This All Sounds Quite Familiar
It’s Friday desk clearing time for this blogger. “Builders broke ground on more Clark County homes in July than during the same month in any of the last four years. Builders throughout Clark County say they are selling more houses this year to buyers enticed by historically low mortgage interest rates, a dwindling supply of existing homes listed for sale and the feeling that home prices are about to head higher soon. ‘That’s what’s pushing the urgency,’ said Matt Lewis, a spokesman for Pacific Lifestyle Homes.”
“Last month, property sales in Metro Vancouver fell to a 10-year low, and parts of the Tri-Cities were in the same basement. One financial expert believes Lower Mainland real estate has reached a turning point. Andrey Pavlov, a professor of finance with Simon Fraser University, noted prices in Vancouver have rocketed past those in places like New York and San Francisco. Pavlov argued home prices rose dramatically in the Lower Mainland, not out of income or general economic growth, but rather debt accumulation.”
“With low interest rates and easy qualification terms, people have been taking on more and more debt. ‘I think this engine of real estate price growth is now done,’ Pavlov told The NOW in an e-mail. ‘So I don’t see where the future support for real estate can come from.’”
“In 2007 Kate Thompson was WA mortgage broker of the year. Now she is facing fraud charges. It is alleged Mortgage Miracles, in Canning Vale in Western Australia, obtained investment loans for customers by using falsely inflated earnings and assets. Ms Thompson admits that is exactly what she did. ‘I received 4,000 emails, and in those emails from the banks to the brokers you’d see clearly bank officers instructing the brokers how to have no-loan mortgage insurance, no income necessary, no assets and liability, virtually just get a signature on a document, send it in and we’ll give this person, no matter what their income or affordability criteria is, give them a $500,000 loan,’ Ms Brailey said.”
“Michelle Matheson, a single mother of three contacted a local business that said it could help people manage their money. The adviser who saw her was in fact a mortgage broker. She says she was told to buy a home, despite at the time being a single parent, working part-time, and earning around $24,000 a year. The loan application, which she only received recently, said Ms Matheson was a self-employed professional and grossly overstated her income. ‘I’ve taken on two to three jobs at a time, I work up to 90-hour weeks. I’ve sold everything to make mortgage payments,’ she said. ‘I’ve got credit card debt of close to $30,000 because I’ve had to put mortgage repayments on that.’”
“‘Property investors who purchased homes after 2009 will suffer a loss of more than 30 percent if they want to sell their properties now,’ said Ding Yi, a developer of luxury homes in Wenzhou. Businessmen from the city, one of China’s wealthiest, are well-known for their speculative activities in various sectors, especially the property market. Staying calm and waiting for the property market to recover is the best option for investors at the moment.”
“‘I bought most of my properties before 2010, when the restrictions were imposed, and I am waiting for the housing market to recover, which will happen sooner or later,’ said Zhuang Chen, an investor from Wenzhou who owns 30 properties.”
“‘I haven’t seen a single investor in the past half year coming to me for new luxurious apartments, which are mostly empty for the moment,’ said Zheng Jian, a salesman at a property agency in Wenzhou.”
“Dana Dudley, with Fitzgerald Financial Group in Frederick, said she is seeing homebuying at her office. ‘Some of the homes are even getting multiple offers,’ Dudley said.”
“But Maryland, with nearly 1,600 foreclosures in July, had the highest rate of new foreclosures, according to the Maryland Bankers Association’s website. ‘There is a huge amount of people teetering on the edge,’ said Hugh Gordon, branch manager for Prospect Mortgage’s Frederick office. Many come to his office hoping to refinance loans, Gordon said, but they are too ‘underwater’ to do so — not enough equity in the house, or other reasons. ‘They are just getting by on the skin of their teeth.’”
“They’re on almost every Grand Strand street: foreclosed properties. But dozens of these homes are collecting dust for years because they aren’t listed on the real estate market. ‘I’ve seen several vacant,’ said Ryan Brennan, a homeowner in The Orchards. ‘The home on the corner has been empty for two years.’”
“Many condos and townhomes in The Orchards neighborhood in Carolina Forest are listed as vacant, fliers posted on the front doors point potential homebuyers towards the Bank of America foreclosure department, but a visit to their website shows not a single property is listed in the Myrtle Beach area. ‘There are hundreds of thousands of properties that are sitting there,’ said realtor Blake Sloan. ‘They’re an asset, but they aren’t getting any payments.’”
“The National Association of Realtors has issued a formal recommendation to several national banks, asking to halt foreclosure proceedings until the current number of homes can be processed. ‘They said ‘Let’s clear some of this backlog,’ Sloan said. ‘Then we can get to the true value of these homes, because you’ve still got a lot of buyers on the sidelines.’”
“Auctions of foreclosed homes in the Chicago area more than doubled during the first half of the year. An overall uptick in foreclosure activity has increased the average amount of time it takes a home in the Chicago area to make its way through Illinois courts. In Kane County, lenders seeking to schedule an auction are getting dates in early January, despite the fact the sheriff has been asked by the court to increase to 130, from 100, the number of weekly auctions. ‘If it keeps going like it is the last month, we might break that record,’ said civil courts Lt. Thomas Bumgarner. ‘Every week, we’re getting 100 to 150 new ones.’”
“One suggestion under discussion would be to require that foreclosure auctions take place within 45 days of the end of the redemption period. ‘I’m really conflicted about it,’ said Steven Bashaw, a Lisle attorney who represents homeowners in foreclosure. ‘There are people who would say that anything that delays this process is good. But that’s pretty shortsighted. I say while that’s true, what the defendant really wants more than another six-month rent-free in their house is some certainty.’”
“California’s Homeowner Bill of Rights, which takes effect Jan. 1 and applies to all lenders in the state, will implement some of the $25 billion robosigning settlement’s provisions for how banks assist distressed borrowers, such as requiring a single point of contact and banning dual tracking. But it does not have a way to motivate banks to give principal reductions or lower monthly payments. For homeowners such as Rosa and Michael Pacheco of Castro Valley, that could prove a difficult reality.”
“The couple, who have four children younger than 9, including two with developmental disabilities, have seen their variable-rate mortgage soar from $2,800 a month to $4,800. Although Michael Pacheco makes a decent income, they just can’t afford that. Their mortgage servicer told them to short-sell the house at $410,000, way below the $692,000 that they owe. Rosa Pacheco said if they could get their mortgage reduced to the short-sale price, they could stay, but the bank has refused their requests for a loan modification.”
“‘My husband is working full time, and we can pay (a revised, lower) mortgage,’ she said. ‘I don’t understand why they want to put my family out on the street and sell the house to someone else for a cheap price.’”
“King County home sales and prices continued to rise in the second quarter, pushing down affordability, according to a new report. The biggest potential cloud for the area’s housing market is the same one that’s been lingering for a while now — homes in or under threat of foreclosure. The Mortgage Bankers Association reported Thursday that 6.9 percent of Washington mortgages were at least 90 days past due or in the foreclosure process in the second quarter. That’s nearly 80,000 loans.”
“This ‘points to the biggest challenges that we have,’ said Glenn Crellin, Associate Director at Runstad Center for Real Estate Studies at the University of Washington. ‘I had hoped that their data was going to show a decline in the delinquent inventory because of the strength in the market, and it didn’t.’”
“One reason this hasn’t happened much this year is that the actual number of foreclosures ‘really has fallen off,’ Crellin said. ‘We’ve got a significant amount of properties out there that are still in that foreclosure limbo. Something has to happen to them. The rat isn’t moving through the snake as rapidly as I expected it to.’”
“Q: How important is housing to the big picture in the overall economy? Hank Fishkind: Well, it’s a modest piece of the total gross domestic product of the country, but it’s a very dynamic piece. And typically housing leads the economy out of recessions. But, of course, that didn’t happen this time because housing caused the recession.”
“Q: It’s somewhat ironic that the housing industry, which contributed to a great extent to crashing the economy this time, might be the sector of the economy that pulls us out of this recession. But for anyone acquainted with Florida’s economic history, this all sounds quite familiar. The housing boom of the 1920s was followed by the Great Depression. The post-war housing boom was followed by the bottom falling out of the industry again in the early 1970s. Will Florida ever see an end of this boom-and-bust cycle?”
“Fishkind: Probably not. I think it’s inherent in Florida almost that we’ve had these cycles. Almost the whole nation had the boom-and-bust cycle. Of course, it’s more dramatic in Florida because we’re more prone to it. Our economy has been based, in part, upon real estate development, and I don’t think that’s going to go away any time soon.”
“But it does not have a way to motivate banks to give principal reductions or lower monthly payments.”
Color me ignorant, but I am baffled by this notion that banks should summarily hand borrowers tens or hundreds of thousands of dollars in unearned debt-forgiveness income simply because they are underwater. The homeowners were the sole beneficiaries of year after year of home equity gains; why should they be rewarded again now that they are facing the downside of home ownership during the bubble era?
If anyone can clear up my deep and persistent ignorance about the Democratic principles of governance involved here, I would be forever grateful.
This has been my very question for years. If you bought a house you bought a house and the risk or benefit that potentially goes along with it. Its like all the underwater homeowners expect a rigged slot machine courtesy of other taxpayers and bank customers.
The truly amazing part is that so many policy makers and pundits seem to think personal bailouts to the tune of hundreds of thousands of dollars are a perfectly reasonable remedy.
Why not just give away money to all Americans? Perhaps we could have a national lottery for $1M prizes. It seems like such a waste to hand over money to people who borrowed amounts they couldn’t afford to repay, as the moral hazard incentives to encourage more stupid borrowing in the future would be immense.
You can’t run a country forever on stupid.
You can’t run a country forever on stupid.
It’s worked so far.
why they want to put my family out on the street
This is the thing that always galls me. Foreclosure doesn’t automatically mean you are living under a bridge. You are probably now *gasp* a RENTER.
If they can maintain generally stable prices for the economy, keep unemployment below a critical level, AND enrich their friends and themselves in the process, well, what’s not to like?
The problem is of course, using other people’s money for personal goals. Tax money should only go to public goods, not the profits of some favored sector.
The other problem with slightly-too-clever money printing and government taking bad debt off of the private sector’s hands is, loss of confidence in the currency.
Right now, currency has value beyond its paper and ink. It’s why a hundred dollar slip of paper has more value than an identically-sized one dollar note.
If they inadvertently detach the wealth value - the goods and services, labor and sweat - that each unit of currency represents, they will cause the ultimate unintended consequence of hyperinflation and currency collapse.
Let’s hope they’re not too clever by half. Let’s hope they focus on trying to figure out how to confine the losses to the people who incurred them - the lenders and debtors - instead of these too-clever schemes that try to protect those sanctified classes and force the rest of us to incur the costs.
Just because currency is a logical construct, does not mean it can withstand any insult before dissipating.
I’d be happy getting a 2% 15yr fixed loan with a 33 1/3 down payment!
This has been my very question for years. If you bought a house you bought a house and the risk or benefit that potentially goes along with it.
You’re right, of course. And unless these very same people are willing to give up some shared appreciation on the way up, it makes no sense at all.
But the sentiment here is not entirely due to entitlement. There is a growing realization that the banks and the 1% made out like bandits during this bust, and that perhaps they did so purposely, not accidentally or due to luck.
We might not like the way the wake-up call is expressed, but I am still hopeful that the general population will become cognizant of the fact that we’ve been hosed.
Because we do not want cascade debt default into depression.
The housing bubble, and the other bubbles, as are symptom of the underlying flaws in our economy.
If you want to keep a fundamentally flawed economy functioning for a little longer, then you have to do certain things, like inflate bubbles so people can borrow and spend the paper profits, then ensure the excess debt created does not result in cascade default.
The housing bubble, and the other bubbles, as are symptom of the underlying flaws in our economy.
But when will we be truly at peal debt? It seems like we are teetering at the tip of the pyramid scheme right now. But maybe this can drag out for a very long time.
pealdebt?I meant peak debt
I’d say the banks deserve to give up at least half the difference… they were supposed to be the responsible party in these moronic transactions.
Stupid SHOULD hurt.
‘banks deserve to give up at least half the difference’
First, for the most part banks are just servicing the loan. Trusts, bonds or the US govt are the entities that put up the money. Second, these creditors are taking all of the loss, except what was a down payment.
Third, if creditors start writing down loans, everybody on the street will want the same deal. Fourth, these FB’s can’t afford 490k.
‘what the defendant really wants more than another six-month rent-free in their house is some certainty’
for the most part banks are just servicing the loan
If that’s the case then why are we even discussing TBTF? Why were we told we had to save the banks, “otherwise this sucker’s going down”?
The investment banks had some of the bonds in their own portfolios (often leveraged) and huge amounts of derivatives written on them in their own protfolios.
Right ,the real problem was the casino bets the Bankers and investment banks were making in the unregulated markets in which they used the real estate securities as the underlying asset to make those huge bets ( that should not of been allowed ).
Ocwen has a two part deal for principal reduction modifications:
1. You agree to keep current for at least 3 years, 1/3 of the agreed principal reduction occurs each of the three years; and
2. The bank gets a share of the upside (25% I think I read).
So, if the bank has a choice of:
a. Short sale today for a total of $410k; or
b. A reduced principal balance to $410k after the borrower has demonstrated an ability to pay for 3 years in a row on the new loan amount and balance, and then gets a share of the upside beyond $410k,
I can see the logic in “b” if I’m a shareholder of the lender or owner of the mortgage.
Simply handing the borrower the money with no evidence they can make the new payment, and no upside sharing is a give-away.
Under the restrictions in b, there are a trivially small number of deals made.
The three years are starting from the start of the modification, NOT been current for the past three years.
In other words, you earn your principal reduction by making three years worth of payments starting today.
http://shareholders.ocwen.com/releasedetail.cfm?ReleaseID=601517
“the principal of the loan is written down to 95% of the current market value of the home. The written-down portion is forgiven in one-third increments over the next three years, so long as the homeowner stays current on the modified mortgage. When the house is later sold or refinanced, the borrower must share 25% of the appreciation with the investors that own the loan; borrowers keep 75% of the gain.”
and
“Ocwen launched the SAM program on a pilot basis in August, 2010. “The results of our initial pilot were extremely positive — 79% borrower acceptance rate with only 2.63% redefaults,” said Mr. Faris. Ocwen has since ramped up the program and now has regulatory clearance to make it available to qualified customers in 33 states. “We think this program can make a real impact on curing the negative equity problem and are working hard to obtain approvals for SAMs in all jurisdictions,” added Mr. Faris.”
But if the writedowns occur after the end of the year, the FB would then owe income tax on that forgiven amount correct (assuming Mortgage Debt Relief Act is not renewed).
“…assuming Mortgage Debt Relief Act is not renewed…”
Not so fast…
Article posted: 8/10/2012 5:24 AM
Mortgage debt relief may be extended in tax code
By Ken Harney
WASHINGTON — Here’s some encouraging news for financially stressed homeowners across the country: The Senate Finance Committee approved a bipartisan bill before heading home for summer recess that would extend the Mortgage Forgiveness Debt Relief Act through 2013.
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Why is this important? Several reasons: The debt relief law spares homeowners who receive principal reductions on their mortgages from being hit with hefty federal income taxes on the amounts forgiven. Without it, millions of owners who go through foreclosure or leave their homes following short sales would experience even more financial stress.
The law — which has also provided relief to thousands of people who have debt balances written off as part of loan-modification agreements and is crucial to the $25 billion federal-state robo-signing settlement with large banks — is set to expire at the end of December. Some Capitol Hill analysts predicted that, along with a host of other special-interest tax benefits, an extension might have trouble making it through the partisan gantlet in an election year.
But the Senate committee managed to pull together enough votes Aug. 2 to pass the debt-relief extension, after heavy lobbying by the National Association of Realtors and the National Association of Home Builders. The bill, which now moves to the full Senate for possible action next month, also would extend tax write-offs for mortgage insurance premiums for 2012 and through 2013, and continue some energy-efficiency tax credits for remodelings and new home construction.
The mortgage debt relief extension could ultimately affect millions of families who are underwater on their loans, delinquent on their payments and heading for foreclosure, short sales or deeds-in-lieu of foreclosure settlements. Under the federal tax code, all types of forgiven debt are treated as ordinary income, subject to regular tax rates. When an underwater homeowner who owes $300,000 has $100,000 of that forgiven as part of a modification or other arrangement with the bank, the unpaid $100,000 balance would normally be taxable.
But in 2007, Congress saw the fast-mounting distress in the housing market on the horizon and agreed to temporarily exempt certain mortgage balances that are forgiven by lenders. The limit is $2 million in debt cancellation for married individuals filing jointly, $1 million for single filers. This special exemption, however, came with a time restriction. The current deadline is Dec. 31. Without a formal extension by Congress, starting on Jan. 1 all mortgage balances written off by banks would be fully taxable — a nightmare scenario that has had financially stressed homeowners worried for months.
…
“Many condos and townhomes in The Orchards neighborhood in Carolina Forest are listed as vacant, fliers posted on the front doors point potential homebuyers towards the Bank of America foreclosure department, but a visit to their website shows not a single property is listed in the Myrtle Beach area. ‘There are hundreds of thousands of properties that are sitting there,’ said realtor Blake Sloan. ‘They’re an asset, but they aren’t getting any payments.’”
Okay, I’m not an accountant. Nor do I play one on TV. But it’s my understanding that an asset that no longer produces income isn’t an asset. It’s a liability.
But it’s my understanding that an asset that no longer produces income isn’t an asset. It’s a liability.
It’s producing an income. It’s right there on the books. We’re just having a little trouble collecting is all. But that means a bunch of extra fees, so actually we’re really raking it in. Just look at the books.
What Carl said. They use accrual accounting. If they have done what is required to earn the payment (still have the loan outstanding) they get to say they earned the income. Technically, their accountants are supposed to discount amounts that are unlikely to be collected, but if they are too aggressive with that, they lose the clients, so…
I’m not an accountant, but studied it quite in depth.
An asset is something that has value. The value can come from any combination of ability to generate income, provide a service, or be sold. For instance a car provides transportation and can be sold, so it is an asset. If that car is a taxi it can be all three. A water bottle is an asset (he types after taking a swig) but too minor to bother accounting for it.
A liability is an obligation to someone else.
Expenses are can occur from holding an asset (ie property taxes), from generating income (paying employees) or overhead (paying executives, office supplies).
So back to your original thought Slim. I wouldn’t say those properties are liabilities just because they are not generating income. But, it’s very arguable that these illiquied properties should be considered liabilities because the net present value of expected expenses exceeed the sale value and any income that might be generated.
But, it’s very arguable that these illiquied properties should be considered liabilities because the net present value of expected expenses exceed the sale value and any income that might be generated.
Thanks, Al. That’s what I was trying to say, in my non-accountant way of saying things.
We were approached by a partner of ours years ago (pre-bubble) with an opportunity to buy a very nice office building for less than $10 per square foot. The partner’s initial reaction was “how can this NOT be a good deal”. It was in a market in which neither of us had done business (red flag #1).
In any event, we essentially told him to do the math on the market rents, ongoing operating expenses for that building, cost to put in tenant improvements and to pay leasing commissions, not to mention to consider a reasonable amount of time to get all that done, and then tell us how much money can be made if the building is sold as a leased asset.
He called us back within an hour, and told us that the building wasn’t worth buying.
That building was a liability, not an asset.
Glad to help Slim. By the way, you’re interesting anecdotes are one of the reasons I keep enjoying the HBB.
I have 2 friends who both bought houses in Las Vegas in the past couple of months. Both were foreclosures. Both were dirt cheap, each around $100K.
I don’t know the specifics, but there are many homes here in Palm Beach County that aren’t worth $100K or anywhere near that.
If you think $100k is cheap now, I can’t wait to see the look on your face 10 years from now when those same depreciating shacks are $45k.
$100K is $400-500 PITI. A 2 bedroom apartment that isn’t in the worst ghetto costs more than that. You do the math on what’s cheap and what isn’t.
I know in HBB land everyone earns $7 an hour. In reality, that’s not the case and for most people $100K house is dirt cheap.
Eddietard,
When it can be built and sold at a profit for $100k, a used house for $100k isn’t “dirt cheap”.
“Both were dirt cheap, each around $100K.”
I see you still have bubble vision. Newsflash: $100k ain’t dirt cheap in the low-paying city of lost wages.
Don’t ask Eddie about how his Atlanta real estate investments are doing…
I see you still have bubble vision.
Where’s Jeff? I was just watching Foreigner on Palladia the other night…
I can show you really dirt cheap houses in Detroit, Camden and Trenton for $25,000…
Both were dirt cheap, each around $100K.
Both were dirt cheap, each around $100K
With low interest rates the monthly payment will probably be less than rent (P&I wold be $450).
The down side is that you’re now stucco, in a bust town with a huge inventory of empty homes that won’t get sold for years, if ever.
Unfortunately for them, they have to live in Vegas now.
Depends… I know a family who has purchased a second home in Las Vegas because they were taking enough trips there to justify the cost. (Partly work-related; he runs a trophy design business and they have a lot of his client competitions.)
Personally, the idea of a place with MORE 100 degree days than the Sacramento area kind of appalls me. But hey, they like it.
I miss that fishstick guy. Good to see more quotes from him.
“Our economy has been based, in part, upon real estate development, and I don’t think that’s going to go away any time soon.”
Ummmm…no. Our economy has been based on service and tourism. Real estate development all but went away in 2006 and it’s not going to return anytime soon…at least not to any boom cycle.
“Builders throughout Clark County say they are selling more houses this year to buyers enticed by historically low mortgage interest rates, a dwindling supply of existing homes listed for sale and the feeling that home prices are about to head higher soon. ‘That’s what’s pushing the urgency,’ said Matt Lewis, a spokesman for Pacific Lifestyle Homes.””
Historically, there was NEVER a sense of urgency to buy a home. These shills are trying to get another mania going. AB 284 has essentially stopped all foreclosures in NV since last October. It has added somewhere in the neighborhood of 35k-50k houses to the shadow inventory in Clark County causing an artificial supply shortage. Alas, keep building new houses!!
‘So I don’t see where the future support for real estate can come from.’
The Vancouver housing market will henceforth be supported on the back of a giant turtle.
There are going to be a lot of extreme stories coming out of Vancouver. Houses that sold for $1.2M at the peak going for $300k later. Small time investors having their web of HELOCs and condos come crashing down and finding out what recourse means. CMHC paying out claims for Chinese investors that have gone home. Oh, and quite possibly the first municipal government in Canada to do whatever passes for BK.
Recourse means you have to go bankrupt after the foreclosure.
They seem know that something is coming too. While driving through there last month, I heard an interview on the CBC station with someone (didn’t catch the name) from some banking organization who was saying among other things that Vancouver residents’ housing debts to income levels were now higher than (gasp!) those in the US just before our bubble burst. He wasn’t pushing an agenda by being a doom and gloomer as far as I could tell but rather spoke with a “just the facts, ma’am” demeanor. The host concluded the interview something along the lines of: “I guess it doesn’t look too good right now, but perhaps it won’t turn out as badly as you think it might.”
The program may even be archived. I was there on July 12, and I heard the program just before 5:00 p.m. on 690 if anyone knows how to look it up.
I didn’t find it. I might be able to if you could tell me where you where at specifically at 5:00 pm. However, I did find this:
http://www.cbc.ca/player/Radio/The+House/ID/2256256659/
I can’t believe that woman is actually saying…
So now that TurboTax Timmaaayy is going to put the screws to Fannie and Freddie, how will this affect the rate of foreclosures and thus, the housing market as a whole?
http://www.bloomberg.com/news/2012-08-17/treasury-accelerates-withdrawal-of-fannie-freddie-backing.html
It is payback for their refusal to not writedown principle. Obama stands firmly with the free sh*t army.
Mass production requires mass consumption. Mass consumption requires mass employment and living wages… Or, a free sh.. army to hand the production out to people in exchange for UOMe’ss that we call money.
If you are not going to employee people so that they can buy stuff, and we’re not going to let them keep borrowing money into existence because they can’t repay the debt, and you’re not going to give people stuff for free, then what the heck are you going to do with all the stuff that we produce?
Perhaps the Chinese will buy it.
One reason for a cram down and a refinance for FB’s is that the
Bank would save more than the foreclosure would create . It would keep less inventory on the market, which would be good for stabilizing the prices . It would reduce the situation of foreclosures destroying neighborhoods .They don’t have as much qualified demand for property as they need ,so why not keep the homeowner in the house because they would be taken out of the demand equation if
they go into foreclosure .
To many foreclosures in a neighborhood results in the foreclosures sitting the price and that’s considered a distress sale ,not exactly
a arms length equal parties market value transaction ,but a weak hands transaction on the side of the distressed person causing the price to go lower than a normal market would produce .
To many foreclosures will create a market price based on weak hands
which isn’t a normal market situation of market value . However it appears that the buying public are weak hands ,and the sellers are weak hands also . They built to much inventory during the boom also ,so this distortion that was created by speculation created to much supply ,combined with borrowers that didn’t really qualify
for what they bought ,or they can’t seel because of crash in value .
The FB has no way of selling a underwater property without bringing money to the table at escrow ,so the normal remedy for a person
to sell or refinance out of a bad loan for whatever stress factors is taken away as a option for the FB.
Investor property shouldn’t get cram downs , or second homes shouldn’t, but I’m not so sure that primary homes bought in certain
years of the faulty lending crime spree shouldn’t be adjusted ,but not if the person took out money from the property because that would be ill gotten gain .
Letting the true market operate could bring a over correction of such a extreme degree that it could create prices crashing to 1970 levels . While this would be good for investors and buyers who have been waiting to buy at cheap prices ,the overall market would be based on a artificial BLACK SWAN amount of supply that was based on a speculator faulty lending crime spree .
You could say that the primary house buyer FB was the victim of a false market that the Lenders /Wall Street created by faulty fraudulent lending and fraud in the ratings of securities . You could say that all transactions deserved to be voided doing that time period .In other words a potential buyer has a right to have a market void of fraud on a mass level ,so their choice of buying was without knowledge of fraudulent and faulty lending taking place . Combine this with the fact that they didn’t even transfer those property titles
correctly and the victim public has a right to be made whole again .
If you view it as a correction of fraud ,or a fraudulent market ,than
it’s easier to justify . Better to give the homeowner user a house
that isn’t underwater than give money to the Lenders and investment firms that created the situation by breaching their duty by creating a false market . They will just keep giving the bail outs to the culprits
rather than the victims ,if it keeps going the way it has . Not to say that speculator real estate investors or ATM equity extractors didn’t
take the money and run ,just like the culprit lenders did . Also a extreme over correction would just benefit the wrong parties in a lot of cases ( the investors would come in and buy in bulk and raise the
price for the end user anyway ).
Ok - let me understand the process.
Buy a house. Take out a HUGE home equity loan and use it for trips to Europe, BMWs, granite countertops and boob jobs for my wife.
Cry that I am victim and demand that I get a “cram down”
Repeat as many times as possible. Hope not too many of my neighbors catch on to this game.
There is a reason we have bankruptcy courts in America…
It is more like this…
Buy a house, HELOC new money into existence using the conditions of loose lending conditions that were created because we need new money to constantly be created to fund our trade imbalances. The money flows to our foreign trade partners and the people that already had more money than they could spend. Since it is impossible for the people with debt to repay their debt unless the trade imbalances reverse, and NO ONE has any desire to attack and reverse the trade imbalances, the debt can’t and won’t be paid. So, rather than just foreclosing on the house, wiping out the debt and the money, lowering house prices, and triggering more defaults, foreclosures and debt/money poofages, we search for creative ways to continue to pretend that the money will someday be paid back by someone.
An argument for amnesty for illegal immigrants is that while it was technically illegal to immigrate into the USA without permission, the government gave a “nod and wink” approval through lax enforcement because the government actually wanted the people to come here.
It certainly seems to be the case. After the 1986 amnesty, the flow of illegal immigrants increased 4 fold over the years just prior to amnesty. Within 3 years of amnesty, there were more illegals here than before, and the government knew it, but did nothing to stop or even slow the flow of illegals into the country.
It is tantamount to squatters rights. Fail to enforce your property rights, and you lose those property rights.
Well, we knew that insane amounts of lending was occurring, and government knew it, and instead of doing anything to stop or even slow it, they actively encouraged it.
The excess debt was created, not only because people were stupid, but also because government created the conditions under which the debt could be created, the actively worked to ensure the debt was created.
We have trade imbalances that must be funded through money/debt creation.
I’d take a different approach Housing Wizard. If the lender and the mortgagor decide that the best way to proceed with the contract is with a reduction in principal, then they should do it. If any level of government wishes to meddle, then they can feel free to advise the lenders that this may prove beneficial to them. Full stop.
I want the Lenders to be the ones that makes the deal with the FB and it not paid for by the tax payers .I think that was part of the problem that the Lenders kept waiting for bail outs rather than altering contracts that made sense .
Al ,I also said that people who took out equity and investors shouldn’t get a cram down loan ,and it should only be given to end user primary residences . That way the program isn’t used to advance speculation ,but rather just to keep stability for the long term party who is buying for their own house ,which is a more stable loan anyway .The equity extractors already spent the money,or its in a bank , so it would be ill gotten gain because they took money out of the house already ( unless the person put all the money into the house ) .
I don’t like the situation ,but I don’t like the idea of a bunch of houses going down the tubes and sitting for years either .
The lenders are controlling the inventory anyway and they would lose a lot more than they would if they do the cram down for a primary residence . The FB is simply being made whole again . I don’t want tax dollars to pay for this however .
The problem I see with this is that most people with an underwater mortgage are still paying the payment every month. So while a cram down on houses that might otherwise be foreclosed on may be cheaper on those houses a policy of principle reduction would also mean lowering the principle on the mortgages that are current, which would cost quite a bit more I would think.
Sounds like we’re pretty much on the same page. Cramdowns aren’t bad if no tax dollars are involved. And I doubt there would be many situations where investor or serial refinancer FBs would get any ‘relief’ from the sympathetic banks.
‘ lowering the principle on the mortgages that are current’
I’ve been trying to get this point across. It’s just like a short sale, except those on the same street will expect the same modification, and on it goes.
“So I don’t see where the future support for real estate can come from.”
It will come from me, and I don’t mind waiting.
What about the lender substituting part of the homeowner’s debt for an “equity” position in the house? For example:
Original Mortgage: $500,000
Bank Equity: $0
New Mortgage: $300,000
Bank Equity: $200,000
When the house is sold, the bank would still be owed $200k, and would get 40% of the profits above the original mortgage amount ($500k) to compensate for their $200k “equity” position.
In other words, it would be like the bank partnered with the homeowner to buy the house. The buyers put in $300k, and the bank put up $200k.
The homeowners get a lower mortgage payment and can stay in their home with some potential equity upside. They are still are responsible for the full amount that they borrowed (no moral hazard), and the bank is compensated for becoming an equity partner with the homeowner.
The alternative is to forclose, get $300k minus expenses, and write-off $200k of the mortgage to reflect the new value.
Not sure if this would ever fly, but it’s one option.
BTW, being from the Vancouver area, I can tell you that people here have not learned anything from the experience of our neighbors to the south.
They believe that we are more likely to experience an alien invasion than a protracted downturn in house prices. This is a place where Real Estate is a religion, and people who rent are looked upon a second class citizens.
lmao….
If the house is only worth $300k and the mortgage paper is worth $500k, then someone is going to take a 200k loss minimum.
Why is this so difficult to understand?
The sheep have stars in their eyes, too late to talk them off of the ledge.