatic decisions must be made given the extraordinary situations you face now, and what is right over the horizon.
    _______________________

    Jonathan:

    “Here’s the one thing I agree with Keynes on: “The market can remain irrational longer than you can remain solvent”

    Great you brought that up, because that (Keynesian-ism) is precisely what the New-new deal is all about w/Obama. When this is over, Keynes and his ill ‘wisdom’ of government-cum-market economics will be Buried – for good.

    That sign post up ahead – the one that says ‘Housing prices, 1990′s’? Look closely, because we’re traveling fast – you might miss it…

    Peace -

    C.C.

14. Susan Day Minerly Said:
    January 18th, 2009 3:33 am

    CC:

    By your own admission, there will be another 25-40% drop in values, reminds me of Japan’s 90% equity loss in housing.

    The government is going to “bail out” “force”"change the rules” for someone or something to stimulate the economy. I say again, will it be for Wall Street or Main Street. choose they are your only options,m THERE WILL BE A BAIL OUT.

    I commend you on writing the truth, but it is too negative. ( just like my husband)

    We do not have to experience as severe a “recesion” as we have to, if the government acknowledges that :

    there will be a contraction of most industries, especially “lending”, due to the mentality of the majority of Americans about frugality, and the change to savings.

    Translation- other “industries” must be allowed to grow, preferably in the USA, reason for the stimulas, lending/borrowing is basically dead.

15. BertDilbert Said:
    January 18th, 2009 9:11 am

    Susan

    We are stuck, if we are saving, then consumerism is dead and there are far too many banks, and retailing and car dealerships.

    The problem is that the dollar is far too high and the green laws far too deep to support manufacturing. Unless we move to lower the dollar, jobs are going to be a serious problem in this environment.

    Here is another problem. Obama gave a speech the other day claiming high paying jobs. I guess that sounds good it you are unemployed but from a taxpayer standpoint, not a good thing because that is code for “union jobs” which the taxpayer cannot afford.

    Obama gave his speech at Cardinal Bolt which manufacturers for the wind power industry. The claim is that wind power will reduce our dependence on foreign oil. That raised my eyebrow because I was not sure that we have any oil burning power plants left of any significance. Oil burners are considered too dirty. I talked to a guy in the power industry and neither of us could figure out how it would help our dependence on foreign oil. Yet Obama said it like he believed it numerous times. He was using a 1980′s era sales pitch for 2008.

    So there is your new economic team, they are clueless as to how things work.

    Here is a pie chart showing breakdown of fuels used for electricity generation. As you can see, petroleum is only 1.6% of our electrical generation.

    http://www.eia.doe.gov/cneaf/electricity/epa/figes1.html

    Maybe Obama’s plan is to install all these windmills in Hawaii which is all petroleum fired plants? In order to reduce our dependence on oil we would have to replace oil fired plants…

    It will be interesting to see if he carries this argument into his inauguration speech.

16. Stu Said:
    January 18th, 2009 10:37 am

    This is what appears to be taking shape now in the lending arena in regards to the old bailouts and Obamas new bailout in my opinion. The lenders continue to pile up losses due to foreclosures and the overall general state of the economy. Their are few borrowers looking for loans, and it would appear that most of those that are looking are those least capable of paying them back. With the CRE crunch now starting to show itself we have even more troubled loans on these lenders books. The problem is getting much, much worse. Due to this dilemma, the talk I now hear is for part of the second batch of money from the original bailout proposal would actually get used creating a bad bank so to speak. Lenders will move their L3 toxic crap over to this tax payer funded bad bank. The tax payers have already lost $64 Billion to date from these bold actions the Fed tells us is helping us. Funny part of that is when I look around I don’t see people looking all that helped.

    I would have preferred principal write downs over this that is for sure. At least the banks that didn’t fail, of which their will be many, would have picked up the tab for some of this. Now the tax payer foots the entire bill. The only way to stop this now is for mass numbers of people to start demanding principal write downs or start walking away. Without this occurring the tax payer will get stuck paying for all of this. They privatized the gains, and now they are socializing the losses to the tax payers. This is one of the reasons I was for write downs as opposed to them. The politicians are looking to keep insolvent banks in business using tax payer money to do principal write downs for the banks. All the while they are telling the tax payers that they are helping us out. With this kind of help we should be entirely broke in no time.

    For all of you that are opposed to principal write downs I say “Thank You” for screwing not only yourselves, but the rest of us in the process. I knew this was coming if we didn’t pull our heads out of our asses. Obama is going to borrow more of our tax payer money to do special mayoral pet projects that they would like to get done. You know things like building wings onto libraries and building convention centers. Things we don’t need done. It is the old have one guy dig a hole and the other guy fill it in routine. Presto two non sustainable jobs were created to do something we don’t need and using our very own tax payer dollars to pay for it. Boy I am sure glad these politicians are looking out for us tax payers. I thought they were going to lower taxes, balance their budgets and offer a series of tax breaks for those companies created sustainable jobs in this country. You know things we need like principal write downs to borrowers letting the lenders actually pay for something for once…

17. benzy Said:
    January 18th, 2009 12:45 pm

    CC

    I disagree about selling. My losses are presently on paper. If I were to sell they’d become very real.

    Conveniently, my wife is not on the loan (insert guy bare-assing WaMu emoticon here). So this is essentially an issue of my FICO score, which is not worth $160,000 at this point.

    Jonathan

    I posted some loan details last night but I dont see them here. Perhaps I cross posted. So, 1 yr CMT, 2.75 margin. Reset july/2010.

18. Spectator Said:
    January 18th, 2009 1:16 pm

    Benzy,

    I don’t think CC was saying you should sell, I think he was saying walk away. If you FICO is not worth $160k, then walking is the only thing that makes sense.

19. Javagold Said:
    January 18th, 2009 1:22 pm

    Mr Mortgage unless you have the power to TV abd are able to speed up your message that principal reductions are the only answer, we are all doomed in 2009, time is running out and we have another guy in white house and same losers in congress, who have no clue what to do

20. Javagold Said:
    January 18th, 2009 1:23 pm

    No one FICO is worth $160K, imo……FICO is just another smoke and mirror scam

21. GloomBoom Said:
    January 18th, 2009 2:11 pm

    Wow, this mortgage scam is getting worse and worse. The idea that Obama or Congress can deal with this problem is so delusional that I almost feel like I am living in Europe. Since when did we turn to government to do all of this? How can politicians who don’t have a clue about banking solve highly technical economic problems? Take a look at the UK and you will see that the European model does not work and creates more problems than it solves!

22. ex_owner_now_renter Said:
    January 18th, 2009 2:44 pm

    Susan,

    There is already a bailout.. walk away!

23. Joan Jett Said:
    January 18th, 2009 2:46 pm

    1. benzy Said:
    January 17th, 2009 6:39 pm
    The real borrower victims are those who were qualified, but misled about property values being intentionally, grossly, temporarily and fraudulently inflated. I obviously agree with this statement. It is the crux of my argument.

    Joan said;
    I call BS!!! Who intentionally inflated prices? You did! The single most important factor in any appraisal is what someone is WILLING to pay for a house. If you were willing to finance at X amount of dollars then the bank looked at that and said ‘hey, this guy thinks it’s worth that much and he’s even willing to put his money where his mouth is.” You basically said to Mr. banker that you believed the house was worth such and such and asked for a loan. ALL of those people who bought during the bubble and outbid each other for cr@p shacks over and over, caused the values to get so perverted. Plain and simple.

    Benzy;
    There are hundreds of thousands of us who put 20+% down, borrowed at a conservative (for the time) price/income and could afford our homes at 5,6 and 7%. Our 5/1 ARMs are going to adjust and we simply cannot find financing at any rate.

    Joan;
    ????? ARM= adjustable rate mortgage. Are you saying hundreds of thousands did not understand the word adjustable? An ARM is a gamble that rates will be less AND obtainable at reset.

    Benzy;
    The fact that I will not likely be able to find financing for my home is of no consequence to my actions. It is the product of the fraud perpetrated by mortgage lenders. This I wont budge on.

    Joan;
    Did your mortgage lender submit your bid on the house you bought? Did the lender set the price you offered and pledged to pay? Did they decide to go with an ARM?

    Benzy;
    I do though take my obligations seriously, and I want to continue to live in my home.

    Joan;
    I bet there are other people who would like a shot at living affordably in your home too. In reality the bank owns your home, always did. The reason you got to call it yours is because you were the one willing to pay the most, enjoy! I live in an apartment because I was not willing to pay even half as much as you, it has not been fun for me. I am hoping someday prices will become sane and I’ll be able to “enjoy”. My enjoyment will be delayed or prevented if you get a do-over, is that fair?

    To add insult I and my kids and their kids will get to pay for your bailout (thru taxes). Is that fair? If the banker cheated you and now must pay, then who cheated me… and who will pay? Housing gambler’s bad debts will be transfered to me and future generations, that is of no doubt. The only thing in doubt is how those debt dollars will be spent. Will it be principal reductions for housing gamblers or simply more money pumped into banks. Of course because I did not participate or cause this mess I choose neither, but as I will be forced to help pay for the mess gamblers caused then I choose zero dollars to gamblers. ZERO

    Benzy;
    Regardless, I am really shaking my head at those who are calling for blood. I fail to see where greed or delusion plays into it. Some can pride themselves under the benefit of hindsight, but the fact remains that they had no better foresight then any of us. If they did, they would have see spectacular profits from speculating.

    Joan;
    We are not calling for blood, only justice. Don’t start playing the “oh poor me” card now. Didn’t the gamblers envision a world where your house was worth an insane amount (delusion) and probably a huge profit (greed) at some time in the future from me or some other poor sucker? We saw the world as going nuts and now that prices are starting to come down to where WE envisioned they should be, gamblers want a do over? We want and deserve the same ruthless price reductions on the way down as those who took advantage and priced us out of sensible home ownership on the way up, with ridiculous and ruthless price increases. It take two to tango, if there was not one eager housing gambler after another jumping from higher price to even higher prices then housing would not have gone up so much. If you and others had sided with us and said this is just too much to pay, then there would have been no huge price run-up.

    On the way up the housing gamblers got the cheap cash-out refis, the Hummers and the flat screens the fancy vacations, etc. etc., while we rational renters got looked down upon and put up with rent increases. Now we renters and bubble sitters are ALL siding together and deciding when we will buy a house and how much we will pay, and for those of you who gambled and priced us out…… you will not be happy with how far things will fall before we buy. But for young couples, our children and future generations, housing will become an affordable shelter and not a risky, over-priced casino bet.

    BS on the speculating idea too. Sure we knew prices were stupid but bubbles are hard to predict. I thought it was way too high in 2002 (it was) and yet it still went up for 4 more years. In order to see speculative profit I would have had to of gambled/paid more than I thought a home was worth, in hopes of selling to a greater sucker for even more right? Sound familiar? Even in 2002 I believed I would lose money if I bought at 2002 prices. I was wayyy wrong short term but will be right long term. I thought BofA stock was way too pricey at $25 a month ago, but was I sure enough to speculate? No! Yet here it is at $10 or whatever. Your analogy assumes there is no risk in speculating. In real life there is huge risk in speculating. Too many people speculated on housing to the extent that they made the tulip craze seem sensible. There was/is no way to invest sensibly when our society contains people willing to make such huge gambles, totally out of touch with fundamantals and there is no model to predict where it will end.

24. ex_owner_now_renter Said:
    January 18th, 2009 2:46 pm

    If you’re not an investor the and loss is only on paper, if you’ve got to make a descision based on:
    - you can pay monthly mortgage + rest of bills
    OR
    - you can’t

    If you can’t walk, if you can stay!

    If you bought recently, you din’t expect to sell right away for a profit? or did you?

25. Jonathan Said:
    January 18th, 2009 2:58 pm

    
    I posted some loan details last night but I dont see them here. Perhaps I cross posted. So, 1 yr CMT, 2.75 margin. Reset july/2010.
    

    Thanks for posting it Benzy, so we have something concrete to talk about. I am not a mortgage broker my analysis may be a little lame.
    If you’re talking about a reset in july of 2010, I think it means our loan was originated in july of 2005. At that time, it appears CMT was at 3.25. Adding in the margin, you have an interest payment of 6%. I am assuming this is a fully-amortizing rate. It’s a good rate, and I would not consider it to be a teaser.
    The CMT appears to be floating between 0.25 and 0.50 right now, so in your first adjustment, you’ll be paying (let’s say) 3.5% interest. So, your interest payment will actually be ((6.0-3.5)/6.0) less than it is today, or around 40% less.
    There must be something else going on that is bothering you, but once your ARM resets it would appear that your payment will drop in a big way if interest rates stay low.
    (this is not finanical advice)

26. Joan Jett Said:
    January 18th, 2009 3:28 pm

    Stu Said:

    “I would have preferred principal write downs over this that is for sure. At least the banks that didn’t fail, of which their will be many, would have picked up the tab for some of this. Now the tax payer foots the entire bill. The only way to stop this now is for mass numbers of people to start demanding principal write downs or start walking away. Without this occurring the tax payer will get stuck paying for all of this. They privatized the gains, and now they are socializing the losses to the tax payers. This is one of the reasons I was for write downs as opposed to them. The politicians are looking to keep insolvent banks in business using tax payer money to do principal write downs for the banks. All the while they are telling the tax payers that they are helping us out. With this kind of help we should be entirely broke in no time.

    For all of you that are opposed to principal write downs I say “Thank You” for screwing not only yourselves, but the rest of us in the process. I knew this was coming if we didn’t pull our heads out of our asses. Obama is going to borrow more of our tax payer money to do special mayoral pet projects that they would like to get done. You know things like building wings onto libraries and building convention centers. Things we don’t need done. It is the old have one guy dig a hole and the other guy fill it in routine. Presto two non sustainable jobs were created to do something we don’t need and using our very own tax payer dollars to pay for it. Boy I am sure glad these politicians are looking out for us tax payers. I thought they were going to lower taxes, balance their budgets and offer a series of tax breaks for those companies created sustainable jobs in this country. You know things we need like principal write downs to borrowers letting the lenders actually pay for something for once…”

    The banks are already insolvent. If mark to market were to take place they would be shown to have no reserves, ZERO. Housing still has a long way to go down before it is in line with fundamentals, foreclosures are just getting started, the commercial RE disaster is just getting started as is the credit card default tsunami. The banks lost all they had to lose last year. So at this point it is not a matter of the banks absorbing any more of the housing gambler inflicted wound to our country or we the tax payers absorbing it. That train has left the station and we the tax payers are left holding the bag for ALL of it. Again the banks have no more money!

    Now we can only focus on how our tax dollars are used and how we can prevent this from ever happening again. Giving tax payers gifts of pricipal write downs to housing gamblers will send a very bad signal to all those, who even at this point, remain responsible and live within thier means. We will be very, very upset at having been cheated first out of affordable housing by the gamblers and then also having to pay for a financial gift to them. I know of so many people living in 2700 sq’ beautiful McMansions who have not made a house payment in 12 months. At just $2500 per month that is already a $30,000 gift they get at my tax dollar expense. Meanwhile I would be kicked out of my rental if I skipped just one payment.

    So, I watched these gamblers enjoy the high life for 6 years, walking around acting so much better than us lowly renters. Taking HELOCS and cash out refis to buy jet skis, boats, vacations, Escalades, etc. And now they get to live in those beautiful houses for FREE while Gov. figures out what to do with them. We can never forget what happened, we can not forget the lifestyle so many lived on our future tax dime. And we certainly must not allow them to escape the consequences. We must forclose on all of them and let housing reach a free market sustainable level. If we bailout those respnsible for this mess the wound inflicted will rip this country apart.

    Go to RealtyTrac and look at forclosures and preforclossures in CA, AZ, FL, NV, etc.
    http://www.realtytrac.com/MapSearch/FreeSearch.aspx?a=b

    Every one of those preforclosures represent someone living in a fancy house FREE! And that is not all of them either as even RealtyTrac does not show many of the foreclosures in my area.

    Moral hazard ahead!!!!

27. Richard Said:
    January 18th, 2009 5:21 pm

    Joan
    Joan said;
    I call BS!!! Who intentionally inflated prices? You did! The single most important factor in any appraisal is what someone is WILLING to pay for a house. If you were willing to finance at X amount of dollars then the bank looked at that and said ‘hey, this guy thinks it’s worth that much and he’s even willing to put his money where his mouth is.” You basically said to Mr. banker that you believed the house was worth such and such and asked for a loan.
    ————————————–
    It take two to tango. On the flip side read the above re-written like this:

    I call BS!!! Who intentionally inflated prices? Banks did! The single most important factor in any appraisal is what some bank is WILLING to lend for a house. If the bank is willing to finance at X amount of dollars then they looked at it and said ‘hey, this is worth that much and we are willing to lend this much money for that property.’ Mr. Banker said he believed the house was worth such and such and gave the loan.

    It works both ways. Now the banks should know MUCH MORE than the average home owner. They should know what a property is worth, what the risk is, how much downpayment is required, the future of the market is, and realise that they have much more at risk than the borrower. They are the professionals and should know better than to loan out money with nothing down and high reset/arms.

28. Richard Said:
    January 18th, 2009 5:33 pm

    Joan also:

    Every one of those preforclosures represent someone living in a fancy house FREE! And that is not all of them either as even RealtyTrac does not show many of the foreclosures in my area.
    ————————————————

    You do realise that millions of people have lost their jobs right? You seem to think that every foreclosure situation is somebody who is evil and lied on their loans, etc.. I say a large amount of foreclosures are just good people who have lost jobs, got sick, spouse died/divorced/seperated,etc.. and they could not pay their mortgage anymore or got behind and need some help. Some are just earning less now.

    Living in a house for “free” is not the party you think it is. Many people have pride and it is a hard thing to admit to yourself, your family, your friends, your church, and your co-workers (if you still have a job) that you cant afford your home anymore and need to move. They have to find a place to live, move their whole life, kids schools maybe, and many other disruptions and costs. It is rarely a picnic. Losing a home you love is a hard thing period.

29. Joan Jett Said:
    January 18th, 2009 5:39 pm

    That’s just dumb. The banks did not initiate the transaction and the banks never made an offer to purchase. They were asked to make a loan at a price determined by the buyer of the house. Barney Frank, Bush, etc. (you know “the ownership society champions”) STRONGLY urged them to make the loans so they did.

    A bank never made an offer on a house for anybody at any price.

    Can you use that logic at a car dealership? Every single loan they make will absolutely be underwater 15 minutes after they make the loan (when the buyer drives off the lot). Would you suggest blaiming banks for all the car repos going on? Afterall they knowingly made a loan for higher than the value of the car once it left the lot. If we applied your logic to our credit expectations, making banks responsible for the price WE are willing to pay for an item, then loans will cease to exist for anything.

30. admin Said:
    January 18th, 2009 5:45 pm

    walking away from a home and giving it back right away without going through a lengthy foreclosure process will damage your scores for a while – much shorter time if you keep all of your other bills current. One thing is for sure – your score will not stay down longer than your home will. That is precisely why the FDIC and FNM mods in a box are a bad idea when the borrower is in a severe neg-equity position. Also when giving up the house and the debt that goes along with it and rent, you are able to save a ton of money over the period. For that matter, use $10k of the walk away savings and hire yourself a damn good credit repair company and have it ‘fixed’.

31. Joan Jett Said:
    January 18th, 2009 6:03 pm

    Richard said:
    “You do realise that millions of people have lost their jobs right? You seem to think that every foreclosure situation is somebody who is evil and lied on their loans, etc.. I say a large amount of foreclosures are just good people who have lost jobs, got sick, spouse died/divorced/seperated,etc.. and they could not pay their mortgage anymore or got behind and need some help. Some are just earning less now.”

    Nope that would be a tiny portion. All of those unfortunate circumstances are not a new phenomenom either. Thoughout history those people have been foreclosed upon. Just because they paid a crazy high price does not make that age old problem the tax payers problem. Myself, part of deciding how much I can afford includes accounting for how long I can stay in the house if I lose my job. Prices went too high for that to pencil out so I rented while high risk takers bid the prices ever higher. It was a choice for the gamblers to over-extend and put themselves in such a risky situation. No body held a gun to the housing gambler’s head and said “buy this house that you’ll certainly lose if you are out of work for 6 months….or I’ll shoot”

    If I loose my job and can’t pay rent I get thrown out of my apartment at exactly 45 days. Should we stop all renter evictions Richard?

    “Living in a house for “free” is not the party you think it is.”

    I would love to see for myself. Is it at least better than renting? I bet it is, seeing as how I can always go back to renting after I live for 12 months free in that super nice house.

    Where were the people calling for cheaper houses while I and others were forced to either rent or jump into certain financial suicide? There was no one calling for that because all of you wanted us buy your houses for $50k-$100k more than you paid for it, but that was perfectly fair wasn’t it?

32. Michael Blomquist Said:
    January 18th, 2009 6:15 pm

    @Average Jane
    I did bring in RICO claims on the recently amended complaint.

    @Johnnymortgage,
    Here is a copy of the complaint.
    http://michaelblomquist.com/casespending/NAMBvHUD/Document1.pdf

    I don’t know the particulars of the new law/disclosures that become mandatory 1/10/2010

    I was not aware that brokers were not allowed to be paid by rebates; only to be used to credit for loan fees? What are the new requirements re: rebates?

    If mortgage brokers and correspondents are to survive we must band together and demand FTC investigations. We should also report those who have been committing crimes within our industry, especially idiots who are baiting and switching like the fool referenced at Wells.

    I sent an email to counsel who is handling the NAMB v HUD case in hopes they would pursue more aggressive claims (Antitrust/RICO)against the lenders for boycotting in addition to the HUD rule.

    Fishermen in Alaska were awarded damages for Exxon’s negligence; how is this different? Many markets have been tainted with fraud that would have NEVER happened if the lenders had upheld REGULATED safety and soundness lending guidelines.

    http://www.fdic.gov/regulations/laws/rules/2000-8630.html#2000appendixatopart364

    Even the clauses re: executive compensation were violated.

    The evidence of this does not appear in oil slicks, but in declining home values and foreclosures. In fact, Exxon’s willingness to allow a drunk to remain at the helm of the Valdez is much more negligent than the lenders’ malicious and criminal conspiracy.

    This is NOT an issue of economies of scale destroying an industry; this is about a criminal conspiracy involving Lenders, I-banks and NRSROs to destroy independents.

    Never before in history has such a horrendous conspiracy been perpetrated. Already $8 trillion (More than 1/2 the value of all mortgages in the US) has been committed to address this problem. Obviously, this is a much bigger problem than mortgages alone.

    Where were the regulators? Was this conspiracy constructed to conceal insolvencies with pension, Social Security, Medicare, etc.? It will be much easier to place the blame on borrowers than for government to admit their own faults. How could they/we justify continue to justify taxes.

    Why did both the S&L crisis and this crisis happen under the Bush’s watch? So many questions.

    @Stu,

    The qualified buyer who were “deceived”, caught up in the moment or made unjustified projections on their own finances or the sustainability of our economy made up appx 50% of buyers from 2004-2007 in my market. The other 50% were the unqualified who continued to bid up housing prices.

33. Richard Said:
    January 18th, 2009 6:16 pm

    Joan of course the banks would not initiate the transaction. Just like the car dearler does not pull you off the highway and start you buying a car. Why bring this up??

    The banks are the ones that insist on having the house appraised, why? Because they want to make good loans (at least up until the last few years). They want to protect themselves. Why would they loan out money to big “gamblers” as you keep calling them? You dont seem to want to answer that.

    As much as you may not like it or want to hear it the bailing out of homeowners and stabilising the market will help everybody, even you. Having house prices go down even more from hear will hurt millions of people financially and limit their ability to move, retire, and get out from their house for whatever reason. So if you think outside of your own life and situation you would not want house prices to come down anymore, unless you think of only yourself and your own needs.

    I dont mean to offend but you sure sound bitter about your situation. I wish you goodluck. – Richard

34. Brock Sampson Said:
    January 18th, 2009 7:16 pm

    I have to say I share Joan’s skepticism about the whole “I was misled” business. Surely everyone knows that mortgage brokers and realtors only get paid if you decide to buy a house. That anyone would be naive enough to expect an honest answer from such people to the question “Is now a good time to buy a house?” defies credulity. Just admit you made a bad decision, it’s not that big of a deal and you have plenty of company.

35. Richard Said:
    January 18th, 2009 7:44 pm

    Brock, I am not arguing my personal position. I am lucky to be in good shape.

    But, look at today. Many banks are now requiring more than 20% down if they feel that the market is still in bad shape in your area you want to buy a home in. I have read articles that they are requiring 30% down and more so that they protect themselves from a bad market/loan. That is the prudent thing to do. That tells a homeowner that they are taking a risk and leaves it up to the homeowner to make the decision. But the bank warns the homeowner by doing this. That is that way is should be. If they feel the house is worth 200k and you say 220k then fine you come up with the extra 20k. Above all the bank has to protect itself. You would expect that. Look what happens when they dont. They go bankrupt or get bailed out. Why bailout the banks for bad behavior and not bailout the homeowners who were hurt during this period of bad behavior?

    The problem is many banks, not all, were drunk on easy money and let all standards go. This is not fair to the homeowners who are not as sophisticated as bankers.

    And were not just talking about misled people. The market has fallen so much in so many areas that people who bought 7-10 years ago are not able to sell their house.

    Going back to one of Joans examples – you cant walk into a car dealership and say you want to buy a 25k car for 30k and get a loan. The car dearlership finanacing departments know what the cars are worth and they wont lend the money. This is especially true of used cars. It HAS to be in the range of what the books say that vehicle is worth or YOU have to come up with more money to buy the car.

36. C.C. Said:
    January 18th, 2009 9:25 pm

    Here’s a heart-warming story:

    http://news.yahoo.com/s/ap/housing_thirty_eight_percent

    Look at the title.

    Why is it that anything and everything which happens in this country have to be viewed through the prism of race, gender and ‘inequality’? Did you ever wonder about that? Does nothing ever fair happen to anybody – or is it simply a constant stream of ‘unfairness’ & ‘inequality’ for a select few in perpetuity?

    Now, aside from the ‘human-interest’ aspect of this little ditty, pay attention to the theme of the article. It might as well have been dispatched from a new cabinet position: DFE (The Department of Fairness and Equality.) Maybe it already exists!

    We are Freaking finished. If I was a Chinese field commander looking at news in the U.S. right now, I’d be licking my chops.

    Jesus H. Christ…

    C.C.

37. Javagold Said:
    January 18th, 2009 10:23 pm

    complain that they are not given home ownership, then when they are given easier access to home ownership complain they were taken to the cleaners …….hard to believe !!

38. KurtA Said:
    January 18th, 2009 11:46 pm

    Actually Richard, the car dealorships would loan you 30k for a car originally listed for 25k as they are usually financed and owned by the manufacturer and it would be profitable for them to do so. That happens a lot for high demand cars or I guess for high demand houses.

    Like banks in the housing industry, large car manufacturers are losing large chunks of value right now. Do you think the impatient car buyer should go back to the car dealorship and demand his 5k back from the car company because his car isn’t in such demand now?

    Everybody goes on and on about the sophisticated banker that should know better. If those guys are so sophisticated, why do we have bubbles at all? Wouldn’t you think they would have learned their lessons from past real estate bubbles? They happen fairly regular right? Those guys are human and made the same mistakes as the homeowners and now their banks are in really bad shape.

    Their housing divisions are not getting the bailout folks. Our gov’t is bailing out the banks to keep our general credit markets from freezing up, you know, the money flowing so companies can keep their operations running. Despite what politicians will tell you, “help for the homeowner”, is not what the bailout was about. Those politicians got a lot of mail and the sentiment does not favor bailing out the homeowners or banks that made bad decisions. That’s why it’s hard to show where the TARP money helped the real estate market. It didn’t. It kept money flowing to businesses so they could continue to pay their bills and operate.

    Most likely banks will split apart their daily operations from the realestate side of their business and they will work out those homes in a larger version of RTC. I don’t see those principle reductions happening folks. It would break the banks and damage our gov’t without stopping the slide that is going to happen anyway. The only way we are going to keep from imitating Japan’s 20 year recession is to stop behaving as Japan did during it’s crises and quit interfearing with market forces.

39. BertDilbert Said:
    January 19th, 2009 1:27 am

    Joan Jett

    A lot of the loans going into foreclosure are deemed “risky loans”. The banks should not have been making risky loans. Whether it was loan type or High DTI, the bank is still the more responsible party to the transaction. Therefore it is the banks responsibility to properly qualify the borrower. Otherwise, why have a loan officer, just take your mortgage application to the teller window. Approved.

40. BertDilbert Said:
    January 19th, 2009 2:15 am

    Kurt A

    “Everybody goes on and on about the sophisticated banker that should know better. If those guys are so sophisticated, why do we have bubbles at all? Wouldn’t you think they would have learned their lessons from past real estate bubbles? They happen fairly regular right? Those guys are human and made the same mistakes as the homeowners and now their banks are in really bad shape.”

    Correct but the Federal Reserve is supposed to be in charge of things….

    Open Letter to the Federal Reserve Bank of San Fransisco
    (12th District Bank)

    Dear San Fransisco Fed,

    I have spent the past several months looking into the housing bubble, searching for answers as to how we arrived in our current state of affairs. As you are aware, the aftermath of this housing bubble is dishing our severe economic hardship to our nation, impacting the lives of millions of Americans. I have been a bit disillusioned with the Federal Reserve of late for obvious reasons, where as before our economic cliff dive, I held them in high regard.

    At this point in time, it appears as though the Federal Reserve has failed nearly all of the primary objectives of its Mission Statement. Where did we fall short on the mission statement? Well here for starters: maximum employment, stable prices, ensuring the safety and soundness of the nation’s banking and financial system, maintaining the stability of the financial system and containing systemic risk that may arise in financial markets. Do you have an estimated date when the mission statement will be back on course?

    Your mission statement claims that that sound banking is your duty. What happens when you fail your duty? At this point it looks to be your failures are going to be pushed off on the US taxpayer to the tune of trillions of dollars. May I suggest that the government confiscate your 6% tax free profits until the debt to the American people has been paid in full. In other words, Americans should be sending you the bill.

    The Federal Open Market Committee (FOMC)

    At least 8 times a year, the district heads and members of the Board of Governors of the Federal Reserve meet up. Officially, this is known as the Federal Open Market Committee (FOMC), where attendees have the opportunity to discuss the pfenning of a directional move of economic indicators, keeping tabs on the heartbeat of our economic condition. In essence, the United States is given an economical physical multiple times a year. Out of curiosity, I have read the transcripts of a few of these meetings to obtain a feel of what goes on. Given that the top economic physicians in our country poke and prod the patient with detailed observations and commentary, let me state that it would be impossible for our housing bubble to skip by unnoticed. Below is a quote from one of those transcripts from 1999 made by Mr. Jerry Jordan.

    “So I worry about the second derivatives of asset prices being positive–financed by the banking industry or pension funds or life insurance companies–and the prices getting to unsustainable levels. When that inevitable point comes where the second derivative must go to zero or negative for asset prices, people will find out that they’ve made a mistake and then we will have a credit crunch. We will have a debt/deficit cycle that becomes a problem.”

    Obviously Mr. Jordan is quite familiar with the aftermath of bubbles. Let’s face it, all the big names on the FOMC including The SF FED are familiar with bubbles, you lived professional careers through the Japanese asset bubble. Being economists, this is likely a topic that has been discussed to death over the years. Why then, under the watchful eye of the FED, should the United States be subjected a similar real estate asset bubble? My first inclination is to yell “Economic Negligence!”

    The 12th District, the San Fransisco Fed

    Your bank oversees the western side of the United States, known as the 12 district of the Federal Reserve System. Within your district are the states of Arizona, Nevada and California. As far as the housing bubble goes, this places two A bombs and one H bomb within your district. Just so that you don’t think I am picking on you, let me state that the Federal Reserve Bank of Atlanta in the 6th district, is home to the triple A Bomb state of Florida. During the course of my investigation into this mess, I discovered that each Federal Reserve bank has certain responsibilities. One of those responsibilities is monitoring conditions within your district, and reporting those conditions to the Board of Governor’s of the Federal Reserve.

    Duties of the District Banks

    Title 12 > Chapter 3 > Subchapter VII > Section 301

    § 301. Powers and duties of board of directors; suspension of member bank for undue use of bank credit

    “Each Federal reserve bank shall keep itself informed of the general character and amount of the loans and investments of its member banks with a view to ascertaining whether undue use is being made of bank credit for the speculative carrying of or trading in securities, real estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions; and, in determining whether to grant or refuse advances, rediscounts, or other credit accommodations, the Federal reserve bank shall give consideration to such information. The chairman of the Federal reserve bank shall report to the Board of Governors of the Federal Reserve System any such undue use of bank credit by any member bank, together with his recommendation. Whenever, in the judgment of the Board of Governors of the Federal Reserve System, any member bank is making such undue use of bank credit, the Board may, in its discretion, after reasonable notice and an opportunity for a hearing, suspend such bank from the use of the credit facilities of the Federal Reserve System and may terminate such suspension or may renew it from time to time.”

    What I would like to see, is your Chairman’s reports from your bank to the Board of Governors in regard to our housing bubble. I note the use of the word “shall”, which means that keeping informed of the general character of loans by member banks is not optional. As I see it, your bank appears to have responsibility under the law to keep tabs on what the banking sector is doing. Clearly making unsound loans does not foster sound credit conditions. In short, I would like to know if the FRB of SF was in compliance of the law. Had I written the report for your district it would have read something like this.

    “Dear Board of Governors, our member banks are making billions of dollars in loans with time bomb fuses that are going to blow up in the next 3-5 years. In addition, even the loans that don’t have time bomb features, they have allowed debt to income(DTI) ratio’s out to 50% of gross income. The probability of future failures on high DTI loans are elevated! It is a total frenzy out here, listings are receiving multiple offers above the asking price! In addition, the banks are loaning the money for the down payment, repeat – no money down – unlimited leverage! I suggest an immediate enforcement of non borrowed, verified down payment and an increase in the margin requirement to cool this thing down!”

    Who is to Blame?

    There seems to be a good number of people who blame the Wall Street banks, credit default swaps etc. as being a large part of the problem. To me, those are symptoms. I see the root cause somewhat differently, the problem was one of origination, the banks that wrote the loans in the first place. That would appear to be your member banks, your shareholders, the originators of the bulk of these loans. Your shareholders either blew up or are now hiding under the TARP. This somewhat blurs the lines of “facilitating for the Treasury”.

    I can’t believe that members of the FOMC did not notice what was going on with housing prices within your district. I have trouble believing that you were unaware that there was recklessness gone wild in the loan departments. At the least, I would think that a “good bank” would complain about what the “bad banks” were doing. What happened to standards? What happened to respectability? What happened to the Federal Reserve? Was this in pursuit of “monetary policy”, “economic policy” or was this just an extension of monetary easing?

    What happened to Christopher Cox?

    Chris Cox, head of the SEC now claims that it was intense pressure from Treasury and FED that brought about the short selling ban. I am going to guess that this would be inclusive of the mystery naked shorters. Initially I figured that Mr. Cox had lost his marbles. The only people who claim “naked shorters” have historically been cheap penny stock operators, covering up for the dilution affecting the share price.

    Now this pressure may have not come from the 12th district, rather members of the Board of Governors, but certainly they were your member banks being protected by the claims issued by Mr. Cox. The problem I have is when the Treasury and the FED pressure other government agency heads to issue statements that are not true. Not only did you make Cox look like an ass, eventually the truth came out. This gives the appearance of the Fed fostering lies to the American public. If that is the way the Federal Reserve is going to behave, we do not need you. Banking is based around credibility and trust. When the FED acts in a way to undermine itself and credibility and trust get thrown out the window, why should the FED be entrusted to handling the nations money?

    What was up with the high DTI loans?

    While investigating the housing bubble I found out one of the factors in allowing people to buy these over priced homes was the change in what the bank considered good in the way of Debt to Income (DTI), which is how large a mortgage payment can be. As I have been told, the old standard that was considered prudent was 28% of gross income. Somehow someone came up with the bright idea that DTI could be stretched out to 50%. Obviously if you take gross income, subtract taxes and then subtract a 50% gross income mortgage payment, that family is going to be stretched to the wire. They are likely to be building credit card debt and have no ability to save for contingencies. As a result, your banks have written a loan that will most likely fail at some future point. Is this what you call “monetary easing”?

    Here is my perspective on high DTI from the standpoint of a small business owner. If 50% of gross income goes to a mortgage payment, then after taxes, food, clothing, medical and transportation have been accounted for, there is very little left for discretionary spending, let alone save for a rainy day contingency. Because there is no discretionary income left, this family has been taken out as a consumer from our society. For the local business owner, banks making high DTI loans is the economic equivalent of snipers roaming the neighborhood taking out his customers and prospective customers. Once the music of mortgage equity withdrawals has stopped, the effects become very clear and damaging to the heart of both large and small business that rely on the consumptive power of the consumer. Not only will the economy fail, but the loan along with it when nobody has jobs. As far as I am concerned, banks can only have so much of the pie in a mortgage payment because if the payment is too high, it robs everyone else. This may seem a little strong to you but I consider it economic theft from local businesses. Feel free to rebut me.

    My Proposal in Obtaining Answers

    Here is my proposal. I believe that the people of the 12th district deserve answers as to whether this problem developed due to bungling of the SF FED or is the fault of the Board of Governors telling you to look the other way. Bernanke and Greenspan can later say “We screwed up” or “President Bush overruled our recommendation”. Blame lays somewhere within these three options.

    To accomplish this, l suggest setting up a podium in front of the SF FED or your Los Angeles Branch. Saturday, January 30th works for me. Call the respective Mayor and see about getting the proper permits. They may find this to be a great opportunity to address their constituents and offer to set up the podium and PA system at no charge. At the same time, it would be a good idea to invite California’s Governor Arnold Schwarzenegger, Nevada Governor Jim Gibbons and Arizona Governor Janet Napolitano, so that they have the opportunity to mention how our housing bubble fiasco is affecting their states and comment on what you have to say. At the same time, we can discuss the effects of a mortgage tea party. You do the press release announcing the event and I will do what I can to obtain you an audience on this end.

    Regards,

    David Walker oneandthesame@hotmail.com
    (Not to be confused with the Comptroller General)
    Post wherever you feel approiate

41. Dick Said:
    January 19th, 2009 3:19 am

    Waht happens when the gov’t is printing all this money and massive inflation comes? The FED will be forced to agessively increase i rates. This will totally destroy the hoiusing market further. Think of a recession, high unemployment and massively higher interest rates all at the same time.

42. Jonathan Said:
    January 19th, 2009 7:10 am

    the only way to get banks lending again is to get people to want to buy.
    People will not want to buy if they think the housing market is a sham propped up by the Fed or our gov’t.

    Since record low interest rates hasn’t stoked demand, and no longer will, (we’ve run out of greater fools to buy at current prices), I suggest the quickest way to recovery is to just let house prices drop, foreclosures increase, etc.

    People that *really* need out, and have the balls to do it, can file for bankruptcy and/or walk away. Fine. The deleveraging will proceed even more quickly. Go rent for a while and come back in a few years and buy at a cheaper price. I’d even allow them a credit amnesty if they don’t trash the homes.

    Prices are still ridiculous in my area if you look at historical standards (price/income and price/rent). No reason to bail out anyone here. The demand is quite thick when the ratios return to norms. Most people I know that want to buy are simply waiting for this to happen — credit availability is immaterial to them.

43. Jonathan Said:
    January 19th, 2009 7:19 am

    I’m coming to suspect that the typical person here that wants a principal reduction just doesn’t have the stones required to walk away and wants an easier way out.

    1) if you walk away, banks are unlikely to come after you for a deficiency judgement (with this flood of foreclosures, all states are effectively non-recourse)
    2) you could buy the same house cheaper after a couple of years
    3) you can rent cheaper than owning
    4) you can rebuild your credit in a few years
    5) you can walk away from your biggest losing asset

    So, why would anyone stay? Only if they want to have their cake and eat it too, and get others to foot the bill.

44. Dick Said:
    January 19th, 2009 9:38 am

    I own an rental/investment property. Before renting to anyone I carefull look at their credit report. If somone plans to walk on their home they should make sure they find an apartment for the next few years while they rebuild their credit.

45. Partyboy Said:
    January 19th, 2009 10:35 am

    Dick,

    Would the fact that someone who walks from their home could likely pay 6 months of rent upfront change your credit score concerns? I would think that most people who walk have a decent amount of money saved from not paying their mortgage and the first six months upfront in cash would go a long way in alleviating my concerns about renting to someone like that. Just curious…

46. Joan Jett Said:
    January 19th, 2009 2:39 pm

    2. Richard Said:
    January 18th, 2009 6:16 pm
    Joan of course the banks would not initiate the transaction. Just like the car dearler does not pull you off the highway and start you buying a car. Why bring this up??

    The banks are the ones that insist on having the house appraised, why? Because they want to make good loans (at least up until the last few years). They want to protect themselves.

    Joan said:
    I brought it up because you are trying to show the banks are more at fault than are the housing gamblers. Your reasoning is that the banks should have known the houses were not worth that much. The bank orders appraisals BECAUSE they are not in the business of identifying value, they leave that up to the buyer and the appraiser. Car dealerships are a great example because they show that it has ALWAYS been common place for banks to make loans on depreciating assets, often horribly fast depreciating assets. Look at RVs, tens of thousands of people over the past few years have bought $300k motorhomes that are now worth $100k-$150k. It not their fault gas prices went to $4.50 and killed the RV market, do they get a do-over? Do RVers get a principle reduction?

    Your anology is silly. We would not have any industries functioning if banks were expected to NOT loan money if they thought the value would drop on the item being financed. That has never been an expectation of banks and never should be. HFC financed hundreds of thousands of giant flat screen TVs that pretty much lose 3/4 of their value before a year is up, should we have a principal reduction for their TV debt?

    Or are you saying that housing loans are different because houses only go up in value? Actually when you think about it, at least a home owner that is underwater $150k right now has a chance that they will recoup that $150k in 20 years (if they stay put and pay the mortgage like they agreed to) when all the money printing the gamblers caused makes inflation take off and houses rise in cost again. The car buyer, RV buyer and flat screen buyer share no such luxury….so they really are more deserving of a principal reduction if anyone is. A year 2004 $300k RV will likely be worth $10k in 20 years, seems like we are way off when it comes to focusing on those “victims” of bank loans most in need of a principle reduction.

    Richard said:
    Why would they loan out money to big “gamblers” as you keep calling them? You dont seem to want to answer that.

    Joan said:
    I did answer that. Here is a cut and paste: “Barney Frank, Bush, etc. (you know “the ownership society champions”) STRONGLY urged them to make the loans so they did.” For further explanation research the Fed’s roll in banking. The Fed sets the loan standards the banks must follow. The Feds send in auditors and has them look at a bank’s loans to determine which are good loans and which are suspect bad loans, and tells the banks how much cash reserve they need on hand in relationship to the loans they have made. The GOVERNMENT told the banks to lend, lend, lend and reduced the cash reserve requirements to next to nothing.

    Anyway it is still absurd that a person would ask a bank to lend them a specific amount of money (an amount the bank had no part in determining for the buyer) and then later complain that it’s the banks fault they paid too much. It is the lamest of lame excuses. Everyone of these people knew there were no guarantees their house would be worth more than they paid and if they did not know houses can go down in value then the Darwinian aspects of such people bidding house prices to the moon begs us as a society to make sure they can never bid on houses again.

    Richard Said:
    As much as you may not like it or want to hear it the bailing out of homeowners and stabilising the market will help everybody, even you. Having house prices go down even more from hear will hurt millions of people financially and limit their ability to move, retire, and get out from their house for whatever reason. So if you think outside of your own life and situation you would not want house prices to come down anymore, unless you think of only yourself and your own needs.

    Joan said:
    That is the single biggest load of BS I have read yet. The only people to benefit from stabalising prices (read keeping them artificially too high) are the very gamblers who have wrecked this country financially and unrealistic retirees who had hoped to finance their golden years on the shoulders of some poor young couple by selling them thier house with a crippling, crazy out of wack, inflated bubble mortgage.

    How the heck will higher prices help me? Millions of people own their houses outright, millions more live in non-bubble areas and will be fine. The people that will lose are the ones who must lose, the gamblers. Anyone who paid $400k for a house that sold for $126k three years prior has no right to a bailout, they need to learn a hard lesson, they need to know that those of us in society who behaved rationally are upset with them for being so greedy and stupid, and they need to become renters and let housing fall to sane price levels in the bubble areas. That way many, many truly deserving people can benefit from sane housing prices. People like the responsible ones who refused to take part in the bubble that destroyed our financial system and their kids and hopefully their kids kids.

    In truth Richard, our country would not be going thru this horrible period if housing gamblers had not greedily snapped up as many houses as they could, bidding them higher and higher in hopes of selling those houses to some poor victim who simply wanted a home to live in. These gamblers robbed honest folks of the dream of home ownership for the past 6-10 years by perverting the market with their greed. And to top it all off with one final F-you to their fellow countrymen, when the gamble turned against them they stopped paying their mortgages in droves and crippled our entire financial system. To suggest that propping up those insane prices with tax payer dollars would be good for any deserving person, is absurd. Crazy high prices brought this country to its knees. Much, much, much lower prices will help it recover.

    BertDilbert said:

    A lot of the loans going into foreclosure are deemed “risky loans”. The banks should not have been making risky loans. Whether it was loan type or High DTI, the bank is still the more responsible party to the transaction. Therefore it is the banks responsibility to properly qualify the borrower. Otherwise, why have a loan officer, just take your mortgage application to the teller window. Approved.

    Joan said:

    You were so close to the truth with your “Open Letter to the Federal Reserve Bank of San Fransisco
    (12th District Bank)”. The Government sets the lending standards and the Governement wanted an “ownership society”. Still, grown-ups must act like such and if you paid $300k for a stucco-box in Phoenix then you are certainly the more responsible party, not the bank. You WANTED to over-pay to the tune of about $200k, the bank just helped you realize your dream .

    Still, we have a mechanism in place for people not being able to live up to their contract, its called a foreclosure. Any time you start to get convinced that principle reductions are anything but evil, think about the poor underwater car buyer, the RV owner who has to continue paying the bank $2000 per month on an RV worth $100k less than the bank loaned them to buy it. Don’t forget the guy who got $2500 from Best Buy to buy a flat screen in early 2008 and already its only worth $500. Oh, and maybe we can toss a few $billion at stopping renters from being evicted if they can’t/won’t pay. Oops, one more….we will also need to give a principal reduction to everyone else in the neighborhood too, we all know they will screem bloody murder if the neighbor gets their mortgage chopped in half and they don’t.

    Jonathan, well said on those last two posts.

47. Michael Blomquist Said:
    January 19th, 2009 3:12 pm

    Brock,

    I agree about the issue about being “misled”. I find it hard to believe that borrowers did not understand that a 1% interest rate (Option ARM) was too good to be true, especially when savings accounts were paying 2-3%.

    Regardless if the borrowers were misled or willful co-conspirators; brokers and lenders are legally and contractually required to supervise agents to make certain that they properly qualified the applicant. PERIOD.

    Misled is used to provide the borrower the benefit of the doubt.

    This doubt can NOT be provided to loan originators whose main job function was to collect and analyze an applicants income to determine the loan they could afford!

    Loan originators are not allowed to accept a borrower’s stated income. Loan originators must properly qualify the borrower regardless of the type of future loan submission.

    I can understand other posters’ outrage against borrowers who should have known better and I feel the same way about my associates/competition. The reality is that it is much easier to indict the loan originator as they should have known better or at least their employer/broker should have known better.

    The fact is that they did know and purposely conspired to recklessly alter lending guidelines in order to generate more business. Business that was fraudulent and at the foundation of our current crisis.

    I believe this is no different than the war on drugs. We would get no where if efforts were directed at the users/borrowers. We must go after the king-pins and should round up a few big producers to roll on their managers.

    Financially we are screwed. There will be no viable solutions except bankruptcy and starting fresh. When we start fresh we mush know that rule of law still reigns supreme.

    The “big wigs” all knew that recklessly altering, proven and REGULATED safety and soundness lending guidelines would not only increase sales, outstanding mortgages (MSRs), but encourage fraud.

    While the Ponzi scheme was still alive fraudulent borrowers would be the most profitable because they would need a new loan (cash out) every 12 months or so. Not only did outstanding mortgages skyrocket between 2004-2007, but loan volume per year skyrocketed. Look at Countrywide’s increases; this was not just increase in market share, but increased churning.

    http://michaelblomquist.com/casespending/CAvCFC.pdf para #28
    “Its reported securities trading volume grew from 647 billion dollars in 2000, to 2.9 trillion dollars in 2003, 3.1 trillion dollars in 2004, 3.6 trillion dollars in 2005, and 3.8 trillion dollars in 2006. (These figures relate to the ostensible values given to the securities by Countrywide or investors,and include securities backed by loans made by other lenders and purchased by Countrywide.)”

    That is appx 500% increase even after the 2003 refi boom had ended.

    These unqualified borrowers would often go to their existing lender because of the “stream-lined” promotions provided with their payment coupons. Why find another partner in crime when your existing lender was relatively competitive and still willing to commit loan fraud.

    Whoever thinks this should be blamed on borrowers is silly. It is our governments obligation to maintain safe, sound and stable markets. Clearly, the corporate interests prefer something different.

    We must demand that rule of law is restored. Executives are indicted and disgorged. Otherwise we have no justice and no reason to pay taxes.

48. Javagold Said:
    January 19th, 2009 3:15 pm

    will some people here please stop comparing HOUSING values going down to CAR values going down…….you sound like a clown…PLEASE STOP IT !!!

49. Joan Jett Said:
    January 19th, 2009 3:27 pm

    Javagold

    Its not a comparison of housing values and car values a@@hat, its a comparison of loan guidelines. Banks being held responsible for lending more than something is or will be worth.

50. Joan Jett Said:
    January 19th, 2009 3:39 pm

    Michael Blomquist Said:
    Whoever thinks this should be blamed on borrowers is silly. It is our governments obligation to maintain safe, sound and stable markets. Clearly, the corporate interests prefer something different.

    We must demand that rule of law is restored. Executives are indicted and disgorged. Otherwise we have no justice and no reason to pay taxes.

    Joan said:
    So you believe the guy who signed the contract stating he makes $100k per year when he knows he actually makes $60k is blameless? Really?

    If we must restore rule of law then we must not only find the Government/corporate figures culpable but also not just stop at legal foreclosures for those who signed fraudlulant loan docs, we must follow rule of law and prosecute for loan fruad? Or should restoring rule of law only include one side of the problem?

51. C.C. Said:
    January 19th, 2009 3:46 pm

    Jonathan:

    “5) you can walk away from your biggest losing asset”

    Allow me to ‘tweak’ this ever so slightly, for within your last bullet lies the key. It’s only one word, but it has Huge meaning and implications:

    ‘Asset’

    As in, Asset vs. Liability.

    A home is not an asset. Nor should it ever have been construed to be one. But after almost 30 years of seemingly never-ending upward price movement/skewed valuations, the mindset became universal – houses never decline in value. Until 2007 rolled around.

    Thankfully, this shakeout is suggesting people look at the prospect of home ownership in a different light.

    C.C.

52. Michael Blomquist Said:
    January 19th, 2009 3:50 pm

    BertDibert

    Nice work

    Here is one of the response letters I received from the FED and Feinstein about housing. These were not blanket responses as I had made several phone calls as well.

    http://www.michaelblomquist.com/complaint/complaint%20exhibits.htm#b

    When and where do we dump the tea?

    Others:
    Blaming government about the ownership society is a joke. Blame them for lack of regulation, but not for promoting home ownership.

    If your wife, husband or significant other says hurry home dear; they don’t want you doing 70 in a school zone; they just don’t want you stopping by a friends for a beer, the store, etc.

    The ones promoting this argument were the executives.

    The crooks at the lenders, i-banks and NRSROs don’t get a free pass because regulators failed. To a lesser degree that would be like blaming bank robberies on the police. Sure regulators should be held to a higher standard, but laws have been broken and those who broke the laws should be punished not bailed out.

    I remember my first job out of college; my manager told me that on occassion it was good to have a mistake as long as you were there to fix it. If everything always went smoothly the customer could take you for granted.

    Although the horrific mistakes are inexecusable the solutions and lack of prosecution are much more concerning.

    The government’s failure to properly regulate provides for error in incompetence. The government’s failure to properly prosecute wreaks of complicity and corruption!

53. Stu Said:
    January 19th, 2009 4:21 pm

    Michael Blomquist, excellent points and totally usable to point out the need for lender / borrower principal reductions. It is a fair way of dealing with this mess that doesn’t saddle the tax payer with the debt. It keeps people in their homes which is good for our economy. It helps to place a floor in the housing markets by limiting the bulk sales that result from mass amounts of foreclosures and subsequently cause havoc to median prices and neighborhood comps. It doesn’t reward anyone that was a gambler or speculator. It keeps people in their homes thus avoiding the ghost town scenario playing out across America where as mass amounts of people move out of a specific area causing a spiral of job looses and continued strife in that area as a result.

    Joan, when you ask “How the heck will higher prices help me” the actual question should be “How the heck will a slow down in foreclosures and hence a floor being placed under prices help me” and the answer is that the fall out as a result of such an event will cause far greater damage than if we were able to contain it better. Prices are and will and need to drop, and they will. We can do it in an orderly fashion protecting families and their homes while assuring those such as yourself have ample choices in homes to purchase at much lower prices. Why do we need carnage to result across the board to give you this same availability?

    The cost of homes are going down yet further by all accounts. This simply means that the situation will get a lot bleaker before getting better. I feel if something isn’t done to protect the American family, then we could be in some serious trouble down the line here. We need to do things that will stabilize our situation and not cause it to spiral out of control even further. This is not just a small little recession that will be over in a few more months, but rather a deep and long lasting recession and possible depression before it is over in my opinion. You cannot leave things alone to fix themselves because that won’t happen. Too much was done to manipulate the market already so now we have no choice but to continue that trend or lose everything we placed into it to begin with. Too much of a loss to absorb by our economy and the people within it to just leave it alone now…

54. Joan Jett Said:
    January 19th, 2009 4:37 pm

    Michael Blomquist
    Thanks for that link and the work you put into that. It is very interesting and the confusion one gets from trying to read it illustrates the crazyness that went on.

    I love your anology “hurry home and the school zone”.

    The docs in your link say the loan example on the title company statement was a no income verification (NIV) loan. Are we to understand that this person then lied about his/her income in order to qualify?

55. Jonathan Said:
    January 19th, 2009 4:50 pm

    @richard
    and anyone else who things that appraisals for the benefit of banks means the banks “said” the house would not go down in value.

    In a mortgage, the bank makes an appraisal of the property that will ‘secure’ the mortgage. The reason that mortgage rates are around 6% and credit card rates are 10% or higher is that the mortgage is a ‘secured’ loan, meaning that it is backed by collateral, while credit card debt is unsecured — backed only by a promise to repay.
    The bank’s appraisal isn’t for the purpose of predicting future house prices. It’s about determining the value of the collateral. It means *nothing* to the homeowner, since it is not a market price, and even the appraisal figure in reality turns stale very quickly.
    It is simply a bank’s notion of the value of the property, for the purposes of acting as the collateral of the loan.

    If all of the banks’ appraisals were to magically add a zero to the end of the appraised value, it would not change actual values — market prices — at all.

    If the banks were more permissive on lending, by using the same bubble formula that the realtors were spouting off (“prices will go up forever”), all that can be said is that they were willing to risk more defaults than otherwise, in order to make more loans.

56. Jonathan Said:
    January 19th, 2009 4:55 pm

    @javagold

    What do you not like about the “car” analogy, can you be more specific?

    I think it’s actually quite an appropriate analogy…
    – both car and house loans are secured
    – it’s an example of asset valuations differing greatly from market prices
    – those who are paying on car loans are not being bailed out, even though their asset has dropped in value far more than normal, due to the present financial conditions

    So, it seems like a fair analogy, and not very clown-ish at all.

57. Jonathan Said:
    January 19th, 2009 5:02 pm

    Short summary of a previous thought. It’s very simple.

    home appraisal: bank tries to guess liquidation value for the collateral, to determine their likely loss in case of default.

    It absolutely is not any sort of guarantee that prices will not fall.

    The bank doesn’t know any better than the borrower about the future of the housing market. If they did, they wouldn’t all be bankrupt at the moment.

    Banks must assume that the buyer is generally working in their own best interest and has found a house at a good price.

58. Joan Jett Said:
    January 19th, 2009 5:06 pm

    Stu, well put. We already touched on the subject of the banks writing down principle so that they absorb the loss and NOT we the tax payer, in this thread. The banks were broke by mid 2008 at the latest. Any money the banks may have now is TARP tax money, thus any principle reductions will be done with tax dollars. So the arguement of the banks paying and not the tax payer is out the window. We tax payers and our children will pay for those that bid housing prices to crazy levels. OK? So no more dreams of the banks finding money in the lobby couches and using it for principle reductions.

    The utopian idea of giving out principle reductions to some and not all is a moral hazard mine field. If you, Stu do not qualify under a Gov. mandated definition of a hardship how will you react to your nieghbor being gifted a $150k reduction down to $250k on his $400k mortgage and all you get is our sincer thanks for “taking one for the team” by continuing to pay your $400k mortgage?

    How will Joan react if you and the PTB collude to reduce everyone’s mortgage down to a level you can afford yet still prices me out? Joan gets to pay for your windfall with taxes taken from every pay check for the rest of her life but still no affordable home?

    As to weather or not we let this fall out quick and hard (rip that band-aid off) or enact stumbling block after stumbling block that prevents housing from falling to historical affordable levels????? Just a few thoughts on how that is working out would be…. the probably hundreds of thousands who are living in houses for free while other MUST pay or be homeless. Our taxes dollars are paying for that gift to the very people who caused the mess.

    Gov. intervention has enabled banks to keep a huge shadow inventory of REOs hidden from the MLS and they are asking too much for the REOs they let onto the market, the result is loans from houses bought a year ago already going back into foreclosure because prices are being manipulated to fall slowly. The too eager knife catcher who bought a REO for $297k in Riverside last year has now stopped paying because the same house is going for $220k now. We can have one big wave of forclosures or wave after wave of smaller ones.

59. Jonathan Said:
    January 19th, 2009 5:08 pm

    One of the themes I keep hearing here is…

    “THE BANK SHOULDN’T HAVE LET ME DO IT.”

    How did anyone ever think the market worked this way?

60. Jonathan Said:
    January 19th, 2009 5:36 pm

    
    So no more dreams of the banks finding money in the lobby couches and using it for principle reductions.
    
    LOL. Check the car seats, too.

61. Javagold Said:
    January 19th, 2009 5:43 pm

    there are too many smart people on this blog, do i really need to explain the MANY MANY reasons a car loan and mortgage are not proper analogies …….STOP IT PLEASE !

62. BertDilbert Said:
    January 19th, 2009 5:52 pm

    Jonathan

    “One of the themes I keep hearing here is…

    “THE BANK SHOULDN’T HAVE LET ME DO IT.””

    Absolutely they should have not. That is why we have the problem that we do today. The reasons that the banks need bailouts is that they made bad loans.

63. Jonathan Said:
    January 19th, 2009 6:03 pm

    @javagold

    Yes, apparently you do.

    What do you not like about the “car” analogy, can you be more specific? I think it would help further the discussion if you could give your point of view.

    Here are some similarities in lending between cars and houses….

    - both car and house loans are secured loans — the asset being purchased is used as collateral

    - it’s an example of asset valuations differing greatly from market prices

    - securitization / risk transfer occurs in a secondary market in both cases.

    - those who are paying on car loans are not being bailed out, even though their asset has dropped in value far more than normal, due to the present financial conditions

    - the company doing the lending has no specific interest in the value of the property, other than liquidation value in case of default. Car financers do this same thing.

    - the buyer assumes any risk of market value fluctuation (this is not an insurance contract or a swap)

64. Joan Jett Said:
    January 19th, 2009 6:18 pm

    Javagold:
    Analogies are often used to make people see the folly of their thinking patterns, they are not intended to be exactly comparable on every level. Perhaps you’ve not seen this phenomenon before, so I’ll dumb it down for you. The car analogy came up because several people were claiming the banks were at fault for allowing them to pay too much for their house. Ala ““THE BANK SHOULDN’T HAVE LET ME DO IT.”. To help people visualize how ridiculous that is, it could be helpful to use another circumstance where people go to banks looking for loans on an expensive item to which the bank will hold title. It illustrates and shows history that most people can relate to, which is that banks have never, will never and were never intended to be responsible for the future value of an item they lend money on. It’s an absurd notion with no grounding in historical events or reality

65. Jonathan Said:
    January 19th, 2009 6:51 pm

    @BertDilbert

    
    “One of the themes I keep hearing here is…
    “THE BANK SHOULDN’T HAVE LET ME DO IT.””
    Absolutely they should have not. That is why we have the problem that we do today. The reasons that the banks need bailouts is that they made bad loans.
    

    I was referring to the people that I’m reading in this forum, that are able to repay, and are now using the fact that the bank lent to them as an an excuse (either that the bank should have foreseen the decline in property values, or were maliciously allowing them to borrow on a depreciating asset)

    From people’s stories I have heard here, I think most are just *unwilling* to repay, and are trying to rationalize why they should not have to….

    Is there someone who would admit that they were unable to repay, but the bank lent to them anyway…?

66. Stu Said:
    January 19th, 2009 7:00 pm

    Joan,

    “The banks were broke by mid 2008 at the latest. Any money the banks may have now is TARP tax money, thus any principle reductions will be done with tax dollars. So the arguement of the banks paying and not the tax payer is out the window. We tax payers and our children will pay for those that bid housing prices to crazy levels”

    You are wrong. The only lenders that will cost us and far less than these continued foreclosures are doing, are those that go under. Unless you are suggesting that our entire lending institution should just crash and burn, then I assume you want suggestions to help that from happening.

    “The utopian idea of giving out principle reductions to some and not all is a moral hazard mine field. If you, Stu do not qualify under a Gov. mandated definition of a hardship how will you react to your nieghbor being gifted a $150k reduction down to $250k on his $400k mortgage and all you get is our sincer thanks for “taking one for the team” by continuing to pay your $400k mortgage”

    Your just making up a pretend scenario that does not apply necessarily.

    “the probably hundreds of thousands who are living in houses for free while other MUST pay or be homeless. Our taxes dollars are paying for that gift to the very people who caused the mess”

    That is so far off base.

    “Gov. intervention has enabled banks to keep a huge shadow inventory of REOs hidden from the MLS and they are asking too much for the REOs they let onto the market, the result is loans from houses bought a year ago already going back into foreclosure because prices are being manipulated to fall slowly. The too eager knife catcher who bought a REO for $297k in Riverside last year has now stopped paying because the same house is going for $220k now”

    I agree that we will have several what appear to be bottoms during this fall out. MAny will get stuck in between and then that inventory will be thrust back upon the market with no true buyers waiting to buy them up.

    “We can have one big wave of forclosures or wave after wave of smaller ones”

    We can’t handle one big wave all at once is the point. We are not positioned as a nation to be able to weather that. We need it fed baby food style one spoonful at a time. We need time to digest it all and slowly take more and more in. One big fat spoonful will be deadly in my opinion. Maybe that is where we differ…

67. Jonathan Said:
    January 19th, 2009 7:05 pm

    Current rationalizations for why the borrower shouldn’t be required to repay. (I am not trying to be mean and nasty, just documenting the zeitgeist. Feel free to correct these and provide your own opinion).

    Can you find your opinion here?

    1. “the bank should not have lent me money. I could not afford it”

    2. “the bank should have known that property values would go down, and not lent me money”

    3. “the realtor or appraiser thought the price was reasonable”

    4. “Although my loan wasn’t risky, the banks were making risky loans to other borrowers that I had to compete against”

    5. “I had to buy at that time, irrespective of price, due to life circumstances. The downturn in the market was unfair to those in my situation”

    6. “The bank put me in a loan with a teaser rate. I did not know it would reset/recast”

    7. “I thought (or was told) I would be able to refinance”

    8. “Someone else paid even more than I did, so the price I paid was reasonable”

    Does anyone have other rationalization to add to this list?

68. Jonathan Said:
    January 19th, 2009 7:25 pm

    @Stu,

    You and Joan were discussing this point, and I’d like to hear your point of view. Especially since you agree we should not spend taxpayer dollars to bail out borrowers.

    If banks cannot afford to write everyone’s principal to 0, (look at Mr. Mortgage’s bank asset ratios spreadsheet)
    how exactly do we go about writing down anyone’s principal, in a way that…
    – won’t force the taxpayer to pay even more
    – won’t cause riots to take place
    – won’t provoke financially healthy people to game the system (e.g. work less to qualify for a lower principal based on debt service ratios)

    Is there any way to do it that won’t just lead to moral hazard. E.g., if it’s based on a front end/back end debt service ratio, what’s to stop people from taking unpaid leave or changing jobs to gain advantage?

    One of the most interesting ones I’ve heard was posted by “Ahead of the curve”. He/she said…

    
    Here’s a thought, reduce the principal to eliminate the negative equity situation but raise the interest rate on the modified mortgage to a point were the monthly payment remains the same. It corrects the LTV and does not provide the “irresponsible” homeowners (as they are sometimes referred to) a break. They claimed they could make the monthly payments when they signed the deal so…or maybe adjust the modified mortgage interest rate such that both parties (bank and mortgage holder) share the hit.
    

    That might be do-able, depending on how to set and control interest rates.

69. BertDilbert Said:
    January 19th, 2009 7:35 pm

    Joan Jett. You said….

    “which is that banks have never, will never and were never intended to be responsible for the future value of an item they lend money on.”

    Sure they are, that is why you carry insurance on the property, to protect the future value. If you take any asset backed loan, you have to insure the property. Second case where you are wrong is that the 20% down is the safety margin for the bank. In your favor, the taxpayers are bailing out the banks which infers they are not responsible, you are responsible for the future value of the property.

70. Michael Blomquist Said:
    January 19th, 2009 7:45 pm

    The argument that the bank should not have lent me (unqualified borrower) money fails for many reasons when it is presented by the borrower.

    The same argument presented by a depositor, shareholder, taxpayer, regulator, etc. is valid and is from where I base most arguments.

    Laws that require drivers to have insurance, wear helmets, seat belts, etc. are not for the benefit of the driver; it is for the protection of society.

    I think all states are requiring insurance if you are going to drive a vehicle. Regardless with or without insurance wearing seat belts and helmets reduce medical costs and therefore insurance premiums. In addition, the drivers’ family could require government assistance if the driver is killed or out of work for a long recovery.

    This is/was little different than the laws that were protecting society from reckless Lenders, Investment bankers and credit rating agencies.

    The reckless changes in lending standards were even more reckless than allowing drivers to drink and drive with no seat belts at any speed while talking on the phone and smoking a cigarette. Even in the driving analogy the drivers were not guaranteed to crash.

    Lending out $600k on a grossly inflated property to a borrower making $40k per year was guaranteed to fail/crash.

    Unfortunately, it is not the loan originator or executives that have borne the pain for their crimes. Most of the funds that invested in mortgage backed and related securities were legally restricted from certain investments unless they had investment grade ratings from the NRSROs.

    Imagine how devastating the dot.com bubble could have been if these crooks/idiots at Moodys, S&P and Fitch would have been providing investment grade ratings on WebVan.

    These were the regulations that were promulgated to protect society from reckless lending.
    http://www.fdic.gov/regulations/laws/rules/2000-8630.html#2000appendixatopart364

    See c

    C. Loan documentation. An institution should establish and maintain loan documentation practices that:
    1. Enable the institution to make an informed lending decision and to assess risk, as necessary, on an ongoing basis;
    2. Identify the purpose of a loan and the

    source of repayment, and assess the ability of the borrower to repay the indebtedness in a timely manner;

    3. Ensure that any claim against a borrower is legally enforceable;
    4. Demonstrate appropriate administration and monitoring of a loan; and
    5. Take account of the size and complexity of a loan.

    Just about every clause in section C was violated when the lenders recklessly promoted “stated” aka liar loans, Option ARMs, subprime, etc., especially item 2.

    Executive compensation is also addressed in these regulations.

    The lenders, I-banks and NRSROs all conspired to promote liar loans and Option ARMs knowing that most originators and borrowers would commit fraud if loan fraud only required lying about income instead of creating fraudulent tax returns.

    The end result is the same, but it is viewed differently. People have become so accustomed to lying that the cause is viewed differently than if the crime required more effort.

    In reality, committing loan fraud is no different than embezzling hundreds of thousands of dollars.

    In fact, we would have been much better off if the execs had embezzled the money instead of creating this criminal enterprise that grossly inflated home values and destroyed trillions in wealth. At least with embezzling there is a transfer of wealth. I know there is no justification for embezzling, but it is the difference between vandalism and theft.

    The giant Ponzi scheme the execs created destroyed wealth. Less than 10% of the wealth was transferred to those who benefited from the crimes and the other 90% was destroyed in order to impute liability to others.

    In order to get home prices at the inflated levels; trillions in highly leveraged loans were given to unqualified borrowers which later defaulted and has since disappeared. We have a better chance of the NASDAQ hitting 5,000 than home prices returning to the bubble prices of 2005-2007.

    After origination the loans went through the hands of investment bankers, credit rating agencies (NRSROs), regulators, money managers, etc. Each and every single one of these crooks were dealing with billions/trillions in investments from pension, insurance, mutual funds, etc., but all did no due diligence to verify the “stated” incomes were factual. What makes this so ridiculous is that almost every file had IRS form 4506-T whereby any of these groups could have faxed the form to the IRS to verify the borrowers’ income.

    Per appraisals we should require that banks only use the income method for lending. If property values were only assessed by the value of income they could produce (rents) this would quickly adjust values to a sustainable level. If buyers wanted to over-bid for properties they would have to do so with their own savings… their own risk.

    If a property could rent for approximately $2,800 per month and the debt service was at $700/$100,000 for taxes, insurance, etc. The property would be valued at $400,000. The lender could lend up to $400,000 and any bid above that would have to come from the buyer.

    This would also help address the inflation shenanigans with owner’s equivalent rents.

71. BertDilbert Said:
    January 19th, 2009 7:45 pm

    Jonathan

    My suggestion is that people do the math and then decide if they should pay or not. There is no moral obligation to pay the mortgage. This is business, not for moral whiners. If the house was bought as an investment, then you have to know when to cut your losses on your investment. The math works out to buying three or five years down the road and dumping your current property on anything bought in bubble years.

72. Joan Jett Said:
    January 19th, 2009 7:51 pm

    Hey Jonathan how about:

    9) The dog ate my loan docs so I couldn’t really read what I was signing.

    Joan,

    “The banks were broke by mid 2008 at the latest. Any money the banks may have now is TARP tax money, thus any principle reductions will be done with tax dollars. So the arguement of the banks paying and not the tax payer is out the window. We tax payers and our children will pay for those that bid housing prices to crazy levels”

    Stu said:
    You are wrong. The only lenders that will cost us and far less than these continued foreclosures are doing, are those that go under. Unless you are suggesting that our entire lending institution should just crash and burn, then I assume you want suggestions to help that from happening.

    Joan said:

    Stuey, Stuey, Stuey. Have you heard of this thing called TARP. Do you known where the first $350 billion went and where the next $350 billion will end up next week? It went to the ZOMBIE banks. They are insolvent, broke! They long ago burned through thier money and are now operating with our tax payer TARP funds.

    At the same time they are not being required to mark their assets to market as that will prove them immediately insolvent.

    The entire lending institution did crash and burn, did you miss all the congressional hearings, warning of catastrophy if we did not bail out the banks ASAP?

    The banks did go under and we did pay for it and will continue to do so. Its a done deal man.

    ANY principal reductions for your 2700 sq’ stucco palace in the fancy nieghborhood will be paid for by tax payers, period.

    No matter how you try and tell yourself that reneging on your loan won’t hurt me or the family in Iowa who lives responsibly or all of our kids and thier kids, it still won’t change the reality. Housing gamblers brought this country to its knees with unparalleled greed and now they want a bailout.

73. BertDilbert Said:
    January 19th, 2009 8:00 pm

    Michael Blomquist

    The problem with FDIC is that those are guidelines and not law. The difference between shall and should. If you are in violation of a guideline, there is no infraction of the law….

74. Joan Jett Said:
    January 19th, 2009 8:11 pm

    BertDilbert Said:
    January 19th, 2009 7:35 pm
    Joan Jett. You said….

    “which is that banks have never, will never and were never intended to be responsible for the future value of an item they lend money on.”

    Sure they are, that is why you carry insurance on the property, to protect the future value. If you take any asset backed loan, you have to insure the property.

    Joan said:
    Insurance that covers depreciation? Huh? Where can I get some of that?

    “that is why you carry insurance on the property, to protect the future value”

    Does home owners insurance cover future loss of value Dilbert? If it does cover your home’s value then I guess this discussion has been for naught. Hey everyone problem solved, just go file a claim with your insurance company and a check for $150k will be sent to your mortgage account.

    Can you share those mushrooms with the class?

75. Jonathan Said:
    January 19th, 2009 8:56 pm

    @BertDilbert
    
    My suggestion is that people do the math and then decide if they should pay or not.
    
    I mostly agree with you on this.

    Walking away is slightly more honorable than asking everyone else to pay for your mistake while keeping you in the home you were unable or unwilling to pay for.

76. Javagold Said:
    January 19th, 2009 9:14 pm

    Hard to believe but Joan Jett is more annoying and useless than Kevin

77. Jonathan Said:
    January 19th, 2009 9:16 pm

    @ Michael B.

    Yes I agree with your lengthy post.
    It was a huge cluster-F, where many parties were had incentive to ensure that fools would be separated from their money.
    I think reverting to price/rent ratios to tie appraisals back down to reality would be a good idea going forward. It won’t work great in places where attitudes about rent vs. buy diverge from the norm, but it will be better than what has happened already.

    You know, of course, that price/rent *is* one of the 3 appraisal methods (at least in CA), just that banks/borrowers/lenders/bubble mentality discouraged appraisers from factoring it in too significantly. And in too many cases, appraisers were either pressured by the threat of losing business, or firewalls between loan officers and appraisers were penetrated.

    From one perspective, this thing might have been prevented if appraisals had always been “correct”.

    But, that’s true of any of the bubble’s components… it took bankers, borrowers, realtors, the secondary market, ratings agencies, the media, the Fed, etc. in order to create this monster. Eliminating any one of them would have greatly hampered the bubble’s formation.

78. Javagold Said:
    January 19th, 2009 9:45 pm

    it took bankers, borrowers, realtors, the secondary market, ratings agencies, the media, the Fed,

    1. bankers
    2. Fed
    3. Congress
    4. ratings agencies
    5. 2nd market
    6. media
    7. realtors
    8. borrowers

    thats how i see the blame game at who is most at fault , corrupt, fraud, etc…and who should lose the most skin in the game

79. Jonathan Said:
    January 19th, 2009 9:45 pm

    
    Sure they are, that is why you carry insurance on the property, to protect the future value. If you take any asset backed loan, you have to insure the property.
    

    No, a bank could waive insurance on a secured loan if they decide they aren’t concerned about risk. E.g., if you are buying an unimproved lot in the desert. You can even get secured loans against uninsurable collateral – patents, royalties, copyright, etc. But, I’m just picking nits.

    What Joan is saying is that the lender has no claim on the future value of the property, except under contingency that the loan goes into default. Likewise, the borrower cannot require the banks to share in the downside risks without violating the mortgage contract (including walking away or negotiating a short sale)

    This is kind of a tangent anyway. The point that led to this is that appraisals are not bank’s statements about the value of the home, much less about the future value of the home. Appraisals are merely tools for underwriting to use to figure out liquidation values if the loan enters into default.

    Some folks here (I don’t want to embarrass them) have stated they believed that bubbly appraisals mean that their home prices should not have declined.

    I’m not even sure *they* believe that.

80. Jonathan Said:
    January 19th, 2009 10:04 pm

    >95% of the ‘get-rich-quick’ schemes peddled on TV infomercials ones are probably fraudulent (maybe 100%). It’s all systematic fraud.

    The guilty parties are:

    – the shady guy promising incredible wealth if you buy his plan (“Hey, I’m just selling a book”)
    – the silly actors that appear and say they made it big with the system (“hey they gave me $50 for saying I made money with his system”)
    – the TV stations (“hey, I just sold some advertising time. I can’t possibly vouch for it”)
    – The FCC (“it’s a freedom of speech issue”)
    – The phone operator that charged your credit card (“it’s just my job”)

    So, if you lose money on a get rich quick scheme that you believe is worth $200 but is not worth the paper it’s printed on, what should you do…

    (a) learn from your mistake
    (b) sue/blame the TV station, the FCC, the get-rich-quick peddler
    (c) declare you were too financially ignorant to know it was fake and so the gov’t should make you whole

81. Javagold Said:
    January 19th, 2009 10:06 pm

    d. chargeback your credit card for a full refund (u are legally protected)

82. Jonathan Said:
    January 19th, 2009 10:11 pm

    Ethical question…

    If a man gambles away all of his family’s wealth, and his wife and poor kids are forced into the street, should we…

    (a) force the casinos to give back the money
    (b) require that casino dealers check your background before dealing you cards
    (c) cancel the debt but put the gambler in a debtor’s prison
    (d) transfer the debt to the taxpayer

    Note: don’t attempt any analogy except to investors who gambled on housing or those that view their house as an investment they want to cut their losses on.

    If someone considers buying a house in a free market to be gambling, you want to play only the games where the odds run in your favor.

83. Jonathan Said:
    January 19th, 2009 10:26 pm

    @javagold,
    until all of the credit card companies go broke.

84. Michael Blomquist Said:
    January 19th, 2009 10:39 pm

    BertDilbert,

    Ok… How about these violated statutes

    http://www.law.cornell.edu/uscode/html/uscode18/usc_sup_01_18_10_I_20_47.html

    In particular loan fraud…
    http://www.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001014—-000-.html

    Bank fraud
    http://www.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001344—-000-.html

    These would stick given all the regulations that were constantly breached.

85. C.C. Said:
    January 19th, 2009 10:46 pm

    Oh my…

    Portend?

    http://news.yahoo.com/s/ap/20090119/ap_on_bi_ge/retailing_makeover

    Jonathan:

    Isn’t it amazing how those get-rich-quick real estate guys (and gals – Laurel Langmyer (sp?) included) are all coming out of the woodwork – or from underneath the rocks, to peddle their wares? Robert (Rich Dad) Kyosaki is f_ckin’ ubiquitous these days…

    Gawd that brings back memories. We used to sit up and watch Tom Vu – and his babes (“You don’t come to my seminar, you deserve to be broke…”), just for laughs. Carlton Sheets, Dave Del Dotto and all the rest. Lordy…

    Oh! And the master of them all: Tony Robbins! That F_cker is still hawking his B.S. He changes like the Chameleon. In the 80′s he was wearing the power tie w/suspenders. A decade and a half later, he’s got the just-woke-up-hair and goatee!

    Oh shit, if we can’t at least get a laugh, right?

    C.C.

86. Jonathan Said:
    January 19th, 2009 10:53 pm

    @BertDilbert
    
    My suggestion is that people do the math and then decide if they should pay or not. There is no moral obligation to pay the mortgage. This is business, not for moral whiners. If the house was bought as an investment, then you have to know when to cut your losses on your investment. The math works out to buying three or five years down the road and dumping your current property on anything bought in bubble years.
    

    Down the road, what will happen if walking away from contracts becomes commonplace?
    What will happen to interest rates and issues like recourse on deficiencies?
    I think banks would have to resort to loan sharks’ collections techniques.

87. ex_owner_now_renter Said:
    January 19th, 2009 10:54 pm

    MM,

    Time for new article – don’t u think?

    thanks,
    ex_owner

88. Jonathan Said:
    January 19th, 2009 10:57 pm

    @javagold
    That’s also why all of the crapola marketed on TV is split into “6 payments of $39.99″. Once you’ve paid a payment or two for a tangible product, it’s *very* difficult to convince your credit card company to cancel the transaction.
    And why, at least in this case, should they be the ones to take the loss? They weren’t even profiting by the scam. It just makes credit more expensive for everyone.

89. Stevo Said:
    January 19th, 2009 11:00 pm

    What a fun exchange of oppinions! I have a solution:

    Steve’s Compassionate Housing Bubble Bailout Program.

    The goal of this bill is to provide a fair solution to the issues surrounding the housing bubble, one that does not reward the housing gambler yet at the same time does not punish them without compassion. It also must ease the anger that those who behaved rationally and lived within their means are feeling towards the reality that they will be forced to help pay for the irrational and risky behavior of others for decades to come.

    The 5 year Program:

    Any owner of a mortgage which they are unable to pay may relinquish ownership claim to the home they wish to renege on, and participate in the “Program”. The home will be considered a ward of the state (WOS) home from that point on. They will not be kicked out into the street; rather they will be able to rent the home from the Gov. for a sum of $200 per month more than prevailing rents. The $200 premium will be used to cover costs to the tax payer for the program and also to prevent the home from competing against legitimate free market rentals owned by investors. No one will lose their shelter, only the burden of paying a mortgage which will likely be much, much higher than prevailing rents. The only requirement of the participant is to pay the rent on time and to maintain the property so as to not cause blight on the neighborhood or community.

    The now Gov. owned WOS home will be available for sale to anyone. The Gov. will be compelled to accept offers within 20% of historical housing value parameters which are 2.5 times average wages and/or historical rent versus ownership cost ratios (this will be referred to as real world value or RWV). The buyer of said house must provide the Gov. with rental contacts of a comparable rental property that the previous owner (the participant) can move to with minimal disruption to their lives. The participant will receive Gov. assistance to move and the participant’s new land lord will receive Gov. guarantee that the participant will pay on time for 6 months. This will allow the participant to avoid any of the credit issues that may keep them from qualifying for a nice rental. The participant is free to choose another rental if they like and will likely save the $200 per month premium they had to pay while in the WOS house. The burden of locating a comparable rental will fall on the bidder/buyer of the WOS home. This will prevent loss of shelter to the program participant and create minimal disruption in the daily life of participant. An impartial Gov. “Program” employee will determine what is and is not a comparable rental.

    The WOS house will be valued at RWV if it is used as a comp for other sales in the neighborhood. The state and county in which the WOS home is located will receive federal assistance in the form of payments equal to the amount the county and state would receive if the WOS home were occupied by a owner that bought at RWV. This will allow state and county Govs to recoup tax losses and help them adjust to keeping their budgets current with RWV tax revenue.

    Any participant will be required to perform in order to prove they are actually in need of assistance in order to participate in the “program”. As such, any savings amounts in excess of $20k will go to a participant fund and any excess luxury items will be seized and sold to help fund the participant program. Thereafter the participant will be required for a period of 5 years to give a matching amount of any savings in excess of $20k to the fund and will be required to contribute a matching amount to the fund equal to the cost of any luxury item acquired during the 5 year period. This will help to prevent (but not eliminate) wealthy people from participating in the program. No one shall be required to become poorer during the 5 year period but also will not be allowed to grow excessively more wealthy while participating in a Gov. funded 5 year program. Participants may purchase a house within the 5 year period but they will be required to surrender any profits acquired from sale of said house to the fund. This will keep participants from becoming involved with the creation of another bubble for the 5 year period.

    This plan will prevent any meaningful punishment to participants and will serve to support housing prices at historical levels of affordability. No one will become homeless from this plan, realistic tax revenues will flow back into state, city and county coffers and banks will have non-performing assets removed from their books.

    Those who chose to live within their means will not be rewarded from this program but they will at least not be punished in excess either. Yes, they will share in the tax burdens of paying for the program through no fault of their own, but they will at least gain the chance to buy a home at historical price levels.

90. Jonathan Said:
    January 19th, 2009 11:19 pm

    @ C.C.,
    LOL. At least teenage boys got some benefit from Tom Vu’s infomercials…

91. Javagold Said:
    January 19th, 2009 11:32 pm

    thats why you charge it back after the 1st payment when you know you were scammed, plus the credit card company will get the money back from the scammers as long as they have nmore money coming into their merchant account

    if a gambler loses his money , it will efect his family but it doesnt effect everyone else ane believe me if you lose money on a marker THEY WILL COME AFTER YOU FOR THE $$$, just ask charles barkley

92. HousingRealist Said:
    January 19th, 2009 11:48 pm

    Javagold – Do you really believe borrowers are 9th in line of who is at blame behind the media and realtors? Who determines the price for a home? The BUYER! You can’t have a transaction without a willing buyer transacting at a given price. Are those on your list responsible as well, yes! IS the buyer of the overvalued internet stock of the late 1990s at fault of buying overvalued stocks? Behing the investment bankers, Fed., Congress, Media, ….. no! Foolish buyers were at fault there as well!

93. Stevo Said:
    January 19th, 2009 11:56 pm

    Hey everyone my comment was held for moderation so its out of que. Go up a few posts and read my solution.

    I’ll post it on MM’s new post as well when it comes out as this thread seems like it is nearing its end..

94. Joan Jett Said:
    January 20th, 2009 12:46 am

    HousingRealist, you probably won’t get a response from Javagold. I am still waiting for his oracle like explanation of why I am a clown for using title held, expensive bank loans on cars as an anology in the debate over blaming banks for their having paid too much for their houses.

    You can take Javagold’s list an reverse the order of blame for a responsible bubble sitter who rented out the bubble.

    It’s a hard, long fall for these people so we need to be patient. After all, it was just a few short years ago they spent cocktail parties bragging how they and their Realtor outbid 15 other “investors” by offering $50k over asking price for the lovely 1800 sq’ 3/2 ranch on the corner.

    Lot’s of mojitos were downed as they explained how $5k in granite and a new bathroom would yield a $125k flip profit. Its tough to go from equity rich, super RE investor to $230k underwater bubble-tard begging for a public bailout.

95. BertDilbert Said:
    January 20th, 2009 1:39 am

    Joan Jett, as I recall, the banks gave out teaser rate loans and high DTI to keep the market going. In addition, they created a false market trading the securities into which the mortgages were bundled into. In essence, they created false markets at both ends, the home prices and loan trading which kept the money flowing from investors.

    When the scam runs that deep in order to keep the game going, and you find out your were scammed, don’t you think there might be a lawsuit in the cards? Under these circumstances, the bank is responsible for the future price, which is much lower.

    ——————-

    Michael Blomquist, I will take a look at those in a sec, I just get ticked looking at “industry guidelines” which have no legal teeth.

96. BertDilbert Said:
    January 20th, 2009 1:39 am

    Joan Jett, as I recall, the banks gave out teaser rate loans and high DTI to keep the market going. In addition, they created a false market trading the securities into which the mortgages were bundled into. In essence, they created false markets at both ends, the home prices and loan trading which kept the money flowing from investors.

    When the scam runs that deep in order to keep the game going, and you find out your were scammed, don’t you think there might be a lawsuit in the cards? Under these circumstances, the bank is responsible for the future price, which is much lower.

    ——————-

    Michael Blomquist, I will take a look at those in a sec, I just get ticked looking at “industry guidelines” which have no legal teeth.

97. Michael Blomquist Said:
    January 20th, 2009 4:20 am

    BertDilbert,

    I agree about “guidelines”, but the statutes have teeth. The guidelines, market conditions and allegations should establish indictments, but the statutes will get the convictions.

    IMHO regardless of indictments or convictions the Execs at the Lenders, I-banks and NRSROs should be disgorged for their unjust enrichment. The bailout costs will most likely exceed our annual, entire GDP for 2009. Even though the compensation is a drop in the bucket we can NOT allow them to walk away with the outrageous bonuses no more than we can allow enormous principal write downs.

    It is the principle not the principal (expense) that will be so costly.

98. Stu Said:
    January 20th, 2009 11:04 am

    Jonathan,

    “How exactly do we go about writing down anyone’s principal, in a way that”

    “Won’t force the taxpayer to pay even more”

    What you and many miss is that the tax payer is already paying for 100% of this. By having lenders do the write downs with their borrowers maybe the tax payer will only ultimately pay for 50% of it. We will have some of these banks fail and the tax payer will foot some of the bill for those that do fail. Many banks will survive however and as a result it will not place the debt burden on the tax payer for those that do. Right now the tax payer is simply absorbing all the losses 100% and that is truly unjust!

    “Won’t cause riots to take place”

    The tax payer is already absorbing 100% of the losses and they are not revolting, so how is reducing that debt load going to make matters worse? If anything it would be praised I would imagine, unless people are truly that stupid to not understand how to add.

    “Won’t provoke financially healthy people to game the system (e.g. work less to qualify for a lower principal based on debt service ratios“

    This is not about gaming anything, but rather keeping people in their homes, slowing foreclosures and placing a floor under prices. If successful this could and should be a huge win-win for most involved. Today we have a lose-lose in place for everyone involved. I am trying to find ways to protect the tax payer and to slow down the bleeding. Too date I hear a lot of complaints, but no viable solutions. I hear folks say to leave it all alone and how is that working out for the tax payer? I hear folks offer up plans that have our Government as part of the solution. Last time I checked they were actually the bulk of the problem and I don’t want them anywhere near any solution to it.

    Joan,
    “Have you heard of this thing called TARP. Do you known where the first $350 billion went and where the next $350 billion will end up next week? It went to the ZOMBIE banks. They are insolvent, broke! They long ago burned through thier money and are now operating with our tax payer TARP funds”
    Actually only $150 Billion initially went to banks. Some additional funds have since been added. This is 100% tax payer funded, so right now the tax payer is paying ALL OF IT!! I am just offering a solution that may be more equitable for the tax payer is all.
    “At the same time they are not being required to mark their assets to market as that will prove them immediately insolvent”
    For obvious reasons and this will not change anytime soon. The Government clearly wants the banking establishment to remain as it is whether we agree or not is another debate entirely. I am trying to get the tax payer off the hook for some of this money is all.
    “The entire lending institution did crash and burn, did you miss all the congressional hearings, warning of catastrophy if we did not bail out the banks ASAP”
    Yes, and I didn’t buy it then and I don’t buy it now. I will say it again however, that I am only trying to save the tax payer some money.
    “The banks did go under and we did pay for it and will continue to do so. Its a done deal man”
    Yes, as long as we all sit on our hands and don’t demand another solution.
    “ANY principal reductions for your 2700 sq’ stucco palace in the fancy nieghborhood will be paid for by tax payers, period”
    Only if the bank that handles that paperwork goes under and even at that a smaller amount would be owed and not the entire write down. Right now the tax payer foots the entire bill 100%!
    “No matter how you try and tell yourself that reneging on your loan won’t hurt me or the family in Iowa who lives responsibly or all of our kids and thier kids, it still won’t change the reality. Housing gamblers brought this country to its knees with unparalleled greed and now they want a bailout”
    I think if we remain like we are then the tax payer will end up absorbing 100% of the cost of this mess. I want to see that change and will continue to try to find solutions that will allow for that to happen. Solutions that do not place the burden of this squarely onto 100% of the tax payers in this countries back. Why should that family in Iowa pay higher taxes for generations to come when there are other solutions that can help to prevent that from happening? We need to think out of the box and demand that these bailouts stop in the manner in which they are being done.
    Michael Blomquist, some great info on the legal part of the argument. I have yet to see much legal maneuvering by folks, but then again I am not hanging around the courts these days. I suspect those that play the legal game and try to help their causes by using the law to support them will gain some insight into the vast and expensive world of law in this country. Some may fair well, but the majority will find it too expensive, too time consuming and in the end not all that much of a help. This off course is until cram downs are approved at which time everything changes. Then we may see some actual action on the parts of judges getting these things in and out in a hurry. Possibly even bundles at once could occur and I suspect that they will at some point.

99. Tim Jones Said:
    January 20th, 2009 11:19 am

    Dear Crybabies,

    You have no right to a price or housing value. It is not the government’s job to prevent you from being upside-down in a mortgage. The prices went up because the demand was high(caused by you and millions others like you). You seek to blame everybody, ANYBODY, but you. I hate the big banks, but I would gain much more pleasure seeing these smug borrowers masquerading as ‘home owners’ go back to renting in less than luxury conditions. Any attempts to reduce negative-equity positions that is not a market arrangement is going to generate a moral hazard and is rewarding bad behavior. Borrowers have a lesson to learn here too: if it sounds too good to be true, don’t get me to pay for it.

    Reckless lending should in principle only hurt the reckless lender. The problem is, everybody is trying to socialize their risk. Lenders, borrowers, etc. All of you are trying to socialize your losses on people like me who choose not to participate.

    These are the same people that endlessly lobby directly and indirectly for policies that keep housing prices high that hurts many low income people and high income but cheap people like myself. The pursuit of ever-higher home prices because you wanted to find the next sucker to come along and take your bad idea off your hands.

    I see nothing at all wrong with the banks giving out teaser rates or doing anything to encourage business. Just like any business, they engage in loss-leading, attractive prices, etc. Just like the borrowers, they hoped the market would turn around and make them profitable. You guys are also guilty for offering ‘teaser payments’. You teased the banks that you could pay in conditions less than optimum.

    Two people influence prices more than any other: Buyers and Sellers. Putting yourself at 8th or 9th on the list is disingenuous at best.

    Let us also keep in mind ‘forced principle reduction’ is really just a fancy way of saying ‘free house’ or ‘free equity’. You don’t deserve that house. You and the banks need to realize you are bankrupt. Both sides were bad forecasters. Sure bank CEOs are bad, but so are ‘family CEOs’ who made the financial decision to buy inflated housing.

100. no_residue Said:
     January 20th, 2009 4:18 pm

     Here is a link to a very good article about how to deal with the banks w/o taxpayer dollars being involved.

     
     Last week brought another outrageous gift to bank stakeholders at the expense of taxpayers: $20 billion and trash-asset guarantees to insolvent Bank of America (BAC). This followed close on the heels of a similar gift to save the stakeholders of insolvent Citigroup (C).

     It’s easy to blame these bizarre and undeserved gifts on fear of another Lehman Brothers (Sure, it’s infuriating, but think of the alternative!). But that’s ridiculous: You don’t have to subsidize banks and their stakeholders at taxpayer expense to avoid another Lehman. You just have to fix the banks the right way.

     What’s the right way?

     * Temporarily seize the banks
     * Write their assets down to nuclear-winter levels (or, if desired, put them in a big bad bank, as Sheila Bair wants to do.)
     * Convert enough of their debt to equity to put them in a strong capital position.
     

     Read the rest of the article to understand how it would work.

     http://clusterstock.alleyinsider.com/2009/1/why-are-we-so-afraid-to-fix-banks-the-right-way

101. Stu Said:
     January 20th, 2009 5:59 pm

     I was hoping that it wouldn’t come to this, but you may be correct no residue. This may be the only viable option at this point. Boy did they screw this one up royally!!! I still argue for prinipal write downs to get some of this in the hands of shareholders at these lenders and off of the taxpayer squarely, but alas it may be too late for that now. The cry babies screaming I want mine took care of that one for us. Too bad the Government listened to their call and not one of soundness for all… go figure. So now we all pay for the excessive greed of a few.

102. Dee Said:
     January 20th, 2009 6:35 pm

     So, let’s see if I’ve got this right. This whole discussion has been about write down before the homeowner leaves the home or after. Or am I missing something?

103. Stu Said:
     January 20th, 2009 6:52 pm

     Dee,

     If the public as a whole demanded principal write downs by lenders and not tax payers 6 months ago when it was needed and again now as it is needed again, then we would be in much better shape. The lenders instead got bailed out in place of the homeowners. This did what it naturally would do and that was to piss off the home owners. Now many will walk and it may be at the point that the lenders can’t do the write downs now. It is too late in other words. So now all tax payers will foot the bill.

     The case could be made that using their powers they simply do as no residue suggest and that is to seize the lenders. It is not without precedence and may be the only action left at this point. That may yield the highest debt to tax payers however, so it has been avoided thus far. We shall see what ensues from here…

104. BertDilbert Said:
     January 20th, 2009 9:19 pm

     Tim Jones Said:

     RE: Dear Crybabies

     I am a renter. Therefore I am not asking for a handout as you would likely put it to a homeowner. The idea behind principal modification is that if the loan is not “fixed” the house is going to get thrown to the wolves of foreclosure.

     When you come to the stark realization that the taxpayer is going to foot the final bill, principal reduction makes sense for the tax payer as the property does not end up as a heavily discounted REO sale.

     Your personal belief may be that homeowners seeking principal reduction should take a flying leap. But should taxpayers not be seeking out the best solution? Telling everyone to go and take a flying leap is the same as suing someone out of principle and not because there is a positive financial gain for doing so. While it may give you personal satisfaction, the wallet is smaller for it.

     I know the man off the street looking in is bound to say WTF, I am not subsidising some losers housing speculation. However taking the time to give the full situation more study might turn you around on the matter.

     Sure, as a renter, I would love to see everyone dump their houses so I can get one on the cheap. At the same time, I understand that taxpayers would be footing the bill for my “cheap home”.

105. Joan Jett Said:
     January 20th, 2009 9:49 pm

     Tim Jones you are my hero! This wins best statement of the thread:

     “You guys are also guilty for offering ‘teaser payments’. You teased the banks that you could pay in conditions less than optimum.”

     LOL!!!!!!!!

     Hey Dee, the discussion is an exchange of ideas on behalf of the 93% of the population that did not participate in blowing bubbles in bubbles areas for bubble stucco-boxes versus pleas from underwater Real Estate investment geniuses (the ones who brought down our entire financial system). As absurd and unbelievable as this may sound…. thay are calling for principal reductions so they can STAY in the houses they aren’t paying for, and their brilliant plan is to have you and I to pay for it!

     Oh and Dee, don’t listen to Stu, he thinks the banks still had money in October when the bailout was proposed, or they now still have money that is not TARP money, or they have TARP money and some of thier own, or after they went belly up and then got TARP they now have money that is not TARP or something like that.

     Stevo, although I think your plan favors the bubble-heads way too much I think it’s much better than other stuff I have heard. Still I bet the bubble-nuts would still not like it. They really just want to keep that fancy house and have us subsidize it, weeee!

     Tim Jones….so true and so witty!

106. Joan Jett Said:
     January 20th, 2009 9:55 pm

     Tim Jones you are my hero! This wins best statement of the thread:

     “You guys are also guilty for offering ‘teaser payments’. You teased the banks that you could pay in conditions less than optimum.”

     LOL!!!!!!!!

     Hey Dee, the discussion is an exchange of ideas on behalf of the 93% of the population that did not participate in blowing bubbles in bubbles areas for bubble stucco-boxes versus pleas from underwater Real Estate investment geniuses (the ones who brought down our entire financial system). As absurd and unbelievable as this may sound…. they are calling for principal reductions so they can STAY in the houses they aren’t paying for, and their brilliant plan is to have you and I to pay for it!

     Oh and Dee, don’t listen to Stu, he thinks the banks still had money in October when the bailout was proposed, or they now still have money that is not TARP money, or they have TARP money and some of thier own, or after they went belly up and then got TARP they now have money that is not TARP or something like that.

     Stevo, although I think your plan favors the bubble-heads way too much I think it’s much better than other stuff I have heard. Still I bet the bubble-nuts would still not like it. They really just want to keep that fancy house and have us subsidize it, weeee!

     Tim Jones….so true and so witty!

107. Joan Jett Said:
     January 20th, 2009 10:27 pm

     BertDilbert You are so NOT a renter. Nice try bubble-nut. Guess what Dilby, if kicking you out onto the street so far and so fast that it results in your receiving a scabbed @ss ends up costing the nation $50k more in foreclosure than it would if we fanned you with grape leafs and “adjusted” your mortgage to non-retard levels… do you think for a minute that the 93% of us out here who are not to blame for this mess will choose grape leafs for Bert?

     The dollar difference in taxes to all of us who will pay for your nuttiness is gonna be huge no matter what! But, if we have to chose between writing your mortgage down $150k or kicking you out and letting someone responsible buy your house for $200k less (than your mortgage amount); in the long run which idea do you think sends a better message to future home borrowers? Which idea will keep the responsible 93% from rioting?

     Personally I don’t think it will be that big a dollar difference, I’m just saying that people are ready and willing to pay a little extra to see justice done versus feeding the pig.

     Oh and Bert, if you really are a renter then I am sorry for this rant; but will instead call you a traitor to your fellow renter/hopeful affordable home owner.

     Another Tim Jones truism:
     “You have no right to a price or housing value. It is not the government’s job to prevent you from being upside-down in a mortgage”

     Gotta love it!

108. BertDilbert Said:
     January 20th, 2009 10:54 pm

     Joan Jett

     It has been my experience message boarding for 9 years that when people resort to name calling such as “bubble nut”, “Dilby”, “nuttiness”, and “traitor” that they have “lost the argument” because they have resorted to Ad hominem. Have at it sister.

     http://en.wikipedia.org/wiki/Ad_hominem

109. Average Jane Said:
     January 20th, 2009 11:26 pm

     Back in 2005 when I started looking to buy my first home, I had no idea there was a housing bubble in my market. I was astonished at the prices. ISo I went back in my paperwork and dug out a good faith estimate from August of 2005. This ought to give all of y’all a laugh. As a first-time home buyer the bank was willing to have me put 5% down, 15% second mortgage (I had/have no idea at what percentage that piggyback mortgage was–didn’t know enough to ask), and no private mortgage insurance. Qualified for a $210,000 sales price on a salary of oh, about $47,000.

     In March of 2007 I was preapproved for a 30-year fixed, zero percent down, no private mortgage insurance loan for $180,000 principal.

     I didn’t bite in 2005 or 2006 or 2007 or 2008. I just could not pay what I knew in my gut were massively inflated prices.

     So I guess I was smart. Many of my contemporaries were not. I don’t know if anyone “deserves” to be bailed out, but it also does not seem to me that it serves our society very well to throw thousands of people out of their homes. I don’t have an easy answer, nor do the illustrious “experts,” do they? Guess it’s because there is none.

     It seems to me that the banks are fighting tooth and nail to reflate the housing bubble because they are leveraged far, far beyond that which we can imagine. They are bankrupt and they want us to cover their you-know-whats.

     We have seen the power of the American consumer shutting their collective pocketbooks. It has rocked the financial system as well. I wonder, I wonder what would happen if, as suggested earlier on this thread, everyone simply stopped paying their mortgage/auto payment/credit cards/any unsecured or secured debt?

     A debt strike, if you will? Ponder that, Wall Street.

     To Mr. Blomquist: you are doing a great public service and write extremely well. Please, please continue to educate us all.

     I am simply astounded at the lack of fiduciary responsibility of our American banking and investment and financial services systems. It’s as if they all drank Jim Jones’s Kool-Aid laced with something with a little more giddyup than sugar. And apparently the Middle Class is now suffering the consequences of one helluva massive hangover.

     Thanks to all here for your most entertaining, educational and erudite remarks. I’ll go back to lurking now.

110. Joan Jett Said:
     January 20th, 2009 11:37 pm

     Don’t take it so hard Bert. Consider this kinda like boot camp, just a little tough love to get the “perpetrators of financial doom upon America” prepared for when the masses realize the people who caused the mess are living in 2700 sq’ stucco palaces for FREE on our tax dime. And….and….wait for it….asking us to pay down their principle so they they can stay for ever!

     I am a bit cranky, as for the last two weeks I’ve had every arrogant realtor I speak with tell me “no, an offer at 3x average wages will not get you even a counter offer on a tiny sh*tbox”. The best part is the streets I have been watching have had 70% of the homes on those streets listed as preforclosures for the past year. Yep, free beautiful homes for them and STILL Joan gets the down the nose look for offering historical values.

     If one of those people get a principle reduction after I’ve been patient for 7 long, long years I’ll cry until I die.

111. Javagold Said:
     January 21st, 2009 12:31 am

     Joan Jett sounds like the real crybaby and if you die because you cry, i wont even say bye bye

112. Dee Said:
     January 21st, 2009 12:46 am

     “Yep, free beautiful homes for them and STILL Joan gets the down the nose look for offering historical values.”
     I assume this would be the “post foreclosure writedown” that would be advantageous to many in this discussion”

113. Dee Said:
     January 21st, 2009 2:56 am

     I know this may sound conspiratorial, and maybe a little too far out there, but what if:
     There were entities that came up with a plan that involved creating a method of protecting investors in such a secure environment allowing them to make gobs of money investing in something everyone would want to buy at ridiculously high prices. After a period of time when everyone realized that what they were buying wasn’t worth what they paid, a revolt ensues and the investors and others that may be privy to the plan,could wait for the dust to settle and get these investments back for next to nothing. I know…crazy right?

114. Susan Day Minerly Said:
     January 21st, 2009 3:11 am

     Hello all:

     Your investment genius’s, speculators and true sub prime borrowers have already been foreclosed on, what is left basically is your neighbors.

     Math-

     70% of the population (77 million families) are homeowners.
     * includes appr. 25 million homes that have no mortgage
     * includes appr. 52 million homes that have mortgages
     * includes appr. 13 million homes already that have negative equity (25% of all outstanding mortgages)

     30% of the population are renters
     * includes the 13% of the population that earn less than or equal to poverty level incomes

     Which leaves 17% of the population (subject to income and credit) available to purchase the massive foreclosures occuring.

     For each 5% decrease in property values, the estimated equal number of MORTGAGED homeowners affected by the 5% decrease is up to 10% more homeowners will experience negative equity, and the entire percentage will experience loss in equity.

     Translation: the prices will never allowed to be reverted back to 2.5 times the income with 70% of the population being homeowners already (77 million households ) to benefit the 17% (18 million households), the government will step in, just like they are doing.(see earlier post about the breakdown of percentages for each income group)

     Problem with the above, is the homeowners mentality about their asset versus their liability, that they feel rightfully so.

     Yes, they did agree to purchase a home(asset) with a mortgage (liability)at the agreed upon price between seller and buyer. This price we all agree was able to be obtained and validated by the actions of the financial sector creating an abundance of “qualified borrowers” thru the several various mortgage products introduced to earn the lenders higher profits, regardless of future risk.

     The underlying problem is the products introduced had no chance of being substained for the long term without the possibility of being able to refinance or being able to sell while they still qualified with the same products available. While prices were rising, this was not a problem, (see earlier post about the increase in foreclosures).

     The true “gamblers” (investors, speculators , homeowners looking to make a quick buck) did indeed make money, they bought and sold on the way up, or were already foreclosed upon when prices started declining.

     The negative equity homeowners, we are discussing, is just that, homeowners who are being harmed by the financial sectors actions with the government’s blessing.

     The deflationary cycle of housing is the direct result of the massive foreclosures being sold under what was considered the “market price”, this lowers the “market price” for the area.(again market price was and is directly influenced by the availability of funds, homeowners have no crystal ball to know the termination or continuation of availability to maintain market prices )

     The homeowners affected are being fiancially harmed to lessen the loss potential for the banks in their withdrawal of the products and underselling the market, there is no consumer protection being provided to the homeowner for the harmful actions of the banks.

     Again, I will ask what you prefer, only two possible choices are given:

     Choice #1- bail out the banks , allow them to retain the profits and salaries/bonuses, get the taxpayers to pay these profits and salaries, while taking the losses on the majority of underwater homeowners with more to come. ( the purchase of ALL the toxic mortgages including negative equity, deliquent mortgages and all adjustables mortgages ) No stablization of the market, so the losses will just keep on coming. Prices will continue to drop affecting more homeowners, the government will continue to purchase these toxic assets.

     (side bar- the only way out of foreclosures in the above choice, is for the government to forgive the negative equity AND reduce the payment to 28/36% ratios to avoid massive vacancies and homelessness, at all taxpayers expense)

     Choice #2- systemic refinance of all negative equity mortgages including adjustables to the current appraised value. If current, a new mortgage issued at reduced value. If deliquent, homeowner must prove and qualify with income to eliminate the “gamblers and cheaters”. Financial sectors take the loss, re-enforcing the policy and idea of capitalism, where it belongs. To aid the banks/investors the loss is not taken until the actual refinance is done and can be taken at up to 3x the actual dollar amount of loss to correct their book-keeping (mark to market) systems. Not all banks will fail, but the government will not be able to choose which banks succeed and which banks fail, it will be based on their past business decisions.

     The foreclosures already available and to follow because of insufficient income, can be sold by the banks directly at the reduced value or the government could offer a subsidy/grant to move the property quicker. All refinances and foreclosure sales as well will be recorded stablizing the market at the reduced value.

     The government currently is giving the taxpayers , including homeowners and renters, one option, not a choice. Choice #2 has to be agreed upon soon, or that option will disappear as values decrease further.

     Only Choice #1 is offered, how does that benefit America exactly?

115. Susan Day Minerly Said:
     January 21st, 2009 4:20 am

     JoanJet:

     Unless your a homeowner already, the 93% of the mortgaged population that is paying on time, doesn’t include you.

     If you are a renter, you are in the 17% of the population and I do see your desire for prices to fall, but no homeowner with or without a mortgage wants that and we make up 70% of the population.

     I am a homeowner, who has no mortgage and I want to see stablization of the market with principal reductions for underwater homeowners at the banks expense, whether they can afford them or not. I believe in capitalism.

     Listen/read some of the intelligent comments here and you will realize it is not about you or anybody else being “smarter” then the current homeowners, knowing a bubble was occurring, nor being priced out of the market or knowing your affordability level. I commend you.

     The USA is headed for the possibility of following Japan ( they lost 90% of their value) or worst yet, a “second depression” which will make the first great depression seem like a recession had occurred. We are currently being “spoon fed” that a recession will likely last two more years at least, even with President Obama’s stimulus package.

     Think of it, if we had over the last two years, a national decrease in housing values due to the banks actions of 25% (bubble states 50%), and we go thru the next two years with another 25% deduction, where will the jobs be?
     Will rentals decrease at the same pace?
     If the private sector account for over 70% of all jobs, and the private sector are the homeowners, after they are foreclosed on, I ask again where are the jobs? (human nature is to protect and survive, they will lay off everyone before affecting their family)

     My plan reduces the principal mortgage balance eliminating negative equity, the homeowner is issued a new mortgage at the reduced principal, it is NOT FREE, they will revert back to paying for 30 years. It penalizes them and doesn’t cost you or me a cent.

     If they are deliquent, they are entitled to the same reduction but they now have to prove income and qualification at 33/41% ( remember the banks qualified a large percentage of these homeowners at 50% ratio’s )

     If they can’t prove sufficient income to qualify, the home will be foreclosed on.

     If the banks can not sell the home within a set period of time at the reduced value, the government will purchase it, as a true toxic item

     My suggestion is to auction them off with a subsity/grant to encourage the “3x the income” borrowers to purchase under the FHA program ( 3% down payment).

     So you see, the only taxpayer funds I am allocating for is for renters. ( there is a reason though, the principal and interest payment the renters will make, is more than double what the subsity would cost, after the principal and interest is paid back. The same as the banks make)

     Our government is attempting to “restart and restore” the lending and borrowing spending that has taken place over the last several years fueling our economy. This will not work for several reasons, the most important being that without the “mortgage products” availability, the income to price index has been exceeded and homeowners are no longer able to fuel our economy.

     Prices can come down to 90% of the market peak value, but what does it really manner if half of our population has no jobs, how will you afford a home then? And will you want one?

     Till then take care, and no resorting to name calling, (especially my friend, BertDilbert, who I personally disagreed with, but respect)

     We are all entitled to our opinions.

116. Stu Said:
     January 21st, 2009 9:25 am

     Joan,

     “They are calling for principal reductions so they can STAY in the houses they aren’t paying for, and their brilliant plan is to have you
     and I to pay for it”

     Once again Joan you miss the point entirely (read Susan’s earlier post for a nice breakdown). We are in the middle of MASSIVE BANK WRITE DOWNS that you and I and every tax payer for that matter are paying for this already. This is happening while you wait to get yours. You are getting it already… right between the eyes and you don’t even know it. You don’t even see it still, and never did see it coming in the first place. I would much rather have home owners bailed out and pay the damage for the banks that do go under while leaving families in their homes. Less costly to us tax payers and better for society and the economy over all.

     “Oh and Dee, don’t listen to Stu, he thinks the banks still had money in October when the bailout was proposed, or they now still have money that is not TARP money, or they have TARP money and some of thier own, or after they went belly up and then got TARP they now have money that is not TARP or something like that”

     The bail was handled recklessly and without thought as to what the ramifications would be if certain things happened over others due to no safe guards put into place. Well the worst thing possible happened. The banks hoarded the money, and the ones that didn’t spent some on purchasing other companies. The rest went for bonuses, bloated salaries and debt. In other words there is nothing left now. Not much money is left for many to borrow to buy their dream house with even if their dream home becomes available.

     When we should have been seizing the banks doomed to fail and propping up those that were deemed able to stay solvent with short term help, we were just tossing tax payer money at all of the banks with no regard to who it would benefit. Well now we need to bailout the banks yet again they are saying. I say NO!!! Bailout the home owners this time and do it right. Make the lenders responsible and force them to share in the pain along with home owners this time. Tax payers will foot the bill for some of this, but not all of it, and many will be able to stay in their homes.

     Susan, excellent post that many need to read, and equally understand what it says.

     “Your investment genius’s, speculators and true sub prime borrowers have already been foreclosed on, what is left basically is your neighbors”

     People need to look past the nose on their faces and stop worrying about just themselves for a change. We need to stop families from being tosses into the streets. Whether they are renters on a foreclosed home or owners of one many families are now suffering. Jobs are being lost as people lick their chops waiting to get theirs. What they don’t understand is that without a job and $40,000.00 to put down yours in not obtainable. As foreclosures mount with no attempt to stall them from happening it is placing more pressure on the economy which is driving more to become hurt because of this. It is not helping anything or anyone and in the process it is dragging everyone and everything else down with it. That is a smart approach on how to handle this downturn. I am so proud of our Government for thinking in this manner and so happy that the electorate appears firmly behind their own demise… well not really, and I actually find it quite sad to be honest.

117. Joan Jett Said:
     January 21st, 2009 11:07 am

     I don’t even know where to start with you people, but this sticks out like a sore thumb so it gets shot down first:

     Susan Day Minerly Said:
     I am a homeowner, who has no mortgage and I want to see stablization of the market with principal reductions for underwater homeowners at the banks expense, whether they can afford them or not. I believe in capitalism.

     Joan said:
     1) Could you be more openly greedy? You don’t even have a mortgage and you want to keep others priced out just so you have more “equity wealth”. Nice.

     2) Bank’s expense??? Banks expense? Huh? Are you people really that dense? There is no more “bank money”, not since mid 2008. BofA, Wells, Fannie, Freddie have ZERO of their own dollars. The money they operate with is TARP tax payer bailout money.

     Please, please understand this, every single principal reduction will come right out the tax payer’s pocket. If you have a Wells mortgage and you coerce them to lower your principal $150k, guess who really gave you that $150k gift? THE TAX PAYER.

     3) Best for last….capitalism would have prices fall to natural market driven levels. The OPPOSITE of captalism would be for Joan to pay for any tax payer program that keeps Susan artificially “equity rich”.

118. Joan Jett Said:
     January 21st, 2009 11:41 am

     Susan said:
     The true “gamblers” (investors, speculators , homeowners looking to make a quick buck) did indeed make money, they bought and sold on the way up, or were already foreclosed upon when prices started declining.

     The negative equity homeowners, we are discussing, is just that, homeowners who are being harmed by the financial sectors actions with the government’s blessing

     Joan said:
     Susan, you know not of what you speak. I went to auctions for homes last December and was soundly outbid by “investors” who are now underwater by $70k and sceeming for bailout help.

     I would not be one bit surprised if the lady who outbid me (by agreeing to pay 6x earnings) is on this board begging for a principal reduction.

     Not only are the specu-vestors NOT all “already foreclosed upon” they are alive and well right now, bidding up REOs and trying to flip. Even the ones who received a tax payer funded loan rework in 2007/2008 are largely back to not paying, because that’s “how they roll”.

     Only when housing reaches a true affordability level will REAL buyers come in who can afford the payment for longer than a teaser period. Only true housing affordability will allow the consumer to have enough cash left over to buy a few other items and get this economy churning again.

     The experiment of throwing all your eggs into a mortgage you hope to flip to a $80k profit will die in favor of a sustainable, historical 3x earnings atmosphere. Nothing else will see real money in real home owner hands.

     And Susan, bubbles always end the same way, 100% of the time, and they always overshoot to the down side. So if you are still equity rich you might want to sell now because in 8 months you won’t believe how much less your home will be worth

     The negative equity “homeowners” I am discussing are the ones who live in a bubble state, in a bubble neighborhood, in a bubble house they paid bubble-lisciuos specu-crazy prices for. They are roughly 7% of the population. Yes there are many, many more that are underwater, but the guy in Ohio who is underwater $10k on his sensible $90k mortgage is not on this forum begging for a write down gift or begging the tax payer to prop up his/her phantom equity wealth.

     RE goes up and down, always has. The millions and millions with sensible loans and smaller, temporary underwater situations in non-gambler areas are not the issue. The gross, gross offender is the issue, you know…. the guy who paid $450k for a house in 2004 that anyone with a spare 5 minutes could see on Zillow sold for $140k in 1998. $140k is right in line with 3x earnings and the historical rent versus mortgage ratio, yet you people want the tax paying public to support your gross, gross extravagance and at the same time put an artificial floor under housing prices, pricing us renters out, protecting Susan’s phantom equity and gifting gamblers $150k of tax payer money.

119. Joan Jett Said:
     January 21st, 2009 12:11 pm

     Stu Said:
     We need to stop families from being tosses into the streets. Whether they are renters on a foreclosed home or owners of one many families are now suffering. Jobs are being lost as people lick their chops waiting to get theirs. What they don’t understand is that without a job and $40,000.00 to put down yours in not obtainable. As foreclosures mount with no attempt to stall them from happening it is placing more pressure on the economy which is driving more to become hurt because of this.

     Joan Said:
     1) Go up some posts and read Stevos solution. No one gets kicked out into the streets and bubble-gamblers get treated with kid gloves. Still I have a feeling that his plan might include you becoming a renter and therfor is totally not acceptable.

     There are ways to sort this out without kicking people out on the street, short of gifting them $150k of tax payer money. However Stu, keep in mind that if I stop paying my rent I will be tossed out in 45 days. There will be no forum of concerned folks asking for a Gov. bailout of renters (who make up 33% of the population). When did a housing gambler’s shelter become something we all must defend and pay for?

     $40k down? Wrong, you can still get a FHA loan with 5% down. And yes, “mine” is very attainable at historical price levels. And judging from the auctions I go to there is no shortage of people who can afford your house if it goes to auction.

     Stu Said:
     It is not helping anything or anyone and in the process it is dragging everyone and everything else down with it.

     Joan said:
     Speak for yourself. It will absolutely help me if prices actually are allowed to fall back down to HISTORICAL LEVELS of affordability. Note, all I am hoping is for a RETURN to historical affordability levels. I am not looking for some unprecedented fall in prices so I can scoop a home up for pennies, nope, not at all. I just hope to have what others enjoyed for decades before this bubble priced sensible people out of home ownership.

120. od Said:
     January 21st, 2009 12:28 pm

     Um…a bit off topic here, but has anybody been watching how close the largest consumer bank (BofA) is to going belly up?

     If the 2-Big-2-fail banks implode, we will have bigger problems.

     I don’t think we have enough time to print our way out of this problem. The ship is sinking too fast.

     I’m watching Geithner explain how he has no plan or idea on what to do.

121. od Said:
     January 21st, 2009 12:30 pm

     Volker basically said the system is broken and now it’s sinking. NOBODY has a clue on what to do.

122. Joan Jett Said:
     January 21st, 2009 12:48 pm

     Susan and Stu,

     You both have the whos and wheres backwards. We are not experiencing a severe financial sh@tstorm because housing prices are coming down. We are experiencing this because housing got way, way too expensive in the bubble areas. Prices were simply bid up too high for the wages being paid (wages that have been stagnant for 3 decades).

     Irresponsible people saw the prices going up, they flipped and bid prices higher and higher into absurdity, took out cash refis and opened HELOCS and bought Escalades, boats, vacations…..

     All of that reckless consumption robbed from future, sensible consumption. So the housing bubble had a two pronged time bomb effect on the economy, both directly related ot greed.

     1) Housing got so expensive that REAL wages could not cover the payments so specu-gamblers just stopped paying and the banks collapsed.

     2) When the banks collapsed the housing bubble HELOC/refi ATM got shut off and spending across our economy ground to a halt. Because we were back to being only able to spend what we actually earned; not that fake figure we put on the loan docs so we could “win” the beautiful 2700 sq’ stucco-palace with our 8x earnings bid.

     If prices do not come back to historical affordability then people will not be able to buy houses AND have enough earnings left to consume neccessities and luxuries that keep the economy chugging along.

     Yes responsible and irresponsible alike will pay for the unwinding on the way down to rationality, but it will and must occur. And yes, the poor guy in Ohio or Kansas or Iowa will also help pay for the crazy greed fest that occured in CA, AZ, FL, and NV.

     And Susan, the Gov. cannot prop up housing prices. Sure they can try all sorts of crazy scheems just like Japan did. They can stall and slow the slide, but in the end they cannot force me and the millions like me, to pay too much.

     The gig is up, even the MSM reports a new expert every week saying prices will continue to fall into 2010, people will wait for affordability and then step in with real mortgages that they can pay and intend to pay, at prices that allow money left over for living.

     In the end affordability will triumph, it has to, there is just no other viable outcome.

123. Stu Said:
     January 21st, 2009 1:25 pm

     Joan,

     “Bank’s expense??? Banks expense? Huh? Are you people really that dense? There is no more “bank money”, not since mid 2008. BofA, Wells, Fannie, Freddie have ZERO of their own dollars. The money they operate with is TARP tax payer bailout money”

     Joan, besides your constant name calling, whining, lack of compassion and over all total misunderstanding of how markets actually work, you are not a bad cheer leader for doing things all the wrong way. Your way is the most costly to the tax payer way, and the most disruptive to the overall economy way. You are very misguided in your thought process…

     Let me ask you a very, very simple yes or no question Joan.

     Are ALL of the banks going to go under, and all at the same time?

     If your answer is yes then we have fiscal Armageddon and it doesn’t matter what we do because you and nobody else will be able to get a loan for a home no matter what it cost.

     If your answer is no (the correct answer just to help you out here) then the tax payer is NOT on the hook for all of this mess.

     You are paying Joan, and right along beside you are each and every other tax payer in this country also paying. Your way we all pay, where as my way we pay, but a lot less then we would have. It is called sharing the blame and the losses. This is something that escapes you for some reason and perhaps it is because you are so eager to see everyone kicked out of their homes that you are fine with paying for it all. Well I am not and most on this board and in my work are not either. Try to see the forest from the trees please…

     “I have a feeling that his plan might include you becoming a renter and therfor is totally not acceptable”

     Nope, you got the wrong guy. I have not had a chance to review Steve’s ideas yet, but 5 years seems too long. We need something done in 5 minutes it seems, never mind 5 years. Also it is a massive Government effort with new agencies and red tape that will choke itself quickly. We need fast but immediately effective approaches to stem the tide. Again why so nasty?

     “40k down? Wrong, you can still get a FHA loan with 5% down. And yes, “mine” is very attainable at historical price levels. And judging from the auctions I go to there is no shortage of people who can afford your house if it goes to auction”

     Why are you such a miserable person? There are plenty of homes for sale for you to try and get yourself into at affordable below market prices today. Why kick another 2-3 million people from their homes? Why do you cry for all tax payers to foot the bill for this? Why do you feel the need to be so nasty, cruel and indifferent to everyone that does not see your flawed approach to this mess as the way to go?

     “Speak for yourself. It will absolutely help me if prices actually are allowed to fall back down to HISTORICAL LEVELS of affordability. Note, all I am hoping is for a RETURN to historical affordability levels. I am not looking for some unprecedented fall in prices so I can scoop a home up for pennies, nope, not at all. I just hope to have what others enjoyed for decades before this bubble priced sensible people out of home ownership”

     This again points to your obvious failure to understand what is going on here. Houses are going to fall back to historical levels with either approach. It is just that your approach causes a few things to happen that mine does not do. Your approach for example tosses millions more families (including children and also renters of homes foreclosed upon) from their homes. Mine tries to keep as many in their homes as long as they are not the following: Speculators, Gamblers, Non primary residents, and people who simply cannot afford to stay.

     In the end affordability will win out but at a cost. Is that cost enought to ruin the landscape of the economy as a whole? Is that cost goin to cost tax payers so much that they cannot afford house payments moving forward due to the taxes alone? Will homes be only a luxury for the priviledged? Will the only ones that eventually make money from this downturn the wealthy that benefited from its demise in the first place?

     I think I finally figured you out. You subscribe to the rich get richer and the poor get poorer philosophy. I don’t want to be on that bandwagon. You and your ideals seem to be begging for it for some odd reason…

124. C.C. Said:
     January 21st, 2009 1:32 pm

     od:

     Not ‘off-topic’ at all. As a matter of fact, it’s quite On-Topic and apropos to the mortgage mess.

     To your points:

     - For the immediate, you’re correct, time is running short. That is why we’re staring directly down the barrel of a Bank Holiday… I mentioned this months back. Now then, the possibility is coming into clear view. And don’t think for one second that Obama and his team don’t have this option at the ready should banks continue to decline.

     - Secondly, never underestimate the power or the will of the government to print its way out of this situation. It may take a while (few months), but ‘relief’ will come. Just don’t expect those relief dollars to be worth much, or provide the economic stability and/or solutions you might have thought they would.

     - Here’s what yer gonna be looking at: a) A continual decline of ‘asset’ (read: Liability) prices – i.e., housing. b) A rise in real interest rates. c) A rise in everyday consumer goods (have your grocery store prices for everyday items gone down lately…?)

     - We’re going to get the best of both worlds. Too much money chasing too few goods; Increased cost of living expenses and downward-spiraling housing prices! Ya-Hoo!!!!!!

     

     - And the Blackhearts: “I am not looking for some unprecedented fall in prices so I can scoop a home up for pennies, nope, not at all.”

     Me neither Joan Jett. Cause I’m not looking to buy a liability. I’d much rather keep my dividend paying stocks right now and continue to rent. No bling-bling for me – no granite counter tops and jet skis. But like you, when this all shakes out and housing has fallen to what the market dictates and levels out at – whatever that level happens to be, I might be interested in a humble little 1400 sq. ft. abode.

     Until then, it’s time to pack it away as much as you can and get ready to dump those dollars into real assets when the time comes.

     - Mr. Negativity

125. Stu Said:
     January 21st, 2009 2:10 pm

     CC

     “For the immediate, you’re correct, time is running short. That is why we’re staring directly down the barrel of a Bank Holiday… I mentioned this months back. Now then, the possibility is coming into clear view. And don’t think for one second that Obama and his team don’t have this option at the ready should banks continue to decline”

     That is a conspiracy theory with no relevance to today. We have had around 27 banks fail to date. Roosevelt did that when they were suffering from a national run on all banks and many had already failed as a result. That was purely a stop gap measure to allow people to get cooler heads and they did in fact prevail as a result. Well there is a lot more to it than that, but you know that already.

     “Secondly, never underestimate the power or the will of the government to print its way out of this situation. It may take a while (few months), but ‘relief’ will come. Just don’t expect those relief dollars to be worth much, or provide the economic stability and/or solutions you might have thought they would”

     We are in a highly deflationary time right now and even massive printing of money will not change that short term. I would suggest inflation will indeed come, but I suspect that is 2-3 years away given our current circumstances. Look at all of the data and inflation isn’t even remotely in the picture right now.

     “Here’s what yer gonna be looking at: a) A continual decline of ‘asset’ (read: Liability) prices – i.e., housing. b) A rise in real interest rates. c) A rise in everyday consumer goods (have your grocery store prices for everyday items gone down lately…?)”

     Deflation is not a drop in prices, but rather a drop in available capital. As a result prices fall from demand / supply being out of whack. Interest rates will remain low for sometime, but are sure to ratchet up big time at some point, but again that will be a while from now (6 months – 1 year at the earliest in my view). The argument about inflation vs. deflation really has nothing to do with prices. It is the other way around. You will see drops in goods that are over produced to the level of demand that people are looking for them at. Much like housing, oil has come down artificially with a massive sell off leading the way. Now as they cut back production you are seeing stability hit the markets. A floor if you will. Off course the floor needed for the oil producers of the world is more like $75 vs. $35 so I suspect further reductions in out put will occur until we see prices get back up in that range (6 months – 1 year in my view).

     “We’re going to get the best of both worlds. Too much money chasing too few goods; Increased cost of living expenses and downward-spiraling housing prices! Ya-Hoo”

     I suggest we will continue to see what we have been seeing for quite sometime. We are going to have far too little credit available for anyone to borrow. As a result of that money will be extremely tight where as cash is king if you are fortunate enough to have some. Deflation will continue for quite sometime. Goods will drop in value like they have been while retail clings to their existence. Massive amounts of inventory of just about everything else but food and energy will see to it that goods continue to plummet. Energy will slowly rise which will push the cost of food higher with it. Exports and imports alike will slow and domestic sales will eventually rise as a result, but savings is the new mantra so everything will stay seized up for now. I hardly call this the best of both worlds… I call it a massive hockey stick recession is what I call it.

126. Joan Jett Said:
     January 21st, 2009 2:26 pm

     Stu Said:
     Let me ask you a very, very simple yes or no question Joan. Are ALL of the banks going to go under, and all at the same time?

     Joan said:
     Yes, the banks already did go under. Stu please list just ONE sizable mortgage holding bank that has anything other than TARP money.

     Stu Said:
     If your answer is yes then we have fiscal Armageddon and it doesn’t matter what we do because you and nobody else will be able to get a loan for a home no matter what it cost.

     Joan Said:
     For armegedon update see OD’s post above. The sh@tstorm is here right now, yes maybe I will not be able to get a loan 6 months from now but I am sure giving you a $150k principal reduction will not change that.

     Stu said:
     Nope, you got the wrong guy. I have not had a chance to review Steve’s ideas yet, but 5 years seems too long. We need something done in 5 minutes it seems, never mind 5 years. Also it is a massive Government effort with new agencies and red tape that will choke itself quickly. We need fast but immediately effective approaches to stem the tide. Again why so nasty?

     Joan said:
     Read Stevo’s plan, it does not take 5 years to help, it helps us tax payers right now, by getting those living in stucco palaces for FREE, paying rent to the Gov/fund he proposes. It also offers an immediate solution to the question of what to do with the pre-foreclosure mess without tossing people on the streets and it clearly benefits the house-gambler over responsible people. Still I’m thinking you won’t like it because you may need to become the dreaded renter.

     Stu said:
     There are plenty of homes for sale for you to try and get yourself into at affordable below market prices today. Why kick another 2-3 million people from their homes? Why do you cry for all tax payers to foot the bill for this? Why do you feel the need to be so nasty, cruel and indifferent to everyone that does not see your flawed approach to this mess as the way to go?

     Joan siad:
     You really need to read other people’s view points before you respond to their viewpoints.
     1) Not only are there NOT plenty of affordable homes in my area, there are exactly ZERO, none Stu, not one. I’ve been saying over and over that there are no affordable homes in my area. Prices are still way out of whack with fundamentals, flippers are still out like roaches and that is why I am so angry about any suggestion that we need to do something to stop housing price declines.

     Below market prices to you means $400k for the same model house you paid $450k for? Actual below market value would be defined historically as the average house being price BELOW 3x average earnings, in my area we have a ways to go.

     2) Stevos plan will kick no one onto the street, I am not calling for that either. I just want people who caused this problem to become non-home owners if and only if, they choose to stop paying on their commitment.

     3) All tax payers are already paying for this.

     4) In California responsible renters and home owners who did not participate in the bubble madness have been treated like proletariat members of society. We were scoffed at for suggesting a bubble was forming.

     We watched as these perpetrators of financial doom on America were living La-Vida-Loca, buying all the fancy cars, boats, jet skis, heading off to fancy vacations. All thier extravagances are now being paid for with the bailout money that is being printed to pay the debts they decided to stop paying. We tried to warn them and they laughed at us and went back to swigging mojitos and throwing lavish parties on our dime.

     Stu, just how should I be toward these people? I am not calling for their blood for ruining our entire finacial system and burdening me and every other sensible person with generations of tax burdens. I am just using some harsh words and real facts. Is that too tough?

     Stu Siad:
     Houses are going to fall back to historical levels with either approach. It is just that your approach causes a few things to happen that mine does not do. Your approach for example tosses millions more families (including children and also renters of homes foreclosed upon) from their homes. Mine tries to keep as many in their homes as long as they are not the following: Speculators, Gamblers, Non primary residents, and people who simply cannot afford to stay.

     Joan said:
     BS Stu! I support social saftey nets and at the same time support that under no circumstances what-so-ever should we give a pricipal reduction gift on the tax payers dime. This is not High School golf, there are no Muligans.

     Anyone can go and rent just like me, so no one will be on the streets unless they can not pay anything. If they are out of work I feel for them but we have saftey nets in place, they may not receive enough to stay in a stucco palace but they can come rent with me. Or do you suggest that people who can pay zero get to stay in stucco palaces?

     Stu don’t be so dramatic. Nobody is calling for millions to be tossed out. Again Stevos plan seems to cover your concerns. I think your extreem dislike of the idea of these so called home “owners” becoming renters illistrates my point about the attitude you bubble folks have towards low-life, responsible renters. Its no that bad Stu, people who need to become renters will not die of embarrasment.

127. Joan Jett Said:
     January 21st, 2009 2:42 pm

     C.C., well put. Your personal plan makes sense.

     You bring up a good point about inflation/dollar devaluation. That brings us to three prongs for the time bomb sh@tstorm sandwich the housing gamblers prepared for us. Which is, after the first two prong/bombs settle out we can look forward to extreem inflation.

     Thanks again bubble-nuts.

128. Joan Jett Said:
     January 21st, 2009 3:04 pm

     Stevo, you should add one more thing. Let’s have all forclosure related bad marks taken completely off their credit records after the 5 year period. Usually people will have problems for 7 years or more, as the forclosure never goes off their record it just gets older.

     This will give our economy a breather for the 5 years and then offer a 100% forgiveness to those people who participate in your plan. Then we get a fresh slate and our economy can grow again.

     See, I’m not heartless

129. Kevin Said:
     January 21st, 2009 3:42 pm

     There is nothing heartless about not wanting people to have their selfish, lavish purchases paid for by other people. It’s outright cruel, in fact, to defend such a subsidy as it would obviously be funded by hard-working tax payers, present and future, a sizable majority of whom did nothing wrong other than playing by the rules and living within their means.

130. redeye Said:
     January 21st, 2009 6:51 pm

     New estimate of US financial losses are now $3.6 trillion, with up to half of that from residential real estate. Since the banks began this fiasco with $1.4 trillion in capital, they will need (and get) $2.2 trillion from the taxpayers to avoid going out of business. You got a problem with that, write your congressman.

     So here’s the deal. If my tax dollars are on the hook for a $50,000 loss on a foreclosed home versus a $25,000 loss on a principal reduction, I support the principal reduction with the added bonus of the home staying out of “for sale” inventory, further depressing prices below the “3x” number and triggering even more defaults based on negative equity and costing me even more.

     And who let loose the theory that buyers of foreclosed properties will be any more successful at paying their mortgages than the previous owners?

131. Joan Jett Said:
     January 21st, 2009 7:33 pm

     Redeye, That $25k principal write down may convince the Bubble mortgage owner to keep paying for awhile but when his house falls another $50k he’ll be back at the pig trough. Better to do it right the first time.

     Plus there is the moral hazard issue, since when did forgiveness of principal become part of the rules?
     If Mr. Bubble mortgage gets a $25k principal reduction does his neighbor get one too? I guess that would be the only fair thing to do…oops there goes your $25k savings to the tax payer. But wait there’s more! Now the other neighbor wants a $25k gift too, now our $25k savings is a $25k loss. What? Everyone else on the street wants to know why Mr. Bubble mortgage got a $25k gift and they did not? This $25k gift idea is getting expensive.

     Look at how fast last years reworks have gone back into forclosure. And look at how many of last year’s knife catchers are already looking for the address to mail the keys to. This answers your second question…. anyone is a better bet than a group of people that have shown not once, but twice, that they will bail on their commitment if prices fall.

     Oh and we need to get the historical affordabilty mark of 3x earnings before we need to worry about going below it. Once we get there we won’t need conversations like this anyway as the bubble will be finally dead.

132. Redeye Said:
     January 21st, 2009 8:13 pm

     Jett,

     Your question of what happens when the house falls another $50k is exactly what I meant when I asked why buyers of foreclosed homes are assumed to be better able to abide by thier agreements than the previous owners. Negative equity breeds default. If the new owner sees his equity evaporate and then some, the house will be right back on the market.

     And that equity will evaporate and we will overshoot 3x earnings if the 10 million at risk mortgages go REO over the next five years. At that point, the price won’t matter because even if you have a job, you won’t be able to get a loan and will probably have moved to a better place…like Mexico.

     The issue here isn’t houses, it’s deflation. Once the expectation of lower future prices sets in, purchasing decisions are delayed until we see prices stop falling. But with everyone waiting and nobody buying, prices keep falling. Japan is just enjoyed its 18th consecutive year of falling real estate prices. They’re still waiting for a bottom that will never come.

133. sean sean Said:
     January 21st, 2009 9:33 pm

     I somewhat understand the idea of “principal writedown”. There just need to be lots of string attached to it. I.E. they can’t sell for profit for the next 5 years, why 5 years, make it 10 years so that way they can’t profit period. I would hate to see someone get a 50k break, then 6 years down the road sell the home for 100k more than they originally bought and pocket that extra. True, prices will not increase like it did. But just knowing “what if” they sell and make profit. By making it 10years will ensure that they will think twice about walking or getting the modifications. Take it another step, if they walk before that, they would have to return that “principal writedown” regardless of the situation.

     I read lots about principal writedown to give buyers of 2002-2007 a break. I don’t see much about giving the new buyers a break aside from the 7500 tax credit… I have a relative and some co-workers who have been house hunting for the past months and have been outbid left and right. Keep in mind all their offers have been list price and above. So there a lot of people out there with money who want to buy but are getting outbid.

     I would love to see some ideas for new home buyers instead of principal writedown first. True price and interest rates are lower, but price isn’t low enough or now banks requiring more than 10 or 20% down payment.

134. Average Jane Said:
     January 21st, 2009 9:43 pm

     Fascinating debate here.

     I forgot to mention that every third home I looked at over the past few years was owned by a realtor/agent.

135. benzy Said:
     January 21st, 2009 10:22 pm

     Joan,C.C. –

     This is all in vein. There will be a government-born solution and it will involve your tax dollars. Whether this means a central bank giving home loans at 1%, principal reductions or more convoluted bank bailouts to save the top dogs – it WILL happen and you WILL pay for it.

     I understand this is frustrating, and I’ll admit that if I spent the past seven years on the sidelines in my rental yelling in occasional outbursts about the coming apocalypse after being emasculated by my friends’ F150s and boats purchased with a heloc secured by vaporous equity that never existed in the first place, I’d be quite pissed.

     But the fact remains: There are not enough “prudent” renters to occupy the 60% of homes that will be foreclosures risks. This little caveat is going to be the great equalizer.

     Face it; there are only two coming scenarios. You may have an edge with the latter:

     1. Homeowners are given a handout in the form of low interest rates and/or principal reductions.

     2. A central bank will forgive foreclosures for those who lost/lose their homes between 200x and 2012 and offers them standardized loan terms to purchased again.

     The government wants you to own a home. This is precisely why mortgage interest and property taxes are deductible from your federal taxable income. It’s a game, and it’s admittedly unfair to the “prudent” renter.

     The only solace I can offer you is that as the coming redistribution of your earnings materializes into policy, your overall burden wont increase.

     After all, you have been taxed to death to support “greedy saps” such as myself who pay less than 10 percent federal taxes despite bringing in 6-figures. And that’s because we play the game. And like most defective games, the rules change often… and to those who play, what a glorious change it will be.

136. C.C. Said:
     January 22nd, 2009 12:15 am

     Greetings Benzy -

     #1. No solace for me is needed nor wanted.

     #2. Never said outright, nor inferred to those such as yourself, as ‘greedy saps’.

     #3. ‘Redistribution’ has been going on for a long time in the U.S., nothing new there. The prudent mind has hedged accordingly throughout those years. I take it that includes you.

     #4. The government may want me to ‘own’ many things. Thankfully however, I still have choices and may decide what I want to own or invest in at any given time, regardless of how much they take.

     #5. As much as renters such as myself will end up ‘paying for it’, so too will renters such as myself check-mate those payments by staying out of debt and investing in real assets that bring a real return on investment.

     Ballsy try Benzy. Comes up a bit short though in my book. I’ve been face first in the mat and stuffed enough faces myself to know what’s real and what’s not. You need to bring it a bit harder next time Pard -

     Peace -

     C.C.

137. ex_owner_now_renter Said:
     January 22nd, 2009 12:47 am

     When this is done.. we are going to call this the GREATST DEPRESSION..

     I thought OB said we need responsability, and collective effort… where is my 100K????.. TARP for renters and new buyers!!!

     YOU MAY SAVE SOME..DELAY THE PROCESS (A MAYBE).. but in our economy where demand is not there.. PRICES WILL CONTINUE TO DROP!! while tax payers foots the bill.. and food prices will continue going up…

     WHERE’S MY BAILOUT?? 100K… I WILL HELP AND PROMISE TO BUY TODAY.. YES I CAN AFORD THE NEW PRICE

     … HELLO EX OWNERS CALLING!!! 100k BAILOUT, AND WE WILL BUY HOMES TODAY!!!!

     meanwhile (because no alternative, and learned a lesson)
     I’m SPENDING 0!!
     I’m saving 40%
     my 401 k is in INFLATION!!! THAT’S RIGHT.. we’re going to see it.. (AND NOT IN ASSETS.. you get the point).. expect your home to quadriple in price.. in 2035!

138. ex_owner_now_renter Said:
     January 22nd, 2009 12:53 am

     WHOE NEEDS A LOAN ANYWAY.. I’LL BE BUYING CASH IN 2 YEARS!..WELL BE LUCK IF PRICES DON’T DROP BELOW 1998 PRICES.. KEEP MESSING WITH THE MARKET! GREAT JOB OB!

139. Benzy Said:
     January 22nd, 2009 1:28 am

     C.C. Can we abstain from stuffing faces long enough to enjoy the glory?

     For me, you’ll be paying for 25 % of my loan value and/or my wife will be buying our house from WaMu for half we paid for it! A win-win.

     But all the people homeless, and former S-Class-driving piggies putting around in Hondas?

     There will be plenty of faces in the mats. You’ll feel right at home.

140. Michael Blomquist Said:
     January 22nd, 2009 2:45 am

     Test?

     This is not directed at anyone in particular, but no matter what Mark/Mr. M writes about the thread always ends up being a discussion about whether or not America should bail out homeowners who are facing foreclosure.

     I don’t mind this debate, but we should keep on point. Mark (MR. M) provides some great information that should be discussed.

     The title of this article is
     The End of Large-Bank Wholesale Lending – Time For the Mortgage Banker

     As a 2nd generation real estate and mortgage broker who closed down his office in Jan 2004; this article hits a very sensitive issue for me. To those of you who believe in “free market” capitalism and our Constitution this should be extremely important to you as well.

     Corporate America has run rough shod over consumers and small business for decades. Their ability to do so has been aided by our laziness and ignorance. More intentionally and directly lobbyists have been well paid to convince/bribe our representatives that unrestrained outsourcing is for the greater good of America via lower consumer prices.

     I say BS; outsourcing was more to influence foreign investors to accept IOUs for their citizens hard work and their Nation’s raw materials.

     The recent/continued success of America has been about Ponzi finance/data manipulation; manufacturing debt instead of products. Wages have been declining for almost a decade, GDP is a fantasy and inflation has been grossly distorted. (owners’ equivalent rent)

     Do I blame borrowers for this crisis NO.

     Our government has been a terrible role model about living beyond its mean and prosecuting white collar crimes. In addition, loan officers who were contractually obligated to qualify borrowers began coercing their agents how to commit fraud.

     Never before has Corporate America been able to get away with such horrendous crimes and the destruction of an industry. This was a perfect conspiracy by the Lenders, i-banks and rating agencies. Establish incredibly reckless guidelines and enlist agents and borrowers to do the dirty work.

     All they had to do was to let borrowers and agents “state” a borrowers income and look the other way when fraud was exposed – on occasion the fraud needed to be concealed. Unfortunately, most agents and millions of borrowers joined the conspiracy and became the perfect scapegoats.

     Now it is the End of Wholesale Brokers; next will be Bankers and along the way the Lenders will be pushing to be able to sell real estate.

     In many bubble markets unless you as an agent peddled fraud and or encouraged buyers to purchase homes that were grossly and fraudulently inflated you could not compete.

     My industry has been destroyed despite my countless warnings to regulators, legislators, law enforcement, media, prospects, clients, etc.

     Unlike prior industries or careers that have been destroyed by outsourcing and Congress’ approval; real estate professionals have been done in by a conspiracy and fools from within the industry.

     SideNote:
     Am I the only who thinks this is a bit odd that the insurance companies became so involved and exposed to this trash. Could it be that insurance companies were insolvent before they ever sold a CDS or purchased MBS? Were Pension funds going to be able to handle longer life expectancies? Hmmm

     The focus should NOT be bail outs; it is rule of law. America is already bankrupt; no more cash out refi’s

141. Javagold Said:
     January 22nd, 2009 9:22 am

     Insurance Companies is where the real fraud began !

142. Kevin Said:
     January 22nd, 2009 10:59 am

     “If my tax dollars are on the hook for a $50,000 loss on a foreclosed home versus a $25,000 loss on a principal reduction”

     Stop right there. That is bullshit to suggest that foreclosure is more expensive. FIRST: if the house is sold at current market value, that means that reducing the principal to current market value would be the EXACT same thing, cost-wise. SECOND: only a fraction of people are walking away. A much larger amount of people would apply for principal reductions. Use common sense, think about it. Principal reductions are exactly like giving people bundles of cash. Who would NOT partake in that that is eligible? They all would.

     Principal reductions would cost an ungodly amount compared to foreclosures.

143. BertDilbert Said:
     January 22nd, 2009 2:12 pm

     Michael Blomquist Said:
     January 22nd, 2009 2:45 am

     Great post, white collar criminals have been getting a slap on the wrist for decades for stealing tens or hundreds of millions of dollars while drug dealers get far worse sentences. After plea bargains, it looks to me as though white collar crime pays pretty well.

     Unless the nation realizes white collar crime can be far more damaging than a drug dealer, we are not going to have change. If your house gets burgled, it is recoverable. If your life savings gets ripped off through investment scammers, I am sure that those who got scammed would have settled for a burglary to replace a TV or jewelry.

     Here we have people who got ripped off in housing where the banks were creating false markets at both ends of the spectrum. When someone puts a down on a house, it pretty much constitutes their life savings. The investors in MBS have gotten wiped out as well. Where is the line of people who are going to be doing time for this?

     Homeowners are just plankton in the grand scheme of things, the big fish who have the level of responsibility are just going to walk. Sure some people lied on their documents and I believe they should be penalized as well to some degree. At the same time, banks should have not accepted these loans without performing due diligence.

     What you hit on is rule of law which I have said from the beginning is missing from society. Prosecuting drug dealers is easy compared to white collar, yet as we can see, white collar can destroy a country.

     This crisis is going to destroy insurance companies along with pension funds that had invested in financials and the secondary hit of insurance companies. That leaves us paying for the following.

     Bank losses.
     Insurance company losses.
     Pension fund losses.
     *** Your personal housing hit if you have one.
     *** Your “bad economy” hit via wages/business income.
     *** Your new state taxes, personal, sales tax and business. These are additional kick ins above recapitalizing pension funds which we will bear.

     So even if you are just a renter during the entire bubble years, you are going to be taking a hard hit for all of this.

     Another thing Michael, I was reading years ago on OTC derivatives. They were used to insure assets to allow them to qualify to be on a balance sheet where without the insurance, the assets would not qualify to be there or discounted. If the asset was guaranteed, they would be able to carry the asset at full value or higher than normal. By increasing the value of the asset on the balance sheet, I assume that they were able to lend more.

     I am taking it that you were forced out of business because you refused to engage in a dishonest practice? I have competitors that do it all the time.

144. Redeye Said:
     January 22nd, 2009 2:52 pm

     Sorry Kevin, but market value is not a determining factor in whether or not a borrower is offered a reducton in their principal balance. The sole factor in re-underwriting a loan for the purposes of modification is the borrower’s ability to pay, i.e. their income. NO bank will write a new note for, say $250,000, if the current market value is only $250,000. Cash in hand beats additional risk in this environment. And I’m not just talkng about the risk of default, but the risk that today’s low fixed rate of interest will not cover the risk of tomorrows high variable rate of inflation.

     Bottom line: The bank will take the path of least loss when faced with a non-performing asset. This is a case-by-case decision, not some rigid ideology. The rigid ideology of making loans to anyone with a pulse is what got them into trouble in the first place. When foreclosure represents the least loss then they will foreclose. When modification represents least loss they will modify. When principal reduction represents least loss they will reduce principal.

     That’s how the free market works. If we could just get you, W, Barak and the rest of the “I know better than the market” socialists out of the way, the market will find true value. And yes, you may not think so, but you are a socialist. You want to impose your social values of “not giving people bundles of cash” on an agreement between two consenting parties.

     That’s the thing about the free market. It’s not important that you agree with it, only that you respect it.

145. Tony Ate My Lunch Said:
     January 22nd, 2009 5:45 pm

     As far as principal write-down, how about a denial to anyone who cashed-out (refi’d) their equity during these bubble years? They would be exempt from getting a write-down. I am not sure of the logistics for this (or the expense for approving/disapproving people.) But it would help appease those who see the tax payer as paying for all those SoCal BMW’s and toys.

146. Michael Blomquist Said:
     January 22nd, 2009 6:29 pm

     BertDilbert,

     Thank you! It is nice to know that some one gets it. We are well beyond a financial crisis. Unless we wake up to demand that Congress restores rule of law we will be cooked and in a very dangerous conflict with our foreign creditors. This is borderline treason, was highly foreseeable and preventable.

     Yes, not only was I forced out of business, but after due diligence had loaded up on puts/leaps on a few lenders. Providian Financial which was purchased by now defunct WAMU, WAMU and CFC.

     I don’t know what business you are in and what possible claims you have, but there are laws for unfair competition, especially when it hurts consumers as well.

     In my markets over 35% of loan originations were Option ARMs during relevant times. I am confident that 95% of all these borrowers were NOT qualified for those loans. I have alleged that these loans were predatory products (below market costs) similar to dumping micro-chips.

     Obviously, loans are different than Microchips in that I nor the Defendants own the chips/loans, but we manufacture them with other people’s money. All Defendants have stopped originating Option ARMs.

     I would estimate that 50% of all borrowers who obtained any financing in relevant markets during relevant times 2004-2007 were NOT qualified. This clearly had an impact on prices and my ability to uphold fiduciary duties or to supervise my agents to see that they did the same.

     As evidenced in prior posts I was one of the only brokers in the Nation warning of these fraudulent loans instead of exploiting clients and the American Dream of Homeownership.

     There are numerous on point cases that provide ruling supportive authority.

     There was no market in the Nation that was as inflated as my county, especially for the average wage earner.

     I am happy to debate my claims with anyone who is interested : )

     Redeye: Good god man/woman; what on earth are you talking about?!?

     Two consenting parties?

     Taxpayers have not agree to bail out homeowners and the banks are insolvent. They have NO say in this per taxpayer funds.

     As servicers they do have flexibility with investors funds, but there are numerous law suits against Countrywide and other servicers by investors who claim they did not agree to settle law suits and or modify loans.

     My biggest fear and most likely the reality is that GIANT PONZI schemes exist in the mortgage pools. Once a loan is repaid via sale or refinance the investors are supposed to be made whole. Given the mess we are in; it is highly possible that loans have been paid off, but NOT paid in full to investors; only used to make interest payments.

     In addition, it appears that loan mods allow the investors to amortize that loss over the life of the loan instead of taking the immediate hit like when a REO is sold.

     Losses at the banks will continue for many years and this will wipe out trillions in pension and insurance funds once this is all done.

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