Bailout Bonding
Who's for bailing out the lenders and the people who got the bad loans? Certainly not me. And, I'm guessing, not you, either. Do you know anybody who's in favor? Tim Cavanaugh in reason on who's behind a bailout:
In May, during consideration of a mortgage-rescue bill sponsored by Rep. Barney Frank (D-Mass.), Rep. Kevin McCarthy (R-Calif.) told the L.A. Times that his constituent mail was running "50 to 1: 'Don't bail these people out.' "Is McCarthy just another aloof Republican? For his sake I hope not: His district, Bakersfield, ranks eighth nationwide in the number of foreclosure filings per household, according to the foreclosure-tracking company RealtyTrac. Now this great country is not lacking in areas that have been designated "foreclosure epicenters." Yet even in Bakersfield, which may actually deserve that title, bailout supporters are as rare as hens' teeth. So who is for this thing?
That would be, first, the media, which have repeatedly expressed shock at the "surprising amount of opposition" to a mortgage rescue (The New York Times, in December), hoped that the housing crisis might "overcome bailout resistance in both parties and the public" (financial columnist Lou Barnes, in March), and puzzled over the "curious coalition opposed to a state rescue for mortgage borrowers" (Financial Times, in April). And second, the politicians: As of this writing, some version of the bailout plan appears likely to reach the president's desk and receive his signature.
The American majority, on this handout and others, appears to hold very different views. Unfortunately, that distributed sense of fiscal responsibility doesn't count for much against the concentrated strength of lobbyists, media buttinskis, and politicians who don't want to get fired for not looking busy. But hey, a guy can dream. I mean, it's not possible for democratically elected officials to go on thwarting the will of the people forever, is it?
Yeah, you can count me one of the "curious coalition opposed to a state rescue for mortgage borrowers." You?
i don't like the whole mortgage bailout either. it pisses me off, particularly every month when i pay my bill. but just a thought - i don't know how many houses are glutting the market in every other city, but just in the three blocks surrounding me there are 10 of them - would it, in the long run, be better for the economy to bail out stupid people - maybe with a really generous refinance or something rather than straight out bail out - even if it's not good for the individual people? i don't know. it's just a thought. and why shouldn't the banks, who actually understand the fine print on the paperwork (i try, but when it's all said and done, "fixed rate" speaks loud and clear and the rest confuses me) and should have known better than to lend to these people anyway? maybe they should be the ones required to hand out the bail-out money instead of the rest of us in taxes.
kt at July 12, 2008 12:10 AM
Have to admit I agree, although I feel kind of crappy about it. Let me just state right up front that I'm Canadian - but we're not immune to the "mortgage crisis" up here either.
A lot of people have stretched themselves financially to the max to get the house they want, and think they're entitled to have, but can't reasonably afford. Common sense should dictate that you don't sign up for payments you can just barely make if all the planets are aligned, and should also dictate that you read the fine print. Sadly, a lot of these same people have been convinced, by mortgage companies and banks, that they can afford anything, and they are entitled to anything, and hey, even if your credit is complete crap we'll lend you the money. Used to be people saved up for things. Now its all "get it on credit". And as someone who has been careful to pay cash whenever possible, and take care of the pennies, and keep the lifestyle I have well within the realm of the lifestyle I can afford, I'm kind of pissed that my tax dollars might end up bailing the less-prudent out. And the saddest thing - the only people who'll really be bailed out will be the mortgage companies and the banks. Its not like the family down the block who just lost their home to foreclosure it going to magically get it back. They're screwed whatever happens.
catspajamas at July 12, 2008 12:21 AM
If I understand correctly, and maybe not, mortgages have been bundled and sold without distinguishing metrics for their underlying value. It's not possible to neatly sift out the people who were conned into buying something, or conned their way into buying something. And if Fannie Mae and Freddie Mac go down, we're fucked.
So, what I mean is, we're fucked.
Crid [cridcridatgmail] at July 12, 2008 12:37 AM
Like Crid says the problem is sorting out these people. There were lots of speculators as well as liars conning the lenders. The lenders however bear the responsibility I think and should pay, the financial speculators at the top end. The idea of a public bailout I guess is that the public in the future will watch over financial institutions more - fat chance. Too many want what they can get and never think of consequences for society, or in this case for themselves. But it does start with the big financial institutions and their cohorts in govt, I think
zapf at July 12, 2008 3:07 AM
The borrowers are guilty of mortgage fraud, too, encouraged by the brokers who'd make hefty commissions on these unsuitable sales, and never mind the eventual consequences for those who couldn't afford their loans.
http://washingtonindependent.com/view/how-fraud-fueled-the
Amy Alkon at July 12, 2008 6:16 AM
Oh yes, let's bail out people who were so stupid they borrowed money they had no ability to pay back under terms they didn't bother to try to understand. Because life would be so terrible and unfair if they lost their hosue and had to go back to renting, while learning a very important lesson.
And of course, bail out the banks who lent money to people they KNEW could not afford to pay it back. No WAY should they be held respinsible for their actions!!!!!! This is America, for heaven's sakes! Stealing and lying to shareholders and consumers is the American Business Way!!
Never mind that we live in a barrio, because that's what we knew we could afford to pay, even whilst the banks tried to tell us we could afford almost double. Why should others make that sacrifice?
momof3 at July 12, 2008 6:18 AM
Here's the IndyMac failure...
http://money.cnn.com/2008/07/11/news/companies/indymac_fdic/index.htm?postversion=2008071120
'Minimal risk to whom? I rent, because I can't afford to buy in the Los Angeles market.
Amy Alkon at July 12, 2008 6:41 AM
Whether they be the residents of the houses they knew they couldn't afford, or the 'flippers' who thought they could make a fast buck, FUCK THEM TO HELL!
I don't see a problem with a no down payment loan - the bank still holds the deed to the house, so if you default they don't (theoretically) lose anything. But that said, it shouldn't happen unless you are sufficiently capitalized to make the payments.
I deliberately bought a small house that I knew I could make the payments on with a fixed-rate 30 year mortgage.
This bailout that's going to get shoved down our throats is going to cause my taxes to go up to pay for other people's stupidity, avarice, and pride.
Let the banks that engaged in this racket fail. Let their owners and shareholders take a bath. Foreclose on the idiots who had to have the 5,000 sq ft McMansion when they ought to be in an 1,100 sq ft cape.
Letting a bank or two go under will be less harmful long-term to the economy than trying to prop them up and delay the inevitable.
brian at July 12, 2008 6:43 AM
Amy - that's the fraud bit. They were arguing a known falsehood.
brian at July 12, 2008 6:44 AM
Grrr... Yeah, count me in as one of the "surprising opposition." I have NO sympathy for these banks that handed out money like it grew on trees, nor for the idiots who somehow thought they could realistically afford a $400,000 house on a $40,000 salary. (Or the asshole flippers like Casey Serin and his ilk.) What--I'm supposed to bail people out who essentially thought they could accomplish the equivalent of going over Niagara Falls w/nary a scratch?
Yes, let the market take its course; let the banks crash and burn if they must. There are a handful of smaller lending institutions that weren't so laughably stupid w/their holdings; I'll continue to stick w/them, thanks.
Kim at July 12, 2008 7:33 AM
The thing that sucks about this is that those gullible people who could not understand that you never risk your primary residence in speculation are driving the value of the dollar down. And that will be even worse if bailouts occur.
Forgiving debt is possibly the worst public finance mistake anyone can make. It shows some people there are no consequences to their actions.
People, when you surround yourself with goods that belong to the bank, that's not prosperity. It's you, fooling yourself that you're worth more than you really are.
And legions of people waddling through WalMart mistake goods on the shelf with personal prosperity. No!
Radwaste at July 12, 2008 7:39 AM
i have been following the housing bubble since late 2005. Many wonderful sites out there, foremost is WWW.thehousingbubbleblog.com run by ben jones.
The amount of foolishness tht has been printed by journalists in the papers has been a source of amusment for many.
When did journalism become finding a real estate agent/shill and quoting everything they say with no questions or rebuttal? Now, now they are all "shocked,stunned, and surprised" hahahaha.
Banks and wallstreet are the real criminals here, and they are the ones who will benefit from the bailout. Bailout wont work in the longrun, but it will buy a bit more time for da boys to try to re-position their portfolios for minimized damage(they think/hope)
They abandoned the traditional underwriting standards to become. then thye thought they were all clear with the re-writing of the BL laws. After that abortion was passed they thought they were home free and could loan to anyone and still get be protected hahahaha.
Bk Judges used to be allowed on a case by case bk basis to "cramdown" the amount of a loan. If a borrower in bk could prove that they couldnt financially survive with the amount of bills on the books, but could prove to the judge that with reduced loan of x amt they could, the judge could tell the lender to suck it up, that was the new loan balance. that was removed from the judges arsenal in the bk reform bill.
Shame too, since the threat of a cramdown kept lending standards and underwriting tight, and reality based, what can this borrower be expected to realistically be able to service and repay?
Fools.
Just wait, the next shoe to drop is credit cards. hahahaha. oh i swear this is amazing living in the middle of such a historic event.
rsj at July 12, 2008 8:05 AM
A month or two ago I caught a piece on one of the blogs which stated that the meltdown of the sub-prime market, far from being the fault of greedy lenders, was actually the result of pressure from the Fed to make loans to minority borrowers.
According to the post, the Boston Fed noticed a couple of years ago that most of the loan applications lenders were turning down were from minority borrowers and began to question whether this might be due to racially biased underwriting.
To find out, the Fed began requiring lenders to report the ethnicity of those they had turned down for loans and then mounted an investigation to see if racism was influencing their decisions. The result of investigations such as this, of course, are foreordained.
The banks, now under considerable pressure from the Fed to make loans to minorities, lowered and eventually eviscerated their underwriting standards, and began making loans to minorities based on nothing more than a signature.
Eventually these practices of the Boston Fed spread to other Federal Reserve districts so that banks nationwide came under pressure to achieve more ethnic "balance" in their mortgage portfolios.
The inevitable result was the situation we have now, with borrowers defaulting on loans that never should have been made in the first place.
Unfortunately I cannot remember where I picked this up, and although it sounds credible to me, I don't believe any supporting evidence was offered. Can any of you either support or refute this analysis?
Kirk at July 12, 2008 8:53 AM
What's your prediction about credit cards, rsj?
For the record, I use mine as a debit card, and never, ever, ever pay interest. Haven't in the history of the card. I pay every bill on it, save for gas and electric, which won't let you do it.
Debit cards are extraordinarily risky. I will not type my PIN in anywhere but the bank's ATM, although, now that BofA is firing me as a customer at the end of the month [apparently for complaining too vigorously that they failed in their fiduciary duty to me when they let my account be robbed multiple times without verifying identity in any meaningful way], I did use my card as a debit card once, for the first time in eons, to get Costco gas.
Oh, hilariously, there was something in the LA Times op-ed sec today about how Countrywide will have to conform to BofA's tougher standards now that BofA has bought them. That's rich.
Amy Alkon at July 12, 2008 9:33 AM
Do those tougher standards include requiring a condom before fucking a customer?
One thing with credit that's worked to my benefit - so many places are so hot to move inventory that they are literally GIVING money away. I probably won't do it, but I could go down the street and buy the television I want, pay it off over two years, and pay no interest on the TV.
Tempting, but I should really be applying that money to paying down the debt I incurred improving the house.
brian at July 12, 2008 10:56 AM
I'm completely against bailouts of any sort.
David J at July 12, 2008 11:14 AM
David j, nobody's asking... You might not have a choice. There's no way to identify the less-competent or less-honest players here.
Crid [cridcridatgmail] at July 12, 2008 11:45 AM
...IndyMac specialized in loans it had long argued were of minimal risk: low documentation loans to residential mortgage borrowers.
"Minimal risk" in a "low documentation loan" is a crock. A "low documentation loan" is high risk by definition.
These were loans in which no income verification was done. The borrow (often with the collusion of the broker and/or the lender) said, "Yes, I work as a dishwasher and make over $100,000 a year" and no one asked why their only asset was a 1972 Toyota Cressida and they had no savings or retirement accounts.
And if you think foreclosure and owning the asset insures the bank against major loss, you're kidding yourself.
First, too many foreclosures are in horrible condition when finally repossessed (it takes a while to complete a foreclose on someone's primary residence in most states). In the intervening time, the borrower makes no payments and strips the house of anything valuable (appliances, plumbing, furnace, etc.). It can cost the bank thousands to bring the house back up to a marketable condition. Or the bank is forced to sell it at significantly below value (most often, at less than is owed on it).
Second, banks are not set up to own real estate. They don't make money on repossessed houses. They make their money with loan payments (interest) and by selling loans. A house owned by a bank is an uproductive asset and a money loser.
Conan the Grammarian at July 12, 2008 2:42 PM
Conan -
You've got several points there. But I also didn't get a no-doc loan, either.
Although they might not have the time or ability, banks should go after people who trash houses in foreclosure.
brian at July 12, 2008 6:50 PM
Brian- what penalty would serve as an appropriate deterrent? At this point, they're bitter, hostile, and have gone belly-up financially. Unless you're suggesting criminal versus civil charges; willful destruction of property? Can you just hear the excuses in court? The less imaginative ones simply swing wide with the furniture and take out the walls and windows, don't clean up after themselves aftwerwards, etc. A prosecutor would be hard pressed to make those stick. Now, the creative ones like the pigs who locked a breeding pair of German Shepherds in a house with their new litter, bags of kibble and running water in the tub? That might just stick. (true story- my in-laws bought that house, not knowing...surprise!!!)
juliana at July 13, 2008 6:44 AM
Many years ago, I went to look at a foreclosed house.
The inside had been gutted. Literally. The walls were torn down to bare studs, piles of wet and rotting wallboard in the middle of the room, wires torn out, etc.
Basically, the house had no value remaining.
Needless to say I passed. There should be criminal charges when that happens. Same for the case with the dogs. In fact, doing that to a dog should warrant the death penalty.
brian at July 13, 2008 8:17 AM
momof3 is right, it not abut bailing out homeowners.
Its about bailing out banks and moneylenders
lujlp at July 13, 2008 5:31 PM
luj -
that's as may be, and it's just as despicable from a "cost to the prudent homebuyer" standpoint.
However, since Congress kinda forced the lenders and banks into this particular bout of destruction, they kinda have to do something to fix it.
A good start would be forfeiting their salaries and pensions.
brian at July 13, 2008 9:13 PM
Hi, sorry so late replying.
Amy my prediction about credit cards is that theyare going to tank hard too.
Some income streams are tranched like the MBS's were, others arent and kept in house, but more and more delinquincies and flat out defaults are going to rock that end of the credit pool too.
Oh and the whole subprime meme is foolish. foolish and risky lending went all the way up the financial food chain. Next loan issues to hit will be the 2009-2011 recasts and resets of alt-a. Think California, think bay area, almost totally alt-a loans. hahahahaha.
interesting times people.
rsj at July 14, 2008 3:29 AM
Yep. Once again, I'm pissed at foregoing because I know I can't do something honestly then, wham, government gives on a silver plate to the asshat that used unscrupulous means. Maybe this is what comes of giving criminals college eds in the name of rehabilitation.
T's Grammy at July 14, 2008 11:37 AM
No way should we bail these people out. For those of us who kept up our payments and bought what we could afford, it's a slap in the face.
You should never reward stupidity.
Ann at July 14, 2008 12:00 PM
I'm generally in agreement, but the problem going forward is not solved by letting the Freddies collapse.
My son just bought, twenty percent down which he saved. (The upside of living in an economic backwater is that this is still possible, if you've got a decent job.) Absent a secondary mortgage market, he probably doesn't get the loan.
I want those who committed fraud to go to prison. I don't want to wreck the economy by trashing the institutions we still need.
MarkD at July 15, 2008 10:18 AM
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