Walking Away

Via Atrios, rortybomb writes:

[W]e already have this great system for writing down and managing burdensome debt, and it’s this marvelous thing called our bankruptcy laws. [. . .] We could easily pass a streamlined, modified version of bankruptcy just for this crisis. [. . .] We can make this fair on the backend. [. . .] It can have clawback mechanisms to address potential future appreciation.

[. . .]Why doesn’t this happen?

It doesn't happen because it requires banks to recognize huge losses. The reality is that given the choices made by the Obama Administration, the most effective way to get past our balance sheet recession is for underwater homeowners to walk away from their houses. More . . .

Rortybomb cited a Newsweek article that stated that:

Some 23 percent of homeowners owe more than their home is worth on the market, and their demand for goods is restrained by the need to pay down debt. This is the essence of a balance-sheet recession, and is what underlies the so-called Keynesian liquidity trap….

I have many clients who are in this situation. Their reluctance to even consider walking away from their homes is amazing. But rational thought is required now.

Walking away should become a viable option.

Speaking for me only

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    That's scary (5.00 / 1) (#9)
    by jbindc on Mon Jan 31, 2011 at 01:58:06 PM EST
    Their reluctance to even consider walking away from their homes is amazing.

    That's got to be one of the scariest thing to think of - ruined credit (although, if you fall behind on your mortgage month after month, that horse has probably left the barn).  It's probably also the thought of, "Where will I/we go?" if they leave their home.

    Unbelievable that it's come to this.

    Welcome to the 1900's (none / 0) (#35)
    by mmc9431 on Mon Jan 31, 2011 at 04:15:15 PM EST
    I watched as my neighbor across the street being evicted last week. He had rented a van and was moving but evidently it wasn't fast enough for the bank. They brought in a crew and three large dumpsters and threw everything they carried out into them. He had put stuff on the lawn and covered it with a tarp when he had filled the van. The workers removed the tarp and threw that stuff in the dumpster too.

    It was a scene from a Dicken's novel. I had to close my drapes, ot upset so much.

    I don't know the circumstances. Maybe the bank tired of his stalling or whatever. All I know is that they now have a house to maintain and heat that will probably be condemned by the village.


    They (none / 0) (#45)
    by Ga6thDem on Mon Jan 31, 2011 at 06:32:38 PM EST
    won't maintain the heat. They will "winterize" by clearing out all the pipes of water etc. At least that's what they did with the foreclosed house next to me. They left it completely devoid of electricity and gas until it was sold 18 months or so later.

    I hope the people... (5.00 / 2) (#10)
    by kdog on Mon Jan 31, 2011 at 01:58:19 PM EST
    planning on walk away at least squat those homes for a few months first.

    At least make the banksters send the sheriff to boot your arse...who knows, the sheriff might refuse.

    Because I pay so much attention (5.00 / 1) (#23)
    by Militarytracy on Mon Jan 31, 2011 at 02:23:58 PM EST
    to this stuff right now....should I put down what I know and risk the screams about people getting over?  Oh What the hell, why not?  On average right now, a family stays in a home without making another single payment on it for almost two years before they get the full legal boot.  For some who still have a job, that could add up to money secreted away of maybe around 30,000 toward a shelter you aren't upside down and forever doomed in.

    2 years... (5.00 / 1) (#27)
    by kdog on Mon Jan 31, 2011 at 02:33:03 PM EST
    even better:)

    A year or two ago that mighta bothered me, but the more I learn of how the banks and processors and gamblers roll, the less I'm bothered and the more I take heart in it.

    I mean John Paulson made 13 million a day in 2010 as all his bets on the misery of others came in, and came in big...13.7 million a day...betting on misery.


    It would have bothered me a little at first (none / 0) (#29)
    by Militarytracy on Mon Jan 31, 2011 at 02:46:42 PM EST
    too.  Now if there is anyone bothered by these figures becoming well known, I think that has now been whittled down to the banks and only banks.

    On second thought... (none / 0) (#30)
    by kdog on Mon Jan 31, 2011 at 02:59:05 PM EST
    taxpayers making banks and borrowers both "whole" would bother me...borrowers giving the banks a little shaft, otoh?  Party on party people...they've got the bad karma coming to 'em.

    I read an article (none / 0) (#36)
    by mmc9431 on Mon Jan 31, 2011 at 04:24:21 PM EST
    That puts the national average at somewhere around 435 days. When you figure that for many they put down $20,000 or more on the purchase and they've watched their investment fall 30% to 40%. The money they can horde on non payment won't even begin to cover their loss.

    Forget covering the losses. (none / 0) (#38)
    by caseyOR on Mon Jan 31, 2011 at 04:35:42 PM EST
    People need to be thinking about cutting their losses. No sense in throwing good money after bad.

    This will be hard for some people to understand (none / 0) (#49)
    by Militarytracy on Mon Jan 31, 2011 at 07:10:44 PM EST
    or accept.  It is difficult for my spouse to accept.  He is a little too practiced in suffering too :)

    I don't think everyone put 20% down (none / 0) (#47)
    by Militarytracy on Mon Jan 31, 2011 at 07:05:36 PM EST
    I did but I'm boring, and I actually had to get mad at all the people trying to sell me a really horrible loan because it was going to keep all that money in my pocket.  I went for the standard VA loan.

    We know a lot of people though who sold their old house at a giant unbelievable profit and bought a McMansion.  I don't see that as losing 20% of hard working money down.  It was all bubble profit.  Now they may lose the down payment on their initial home before everything went wild ten years ago....such is life at this point.

    I don't know any one of our friends and very few people in this neighborhood that held out for the 20% down VA loan that I did when we bought.  Some of our friends thought I was goofy because closing took longer too, the house had to pass very specific inspections before it could qualify for a VA loan and if I would have just agreed to a different mortgage I could have closed sooner and had smaller payments for a few years before everything started getting really crazy.  I held out though for a house that had to meet stringent requirements and also required a down payment, and in this economy with the money that we make and the retirement that we are now guaranteed.....and the deflated property values that the whole country will probably eventually end up at, I'm probably still ahead in walking away if there is a second crash or housing heavily deflates again, and a lot less stress and emotional damage done to self and family too.


    In some places (5.00 / 1) (#58)
    by Rojas on Mon Jan 31, 2011 at 09:27:39 PM EST
    You had to put 20% down by law. Of course there were those who would cook the books, but it required steppin' a lot further out on a ledge than some of the other places givin' 110% of appraised value.

    Here is a something about (none / 0) (#51)
    by Militarytracy on Mon Jan 31, 2011 at 07:39:23 PM EST
    a recent Barclay's report that is probably not something that they want broadcasted far and wide much.

    Because lawyers have begun to represent people though over all the foreclosuregate, the process has become much much slower.  I chalk this up to the banks actually trying to come up with and have documented correct conveyance or some of these crazy damned judges have been giving the house to the owners or saying nobody seems to own it....and the people end up staying for free while you try to figure out how to proceed.  So they aren't safe to walk through the courtroom door and be baldfaced crooks and liars anymore.  I would think if you even retain an attorney these days it scares the holy crap out of them in most states and they don't proceed like insane overlords anymore.


    Bad Credit tho' (none / 0) (#42)
    by hairspray on Mon Jan 31, 2011 at 05:37:36 PM EST
    My daughter is in the same mess, but is fearful she will not get approval to even rent another place even with all the money and a good long term (13 yr) job with good wages.

    Depends on where you are renting (none / 0) (#48)
    by Militarytracy on Mon Jan 31, 2011 at 07:09:15 PM EST
    Rentals here because there is a huge flight school population are mixed.  The brand new places require a credit check and good credit, but many others do not.  My daughter is renting a pretty nice house right now and no credit check was involved.  A good landlord too, if she does $250 worth of improvements on the house right now the woman takes it right off their rent.  They have taken all the dead trees out of the backyard and repainted for the past six months and have received that credit.  It seems like it is a good deal for both parties.

    We are in Northern Ca (none / 0) (#80)
    by hairspray on Tue Feb 01, 2011 at 11:53:19 PM EST
    There is a glut of places to rent, unfortunately not in the best school districts.  She will really have to try hard to match your daughters gig.

    With the amount of discontent, (5.00 / 1) (#15)
    by jeffinalabama on Mon Jan 31, 2011 at 02:08:52 PM EST
    something is percolating. But inside the beltway, this discontent is seen only as tea partiers, nothing more.

    That ITB myopia ignores the objective reality, or "the boots on the ground," as we used to say.

    Yes, and the Tea Party of course is really (none / 0) (#20)
    by ruffian on Mon Jan 31, 2011 at 02:19:43 PM EST
    just Republicans by another name:


    One of the most consistent things about the energy of the Tea Party is their opposition to any interventions for suffering homeowners. As the Wall Street Journal reported, FreedomWorks was AstroTurfing anti-foreclosure relief with sites like AngryRenter back in March 2008. For all the talk about how the Tea Party is a group of populists who hate bailouts of Wall Street, the actual Santelli "Rant of the Year" was about HAMP, the ineffectual mortgage modification program, not TARP. He didn't want to subsidize "the losers."

    I understand (none / 0) (#26)
    by cal1942 on Mon Jan 31, 2011 at 02:30:33 PM EST
    that tea party seed money came from the Koch boys.

    Yep (none / 0) (#32)
    by Zorba on Mon Jan 31, 2011 at 03:18:12 PM EST
    The anti-government fervor infusing the 2010 elections represents a political triumph for the Kochs. By giving money to "educate," fund, and organize Tea Party protesters, they have helped turn their private agenda into a mass movement. Bruce Bartlett, a conservative economist and a historian, who once worked at the National Center for Policy Analysis, a Dallas-based think tank that the Kochs fund, said, "The problem with the whole libertarian movement is that it's been all chiefs and no Indians. There haven't been any actual people, like voters, who give a crap about it. So the problem for the Kochs has been trying to create a movement." With the emergence of the Tea Party, he said, "everyone suddenly sees that for the first time there are Indians out there--people who can provide real ideological power." The Kochs, he said, are "trying to shape and control and channel the populist uprising into their own policies.


    Yeah (none / 0) (#39)
    by cal1942 on Mon Jan 31, 2011 at 05:26:23 PM EST
    If the rank and file only knew who their benefactors were.

    On the other hand it would be even worse if the rank and file come to believe that their interests are the same as the Koch's.


    Too true (5.00 / 1) (#46)
    by Zorba on Mon Jan 31, 2011 at 06:33:00 PM EST
    but then the rank and file would certainly be delusional, because their interests and the Koch's are totally at odds.  After all this time, it still amazes (and saddens) me how many people continue to vote against their own self-interests.  {sigh}

    What if (none / 0) (#59)
    by NYShooter on Mon Jan 31, 2011 at 10:31:20 PM EST
    Instead of giving the banks 7-8 hundred billion dollars we gave every single homeowner $10,000?

    "Underwater" homeowners would be made "whole," and "current" homeowners would get a bonanza.

    Troubled homeowners would have time to work out their problems, and up-to-date owners wouldn't be mad at past-due owners for getting something they didn't.

    Housing crisis solved, recession never happened.


    It's business (5.00 / 2) (#19)
    by Militarytracy on Mon Jan 31, 2011 at 02:19:29 PM EST
    It isn't personal.  Corporations do this all the time.  I realize that some people are worried about what it could do to their credit, and that is valid.  If you are very upside down though, you are hurting yourself and your family by trying to do "the right thing".  And sadly you are making it easier for the banks to continue to treat everyone like filth and scum.

    The affect on your credit is not forever either and so many people are being affected on a huge scale this wouldn't be an average shame based bankruptcy. As the banks have to register losses too when people walk away, they will one day too arrive at that point when they will need for us to take out loans in order for them to have a paycheck.  Believe it or not, credit has its own market and when demand is high "bad" credit one week magically becomes "terrific" credit the next week.  So give yourself a break and walk away.  It is only a house and you did not single handedly do this to yourself.  You had plenty of help from the banks that refuse to help you now and in business we ALL must be held responsible for our actions and decisions or that creates moral hazard and false markets.

    We are not upside down, but we are getting close to breaking even.  I bring the subject up to my husband often that if there is another big crash that I will phone the bank and they will work with me to bring down what is owed to what this place is worth or we are walking.  It terrifies him.  His whole life is built around loyalty and dedication even if it isn't earned at the start of each day yet.  I'm glad he married me, he needed me :)  In business, handing out unearned loyalty and unearned dedication makes you the dumb money and a born sucker :)

    Excellent point here, MT: (5.00 / 1) (#25)
    by jeffinalabama on Mon Jan 31, 2011 at 02:28:00 PM EST
    ...credit has its own market and when demand is high "bad" credit one week magically becomes "terrific" credit the next week.

    It's a stealth Christmas tree.

    --remind hubby he swore to uphold and defend The Constitution, not banks. Then send him a link to Smedley Butler's "War is a Racket..."


    It wasn't that long ago (none / 0) (#28)
    by Militarytracy on Mon Jan 31, 2011 at 02:44:34 PM EST
    when folks walked into a bank and discovered that their first mortgage in this lifetime would be on a five bedroom four bath house with a triple car garage to park your two new Expeditions in :)  Wow....any credit at all was awesome credit back in the day :)

    The thing that gets me (5.00 / 2) (#31)
    by Zorba on Mon Jan 31, 2011 at 03:12:57 PM EST
    is that you're right- "corporations do this all the time."  But they keep telling individual families that they have a responsibility to pay their mortgages, no matter what.  The Mortgage Bankers Association short-sold their office building for a $38 million loss, but are refusing to say exactly what they will do to make good on that debt, and how much of it they will repay.  Link  Morgan-Stanley walked away from five buildings over a year ago.  Link  Tishman Speyer Properties defaulted on $4.4 billion in debt when they gave up a large apartment complex in Manhattan last year.  Link  Why is it a smart business decision for them, but a moral failing for families?

    Oh, you know you know the answer (5.00 / 0) (#33)
    by Anne on Mon Jan 31, 2011 at 03:50:33 PM EST
    to that question...

    When they do it, it's because it works for them - it's strategic.  When we do it, it doesn't work for them - it costs them money, hurts their bottom line, affects their bonuses - and it's easier to play into and take advantage of the emotional ties to someone's home, and the shame at possibly losing it, than it is to risk hundreds of thousands of people making strategic family-business decisions.

    One thing I have read in more than one place is that if you own a high-end home, with high 6-figure debt, you are more likely to be able to stay in it for a longer period of time after default than if you own a lower-end home with much, much smaller debt.  

    And, the other thing I read yesterday is that if you have title insurance, you might be able to bring the insurer in on your side to help you work out a modification; hadn't considered that approach, but apparently, it is one that is worth a try.


    Oh, of course (none / 0) (#34)
    by Zorba on Mon Jan 31, 2011 at 04:00:26 PM EST
    I knew the answer.  It still ticks me off, though.  Different rules for the big guys, as always.

    Yes, i saw a story on the news, think it was ABC, (none / 0) (#37)
    by caseyOR on Mon Jan 31, 2011 at 04:32:07 PM EST
    this weekend about high-end home owners ( 6 figure home loans) who are defaulting with no repercussions from the banks.  The homeowners I saw interviewed all said that for them it is a simple business decision. Continuing to pay a mortgage on a home that is now worth less than they owe makes no sense to them. And I agree.

    The story also pointed out that banks are very reluctant to foreclose on and evict people in expensive neighborhoods. The banks fear the costs of upkeep and the danger of lowering prices even more. So, there are people who could afford to pay their $10,000 a month mortgage, but choose not to, who are still living in those million dollar homes. Living in for free.

    I say forget about your credit rating. As others have pointed out, it is a very flexible number. If you are upside down in the house, even if you have the $$ to pay the mortgage, consider a strategic default. Stash the money you would be paying to the bank. If you think the bank will evict you, find a good rental and make your move before the bank makes theirs.


    "Forget about your credit rating..." (none / 0) (#41)
    by kdog on Mon Jan 31, 2011 at 05:32:46 PM EST
    Never gave it a thought actually:)

    For serious people, its only 7 years right?  And paying your utilities and stuff on time has to count for something, no?

    And for the companies that hire based on credit scores and p*ss, working people need to grow a pair and stop working for such intrusive bastards...not always feasible, I know, but its getting ridiculous. The credit reporting agencies and drug labs are as sloppy as the banks are with titles...they're worthless.  The less "important" you are the less they care.

    Nothing personal, just business...as in we will no longer let you give us the business.  Imagine that.

    An aside...the man saw this coming with the 2005 changes to bankruptcy law, didn't he?


    Well it's a bit of a problem (none / 0) (#56)
    by Rojas on Mon Jan 31, 2011 at 09:15:50 PM EST
    since the clintons decided we only needed three banks in this country it's not like you can walk in and actually talk to someone who will look past a score...

    This (none / 0) (#44)
    by chrisvee on Mon Jan 31, 2011 at 05:54:01 PM EST
    makes me see red.

    The story also pointed out that banks are very reluctant to foreclose on and evict people in expensive neighborhoods. The banks fear the costs of upkeep and the danger of lowering prices even more. So, there are people who could afford to pay their $10,000 a month mortgage, but choose not to, who are still living in those million dollar homes. Living in for free.

    Remember the Wells Fargo executive (none / 0) (#52)
    by Militarytracy on Mon Jan 31, 2011 at 07:44:30 PM EST
    they found squatting in a Wells Fargo foreclosure in Malibu?  If only I were a banker or a corporation, I could be a conscienceless queen :)

    Yes (none / 0) (#54)
    by Zorba on Mon Jan 31, 2011 at 08:01:08 PM EST
    Ain't it the truth?  I guess you have to be really, really wealthy before your conscience disappears.  Although, it may well work the other way- those without a conscience are the ones who become really, really wealthy (not all of them, of course- there are exceptions).

    Business (none / 0) (#40)
    by cal1942 on Mon Jan 31, 2011 at 05:27:56 PM EST
    "It's business, it isn't personal"

    Did that come from The Godfather or You've Got Mail?


    Godfather. (5.00 / 1) (#50)
    by jeffinalabama on Mon Jan 31, 2011 at 07:19:36 PM EST
    Tessio to the Hagen the consigliere, when Tessio is being taken away at the end. "Tell Michael I always liked him. This was just business."

    I love that line. Just like "Leave the gun. Take the Cannolis."


    Hey, when the banks finally do get it (5.00 / 1) (#53)
    by Militarytracy on Mon Jan 31, 2011 at 07:50:44 PM EST
    and you make that final call....you are ready to walk away....just when you thought you were out....they pull you back in :)  And they will, they will eventually have to after X amount of walkaways and vacant houses or nonpreforming mortgages.  We just haven't hit X yet :)

    Tracy, always nice to read (5.00 / 1) (#55)
    by jeffinalabama on Mon Jan 31, 2011 at 08:06:09 PM EST
    another anarcho-syndicalist. Old school anarcho-syndicalist.

    We just get to call ourselves liberal democrats in this binary system!


    That might work (none / 0) (#57)
    by Rojas on Mon Jan 31, 2011 at 09:18:40 PM EST
    if the bank held and serviced to mortgage. They don't.

    Always thinking aren't you :)? (none / 0) (#64)
    by Militarytracy on Tue Feb 01, 2011 at 08:31:36 AM EST
    I still don't know who owns us (none / 0) (#66)
    by Militarytracy on Tue Feb 01, 2011 at 08:57:16 AM EST
    I pressed only so far with our servicer.  They did produce a copy of the original note.  They did not produce any conveyance though, and I can't remember the language they used to explain why they couldn't tell me at this minute who owned us....something along the lines of they would have to contact them and have them contact me.

    I have been tending to other things in life over the Holidays and Josh needing a surgery, I will return to making them miserable and accountable again shortly.  Because they have destroyed clear title on most of our properties, until that is established again I'm just a glorified renter IMO.


    I was (none / 0) (#78)
    by cal1942 on Tue Feb 01, 2011 at 09:53:56 PM EST
    sort of joking around with MT.

    The phrase was in both very different movies.

    As I recall the phrase or something like it also occurs earlier in the Godfather during an exchange between Tom Hagan and Sonny Corleone.


    I think the governement's acceptance (none / 0) (#1)
    by ruffian on Mon Jan 31, 2011 at 01:22:51 PM EST
    of 8-9% unemployment and sluggish growth as the 'new normal' reflects their absolute refusal to do anything about the 23% of homeowners underwater situation.  They have been focusing, when they focus at all, on the subset of that actually in foreclosure. Many more are making their payments but are hesitant to spend any other money because of the giant debt hanging over them if they want to move. Or maybe that's just me.

    I'll add that I entirely agree with rortybomb (none / 0) (#2)
    by ruffian on Mon Jan 31, 2011 at 01:25:00 PM EST
    There have to be any number of ways to draft a fair procedure for refinancing these homes.

    Lovely! (none / 0) (#17)
    by ruffian on Mon Jan 31, 2011 at 02:12:20 PM EST
    From the Vernon Smith editorial roetybomb quotes:

    One of the "routes to restoring equilibrium:"

    Allow the household deleveraging process to grind through an extended period of low GDP growth and high unemployment until we gradually recover. This option will surely succeed in due course, but not without high annual opportunity cost in terms of lost wealth creation. This was the path followed in the Depression.

    Seems that we are following the Depression model...


    Walking away (none / 0) (#3)
    by Ga6thDem on Mon Jan 31, 2011 at 01:27:02 PM EST
    has become the ONLY option for many people. If the bank won't agree to short sale and you are underwater, what choice do you have?

    have relatives who recently did this (none / 0) (#4)
    by Capt Howdy on Mon Jan 31, 2011 at 01:31:20 PM EST
    they are now evangelical about it.

    I think the thing I would worry about most (none / 0) (#5)
    by ruffian on Mon Jan 31, 2011 at 01:39:30 PM EST
    is the effect on my credit rating, not so much because I would ever want a big loan again, but because credit rating is checked for so many other things these days - rentals, employment, etc.

    Have they had negative effects?


    When the various folks (none / 0) (#8)
    by jeffinalabama on Mon Jan 31, 2011 at 01:56:18 PM EST
    I owe threaten me with the credit rating, as happens on occasion, I just ask them, "Is there any more room on that thing? Just staple it to the back."

    They don't have a big response ready for that one.


    I have had moments of praying for identity theft (5.00 / 1) (#11)
    by ruffian on Mon Jan 31, 2011 at 01:59:07 PM EST
    Take it - please!

    sure (none / 0) (#12)
    by Capt Howdy on Mon Jan 31, 2011 at 02:01:51 PM EST
    but for them it was worth it.

    ps (5.00 / 1) (#13)
    by Capt Howdy on Mon Jan 31, 2011 at 02:02:29 PM EST
    bankruptcy doesnt mean what it used to mean.
    the best people are doing it these days.

    So I guess bankruptcy is the final (none / 0) (#14)
    by ruffian on Mon Jan 31, 2011 at 02:06:55 PM EST
    outcome when all is said and done. It just seems like there has to be a better way for all concerned. You would think the banks would like to get more of their money back and make it easier to refinance those homes.

    You'd think right? (5.00 / 1) (#16)
    by kdog on Mon Jan 31, 2011 at 02:11:39 PM EST
    Get some cash in hand instead of a house you can't sell...but these greed-mongers are slaying golden geese left and right, like there is no tomorrow.

    And sh*t who knows, maybe they have insider info about tomorrow...now that's a scary thought.


    If their insider info says my house will (none / 0) (#18)
    by ruffian on Mon Jan 31, 2011 at 02:14:26 PM EST
    regain its value before the terms of my loan run out....I wish they would share that information with me!

    I was thinking... (none / 0) (#21)
    by kdog on Mon Jan 31, 2011 at 02:21:25 PM EST
    insider info that there will be no USA as we know it, so they're gathering as big a pile of loot as they can to run away to Paraguay with.

    I think we will be okay (none / 0) (#69)
    by Militarytracy on Tue Feb 01, 2011 at 10:38:57 AM EST
    We will likely have to fight for what is right, but that has happened before.  We can do that.  Things are going to be very different though for our children as adults.  They aren't going on the ride they were raised for.

    The control (none / 0) (#22)
    by cal1942 on Mon Jan 31, 2011 at 02:23:35 PM EST

    Last year we stayed around the number (none / 0) (#68)
    by Militarytracy on Tue Feb 01, 2011 at 10:37:02 AM EST
    of 19 million vacant homes throughout the whole year in the USA.  Foreclosures are projected to go "insane" this year topping any previous year thusfar.  So what is considered the housing market is hopelessly flooded.  We are quickly coming to the point that the banks will work with us.  At this point though they remind me of the military, they have organized themselves into a giant behemoth but when you get that big change becomes very difficult if anything you need to do is going to invalidate the mission of any arm of the vampire squid.

    And if they do begin to work with people, and it becomes common knowledge that they are and will, that signals to Wall Street investors that investors will be taking haircuts and most investors think that will spark a huge selloff.

    I read something last week where serious investors were wondering why in the hell all the numbers coming out on the economy are so faked and why they continue to juice the markets to the point that they are now breaking records and everyone knows falsification of facts is the key ingredient to what is going on.  Some are beginning to think that the Fed is doing what it can to create as big a buffer as it can for the free fall to come.


    And the stock market (5.00 / 1) (#74)
    by NYShooter on Tue Feb 01, 2011 at 02:19:16 PM EST
    is up 137 points as we speak.

    And if, God forbid, Egypt erupts into a bloody Armageddon, it'll shoot up 1000 points.


    If Egypt is settled peacefully (none / 0) (#75)
    by Militarytracy on Tue Feb 01, 2011 at 02:34:53 PM EST
    And democratic elections are held next week, it will shoot up 1500 pts.  It's all good now :)

    Still (none / 0) (#43)
    by chrisvee on Mon Jan 31, 2011 at 05:50:28 PM EST
    if you need a car loan, for example. Or if they run credit before letting you rent, etc.

    A bad situation all around.


    I did bankruptcy (none / 0) (#65)
    by Capt Howdy on Tue Feb 01, 2011 at 08:51:04 AM EST
    4 years ago and got a car loan last year.
    not a bad rate one either.

    Thanks for this info (none / 0) (#72)
    by Militarytracy on Tue Feb 01, 2011 at 01:40:41 PM EST
    I think that it is very important for people to understand that walking away will not completely destroy their lives.

    Are the people who should walkaway (none / 0) (#6)
    by oculus on Mon Jan 31, 2011 at 01:46:17 PM EST
    the people who couldn't afford to pay the mortgage when they acquired it?  Or people who lost their jobs?  Probably both.

    Also people who can mentally treat their home (5.00 / 2) (#7)
    by ruffian on Mon Jan 31, 2011 at 01:52:21 PM EST
    purely as a business decision. Financially it makes no sense to keep paying that mortgage even if you can afford it.

    There are others (none / 0) (#24)
    by cal1942 on Mon Jan 31, 2011 at 02:26:26 PM EST
    with trick mortgages.  They could afford them when they bought them but tricky terms sent their monthly payment soaring.

    The crux (none / 0) (#60)
    by NYShooter on Mon Jan 31, 2011 at 10:54:06 PM EST
     of the foreclosure mess, and the thing the banks are petrified of, is the ability, or disability, of the banks (or servicing companies) to prove "standing." In other words, does the institution you're sending your payments to every month actually own the house? Can they produce the original note (as is required by law)?  

    Now, what if every homeowner in America demanded from the folks getting your monthly payment to produce the note? You would still have to make the payments, but you could pay into an escrow account until "proof" was demonstrated. Bottom line.....you would bring the banking industry to its knees.

    I thought about this when I was talking to a group of lawyers who were discussing what would happen if everybody who got a traffic ticket pled not-guilty, and demanded a jury trial. Same thing, the system would come to a screeching halt.

    Something to think about.....

    I don't get it (none / 0) (#61)
    by SomewhatChunky on Mon Jan 31, 2011 at 11:53:30 PM EST
    Maybe I'm old fashioned, but if I make an investment using borrowed money where I get the benefit of the upside, I expect to suffer the consequences of the downside if I am wrong.

    Throw out all the many stories of people who were fooled, lost their jobs etc...  I also agree banks or other foreclosing entities should have their legal ducks in a row.  

    But do people really think that people who took out a mortgage loan which they can afford to pay should be able to walk away with no consequences because the market moved against them?

    If I'm not going to bear the risk of loss who should?  I just don't get the thinking here at all....

    Businesses do it all the time. (none / 0) (#62)
    by caseyOR on Tue Feb 01, 2011 at 02:02:17 AM EST
    A business makes an investment, and if it doesn't pan out the business cuts its losses. I don't know where you live, but where I am some of the biggest players in real estate and development have just walked away from properties that are no longer profitable and let the bank take the property back. These real estate and development bigwigs are thought of as "savvy businessmen."

    Why should the rules be different for the individual homeowner? Why should individuals be expected to continue paying out on a soured investment? That is a double standard if ever I saw one.

    People need to start acting with a ruthlessness that matches the ruthlessness of the banks.


    Sounds neat but... (none / 0) (#63)
    by SomewhatChunky on Tue Feb 01, 2011 at 04:22:45 AM EST
    Yeah some think of them that way.   And many of those "savvy businessmen" lose millions if not tens of millions of dollars or more and go broke every time the real estate market goes through a down cycle. Many never come back.   It's a myth that the real estate and development bigwigs who walk away from things on a large scale come out just fine.  Capitalism works and it weeds out those who make bad investments pretty ruthlessly.

    I'm fine with individuals walking away from a soured investment.  Debtors prison went out of vogue a long time ago.    But there should be consequences - serious consequences.  Those may include bankruptcy or a ruined credit rating.  And complete losses on their equity.

    If the mortgage industry becomes heads I win, tails the banks lose, who do you think will pay for that?  It's either future people trying to get a mortgage (higher rates and down payments as banks price in the expected losses on their loan portfolios) or taxpayers who will subsidize these losses.  

    The numbers I've seen have the taxpayers underwriting Freddie Mac and Fannie Mae to the tune of $400B to $1Trillion.  Maybe some people should just be renters.

    As a taxpayer I'm not willing to pay for other people's bad investments, especially when they have all the upside.


    You've already paid for (none / 0) (#67)
    by jeffinalabama on Tue Feb 01, 2011 at 10:04:46 AM EST
    banking institutions bad practices... why assume that people had the foreknowledge or the economic acumen that the banks do?

    The federal government under W Bush was pushing for home ownership... why not hold the feds responsible, since they were pimping the houses for the financial industry?

    Lasissez faire capitalism is NOT what exists here. Welfare-for-corporations capitalism does.

    I'm not going to buy that 'so many bad actors in real estate get hurt and get out' line.


    So What... (none / 0) (#70)
    by SomewhatChunky on Tue Feb 01, 2011 at 11:44:40 AM EST
    Shouldn't we hold adults responsible for the outcomes of their decisions?  What does it matter whether they understood the risks or not?  Should we bail out people who bought stocks if they go down because they didn't understand the risks?  

    Lots of bad practices and lots of blame to go around.  It's not all Bush, though he's certainly gets a front row seat in the blame club.  The move to push home ownership got started in a big way under Clinton.  Mix in a little Barney Frank and Chris Dodd with policies to encourage loans to people who had never owned a home, no down payments and the fed's low interest rates and you have an unsustainable housing boom.

    Why wasn't anyone complaining when houses were going up 20% per year?  Did that seem sustainable?

    And yes, too much welfare for corporations did go on. It wasn't my idea to bail out Goldman, Citibank, AIG and the rest.   Some directly, others indirectly.  If the Government was going to do that, they should have ended up owning them.  Instead, we're back to the same old practices and huge bonuses we had before the crisis.   We (the taxpayers) take the risk and someone else benefits if it works out.

    holding responsible (none / 0) (#71)
    by CST on Tue Feb 01, 2011 at 12:05:54 PM EST
    means that when you walk away from a mortgage you eventually lose the house.  That's typically the outcome of the decision to walk away.

    And the banks are also held responsible for the fact that they made a bad loan to someone who couldn't pay it.  But there are two sides to every deal, and the bank agreed to buy the house when they wrote the mortgage.  The person with the loan is just buying it back from the bank.  If they choose to stop paying, the bank gets to keep the house.

    For people who owe more on a house than it's worth, that's the smart business decision to make.  A bank won't hesitate to forclose on you if you can't pay.  Why should you hesitate to walk away if it's not worth paying for?

    This isn't a bail out.  This is about people cutting their losses.


    Why you shouldn't walk away (none / 0) (#73)
    by SomewhatChunky on Tue Feb 01, 2011 at 02:18:16 PM EST
    Because you signed a loan document that said you would pay it back.

    I may be old-fashioned, but when I sign a contract I do my best to honor it.  The concept of "walking away" if I could pay but chose not to because it is more convenient to me seems foreign.  Under that logic, why shouldn't we "walk away" from our car loans after a year or two.  New cars drop in value faster than the loans get paid off so I'm probably underwater there as well.  Why pay my credit card bill?   What the heck, I already have the stuff.  I'd be better off stiffing the credit card issuer as well.  Why should I pay my attorney's bill if the case is settled?  Where does this logic stop?

    The banks have the house as collateral in the event you don't pay.  Of course they take it back if you don't.    That's a big difference from your position - your in an "equity position" where you get the upside, not the bank.  You should also live with the downside.

    The elephant in the room are the taxpayer subsidized entities which permit all of these bad no money down low interest rates loans to be made in the first place.  The taxpayers are on the hook for hundreds of billions, perhaps trillions to Fannie and Freddie.  Not to mention the costs of bailing out or seizing insolvent banks.  Why should I (Mr Taxpayer) be subsidizing your failed bet on the direction of housing prices?

    The solution to this is simple - get the US Government out of the housing business.  Let the market decide what the proper terms are (think bigger down payments and higher interest rates) to compensate for the default risks.

    And have strong consequences for those who decide to "walk away."  Borrowers usually sign both a mortgage (security in the property) and a promissory note (personal credit).  Walking away from the note should and does hurt your personal ability to access credit.   Don't have policies that due things such as  forgiving the tax due on the forgiveness of unpaid debt (once again, asking Mr. Taxpayer to subsidize you).


    Chunky, what I feel (5.00 / 0) (#77)
    by NYShooter on Tue Feb 01, 2011 at 03:27:07 PM EST
    When I read posts like yours is a sense of profound sadness. If ever there was a case of confusing apples with oranges your reasoning is the winner.

    Your sense of duty, or obligation, when signing a contract is, of course, admirable. And, if you were talking about making a deal with a family member, or a friend, or even an honest business person, I would agree. But, in case you haven't noticed, times have changed and the rules of the game have changed also.

    In card playing, do you know what a "mechanic" is? In case you don't a "mechanic" is an expert in manipulating the cards so that when he deals he can give each player exactly the hand he wants them to have. I've known some of the best mechanics in the world, and believe me, it is impossible to "catch" them at their trade. Would you play cards with a group that had a "mechanic" as a player? Would you have the same sense of righteousness towards him as you seem to have with the banks?

    Well, my analogy is exactly true; the bank on one side of the deal, and you on the other. What you don't seem to understand is that the bank does not enter into this arrangement with the same set of moral values as you do. They don't think of you as a customer, or a valued client. They think of you as a sucker to be fleeced, a victim, so stupid that just believing you're equals (in commitment) that you deserve to be cheated.

    Did you know that the business of banks is not what you thought it was, and not what it traditionally was. Banks were supposed to borrow money cheaply from the FED, and co-mingle it with some customer's deposits, and then compete in the open market place for customers to loan the money to. They would charge an interest rate somewhat higher than the cost of their borrowing and the difference (minus normal expenses) was their profit.

    But after 1980, when the people you have a sense of moral obligation to play fair with, the banks, completed the wholesale purchase of our Government, THEY got to write the rules. And, since they had that absolute power, and you didn't, do you think their sense of moral obligation to you was the same as yours seems to be towards them?

    Suddenly loans became "old news" and since they wrote the rules, stodgy old loans, with their 5-10% interest was just too little. They figured out a way to increase their profit margins to 50-90%. How?.....FEES. They now make a majority of their profits screwing you in so many ways that the term, "unconscionable," is simply inadequate. You write a $10 check, having checked first to see that you had a $12 balance, and all was swell. But, wait, unbeknownst to you, just then the bank assessed a $4 monthly "maintenance fee" which put you "over limit." Bang! $40-$50 "penalty. Since they own the members of the banking committees in Congress, they usurped the right to behave as if they were the Judiciary and determined that you had to be punished, and thus an expense to the bank from your overdrawn check of a fraction of one cent morphed into a penalty charge to you of up to $50.

    O.k, bad enough, but you were talking about homes, mortgages, and obligations to play fair. Did you ever ask yourself, how is it that when the financial crisis exploded and thousands of businesses and millions of people were being destroyed, Banks like Goldman Sachs made 20 billion dollar profits in as little as one month? (and that's not counting the billions of dollars that the former chairman of Goldman, our Secretary of the Treasury, Hank Paulsen blackmailed the taxpayers into forking over their money to the  billionaires running those institutions)

    Here's how: They engineered the collapse. They manufactured derivative products, designed to fail, to sell to their unsuspecting customers. They found that if they could sell financial products that they knew were going to go bust, it would be like every gambler's dream come true, like having tomorrow's newspaper today. And so, they ordered their mortgage brokers to write mortgages to the absolutely worst credit risks they could find. "Liar's loans, no money down, 120% loan to value," and on and on. And then, guess what? They bought protection, insurance, against the collapse they knew was coming, that they had, in fact, designed and implemented. They "sold the market short" to the tune of hundreds of billions of dollars.
    Millions lost their homes, millions more, their jobs, and millions more their health and dignity.

    Goldman? They set aside a $20,000,000,000 reserve for bonuses to "reward" the geniuses that destroyed our country.

    Yeah, you go and play fair with them; you have morals, you have ethics, and you have a sense of duty.

    But, when Jamie Dimon looks at you, he thinks, "my, his head would make such a nice ash tray for my imported cigars."


    Fannie and Freddie (none / 0) (#76)
    by CST on Tue Feb 01, 2011 at 02:54:03 PM EST
    got into the game because the market was already there.

    The banks made the loans with the house as collateral.  The contract you signed means that when you stop paying they get the house.  That's the contract.  Not that you will pay back the loan come hell or high water.  That's the deal you made, and that's the deal the bank made.

    Your credit card analogy really doesn't work because as you said "you already have the stuff".  You don't already have the house.

    But business is business.  And banks will do anything to stack the deck in their own favor.  You should feel no qualms about making the best business decision for yourself within the law.

    And if you make that decision you will pay the consequences.  Worse credit, lose the house, etc... etc...  Banks are free to use that information against you.  And they will.  It just might STILL be the right business decision for people.


    I am with you on this (none / 0) (#79)
    by Marvin42 on Tue Feb 01, 2011 at 10:21:18 PM EST
    And honestly a little taken aback both by the complete sense of personal responsibility for decisions made by some of the posts. It is true one could choose to walk away, and accept the consequences. But honestly I could choose to rob a bank and accept the consequences of going to jail.

    But the part that gets me is this: people chose to buy overpriced homes, and chose to ignore this fact because they deluded themselves that they would either somehow get out or that this would never end. I remember looking at housing prices in 2003 and saying: there is something broken, these houses o not have an inherent value anywhere near what they are being sold. And I CHOSE not to buy these houses.

    Ultimately those "evil" banks didn't make ANYONE sign a lan or buy a house that was overvalued or that they couldn't afford.