No, Amy, no no no. If 'judges' get authority to start screwing with these contracts, you've once again delayed price discovery for another few years.

No.

Banks holding bad paper should fail. Their assets should be acquired at pennies on the dollar by those few banks (Hudson Bank, yay!) holding only good paper.

Their depositors should be co-screwees. The pernicious doctrine that Auntie Sam should or could look after their interests in the marketplace should be abandoned. If you want fraud insurance, buy it at the market rate.

This is how good practice becomes pervasive for a while. It's called market discipline. With it we got the Fugger Bank, the first multinational, which empowered European commerce for centuries before an honest king could be found anywhere. Rand help us all without it!

--
phunctor

I bought a small one-bedroom condo, which I now am renting out. I bought a one-bedroom because I could not afford a two-bedroom.

Looks like I'm a sucka!!!!

Don't you just love this kind of thinking?

"Congress must give homeowners an alternative route to relief."

One question: why?

Why should congress give homeowners anything? That's what bankruptcy law already does - give you a way out, if you are in over your head.

And, a little farther down:

"...it would not cost the taxpayers anything."

Something for nothing, that always sounds great. Here it's just great, right up until the loans default again. Then it will land on the banks, who just got bailed out with taxpayer money.

His other suggestion, that maybe one should "forgive principal", is even worse. That effectively is a retroactive price reduction

- which will force property values even lower
- which will put even more people in the situation of owing more than their house is worth
- which will lead to even more foreclosures

Great, just great.

Really, do people like this think money just magically grows on trees? Do people like this think?

The government forced banks to make loans to unqualified people (through threats of minimizing there ability to make certain investments and grow their companies if they didn't make these risky loans.)

Is it any wonder that the banks are holding on to the money with a tight fist.

Also, how come nobody at Freddie Mac and Fannie Mae have ever been arrested for cooking the books and taking bonuses based on these false financial figures?

The only answer is to join the party and take the gov't for all you can. You're going to be paying the taxes anyway, might as well get something out of it.

Sounds good, momof4, except I'm not going to compromise my integrity just because the government did. I'll rent for now. If and when I can afford to buy a home, then I will. Right now, it doesn't look too good, and I will NOT over-extend myself on a false promise. I just can't afford to.

No, Amy, no no no.

Crid, I was kidding about wanting some of the carrot. Besides, the truth is, I'm struggling to survive. Barbie's Dream House is out of the question right now.

I bought a house last year. I paid cash that I had earned and paid taxes on. I bought a car last year, trading in my "clunker" for a lot less than 4500 dollars. I paid cash that I had earned and paid taxes on. I went to college and worked to pay my tuition as I attended, so there won't be any student loans to forgive. Etc.

I can't begin to describe the level of pissed off I am right now.

Check this out - government like a kitten before the businesses we've bailed out:

http://news.yahoo.com/s/mcclatchy/20090809/pl_mcclatchy/3286769

Also, how come nobody at Freddie Mac and Fannie Mae have ever been arrested for cooking the books and taking bonuses based on these false financial figures?

'cause most of them are in tight with the reigning powers that be.

But so far, it has not been enough to persuade the mortgage industry to do what is needed to help Americans stay in their homes and keep the economy from falling into deeper trouble.

Modifying a mortgage loan is much more complicated than this editorial is making it out to be.

First, the banks don't own many of those loans anymore. If the bank modifies the loan, they are actually making a new loan and must pay off the old one (principal and interest).

Unless they can get the new owner to accept a partial payment of the loan, any modification involves the bank taking a loss. Why do that, when they can simply wait for the government to bring forth a program to pay the whole loan off?

Second, the houses are not worth what they were when the bank initially made the loan. That means the banks will be making new 100%+ loans on devalued property.

Third, most of the folks defaulting on loans these days either 1) bought more house than they could afford, 2) bought a house with the intention of flipping it, 3) lied on their application because they could not have qualified for the loan otherwise, or 4) some combination of the above.

The ones that bought the house to flip are simply walking away. The ones that never should have qualified for the loan still don't.

Keep in mind, banks don't loan money from the magic money tree. They loan money from their reserves - reserves funded by depositors. Banks aren't loaning their money, banks are loaning your money.

Wait, student loan forgiveness??? Where has that been discussed? That one might actually apply to me....

First, the banks don't own many of those loans anymore. If the bank modifies the loan, they are actually making a new loan and must pay off the old one (principal and interest).

This simply isn't true. You get your loan from, e.g., Wells Fargo, who then sold it to Goldman, who repackaged it into a CDO, and your loan is in thousands of little slices. However, Wells still services that loan, takes your money every month, etc. In most cases, Wells' contract the Goldman permits them to renegotiate loan terms. They just refuse to do so.

Well *we* are not paying for these atrocities - our taxes have not gone up. Instead, the money is being borrowed from future generations. They'll just love that. I predict the children of the future will hate:

1) the government, and
2) their elders,

in that order.

They just refuse to do so.

Given that the bulk of those who get "renegotiated" will re-default, why should they?

If I'm a bank, I can renegotiate a loan with a 10-30% chance that it will be repaid, and risk having to do a foreclosure anyhow after some number of months, the expense of the renegotiation, and any potential damage that the erstwhile "owner" may have done.

Or I can just foreclose now and save myself the trouble.

This simply isn't true. You get your loan from, e.g., Wells Fargo, who then sold it to Goldman, who repackaged it into a CDO, and your loan is in thousands of little slices. In most cases, Wells' contract the Goldman permits them to renegotiate loan terms. They just refuse to do so.

The banks may service the loan and take your money, but they don't get to keep your money (beyond servicing fees).

And a right to renegotiate the terms of the loan does not include a right to just write off significant chunks of principal.

And, Whatever, some of those loans are sold whole.

Many mortgage loans made by banks to people with less than stellar credit are immediately sold to finance companies to remove the high risk items from the banks' portfolios.

In some cases (namely smaller banks), the banks underwrote the loans according to the guidelines put forth by the finance companies, but the banks never took ownership of the loans.

In some of the cases described above, the banks still service the loans, but don't own them. That way, it's "seamless" to the borrower.

Sometimes, the bank holding companies own the finance companies (e.g., Wells Fargo Bank and Wells Fargo Home Finance).

> Banks holding bad paper should fail.
> Their assets should be acquired at
> pennies on the dollar by those few
> banks (Hudson Bank, yay!) holding
> only good paper

Yes! Yes! One quibble: Their assets should be acquired for whatever price the buyer wants to pay that the seller will accept. Maybe that will be pennies, maybe it will be more, maybe it will be less.

The point is we'll have new information about those assets when we find out they mean to someone who whose only interest is the assets themselves.

A judge in a robe has other motivations:

• He wants the sheer animal thrill of telling other people how their lives are going to go, fulfilling childhood fantasies of comeuppance for bad guys (whether those bad guys are rich white guys or insolent minorities)

• He wants to get out of that robe and leave the courthouse to bang his mistress.

• He wants to get out of that robe and leave the courthouse to have a scotch on the rocks.

• He wants to go home to be a loving father to his decent, church-going, hard-working family... But this is still not the same thing as caring what the price of a split-level on the south side should be.

> I'm struggling to survive.

Me too. This won't go easier until people with wealth learn what their assets mean to others. As long as Pelosi threatens to change the rules at any instant, we're all in hunker-down mode... Rich people, poor people, everyone.

We need prices that reflect real people's appraisals, not numbers that reflects a judge's personal impulses. Once we find out what these things are worth, maybe we'll learn that we need more people in the gardening business. Maybe we'll learn we need more people in the rental property business. Maybe we'll learn that we need more (or fewer) advice columnists or more (or fewer) video editors.

Meanwhile, read bradley13's comment of 6:03 AM... He's right on.
____________

PS- One last swing at the ball here.

Offtopic
_________

Did L.A. media types even need another reason to admire Kim Masters?
__________

As you were... Smoke if you got 'em.

Rereading, I hate the tone of the New York Times piece.

This is not a "foreclosure crisis".

Already I can hear the snarky reply from the author of the editorial: Buddy, if you were facing foreclosure, you'd think it was a crisis!

But there's a good reason that I'm not facing foreclosure. To hate foreclosure for this crisis is like blaming the falling leaves for winter's chill.
_______

(Hey that was good! Somebody write that down!)

The best way to do that is by changing the law to allow bankruptcy judges to modify bad mortgages. The prospect of having to live by a judge's ruling would be the biggest incentive of all for lenders to modify bad loans, and it would not cost the taxpayers anything.

Hello higher interest rates! There is a reason that credit card rates are ~18%(unsecured debt) and loans with collateral have significantly lower rates: they are treated differently by the law. Unsecured debt is higher risk, therefor the rates charged by lenders are higher. If the bankruptcy laws are changed to allow judges to simply reduce a debtor's mortgage principle, it will NOT be costless to taxpayers.

It will cause significant increases in mortgage rates and higher lending standards, which will cause significant increases in monthly payments. People make purchasing decisions based on the monthly payment they can afford...not the nominal dollar price of the house. Of course, this will lead to a significant drop in nominal home prices, but without the benefit of lowering the actual cost to purchase a home.

That's the perfect way for the government to artificially prop up house prices! Existing home-owners can sell their house for less money without home-buyers being able to get more house for their buck.

For example, here's some monthly payment amounts for different principle amounts and interest rates:

$250,000 @ 6% = $1498.88 per month
$300,000 @ 6% = $1798.65 per month
$350,000 @ 6% = $2098.43 per month

$250,000 @ 8% = $1834.41 per month
$300,000 @ 8% = $2201.29 per month
$350,000 @ 8% = $2568.18 per month

$250,000 @ 10% = $2193.93 per month
$300,000 @ 10% = $2632.71 per month
$350,000 @ 10% = $3071.50 per month

Yeah, that won't cost taxpayers anything.

Hey, I'll write that down as long you write this one:

Possession in debt is not ownership.

People need the education which tells them that they do not own anything which is not paid-for - that they can be ousted from a house or car or boat or airplane, no matter how much they have (falsely) come to think of it as "theirs".

Rad -

Then in that case, it is not possible for one to own anything, at least not as the world is presently constructed.

For instance, try not paying the property taxes on your home. You'll suddenly find that you're no longer welcome there. Even twenty years after you've paid off your mortgage.

Or your automobile. Try not paying the taxes or other usage and registration fees for that. Some government office will send someone over to forcibly remove it from you.

I mean, sure - you can say you own your television, as there isn't really a way for someone to make a long-term claim on it (yet). Except that if you don't pay what the IRS thinks you owe it, they can take literally everything you own and sell it to try to make up their imposed debt.

The moral of the story is this: So long as you remain in good standing on your (implicitly or explicitly) agreed-upon debts, possession-in-debt is completely indistinguishable from ownership.

I mean, sure - you can say you own your television, as there isn't really a way for someone to make a long-term claim on it (yet).

Don't the British have a television tax?

Obviously, we should modify lots and lots of home mortgages...it will prevent asset values from further falling. Sometimes, it is not right or wrong, but what works that counts.
BTW, does not Miss Alkon live in a rent-controlled community? Hmmmm? Should we do away wtih rent control? Oh, why not?

> Don't the British have a
> television tax?

I hate the BBC as a matter of principle, not just for its politics. (Props, though: Their Formula One coverage is brilliant, and I'm grateful to the British taxpayers for making it happen... Sure, they'd probably prefer to have some of that money for libraries and Grandpa's surgery. But dammit, I want to watch sports on teevee!)

> there isn't really a way for
> someone to make a long-term
> claim on it

There are short-term ones that are just as damaging. A TV commercial is a small claim on your immortal soul, and it adds up.

This isn't a boast, OK? It's not like I spend my days reading Proust and Shakespeare by candlelight. But when I threw out my TV after the civil insurrection, I found that my mind worked differently. I didn't dream in 15- and 30- second increments (with a sting of music and a flashing graphic at the end). And I didn't impulsively regard every new face before me as a pandering agent deserving suspicion.

There are short-term ones that are just as damaging. A TV commercial is a small claim on your immortal soul, and it adds up.

I have a tivo. I don't watch many commercials.

An Article I recently read (I thought it was linked to from here) had some great analysis.
It went through and showed why the banks are not doing modifications.

Many of the people who are behind will someone manage to get out of it - find a job, take a roommate, sell it, whatever - and so modification is not in the bank's interest. Many modifications would just delay the foreclosure and that again is generally not in the bank's interest. The articles data showed that in around 70% of the cases it is not in the bank's interest to do a modification. And many modifications that don't hurt also don't help the bank. The cost to do the analysis to determine which ones are a good risk negates much of the banks benefit.

After reading that article, I can certainly see why so few modifications have been done.

It's a strange day - I agree with almost everyone on the thread and a lot of you have said it really well. I wish Congress were reading this and paying attention.

Obviously, we should modify lots and lots of home mortgages...it will prevent asset values from further falling. Sometimes, it is not right or wrong, but what works that counts.
I can't tell if that was stupidity, sarcasm or just trolling, but one point: falling house prices are "what works" for me.

I want to watch sports on teevee!

But I'm confused cause the next part of your post is about not having teevee?

I want to... I'm the kind of geek who gets 17 races per year through Torrents to watch on the computer. Some people call it pathetic... The worst part is waiting for the files to come in, or having a friend casually mention who won before it's done....

Good to know that about Proust. Last year Hitchens made a great point of saying that Proust was someone to save for middle age. So I'm still saving him... These are the Ferrari years.

Cramdowns (reducing the principal on a loan) were legal and accepted practices in BK proceedings for years and were made illegal during the re-working of the BK laws. They worked well for the simple reason that the idjits making loans had a very very big stick over their heads making them very leary of making bad loans to bad pay-back prospects. It made funny money, no money down, liar loans rare because the lender would get stuck sucking up a loss in a cramdown. Underwriting was tight, and it was a good thing.

Yes cramdowns would create havoc at this time, but in the future would be a good thing.

In my opinion my children will benefit from lower house values, I hope they fall down another 30 percent. No i dont own, and never want to, the lack of mobility ownership requires is a dud for me.

The Ubernerd articles written by Tanta (now deceased) at the finance blog www.calculatedriskblog.com are a treasure. Amy I think you may like them for the writing alone. Such a graceful lady, able to make such dry subjects comprehensible to any who take the time to read them.

Why would cramdowns be good in the future? (Your own kids' well-being excepted?)

"I never bought a house -- because I can't afford one."

In the same boat over here.

I was in between a decision to buy or rent a few months back. I had a few family members offer to help out with a down. But the houses I was looking at were a bit older (i like big yards), and they kept warning me about "fixer upers" being money pits and costing a lot more than the upfront purchase of the house. Well, I can tell you, this past month has made me thank my lucky stars for the sage advice.

(apologies in advance for the rant..)

I now rent a house with a yard, circa 1960's (which I mow the lawns for a reduction in rent). This place is an absolute money pit.

My landlords own several properties, this being one of them. CHEAP BASTARDS (and Obama voters) is about the nicest thing I have to say about them right now. I just got back (literally just now) from WADING ANKLE DEEP in Lake Michigan which is now occupying the better half of my garage and kitchen. The pipes have never been updated or changed out. I've sent them THREE emails telling them about the leak for the last month. KABOOM. Today, the pipe broke, along with the last bit of my patience.

I've been sending them emails about things with no response. Even when i put MOLDY SHEET ROCK in the subject line.

(The pipe in the garage was only ONE of the things that requires replacement...I am using vice grips on my shower stems because the knobs came off and all the threads are stripped. The CHEAP BASTARDS won't update the piping so I can't just go in through the wall and replace with updated fittings. So now, the only cartriges that will fit are on order (THREE WEEKS)from only ONE MANFACTURER in BUM-FUCK Texas that makes them and they dont have matching escutcheons).

Everything looked fine during the walk through...

All I can say, is I am SO GLAD I am not a homeowner right now. At least I don't have to pay for any of it.

(sigh)

Sympathies, truly... Listen, a leaky roof is no fun when you're a homeowner, either. I'll send photos if you want some commiseration.

And this isn't meant to harsh rsj particularly: He seems to understand that building a prosperity is rightly pursued over a long term....

But I think people who pray for low home values just so they can get in don't realize how other parts of their life are affected. It's not cool just to say "I want the markets to be just dynamic enough to be the last one pulled into the treehouse before a terrible flood."

Hi Crid.

Cramdowns are good in the sense that a lender making a loan KNOWS if it is a dodgy/bad loan (inflated appraisal, liar loans, not enough income to service the loan, pick-a-pays as affordability products etc)they will most likely suck up a large loss if it does head to BK hence they do not make them. Historically the underwriting is tight.

They were not done willy-nilly with abandon. There were procedures the judges follow. It was law. If there is any group it is BK judges that can sniff BS. Hence poor Deutchsebank getting their ass handed to them in many jurisdictions regarding foreclosures today.

I never plan to own. I enjoy the advantage of being able to pull up stakes whenever I want to or need to.

Historically (there is that word again, sorry) house prices were considered affordable and a loan doable at 3x income. Make 50k? 150k your upper limit. Of course there are always outliers and that is why underwriters could make exceptions after due diligence and heavy documentation.

During the bubble underwriting went out the window. If you could fog a mirror, you could get a loan. Keeping the house however....

In a bubble era of continuously rising appreciation if there was trouble, sell the house. Now when many, especially in Ca, Nv, Fl, AZ owe 150k to 200k more on the loan than they can sell the house for all are stuck.

Mortgages in a non-bubble era are financed according to income and ability to repay the loan in a bubble environment it is asset based, meaning the lender didnt care about ability to repay since the assest, house, was what they made their gamble on.

The housing bubble was just the most visible aspect of the liquidity bubble.

You want to see something to make your hair stand on end? Go read the mortgage brokers outpost, a site for brokers trying to hook up bad prospects for loans. It will give you an idea how far the rot is.

i do not wish any pain on anyone (well, except mozillo of countrywide) but this crisis has been long in the making and is necessary, we have as a country been living above our means and re-balancing is gonna be a bitch. I am poor already so I know how hard it is, and i also know it does flow down hill and I will be hit proportionately harder but I believe my children and grandchildren will be better off as this malinvestment is worked out of the system.

Oh, and I am a chick. :D

You have much more faith in judges than I do. I think one of the quintessential principles for economic success is that "there's no law against making a bad deal" (i.e., one where both parties needs aren't evenly met). Because the corollary goes "there's no law against making a good deal, either". (That is, maybe both do well, even if one does superbly.)

The judge has no reason to do a good job at this other than that, y'know, he kinda wants to be a good judge. But he'll get paid whether he does or doesn't. Meanwhile, his mistress is waiting for him at the no-tell motel. Or that bottle of scotch is just sitting out there in the glove compartment. Or maybe his cute little daughter is sitting out in the lobby waiting for him to drive her to choir practice... It doesn't matter.

Having [1] skin in the game and [2] a sensible approach to risk is how properties get not just valuated, but priced.

Our economy is stalled until we learn what these assets are worth. Pelosi and the courts give their own lives meaning by fucking around with these things, and dawdling, and otherwise being a nuisance. Their fundamental belief is that we can make up the rules as we see fit, and assign value to things autocratically. This is not true. You can't tell a guy what a house is worth. If he's going to pay for it, he has to agree with you.

PS- There are occasions where both parties in a deal do really, really well.

This is not a zero-sum game.

This is not a zero-sum game.

This is not a zero-sum game.
This is not a zero-sum game.
This is not a zero-sum game.This is not a zero-sum game.This is notThis is ThisThis is not a zero-sum game.

Yes I do agree that I have a bit more faith in the judicial system.

Cramdowns make a more stable system. Prices/values for houses are evaluated more strictly, loan-worthiness is established more strictly etc leading to a more stable series of homeowners and localities.

The value of an object is only that which a qualified buyer is willing to pay---no more, no less. I agree with you 100 percent. If you have a total cash purchase then it is between the buyer and seller alone. Getting a loan? well, the lender has/should have had the duty to their investors and depositors to do the due dilly and accept/decline accordingly.

That is where you start getting people with their wishing prices, and stubbornly whining "well, I'm not just going to give it away, lowballs are insulting. I owe 650k on this puppy and 675k is what Im asking." When (so far) the bids coming in are sub-300k. that is a mighty huge nut for someone to swallow. With the bank bailouts, hope nows, and foreclosure moratoriums that someone is the taxpayer.

I say if someone truly cannot afford to service the mortgage, foreclose, then they can rent for a fraction of the price of their over-leveraged house and save the diff towards a new place. Yes it is traumatic, yes the emotional bindings of home hurt, but most would be better off ditching the albatross of owing more on their mortgage than their house will ever be worth again and beginning again.

Not to mention in many of the bubbilicious areas forclosures are going on two years. that is two years free rent. How much can be saved just parking and waiting for the final notice? lots.

Then the people with cash or very good loans come in buying the discounted properties and become the next wave of stable citizens.

It is not zero-sum indeed. Right now so much is out of balance however that re-balancing is going to feel like armageddon.

Allowing judges to adjust mortgage loans in bankruptcy as a solution to the current "crisis" is a bad idea.

This guy explains it pretty well:
http://online.wsj.com/article/SB123449016984380499.html

Before Congress and activists starting monkeying around with the lending process, mortgage underwriters did a pretty good job of evaluating risk and pricing accordingly.

Conan

The cramdown was legal before they modified the BK laws and it was very successfull. that is why pricing and evaluating risk were so well done, they knew to cover the ass or they would be sucking up the difference in a BK cramdown. From what I understand (iwill throw the question out on some sites that are pretty much devoted to topics like this) they were not used much, used judiciously, and they were not used much because the lenders new that tool was available to the judge and therefore made sure they made loans that would not be crammed. Meaning with sound, staid underwriting.

Cramdowns as a stick to hold over lenders heads? Wonderful tools. Cramdowns to solve the foreclosure crisis? It will be as painful as the growing foreclosure wave. Moral hazard lives!!

If congress had not dicked with the cramdown process in the earlier bk meddling, then this would not have happened.

Mortgage underwriters did a good job? During the bubble? Have you ever heard of NINJA or NINA loans? NINJA= no income, no assets, no job and nina = no income no assets. They are stated income loans, no w-2, no 1099, no stubs needed to verify what the borrower stated as income, no verification of employment, no verification of assets etc. These were especially heavily used in the California RE market as "affordability" products, since the theory was lie to get in, HPA rises enough in two years to sell or take a cash out refi etc etc. Im sorry, I am rambling a bit and I do not write well so I am having trouble talking about this here coherently.

Oh one peeve I have about cramdowns, mods, and loan forgiveness is that many many many thought the gravy would never end and HELOC'd every gain their house had for vacations, cruises, new cars, RV's etc. Chaps my hide that they may get relief when they should get a large cardboard box to move into instead. ah well.

rsj, your faith in the judiciary is misplaced. Listen, the financial sector got too goddamn big, and a lot of people started trusting mysterious forces to protect them. They shouldn't have done that. Telling these misbegotten souls that the nice people in robes will now sort it out is not going to fix this. Individual judgments of the sort you appear to recognize as essential cannot be provided by authorities just because we want them to. If it could, that's how the contracts would have been created to begin with.

Also, what Conan said. Probably. I haven't read the link yet.

rsj:

If congress had not dicked with the cramdown process in the earlier bk meddling, then this would not have happened.

What reason do you think they might have had for doing such a thing? Do you think it might be related to things like, say, Barney Frank's mission to provide "affordable housing" at any cost?

The system was fucked with precisely to get people into houses they could not afford and ought not to have bought.

That congressmen are stupid comes as no surprise. That the banks were, however, stuns me.

Mortgage underwriters did a good job? During the bubble? Have you ever heard of NINJA or NINA loans? NINJA= no income, no assets, no job and nina = no income no assets. They are stated income loans, no w-2, no 1099, no stubs needed to verify what the borrower stated as income, no verification of employment, no verification of assets etc.

Yes, rsj, I've heard of them. I was working in mortgage banking when they started getting popular - right after the CRA was updated to give ACORN leverage over banks.

And they were not being underwritten because anyone said, Hey, I've got an idea to reduce the paperwork and shorten the verification process." They were being underwritten to avoid an ACORN lawsuit over CRA issues when the bank tried to merge with another bank.

The underwriters and anyone in the office who could fog a mirror on command knew the loans were junk. The object was to sell them to Fannie and Freddie before the applicant's signature dried.

Can I just interrupt long enough to admire the "fog a mirror" phrase? New to me.

As you were......

Brian

What reason? They were bought. Who bought them? Wall st. Why? Securitization.

When banks used to be dowdy, boring, staid and ultra-stingy with OPM they kept there loans more often than not. With securitization any old moldering garbage was gold because the risk was offloaded to the bagholder,oops excuse me, investor in MBS and CMBS.

The incentives changed from careful and prudent underwriting to katy bar the door loan production.

Yes brian the 'ownership society' did contribute to this mess, a home in every pot was not a good idea...however the biggest tsunami coming (yup, still coming) is the Alt-a and Prime group. Not sub-prime. That is not your person buying a house cuz it was cheaper with the no-money down, teaser 1 percent rate with ARM than saving for 1st, last and security. nOpe that was the almost prime, the cali affordability trap. People making 50k have no business buying a 500k house.

I guess my opinion on the bankers is a hefty dose of braincell overwhelming greed and a deep deep well of stupidity with a bit of complacency tossed in for flavor and superiority slathered on top like icing.

Well hell, we all know an MBA is the secret club sticker for Master of the Universe society. What could go wrong? snort.

I forgot some stuff, sorry for the double-post. Consider it a PS.

The CRA/Acorn/Ownership crap was just that. I do not want anyone to think from what I have written so far means I support a house for everyone, no matter what.

Personally I think Barney Frank just about died and went to heaven when he and his comittee came up with this doozie. He got to pander to "the poor lobby" but also the "wall st lobby". Push for lower underwriting standards created more and more loans helping us peons attain homeownership which filled the streams wall st needed to feed the securitization process. FEES FOR ALL!! Broker fees, Realtor fees, appraisal fees, securitization fees, impact fees to communities etc etc etc. It was a never-ending money creating machine that pleased two important but polar opposite constituent groups. I bet he came when he realized this.

I want to ask people sometimes "hey, how did that ownership society work for you? You sure did get owned. your house owns you, your debt owns you, so now the ponzi-debt owners own you. They never did say that the ownership society was the new slavery did they?"

Yeah crid I should know better than to have faith that the judiciary would be able to sort it out. I know this, and yet I still hope...well there really is no hope for this.

Either massive principal reductions or mass foreclosure are the two options that have any hope of affecting this. In my opinion anyways. I personally think the foreclosure option would be best in the long long run

> the foreclosure option would be
> best in the long long run

Agreed! Listen, financial services is now the largest sector of the economy.

Let me say that again:

Financial services is now the largest sector of the economy. More Americans try to earn a living by jacking around other people's money than through any other enterprise. Now, a group of people this large is not, on average, going to be very bright. These aren't all MBAs, and even the MBAs aren't game-changing geniuses. It's now obvious that they haven't been earning their keep.

But all these people want to eat, right? So what do we want to have happen?

Well, we want some of them to find something more productive to do with their time. This recession will speed that winnowing.

We don't want to put those who remain on some sort of socialist paper-pushers maintenance program. They need to understand that the principles of good investment and wealth creation are not something that can be changed by congress or the courts and regulation... (Not anymore than they could be changed by the technology bubble a few years ago.)

We really, really need to keep an eye on our principles at a time like this. And one of those principles ought to be "a contract's a contract". And if the mid-decade homebuyers lose money, then we should feel bad. And if their bankers lose money, we should feel bad for them, too.

But if either or both of those parties wanna complain that their suffering is the product of a corrupt regulatory environment, then I think this is the time for them to learn that they can't trust government to shelter them from forces like these. Because the pandering, oh-so-compassionate wretchedness of a populist Barney Frank will always be with us. And he will always be incompetent.

Where do we wanna be in fifty years?... Whether China has its shit together, or whether it doesn't?

We want to be in a place where people who buy houses and people who lend them the money are both really attentive to the intentions and interests of the other.

(Sorry for being so general about this, but it's a general topic.)

Am I being clear? To have courts decide how each of these loans (each of them!) should be resolved is to turn our back on hundreds of years of thoughtful, proportionate precedent.

Crid--I agree in general with you. Actually a bit more in general. My point about cramdowns differs a bit from yours only because they had been an effective hammer to hold over lenders heads. It was a part of BK law for years and the world didnt end.

In BK process it is decided loan by loan, it always has been.

my personal opinion about cramdowns (especially in an environment like this) is that it rewards poor choices, reckless disregard for risk and also rewards people who live far above their means both lenders and borrowers.

Cramdowns are not intrinsically bad. To reinstate them now however after having them off the table during the boom would create more chaos than the do-gooders are expecting I think. But those two,foreclosure and cramdown, are the only meaningful ways to clear out the deadwood that we have now.

So far with all the bailouts, moratoriums, ACORN-type activists all that has been acheived is extend and pretend. I believe all involved are hoping to just hang in there for another month, another quarter, another year, cuz by golly everyone knows real estate only goes up and if we can just hang in we'll shoot to the moon!! It aint coming back. There are many areas that have already shot past 1990 pricing. The housinggravy aint coming back.

The mortgage contract states that the borrower will repay the loan and in the event the loan is defaulted on the house will be seized and sold to make the lender whole. Nothing in there about the morality of not paying the money back. Morality and legality are two distinct things.

Now the bankstas are pooping their silk because the rank and file are starting to take a page from their book. youwalkaway.com is another eyeopener. If all the little folk behave as the corporations and bankers do, after all it is just business, then the whole shebang goes pop. They know this and are getting sweaty with fear.

That is why I believe that foreclosures are the only way to clear the oversupply and acheive price discovery, oh and also to eventually reach a point of balance.

Personally anyone who thought their realtor, broker or banker is their friend and trusted them that they could handle a 350 k loan with a 65k salary was delustional and reaping what was sowed but that is just me.

Oh, and thanks. I really enjoy conversations like these.

rsj -

It was a rhetorical question. Although you have the same (correct) answers as the rest of the sane people.

Congress, at the urging of special interests, removed the moral hazard from making bad loans. Bankers and investors, being in the business of generating money off of other people's transactions, jumped at the chance to soak Uncle Sam for all they could get.

Which was great, until Uncle Sam went tits up.

The shit of it is, that those of us who bought a house we could afford (I bought a house that was less than 3x my yearly gross) are going to get shafted thrice: once by the government to pay for the bailouts of the irresponsible, once by the housing market as our houses never recover to their purchase price, and once by the cities/towns as they raise mill rates to accommodate the fact that property values are in the shitter and there's so many vacant properties.

Can I send a bill to Barney?

> It was a part of BK law for years
> and the world didnt end.

So was the use of leeches to extract bad humours from the sickly!

> they had been an effective hammer
> to hold over lenders heads.

And I'm all like, why do you keep emphasizing the cramdown aspect of this?

OK, put another way, why do I resent you for it?

Because the bankers weren't especially irresponsible. I mean... OK, yes, they were especially irresponsible. But they wouldn't have gotten anywhere selling all those loans –no matter how wide Barney opened the faucet– unless so many incompetent / greedy / naive homebuyers came into the office with thirsty wallets.

When you keep saying 'cramdown', you imply that in some preponderance of cases, the debts of the buyers are likely to be severely trimmed. I'm not sure they should be.

What scares me is that your outcome sounds technocratic and procedural and authoritarian. A bunch of people are going to have to do a bunch of new stuff, much of it involving unforeseen billable hours for attorneys.

But we already have contracts... Those contracts already describe what's supposed to happen when things go wrong. These people made an explicit deal. We don't need to hold a candlelight séance to summon new wisdom from the Spirit Land.

I didn't keep close count, but when I bought my place I signed my name about sixty times. The vast majority of those dotted lines were acknowledgments of disclosure: 'The homebuyer has the right to such-and-such'. Around the fifty-fifth signature, I realized I was the beneficiary of a thousand generations of refinement. Many, many people had to make and correct many mistakes in order to make my homeownership into something that could benefit everyone.

(I'm a homeowner since '01 in no danger of losing a well-appreciated place despite difficulties. If you need details before trusting the perspective of this comment, send a sincere email.)

You want the regulators to have a do-over... Why should they? You want to give retroactive virginity to government. We shouldn't do that! Market meddlers deserve a reputation as rapists. Real butt-fuckers.
___________

Misty memory here. I can't recall the context at all.... But in some magazine or some lecture or some radio show or cocktail-party conversation, there was a rhetorical proposition made to rape victims that went something like this:

What if you could wave a magic wand and the rape would (almost) never have happened? That is—

There'd be no physical evidence –no pregnancy, disease or beating– and the rapist would have no memory of his conquest or satisfaction. Only the victim would know that it had happened.

If you were the victim, would you take that deal on the third morning?

"Cramdown" makes me think you want to wave a magic wand.

I wanna scream!

Oh, sorry, I forgot an important component of that last scenario: no shame.

(In real life, I'm ashamed for letting Barney and Barack and all the rest of them get away with this.)

"Unless" + "came" is weird sentence structure. Everybody see what I was getting at? Everybody still love me? Great.

I am hammering on the cramdown topic only because of one thing. It was a tool that worked previously as a check on stupidity and greed. People who express horror over cramdowns many times do not know they were used previously. That is what I hammer on, or try to.

I do not favor cramdowns. I have tried, and obviously not well, to say I dont think they would be good in this environment. They were taken off the table and to put them back now would just lead to the taxpayer sucking the loss, not the banks. Before the bailout they would have eaten it, marked the losses, if too many then would have been insolvent and then closed. Now due to too big to fail stupidity it would be another money-sucking bailout to take care of it.

I do not understand why you resent me for talking about that. Every post you have directed to me has addressed that, so I answered, then added some further thoughts. I thought it was a running conversation, and you were asking questions about why I had certain opinions and I would answer. It doesnt help I dont write well, and am an aspie and have a hard time not driving a topic in the ground. Part is also trying to be polite, if someone responds to a post, I try to respond back.

I am all for foreclosure. Nail it, sell it, re-balance. Even the indebted homeowners would be better off without the hopeless forlorn hope of owning a house they never could and never will afford.

All along the food chain stupidity, greed, thoughtless consumption ruled from the homeownders to the brokers, to the realtors, to politicians to wall st.

I am puzzled because we agree, in my opinion anyways, on all the general points.

Oh and i have gone beyond anger and shame that they got away with this. I wrote my rep my sens, called, objected to the bailouts and got bupkis, they won. Now we get to watch the whole implosion postponed, yet because of the postponement become even larger than what they feared.

So I do not understand your resentment and I cannot puzzle it out. so, why?

> I do not understand why you
> resent me for talking about that

I don't. I was being facetious. Silly of me... As a hero once noted, that doesn't often work.

> Nail it, sell it, re-balance.

See? You have a lovely singing voice! You should do something with your hair!

(We're just trying to have fun in Amy's little playpen, OK? Sincerity isn't always our best currency.)

> Oh and i have gone beyond anger
> and shame that they got away
> with this

Not me, babe, not me. Rape Bath City: I scrub with a nail brush under scalding water again and again. And when it's over? I just feel used. Naïve. Cheap.

Listen, there will have to be some cramdowns... But I also want some jam-ups or whatever it's called when the borrowing homeowners are taught a lesson they'll never forget, too. And I want the regulators slapped so hard their great-great-great-grandchildren are crying all the way through college.

(Secretly, I like you.)

Ooooh. Okey dokey Crid. sometimes facetiousness, sarcasm , irony--all the fun stuff--does not get detected by me. hahaha, obviously.

Dont forget perp-walks. I really really really wanna see some perp-walks.