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Analyzing the Popular Proposals for Mortgage Principal Writedowns, Part III
This is from Stone Street Advisors
Two weeks ago we began a series of posts written at my request by The Managing
Partners of Peterson Bliss Advisors, analyzing the popular proposals for
mortgage principal writedowns and their the effects thereof. In that first article, we examined:
• The numbers quoted in the proposal as stated in the media
• The issues surrounding the stated numbers
In the second:
• The costs to the Borrowers
• The costs to the Taxpayers
• The costs to the Banks (and eventually the Taxpayers) and Timing
In today’s third installment, we start to round-up the debate and discuss:
• The “fairness” of the proposals
• The most recent proposal from banks to a “finite number of current borrowers”
• The ultimate solution to the decline in home values
Enjoy reading and please leave your thoughts in the comments section, as we know this is a rather contentious issue. –JT
The “fairness” of the proposal
The logic behind the principal reduction scheme is one of
“fairness”. That the banks should be fair to the poor borrowers that
the banks took advantage of by giving them a break on the debts they
owe. Only someone that is not owed money could think that this proposal
is somehow “fair” to the parties involved. We could start a rant on
the “fairness” of the principal reduction scheme, but let us look at
what the pundits think “fair” is:
“Fair” is that people can sign legal
documents without giving them proper review or taking the time to
understand the gravity of the contract they are submitting themselves to
and that they should be allowed to change the terms after the fact.
When banks do this it is called fraud and you can sue them in court and
win money in a judgment. Why is it not the same if the borrower does
that?
“Fair” is that the most irresponsible
borrowers, that borrowed more than they could afford to conceivably
repay with the least amount of equity to put in the home or help them
through troubling times should be rewarded for their irresponsibility
while their neighbors struggle to meet their obligations.
“Fair” is that taxpayers, again, have to shovel money at a problem 7% of households created for themselves.
“Fair” is that if choices involving moral hazard are acceptable once, they should be acceptable again.
“Fair” is that one side of a contract gets a benefit while the other side has to suffer a monetary loss.
“Fair” is that borrowers have to submit
to full personal recourse to repay a debt that they can’t afford to
repay even though the contract they signed clearly states the negative
consequences they will suffer should they default on the terms and
conditions of said contract.
“Fair” is that we focus on 11 million
borrower’s that made poor choices and have greater than 110% LTVs while
simultaneously ignoring the portion of the home owning population that
is at risk of default but does not have an LTV of 110% or greater.
“Fair” is that we ignore the 4 million home owners whose loans are 90+ days delinquent or already in foreclosure.
** Some personal words on “fairness”: We believe a number of
mortgage mills (such as Countrywide et al) did a lot of shitty things
and hired a lot of unqualified people to push products they didn’t
understand and could not explain to people that had no conceivable means
to purchase a home. They then forced the underwriters and compliance
staff to ignore errors and sold the shitty mortgages off to investors
and lied about the underlying security and collateral involved. There
are a lot of people that should be punished, from the mortgage mills,
NAR and REALTORS ®, mortgages brokers and bankers that sold shit and
said it was gold. Top to bottom, there were a lot of crimes committed,
but that is not the point of this article.
Also, we realize there are a lot of people that, through no fault
of their own, are in homes where they can not make their mortgage
payments. Our comments will never be directed at them. However, if you
are 20%, 30%, 40%, 50% underwater on your mortgage then regardless of
your personal situation you made irresponsible choices and these are the
results of those choices. **
Which brings up the obvious legal issue – Washington DC will write a
bill and make it law that will forever change the way collateral and
mortgages are viewed, years after these contracts were agreed to by the
parties involved. How do you foreclose on a home with these changes?
How do you short sale or deed-in-lieu under these new laws? How will
individual courts/judges and states interpret the law when given new
defaults? What about all the foreclosures that have been completed or
are in the process of being completed? The pundits give this
matter-of-fact analysis that this is such a simple, common sense and
fair solution. Except they have no idea how it will effect the broader
mortgage market in the future, what the consequences will be in regards
to interest rates and what the not-easily-quantifiable unintended
consequences will end up being. This principal reduction scheme does
not even bother to attempt to identify and mitigate issues in a forward
thinking manner.
The logic of the principal reduction scheme and the “fairness” of it
also falls far short of implementing the ultimate logic of the
proposal. Underwater mortgages have tried and true methods of being
disposed of and that are legally accepted and able to be performed.
Namely, the borrower pays out of pocket, the borrower short sales the
property with the consent of the bank, the borrower gives the bank the
deed-in-lieu of being foreclosed upon, or the borrower lets (or objects
and drags out the legal process) the bank foreclose on the collateral.
If you want to make a principal reduction scheme that is “fair” to both
sides, then both sides should be given a benefit and a consequence. The
current logic provides a benefit to the borrower and a consequence to
the bank and taxpayers. Let us explore a principal reduction method in
which both parties would benefit and suffer consequences, shall we?
This is actually a very simple idea that would cause the borrower and
the bank to become partners in the deal and be sure that they are
certain about entering in to a long-term financial partnership. It
works like this: the bank makes a loan based on a known LTV and the bank
gets to be repaid their funds based on this LTV as a constant. We will
explain with an example:
Borrower and Bank enter into a loan agreement wherein the borrower
purchases a $500,000 home and places $25,000 of equity as a down payment
(5%). The bank provides a $475,000 loan on the property (95% LTV).
Home prices fluctuate in the local market where the home is located,
some times going up, some times going down.
Let us assume that 5 years into a 30 year obligation the borrower
wishes to sell the home but the market has taken a downturn. The home
is only worth $400,000 and a buyer is willing to perform a transaction
and close escrow at this price. The bank would be paid 95% ($380,000)
of the purchase price as payment in full for the mortgage obligation and
the borrower gets to walk away without any additional recourse or
credit dings. Each side is satisfied in full.
Now let us assume that the market had instead taken a positive turn
over that 5 year period and home values had appreciated. The home is
now worth $600,000 instead of the $500,000 the borrower paid and they
wished to sell the home and move. A buyer makes an offer at this
valuation and is willing to close escrow. In this instance, the bank
still gets paid 95% of the current value minus any principal reduction
the borrower had paid. So, assuming an interest-only loan, the bank’s
95% would equal $570,000. Assuming the borrower had paid down principal
by, say $28,000 (7% interest amortized over 30 years after the 60th payment, rounded for ease), the bank would be paid 95% minus that principal reduction, or $542,000.
You know how we can tell this is fair? Both sides would pitch a fit
under these scenarios and that means it’s fair. This is the logical
extension of the “fairness” argument with regard to principal reduction
and another term that should be added to this scheme. Of course, this
is not what the mortgage of the future should be. If anything it could
be a 21st century mortgage option that the borrower can
chose. You can choose to be bound by a traditional mortgage product
that has been time tested for decades or you can choose this new
partnership model where everything is “fair”. We highly doubt many
would be interested in this product though.
The most recent proposal from Banks to a “finite number of current borrowers”
Most recently, as a apart of the settlement talks between banks and
the State’s Attorney Generals has come up with another idea. This was
the subject of a recent CNBC Realty Check segment with Diana Olick.
The Obama administration already promoted a version of this for
Federally backed mortgages under the Home Affordable Refinance Program
known as HARP. This scenario is being tested with a “finite number of
current borrowers”. The idea under this scenario is that borrowers that
are underwater but have been able to remain current on their repayments
would be given the opportunity to refinance their homes at the current
prevailing rates. Given the numbers we used earlier the typical
$200,000 mortgage amortized with 7% interest, if refinanced at the
current 4%, would achieve a reduction in their monthly payment of $375.
There are some obvious issues with this, mainly the issues with
refinancing an underwater mortgage or with causing investors to take
losses in an effort to reduce the burden on borrowers. However, there
are solutions being worked out amongst the banks in an effort to test
this scenario for a “finite number” of current borrowers. This is a
much more palatable option to us. Reward the folks that have worked
hard to continue paying their mortgages throughout the downturn. Of
course, the outcry is not for this minority of borrowers – it is for the
folks losing their homes. So, while this is a novel concept and is
rewarding the correct people, as Diana Olick remarks, it won’t do much
to quiet the outcry surrounding folks losing their homes.
The ultimate solution to the decline in home values
As a final note, let us examine the headline of the New York Times
article: “How to Stop the Drop in Home Values”. So far, the Fed, the
National Association of REALTORS ® and most
every media talking head has taken the current low interest rate
environment as an opportunity to discuss why it is a great time to buy a
home. Sure, on the surface it makes a ton of sense: buy a home at a
“low valuation,” get extremely low financing and enjoy a low mortgage
payment while the economy and housing market rebounds and you can reap
windfall profits from your good decision making skills and timing.
Sounds a little bit like the “Underwear Pants Gnomes” episode of South
Park though – Step 1: Steal Underpants; Step 2: ______, Step 3: Profit.
There are, however, a couple pieces of knowledge that people should be
aware of.
First, people don’t seem to understand the length of time this
scenario takes to play out. Unemployment will be elevated for a number
of years and loan underwriting standards will be similarly elevated for a
number of years. The benefit of purchasing in this environment, if you can qualify, is that you can buy a home (not an investment, a home)
to live in and create equity that you will be able to access in the
future and pay a low cost of capital in doing so. If you are buying a
home to live in for (at least) 7, 10, 15+ years, then you should be just
fine and you will take advantage of the low interest policies of the
Fed to lower your monthly payments.
The issues that you need to be prepared to mitigate are that with the
elevated level of unemployment and economic underperformance there will
be limited price appreciation and a limited buyer pool to bid on,
sustain and grow home valuations. Near term home price appreciation can
be expected to hover in the 1% to 3% range for a period of years. The
days of 10%, 20%, 30% annual appreciation are gone and won’t be back in
the near future when you may want to “move up” or “grow your young
family” in to a larger space.
With everyone espousing the benefits of historically low interest and
mortgage rates no one thinks to prepare for the inevitable rise in
interest rates. All the attention is put on capitalizing on the low
rates and not what happens after the fact. Interest rates will
revert to the mean. The effects of Basel III could make this seriously
worse. When mortgage interest rates increase from 4% to a more
normalized 7% to 8% there is a large effect that will be played out on
home valuations. Every 100 basis point increase in interest rates
translates to an approximate 8% decrease in purchasing power. What does
this mean for the borrower or homebuyer?
It means that because the Fed has lowered rates from an average 7.5%
to near 4% they have created an artificial increase in home valuations
of approximately 28%. On the other hand, if you buy with a 4% interest
rate and sell to a buyer who is borrowing money at 7.5%, this buyer can
afford 28% less home than you could afford. So, as valuations increase
and interest rates increase, the buyers that are considering your home
are continually having downward pressure placed on their purchasing
ability. This is not good news for you achieving outsized returns or
your targeted sales price as buyer’s do not like to buy down the
spectrum. The variable that will determine this is the condition of the
economy and unemployment at the time you decide you want to sell
(remember Basel III, again, etc). This buy low, sell high
scenario is actually incredibly dependent upon timing and the economy,
variables that homeowners and buyers have little to no control over.
The last bit of advice I can give those trying to capitalize on this
by buying a home, or trying to create policy around these issues is the
reality of purchasing in markets such as this. A simple excel
spreadsheet comparing renting versus owning will show you that in most
major MSA’s you need to own for a period of 10-15 years in order to hit
the tipping point were purchasing with fixed rate financing becomes less
expensive than renting. Everyone is pushed to purchase a home and move
up as they move up in their careers. However, if you were putting the
money saved in the rent to own spread in the bank during the first ten
year period, you would have an outsized down payment to use toward the
home you want to own when you have reached that stable point in your
career.
The political push for homeownership is actually creating slaves to
mortgage debt. Prudent rental and savings plans can allow you to
purchase the right home, in the right neighborhood, at the right time in
your career, to live in for the next thirty years. And you may do so
with a substantial down payment that will help you get better financing
rates and a better purchase price on the home you want. All of which
lead to a better and more stable ownership period that will allow you to
truly capture price appreciation because you will be living in a home,
not “renting a house from the bank”.
In our opinion, the answer to the question “How to Stop the Drop in
Home Values” is not a matter of knee jerk reactions, moral hazard, bad
policy pushed through on a populist wind, or a problem you solve by
principal reductions. The way you create stable home valuations
that grow consistently over time is to promote responsible purchasing,
responsible borrowing of debt and responsible investments of equity by
borrowers. By changing the way homeownership is viewed, from
short term investments that you continually trade up, to a new
neighborhood, etcetera, you can create a new generation of responsible
borrowers that have positive views of homeownership and who, unlike
those in the 40 to 60+ year old age cohort (people such as our parents)
are not taking out 30 year mortgages in their 40’s or 50’s and are
subsequently forced to work into old age in order to service debt they
should never have taken on at that point in their lives to begin with.
It is the 20 to 35 year olds that should be socking away the money they
save by renting sensible accommodations in order to make substantial
down payments and pay off their mortgages near the time they are
retiring.
This is how you stop drops in home values and avoid principal
reductions and moral hazard. The government, investment advisors,
banks, the real estate community, the media – they should be promoting
responsibility and the ideal that a house is your home to grow and raise
your family and retire in (or sell when it is nearly free and clear of
debt in order to pay cash for your retirement home). It is almost
painful how common sense the answers to our nation’s “largest problem”
are. We realize this is not a “solution” that will be enacted (let
alone accepted) immediately. This is not a problem that was created
overnight. It took decades of changes for things to get to this point
and it will likely take decades to reverse course. When the course is
reversed, though, there will be a generation of happy homeowners with
lots of built up equity in their homes.
We feel this is a much more accurate view of the principal reduction
scheme being promoted by people that have no clue what they are truly
proposing to the American public. It’s these questions and analyses
that should be discussed by the media in an effort to educate the public
on what they are going to be voting on instead of pushing out opinion
pundits that yell and scream in an effort to “rally the base” or capture
populist rage for their own gain. It is high time we all accept the
reality and work towards a long run solution by educating those around
us.
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There's been debt jubilee since historic ages. Why not now?
next thing to go should be property taxes. these municipalities are stealing $$ across the country
kill the beast,,,, give the homes to the banks so they can pay the taxes and insurance..... after a few years
of this, the banksters will be happy to reduce their exposure...... and let you buy the home at a reduced price, and
property taxes will have to be lower.....
fuck the banksters, and fuck the bureaucrats
Hey Stoned Street: Is it fair that the Mortgage Bankers Association walked away from a $70 million headquarters building they owned in Washington, DC? They said it was a business decision. They defaulted on their mortgage.
Now, according to the Supreme court, all corporations are persons and all persons are equal under the law. So why can't I (a real person) walk away from my mortgage just like the MBA did?
The Fairness of a Hair Cut to bring back stability?
NOPE! we as a People are NOT! that smart..
Thusly.. we will suffer a melt down to FUCKING ZERO!
and then no write downs will be needed!
TAAAA! DAAAAAAA!!
Magic! BITCHEZ!!
and for anyone who doubts my take on things..
Please see Italy for verification of a melt down verse write down!
Agree Cool it is all about getting new clean titles to questionable mortgage practices. Housing in some areas like California have a long ways to go before they bottom out. We have another 6 years before this mess will level out. Even then that all depends on how many times the government is trying to fix a problem that only time and the markets can correct.
I am to the point of who gives a shit what is fair. Mine is paid for and the fed will do what it wants anyways. Why loose sleep over it? My only rant is the frigging local governments need to lower the property values to reflect the new lower prices!! Wow I just woke up and realized they fuck us on a smaller scale then the fed!
Exactly. Debt forgiveness is phucking bullchit. You crash you burn. Bankers and borrowers alike.
ODIOUS DEBT is what deserves the wrath. ODIOUS DEBT. ODIOUS DEBT.
OK - understand debt forgiveness issues. Agree, howewver that banks should eat any losses due to fraud, etc. Otherwise - you have situations like mine where the mortgage, title, house is in limbo. The title is a mess -- unless I quiet title it and the two banks throw up their hands because it is in such a tangle. That may just have to happen. Now, surely there are millions +++ similar cases.
2 things:
1. Why does writing down mortgages necessary mean that the taxpayers have to pay? Why can't the banks that made those bad loans take their losses? You know, like a free market. People keep talking about how the home buyers made bad decisions, but the home buyers are not finance experts. They are expected to make poor choices. What's the bankers' excuse? If they loaned money to people who can't afford to pay it back, then they made poor choices, and they have lost that money. Why should the taxpayers bail them out?
2. If housing is overpriced, then the prices should continue to fall. Let the market work. This problem was mostly caused by government interference, and more interference will make it worse. Did we not learn anything from Japan?
"If they loaned money to people who can't afford to pay it back, then they made poor choices, and they have lost that money. Why should the taxpayers bail them out?"
Excellent point.
OMG, this was installment 3?
Geez, I'd hate to get cornered by the author at a party. Who writes like this?
We have mortgage docs that have fraud all over them - from a "verified income/asset statement" I was able to obtain from the bank's internal record -- full of lies and signed with this actual signature: "xxxxxxx". I wouldn't have signed my name to that bullshit either. The statement read that they verified that I made $30,000+/month which included rental income (I have never owned rental property in my life)....and that I had assets over $1 million...not even in Monopoly money. Imagine my surprise when I found this in the bank records (think I ever got a copy? Of course not - they knew I'd never, ever pass on this tripe).
Top it off: Poorly copied signatures -- hmmm, interesting how some signatures have the bottom of the letters missing - I couldn't sign that way on multiple pages even with a gimpy pen. Further, I would not. I'm a compliance "geek" and a little picky about what I sign and how I sign.
Final mortgage docs - never forwarded. Now, here is where it gets interesting: In a span of 18 months, two completely unrelated entities have claimed to hold my mortgage. One is actually a servicer and I think in late 2010, realized they didn't hold it. Another entity came along and claimed to own it. No transfers/assignments ever filed. Well, it appears that now that bank isn't even sure....say what?
Do you think I'm excited about a mortgage write-down? No one it seems, can legally place a claim on the mortgage. So, pray tell - would be writing it down?
The only reason someone wants me to sign off on a re-do is so my new signature would no doubt void all of the prior fraud that is sitting in a safe off-site somewhere. It isn't going to happen.
In the big scheme of things - I have no idea how this will play out but we've got to come up with a solution that won't penalize those truly harmed.
It floors me that the banksters and their minions can commit fraud in so many instances - then turn and cry "foul" or "unfair". Bite me.
If you, me or the other readers of this forum perpetrated a fraud such as this in any other arena - we'd be carrying our soap to the showers along with Bernie Madoff.
spot on coolbeans. yes, the plan is to get peeps to re-do the mortgage and *proof* away goes the fraud. why? because you just inadvertently admitted there is/was a note, even though in most cases, there is no note as MERS destroyed most everything while the bankers avoided the filing fees.
i see in your case, what i've seen before as well, different entities thinking they have the standing to foreclose.
yep. these good ol' financial clusterfuks are next to impossible to unwind !
1913 CREATION OF THE FEDERAL RESERVE
1913 CREATION OF THE MORTGAGE TAX DEDUCTION
__________________
FED NOW BUYING MBS ASSETS.. CONGRESS NOW MULLING OVER KILLING THE MORTGAGE TAX DEDUCTION...
There are 14 million homeowners with a mortgage underwater....that's 28.6% of all mortgages. The time for promoting responsibility is long past. Banks better put together a leasing subsidiary quick.
http://www.doctorhousingbubble.com/underwater-nation-14-million-homeowners-negative-equity-position-bubble-markets-real-estate-price-declines/
I don't know whether my house is underwater or not. My exhusband and I bought a house we could afford making the traditional downpayment. Now I'm living in it and paying the mortgage out of my retirement funds and it's quite expensive but I can't get it refinanced because someone would come over and check it out and it's in bad shape. I can't afford all the repairs it needs. I would rather be renting. There are many good reasons for renting such as it allows a person to easily move to more economically viable areas since you are not stuck with a house to sell. Frankly a lot of these people with underwater mortgages bought much more house than they needed with the idea that it would increase in value and they would flip it or they bought second homes. I'm not sympathetic to their plight. They took a risk and lost. Everyone has done that at some time or another. The idea that the taxpayers ought to bail out everyone who makes bad choices (student loans is another example) is absurd. It creates a society of people who unable to undertake responsibility of any kind. Soon the responsible people will quit playing the sucker and go on the take too at least until the funds run out, which could be soon.
I like the idea's outlined in the Stone Street. They seem in line with reality unlike the plans Obama is pitching, which will do nothing to stop the fall in the price of homes.
"The idea that the taxpayers ought to bail out everyone who makes bad choices (student loans is another example) is absurd. It creates a society of people who unable to undertake responsibility of any kind. Soon the responsible people will quit playing the sucker and go on the take too at least until the funds run out, which could be soon."
Exactly
I stopped reading about fairness when you got to the point where you stated that if someone was underwater on their loan then they made an irresponsible choice. I used to invest in real estate. My overall leverage ratio including my home was 38% The average decline of residential real estate in California has been 45% off of the high (some areas have fared better and worse). My home dropped 65% in value as it was an upscale home in a rural area. I had a 55% loan on my home. I gave the house back to the bank a week ago Friday...I lost over a million dollars on that deal alone. I am a fairly sophisticated investor with 31 years in the business and have friends in very senior positions at some of the world's largest real estate investment firms (I chose to do my own thing because it allowed me freedom....every dollar I invested was earned and saved by me in the first 21 years of my career). I expected the last recession, I even expected real estate values to drop 15% to 20%, but no one predicted it would go this far, including my knowledeable friends in high places. The reason the big guys have fared better than the little guys like me is because they can still get cheap money. Prior to giving my home back there was no bank in the world that would loan me money at any rate, let alone at 3% So, was I being iresponsible and/or stupid? No! Tell me that the banks and mortgage companies weren't being irresponsible or stupid...you can't say that! They were incredibly irresponsible and stupid. We used taxpayer dollars to bail them out, and granted, it is expected to be repaid. So why not offer a bailout to the people like me who got wiped out? Why not give me a low interest rate loan on 50% the loan value with a 40 year amortization with equity participation on the other 50%...if I sell the home anytime prior to paying off the loan, all proceeds of the sale up to the loan amount plus a spiff for the vig on the equity portion go to the lender. No forgiveness of debt...just restructuring like for the TBTF banks. How about changing my 'mark to market accounting rules' and accelerating my write offs so I would pay less taxes like them and have more left over to pay my mortgage. Maybe my cost of occupancy would actually get down to rental levels and induce me to stay in my home. It's all hocus pocus...someone is paying for this shit and it ain't the banks...there has been an evaporation of between 7 and 9 trillion dollars in equity and some of that was real money put into deals by peoplelike me.
Tell me, you don't want to help someone who is out of a job and losing their home but you don't have a problem with bailing out the banks? That sounds incredibly fair to me.
Now let me tell you what I really think. I don't think you have a fucking clue about the problem or how to solve it. You took some numbers, extracted some averages and and then applied your assumptions(to things like interest rates average loan amounts etc.) and came up with an overly simplistic model of the problem. If this is they way you analyze all of your investments, then you're one of the reasons the investment business is where it is today. Why don't you get more facts, dig deeper into the problem and then come up with a fair and realistic solution. I don't think 14 million homeless families is the solution...for sure there were some dumb and irresponsible people in that number, but that group, I believe, is in the minority.
Our economy is getting hammered because people get paid too much money to take excess risk with other peoples money and have no downside...it's that simple. If the folks making investments with other peoples money display the same analytical prowess as, then we are fucked.
I'll close with one question: Do you think Angelo Mozillo or Jamie Dimon would take their fortunes and use them to make the same subprime loans that their corporation's did? I didn't think so. I rest my case.
sorry you bought the bubble bro but that's life, what's sad is people who didn't know better, but they shouldn't quit either.. Or be coddled and don't come steal my money (if i had some) to pay for their problems or yours.
A quick peek at any historical house pricing charts adjusted for inflation would've told you that only a 15-20% drop was highly unlikely in a real correction, reversion to mean wise. We've still got a ways to go to historical housing value measures, think early 80s.
The 'reversion to the mean' with respect to predicting future real estate values is an empty myth and has no basis in fact other than portraying a long term curve which tracks value over time. Real estate values evolve with economies and have elasticities based upon many things, not the least of which are availablitiy of credit and cost of credit. I agree with the author that ultimatley we must return to responsible borrowing/lending practices: strong equity position downpayments and, loans based upon current valuations and not future appreciation and income qulalifying based upon real income and expenses. However, when a business makes money originating and selling loans then they will conitinue to try grow that business and profit more by originating and selling more loans. Just like IPads there is an initial demand for a product; when that initial demand slows down, then the product needs to be upgraded to find a new group of buyers. Loans are no different. When all of the 20% down 80% fixed rate loans at 6% amortized over 30 years were maxed out, lenders needed to find new products to expand their market share. They finally got to the endgame when they made 100% loans at 125% of LTV with qualifying rates of 1% IO to anyone who could hold a pen to paper. You witnessed what happened to values under this scenario. If we stick to basic responsible lending then an equilibrium will be reached and we should not have the volatility in the markets and bubbles should be a thing of the past. We might actualy have slow appreciation and have an opportunity for smart people to make money on vaue add real estate again some day.
What you are suggesting is a free market on the cost of money. This cannot happen as long as there is a Federal Reserve, who sets the price of money based upon political pressure. If you remove the Federal Reserve there will have to be a computer program or a stable commodity used to anchor the money, that is, to provide a reliable reference point. Usually this commodity is gold, for many reasons. A computer program to control the expansion of the quantity of money would also be at the mercy of politics. So we turn back to gold.
And it won't happen voluntarily. The present system must first collapse. This is not a good or pleasant thing, but it is inevitable. If you are younger than, say, 70, congradulations. You will be witness to one of the greatest financial collapses of all time. The events will be nothing short of, shall we say, traumatic.
There is no real safe place. Good luck to us all.
Hard cases make bad law. Your case is a pretty extreme one. Trying to write laws to address the minority of folks at the extreme end of some circumstance usually means screwing the majority of people. I don't disagree with most of what you say. But it'd be extremely hard, if not impossible, to write a law that's fair to you and to everyone else.
Unfortunately, I agree
Klingons from Uranus are real. So are liars, cheats, and thieves. I mean, bankers. Zero apr credit cards, liar loans, negative interest payment mortgages, derivatives, credit default swaps, high frequency trading, you name it, and they have done it. No Sympathy For The Devil.
"Klingons from Uranus are real." use Charmin
The only fair thing is for the Federal Government to get out of the mortgage business altogether and let the banks and homeowners work it out. That means no mortgage tax breaks, no low-interest loans, security nets, FHA, and other abominations.
Totally, dude!
Sometimes the weather is "fair". In baseball, a hit into the field is either "fair" or "foul".
I can't think of too many other things that are "fair".
On topic: if you have a 30+ year or multi-generational time horizon, by all means go ahead and buy real estate.
If you are planning on "saving" that differential between owning and renting, you better have the disipline to buy "junk silver" with that, because if you put it anywhere else Mr. Burnyourass will see to that.
unless a baseball hits the foul pole and then of course its a fair ball and a HOMERUN
If taxpayers see banks, insurance companies, investment houses, and corporations bailed out with taxpayer money; there is little moral imperative for them to pay on an underwater property, or any other bill.
The Supreme Court has as much turned over individual property rights to municipalities, and the election of politicians to corporations.
Therefore, The People, are increasingly justified in ignoring the rule of law.
Where is the private mortgage insurance pay-out factored in? Anyone who buys with less then 20% down is required to buy this, but no where have I seen a payout included in the math?
It is always easy to tell who reps the 1%. You blow a long winded fart without once mentioning the requirement of a legal chain of title, on paper that stands up to both state law and UCC9. No mention that they sold these loans 5 or 10 times on or before day one, the party claiming to fund did not fund anything except lunch, and that the note and deed were sold separately before the buyer signed a nonsensical contract that doesn't list the real parties to the transaction as required by law in every state. No mention of proving a lien exists, or the chain of title, or the payments, counterpayments, insurance, RMBS, CDS or any other thing that took that solid little 10 trillion RE market and turned it into 1 Quadrillion scam by Stoned on the Street Abdicators.
What about the note? You neglected to mention no one trying to foreclose has to even prove they have the note and that it came to them legally. Have you even seen a note in a foreclosure case? Me either.
Everyone remember Stone Street, so dishonest they can't even mention the law or it would cause their second rate scam to collapse. Got Short?
StoneSt take's it as a forgone conclusion that tax payers should bail out the banks. And he want's the Banks to make MORE money?
Their numbers. I take a loan for 500k, pay 28K in principal on the loan and then sell it for 600k. The bank gets 542k of the 600k. Bank makes 70k I make 30k (not sure if this example includes the initial 25k down payment or not so the bank may make 95K and I make 5K) I assume I am also paying closing costs, whats that average now 3-5%?
Its great that StoneSt point's out the Banks/ Mortgage mills committed lots of crimes but decides it has no point in this article.
I wish I could give this article less than a 1 rating
"...the gravity of the contract they are submitting themselves to
and that they should be allowed to change the terms after the fact.
When banks do this it is called fraud."
UM, no it isn't, they call it "restructuring."
Also, your numbers regarding the scope of the problem are absurdly low. Look at this bit from CNBS just this morning about 50% of homeowners being effectively upsidedown. http://www.cnbc.com/id/45209336
Anyway FAIR has nothing to do with it and I thought we had dispensed with that whole attempt by the well off to attach stigma by way of selective "morality" to what is pure and simple a business deal. Anybody who attempts to apply fairness when talking about what banks and bankers do is really talking out of their ass.
Follow the godamn Contract. I'm in California, and that means you walk away from your house and all they can take is your house. It's a money pit keeping you from following work. Give it back to the bank and let them deal with it. All legal and fair like, and in accordance WITH THE GODAMN CONTRACT.
1) Washington DC can do nothing, as property is a states rights issue. There can be no "global" solution, which is why this has dragged on for years and will continue.
2) Cannot overlook the fraud called "MERS". All those mortgages should be unenforceable, but again this is a states issues. Universal rulings against MERS having no standing to foreclose at the State Supreme Court level by my count (Kansas, Maine, New York, Massachussets, etc).
3) Reduction can be a trick to get homeowners locked into mortgages that could be legally foreclosed on by removing MERS from the documents.
You are right in that this is a 'states issue', but other than Schneidermann in NY, the AG's in just about all of the other states are ready to hand out lashes with wet noodles for punishment to the TBTF banks instead of doing their jobs and investigating and prosecuting criminal behavior. Don't let Kamala Harris in CA fool you...she talks a good story but is a political animal who eats her young to move up the political ladder.
Stoners just dont get it !!!!!!!
Why write down anything? Just tell everyone, "Your house is for free!"
Free markets will win in the end. Markets are more powerful than governments.
but but...everyone lies to Congress....
Write downs and forgiveness just means immediate income (1099) and immediate tax liability.
IF they forgive $100K, then the IRS comes knocking for its $25-35K ... right now!
If they are going to forgive, they have to pay the tax bill too :~) I mean they're the ones writing it off (think Kramer when you read that)!
I say a "one time" forgiveness plan. Everyone gets a 50% write down and max interest rate at 4% with no tax liability due. If you default on that, then you agree to just hand over the deed; no questions asked. The banks take the hit but who cares, they can handle it over the long run and you immediately improve the market. I'm not really thinking through all the details here, to keep this short, but hey, it's a nice place to start :)
Wtf I paid my mortgage off fair and square where' my effin write-off.
Let the fuckers default, let the market determine the price of my next house as opposed to keeping them artificialy inflated.
U bought too much you paid too much time for a haircut!
As much as it painsmeto agree, I haveto agree...let the markets do their work...we need to get out of the way...and that goes for the TBTF banks as well...no more bailouts or favors.
I would rather see current external control forces butt out and allow incentives (or the lack of) take its course and let's see how the cookie really crumbles. Gravity is real, numbers are abstract social constructs.
Yeah - what if housing is still just way over priced?