Caught By The Insanity In California
The Contra Costa Times reports from California. “Roiesha Scot sat on her dark leather sofa, holding her 2-week-old baby, and said it was her fault. ‘Now I wish I had asked more questions and done a lot more market research,’ she said. ‘As soon as we moved into the house, the values were going down. I feel like I put my family in a predicament.’”
“Scott and her husband Joseph were served with a notice of default in September and put their house on Tea Rose Court up for sale in late October for $400,000. They bought the home in March 2006 for $515,000 and, because of a job change, now can’t afford monthly payments.”
“According to DataQuick, 45.9 percent of California homeowners escaped foreclosure by making catch-up payments, refinancing or selling their homes. Last year, that number was 80.9 percent.”
“The numbers also show what caused the problems so many saw in the county. In September 2006, the median home price in Fairfield was $505,000. In September of this year, that price dropped to $386,000, the biggest drop of any city in Solano County.”
“Milian Correa and her husband, Victor, left Oakland when they bought their home in 2002. Soon the two put money down on a house and three years later traded up to a newer, upgraded $540,000 home in 2005.”
“In the past few years, her husband invested heavily in real estate, leveraging loans and properties. Once the appreciation stopped, so did most of his income, and Correa realized in April that they couldn’t afford their two mortgages of $2,700 a month.”
“‘Nobody would refi it or change my payments,’ she said.”
“Correa, who lived off her pension from Alameda County, started working as a server at the Trilogy clubhouse and then cleaned houses. In October, after six months of cleaning houses, she stopped because the work was too physically demanding. She decided it wasn’t worth it, especially when she could rent a home nearby for $1,200.”
“‘I came to terms with the whole thing. For my sanity and health it was the best thing to do anyway,’ she said. She hasn’t made a payment since September.”
“Homeowner Barak Engel called the $495,000 price for his home ‘the last option before the nuclear option.’ The nuclear option means walking away from the home.”
“Engel has a home in El Sobrante he bought in August after a job change and hoped to sell his Vallejo home. But even with $100,000 in upgrades, his home in Glen Cove isn’t selling. So he dropped the price to $495,000 but thinks his house is getting lost amid the area’s foreclosures and short sales.”
“He said he blamed Vallejo’s housing glut. According to Realtor.com, as of Wednesday there were 1,729 properties for sale in Vallejo.”
“‘With more than 1,500 listings, it’s a crapshoot,’ said Engel. So he took his case to Craigslist. ‘I will admit it; we got caught by the insanity,’ his ad read.”
“‘One moment our house is worth $625,000. Then we spend over six months and over $60,000 updating it,’ he wrote. ‘So here is the deal. We owe $495,000 on this house. We are not greedy. I just want to stop paying so much every month on both houses. I don’t want to have it foreclosed on, even though we could technically simply walk away and be none (the worse.) I don’t think it’s honorable.’”
“The ad has earned Engel some interest, but no solid offers.”
“Scott was disappointed about losing her Suisun City home but remained optimistic about her family’s future in Solano County. ‘I guess this was more of a learning experience,’ she said. ‘I think I’d rather rent for a while.’”
From The Sun. “Local retail mortgage branches are joining their counterparts nationwide in trimming employees as turmoil in the subprime lending market entangles growing ranks of homeowners who can no longer pay their monthly bill.”
“The latest casualty: JP Morgan Chase’s subprime loan operation in Ontario. JP Morgan plans to shutter its doors by Dec. 15, laying off just under 100 employees, according to state data on unemployment trends.”
“‘That was our entire facility in Ontario,’ said Christine Holevas, spokeswoman for the Wall Street-based conglomerate. ‘Because of what’s going on with home prices and tighter credit conditions, we decided to consolidate.’”
“Starting with layoffs last summer, subprime offices are expected to shed nearly 260 jobs locally by mid-December, according to data provided by the state’s Employment Development Department in Sacramento.’ “And the local subprime meltdown shows signs of rippling beyond just mortgage-related businesses.”
“Across San Bernardino County, two beverage distribution services, a financial software company, bakery wholesaler, tortilla chip producer, plastic bag manufacturer, bathroom-parts manufacturer, and several other companies recorded more than 1,550 potential job losses since February, according to data on the employment department’s so-called WARN list.”
“First Magnus Financial Corp., a secondary-mortgage service based in Tucson, Ariz., shut down its Rancho Cucamonga branch in August, cutting 76 jobs, and later filed for Chapter 11 bankruptcy protection.”
“Orange-based ACC Capital Holdings had two subsidiaries, also in Rancho Cucamonga, and laid off an undisclosed number of employees in May. Data from the state shows ACC laid off 51 people locally.”
“Chris Orlando, ACC’s VP of corporate communications in Irvine, blamed the layoffs on a ‘challenging nonprime market.’ ‘We’re currently winding down our retail operations,’ said Orlando of the company’s subprime business.”
“Many jobs were created when borrowers devoured these risky adjustable-rate and special-interest loans to purchase homes in the San Bernardino-Riverside area or to refinance their existing mortgage. It’s one reason Thomas Pierce, economics professor at Cal State San Bernardino, isn’t surprised when he hears about layoffs in housing-related industries.”
“‘Now that the situation has weakened very substantially, and the level of housing activity and borrowing has leveled off, it’s not surprising that you would see some layoffs in really any sort of business that’s related somehow to housing,’ he said. ‘It’s not shocking to hear.’”
The Daily Pilot. “It hasn’t been a sterling few months for the U.S. economy. The housing market has dipped, foreclosures have hit record highs in California, and the National Retail Federation predicted in September that the holiday season would experience the lowest sales growth in five years.”
“The Daily Pilot quizzed Peter Navarro, a professor at UCI’s Paul Merage School of Business. Navarro predicted tough times ahead.”
“Q: Do you think the economy is headed toward a recession? A: It’s clearly headed toward a slowdown and for most Americans that will feel like a recession.”
“Q: Does the housing market play a part in the downturn? A: No question about it. The housing market basically was the primary stimulus of consumption since about 2002. Basically, people were using their homes like ATM machines. That was a tremendous stimulant to growth, just as the tech bubble was a stimulant in the late 1990s. Now, that stimulus is no longer there, and that’s causing lots of issues.”
“Q: Are there any positive signs you see in the economic forecast? A: To be honest, no. We’re in a difficult situation here.”
“Q: What is your forecast for Newport-Mesa? A: This is a very heavy area for real estate development and financing industry, and these sectors will continue to be hit hard by this slowdown. New home buyers in the O.C. in the last several years will likely see a significant loss in home equity as real estate prices slide.”
The Sacramento Bee. “The weakness in Sacramento’s real estate market is no longer confined to housing. Commercial real estate is starting to soften.”
“It would seem like one of the best locations to build a shopping center: Elk Grove Boulevard at Interstate 5, in one of Sacramento’s fastest-growing suburbs. But retailers have been slow to flock to Stonelake Landing since it opened last March. The Elk Grove center is 45 percent rented and has lost two tenants that had signed leases.”
“Signing leases ‘has taken us longer than we anticipated,’ said Dan Nethercott, owner of the firm behind the center. But it’s ‘frankly better than I expected, given the doom and gloom that I hear.’”
“‘It is a little bit of a concern,’ said David Lyons, labor market consultant for the state Employment Development Department. ‘It looked like we were going to have this isolated to housing, (but) the commercial side is starting to feel some of it.’”
“‘Retail goes where rooftops are,’ said Sacramento-area real estate consultant Alan Gianini. ‘Clearly there’s no way anybody could say commercial is immune to what’s going on in residential.’”
“The housing market is hurting retail in another way: When times were good, entrepreneurs tapped their home equity to open stores and restaurants. No more.”
“‘For a lot of startups, their initial line of funding comes from home-equity loans,’ said Garrick Brown, regional research director at Colliers International real estate. ‘That’s disappeared.’”
“Marty Clevenger, president of a commercial developer in Roseville, said small strip centers without a large anchor tenant have fallen out of favor. And new shopping centers anchored by supermarkets have come to a halt because of the dropoff in home building.”
“Grocers ‘have pulled back because those projects are specifically tied to housing units,’ he said.”
“Clevenger said his own company is backing off from development projects until the picture brightens. ‘We’re moving to a cash position and waiting to see how this shakes out,’ he said. ‘We’ve liquidated everything.’”
“Sacramento psychotherapist Peter Cole and Daisy Reese have worked with dozens of clients, helping untangle emotional conflicts that all too often were rooted in unhealthy attitudes about money – how to spend it, save it or squander it.”
“Q: What makes your ‘financial psychology’ approach different?”
“Reese: You can’t really separate psychology and money…but people often wind up (in trouble) because of their internal tug-of-war over money issues. For many people, the families they grew up in and the messages they got about money … play out to their detriment as adults.”
“Q: Why is money such an emotional issue? Reese: Many people define themselves by their salary or how much they have in the bank. If that doesn’t measure up to what their parents expected or what their next-door neighbors are making, many people get down on themselves, get depressed, feel incompetent.”
“I have a client who’s a victim of the subprime mortgage debacle. His payments keep going up, he can’t get refinancing, and he’s really terrified he’s going to lose his house. And it was because he was trying to keep up with the Joneses in his personal life. He came in for emotional therapy, but part of that involved his financial issues.”
The Record Searchlight. “It’s a great time to buy. That’s the chorus coming from real estate agents and builders everywhere as they attempt to prop up the sagging industry.”
“But how many can afford to buy in Shasta County? Well, according to the National Association of Home Builders’s own housing affordability index, not many.”
“In Shasta County, 20.3 percent of the homes sold in the third quarter of 2007 were affordable to families earning the area’s median income of $52,700 a year, the NAHB reported last week.”
“California remains the nation’s least affordable market for housing. Statewide, a mere 12.6 percent of all homes sold were affordable for a median-income family, compared to 42 percent nationwide, the NAHB reported.”
‘Q: Does the housing market play a part in the downturn? A: No question about it. The housing market basically was the primary stimulus of consumption since about 2002. Basically, people were using their homes like ATM machines. That was a tremendous stimulant to growth, just as the tech bubble was a stimulant in the late 1990s. Now, that stimulus is no longer there, and that’s causing lots of issues.’
We hear this now, but two years ago almost all of the California economists adamantly denied anything could stop the economy. The usual excuse was ‘we don’t have aerospace anymore,’ as if only an exact replay of the 90’s bust could bring home prices down. You guys have a lot of crow to eat out there in the ‘center of the universe!’
The other usual excuse was ’so long as the economy keeps creating jobs, the housing market will stay strong.’ Nobody seemed to take serious repeated warnings issued here that an economy that had become overly dependent on real estate could easily enough become the driving force behind an economic downturn.
Yes, but the jobs they were creating, will barely pay rent, let alone buy houses. They are low wage service jobs or commission only sales jobs.
I totally agree. Mortgage brokers and other real estate related employees are taking low wage jobs to get through Christmas. The jobs I’m seeing advertised in Orange County are 10.00 hourly at Disneyland, Fresh and Easy Grocer 10. hr, Labor jobs around 16.00 hr. City and local school positions are paying a little better but they are mostly part time because they don’t want to pay medical insurance. Certainly not enough high paying jobs to afford a home around here.
In all the hype I’ve seen about growing gov employee rolls, I hadn’t taken into account the PTers. I know we’re reclassifying 5 positions into 3 but missed the other piece of the puzzle.
Gwynster,
Govt contracts?
FTE…Full time equivalents?
Dang…5 to 3?
Poo is hitting the fan!
Ya just can’t make this stuff up! (OMG)
Leigh
The other problem with the job theory is that you have to make an almost unrealistically high salary just to break into the market. I’ve mentioned this before, but I think my own example is a good case. Me and my wife both earn close to 6 figure incomes. Yet at the end of the day, there’s no way that we would think of buying because even with our incomes, what we could afford would essentially be a starter home. That and we would have to make what we make for years.
Bottom line, salary in California is far removed from current requirements. I’ve never lived anywhere that has so many people pulling in huge salaries yet are barely able to make ends meet. It really is ridiculous. It doesn’t help that 75% of those who live here think that whatever chunk of the state they live in literally drips mana from the heavens and whatever pain they must endure to survive is well worth the sacrifice.
The big question that remains in my mind is just how many people bought who actually have absolutely no financial means of holding onto their homes? If people making the median income did, then they can’t, and that’s going to continue a long legacy of foreclosures here for years to come.
“Bottom line, salary in California is far removed from current requirements. I’ve never lived anywhere that has so many people pulling in huge salaries yet are barely able to make ends meet. It really is ridiculous.”
California has a population of roughly 45,000,000 people accounting for the illegal aliens too, and some 14,000,000 income-taxpayers, so your observation is rational. What is really scary is how so many people today possess so few convertible skills, and literally zero mechanical aptitude. The modern zombie march toward the absolute division of labor will leave so many people helpless and unable to fend for themselves as the current downturn becomes an irreversible slide as the boomers become a burden.
I had to get my wife a GSM cell phone because her current model is being phased-out. The cellular stores easily reflect our current times — lots of empty strip-mall floor space with a few acrylic podium style stands showing off the latest toys that Paris Hilton lives by along with the usual smattering of posters depicting some fancy prick making a deal on his phone while waiting on a latte, and some self consumed bimbo shopping yet not missing out on the latest gossip. The sales person knew all the keystrokes, but comparing the plans wasn’t his forte; the best plan has unlimited features and minutes! “No, but thanks anyway!” Slouchy posture and lanky without tone, my son will never resemble this effeminate kid. We left the store and shopped on-line; the UPS delivery arrived two days later.
Right on ben. Truth is, about ten years ago people were pulling out about 50 billion dollars a year out of their house. In 2005, they pulled out about 550 billion dollars. That’s about ten times as much. In 2006, that number dropped to 300 billion. My guess is 2007 will be about 100 billion, and 2008 will be back to normal.
‘08 will be below normal. Knee-jerk credit tightening has/will make it a tougher, much tougher, than it was 10 years ago to tap equity (assuming there’s any equity to tap). I was in the biz 10 years ago, and credit wasn’t as tough as it is today.
Hey ex-nnvmtgbrkr -
Have you ever while at a appointment realized that you were the only one in the room who knew the party was over? I had that happen recently. I was sitting there with these people and they were oblivious to the fact that they were one payment away from foreclosure. They were at least $2500 in the hole when their payment recasts next month and they were talking about a vacation in April, had just financed a car, and asking me about where to buy American made toys for kids. With no less than $150k in Credit Card debt all cards maxed or over.
Weird experience a little unnerving. These people have important jobs.
Too many times to recount. I can just see the look on your face now.
mrincomestream,
You’ve elegantly described this sense of unreality I’ve been living in for the last three years. I just can’t believe beings capable of such denial are really so prominent, but they are everywhere!
I see it a lot in my biotech world. People making great salaries who are house poor, live large on the town and taking international trips, on credit card. And under 10,000 in savings. And do not take advantage of our company’s incredible stock and 401k plan, because they are spending every penny.
Not to mention the poor schmucks who are commuting 1.5 hours each way, every day. I ride my bike to work, rent, and live 3 miles from the office.
Then in 2009, MEW will be down to zero, then 2010-2012 (scraping bottom) it might even go NEGATIVE. When you revert to the historical mean after a bubble, you typically have a period where you overshoot that mean in order to counter-balance the excesses during peak years.
Do you mean that (gasp!) people might actually start to pay down their debts?
You really had me going there for a minute.
Yeah they can just go BK and start all over again.
Oh I forgot they cannot forgive cc debt this time.
Good luck congress in dealing with those who cannot pay, do not want to work just to pay down debt, and probably broke and homeless. Will we observe such a time?
Hi Dave,
In 2006, that number dropped to 300 billion. My guess is 2007 will be about 100 billion, and 2008 will be back to normal.
You forgot to say ’sarcasm off’.
Right?
Leigh
Ha ha, that’s hilarious because, this Sunday, the San Jose Mercury News published a front-page article entitled “The World is Flat, and the Center is Here”. It was all about how the world economy was going to be Grrrrreat for Silicon Valley. Then, buried within the paper, there was an interview with the Seagate CEO guy (some guy from Venezuela with a political science bachelor’s degree) who was basically threatening to fire all of his US employees because Singapore doesn’t make coporations pay taxes.
Sweet.
Hope this is not a repost:
“Center of the Universe”
That’s hilarious because, this Sunday, the San Jose Mercury News published a front-page article entitled “The World is Flat, and the Center is Here”. It was all about how the world economy was going to be Grrrrreat for Silicon Valley. Then, buried within the paper, there was an interview with the Seagate CEO guy (some guy from Venezuela with a political science bachelor’s degree) who was basically threatening to fire all of his US employees because Singapore doesn’t make coporations pay taxes.
Sweet.
Seagate is already hq’ed overseas. Cayman Islands to be exact.
Ben,
It must be aggravating to read these profs and economists delivering their commentaries on the already obvious. Exactly where were they when you started blogging the truth of the housing bubble and the oncoming crash? On a raft floating down the river Denial in BFE.
Schiller and Roubini, and Thornberg, after the latter had a “Come to jeebus” moment and decided to stop shilling and find another job.
That leaves you at the head of the class, Mr. Jones.
Outstanding observation Spike!
Curtsey,
Leigh
No, what’s really aggravating is that taxpayer money is wasted on retaining these “professors” who dumb down their students and are paid handsomely to do so!
Hey, Ben, at least the economists have come to their “bubble” senses. LA Radio real estate talk show clowns are still into promoting the great “built-in” equity deals, Below market foreclosures, and millionaire status in 3 years. When will somebody oull the plug on these scamsters.
Lot’s of built in equity still in the internet “picks and shovel” stocks: Lucent, Cisco, JDSU, Sun.
Tapestry, baby, tapestry!
You are royal!
Ben, the new definition of MSM!
Sassssssy!
I beg to differ … everyone knows that the exact geometric center of the universe is in Manhattan.
I’m noticing a lot more “victim” talk as a common thread in most of these stories. “They” wouldn’t refinance me or adjust my payments. Or, I couldn’t meet my mortgage payments anymore because of a “job change.”
I always wonder what the reporter is leaving out when he doesn’t give us details of the “job change.” Or when a homedebtor pulls out equity to “pay off some bills.”
– Judge Smales
“You’ll get nothing and like it”
“I have a client who’s a victim of the subprime mortgage debacle. His payments keep going up, he can’t get refinancing, and he’s really terrified he’s going to lose his house. And it was because he was trying to keep up with the Joneses in his personal life. He came in for emotional therapy, but part of that involved his financial issues
I’m just wondering how much these Fbs (victims/clients/morons ) pay these assclown Drs?/Phd.in BS/ psychscammers to confirm their status as RE financial IDIOTS as we have been DOING IT FOR YEARS for FREE
They should be using the money to pay down their mortgages. Put this in the same line as buying a tricked out SUV with your HELOC.
“They should be using the money to pay down their mortgages.”
But that would be the adult, responsible thing to do–nothing a therapist would want to explore. Much better, when thinking about billable hours to said schmuck’s health care plan, to indulge pointlessly in his “emotional needs”.
Funny on how the schmuck’s emotional needs are met once the health plan is cut due to job loss.
Got popcorn?
Neil
Hey Neil!
My son makes killer air popcorn!
And he is a nice person, like you.
Luv ya baby,
Got pup-kon (think small little baby child-with puffer fish face)?!
Got Popcorn?
Leigh
“They should be using the money to pay down their mortgages.”
Ironically, it doesn’t even cross their minds. My sister shared a story with me about a co-worker who “came into” some money after her husband passed away….about $125k. What did she do with it? She bought a car, 3 (T-H-R-E-E) flat panel TVs, a $2,000 necklace, and other things (that she probably didn’t HAVE to have). So, she lost the necklace. ( I know, I know…my mouth dropped open, too.) I asked if it was insured. My sister replies, “are you kidding? NO. And she went out and bought another one.”
Ok, here’s where it gets really stupid. So, she has a second mortgage on the house. ( I told you it was stupid.) She talks to my sister one day and says that she doesn’t know where all the money went…she has $50k left. My sister asks, “Did you pay off the second mortgage?” Tweedle Dum replies, “Ohhhhh, I didn’t think of that.”
Ugh!
BayQT~
ugh is right. Old school was pay off the mortgage first… then splurge. Ask them how the Raman plan is working?
Got popcorn?
Neil
Absolutely. And why this knucklehead didn’t think of that is beyond my comprehension. I’ll check in with my sister after Christmas to see how things went.
BayQT~
Probably linked up a few times before, but worth another look. Todays FB…….
http://www.youtube.com/watch?v=cmAm8GNJ_IA
The reason it doesn’t cross their minds is because coming into a chunk of money does not change a person.
People who don’t pay their bills continue to not pay. Airheads remain airheads. Spenders maintain spending habits. A shoplifter keeps on shoplifting.
Anyone who has one or two bad habits can blow through a hundred grand in no time.. 100K is easy. I’d advise people to adopt good habits before an unexpected chunk of money comes their way.. or it’ll certainly go down the toilet.
When I was a child, Mom always said “I don’t know why your father worries about money so much. I don’t worry at all, and things always work out just fine.” Funny thing is, post divorce, without Dad around to worry about money she has been constantly in serious financial difficulty.
My mom won $75k in the lottery 15 years ago. Two years later it was gone, her credit cards were maxed out, and she had to refinance into a bad mortgage to prevent foreclosure.
For some people, easy credit is like a bottle of vodka to an alcoholic.
Joey,
True:
MIL passed away. Left $50K to youngest child, an addict. (Others children also were beneficiaries)…
MIL knows her baby is said addict.
On her death bed, begs her child to change the way of living.
I kid you not…child continues on horrific path of destruction. (Drugs, in case you have not guessed).
Moral of the story…
Mom worked hard, to save for child(ren). (Yes, Dad did too, passed before mom).
Long story short, your words: The reason it doesn’t cross their minds is because coming into a chunk of money does not change a person.
No, it does not. People are either responsible or not.
Poor does not equal ignorant, for I would be without a brain.
Best,
Leigh
P.S. Thank you for your perspective.
well.. sad stories are probably not rare.
I say thank God for a mother’s loving instincts. It often blinds them to a child’s shortcomings while hope springs eternal.. which can be good and/or bad, but is mostly for the good, imo.
She never lost hope that he could be reasoned with. Perhaps he could be, but drugs do not listen at all..
His inheritance should have been put into a Trust with various contingencies.. A “Spendthrift-Trust” is a common type for this kind of situation.
Few people put a lot of thought into dying but setting things up is no big deal.. a few hundred spent on an attorney might save a kid’s life.
Joey,
My loving hubby was saddled with the impossible task of…I forget the legal term…
I completed all the paperwork for hubby…gladly.
I feel a tad bit responsible for delivering said funds to little sister in record time…I am absolved, as I was following mom’s written and spoken words.
We spoke innumerable times about life and death. Mom refused to believe baby daughter was beyond hope. I am incapable of shattering a mother’s love, it’s just not right.
All she wanted was little sister to have a home. All I want is peace.
Hope is eternal…things are looking brighter for little sis.
Best,
Leigh
the psychotherapists cost comes back to the taxpayers
‘Now I wish I had asked more questions and done a lot more market research,’
She still doesn’t get it! You don’t need to do any market research. Just get a FIXED mortgage, make sure you have enough $$$ in the bank to cover at least 6 months of payments, and make sure you can comfortably make the payments on your income.
Then live in the house! It’s just that simple.
This family’s income stopped when the husband stopped making money on real estate “investing”. I think this means when he was no longer able to get cash back at closing or flip houses to withdraw paper equity. In other words these bums have done no real work over the last few years (except for a few months of house cleaning before it got “too hard”), and now they’re surprised its time to pay the piper. Que up the world’s smallest violin to play them a little tune.
“In the past few years, her husband invested heavily in real estate, leveraging loans and properties. Once the appreciation stopped, so did most of his income, and Correa realized in April that they couldn’t afford their two mortgages of $2,700 a month.”
“Investing heavily”, and you can’t afford 2700/month already? Not all of this profit was spent on Hummers and BMW’s….. I would like to see an analysis of each financial whiners gains over the last several years, before letting them off the 2007 ‘property hook’.
As John Wayne’s son so eloquently put it in ‘Big Jake’, “Where’s the money Daddy”.
It’s sad that this insanity had to happen at all. Now we will all be worse off.
“We” will be getting better off. As long as house prices continue to decline and our sham economy continues to be exposed, then all of us who have been waiting it out will be better off.
I don’t want to have it foreclosed on, even though we could technically simply walk away and be none (the worse.) I don’t think it’s honorable.’”
Believe me, if you can’t sell or pay, the bank will not hesitate to do the honorable thing and foreclose on you. And don’t think that this option is looking more and more honorable for more and more FB’s.
Aren’t the buyers still served with a 1099 from the bank though for the difference in what’s owed?
Well, Congress just voted OVERWHELMINGLY on a bill not to count forgiven mortgage debt as income. This made me sick to my stomach! (OF course, maybe I should set up my company so it pays me in mortgages, and then forgives them!)
Don’t you think that many homeowners will now just walk away knowing they are off the hook? This could actually escalate the problem, as if it needed to.
Well, Congress just voted OVERWHELMINGLY on a bill not to count forgiven mortgage debt as income. This made me sick to my stomach!
Is this entirely a bad thing. More to the point, I’m wondering how this will play out with home prices? Will home debtors be more adament about short sales now that they don’t have to pay the taxes? Not sure, just thinking aloud.
It may give the homedebtor incentive to pursue a short sale as opposed to the “nuclear option” (nice turn of phrase, there) of letting the house foreclose. But the loan servicer in turn will play hardball with the homedebtor - urge/persuade/coerce the HD into bringing money to the table - somehow - if they have to beg, borrow or steal (yeah, yeah, they won’t actually suggest ’steal’) - so as to make the deal. You didn’t expect the note holder to pony up the difference all by himself, right?
So essentially, the most egregiously, TRULY F’d FBers are the honest to semi-honest ones who would rather “make things right” than make the detached business decision that they need to cut there losses and walk away from the house.
In the end, this bill too - in my opinion - is a gift to the lenders and the mortgage holders. If congress in its infinite wisdom had not given the credit industry the gift of making bankruptcy untenable for so many, a few years back, FBers could just declare and walk away, a fresh clean start, hence removing the temptation to invent and extend the loony loans to unlikely repayers in the first place.
There’s not a bank/lender/investment vehicle manager in this country that’s going to hesitate to do what has to be done when his business is on the line, and to hell with who gets stiffed or damaged out of it. And that same party will be more than happy to tell a FBer how irresponsible, dissolute, dishonest and dishonerable he is, if he follows that example in the management of his own or his family’s personal finances. It’s fire and brimstone for the sheeple, baby - now go sell it!
Is this entirely a bad thing?
Yes! The less taxes *they* pay, the more taxes *I* pay! The majority of Americans already pay little or no taxes. The bottom 50% of wage earners contribute less than 4% to the total tax revenue collected.
I get absolutely no tax deductions because of AMT. Even when I paid a mortgage, I got no mortgage interest deductions because of the 150K phaseout.
I’m sick and tired of paying other people’s taxes. I feel like a sucker.
This forgiven debt is the worst form of welfare. It’s giving money to some of the most irresponsible people in our country, and opening a tax loophole a mile wide.
The poor don’t pay taxes no money
The elite pay little taxes because they own our gov, have accountants, and offshore. Note Hedge fund managers pay 15% on income they derive from their work while I pay 35%.
AMT hits everyone in the middle on up to the top few %.
Actually it hits until maybe the top 1/10th of 1%. The top 1% comes at about 380K.
They way you beat AMT at that level is by having a deferred income plan, or the “Steve Jobs” trick of taking a $1/year salary and getting paid only in (backdated) stock options.
Tricks like this aren’t available to most people in the top few %. Only a fraction of the top 1%.
Note Hedge fund managers pay 15% on income they derive from their work while I pay 35%.
We have been through this already - hedge fund managers pay exactly what you pay in taxes for the work they do. Their ENTITIES are structured in a way that it allows them to push back payment of taxes on part of their COMPENSATION ( not income ). That compensation happened to be taxed as long-term capital gain because what they get is SHARES, which they hold for a long period of time before they get to cash them in.
Oh, and when hedge funds/management companies blow up ( happens all the time ), those shares become worthless.
IMHO the net effect of this legislation is more bad news for housing. Now people can freely walk from their mortgaged house and keep their credit cards. It is a bailout for the banks.
Also, as we’ve seen in other threads, even if the FB does “walk away” (a legitimate option if the contractual deal was “no recourse”), then the FB has no incentive to keep the house nice to minimize the “forgiven debt”. So we’re seeing people gut and trash the house before turning it over to the bank.
On a related note:
BTW: I’ve been reading the BK law and, at least in CA, you can’t declare BK on debt accrued from “fraud”. So if we have any judges with balls, maybe one of them will look at the loan application and check to see if stated income was valid, or if the owner said he was occupying a house when he wasn’t, etc, and not allow bankruptcy!
I wouldn’t hold my breath, though.
Why keep squeezing the turnips for blood? The government should spend time where there’s a chance of gaining something for the effort. We don’t need to pay 10,000 tax collectors to hunt down all the loser NINJAs.
The forgiven debt does not disappear it appears elsewhere to muck up the economy. It just rewards the ignorant at the cost of the prudent. Money is not magic. While not a completely zero sum game, one’s benefit is usually another’s burden. As between me and them, I think they should bear the burden of their own mistakes.
All that is true but still, if you loaned $50 to a deadbeat brother-in-law would you call him every week trying to get it back? If you “loaned” one dollar to a local homeless person would you expect to get that back?
At some point you must cut your losses and move on. There are several levels of “sin” in this whole mess:
1. Fraud rings that bought dozens of houses — they should pay every dime and go to jail
2. Naive investors who lied to get a loan on a second house — should pay all debts like the fraud rings, but not go to prison
3. Greedy/desperate buyers who believed a dumb cheerleader Realtor(tm) and bought something they couldn’t afford — take what you can get and forget the rest
2. Naive investors who lied to get a loan on a second house — should pay all debts like the fraud rings, but not go to prison
I disagree! Maybe not waste taxpayer $$$ with actual jail time, but a fraud conviction would be well deserved for anyone who lied on their mortgage application. It would make it more difficult to “BK” the debt, among other things.
And, even though not significant, making them pay some amount each month toward the debt, or taxes, would at least make them understand that other people have been paying for them all this time.
You guys are on the wrong track with this debt. All the FB’s should be let go! All the banks and morons that lent money to shitbags should bear the full brunt of these collapsing loans. If there was a clear message sent to the money changers that they were lending at their peril all along we would never have gotten into this mess. Loan originators should not be allowed to sell the notes they generate unilt at least 2 years (or never) after any teaser bullshit ceases.
I firmly believe that the courts should not entertain any case of a lender going after a borrower. The courts should only stand to resolve only contract disputes that do not involve lending for profit. This would put all the impetus on assuring sound lending where it belongs, with the actual lender….ie. not some middleman OC uberkidmortgagebrokerextrodinaire.
It was all the bullshit gurantees and fraudulent credit ratings that allowed this crap to get funneled to dipshits with deep pockets.. If they had to sign a one page disclosure that said “IF YOU LOSE MONEY ON THIS INVESTMENT F*&K YOU AND THE HORSE YOU RODE IN ON, IT’S YOUR OWN DAMN FAULT, NOW TAKE IT ON THE CHIN. GOOD LUCK WITH YOUR “INVESTMENT” BUCKY…”.
Make these pension guys sign a document as above, verbatim, and not one penny of your 401k money would have touched any of this crap paper.
Huh? All the law is doing is allowing investors and speculators who gambled on real estate to reduce their downside to the point that they really have none other than bad credit. It sickens me that any politician, regardless of party, would encourage and reward speculative behavior in real estate, especially when the consequences are the collapse of the financial markets and appreciation rates resulting in a horrible standard of living for those that were not homeowners. Shame on anyone that supports this nonsense. Why are you upset with the investors of the wall street paper? Theoretically there is nothing wrong with buying debt secured by a third party insurer. I do, however, understand the anger at lenders and wall street for creating debt that they knew would never be paid back to securitize and sell. Unfortunately, banks cannot collapse without the collapse of our economy. There should have been regulations in place that made no money down ARMs illegal, set mandatory due diligence requirements to make sure these ppl could actually afford to pay back their loans, and forced the lenders to assume max rate rather than initial rate in making qualification determinations.
Huh? All the law is doing is allowing investors and speculators who gambled on real estate to reduce their downside to the point that they really have none other than bad credit.
In fact, this was something that was very wrong with “the housing bubble.” Poor people–people with nothing in the bank and no assets–were the only ones who could afford to “play”. Anyone with significant liquid assets wouldn’t be trying to “flip condos” because you have too much to lose! And this is why the borrowers MUST be criminally prosecuted if loan applications were fraudulent–to keep them from discharging their debts in BK court.
Why are banks willing to forgive the debt? Can’t banks in most states sue for the deficiency? Otherwise, we are in a hell of a lot of trouble if ppl were allowed to buy more than they could afford with zero down and walk away if it didnt work out. With that legislation described above in place, it ensures further declines as ppl have no incentive to stay, and the foreclosures mount, and mount and mount. What kind of monkeys are running this circus?
Isn’t there a rule about “If you cut a tax someplace you have to raise equal amout of tax somewhere else?”.
We might all pay for this, since, lender can still write off the loss.
But that’s what we want. We want the foreclosures to mount.
What if the FBer was an investor? what if said investor had loads of other assets and cash in the bank? could he/she still leave the keys and walk away without making good on the amount owed?
“What if the FBer was an investor? what if said investor had loads of other assets and cash in the bank? could he/she still leave the keys and walk away without making good on the amount owed?”
Good question - anyone know?
Was it the senate or the house?
Passed by the house
http://www.govtrack.us/congress/bill.xpd?tab=main&bill=h110-3648
I didn’t realize that Banks forgave debt in connection with short-sales or foreclosures. If this is a common practice, are we talking about just short-sales or is there debt forgiveness in the foreclosure scenario as well? I always assumed that banks could seek an agreement with respect to the deficiency that they could enforce, or if an agreement is not reached just sue and garnish. Any insight would be appreciated as I want to understand how this works in real life.
There are “recourse” states and “non-recourse” states. California is “non-recourse” — the bank cannot go after a mortgagor who walks away, unless that mortgagor has done a refi or a HELOC or some other nonsense. If it was just a purchase-money loan, the bank has no recourse.
“Comment by Tim
2007-11-26 18:22:31
I didn’t realize that Banks forgave debt in connection with short-sales or foreclosures. If this is a common practice, are we talking about just short-sales or is there debt forgiveness”
Okay here is how it works in acutality:
(1) Lender agrees to a short sale and releases the mortgage even though still owed money. Until the bills gets completely through Congress and is signed into law, the borrower/seller is on the hook to the IRS for the income taxes on the amount that the lender forgave. EX: Mortgage $500000, lender agrees to take $400000 and release; so seller/borrower is on the hook for the incomes taxes as if the $100000 was regular income.
(2) Foreclosure auction. The lender always has someone there or has authorized the trustee to enter an absentee bid on its behalf. At floreclosure auctions, less than 1% of the time will the lender let it go for less than they are owed. (I was going to say that they never let it go for less, but who knows? That may have happened once some place.) Ergo the lender ‘buys’ the property, at auction for the amount owed on the mortgage, and, thus, the defaulting owner owes nothing to the lender.
(3) Deed in lieu of foreclosure. Debtor signs all interest in the property over to the lender. Lender accepts title in lieu of payment. Debtor owes no money.
Okay, now here is where it gets interesting - second mortgages or other liens on the property.
Tax liens on never wiped out by a foreclosure auction or any transfer of title to the lender. Who gets the property gets the back tax bill.
2nd mortgages: The holder of a 2nd mortgage is basically screwed. The primary mortgage holder is NOT going to bid in the property at a price high enough to ay the 2nd lender. The foreclosure auction wipes out the 2nd mortgage. The lender on the 2nd mortgage is still owed the money as the debt was not cancelled - just the security interest in the property. Now the lender on the 2nd has an unsecured debt and has to go after the borrower - sue them and attach their wages, bank accounts and other assets (such as if they have more than 1 car, a boat or other ‘extras.’)
Thanks for the explanation guys! I never realized that banks would pay the outstanding mortage amount regardless of current market price thus extinguishing the debt, and that some states were nonrecourse. At least with respect to first mortgages. Now I have a new perspective. If you mistakenly believed prices would keep appreciating, I can see why many ppl said why not get a no money down ARM and if it I can’t sell it for a profit before the resets kill me I’ll just walk away. I always just assumed the borrowers were still on the hook for the difference between current market price and mortgage amount at the time of foreclosure. I guess the lenders took huge fees for those no money down mortgages, as even if they planned to securitize them, I can’t imagine why the securization Trustee would pay par for such mortgages.
I would think that to prevent fraud and simple gambling, there should be laws that there must be at least a 5% down payment, minimum qualification standards, and that with respect to ARMs qualification be based on max rate and not initial rate.
Why are we shocked? These debts are so astronomical (400, 500, 600, 700K+) that these people would never pay off even the taxable amounts, so just forgive them entirely. Fair. Not at all. But since when did congress ever act fairly?
Also, don’t worry this and the fact that the OH judge ruled in favor of the homedebtors means that housing will plummet 50% everywhere. How can that be? Very simple. Banks will not just require 25%, but 50% down for housing, UNLESS you have an 850 FICO and make 6 figures and have serious change in the bank and are buying a very cheap home. If banks know you will walk away and be totally forgiven then you better pony up half the deal or it is no deal!
You make a good point. Is this a temporary forgiveness or permanent?
“Banks will not just require 25%, but 50% down for housing, UNLESS you have an 850 FICO and make 6 figures and have serious change in the bank and are buying a very cheap home.”
Agh, I still can’t get my FICO over 830. I must be doing something wrong, but I can’t figure out what it might be.
Become a soon-to-be-FB and get a mortgage!
I have the same problem, it won’t budge over 830 and their autobot computer program says I need a mortgage to increase my score. F*** that!!
My wife and I have always had perfect credit, never late, repaid three mortgages, owe nothing on credit cards, etc. We moved to New Zealand for job reasons. I notified EVERYBODY about our move, including the medical center where I was a patient. Turned out that after we moved they found $115 that was owed after all the insurance back and forth. No problem, as I had left money in a bank in the US just for this type of thing. Only problem was, at the time (2004) New Zealand didn’t have postal codes. So the medical center had my address, plain and clear, but with no postal code. So when it came time to mail me the bill for $115, the computer wouldn’t print the address because there was no ‘zip’ code. So the bill never got mailed and I never knew about it. Did they mail it to my old address, where it would have been forwarded through my brother to NZ? Of course not. So it was eventually sent to collect. Did the collection agency try sending me a letter? Of course not, even though they had my correct address. I discovered this in July while I was on a visit to the States, and happened to check my crdit reports. I immediately contacted everybody involved, demanding that the collection be removed from the reports after I paid the amount. No way. It was my ‘responsibility’ to give a correct and current address. Didn’t matter that I had, that they just wouldn’t print that address. I’ve since paid the collection, but am concerned that this bulls**t collection will drive down my credit score, which was at 810. There doesn’t seem to be anything I can do about this. This really, really p***ed me off. Any thoughts about what this has done to my scores? Is there any way to post something in the credit report about this?
i think you can tell them that youll pay it off if they agree not to put it on your credit rating. although it might be too late for you.
This is fine with me! You do realize that if banks required 50% down payments then few houses would cost more than $100K. And there’s nothing really wrong with that.
(And it’s not “sour grapes” from a “bitter renter”. I own a house in Sunnyvale, CA and land in florida, both 100% paid for)
Are the FICO scores different for the different agencies? I checked my score once with TU, and it was 870. I have always wondered if it was the same with Equifax and Experian, but I didn’t want to pay the extra for two more scores. My wife’s was 790, I think was b/c a couple years earlier she had closed some credit accounts (Dillards, etc).
I can’t imagine what would make my score better, other than increasing credit limits.
What’s the story about the Ohio judge? Is there a link?
Sorry.
Here’s one link:
http://www.nytimes.com/2007/11/15/business/15lend.html?pagewanted=print
So will the upshot be less foreclosures? Not sure that the OH situation will help our case to ultimately buy — seems to me there is no purpose in foreclosing then.
It is a non issue over a minor technicality. The judge ruled “without prejudice”.
I should say a minor legal technicality. It is a major headache, the cost to correct each mortgage may be greater than $20K. Not a lot in terms of the house, but when you are dealing with hundreds of thousands of homes in this situation it is huge. The establishment of chain of lien may be as expensive as the foreclosure action. Billions.
Here’s the judge’s opinion if anyone is interested:
United States District Court,
N.D. Ohio,
Eastern Division.
In re FORECLOSURE CASES.
Nos. 1:07CV2282, 07CV2532, 07CV2560, 07CV2602, 07CV2631, 07CV2638, 07CV2681, 07CV2695, 07CV2920, 07CV2930, 07CV2949, 07CV2950, 07CV3000, 07CV3029.
Oct. 31, 2007.
Benjamin N. Hoen, Weltman, Weinberg & Reis, Cleveland, OH, for Plaintiff.
Joseph T. Chapman, Office of the Attorney General, Columbus, OH, for Defendant.
OPINION AND ORDER
CHRISTOPHER A. BOYKO , J.
*1 On October 10, 2007, this Court issued an Order requiring Plaintiff-Lenders in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating Plaintiff was the holder and owner of the Note and Mortgage as of the date the Complaint was filed, or the Court would enter a dismissal. After considering the submissions, along with all the documents filed of record, the Court dismisses the captioned cases without prejudice. The Court has reached today’s determination after a thorough review of all the relevant law and the briefs and arguments recently presented by the parties, including oral arguments heard on Plaintiff Deutsche Bank’s Motion for Reconsideration. The decision, therefore, is applicable from this date forward, and shall not have retroactive effect.
LAW AND ANALYSIS
A party seeking to bring a case into federal court on grounds of diversity carries the burden of establishing diversity jurisdiction. Coyne v. American Tobacco Company, 183 F.3d 488 (6th Cir.1999). Further, the plaintiff “bears the burden of demonstrating standing and must plead its components with specificity.” Coyne, 183 F.3d at 494; Valley Forge Christian College v. Americans United for Separation of Church & State, Inc., 454 U.S. 464, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982). The minimum constitutional requirements for standing are: proof of injury in fact, causation, and redressability. Valley Forge, 454 U.S. at 472. In addition, “the plaintiff must be a proper proponent, and the action a proper vehicle, to vindicate the rights asserted.” Coyne, 183 F.3d at 494 (quoting Pestrak v. Ohio Elections Comm’n, 926 F.2d 573, 576 (6th Cir.1991)). To satisfy the requirements of Article III of the United States Constitution, the plaintiff must show he has personally suffered some actual injury as a result of the illegal conduct of the defendant. (Emphasis added). Coyne, 183 F.3d at 494; Valley Forge, 454 U.S. at 472.
In each of the above-captioned Complaints, the named Plaintiff alleges it is the holder and owner of the Note and Mortgage. However, the attached Note and Mortgage identify the mortgagee and promisee as the original lending institution-one other than the named Plaintiff. Further, the Preliminary Judicial Report attached as an exhibit to the Complaint makes no reference to the named Plaintiff in the recorded chain of title/interest. The Court’s Amended General Order No.2006-16 requires Plaintiff to submit an affidavit along with the Complaint, which identifies Plaintiff either as the original mortgage holder, or as an assignee, trustee or successor-in-interest. Once again, the affidavits submitted in all these cases recite the averment that Plaintiff is the owner of the Note and Mortgage, without any mention of an assignment or trust or successor interest. Consequently, the very filings and submissions of the Plaintiff create a conflict. In every instance, then, Plaintiff has not satisfied its burden of demonstrating standing at the time of the filing of the Complaint.
*2 Understandably, the Court requested clarification by requiring each Plaintiff to submit a copy of the Assignment of the Note and Mortgage, executed as of the date of the Foreclosure Complaint. In the above-captioned cases, none of the Assignments show the named Plaintiff to be the owner of the rights, title and interest under the Mortgage at issue as of the date of the Foreclosure Complaint. The Assignments, in every instance, express a present intent to convey all rights, title and interest in the Mortgage and the accompanying Note to the Plaintiff named in the caption of the Foreclosure Complaint upon receipt of sufficient consideration on the date the Assignment was signed and notarized. Further, the Assignment documents are all prepared by counsel for the named Plaintiffs. These proffered documents belie Plaintiffs’ assertion they own the Note and Mortgage by means of a purchase which pre-dated the Complaint by days, months or years.
Plaintiff-Lenders shall take note, furthermore, that prior to the issuance of its October 10, 2007 Order, the Court considered the principles of “real party in interest,” and examined Fed.R.Civ.P. 17-“Parties Plaintiff and Defendant; Capacity” and its associated Commentary. The Rule is not apropos to the situation raised by these Foreclosure Complaints. The Rule’s Commentary offers this explanation: “The provision should not be misunderstood or distorted. It is intended to prevent forfeiture when determination of the proper party to sue is difficult or when an understandable mistake has been made…. It is, in cases of this sort, intended to insure against forfeiture and injustice …” Plaintiff-Lenders do not allege mistake or that a party cannot be identified. Nor will Plaintiff-Lenders suffer forfeiture or injustice by the dismissal of these defective complaints otherwise than on the merits.
Moreover, this Court is obligated to carefully scrutinize all filings and pleadings in foreclosure actions, since the unique nature of real property requires contracts and transactions concerning real property to be in writing. R.C. § 1335.04. Ohio law holds that when a mortgage is assigned, moreover, the assignment is subject to the recording requirements of R.C. § 5301.25. Creager v. Anderson (1934), 16 Ohio Law Abs. 400 (interpreting the former statute, G.C. § 8543). “Thus, with regards to real property, before an entity assigned an interest in that property would be entitled to receive a distribution from the sale of the property, their interest therein must have been recorded in accordance with Ohio law.” In re Ochmanek, 266 B.R. 114, 120 (Bkrtcy.N.D.Ohio 2000) (citing Pinney v. Merchants’ National Bank of Defiance, 71 Ohio St. 173, 177, 72 N.E. 884 (1904).FN1
FN1. Astoundingly, counsel at oral argument stated that his client, the purchaser from the original mortgagee, acquired complete legal and equitable interest in land when money changed hands, even before the purchase agreement, let alone a proper assignment, made its way into his client’s possession.
This Court acknowledges the right of banks, holding valid mortgages, to receive timely payments. And, if they do not receive timely payments, banks have the right to properly file actions on the defaulted notes-seeking foreclosure on the property securing the notes. Yet, this Court possesses the independent obligations to preserve the judicial integrity of the federal court and to jealously guard federal jurisdiction. Neither the fluidity of the secondary mortgage market, nor monetary or economic considerations of the parties, nor the convenience of the litigants supersede those obligations.
*3 Despite Plaintiffs’ counsel’s belief that “there appears to be some level of disagreement and/or misunderstanding amongst professionals, borrowers, attorneys and members of the judiciary,” the Court does not require instruction and is not operating under any misapprehension. The “real party in interest” rule, to which the Plaintiff-Lenders continually refer in their responses or motions, is clearly comprehended by the Court and is not intended to assist banks in avoiding traditional federal diversity requirements.FN2 Unlike Ohio State law and procedure, as Plaintiffs perceive it, the federal judicial system need not, and will not, be “forgiving in this regard.” FN3
FN2. Plaintiff’s reliance on Ohio’s “real party in interest rule” (ORCP 17) and on any Ohio case citations is misplaced. Although Ohio law guides federal courts on substantive issues, state procedural law cannot be used to explain, modify or contradict a federal rule of procedure, which purpose is clearly spelled out in the Commentary. “In federal diversity actions, state law governs substantive issues and federal law governs procedural issues.” Erie R.R. Co. v. Tompkins, 304 U.S. 63 (1938); Legg v. Chopra, 286 F.3d 286, 289 (6th Cir.2002); Gafford v. General Electric Company, 997 F.2d 150, 165-6 (6th Cir.1993).
FN3. Plaintiff’s, “Judge, you just don’t understand how things work,” argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process. Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is either, “how do I save my home,” or “if I have to give it up, I’ll simply leave and find somewhere else to live.”
In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the property.
There is no doubt every decision made by a financial institution in the foreclosure process is driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit-to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers, assuring that only those who meet diversity and standing requirements are allowed to pass through. Counsel for the institutions are not without legal argument to support their position, but their arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.
The Court will illustrate in simple terms its decision: “Fluidity of the market”-“X” dollars, “contractual arrangements between institutions and counsel”-“X” dollars, “purchasing mortgages in bulk and securitizing”-“X” dollars, “rush to file, slow to record after judgment”-“X” dollars, “the jurisdictional integrity of United States District Court”-“Priceless.”
CONCLUSION
For all the foregoing reasons, the above-captioned Foreclosure Complaints are dismissed without prejudice.
IT IS SO ORDERED.
It was NOT an Ohio judge. It was a United States District Court Judge whose district covers part of Ohio.
What happened is the servicing comanies sued in federal court to foreclose on real estate in Ohio based upon diversity and the amount in controversy. (I’ll skip explaining diversity as a concept for federal court jurisdiction - just accept that there are only 2 ways to get into federal court: (1) diversity and more than $75000 at stake and (2) federal question.)
The foreclosure proceedure is governed by Ohio state law. Here the US Federal Court hears a state law case because of diversity. Ohio state law requires that the person suing to foreclose produce the documents showing that they are the owner of the loan and mortgage.
The servicing company could not produce the documents showing WHO owned the loan/mortgage. In fact, they didn’t have the slightest idea. Since the servicing company is not the owner of the loan (nor could it show the owner had assigned his interest to the servicing company to manage), the servicing company had no standing to sue. The money wasn’t owed to them as owner of the loan/mortgage and they couldn’t show the judge who the owner is or who put them in charge of it.
Very very sloppy record keeping. Acutally it rises to more stupid than a box of rocks. All those securities lawyers who packages those deals must have forgotten everything they learned in civil procedure and property law in the 1st year of law school.
The servicing company whined “but Judge, the state courts aren’t picky if we don’t have our paperwork in order and don’t know who owns the loan.” The Judge basically told them to piss off and do their jobs. Not surprising. Federal Court is the big leagues and you would have to be out of your mind to walk in there without your case put together.
Then the servicing company’s lawyers got cute and tried to produce some post-date documents they prepared that would transfer the mortgage to the servicing company in the future or something like that. Pretty obvious that the documents were less than legit and the Judge took umbrage at that - all but held the attorneys in contempt for attempting to pass off fake documents.
Bottom line is the servicing companys have to produce (1) all the records of how the loan went from lender ABC whose name is on the mortgage to Investor XYZ and (2) all records and assignments of interest showing that the servicng company is authorized to act on behalf of the current owner.
If they don’t do, that then they can not foreclose because they are not the owner of the loan and have no ’standing’ in the case to bring suit.
NYT reporter got it wrong - they can NOT jsut go over to Ohio state court and refile. The borrowers simply show the state court judge the opinion of the US Judge saying that the servicing company has no right to foreclose (unless they have dug up the records by now.) The state court will kick the servicing company out of court because of the doctrine of res judicata - meaning that issue between those 2 parties has already been decided by a court. Forum shoping is a no-no you see.
The servicing company has to go back and find all the proper documentation on transfers of the loan/mortgage. Don’t think they can or they would have while this was pending in Fed. Ct. - but assuming they do, they can then refile in Federal Court or state court. Having read the Judge’s opinion, I would strongly recommend that either the servicing company get new lawyers if they want to go to Fed. Ct. or if they keep the same lawyers, go to state court although it will take a couple of years with the backlog. Th Judge was furious at the srvicing company lawyers - and if they have any bains, they won’t even walk past the Fed.Ct house let alone go in the doors.
There is another kicker too. Transactions involving land need to be recorded to be valid against other parties in interest. That means for the mortgage to be valid against the debtor (as opposed to the note for the loan), the erson who bought the mortgage had torecord something with the county recorder about buying the mortgage. Not recorded? Break in the chain of title of the mortgage security interest in the land? the now-owner/investor may not have a valid enforecable mortgage against the borrower - or at least not enforceable until all the proper paperwork has been filed with the registrar of deeds.
AnnScott,
Many,many thanks for that explanation–even this non-lawyer was able to follow along. Much appreciated.
You are welcome spike66. Old habits die hard. I spend nearly 30 years explaining things to clients. One of my law professors once said that if we couldn’t explain a legal concept so an 8 year old could understand it, then we wouldn’t know what we were talking about. Always told clients that if any document I wrote had a “whereas” or “heretofore” in, the doucment was free.
Now, if my hands would just co-operate so there were not so many typos……bit of a problem when I never could proofread worth a damn since I ’see’ what I think should be there.
It should be very interesting since apparently none of these later buyer/investors bothered to record something showing they owned the mortgage and the loan. The only documents recorded with the county will show ABC lender being the owner of the loan and the mortgage - and ABC’s records will show that they were paid in full for the amount of the mortgage. That means the loan debt has been paid - and it doesn’t matter whether the buyers paid, Aunt Tilly paid it, or Bill Gates paid it anonymously. Withou something showing that the XYZ bought the loan and the right to collect, bottom line is the debt had been paid to ABC. The investors could end up owning only an unsecured loan meaning no foreclosure and they have to sue on the loan and try to collect.
A couple days after that Judge issued his order, 2 other judges in the same US District Court pitched more foreclosures - up to 80 or 90 now sinc each case had a bunch of properties in it.
My husband did some securities law work (yeah 2 lawyers married to each - oh well, who else would marry us?) Anyway he raised the issue that if the mortgage transfers were not properly recorded that then these securitize loans were actually unsecured and they would not be exempt from the SEC requirments of filing and disclosure since it would be the pretty much the same thing as selling stock. A screw up by the securities lawyers on Property Law 101 can end up changing what they were selling and get them all in a heap of trouble with the SEC - civil and criminal. Have to see the actual documents on the packages of loans sold but it is now an issue.
Wow Ann, thanks. As an agent I just wonder how much this crap could cloud the title to homes going forward? Just wait till different “investors” in these mortgage pies start sueing each other! =)!!! Hahhaha, if you think this shit it complicated now, just wait till the real figths begin with the huge law firms paid big bucks by the money traders fighting amongst themselevs!!!
All the titles to these homes shoved into these SIVs will be just so much confetti for the FBs national parade.
crimes against my sanity.
rewarding, cough, spit…. failing to punish tsk tsk, stupidity knows no bounds.
If a mortgage is refinanced, doesn’t that automatically convert its status from non-recourse to recourse? If so, most of these jokers can’t “just walk away” without consequences. The bank can (and should) seek and obtain a judgment against the deadbeats, and garnish their wages until the debt is paid off.
Nothing about ‘refinancing in this case. The servicing companies couldn’t prove who owned the loan and had the right to ask for foreclosure.
Actually it is pretty funny. The Wall Street wizards who ut togehter this game of smoke and mirrors easily shelled out over $600 an hour to their high priced securities and banking counsel - who seemed to have forgotten what they learned in the first year of law school in property, contracts and civil procedure classes.
Greedy buyers who bought more than they could afford (although to be fair, in Ohio job losses are a huge reason for the defaults) versus greedy Wall Street that was in such a hurry to make fast money they didn’t do the basics on their paperwork.
“Q: Do you think the economy is headed toward a recession? A: It’s clearly headed toward a slowdown and for most Americans that will feel like a recession.”
Now I’ve heard it all as it relates to spin. If it acts like a duck, walks like a duck….It’s a duck.
“But, what kind of duck is it? What are the ideological underpinnings of the duck? What are the operational imperatives of the duck? Is the duck a cat in disguise? Does the duck/cat have allies? What are the rules of engagement for duck/cats? Do duck feathers change?”
Dean Rose
or
“The answer, of course, depends on whether or not the name `duck’ is a trademark! If it is, then the closest that something can get, without permission of the owner of the trademark, is `duck-like’.”
And does the duck have relations with bushes.
There ya have it.
Quack !!!
Bush will ultimately get the credit for accelerating US into a 3rd world country. Whereby, it’s citizens were able to compete with 3rd world wages.
And to make sure wage inflation was subdued he encouraged illegals to cross the Rio Grande because one of his nannies came the same way.
For instance, do consumers want the duck to be nasally fitted?
–
I am sorry, but only stupid, or insane, people get “Caught By The Insanity.” I am sure that they are eager to blame others.
Jas
“California remains the nation’s least affordable market for housing. Statewide, a mere 12.6 percent of all homes sold were affordable for a median-income family, compared to 42 percent nationwide, the NAHB reported.”
Is this using the old or new metrics I wonder?
BUSH I and Bush II economics, not metrics old or new..
just an old bush and a newer bush… and the DUCKS hide in BUSHES.
By whatever metrics, you just know it’s wacked when a recent article dealing with Central Valley affordibility rates talked up ‘recent improvements in housing affordibility’.
The old rates for Merced were 4%, now 7%! Clear skies ahead!
More importantly, what is the standard used to indicate “affordability?” Personally, I view it as the mortgage being no more than 2-3x annual household income, depending on the circumstances. However, most of these studies seem to use 4-5x as the standard.
I thought the 4-5x was if you had NO other debts, student loans, credit cards, ex-wifes and kids, no car payments and safe drivers insurance….then you would have hundreds left over each month for a higher mortgage.
I’m guessing this must be the new metric. The old metric went negative some time ago for most of California.
Well, technically, affordability can never go below zero, but we get the idea…
“Scott was disappointed about losing her Suisun City home but remained optimistic about her family’s future in Solano County. ‘I guess this was more of a learning experience,’ she said. ‘I think I’d rather rent for a while.’”
- You have to understand that in SoCal it’s no big deal…it’s more of a learning experience.
Quail hunting with Cheney IS a LEARNING EXPERIENCE Scott.
You and hubby were just another “What’s For Dinner” REIC Happy Meal COMMISSSION check:)
But this is the “bingo” moment. All that fuss those morons in CONgress are making about people “losing” their “homes”. It’s CHEAPER and better for a lot of these folks to lose their house and rent. Unless you put 20% or more down it really is no big deal.
“- You have to understand that in SoCal it’s no big deal…it’s more of a learning experience.”
Solano County is actually Northern California (in between San Francisco and Sacramento along I-80).
Loan Modification Anyone?
http://www.cnbc.com/id/21977547
Talk about rewarding bad behavior. In the end though, I imagine the banks will do whatever is in their best interest. Or let me restate. The banks will do whatever they can just to stay solvent. We’ll see what happens.
I just emailed her my thoughts on this issue. Maybe if enough of us do, she’ll get the picture that many people do not believe in these bailout plans and not everyone was an idiot.
Sorry, but the cat’s out of the bag on this one. After Arnie announced that he had “persuaded four banks to agree” on a bunch of great loan modifications for “tens of thousands of Californians”, at least one of the journalists in the audience did her job. She called the spokespeople at the 4 banks listed and asked for their comments.
They all said the same thing. Arnie didn’t get them to agree to anything new. They are all still doing exactly what they were doing: Whatever is in their best interests, with restrictions as delimited by bondholders.
Someone posted the link on yesterday’s thread.
Arnold is now a politician. Before that he was an actor and said what he was paid to say. At least before we knew who was writing the script.
Arnold has a politician still gets paid for what he says. He just gets his money from other sources.
Oops. Substitute has with as.
Anyone else read about people picketing Countrywide over the weekend?………Arrrgh!
“‘Now that the situation has weakened very substantially, and the level of housing activity and borrowing has leveled off, it’s not surprising that you would see some layoffs in really any sort of business that’s related somehow to housing,’ he said. ‘It’s not shocking to hear.’”
“Across San Bernardino County, two beverage distribution services, a financial software company, bakery wholesaler, tortilla chip producer, plastic bag manufacturer, bathroom-parts manufacturer, and several other companies recorded more than 1,550 potential job losses since February, according to data on the employment department’s so-called WARN list.”
These layoffs don’t seem to be in any way directly related to housing. This seems consistent with a broader recession, not just one for the housing sector. Forgot the memo, that’s a slowdown that feels like a recession.
Some of it seems to fit. Adult beverages, quickie loans, cupcakes and chip-n-dips for the open houses.
But the others I don’t get. Woulda figured self-suffocation devices and makers of puke-catchers would be doing just fine.
I am also showing a lot more layoffs than “1,550 potential job losses”. ADP’s layoff in July was the first of many in tech and financial layoffs are greater than 2000.
“In the past few years, her husband invested heavily in real estate, leveraging loans and properties. Once the appreciation stopped, so did most of his income, and Correa realized in April that they couldn’t afford their two mortgages of $2,700 a month.”
Which gets back to my earlier point about the impact of falling home prices on Main Street. The big question, IMO, is how many other ‘high earners’ over recent years derived their primary income from highly leveraged real estate investments?
‘I guess this was more of a learning experience,’ she said. ‘I think I’d rather rent for a while.’
Yes, buy high and sell low - classic behavioral pattern. Just note that - it’s a lot cheaper to master that in the stock market. And eventually you will figure out your mistakes and get a chance to play contrarian, and can actually manage to buy low and sell high. Alas, in RE, most people get only one chance.
“Sacramento psychotherapist Peter Cole and Daisy Reese have worked with dozens of clients . . . I have a client who’s a victim of the subprime mortgage debacle. His payments keep going up, he can’t get refinancing, and he’s really terrified he’s going to lose his house . . . He came in for emotional therapy, but part of that involved his financial issues.”
Just as we predicted, here come the media sob stories about ” victims ” of mortgages. Ohhhhh brotttterrrrrrrr !!!!
And of course the poor emotional victim will need many more therapy sessions. Just like the chiropractic racket. (ex-brother in law - so I have first hand experience lemme tell ya ) these people never turn down anyone. People will always need mental & spinal adjustments. Ever notice most of their clients are women? Females could actually care less if their is a measurable benefit to chiro/pysch sessions, they just enjoy the attention.
Like a getting a manicure at the weekly hari salon. And its sweeeet if insurance pays cause its medically necessary. In fact, chiropractic overbilling was one of THE main reasons for HMO creations, as they saw the BS going on in the system by these frauds and jumped in to be a more efficient middle-man while taking their own skim.
Newsflash: GREEDY LAZY INCOMPENTANT FINANCIAL BORROWERS ARE NOT VICTIMS !!
the term victim usually means a person who was harmed thru circumstances beyond their control. Mortgage applications are subject to many regulations, checks, & balances for all parties, in other words, many controls are in place or ready to be used, BUT, heres the keyword, you have to WANT to make sure its in your best financial interest before you sign on the dotted line, by investigating the entire deal. Hoping for it all to ” somehow work out” is just irresponsible behavior for something as important as a primary residence for your family.
Don’t you think the banks, brokers, real estate agents, title co. etc, cover their end? Hell Yeah they do !! Why so many people go to a gunfight armed with nothing more than a fountain pen just blows my mind.
Heres another hint: the more people making the loan pressuring borrowers to skip any due diligence and just quickly sign, the more amount of money the LENDERS & ASSOCIATES stand to gain.
Of course I’m preaching to the choir on this blog but it made my blood pressure drop enough to go yell at some snotty neighbor kids to stay off my grass .. . . whippersnappers !!
What do you really think?
Are you holding back?
lol
Aqius:
I get the feeling you don’t really like women very much. Is that true?
V, there ARE a lot of women who enjoy attention. That’s why chiros and other healthcare pros do so well.
Ya know, AZ Slim, there are a lot of men who enjoy attention too. If women are truly more likely to go to chiropractors than men, perhaps there is some other reason for it. Maybe they tend to get a lot of aches and pains after being beaten by their husbands. You see, I can jump to all sorts of conclusions too!
Big V
to answer yer question directly: no maam, I dont hate women, in fact I really appreciate & admire the fairer sex. Honestly.
my comments are just reflections on the general quirks of both genders, this one happened to dwell on women, but I sure enough am an equal gender offender! In all honesty, one of my heros is Janet Reno. She took responsibility, good or bad results. Thats rare, for either sex, in fact.
In fact, I find yer posts to be very funny & intelligent. Apologies offered if I was a bit too insensitive. It was probably my big mouthed Leo influenced by the Scorpio directness. (Again).
“Q: Are there any positive signs you see in the economic forecast? A: To be honest, no. We’re in a difficult situation here.”
Nothing worse than hearing bad news from an economist who first clarifies that he is speaking honestly.
At least he didn’t say YES and then quote the usual party line job creation nonsense while failing to clarify that service jobs don’t pay for high priced housing.
Peter Navarro has been at UC Irvine here in Orange County for many years. For the last several years he’s been a bear about the OC market and the economy in general.
I recall he has some personal issues and a shady past.
Well, they are still caught by the insanity in Kiwiland. Some clueless greedy Auckland equity locust just snapped up a POS beach shack for over a million dollars, sight unseen. Too bad we don’t have Joshua Trees down here, this Nimrod certainly deserves a good reaming in a couple of years:
http://www.nzherald.co.nz/section/8/story.cfm?c_id=8&objectid=10478540
Clarification: This is a beach house like a Lake Tahoe beach house. It is on the shore of Lake Wanaka in the central South Island, not on the ocean.
Want us to air post you a Joshua tree?
It is the third house in the street that has sold for more than $1 million in the past three months.
Why don’t we make it a round six pack. It sounds like a real problem down there.
Got popcorn?
Neil
Neil, better send us a whole shipping container full of JTs! The pandemic of dumbassery down here is amazing.
To see the view that some “investor” thought was worth over a million dollars, go to Google Earth. Search on 150 Brownston Street, Wanaka, New Zealand. As you can see, there is a rather large park between the house and the lake shore. Click on the photo icon about 10 buildings to the right for “Wanaka view from the Purple Cow.” Ok, it is pleasant enough and better than a dump or a freeway view, but similar vacation house views were available all over the western US for under 100K not so long ago.
forget Joshua Trees, those kangaroos pack a punch.
Some kangaroos have been introduced into NZ, but they are basically Australian.
How about Keas? I remember meeting with those in the western part of South Island. They’ll eat the trim right off your car!
OMG!
I considered purchasing in Lk.Wanaka in 1989 after an extended stay/horse trek of the south island. Lovely area, but seemed a bit inflated at the time…around 25NZD for a sturdy little 2/1 on a hectacre, as I recall. Yikes! You guys should have kept those sheep gates locked!
My landlord bought the house I live in without even looking at it. 750k. Didn’t bother to fly in and look at the house. The house is on the water and great to live in but foundation is sinking, it needed a new roof, new heater, 2 new airconditioners, the wood floors are unrepairable, and that’s just for starters. He didn’t even haggle on the price. He has now put the house back on the market and tells me he is 2 years away from going bankrupt. Here’s the kicker, he purchased in late 2005 and he has put it on the market for 25% more than he paid for it. He tells me he has 2 other properties that won’t sell. I wonder why?
“‘One moment our house is worth $625,000. Then we spend over six months and over $60,000 updating it,’ he wrote. ‘So here is the deal. We owe $495,000 on this house. We are not greedy. I just want to stop paying so much every month on both houses. I don’t want to have it foreclosed on, even though we could technically simply walk away and be none (the worse.) I don’t think it’s honorable.’”
Half a million bucks for Vallejo. Let me repeat that for the Bay Area-aware so it can sink in: HALF A MILLION BUCKS FOR FREAKIN’ VALLEJO!!
Having been to Vallejo (the East L.A. of the Bay), I’d say asking $100K would be “greedy”. $495K is “obscene” and “what are you smoking? I want some”.
Even during the dot-con mania, $495k would have bought you something pretty nice in San Francisco or on the peninsula. I thought things were out of control then. Vallejo was probably still below $200k in those days.
And it will be again, in a few years’ time.
Have you ever actually been to Vallejo? Yes, parts of it are nasty. But they are slowly gentrifying the downtown and there are blocks of old Victorians there. There are also very nice older neighborhoods like the Vista neighborhood where you don’t find the gangs etc.
Do I think these homes should be $500,000? No, not really. But there are some very large Victorians in the historic district that should realistically sell for that (that have been renovated.) The smaller “cottage” homes in the heritage district should be selling around $200,000 (same as prices in 2001 or so.) Right now, they’re sitting on the market for months at $400,000 with no buyers.
There are foreclosures all over the place in Vallejo. Prices have no where to go but down.
Yeah, well, that gentrification is going to reverse really quickly over the next 2-3 years. It has already begun.
I looked at cute craftsman about 900 square feet in Vallejo about 10 years ago. Walking distance to the ferry to San Fran. $125K. Did not buy, just thought Vallejo was a little bit too far from the city. Last ferry left at about 8:30 - 9 PM. What if you wanted to stay in town for the evening ? Driving in good weather and no traffic is 1hr. But house has a front porch, orange tree, and lemon tree. One things in life you wish maybe I had done that. Not for the $ gain but just the nice little house in an out of the way spot. I tend to like kind of down at heels neighborhoods.
What is the obsession with updating houses? Why is it no one can find a house that is OK as is? Why does EVERY kitchen need perfectly good cabinets and appliances ripped out and replaced with cherry and granite? My theory is all the home shows on TV, all the magazines, the big box DIY stores and flapping jaws contribute to sheep that think nothing is ever good enough. If I spent $625K on a house, I wouldn’t expect to need to put in another $60K from the get go. Besides, it takes about a year to live in a house to see what is really worth changing and what works. When did we get to where every room of every home has to look like it was staged with over decorated and coordinated crap?
I actually find granite counters (and most of the other stylistic trends of the last decade or so) to be very ugly, and all else being equal, I would pay less, not more, for a house so equipped.
“We are not greedy. I just want to stop paying so much every month on both houses.”
This is to-the-bone stupid. And to quote somebody, you can’t fix stupid. I suggest a wall around California to prevent them from moving to any other state. At the least, they ought to be neutered, and tattooed with a Kali stamp…giving the rest of us a fighting chance to avoid contact.
LOL
Do I HAVE to get a tatoo?
lol
CA-desertdweller. Some are slow..then there is the rest of us. Hardworking, smart, …good looking..funny.
Agreed. The granite counters with their cloddish curved edges just looks strange. Also what’s with stainless steel appliances? They look like belong in a morgue or perhaps for storing specimens in a lab, hard to keep clean as well.
You ‘re not kidding about the granite and stainless steel. That is all you see in condos here in DC. PLUS the restaurant stove ! What in the blazes in a small studio or 1 bedroom condo do you need a restaurant stove for ? It’s not like you’re going to have 12 people over for dinner.
I only upgrade stuff as it breaks, and you seldom have to wait very long in a tract house. So far, due to planned obsolescense we’ve had to replace broken toilet seats and innards, corroding faucets, a disintegrating dishwasher, a leaking refrigerator, the half-hp garbage disposer. Next on our list is the barely operable front door latch set. Oh, and the house is only 8 years old… But the original stuff was standard Suburbia so we actually don’t mind this type of upgrading since we can replace with funky cool and relatively inexpensive items. (bought a new fridge for half-price cuz it had a couple dings on the side that you can’t even see).
Same here, w/d went out and owner gave me ‘allowance’ to replace.. went to tried and true Hubert’s Appl and got a great appl for cheap. Someone had “upgraded” and I got the rather new set. $400 for set. Rental pro was impressed with my “buy”.
Harm, I totally agree with you. The article actually had me at : “…the median home price in Fairfield was $505,000…”! I was stunned! It’s beyond ridiculous.
They have a long way to fall…
BayQT~
I’ve lived everywhere and I spent some time in Vallejo. When my hip friends from L.A. came to visit me they called it “Billy Goat Acres.”
“It’s a great time to buy. That’s the chorus coming from real estate agents and builders everywhere as they attempt to prop up the sagging industry.”
You can almost see to see this REIC gang handing out their cards, rate sheets and open house flyers to these smiling idiotic FBs walking down the courthouse steps from their CURRENT Bankruptcy Proceedings
i saw a sign today, “Smart People are Buying Now”. I wanted to write in at the bottom, “Stupid People Bought in 2005 - 2006″
Aerya - I had a long commie rant in reply to your song, but am trimming it to the mention that your “old lady who swallowed a fly”-style ditty is missing one piece - the fund managers who also buy paper from the lenders to sell to the worker bees, and on whose behalf they turn around and dump the caretaking of that paper on the loan servicers, who can’t do much of ANYTHING…anyway, the song ends with “RETIREMENT ACCOUNT GO BOOM”.
I know, stupid people deserve it. It’s also greedy for them to want stuff, when they don’t work hard, or smart, and also dress funny.
Memo to social darwinists: if you cancel the social contract, be careful you don’t look too much like an easy LUNCH. (You are slow and good with ketchup, and — just a few generations removed from more hearty forebearers — bear the mark of what happens when natural selection is thwarted by medical science for fun and profit. And sooner or later, you WILL have to come out to get some more canned peas and ammo.) See also: Marie Antionette. She called, says she wants her cake pan back.
In todays Wall Street Journal. The Atlanta FHLB has loaned Countrywide $51 BILLION. I expected this story to be the #1 discussion item today.
http://online.wsj.com/article/SB119603725035603459.html?mod=todays_us_nonsub_money_and_investing
This story makes me really, really, really mad. A psuedo federal agency can lend $51B to a psuedo-bank that is tetering on bankruptcy in exchange for questionable collatoral. All of you opposed to a bailout, this is an enormous bailout to one predatory lender.
To put this in perspective, New Orleans, a city of 400,000 was completly destroyed by katrina and flooding and the federal government promised (but didnt deliver) $90B. The Iraq war is costing us about $150B a year. And some agency I have never heard of lends (gives) $51B to a corrupt bank on the brink of collapse.
This may make you feel better:
Home Loan Bank Warned About Countrywide Debt
A U.S. regulator should scrutinize billions of dollars of loans that have helped keep troubled mortgage lender Countrywide Financial afloat in recent months, a leading senator said on Monday.
In a letter to the regulator of the Federal Home Loan Bank system, Sen. Charles Schumer said Countrywide, the largest U.S. mortgage lender, may be abusing the program.
At the end of September, Countrywide had borrowed $51.1 billion from the Federal Home Loan Bank system — a government-sponsored program.
“Countrywide is treating the Federal Home Loan Bank system like its personal ATM,” Schumer, a New York Democrat who heads the housing panel of the Senate Banking Committee, said in the letter. “At a time when Countrywide’s mortgage portfolio is deteriorating drastically, FHLB’s exposure to Countrywide poses an unreasonable risk.”
News of Schumer’s letter, first reported by the Wall Street Journal, helped trigger a selloff in the stock market and pushed the yield on the 10-year Treasury to 3.81%, its lowest level in nearly four years.
Shares of Countrywide [CFC 8.64 -1.01 (-10.47%)] closed down 10.5 percent at $8.64 on Monday. Last Wednesday the shares closed below $10 for the first time in more than five years.
Schumer wrote Ronald Rosenfeld, chairman of the Federal Housing Finance Board, who oversees the system of 12 regional banks that offer financing to mortgage lenders like Washington Mutual and World Savings Bank, which was bought by Wachovia in May 1996.
Countrywide has done its borrowing through the Atlanta Home Loan Bank. Both Rosenfeld’s office and the Atlanta bank declined to comment on the Schumer letter.
The Home Loan Bank system raises money by issuing bonds guaranteed by all their members and which investors give a preferred status because of an implied government backing.
For Countrywide, the Home Loan Banks have offered a source of relatively cheap and steady funding in recent months as its own bonds are now trading at junk status.
Countrywide increased its FHLB borrowing from $28.83 billion in the three months between mid-year and the end of September.
The California-based lender has put up about $62.4 billion of mortgages as collateral for its $51.1 billion in FHLB borrowing.
The home loan banks were created by Congress in 1932 to prop up failing banks and provide money for housing.
However, in recent months, these banks have been providing funds for mortgage lending by proving secured loans, or “advances,” to mortgage lenders to fill a void created in August, when investors’ fears of default risk shut off mortgage lenders’ ability to raise money through commercial paper or other short-term borrowings in the capital markets.
Schumer also asked the regulator to consider preventing any further or continuing overnight advances based on collateral that does not meet the guidance issued earlier this year by the Federal Reserve Board—and adopted by other federal financial regulators such as the Office of Thrift Supervision and the Federal Deposit Insurance Corporation—concerning exotic home loans.
http://www.cnbc.com/id/21978972
Don’t you just love the commentary about how the Fed and Government can’t let CW fail, they will have no choice but to prop up such a big player.
Let’s see whether they can really do anything about it.
why go all the way to atlanta to get loan?
CW owns a bank in the Atlanta district I believe.
This is old news and I pointed it out in several posts at least a week ago. Story was carried in Bloomberg the day before my postings.
Drinking out of the toilet…
http://www.recordnet.com/apps/pbcs.dll/article?AID=/20071123/A_NEWS/711230322
Don’t look now: Here comes the recession…………..
http://money.cnn.com/2007/11/23/magazines/fortune/barr_recession.fortune/index.htm?postversion=2007112615
b,b,b,b,b, but it’s supposed to be different this time….
it IS different this time. it’s worse
Maybe. Personally I believe we have been in a recession for the last 7 years.
The dollar adjusted for inflation is now worth $0.57
The dollar in 2000 adjusted to the currency basket is now worth $0.84
The US GDP when adjusted for the dollar is unchanged from 2000.
Despite a 5-year bull market in stocks, the S&P 500 is currently 5% below its 2000 high. Including dividends, the average annual total return of the S&P 500 over the past 7 years has been just 1%. (It is down 50% when adjusted for inflation and currency translations).
The best US investments over the last 7 years have been US Treasuries.
What growth has there been?
“Homeowner Barak Engel called the $495,000 price for his home ‘the last option before the nuclear option.’ The nuclear option means walking away from the home.”
Bad Credit has a half-life of 7 unlucky years, should the nuclear option button be pushed.
1000% hedge fund wins subprime bet!
A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time.
From the same article…………….
“Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.
http://www.ft.com/cms/s/0/7b6160be-9b80-11dc-8aad-0000779fd2ac.html?nclick_check=1
“Marty Clevenger, president of a commercial developer in Roseville, said small strip centers without a large anchor tenant have fallen out of favor. And new shopping centers anchored by supermarkets have come to a halt because of the dropoff in home building.”
“Grocers ‘have pulled back because those projects are specifically tied to housing units,’ he said.”
One by one, consumer dominoes fall upon one another…
Hi all. I apologize for this cross post - this is a response to this morning’s thread where it might get seen.
To AnnScott, who seemed to believe that some of my conservative beliefs come from driving a Beemer to famous upscale stores:
Conservatism (to me) does not equal lack of charity or sympathy for humanity. As you do, I usually feel an extra responsibility to help others because I am fortunate to have so much.
However, I admit that what I don’t get is how people can get old and not understand that endless charity is *not good for people*. There are now several generations of welfare recipients who know how nothing except how to work government systems for money. They have no idea how to fend for themselves (aka the Katrina effect) because they know their sugar daddy, oops I mean the government will provide.
Social security nets to protect the temporarily down on their luck or the disabled are another entirely and I’m not against those. The difficulty is in kicking the bums out of those systems.
Many of my attitudes were developed from growing up a family that ran a community care home - it’s a boarding home for the mentally ill and retarded. I learned a whole lot about how “the other half” lives, including employees who lived right at the poverty level because my father could not afford to pay them more. LOL - my childhood had nothing about gated communities in it.
And I am not rich - my husband and I started out with a negative net worth about 10 years ago. We live in a modest apartment with 2 paid off cars hovering at 100,000 miles each. So if you have a “spare” Lexus you can send me, I’m all for it. Thanks in advance.
” seemed to believe that some of my conservative beliefs come from driving a Beemer to famous upscale stores”
I did not say that. You ask how so many older people could remain liberal - aging hippies or something.
Since you seem to equate liberal with charitable, compassionate and tolerant, I gave 3 reasons:
(1) Christian beliefs about charity and compassion for the poor and, I should have had added, all the stuff about giving alms to the poor and judge not, least ye be judged.
(2) Noblesse oblige from family belief that those what have financial, educational and social advantages have the duty to aid the less fortunate
(3) wider experience with all types of people form all social and economic classes. The comment about being isolated from the experiences of other unlike oneself if one lived in a gated community and only went out in the Beemer to go to Neiman Marcus was an example of the social isloation of many people. I did NOT say that was you - but apparently you must feel inexperienced with understanding people who are not of your background or had the same experiences.
Look at the language you use - bums. You claim that you grew up around people emloyed by your father but at barely above poverty level wages.
You do realize that households at 150% Federal Poverty Level are eligible for food stamps? Of course that is only up around $15000 a year income for 1 person, $20,400 for 2, $26,600 for 3 etc .- hardly munificent incomes wiwth which toprovide housing and all other necessities. Food stamps are the ONLY thing that a person or couple without children can qualify for (with one exception as to Medicaid if they are disabled.) The Food Stamp allotment can be up to $125 per person but rarely is that high.
I still do a lot of charity work. A man who is disabled (diagnosed with severe schizophrenia in his last term of law school) and living on $600 from Social Security for everything (housing, utilities, transportation etc) only qualified for $15 in Food Stamps - and even when subsidized housing takes 33% of that $600.
Medicaid is restricted to adults usually below 100% FPL AND disabled, pregnant women up to 150FPL or so and kids up to 200% FPL.
As for as welfare goes, the only thing left is ADC (Aid to Dependent Children.) That is a cash payment for hosueholds with children. It isn’t much - something like $250 -300 for 2 kids. It also requires the parent(s) to be seeking work or engaging in work activities and it ends after 5 years or so in most states regardless of whether the household has income.
Housing assistance is based upon income - again it has to be below 200% FPL in most areas and the waiting lists are either closed or a decade or more long.
So what do you want rid of?
I can no accept the sterotyping of those caught in N.O during the hurricane. The later breakdowns of the refugees showed that 30-40% were disabled or elderly. Since 70% of people who are disabled have incomes BELOW Federal Poverty Level, I’m not surprised they had neither an SUV to drive away nor credit cards for a hotel. Being elderly is also likely to put one in the low income group. Currently those over 65 have a median income of $24,509 - and less if they are single.
Further, the later data on the hurricane refugees assisted by FEMA with housing showed that of the adults over 18 and under 65, 80% had been employed. Unfortunately NO was a low-wage city based largely on tourism. $6, $7 or $8 an hour cleaning hotel rooms, schleping baggage at the airport, mowing lawns or waiting tables doesn’t exactly leave a lot of extra money. Nor are those skills sufficient to pay for the cost of living in higher priced cities like Houston, New York or other places.
Some of the refugees were infuriating in their sense of entitlement - a group in NYC comes to mind. Some were dumb as a post - the testimony by some of them before a Congressional Committee was not a high point for logic and lucid thought.
One however can not condemn all based upon the examples of a few.
Heaven knows I saw enough of the lower social and economic class when I was practicing law. They were like everyone else. They were not typically sophisitcated culturally or even awasre tha most people lived lives quite different from theirs except for what they saw on TV. Most were honest, some dishonest, some lazy, most hardworking. Thing is there are dishonest people with great wealth - the heir to the Cellular One fortune went to Federal Prison for 6 years for insurance fraud. There are lazy people with great wealth - Paris Hilton comes to mind if you want to talk about absolutely useless.
It seems like there has always been an underclass. Roman republic had a huge one, so did Plantangent England, so did 18th century US, so did 19th century England and US. A large part of it is simply that not everyone is born equal in abilities, talents, opportunities and contacts. The canard that ‘people shouldn’t have children if they can’t afford them’ ignores one important fact. The children born to a woman who will never achieve more than cleaning hotel rooms because of inherent limits on her ability and a man who lacks the intellectual ability to do more than stock boxes will probably never be candidates for college themselves. They will most likely work at the same low-level jobs as their parents. Somebody has to clean the buildings and get rid of the trash - and if not the lesser skilled and limited in ability, then who? Th kids of the upper middle class who earn more than $90000 themselves?
WOW……..another waterfall……..nice!
http://www.markit.com/information/products/abx.html
Sorry………….click on ABX-HE-AAA 06-1
I personally like the BBB- 07-01 trading at 17.11 cents on the dollar.
But watching AAA plunge has its own Schadenfreude.
Got popcorn?
Neil
Exactly. Heard today that Countrywide Bank has option ARM loans as 42% of the total loans they keep. How much of that do you think is in California? I don’t think many people get the fact that the BASE price of homes here was $400K. I have no doubt the base price of option ARMs were $600K. It is one thing to lose 30% on a $200K loan, but a whole different animal to lose 30% on $600K.
“I personally like the BBB- 07-01 trading at 17.11 cents on the dollar.”
The method for pricing these NINA/SIVA loans is appropriately called the “Monte Carlo” method. Many of the underlying MBS are from Fremont, Countrywide, Long Beach etc. The future value depends on 2 things 1) the bond is not called for default -if it defaults the senior tranche gets ALL the interest and 2) the housing price must stay at current value or better - if the value falls below (at any time) value over the next few years, the CDO may be and is probably worthless. I would rather be shorting at 17.11 than thinking about buying. If you want to take a flyer buy Countrywides 2 yr bonds. Current yield ~11%; YTM = 32%.
I’m outta popcorn, send me some please!
The term “Monte Carlo” has completed a funny, ironic circle in this context. Monte Carlo method
For me the most fun one is AA 07-2 at 35c.
Heck, double A sounds safe, doesn’t it?
Click on CMBX
CMBX-NA-AA 4
In the commercial market up is bad (unless short).
Driving back from vegas to san diego, I encountered the FB symbol as we went through the mojave desert. Yes, for miles and miles, the joshua trees, standing proud and ready for the FBers to take their throne, seemed quite content in their new role as proctologists to the masses.
We need to change the theme from joshua tree to something cute like Keyholed.
Interesting string of tales, I’m glad the mtge thing is contained.
CHERNOBYL was contained too, if memory serves me correctly.
So was Three Mile Island.
T.M.I. actually offers us an important lesson.
Investigations after the T.M.I. incident revealed that operators, in their haste to prevent a meltdown, actually brought the situation closer to the edge than if they would have sat back and done nothing.
OK,its early, but Nikkei is down 275…
Nov. 27 (Bloomberg) — Asian stocks fell for the first time in three days on speculation financial institutions will report increased losses from U.S. subprime mortgage-related securities.
Mizuho Financial Group Inc. and Macquarie Group Ltd. led declines after Goldman, Sachs & Co. said HSBC Holdings Plc, Europe’s biggest bank, may have to write down an additional $12 billion for non-performing subprime assets and CNBC said Citigroup Inc. may shed 45,000 jobs.
HSBC may be the first bank that I go long.
They have the cleanest books and are still solvent.
Imagine what would happen if Citigroup moved its $75B in CDOs onto its balance sheets! They wouldn’t be able to make a loan for 5 years.
If the US had allowed CNOOC to buy Unocal, I could see Citigroup as a potential takeover by ICBC. But now Citigroup will have to be trading at $20/share before a Chinese bank will step up. Maybe Blackstone? fronting for a Chinese bank? Random thoughts.
Are you sure? UK reports have been that they’re badly exposed on 2005 and 2006 loans. Granted that the UK’s definition of badly exposed may not match those of Wall Street’s right now, the Northern Rock debacle not withstanding.
“Citigroup said late Monday that the Abu Dhabi Investment Authority will invest $7.5 billion in the nation’s largest bank, offering needed capital to offset big losses from mortgages and other investments.”
linkey
Don’t be so sure about the solvency of the Chinese banks. They were close to be insolvent back early this century, before the government bailed them out by taking all their bad loans off and injecting cash into them.
They are at more or less the same boat now. The Chinese real estate market has its own bull run and share of mischefs. Anyone bought into the Chinese banks/insurance companies will be in for a shock in the future. These companies are generally poorly run, little regulated, and are the centerpiece of all the corruption that is going on.
I think it is beginning to sink in. Sunday after thanksgiving is usually a traffic nightmare in Socal, but I drove from Riverside to thee OC at 3 in the afternoon easier than i think i ever have before. Eerie…
Also went to Fry’s Saturday morning at 9:30 trembling with fear… but there was plenty of parking and i got in, found what i needed, and out in record time. $97 Sony 5.1 Surround sound system for the kid’s room. So cheap…
Frightening yet satisfying.
From Yahoo.finance..”The benchmark 10-year Treasury note rose 1 17/32 to 103 20/32 with a yield of 3.85 percent, down from 4.00 percent late Friday. The 10-year yield has not been this low since June 2005.”
Anyone care to comment on where this will put the 30 yr mtge rate? From what I have read, the spread is now 250 bps or so, whereas it used to be about 150 bps…
Got Risk Premium?
It’s called Ben Bernanke cannot influence long term rates, only short term. By devaluing the currency, foreign investors naturally want higher interest rates to let us “borrow” their monies.
As short term rates go down, long term rates go up. They move in opposite directions. That is the funny thing about this. Realtors and Mortgegs brokers tout that the FED will lower interest rates. Yeah, maybe on the suicide loan crap but the stead responsible stuff starts costing more since you punish people who try and be responsible.
erm - the long term yield went down from 4.0% to 3.85% - or did i miss something there. Which i believe is being interpreted as a general flight to the safety of US treasuries.
Sorry if this was already posted. In the UK and freezing my tush off!
6,000 job applicants for only 300 Wal Mart jobs. And who says the economy is fine?
http://www.cleveland.com/news/plaindealer/index.ssf?/base/business-4/119606989156620.xml&coll=2&thispage=1
I really don’t get why people stay in a place like Cleveland, which is obviously in terrible economic shape with scant prospects for improvement in our lifetimes. There must be a hundred cities in the US that are in better shape. Why not move to one of them?
Because they can’t sell their houses.
Fair enough, but that begs the question: why would anyone buy a house in a permanently declining city in the first place? Also, even assuming they made that error, they should arguably “just walk away” like the cry-babies in California want to do. At least Clevelanders (or whatever you call them) have a good economic reason to do so!
Ya don’t see poor people?
They’re not (n)mobile?
Not everyone is willing to pack up and leave a place where they grew up, where all their friends and family live, where they are comfortable.
Most of my family are in Cleveland. They stay for their mediocre jobs or businesses. But most of all for their families.
Because if you’re going to live on minimum wage, you’re better off where everything is cheaper. Rents can be as cheap as $200/mo, gas is 50 cents/gal less, food is cheaper. They may have family there so they can help out with childcare or double up. I wonder why anyone poor would stay in SoCal where everything is way more expensive.
I beleive the “birth/death” model said there were ony 678 applicants!
Oh yes, I always forget the Government’s play on numbers. It’s just a game.
The funny thing is when Peter Schiff rips the guy on FOXNEWS about the Government jobs number being bogus, the expert says, “The economy is doing good, we created 200k jobs last month.”
Peter just shook his head and said, I am sick of dealing with this idiot.
I see where the “experts” keep saying that the FED should keep injecting liquidity into the markets to keep them from seizing up, but when do you say enough is enough? The FED keeps giving these banks money and they keep digging themselves deeper holes. When you are in a hole they tell you to stop digging. You cannot borrow your way out of debt. Sheesh.
The Federal Reserve would love to add liquidity into the markets! Since August, the Federal Reserve has added 0, zip, nil, zilch! Contrary to reports of 45B in liquidity the Federal Reserve has been rolling over the funds. To add liquidity somebody has to wish to borrow. No QUALIFIED borrowers. Thus what is reported as a “credit crunch” is in fact “credit insolvency”. Banks will not loan to banks because of the borrowing banks credit standing.
Sovereign bailout is now, on.
Nov. 26 (Bloomberg) — Citigroup Inc., the U.S. bank searching for a new chief executive as it faces at least $8 billion of writedowns, agreed to sell as much as 4.9 percent of the company to the government of Abu Dhabi for $7.5 billion.
Citigroup will sell equity units to the Abu Dhabi Investment Authority that convert into common shares, the New York-based lender said today in a press release.
97.99% of the REIC Gang, almost ALL of the FB’s and the ENTIRE US Congress along with our fearless Executive branch should be ISSUED Tents, SpaceCadet Tickets, an Automated Intergalaxtic Signal Lamp along with a personal parking space in Roswell, NM to await the arrival of their Motherships.
This Area should ALSO be FENCED IN and surrounded with Duct Tape, Plastic, Cost of Living Estimates and Heavy Machine Guns until they leave on the Federation Starships, the “Bailout and Titanic”.
A little soothing PsyOp Music along with continuous chanting of “Now is the Best Time to Buy”, “b..b..but WE see light at the End of the Tunnel” and “How MUCH House CAN you Afford” should prevent these dangerous animals from stampeding or FURTHER damaging this Bankrupt US Economy for the next 50-100 YEARS .
semi-legal BS disclaimer:
I am NOT now nor have I EVER BEEN a member of the bush/cheney streetgang called al Qaeda.
I do NOT work FOR, Manage or OWN Home Depot, Mennards or 3 M (Adhesives Division)
All above noted Tickets ARE ONE WAY and Non-Refundable.
All figures mentioned above ARE merely approximations and YOU should have your local RE Agent and Attorney ACCOMPANY you ON this TRIP.
Hahaha…you forgot the lube though.
Anyways, I’m starting to think that the whole US economy is mostly a perpetual motion machine in a way. You have Realtors selling houses to construction workers who build houses that are bought by restaurant workers who cook food for yuppie management who turn around and give jobs to Realtors who sell houses to construction workers who build houses that are bought by restaurant workers who cook food for yuppie management who turn around and give jobs to Realtors to sell houses to construction workers who build houses that are bought by restaurant workers who cook food for yuppie management who turn around and give jobs to Realtors who sell houses to financial experts who give jobs to yuppie management who sell houses to construction workers who build houses that are bought by restaurant workers who cook food for yuppie management who turn around and give jobs to Realtors….I’m getting dizzy here. And all of these people in turn buy Walmart junk from China which buys pieces of paper from the US Treasury (part of Walmart hehehe) and turn around and give those pieces of paper to Europe in exchange for God knows what and the Europeans turn around and give us Euros (weirder pieces of paper) for our dollars…..better make sure Fort Knox has that mountain of gold or the dollar’s going to look real stupid in a SHTF scenario heheheha….
Got Lube?
In simpler terms, our entire economy consists of nothing more than people selling houses to each other for progressively larger sums of money.
I pulled the majority of my money out of US equities over the past few months and even, inspired by some of the people here, started buying gold and silver.
Great article that I read in today’s print version:
“Sliding into the sea - California’s economy looks even more wobbly than the rest of America’s” (The Economist)
http://tinyurl.com/2xltnq
“It’s a great time to buy.
It’s a great time to lose your butt in the housing market if you buy now!
A Huge article on a California Ponzi Scheme:
http://www.pe.com/reports/2007/wealth/
SoCal Ponzi Scheme
http://www.pe.com/reports/2007/wealth/
Has anyone factored in the macro economic implications of salvaging the mortgage industry by rapidly lowering interest rates ? In case the Money Pundits haven’t explained this to the general public, at this juncture, lowering interest rates rapidly devalues the exchange value of the United States Dollar. At a certain point, which nobody seesm able to say where, dollar denominated investments start to become “problematic” and strange things begin to happen, like Abu Dubai purchasing 5% of Citicorp two days ago with the profits from dollar denominated petroleum. The worse the mortgage crisis becomes, the deeper the political pressure for steep interest rate cuts, and the faster the US dollar depreciates, and the cheaper major (meaning: of strategic value) US based corporate assets become to foreign buyers… in a nutshell, we in our infinite wisdom have engineered Reverse Colonialism on ourselves in the name of “high maintenance lifestyle”… Go Figure.