Why? I see a future for unemployed bouncers and repo men leaving the deadbeats on the street for a lot less than $20K.

Amy - The difference is the banks are trying to save themselves from losing money, and Lerner is communist scum.

Lerner was hoping to bring about the collapse of the banking system and the government if people stopped paying their mortgages.

If banks want to pay people to leave, none of my business.

About a year ago while reviewing my asset allocation with my stock broker he wanted me to invest in financial institutions. I told him I was not interested in doing business with the Gov't. Looks like I was right. I can't even begin to figure out the unintended consequences of this idiotic idea. Of course, I wonder how many union pensioners have some of their pension holdings in bank stocks.

My father once told me he never had a contract with the Gov't which wasn't breached by the Gov't. One example was back when S&Ls were going belly up, he invested in Benj Franklin Savings and Loan. The FSLIC asked Benj Franklin to take over Equitable Savings. In return the FSLIC agreed to let Benj Franklin adjust its reserve requirement. Then the Congress enacted legislation regarding reserve requirements which Benj Franklin could not meet because it had taken over Equitable. Of course, before taking over Equitable it was able to meet the new federally mandated reserve requirement. Anyway the Feds swept in and took over Benj Franklin and sold it off. Of course, investors like my father got hosed.

Greying, yes, it's quite hazardous to do business with an entity that can unilaterally alter the terms of your contract at any moment. Defense contractors get ripped in the press for playing games with contracts, and yes, some of them deserve it. But you never hear the other side of the story: Recently, the program I work on (not for much longer) received a stop-work on some things we were doing. Some items covered by the stop-work are things that are essential to the whole program, like configuration management. We went back and asked for clarification, since we didn't see how we could fulfill the contract requirements without doing those activities. The very, very weasel-worded answer we got boiled down to: "We still want you to do those things. We just don't want to pay for them!"

Is that where all the "savings" are coming from?

@Cousin Dave - "...it's quite hazardous to do business with an entity that can unilaterally alter the terms of your contract at any moment."

I have altered the deal. Pray I don't alter it any further:

http://www.youtube.com/watch?v=W56GtCNYKUI

So, someone who put no money down and got a "liar loan" and then defaults on that mortgage can walk away with $21,000.

This is what happens when people who don't understand banking try to regulate banks.

This is a complex issue. While, yes, some people did get loans they should have known were risky, most are probably people like my friend...

She and her hubby bought their dream house, put 10% down and got a 30 year fixed.

Then the bottom fell out of the real estate market, their house dropped 40% in value and her husband lost his job.

Her income had taken a huge hit as well (she is a realtor), and they contacted the mortgage company BEFORE they were ever in default to see if they could get some kind of help. They were willing to do a 40 yr mtg if that was what it took, just so they could get their payments a bit lower and stay in the house. The mortgage company was no help - it wouln't even return phone calls and emails.

In the meantime her husband had to move out of state to get a job, sleeping on his brothers couch because he could not find one locally.

They couldn't sell the house because they owed $20,000 more than it was worth. They didn't want to walk any from it because they had $20,000+ invested in it and they had perfect credit they didn't want to ruin. If they had walked away they would not be able to buy another home with "dinged" credit and their job situations.

Eventually her husband was able to get re-employed back in Florida and it worked out. But they spent almost a year living apart from each other and he was unable to see his kids during that time either due to not being able to afford traveling back and forth.

So when we see things like this bank thing let's keep in mind that a LOT of people out there have problems paying their mortgages and it's NOT because they were irresponsible.

The lenders were given trillions in taxpayer money in order to turn credit back on and implement programs to help home owners... Which they did NOT do. Instead they kept the money and used it to pay their management huge bonuses and to buy out other banks. Now they are "fat and happy" - courtesy of our government and our OWN tax dollars (more shifting of wealth away from the middle class).

So when I read something like this I want more information before I jump to a snap judgement.

If making banks do this prevents families from being homeless (additional burden on taxpayers) then it sounds like it might be a good idea and, frankly, they can afford it... they can use some of that bail out money to do it.

Frankly mortgage companies and banks could save everyone a lot of money if they just returned phones calls and worked with their borrowers. I would imagine that the majority of those in trouble want to stay in their homes if they can.

A gentleman I know lends out private mortgage money and he told me recently he just "took back" a house one of his borrowers couldn't afford the mortgage on anymore. But he worked with them... They deeded the house to him and he then gave them a "lease to own" deal where they stay in the home and pay him a very low rent while they get on their feet. If they don't he can still evict later (even sell the house while they are living in it), but if they do get on their feet they can then repurchase the home without losing what they already had in it. He doesnt have the expense of foreclosing, having it sit empty and reselling (IF he even could resell). Both parties win.

This is a complex issue. While, yes, some people did get loans they should have known were risky, most are probably people like my friend...
Sue

Sue, I'd change the position of two words, some and most. I worked as a loan officer right after I got out of the Army in 2004, I saw this shit storm comming after working there two weeks. MOST people took money knowing it was a sham(why else would mortgage brokers themsevels refer to them as "liar loans"?), and SOME, I'd say a VERY SMALL some are like your friends.

Sue, I've got to agree with luj on this... while there are cases like your friend, the bulk of the defaulters have in fact been irresponsible. They range from the scumbags who got FHA loans on homes that they never had any intention of paying for, to real-estate-tycoon-wannabes who bought properties that were way out their price range using interest-only loans, figuring they'd flip it in a year or two. I need to find the stat, but well over half of the borrowers who get relief on their mortgages under that government program re-default within a year. It's not that they fell on hard times; it's that they are living in a house they had no business buying in the first place.

As for the accusation that the banks misused a lot of the funds they were given... I won't dispute that. In addition to partying hardy on that money, the banks have also kicked back a significant amount of it to the politicians who keep the taxpayer-money tap open for them.

The role of the FDIC is to insure depositors in the case of bank failures. They are not bank regulators. It is very much in the FDIC's interest to keep banks solvent; if the banks fail, they end up paying back depositors. The point of the quote is that it may actually be better for the survival of the banks to pay people to leave quickly. Presumably, this might leave the homes in better condition to resell and would allow the banks to more quickly get a sense of the condition of their balance sheets. I would imagine the payoffs to delinquent borrowers would also include a promise not to sue the bank or contest the ownership of the loan.

There is an issue of moral hazard here (people taking out loans they knew they could not pay and getting rewarded for it), but that is outside the scope of the FDIC.