A combination of falling prices (with millions of homeowners upside down on their homes), and changing social norms, could lead to staggering losses for lenders and investors.
It's quite dire when credit, the foundation of the modern economy, starts to become a joke.
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"A combination of falling prices (with millions of homeowners upside down on their homes), and changing social norms, could lead to staggering losses for lenders and investors."
Aren't they now talking about morality rather than legality?
Legalism is a morally bankrupt ideology and Americans have chosen legalism hook-line-and-sinker, no?
I hope every last crooked party in this whole fiasco goes completely bankrupt and out of business an all of their holdings are liquidated and sold to raise capital to get out of this mess, including my own. I think we'll have new banks shoot up in no time.
Walking away from your underwater house is also known as "pulling a Mackelowe."
Anyone read the Businessweek article that states a 25% drop in the national average for home prices would bring up back in line with 2000 prices? The article doesn't even dare say what most investors know, that significant asset price declines almost always drop significantly below the trendline.
So if this is to be believed, it was alright for Enron & Global Crossing and friends to walk away with everything they could steal or pass on to friends. Then when I do it, it's bad. I would like to feel bad, but I can't. I agree let them all go under/jail and they're someone to take their place and for the 1st 50yrs they will be fine, then it's starts to creep in GREED.
jo6pac
I am of the camp that, at least at this stage, "walk aways" are largely 1) loans arising from fraud for profit or 2)investor/speculators making the rational choice to cut losses.
Saying "hoocoodanode good borrows would go bad?" is just a way of shifting blame from the underwriters who ignored the obvious back to the borrowers.
A real, qualified, owner- who moved in hoping to stay, is sending their kids to the local school, has the neighbors over for dinner- will tend to stay as long as they can make the current mortgage payment. They will not lightly or quickly make the choice to disrupt their family and ruin their credit. They might make this choice eventually, as they see neighbors moving in who paid 1/2 price. But I dont think todays walk-aways are clear evidence of the "good borrower gone bad."
Principal "adjustment" is going to be the only answer.
It's going to feel like BS worthy of SOVIET RUSSIA when it goes down, but everyone knows that renters don't vote, and the bulk of people who own with no mortgage are the elderly who are old enough not to have to worry about paying for this.
It is the dirty secret of the Bush Economy that the borrower was carrying the economy 2003-2006, so of course the Bush admin and our pandering jackasses in the Congress are going to cut borrowers some slack as the country slides into recession.
It calls for...."unification" and not the sexual variety suggested by "screw you"...you learnin the BO lingo?
See, it says right here in the manual that investors and lenders deserve a fair return on their investment (get to B on top) and nowhere does it say homeowners have any right to quit bleeding those returns. (must submit and not entertain any other exotic postures I tell you...dangerous to your health).
So simple.
But this B new: coming to grips with what a profit is in circumstances that do not allow the survival of your host. (So TAF currently providing life support to some 100 "commercial banks", for as long as it takes, yes?) [Would that B us taxpayers with this proxy gesture of unification, salvation, and good will...in stark contrast to those who are "walking away", now that it is "socially accepted", now that it is clear bank spokesmen can refer to this activity as "behaving in their economic interests"?..no moral dilemma for them.]
My profit is your loss...something I like to remember when businessman Romney makes an appearance.
A real, qualified, owner- who moved in hoping to stay, is sending their kids to the local school, has the neighbors over for dinner- will tend to stay as long as they can make the current mortgage payment.
In the past that was true. Today, most of the borrowers weren't qualified by any historical measure. That is what is different about today. I have two coworkers who are relocating to new states. Neither will bother selling their current home. Why would they? They have no hope of recovering the 5% down they had... but they weren't pure J6P, they have means to purchase in the new location.
That "pay the loan or will reposes" isn't much of a threat. Hence why bank losses will further tighten credit no matter what the Fed does.
When I bought my house, I asked my loan officer at Countrywide what I could afford. This would be my second home loan with them, and I thought I knew the drill.
My income had doubled, and interest rates had come down, so I wasn't surprised to be told I could look for a house about 200K more than the one I was selling. I bought my house, moved in, and didn't realize I had a negative amortization "pick your payment" loan until the second month I was in my house.
Okay, my stupid. I'm just telling you how it was. I thought I was getting the same kind of loan I had before, the kind where when you make your payment a little bit of the principal goes down every month.
Now I understand, I was the "mark" mentioned upthread. I hate it that I'm losing my house, my credit. I admit it is a real pleasure to see the bastards drowning in the sea of their contempt for people like me.
And there are going to be a lot more renters voting, I suspect.
Sales in Florida usually drop Dec to Jan but not this large of drops.
The increases in REO are frankly scary and getting larger. The "hidden" inventory out there is really staggering. I have a feeling "Spring bounce" will refer to the increase in inventory.
Hey Jas,I am on the same page as you pertaining to deflation...
I agree w/ hopeinsd about people wanting to move. But job losses tend to provide motivation and the lack of social stigma attached to losing the house will make it easier.
A little OT, but I feel compelled to make a point here about the eventual economic "recovery" so many seem to expect, even the most perma of perma-bulls. A lot of you say it's going to be long nasty recession - the obvious implication being that then things get better. But don't count on it.
It's not a sure thing that there will ever be a recovery. By the time the housing mess fully unwinds - maybe 2010 or so - we could well be far along the downward curve of oil and natural gas production. If the folks at ASPO, at the oil drum are right, housing will never come back. We will see $4 gasoline THIS MAY (in time for Memorial Day). Any hurricane hitting strongly in the gulf would send gas to $5 this summer. Next Spring, we see $5 gas, and then $6, and it continues upward, and obviously, impacts the consumer all the more who's going through recession and employment difficulties.
Houses in the suburbs will only continue to lose value as the cost of living out there rises so dramatically.
So, don't expect it all necessarily comes back after the great unwind. There's more going on here than just a credit bubble. Oil and energy, fertilizer and food are NOT in a bubble now. They are in a different dynamic that has to do with supply constraints. There will be a bubble though when these realizations hit Wall Street - then, watch out!
What are mid - upper middle class Americans going to do to maintain their 'living beyond their means lifestyles' as asset prices ( first and foremost houses ) continue to diminish ?
As the the Enronization of America continued in full blaze from 2000 - 2008 it was only John Edwards ( amongst all Pres candidates ) that spoke about this it best and most clearly.
Sad that this is not going to turn out well for majority of Americans because taxes will have to go up and standard of living down due massive amounts of personal, corporate, state and federal government debt including the $32 Trillion in unfunded liabilities from the Bush admin from 200 - 2008.
Will the perpetrators of this massive looting of the US Treasury be held accountable for passing this massive shitbag to America ?
It will become quite obvious very soon even to the less aware that it is advantageous to "walk" earlier rather then later for anyone with at least some financial resources.
The speed at which this phenomenom gathers pace is incredible.
your description of increasing gas prices and declining suburban home value makes me wonder...
maybe the suburbs will become a little like the wild west... horses becoming cheaper transportation than cars... those 3 car garages might make for nice little barns for the new rides.
Or those suburbs might end up looking like some of the depressed areas of between Saugerties and Manhattan that i drove through this morning, sith sagging, dilapidated unoccupied buildings collapsing back into a state of nature.
vader writes:
I think I was the first here, in the deflation room. Folks prohibited me from owning popcorn much less popping it.
No argument there Vader. I'll admit freely I had a 'learning curve.' So be it... Now its time to sit back and watch the show...
The suburbs won't go away. They'll need better planning (a la Germany and their bus/rail system), but Americans don't like to raise kids in 'apartments.'
Expect more job parks out in the exurbs too. This recession will be more than just re-allocating jobs from industry to industry. It will involve different urban planning.
The British a few centuries ago had an excellent solution to debtors who tried to walk away. Non-payers were put in the dirtiest, most disease filled prison that could be created and family and friends were given the option of paying the debt or allowing the prisoner to die quickly from TB or something worse.
Allowing family to die never did become socially acceptable and good conservative values were protected.
You can cover 20 miles in an hour for free on a bicycle.
bwahaha. only a small % of the population is going to maintain 20 mph for an hour on a bicycle. And this is ignoring traffic, weather, etc. A more realistic average speed is 10 mph, and I am someone who does not own a car and uses a bike to get around.
Obtaining a mortgage and not knowing it is a negative amortization loan is as bad as acting on a random stock tip plain and simple. While I would like to see some of the mortgage and real estate clowns actually do prison time for their unethical greed and foolishness, WHAT THE HELL HAPPENED TO FINANCIAL DUE DILIGENCE AND PERSONAL RESPONSIBILITY?
Here's the scary part. Inflation as measured by CPI has NOTHING to do with house or equity prices. We are currently experienceing asset price deflation and accelerating CPI inflation. A horrible scenario.
In 2007, yoy CPI inflation was 4.1%, the highest rate in 17 years. Worse still, the rate of inflation in the last quarter of 2007 exceeded 5%. By dropping more money from helicopters, Bernanke runs a serious risk of a significantly higher CPI inflation rate.
Greenspan and Bernanke should have only focused on what they could control - inflation via money supply. Artificially inflating asset prices is pure folly.
Rising CPI inflation, stagnant wages and deflating asset prices. America is getting poorer.
As financial institutions experience distress and the word "bailout" is hurled about as if it were a bad thing, we need to remember that investor bailouts have a long tradition. This is from a web page at the UVa:
During the war, the government had raised money by issuing public bonds, promising to repay them with interest later. Yet at the war's end, the government owed approximately $50 million, and could not repay the bonds. Hamilton's solution was to raise more cash by issuing a new series of 30-year bonds at six-percent interest, which would presumably sell (and in fact did sell) because of a high level of public confidence in the United States. The proposal, however, encountered the reasonable objection (raised by Madison) that since speculators were buying up Confederation bonds, the federal government would not end up repaying the original bond-holders who had patriotically risked their savings in the country's time of need.
The congressional bill of discrimination (discriminating between different bond-holders) sought to remedy the conflict by paying present holders of the bonds the current market value and reserving the difference for the original holders. Hamilton countered, first, that the logistics of tracking down and sorting out competing claims were prohibitively difficult and would discourage nervous foreign investors, and, second, that the bonds needed to be readily transferrable in order to compensate for the lack of hard cash. In the end, the bill for discrimation was defeated by a vote of 36 to 13.
So during George Washington's administration, the two political parties had a knock-down drag-out battle over which investors to bail out: those who had bought U.S. bonds for pennies on the dollar, or those who had sold them for pennies on the dollar. The buyers won.
Someone posted a link the other day about a cut telecom cable in the Middle East the other day. Now it's three; and conveniently, all this data traffic will be re-routed through the US and UK. Something is afoot.
This is total bullshit. The social norms have not significantly changed. Most folks I know want to live the good life, and have generally trusted that the financial world is covering their rear when they extend offers of credit. Consumers have been pulling on the credit envelope for decades, and it's only recently that lenders have acquiesced. It's also always been true in a free society that when people can't pay, they don't (duh!). This is not a social norm, it's just common sense!
The financial norm that changed is that wall street encouraged lending institutions to replace common sense with greed.
Next Spring, we see $5 gas, and then $6, and it continues upward, and obviously, impacts the consumer all the more who's going through recession and employment difficulties.
I'd bet at $5-$6 dollars a gallon US voters would be willing to fund panda-to-gasoline conversion projects.
There are plenty of $50-$60 dollar oil equivalents out there if you aren't worried about environmental damage. ANWR, coal liquification, oil shale and oil sands come to mind.
Gas was $ 6/gallon in France when I lived there almost 15 years ago. The roads were absolutely jammed to a standstill with cars every weekend in summer and most weekdays. The US could cut its per capita consumption in half simply by switching to more efficient vehicles and making use of mass transit for workaday commuting. All the means are there; no technological breakthroughs are required.
As for mortgage walkaways, have a halfway decent investigator go through their applications for fraud. Non-recourse laws will not protect anyone who committed fraud in obtaining the loan. Then go after their other assets and income. That will stop it pretty quickly.
I have two coworkers who are relocating to new states. Neither will bother selling their current home. Why would they? They have no hope of recovering the 5% down they had... but they weren't pure J6P, they have means to purchase in the new location.
So I suppose they will not disclose that they "walked away" from a mortgage in that other state. How would that get by the underwriter of the new loan?
"You can cover 20 miles in an hour for free on a bicycle. Keep dreaming, suburb haters."
I'm picturing:
-suburban person RIDING A BIKE through LA metro area. Even from "first ring" suburbs...
-suburban person riding a bike in chicago in winter
-suburban person riding a bike in Houston in Summer.
sorry... not gonna happen.
People will instead shift to smaller more fuel efficient cars (hybrids, 3 cylinders, motorcycles, etc)
many larger homes will be broken up into smaller units.
we will see demographic changes.
sure, Americans don't like to raise kids in apartments, but with time it may be needed.
projecting $5,$6 gas and beyond is somewhat dangerous though. with major recession comes decreased energy useage. I'm not sure that we're quiet yet to the secular bull market for energy (or permament peak if you will)
Sad that this is not going to turn out well for majority of Americans because taxes will have to go up and standard of living down due massive amounts of personal, corporate, state and federal government debt including the $32 Trillion in unfunded liabilities...
This sounds like a pretty good incentive to generate inflation (inflation reduces the real value of these obligations). Add the changes to the CPI formula over the last 20-30 years that disguise inflation, and the continuously dropping dollar against just about everything else and I think I remain in the inflation camp. Inflation generally, with falling assett prices in some areas like housing. But I'm open to changing this opinion as the facts change.
I listened to an audio conference of a guy who had just been to a NYC bankers conference. He said that when the subprime buyers agreed to buy the homes they realized that no one really expected them to be able to pay for them and everyone knew it would be short term which was evident by the lack of standards. He indicated that the buyers considered the homes more like short term rents of properties they would never have been able to live in under any other circumstances -- that the suprime buyers are poor but not dumb and that that is why they are walking and that the bankers know it.
Our founding fathers found that concept of debtor prison so foul that bankruptcy is actually mentioned in the US constitution.
What pray tell is your remedy for the greedy lenders and wall street huckster that pushed these loans, securitized the debt, made billions, created the real estate bubble, and caused the current financial crisis?
And people wonder why there are so many walk a ways?
I cycle to work every day in the LA metro area, and at weekends. LA, or the city where you're least likely to have your bicycle stolen, as it is popularly known amongst us cyclists, is a great place to cycle. It hardly ever rains, the traffic is pretty much stationary, and all the local buses are equipped with bicycle carriers if the need for puncture rescue arises. It's also much quicker to cycle for all local journeys, than it is to join the continuous traffic jams.
People adapt - it's what we do best. Even americans.
Iceman According to my rough calculations,it cost Macklowe in excess of $530,000,000 to "walk away" from the deal.Could not have happened to a nicer guy.
Nice ouch and Greedscam too...does the media pitch this message: subprimers are ethically challenged...as some politicians state much more bluntly, or are they generally more non-committal?
And is that the real "changing social norm" --the media now "fair and balances" everything to a standstill...of complacency while the heisting continues unabated?
Can we review the Monica affair now and see how the media then performed in shaping our views of what was "socially acceptable" to get a harder core view of this "changing social norm"?
There's a really great article in this week's New Yorker about the credit/mortgage market crisis. You Republicans will like the fact that it even skewers the Clinton administration. The Minsky Moment : The New Yorker
um, the only deflation I saw this weekend is in the superbowl doorbusters at the local Fry's/Kroger- they had some really low prices on a bunch of really fattening foods for the superbowl.
But I saw a lot of nonsale stuff that was a lot more expensive than last year.
Moral of the story- eat healthy onsale items.
The news on San Diego is quite frankly terrifying. They are definitely Phoenix one year ahead.
The only solution is to mark down all the mortgages in the bubble areas. Survivors will have gotten a deal in ten years. The real question is who survives.
A fifty percent haircut in Phoenix would result in immense writedowns.
Solvency is going to be a long term problem that must be addressed for the banks. However, time will cure most of their problems given enough positive interest earnings from other loans.
I am always a little surprised by complaints about public transport in North America, it doesn't quite fit with my experience.
I suppose I'm grotesquely atypical, in that I go to US and Canadian cities as a tourist, often staying with friends and getting around by public transport, but the public transport seems pretty decent.
Montreal has fantastic subway and bus networks; the Chicago suburb I was in seemed to be the classical kind where you walked or cycled or took a bus to the train station and took the train to the centre; anywhere I wanted to go in Toronto was pretty accessible; Manhattan is famously publicly-transportable; Minneapolis had a slightly irritating hub-and-spoke system but you could get into the centre without trouble; anywhere I wanted to go in central Seattle was accessible; San Francisco seemed to have a very good network.
Am I just visiting odd places and staying more centrally than average? There's an obvious adverse-selection effect; people tell me that LA and many of the cities of the south-eastern US are unliveable without a car, I don't drive, therefore I haven't gone to LA or the south-eastern US.
As for thinking that we'll just replace our entire fleet of vehicles with more fuel efficient vehicles - that'll take 20 years and cost a bundle, precisely at a time when we can't afford it. Will those walking away from their houses be the first to buy a new $25,000 hybrid, or will it be those who lost their job? And in the end, after those 20 years, you've now got to come up with a new plan, because once over the edge, oil production doesn't stop declining.
Gas and energy use in recessions has not historically gone down much at all. Right now we are using about 1% more gas in the US than we did last year at this time.
And lastly, for those thinking the tar sands, oil shale or some such will make up the difference, you need to go look into the matter. It's more important to your future than the housing bubble bust. There is a lot of oil in shale and tar sands. But no, it cannot be effectively produced in quantity. Production can't ramp up fast enough, and has severe limits. It is not even clear that oil shale production is a net energy gain (which is why NO oil shale has yet been produced).
You guys read calculated risk and other economic blogs, I suggest you add theoildrum.com and see where things are heading after the current emergency.
Tom: My daughter lives in Montreal and doesn't drive. She has no trouble getting anywhere. Some places are hard to get around without a car. But all are just as easy to get around in car that gets 40 miles per gallon as in monster SUVs. Biking is great, but just switching from 15 mpg to 40 would have a huge effect.
Allen: Marking down mortgages might be okay. However, I would like to see some kind of excess profits tax on those who profited. In addition to the bankers, brokers etc. who cleaned up, it should include those who sold during the bubble. They in fact got the biggest piece of the pie, and because of the exclusions in the tax code, it was all tax-free.
I agree with you that time will cure most banks' problems.
sfvrealestate - Great article (and especially because it's short for a New Yorker article!).
I don't know whether my husband and I are smart or dumb - but since our first experience in the stock market was right before '73-'74 - and our first experience with a real estate boom was in '80-'81 in Florida (and we got cold feet and backed out before signing condo contracts which would have cost us hundreds of thousands of dollars) - we have just decided to march to our own drummer all these years. We haven't done great - or terrible - kind of medium. And have avoided manic depression . This is a great time for younger people - with not much money at risk - to learn about the market stages described in the New Yorker article.
Tom Womack - FWIW - you can't exist in Florida without a car (or a car service). Ditto for California and most of the west - including Texas - and most of the south. In fact - most of the US. Florida is a nice state to visit though - lots to see and do - so I wouldn't make a fetish out of the no-car thing. Just curious - where do you live? Roby
Saying "hoocoodanode good borrows would go bad?" is just a way of shifting blame from the underwriters who ignored the obvious back to the borrowers.
There's no shift of blame needed, the borrowers are the ones who agreed that they were "willing and able" to pay the money back. They hold the lion's share of the fault, period.
Lenders are getting theirs for being enablers (as they should), but claiming that they're at fault for this is naive and/or stupid.
Personally I feel no worse walking away from a commodity-ized mortgage then I would buying a rather smelly cheese.
Having said that however it seems obvious that the way to counteract jingle mail is to modify the non-recourse statute Moving from non-recourse as the default status to non-recourse as a status granted by a judge upon a seems hearing likely.
So if you want to jingle do it while it is still near xmas.
The story of hanging Chad above is breathtaking in its....what.
He signed himself up for maybe eight years of his salary without getting a lawyer to look it over. Its straight out of Jack and the Beanstalk without its happy phallic surprise. He and other starry eyed folk who trusted the nice folk at CFC do needs pay a price
Call it an educational surcharge
But I dont think todays walk-aways are clear evidence of the "good borrower gone bad."
yes..but ummm... how many 'good' borrowers were there? Were 'good' credit risks gorging themselves on helocs? By definition the banks were lending to the worst credit risks at the end of this cycle, good credit risks don't take out screw me loans.
I am growing more amused at how many lenders are shocked, shocked! at "walk aways."
I remember in '92 or so when house prices had busted after a round of climbing in the late 80's. We'd just bought a condo at the time, but soon ran into neighbors who had negative equity -- first time I'd come across that phrase. I remember thinking back then if I was stuck and house prices were only sinking, I'd short sell or walk off.
isamu writes:
You can cover 20 miles in an hour for free on a bicycle.
bwahaha. only a small % of the population is going to maintain 20 mph for an hour on a bicycle. And this is ignoring traffic, weather, etc. A more realistic average speed is 10 mph, and I am someone who does not own a car and uses a bike to get around.
isamu | 02.02.08 - 3:57 pm | #
The way I see it is this could be a great help towards healthcare costs. We could save some serious money in healthcare if folks were to ride bicycles to work because of $6 a gallon gasoline. Fat chance!
I have already walked away from my house. I could afford it. I left for several reasons. First, a divorce. I didn't need 3,000 square feet of room any more. Second, thanks to bad lending, the entire neighborhood went downhill. The grass just kept getting higher and higher every year.
So far, it's been great. I have a nice rental in a lovely area of town. Walking away was one of the best choices I ever made.
When the money is funny, people do funny things. I also viewed the recklessness of the lending industry as "permision" to walk away from my house. If they are willing to stop caring about consequences, moraity, etc, why should I?
Aheadofthecurve writes:
'As for mortgage walkaways, have a halfway decent investigator go through their applications for fraud.'
And you know something - a halfway decent investigator will likely find all kinds of fraud. The problem is, that only a part of it will be on the part of the borrower.
Which is why half way decent investigators, much less a decent ones, seems to be in such stunning absence when discussing the question of fraud.
The system is pretty much rotten to the core - and it will collapse when the truth is known.
Actually, it is collapsing, as the truth comes out.
"And you know something - a halfway decent investigator will likely find all kinds of fraud. The problem is, that only a part of it will be on the part of the borrower"
exactly right! a system with moral hazard running right through the middle. That said, this is not the first time this has happened. In the 1920's people bought houses on interest only mortgages that needed to be refinanced every 12 months. In the 1860's ag. prices were falling after the civil war and then the financial "piggy's" decided to try to corner the gold market to force a devaluation of the $ vs gold. Alexander Hamilton had to decide to honor the confederate debts on a bearer basis because if he didn't how could they manage the process.
In this run around, the deflation will be nasty and the politicians will stay quiet until the elections are safely over. Then, I believe, the hunt will be on to find a fall guy (mortgage brokers are the most likely candidate as of now because they don't have representation by lobbyists to the same extent as the banks, insurance companies or RE brokers). RE speculators are another excellent candidate because they can be held up as an example to others if some of them go to jail.
In the meantime, the debts will be monetized (assumed by the govt) and the banks will be on their knees for most of the next president's term. The fear/greed pendulum will have swung all the way towards fear and, try as it moght, it will be all but impossible to get borrowers back to the debt game.
"Alexander Hamilton had to decide to honor the confederate debts on a bearer basis because if he didn't how could they manage the process."
Alexander Hamilton died in 1804 in a duel with Aaron Burr so I don't think he was asked to decide anything about confederate debts.
"And you know something - a halfway decent investigator will likely find all kinds of fraud. The problem is, that only a part of it will be on the part of the borrower."
Those investigators will be hired by the ultimate debt holders, pension funds, state and municipal funds, etc., who did not commit the frauds. They can take recourse against the borrowers, the brokers and the loan securitizers. All are guilty and none should be spared. But specific to the issue of walkaways, the pursuit of the borrowers will be an important check. After all, Hamilton believed in checks and balances.
One last thought, I was thinking about what I would do if I was about to walkaway from a house (which I'm not - just trying to roleplay if I were).
Definitely, I would pull out all the HELOC money that I could, and max out all my credit cards with all the purchases that I can forsee. If my credit is about to be shot for the next 7 years, I might as well go out with a bang and load up on purchases that I will need (new TV, new computer). If my car were in bad shape, I would purchase a new one with some of the HELOC money.
The point of this exercise is, walking away from a mortgage definitely can spread the contagion of defaults to other consumer loan classes, while at the same time being short run stimulative to retail sales (since I'm going shopping with my credit card).
Is this really the result of "changing social norms," or is it possible that people with bad credit who lie about their income and/or assets and then put zero of their own capital down on a home would always have been high risks to walk away from a negative equity situation.
Maybe this is why lenders who actually had to rely on the quality of their own underwriting for future cash flow never lent to these types of risks in the past. It is only the ready cash flow from selling such paper into securitization that got these loans written in the first place. And now the eager buyers of such loans are blaming the decay of "social norms" for their losses, because their highly-scientific Monte-Carlo models could never have been so wrong...
Securitization is a wonderful innovation, but it does have some troubling side-effects that one should always keep in mind when valuing the resulting "products."
WHEN THE WORLD SAY ITS IMPOSSIBLE GOD SAYS ALL THINGS ARE POSSIBLE LUKE 18;27 WHEN YOU FEEL LIKE YOU CANT GO ON GOD SAYS MY GRACE IS SUFFICIENT 2 CORINTHIANS 12;9 WHEN YOU SAY I CANT FIGURE THINGS OUT GOD SAID I WILL DIRECT YOUR STEPS PROVERBS 3;5 WHEN YOU THINK YOU CANT DO IT GOD SAID YOU CAN DO ALL THINGS PHILLIPPIANS 4;13 WHEN THE GOVERNMENT SAY THEIR NOT ABLE TO HELP YOU GOD SAID I AM ABLE 2 CORINTHIANS 9;8 AND WHEN THE MORTGAGE COMPANY SAY ITS NOT WORTH IT GOD SAID IT WILL BE WORTH IT ROMAN 8;28 WHEN YOU FEEL LIKE THERES NO HOPE AND YOU CANT SEE YOUR WAY OUT GOD SAYS I WILL SUPPLY ALL YOUR NEEDS PHILLIPPIANS 4;19 THE WORLD NEEDS JESUS !
first?
Did the report really say 2007 vintage?
What the heck does this mean for the 2008 vintage?
A combination of falling prices (with millions of homeowners upside down on their homes), and changing social norms, could lead to staggering losses for lenders and investors.
It's quite dire when credit, the foundation of the modern economy, starts to become a joke.
I'm slowly moving into the deflationary camp.....
--
"A combination of falling prices (with millions of homeowners upside down on their homes), and changing social norms, could lead to staggering losses for lenders and investors."
Aren't they now talking about morality rather than legality?
Legalism is a morally bankrupt ideology and Americans have chosen legalism hook-line-and-sinker, no?
Jas
--
"I'm slowly moving into the deflationary camp....."
Welcome! And it is not crowded at all.
Jas
Hey, Jas, where you from, brother?
--
"It's quite dire when credit, the foundation of the modern economy, starts to become a joke."
ac, abuse of credit leads to depressions and we are there.
Jas
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Gary Watts posted an update...
I hope every last crooked party in this whole fiasco goes completely bankrupt and out of business an all of their holdings are liquidated and sold to raise capital to get out of this mess, including my own. I think we'll have new banks shoot up in no time.
It's the right thing to do for our country!
The "screw you" mentality spreads...
Cal
Where did you find that stiff.
Even in SoCal necromancy is hardly fashionable
Gary Watts is Famous,he is to real estate what cramer is to the stock market,only without a sense of humor.
Walking away from your underwater house is also known as "pulling a Mackelowe."
Anyone read the Businessweek article that states a 25% drop in the national average for home prices would bring up back in line with 2000 prices? The article doesn't even dare say what most investors know, that significant asset price declines almost always drop significantly below the trendline.
So if this is to be believed, it was alright for Enron & Global Crossing and friends to walk away with everything they could steal or pass on to friends. Then when I do it, it's bad. I would like to feel bad, but I can't. I agree let them all go under/jail and they're someone to take their place and for the 1st 50yrs they will be fine, then it's starts to creep in GREED.
jo6pac
I am of the camp that, at least at this stage, "walk aways" are largely 1) loans arising from fraud for profit or 2)investor/speculators making the rational choice to cut losses.
Saying "hoocoodanode good borrows would go bad?" is just a way of shifting blame from the underwriters who ignored the obvious back to the borrowers.
A real, qualified, owner- who moved in hoping to stay, is sending their kids to the local school, has the neighbors over for dinner- will tend to stay as long as they can make the current mortgage payment. They will not lightly or quickly make the choice to disrupt their family and ruin their credit. They might make this choice eventually, as they see neighbors moving in who paid 1/2 price. But I dont think todays walk-aways are clear evidence of the "good borrower gone bad."
Principal "adjustment" is going to be the only answer.
It's going to feel like BS worthy of SOVIET RUSSIA when it goes down, but everyone knows that renters don't vote, and the bulk of people who own with no mortgage are the elderly who are old enough not to have to worry about paying for this.
It is the dirty secret of the Bush Economy that the borrower was carrying the economy 2003-2006, so of course the Bush admin and our pandering jackasses in the Congress are going to cut borrowers some slack as the country slides into recession.
It calls for...."unification" and not the sexual variety suggested by "screw you"...you learnin the BO lingo?
See, it says right here in the manual that investors and lenders deserve a fair return on their investment (get to B on top) and nowhere does it say homeowners have any right to quit bleeding those returns. (must submit and not entertain any other exotic postures I tell you...dangerous to your health).
So simple.
But this B new: coming to grips with what a profit is in circumstances that do not allow the survival of your host. (So TAF currently providing life support to some 100 "commercial banks", for as long as it takes, yes?) [Would that B us taxpayers with this proxy gesture of unification, salvation, and good will...in stark contrast to those who are "walking away", now that it is "socially accepted", now that it is clear bank spokesmen can refer to this activity as "behaving in their economic interests"?..no moral dilemma for them.]
My profit is your loss...something I like to remember when businessman Romney makes an appearance.
Edited By Siteowner
"I'm slowly moving into the deflationary camp....."
Welcome! And it is not crowded at all.
I'm with you there Jas.
Import inflation, domestic deflation. The combination is good for those who keep up their income stream (overall, unless you commute in a Hummer...).
Got popcorn?
Neil
I think I was the first here, in the deflation room. Folks prohibited me from owning popcorn much less popping it.
Now Walmart is pricing pop corn at 20% off and providing free credit to buy it.
Now if that is not deflation, would someone care to tell me what is.
A real, qualified, owner- who moved in hoping to stay, is sending their kids to the local school, has the neighbors over for dinner- will tend to stay as long as they can make the current mortgage payment.
In the past that was true. Today, most of the borrowers weren't qualified by any historical measure. That is what is different about today. I have two coworkers who are relocating to new states. Neither will bother selling their current home. Why would they? They have no hope of recovering the 5% down they had... but they weren't pure J6P, they have means to purchase in the new location.
That "pay the loan or will reposes" isn't much of a threat. Hence why bank losses will further tighten credit no matter what the Fed does.
Got popcorn?
Neil
ac, abuse of credit leads to depressions and we are there.
We'll we've still yet to fully abuse the final form of credit - money.
I don't think we're going there, but I'm staying on high alert just in case.
It's still possible that we will fully adopt 3rd world economic policies to make a handful of politicians look good in the short term.
When I bought my house, I asked my loan officer at Countrywide what I could afford. This would be my second home loan with them, and I thought I knew the drill.
My income had doubled, and interest rates had come down, so I wasn't surprised to be told I could look for a house about 200K more than the one I was selling. I bought my house, moved in, and didn't realize I had a negative amortization "pick your payment" loan until the second month I was in my house.
Okay, my stupid. I'm just telling you how it was. I thought I was getting the same kind of loan I had before, the kind where when you make your payment a little bit of the principal goes down every month.
Now I understand, I was the "mark" mentioned upthread. I hate it that I'm losing my house, my credit. I admit it is a real pleasure to see the bastards drowning in the sea of their contempt for people like me.
And there are going to be a lot more renters voting, I suspect.
I am starting to see the January numbers for the SW Florida. All I am going to say is UGLY.
Charlotte County-
Dec07-450 sales/450 REO
Jan07-210 sales/770 REO!!!!!!!!
Lee County-
Dec07-750 sales/approx 1k REO
Jan08-1700+REO,no updated sales numbers yet.
Sarasota County-
Dec07-970 sales/710 REO
Jan08-380 sales/490 REO
Sales in Florida usually drop Dec to Jan but not this large of drops.
The increases in REO are frankly scary and getting larger. The "hidden" inventory out there is really staggering. I have a feeling "Spring bounce" will refer to the increase in inventory.
Hey Jas,I am on the same page as you pertaining to deflation...
Chris
I agree w/ hopeinsd about people wanting to move. But job losses tend to provide motivation and the lack of social stigma attached to losing the house will make it easier.
A little OT, but I feel compelled to make a point here about the eventual economic "recovery" so many seem to expect, even the most perma of perma-bulls. A lot of you say it's going to be long nasty recession - the obvious implication being that then things get better. But don't count on it.
It's not a sure thing that there will ever be a recovery. By the time the housing mess fully unwinds - maybe 2010 or so - we could well be far along the downward curve of oil and natural gas production. If the folks at ASPO, at the oil drum are right, housing will never come back. We will see $4 gasoline THIS MAY (in time for Memorial Day). Any hurricane hitting strongly in the gulf would send gas to $5 this summer. Next Spring, we see $5 gas, and then $6, and it continues upward, and obviously, impacts the consumer all the more who's going through recession and employment difficulties.
Houses in the suburbs will only continue to lose value as the cost of living out there rises so dramatically.
So, don't expect it all necessarily comes back after the great unwind. There's more going on here than just a credit bubble. Oil and energy, fertilizer and food are NOT in a bubble now. They are in a different dynamic that has to do with supply constraints. There will be a bubble though when these realizations hit Wall Street - then, watch out!
What are mid - upper middle class Americans going to do to maintain their 'living beyond their means lifestyles' as asset prices ( first and foremost houses ) continue to diminish ?
As the the Enronization of America continued in full blaze from 2000 - 2008 it was only John Edwards ( amongst all Pres candidates ) that spoke about this it best and most clearly.
Sad that this is not going to turn out well for majority of Americans because taxes will have to go up and standard of living down due massive amounts of personal, corporate, state and federal government debt including the $32 Trillion in unfunded liabilities from the Bush admin from 200 - 2008.
Will the perpetrators of this massive looting of the US Treasury be held accountable for passing this massive shitbag to America ?
Unfortunately no they won't...
It will become quite obvious very soon even to the less aware that it is advantageous to "walk" earlier rather then later for anyone with at least some financial resources.
The speed at which this phenomenom gathers pace is incredible.
mike,
your description of increasing gas prices and declining suburban home value makes me wonder...
maybe the suburbs will become a little like the wild west... horses becoming cheaper transportation than cars... those 3 car garages might make for nice little barns for the new rides.
Or those suburbs might end up looking like some of the depressed areas of between Saugerties and Manhattan that i drove through this morning, sith sagging, dilapidated unoccupied buildings collapsing back into a state of nature.
You can cover 20 miles in an hour for free on a bicycle. Keep dreaming, suburb haters.
The relative value of the first tier of suburbs only get higher.
Its the folks in the outermost rings of burbs (chose house size over location) who would be burned.
vader writes:
I think I was the first here, in the deflation room. Folks prohibited me from owning popcorn much less popping it.
No argument there Vader. I'll admit freely I had a 'learning curve.' So be it... Now its time to sit back and watch the show...
The suburbs won't go away. They'll need better planning (a la Germany and their bus/rail system), but Americans don't like to raise kids in 'apartments.'
Expect more job parks out in the exurbs too. This recession will be more than just re-allocating jobs from industry to industry. It will involve different urban planning.
Got popcorn?
Neil
Are there no debtor prisons?
The British a few centuries ago had an excellent solution to debtors who tried to walk away. Non-payers were put in the dirtiest, most disease filled prison that could be created and family and friends were given the option of paying the debt or allowing the prisoner to die quickly from TB or something worse.
Allowing family to die never did become socially acceptable and good conservative values were protected.
Jim
You can cover 20 miles in an hour for free on a bicycle.
bwahaha. only a small % of the population is going to maintain 20 mph for an hour on a bicycle. And this is ignoring traffic, weather, etc. A more realistic average speed is 10 mph, and I am someone who does not own a car and uses a bike to get around.
You can cover 20 miles in an hour for free on a bicycle. Keep dreaming, suburb haters.
It doesn't snow much where you live, does it?
Obtaining a mortgage and not knowing it is a negative amortization loan is as bad as acting on a random stock tip plain and simple. While I would like to see some of the mortgage and real estate clowns actually do prison time for their unethical greed and foolishness, WHAT THE HELL HAPPENED TO FINANCIAL DUE DILIGENCE AND PERSONAL RESPONSIBILITY?
Jas, ac,
Here's the scary part. Inflation as measured by CPI has NOTHING to do with house or equity prices. We are currently experienceing asset price deflation and accelerating CPI inflation. A horrible scenario.
In 2007, yoy CPI inflation was 4.1%, the highest rate in 17 years. Worse still, the rate of inflation in the last quarter of 2007 exceeded 5%. By dropping more money from helicopters, Bernanke runs a serious risk of a significantly higher CPI inflation rate.
Greenspan and Bernanke should have only focused on what they could control - inflation via money supply. Artificially inflating asset prices is pure folly.
Rising CPI inflation, stagnant wages and deflating asset prices. America is getting poorer.
As financial institutions experience distress and the word "bailout" is hurled about as if it were a bad thing, we need to remember that investor bailouts have a long tradition. This is from a web page at the UVa:
During the war, the government had raised money by issuing public bonds, promising to repay them with interest later. Yet at the war's end, the government owed approximately $50 million, and could not repay the bonds. Hamilton's solution was to raise more cash by issuing a new series of 30-year bonds at six-percent interest, which would presumably sell (and in fact did sell) because of a high level of public confidence in the United States. The proposal, however, encountered the reasonable objection (raised by Madison) that since speculators were buying up Confederation bonds, the federal government would not end up repaying the original bond-holders who had patriotically risked their savings in the country's time of need.
The congressional bill of discrimination (discriminating between different bond-holders) sought to remedy the conflict by paying present holders of the bonds the current market value and reserving the difference for the original holders. Hamilton countered, first, that the logistics of tracking down and sorting out competing claims were prohibitively difficult and would discourage nervous foreign investors, and, second, that the bonds needed to be readily transferrable in order to compensate for the lack of hard cash. In the end, the bill for discrimation was defeated by a vote of 36 to 13.
(excerpted from The page cannot be found
So during George Washington's administration, the two political parties had a knock-down drag-out battle over which investors to bail out: those who had bought U.S. bonds for pennies on the dollar, or those who had sold them for pennies on the dollar. The buyers won.
"My profit is your loss...something I like to remember when businessman and Mormon hopeful Romney makes an appearance.
calmo | 02.02.08 - 2:51 pm | #"
Calmo, that language has no place here.
For the record, I'm not religious, and I'm apolitical.
Someone posted a link the other day about a cut telecom cable in the Middle East the other day. Now it's three; and conveniently, all this data traffic will be re-routed through the US and UK. Something is afoot.
Third undersea cable reportedly cut between Sri Lanka, Suez - MarketWatch
(Via Krugman's Blog)
--
"Hey, Jas, where you from, brother?"
I am in Tehachapi, CA, really in the mountains and way from the crowd. I have lived mostly in SoCal & Silly.con Valley for the past 30 years.
Jas
--
"It's the right thing to do for our country!"
But the wrong thing for our economic masters! They would never allow the "right thing" as long as they control the USG and the FR.
Jas
CR refers to "changing social norms".
This is total bullshit. The social norms have not significantly changed. Most folks I know want to live the good life, and have generally trusted that the financial world is covering their rear when they extend offers of credit. Consumers have been pulling on the credit envelope for decades, and it's only recently that lenders have acquiesced. It's also always been true in a free society that when people can't pay, they don't (duh!). This is not a social norm, it's just common sense!
The financial norm that changed is that wall street encouraged lending institutions to replace common sense with greed.
Next Spring, we see $5 gas, and then $6, and it continues upward, and obviously, impacts the consumer all the more who's going through recession and employment difficulties.
I'd bet at $5-$6 dollars a gallon US voters would be willing to fund panda-to-gasoline conversion projects.
There are plenty of $50-$60 dollar oil equivalents out there if you aren't worried about environmental damage. ANWR, coal liquification, oil shale and oil sands come to mind.
Gas was $ 6/gallon in France when I lived there almost 15 years ago. The roads were absolutely jammed to a standstill with cars every weekend in summer and most weekdays. The US could cut its per capita consumption in half simply by switching to more efficient vehicles and making use of mass transit for workaday commuting. All the means are there; no technological breakthroughs are required.
As for mortgage walkaways, have a halfway decent investigator go through their applications for fraud. Non-recourse laws will not protect anyone who committed fraud in obtaining the loan. Then go after their other assets and income. That will stop it pretty quickly.
I have two coworkers who are relocating to new states. Neither will bother selling their current home. Why would they? They have no hope of recovering the 5% down they had... but they weren't pure J6P, they have means to purchase in the new location.
So I suppose they will not disclose that they "walked away" from a mortgage in that other state. How would that get by the underwriter of the new loan?
"You can cover 20 miles in an hour for free on a bicycle. Keep dreaming, suburb haters."
I'm picturing:
-suburban person RIDING A BIKE through LA metro area. Even from "first ring" suburbs...
-suburban person riding a bike in chicago in winter
-suburban person riding a bike in Houston in Summer.
sorry... not gonna happen.
People will instead shift to smaller more fuel efficient cars (hybrids, 3 cylinders, motorcycles, etc)
many larger homes will be broken up into smaller units.
we will see demographic changes.
sure, Americans don't like to raise kids in apartments, but with time it may be needed.
projecting $5,$6 gas and beyond is somewhat dangerous though. with major recession comes decreased energy useage. I'm not sure that we're quiet yet to the secular bull market for energy (or permament peak if you will)
Sad that this is not going to turn out well for majority of Americans because taxes will have to go up and standard of living down due massive amounts of personal, corporate, state and federal government debt including the $32 Trillion in unfunded liabilities...
This sounds like a pretty good incentive to generate inflation (inflation reduces the real value of these obligations). Add the changes to the CPI formula over the last 20-30 years that disguise inflation, and the continuously dropping dollar against just about everything else and I think I remain in the inflation camp. Inflation generally, with falling assett prices in some areas like housing. But I'm open to changing this opinion as the facts change.
Changing social norms?
Companies walked away from pension fund obligations.
Insurance companies denied coverage after the fact.
Veterans Administration fails to provide medical care to injured veterans.
Had any trouble getting warranty coverage lately?
Had a Workers' Comp claim fought?
Yeah. Tell me about the social contract.
I listened to an audio conference of a guy who had just been to a NYC bankers conference. He said that when the subprime buyers agreed to buy the homes they realized that no one really expected them to be able to pay for them and everyone knew it would be short term which was evident by the lack of standards. He indicated that the buyers considered the homes more like short term rents of properties they would never have been able to live in under any other circumstances -- that the suprime buyers are poor but not dumb and that that is why they are walking and that the bankers know it.
"Hey, Jas, where you from, brother."
I think he means which country were you born in.
Where's Dryfly and crew, BTW, I always count on them for the anti-deflation arguments.
NC Jim:
Our founding fathers found that concept of debtor prison so foul that bankruptcy is actually mentioned in the US constitution.
What pray tell is your remedy for the greedy lenders and wall street huckster that pushed these loans, securitized the debt, made billions, created the real estate bubble, and caused the current financial crisis?
And people wonder why there are so many walk a ways?
Yearning,
I cycle to work every day in the LA metro area, and at weekends. LA, or the city where you're least likely to have your bicycle stolen, as it is popularly known amongst us cyclists, is a great place to cycle. It hardly ever rains, the traffic is pretty much stationary, and all the local buses are equipped with bicycle carriers if the need for puncture rescue arises. It's also much quicker to cycle for all local journeys, than it is to join the continuous traffic jams.
People adapt - it's what we do best. Even americans.
Someday, September will be over.
-- w
Iceman According to my rough calculations,it cost Macklowe in excess of $530,000,000 to "walk away" from the deal.Could not have happened to a nicer guy.
Nice ouch and Greedscam too...does the media pitch this message: subprimers are ethically challenged...as some politicians state much more bluntly, or are they generally more non-committal?
And is that the real "changing social norm" --the media now "fair and balances" everything to a standstill...of complacency while the heisting continues unabated?
Can we review the Monica affair now and see how the media then performed in shaping our views of what was "socially acceptable" to get a harder core view of this "changing social norm"?
There's a really great article in this week's New Yorker about the credit/mortgage market crisis. You Republicans will like the fact that it even skewers the Clinton administration. The Minsky Moment : The New Yorker
um, the only deflation I saw this weekend is in the superbowl doorbusters at the local Fry's/Kroger- they had some really low prices on a bunch of really fattening foods for the superbowl.
But I saw a lot of nonsale stuff that was a lot more expensive than last year.
Moral of the story- eat healthy onsale items.
The news on San Diego is quite frankly terrifying. They are definitely Phoenix one year ahead.
The only solution is to mark down all the mortgages in the bubble areas. Survivors will have gotten a deal in ten years. The real question is who survives.
A fifty percent haircut in Phoenix would result in immense writedowns.
Solvency is going to be a long term problem that must be addressed for the banks. However, time will cure most of their problems given enough positive interest earnings from other loans.
Someday this war's gonna end...
I am always a little surprised by complaints about public transport in North America, it doesn't quite fit with my experience.
I suppose I'm grotesquely atypical, in that I go to US and Canadian cities as a tourist, often staying with friends and getting around by public transport, but the public transport seems pretty decent.
Montreal has fantastic subway and bus networks; the Chicago suburb I was in seemed to be the classical kind where you walked or cycled or took a bus to the train station and took the train to the centre; anywhere I wanted to go in Toronto was pretty accessible; Manhattan is famously publicly-transportable; Minneapolis had a slightly irritating hub-and-spoke system but you could get into the centre without trouble; anywhere I wanted to go in central Seattle was accessible; San Francisco seemed to have a very good network.
Am I just visiting odd places and staying more centrally than average? There's an obvious adverse-selection effect; people tell me that LA and many of the cities of the south-eastern US are unliveable without a car, I don't drive, therefore I haven't gone to LA or the south-eastern US.
keep it up folks you will make ken lewis REALLY mad!
does conjure have a deflation clock?
As for thinking that we'll just replace our entire fleet of vehicles with more fuel efficient vehicles - that'll take 20 years and cost a bundle, precisely at a time when we can't afford it. Will those walking away from their houses be the first to buy a new $25,000 hybrid, or will it be those who lost their job? And in the end, after those 20 years, you've now got to come up with a new plan, because once over the edge, oil production doesn't stop declining.
Gas and energy use in recessions has not historically gone down much at all. Right now we are using about 1% more gas in the US than we did last year at this time.
And lastly, for those thinking the tar sands, oil shale or some such will make up the difference, you need to go look into the matter. It's more important to your future than the housing bubble bust. There is a lot of oil in shale and tar sands. But no, it cannot be effectively produced in quantity. Production can't ramp up fast enough, and has severe limits. It is not even clear that oil shale production is a net energy gain (which is why NO oil shale has yet been produced).
You guys read calculated risk and other economic blogs, I suggest you add theoildrum.com and see where things are heading after the current emergency.
Tom: My daughter lives in Montreal and doesn't drive. She has no trouble getting anywhere. Some places are hard to get around without a car. But all are just as easy to get around in car that gets 40 miles per gallon as in monster SUVs. Biking is great, but just switching from 15 mpg to 40 would have a huge effect.
Allen: Marking down mortgages might be okay. However, I would like to see some kind of excess profits tax on those who profited. In addition to the bankers, brokers etc. who cleaned up, it should include those who sold during the bubble. They in fact got the biggest piece of the pie, and because of the exclusions in the tax code, it was all tax-free.
I agree with you that time will cure most banks' problems.
sfvrealestate - Great article (and especially because it's short for a New Yorker article!).
I don't know whether my husband and I are smart or dumb - but since our first experience in the stock market was right before '73-'74 - and our first experience with a real estate boom was in '80-'81 in Florida (and we got cold feet and backed out before signing condo contracts which would have cost us hundreds of thousands of dollars) - we have just decided to march to our own drummer all these years. We haven't done great - or terrible - kind of medium. And have avoided manic depression
. This is a great time for younger people - with not much money at risk - to learn about the market stages described in the New Yorker article.
Tom Womack - FWIW - you can't exist in Florida without a car (or a car service). Ditto for California and most of the west - including Texas - and most of the south. In fact - most of the US. Florida is a nice state to visit though - lots to see and do - so I wouldn't make a fetish out of the no-car thing. Just curious - where do you live? Roby
Ella,
I guess my sarcasm didn't come through. I was doing my Dittohead imitation like Colbert(but not nearly so well).
Jim
Saying "hoocoodanode good borrows would go bad?" is just a way of shifting blame from the underwriters who ignored the obvious back to the borrowers.
There's no shift of blame needed, the borrowers are the ones who agreed that they were "willing and able" to pay the money back. They hold the lion's share of the fault, period.
Lenders are getting theirs for being enablers (as they should), but claiming that they're at fault for this is naive and/or stupid.
Personally I feel no worse walking away from a commodity-ized mortgage then I would buying a rather smelly cheese.
Having said that however it seems obvious that the way to counteract jingle mail is to modify the non-recourse statute Moving from non-recourse as the default status to non-recourse as a status granted by a judge upon a seems hearing likely.
So if you want to jingle do it while it is still near xmas.
The story of hanging Chad above is breathtaking in its....what.
He signed himself up for maybe eight years of his salary without getting a lawyer to look it over. Its straight out of Jack and the Beanstalk without its happy phallic surprise. He and other starry eyed folk who trusted the nice folk at CFC do needs pay a price
Call it an educational surcharge
But I dont think todays walk-aways are clear evidence of the "good borrower gone bad."
yes..but ummm... how many 'good' borrowers were there? Were 'good' credit risks gorging themselves on helocs? By definition the banks were lending to the worst credit risks at the end of this cycle, good credit risks don't take out screw me loans.
I am growing more amused at how many lenders are shocked, shocked! at "walk aways."
I remember in '92 or so when house prices had busted after a round of climbing in the late 80's. We'd just bought a condo at the time, but soon ran into neighbors who had negative equity -- first time I'd come across that phrase. I remember thinking back then if I was stuck and house prices were only sinking, I'd short sell or walk off.
isamu writes:
You can cover 20 miles in an hour for free on a bicycle.
bwahaha. only a small % of the population is going to maintain 20 mph for an hour on a bicycle. And this is ignoring traffic, weather, etc. A more realistic average speed is 10 mph, and I am someone who does not own a car and uses a bike to get around.
isamu | 02.02.08 - 3:57 pm | #
The way I see it is this could be a great help towards healthcare costs. We could save some serious money in healthcare if folks were to ride bicycles to work because of $6 a gallon gasoline. Fat chance!
I have already walked away from my house. I could afford it. I left for several reasons. First, a divorce. I didn't need 3,000 square feet of room any more. Second, thanks to bad lending, the entire neighborhood went downhill. The grass just kept getting higher and higher every year.
So far, it's been great. I have a nice rental in a lovely area of town. Walking away was one of the best choices I ever made.
When the money is funny, people do funny things. I also viewed the recklessness of the lending industry as "permision" to walk away from my house. If they are willing to stop caring about consequences, moraity, etc, why should I?
Aheadofthecurve writes:
'As for mortgage walkaways, have a halfway decent investigator go through their applications for fraud.'
And you know something - a halfway decent investigator will likely find all kinds of fraud. The problem is, that only a part of it will be on the part of the borrower.
Which is why half way decent investigators, much less a decent ones, seems to be in such stunning absence when discussing the question of fraud.
The system is pretty much rotten to the core - and it will collapse when the truth is known.
Actually, it is collapsing, as the truth comes out.
"And you know something - a halfway decent investigator will likely find all kinds of fraud. The problem is, that only a part of it will be on the part of the borrower"
exactly right! a system with moral hazard running right through the middle. That said, this is not the first time this has happened. In the 1920's people bought houses on interest only mortgages that needed to be refinanced every 12 months. In the 1860's ag. prices were falling after the civil war and then the financial "piggy's" decided to try to corner the gold market to force a devaluation of the $ vs gold. Alexander Hamilton had to decide to honor the confederate debts on a bearer basis because if he didn't how could they manage the process.
In this run around, the deflation will be nasty and the politicians will stay quiet until the elections are safely over. Then, I believe, the hunt will be on to find a fall guy (mortgage brokers are the most likely candidate as of now because they don't have representation by lobbyists to the same extent as the banks, insurance companies or RE brokers). RE speculators are another excellent candidate because they can be held up as an example to others if some of them go to jail.
In the meantime, the debts will be monetized (assumed by the govt) and the banks will be on their knees for most of the next president's term. The fear/greed pendulum will have swung all the way towards fear and, try as it moght, it will be all but impossible to get borrowers back to the debt game.
"Alexander Hamilton had to decide to honor the confederate debts on a bearer basis because if he didn't how could they manage the process."
Alexander Hamilton died in 1804 in a duel with Aaron Burr so I don't think he was asked to decide anything about confederate debts.
"And you know something - a halfway decent investigator will likely find all kinds of fraud. The problem is, that only a part of it will be on the part of the borrower."
Those investigators will be hired by the ultimate debt holders, pension funds, state and municipal funds, etc., who did not commit the frauds. They can take recourse against the borrowers, the brokers and the loan securitizers. All are guilty and none should be spared. But specific to the issue of walkaways, the pursuit of the borrowers will be an important check. After all, Hamilton believed in checks and balances.
When does Glass-Steagal go back on the books?
One last thought, I was thinking about what I would do if I was about to walkaway from a house (which I'm not - just trying to roleplay if I were).
Definitely, I would pull out all the HELOC money that I could, and max out all my credit cards with all the purchases that I can forsee. If my credit is about to be shot for the next 7 years, I might as well go out with a bang and load up on purchases that I will need (new TV, new computer). If my car were in bad shape, I would purchase a new one with some of the HELOC money.
The point of this exercise is, walking away from a mortgage definitely can spread the contagion of defaults to other consumer loan classes, while at the same time being short run stimulative to retail sales (since I'm going shopping with my credit card).
Is this really the result of "changing social norms," or is it possible that people with bad credit who lie about their income and/or assets and then put zero of their own capital down on a home would always have been high risks to walk away from a negative equity situation.
Maybe this is why lenders who actually had to rely on the quality of their own underwriting for future cash flow never lent to these types of risks in the past. It is only the ready cash flow from selling such paper into securitization that got these loans written in the first place. And now the eager buyers of such loans are blaming the decay of "social norms" for their losses, because their highly-scientific Monte-Carlo models could never have been so wrong...
Securitization is a wonderful innovation, but it does have some troubling side-effects that one should always keep in mind when valuing the resulting "products."
WHEN THE WORLD SAY ITS IMPOSSIBLE GOD SAYS ALL THINGS ARE POSSIBLE LUKE 18;27 WHEN YOU FEEL LIKE YOU CANT GO ON GOD SAYS MY GRACE IS SUFFICIENT 2 CORINTHIANS 12;9 WHEN YOU SAY I CANT FIGURE THINGS OUT GOD SAID I WILL DIRECT YOUR STEPS PROVERBS 3;5 WHEN YOU THINK YOU CANT DO IT GOD SAID YOU CAN DO ALL THINGS PHILLIPPIANS 4;13 WHEN THE GOVERNMENT SAY THEIR NOT ABLE TO HELP YOU GOD SAID I AM ABLE 2 CORINTHIANS 9;8 AND WHEN THE MORTGAGE COMPANY SAY ITS NOT WORTH IT GOD SAID IT WILL BE WORTH IT ROMAN 8;28 WHEN YOU FEEL LIKE THERES NO HOPE AND YOU CANT SEE YOUR WAY OUT GOD SAYS I WILL SUPPLY ALL YOUR NEEDS PHILLIPPIANS 4;19 THE WORLD NEEDS JESUS !