Wonder if Michelle Augustine has a Hummer and got a boob job. Got any pictures?

There's a reason why debt is called "paper".

"Borrowers also will have to prove that they can pay the mortgage, property taxes and insurance for both residences.

So we still have yet to work "ability to pay" into the loan qualification process...

Wow. Just... wow....

Borrowers also will have to prove that they can pay the mortgage, property taxes and insurance for both residences.

That ought to drastically limit exposure right there.

Note that nothing in the story says Ms. Augustine can't afford to service both mortgages--just that she can get a similar house nearby for far less money. There's a concept in legal theory called the "efficient breach." Basically, it boils down to the notion that if a party to a contract is better off breaching the contract and paying the injured party's damages than it is performing on the contract, then he oughta be able to do just that. This theory underlies the basic rule that remedies in equity (that usually involve some sort of performance) cannot be granted where a remedy in law (i.e. money) will suffice. Ms. Augustine is simply breaching--that's NOT fraud, even if she does it ten minutes after she signed. The lender has very clear remedies, and that should be the end of it. Why shouldn't she be able to go on with her life?

On the other hand, if the second lender is worried about this sort of thing (and I honestly don't see why it should be) it should insist on reps that would exclude Ms. Augustine (though I reckon it would be an interesting job drafting them). Better still, it should do what credit card lenders do and build in cross-default provisions (not that any court in the nation is likely to enforce them in the context of residential mortages, but that's a different issue).

Fraudulent or not, it'll certainly help the market decline to where it needs to be.

So, whats missing again is the due diligence by mortgage co which is just so thrilled to write new paper...

I remember the old days when I applied for a new mortgage--the mortgage co ran a search on my credit factors and told me things I did not know--how could a mortgage co miss an existing devalued home and upside down mortgage--its not like this started just yesterday.

And how many families can qualify for say, two 300k mortgages aand housing expenses--unless of course the bar is real real low.

Why is that a lie?

"I can find the same exact house as what I live in right now for half the price," says Ms. Augustine ..."

Ms. Augustine ..." is just cutting a better deal and taking advantage of opportunity. If you all had a stock that crashed in your portfolio, you may take that opportunity to cost average or bail out and take advantage of a situation. Poor Ms. Augustine ..." is simply trying not to be trapped in a crappy deal and I can't blame her!

Meow!

Re: " lot of kcid daeh are still trying to grasph as straw"

Huh?

Meow?

d*ck head grasp at straw

This was the same thing that happened in SO CAL in the early 90's. People bought in the IE only to realize their house was worth much less. They would buy back in the OC and let the IE house fall into foreclosure. Funny, how things always stay the same.

Good Lord, here we go with the cries of "fraud" again. Can we give it a rest - this behavior simply does not constitute fraud. Period, end of discussion. We can debate the morality and astute business decision angles round and round, but those with no idea of what contitutes fraud are best left to more esoterical discussions as opposed to legal ones.

For those that take issue with such an action plan, you better buckle up cause we ain't seen nothing yet - just wait until the inevitable rate hikes/option ARM resets. I do believe the ruthless default action plan is going to be a frequent and well-established phenomenon within 24 months. In one fell swoop, homeowners can live for free for 6-12 months, erase hundreds of thousands of debt and cut monthly expenses by thousands going forward. In exchange for their credit rating, of course, but as we say, every man has his price and for a positive reversal in net worth running into the hundreds of thousands of dollars, I believe many will sell their credit. The only way to stop ruthless defaults is to lock in lower interest rates and write down loan balances. Whether lenders/debtholders take this action remains to be seen, but their track record of making wise decisions ain't so good.

Except this is not gang rape. It's a good business decision.

Its an interesting concept. Perhaps someone posting here might try it?

Tanta covered this situation ns detail last month. From what is published it seems Ms. Augustine is about to commit fraud - and she has described her intent in advance, publically.

Will she default again if her business fails and she no longer needs a 4 bedroom house?

Her new mortgage lender might not be so willing to fund a second house if they are aware of her intent to ruthlessly default on her first loan.

My house has lost more value in the past year than it gained in the previous ten years. So I'm upset with people leaving their houses, and leaving the neighbors to deal with the diminished values and extra work to maintain appearances.

I think part of the problem is that fraud is both a criminal and civil offense.

If the feds wanted to criminalize this, I can't see why there would be a problem, as long as the regulation was clearly defined. I mean, when "insider trading" was prohibited, there was a lot of confusion as to who an "insider" was, what constituted proof, etc. It's still a pain in the arse to prove, but does act as a deterrent.

DaveJ- in your scenario the second bank is defrauded because they don't have the chance to accurately assess the borrower's will and history to repay. Nor do they have the opportunity to add a risk premium if they still decide to do a loan to someo ne who may default5 another time.So the second bank has a legal case if the borrower defaults and has lied on the loan app.
The first bank always had a legal case since the borrower walked away from their agreement.

Hey, Prime -
When the second lender asks the buyer, "What are you going to do with these two houses?" - that's where the potential for fraud comes in.

Tanta does a great job of explaining this in her post on "ruthless" defaulters.
Maybe CR can link back to it or excerpt a bit.
Good night.

"Under revised Fannie Mae guidelines, which could take effect next week, loan applicants who claim they will rent out their first home will have to produce supporting evidence, including an executed lease agreement"

Like that will do anything. Move, rent it...then walk.

Off Topic (but interesting anyway):

If you go to Wikipedia for info on Jason Furman, Obama's new economic advisor, you get... bupkes. Nothing.

If you look at the last cached entry, however, dated June 7, you get the following:

"Jason Furman[1] is a Senior Fellow at the Brookings Institution and Director the Hamilton Project, an initiative aimed at developing policy solutions to promote shared growth and opportunity. Furman is also a Visiting Scholar at New York University’s Wagner Graduate School of Public Service.

He has conducted research and policy work in a wide range of economic policy areas, including fiscal policy, tax policy, health economics, Social Security, and monetary policy. In 2005, CQ named him one of the five Social Security analysts who “exert more influence over the Social Security debate than any other individuals outside government.”

Furman has worked in a several public policy positions. He served as Special Assistant to the President for Economic Policy in the Clinton Administration where he chaired the interagency technical working group on Social Security reform and was the principal White House staff member responsible for budget and tax issues. Earlier in the Administration, Furman served as a Staff Economist at the Council of Economic Advisers and a Senior Director at the National Economic Council.

During the Gore-Lieberman Campaign, Jason served as the Senior Economic Adviser. Four years later, he served as the Economic Policy Director for the Kerry campaign.

Furman also served as Senior Economic Adviser to the Chief Economist of the World Bank, where he co-wrote (with Nobel Prize Laureate Joseph Stiglitz) one of the more widely cited papers on the East Asian financial crisis. Furman has taught at Yale, Columbia, and now at NYU’s Wagner School. In addition, he was previously Senior Fellow at the Center on Budget and Policy Priorities. He has written numerous papers and articles on economic issues and testified frequently before Congress. Furman received his BA, as well as an MA in Government and a Ph.D. in Economics, from Harvard University. He holds a MSc in Economics from the London School of Economics as well.[2][3]

Furman lives in DC with his wife, Eve, and their two young children. He is the son of Gail and Jay Furman, and the brother of Jesse Furman."

What didn't they want us to see? His work in the Clinton Admin.? All the association with World Bank, London School, East Asian crisis and Stiglitz? Too "global" for public consumption? From what I understand, Wikipedia articles change, get polished, etc., but they're not supposed to disappear entirely, are they?

CR and others,
In the 1980's collapse a friend (and lawyer)along with 2 business partners bought a strip mall in FC with $30k and a non recourse note for $150k. I'm pretty sure everyone at the closing know that the 3 buyers in the partnership were "walking away" after the $30k was used up to pay the note.
If some CA purchases are non- recourse, I would expect lawyers for the sellers to change the contract to make the purchase a recourse transaction when state law makes it otherwise.
So I'm not sure " buy-and-bail is 'certainly fraudulent".

Its fraud because shes lying on the new mortgage documents which are signed and notorized that the information is accurate/honest and is legally binding in a court of law.

Its also funny that these greedy mortgage companies and those that bought loans will be paying for this mess before its over. Its a crime that our government is using our tax dollars to buy some of the worst of this garbage paper. Dont forget that most of the people bailing are people whom reaped a lot of the rewards. If you bought at top dollar than most likely you also sold your existing house for top dollar. Those that refinanced for top dollar put that money in their pocket and are now crying foul. Only the first time buyers truly got hosed. My house has been paid off and now i wish i would have refinanced and hid it under the matteress and i would walk away with a smile on my face. None of the parties involved deserve any pity!

Most people dont have the brains to realise this is all a good thing in the long run. Prices were way too high for the average to afford. Your current house is worth less but if you sell the next house will just as cheap (a wash). You cant take money out of a house like it`s an atm machine because you need it until you die. Plus the property taxes and insurance will be less as the prices drop.

This mess is far from over, we got thru 75% of the sub-prime, the adjustibles, interest only loans, etc. havent even started. With prices dropping over 50% already in some areas even the good borrowers are going to have to make a business decision as to wether to continue on on a loan thats worth half of whats owed. I say stick it to them and walk away after you hide your remaining cash from them. I know people who are still in their house after two years of not paying because the system is so backed up in areas. In Broward county Florida the courts are no longer accepting the filing of bankruptcies because they cant handle what they have. They could live free for years because of the homestead system there, lol...

So the fact that we have a bunch of lickspittle politicians trying to characterize unscrupulous borrowers as "victims" of Bush-inspired "predatory lending pratices" is no longer relevant? Give. Me.A. Break.

"I'd like someone to show me on the application form where it asks whether or not you intend to bail on your former property."

To purchase a second home you verify in writng on the documents that you are going to rent your first home (if you cant prove that you can afford both out right). Lying about the rental of the first home is where the fruad occurs. Actual income from a rental wont pay the mtg, taxes, insurance etc. so the borrower inflates the rental income by getting a friend to sign a phony inflated rental agreement. On the documents you have to sign where it says that all the information youve provided it accurate and true. If you were loaning money to this person you wouldnt consider that fruad?

"And there will be cutbacks everywhere as the states continue to be hit with declining revenue."

Yes, but if they can figure out a way to turn the "self-help cramdown" into a taxable event (and tax authorities can garnish wages really easily), then states have every reason to go after this. People are correct - states have no incentive to prosecute this as fraud. They have every reason to go after taxes they feel they have missed out on. So do the feds.

This one is so easy

Good old 20% down mortgages.

If the clown cannot make the new payment on the current home, you know they do not have $40-60k ready to put down on the new abode.

And these douche bags already pissed away all of the HELOC funds on vacations to Mexico, BMWs and boob jobs.

Secondly, any decent banker should ask about how the old home can be owner occupied and the new loan is the same. No can do..
If the clown wants to rent the old house, they need to supply a letter from the first homes lender agreeing to the modification of terms. If they want to rent the new propery, that is at a higher rate and/or subject to tougher scrutiny on the applicants cash flow.

12 years ago, there used to be policies that enforced these things. At least at the banks I got mortgages at. Then again, none of the banks I use have failed.

If bankers started actting like bankers instead of con men trying to suck up commissions, this problem clears itself in no time.

Gomer

The only fraud I can see here is the one perpetrated by the credit reporting agencies by convincing lenders they could accurately determine how credit-worthy a potential borrower was by churning through data and spitting out a number.

Whether it is S&P or Equifax, it's the same pile o' manure. If you want a target, there's your bullseye, IMHO.

(OT: Short any rallies, or just short)

This sure is nice counter punch to the bankruptcy bills.

I need more popcorn.

My mom's beautician was just telling her about how her sister did this in the Sacramento/Natomos area. Bought another house for cheaper than the first and dumped the first. I would have thought it would be difficult to buy a second home when you're paying through the nose for the first home. Mainly because I've never understood how any house bought at the top of the bubble could be considered profitable as a rental.

But then a few weeks ago my husband was talking to his uncle, who has had a side business of buying foreclosed homes, fixing them up and selling them -since before the boom. He said that if he can't make a profit, he lets the bank have the house so that he doesn't lose money on the taxes. Maybe it's not such a big loss for the bank if he bought it as a foreclosure to begin with and it left it after making improvements. But I was surprised that any bank would lend him money again if he had a foreclosure (or multiple foreclosures) on his record. Or that there wouldn't be some kind of penalty for future purchases -like a higher downpayment or higher interest rate.

argh, I meant shnaps, not schnaps.

Why should someone who put 20% down and has a 30 year fixed rate take it in the shorts on his home value because all his neighbors got liar loans and caused Everybodys home value to go in the toilet

Home values are not going "in the toilet", they are going back to what they should have been all along.

It was the liar loans that caused the inflated values, which are the problem. Sensible values are the solution.

Nobody was forced to buy a house at an inflated price, and nobody earned the right to sell a house at an inflated price.

"They featured one couple who made about $150K between them and had refie'd a $300K house up to about $700K and were bailing. They both engineered job transfers to Texas where they bought before they walked from the Riverside house.
"

Oh yeah, I remember reading about that couple that did that. They also bought 2 brand new cars, and took a long european vacation before letting their home in Clowniforna go into foreclosure.

I do not cry for Countrywide, but you cannot create a system in which prospective borrowers can both get cheap, low downpayment loans AND dump payable debt if the house value has declined without impunity.

The logic behind the system was to STOP loose lending practices. When the law was drafted, they thought only a fool would make outsized loans to people who couldn't pay if the debt was nonrecourse.

Countrywide was such a fool.

From the John Stumpf interview sdtfs linked to above:

Ryssdal: On a personal level, what's your sense of obligation or responsibility for what's been happening in the banking and finance industry?

Stumpf: Responsibility? I don't know if I understand the question.

I wonder what % of home sales are from people who will foreclose on a different home. If it's fairly significant, that would totally skew real estate sales figures. And it seems even further accelerate the drop in housing prices.

And I wonder how many of these savy people will be in foreclosure again in the next 5 years.

I see fraud only if she provides a bogus rental agreement. I see someone who's willing to trash her credit in exchange for buying a new house at 50% off. She can buy the new house as, "it's my intent, even without a rental agreement, to rent the old house, even if it doesn't cash flow." She must qualify for both house payments, anyway (which very few people can do), so unless the new lender can read her mind, she's not doing anything fraudulent, in my opinion.

She's not defrauding the new lender, because she intends to live in the subject property. She's not defrauding the old lender because the old lender will get the property back, per the contract.

I don't even know what CR means by 'This is certainly fraud (if they sign a false loan document).' Again, that mind-reading thing comes into play.