Real Estate Crash thread

[Toadman]

Our tax dollars hard at work with a finger in the dike of home mortgage black holes...

The Senate on Tuesday rejected a Republican sponsored measure that would effectively cut off support to Fannie Mae and Freddie Mac in two years. The government-sponsored enterprises, now in conservatorship, have already cost the government about $145 billion.

And there's no limit to how much more they can ask for for the next two years!

Fannie Mae lost $11.5 billion in the first quarter while Freddie Mac lost more than $6.7 billion. After posting those massive losses, they asked for a combined additional sum of nearly $20 billion in government assistance.

"Are they losing money as a matter of policy or are they losing it as bad judgment?" asks Dean Baker, co-director of the Center for Economic and Policy Research, who calls the Fannie and Freddie the elephant in the bailout room.

[Super G]

I agree with Gibo that we need to keep some morals. Living a righteous life should be a priority for everyone. but in this case it is hard to do when the leaders dont seem to be playing by the same rules. Maybe I am just bitter about all of this, but there is no accountability from our politicians, feds, big bankers and all of the other greedy douchebags that are running our country into the ground with their "me first, money first, screw everyone else attitude" so why should we be expected to keep morals when everyone in charge does not? There is so much immoral and downright illegal activity going on in the name of big business, but when an individual tries to play the game by defaulting, they are subjected to all kinds of penalties. It is a fucked up double standard. This whole economic system is set up to screw over the little guy so what is wrong with the little guy trying to screw over the system?

[GiBo]

... so what is wrong with the little guy trying to screw over the system?

Because we are 'the system'. Individuals, banks, politicians... we're all 'the system'. And at some point someone has to stand up and say, "No. This shit stops here. With me."

Ok, I'll get off my high horse for now and let the finer technical points of finance be discussed here. I'm afraid it's a lost cause. When it comes down to it, maybe we've gone over that line. This country just doesn't think like my dad or grandfather anymore. And people like me who do, are just going to lose out in the end by not taking what we can when we can.

[jayfrizzo]

If both parties took the risk and I can still afford the payments, it sure seems pretty shady to stick the bank with a $100,000 loss.

Yeah, I agree. But then isn't it also shady for the bank to stick the homeowner with a $100,000 loss?

What if it worked the other way around? If we're in the risk game together with the bank, what if we were in the reward game with then too? What if my house went up $100,000 in value and bank called and said they wanted out? They want to sell and cash out on the increased value. Why would that be any different?

Because it would be outside the scope of the contract. The homeowner isn't doing anything ouside the scope of the contract.

You're adding terms to a contract after it's been agreed upon based on percieved right and wrong. But it's not wrong to work within the terms of a contract, IMO.

What would be the ideal solution to you? Homeowner take all the loss?

IMO the bank and homeowner should renegotiate and share the loss. But that doesn't seem to be happening too often.


J-

[Super G]

yeah I hear you Gibo...I am just frustrated at the lack of accountability shown by the people that are supposed to be leading this country and doing what is right for the people. Even if we the people take a stand for what is morally right, I dont think the leaders will, therefore our efforts are in vain.

[Missing Sock]

Yeah, I agree. But then isn't it also shady for the bank to stick the homeowner with a $100,000 loss?

The bank isn't sticking the homeowner with the loss. The homeowner bought the house from the previous owner not the bank, The bank only provided the financing with the house as collateral. The fact that the homeowner made a poor investment decision well that is his problem, shouldn't be the banks.

If I loan you $2000 to go buy a new bike, a few months go by and the bike breaks/rusts whatever. How does that change the fact that you still owe me the $2000 you borrowed?

[GiBo]

The bank isn't sticking the homeowner with the loss. The homeowner bought the house from the previous owner not the bank, The bank only provided the financing with the house as collateral. The fact that the homeowner made a poor investment decision well that is his problem, shouldn't be the banks.

If I loan you $2000 to go buy a new bike, a few months go by and the bike breaks/rusts whatever. How does that change the fact that you still owe me the $2000 you borrowed?

That's exactly how I see it.

[jayfrizzo]

I suspect we're going to have to agree to disagree, but

The fact that the homeowner made a poor investment decision well that is his problem, shouldn't be the banks.

The bank made a poor investment decision, too. They took something as collateral expecting it to not decrease in value. And it did.

IMO, both the bank and homeowner made a poor decision, and as such should share the pain. But if the bank doesn't want to share the burden, and it's within the scope of the contract, the homeowner can "give the bank the property in exchange for being relieved of their debt obligation."

If I loan you $2000 to go buy a new bike, a few months go by and the bike breaks/rusts whatever. How does that change the fact that you still owe me the $2000 you borrowed?

If you were smart, you'd charge higher interest for a depreciating collateral to offset your risks. That's how car loans work.

With loans, the interest rates are supposed to reflect and offset the risks. If banks set the interest rate poorly -- made a bad business decision -- shouldn't they be expected to suffer their bad decision?

If I run my business poorly, I doubt you'd be a customer just to do what's "right"?

J-

[dominici]

Because we are 'the system'. Individuals, banks, politicians... we're all 'the system'. And at some point someone has to stand up and say, "No. This shit stops here. With me."

Ok, I'll get off my high horse for now and let the finer technical points of finance be discussed here. I'm afraid it's a lost cause. When it comes down to it, maybe we've gone over that line. This country just doesn't think like my dad or grandfather anymore. And people like me who do, are just going to lose out in the end by not taking what we can when we can.

I think the problem is that the country, the western world in general thought like your dad, my dad, your grandfather and my grandfather fueled by 'It's a wonderful life' style shit where if you stand up for your principles then you'll win in the end. Bullshit. The majority of individuals have very little to do with banks and the majority of politicians and, in my humble opinion, the sooner we stop thinking that we have anything to do with them then the sooner we can start to reform things.

[Spats]

The banks have taken $TRILLIONS of our money, for which we have and will continue to pay every year.

Arguing that it's immoral to abide by a terms of a contract both the homeowner and the bank consented to is silly. If the bank was so worried about the house losing value, they should have made it a recourse loan. But they did not. Tough shit for them.

I agree that living in the house after foreclosure, rent-free, is shady. But the banks are deliberately allowing ex-homeowners to do this so they can avoid the price discovery of foreclosure and sale, masking the fact that the banks are all completely bankrupt. If they wanted to kick people out they could -- but they don't.

Neither party gets to wear the white hat here.

[XXX-er]

The banks have taken $TRILLIONS of our money, for which we have and will continue to pay every year.
.

thats right YOU will all pay for many years to come I say you because I am not an american tax payer but the trickle down(or up actualy ) will also affect us for many years to come

[char]

Gibo-

Hey dude, I signed a contract to pay on the house to stay in it. Like rent.

If I don't pay, the bank can have it.

I didn't sign an agreement to pay back a loan no matter what.

I'm dealing with an immoral entity which operates by computer algorithms run by people who are so greedy they almost crashed the system. This is the same entity who in 2002-2003-2004 would not have hesitated to kick me and my kids out on the street after a few missed payments so they could flip the house and make a profit.


Literally would have kicked children out on the street with no place to live for the almighty dollar. Who is immoral exactly?

I signed a contract, and I will abide by the terms of the contract. I will also use that contract to my benefit in the exact same manner the bank would have.

[GiBo]

I don't agree that banks are an immoral entities. And I don't think you would have got kicked out of your house with a 'few missed payments'. As far as I know, the forclosure process hasn't changed since 2004.

I think this type of sentiment is just comforting justification to do something that we all know, why'll not technically illegal, is definitely not the intention of the agreement. To have the ability to pay, but not pay and walk for financial gain is not 'the same exact manner' as the bank forclosing for non-payment. Using the contract in the 'exact same manner' would be if they could just arbitrarily kick you out if the price went up and sell for a profit.

Maybe someone can school me on this: do most non-recourse mortgage contracts really say if you have the income to pay, it's fine and dandy to walk away? I know the they can't go after other assets to recoup their loss, but it seems like a crazy agreement for them to enter. Is the only penalty a few years of bad credit?

[Super G]

good question. what exactly are the consequences? Like if you are still getting paychecks deposited into your account, but stop paying mortgage(that is held by a different bank), does that raise some red flags with the bank that holds the loan? Anyone with experience care to chime in?

[Benny Profane]

Our tax dollars hard at work with a finger in the dike of home mortgage black holes...

Check this out. It's just stunning, in a way, how we are being butt fucked almost out in the open, and nobody knows it. I swear, I almost thought the health care reform was a smokescreen for this, and, maybe it was, since the boys who pulled this knew the boss was busy with his legacy grooming. We are fucked.

(Watch the Dean Baker/Barry Ritholtz video)

http://seekingalpha.com/article/2048...urce=commenter

[cramer]

Check this out. It's just stunning, in a way, how we are being butt fucked almost out in the open, and nobody knows it. I swear, I almost thought the health care reform was a smokescreen for this, and, maybe it was, since the boys who pulled this knew the boss was busy with his legacy grooming. We are fucked.

(Watch the Dean Baker/Barry Ritholtz video)

http://seekingalpha.com/article/2048...urce=commenter

I guess the good news out of this arcticle is i work for one of the big ones. So i guess im bending the collective over.

[liv2ski]

Because we are 'the system'. Individuals, banks, politicians... we're all 'the system'. And at some point someone has to stand up and say, "No. This shit stops here. With me."

Ok, I'll get off my high horse for now and let the finer technical points of finance be discussed here. I'm afraid it's a lost cause. When it comes down to it, maybe we've gone over that line. This country just doesn't think like my dad or grandfather anymore. And people like me who do, are just going to lose out in the end by not taking what we can when we can.

Gibo, I was with you until I saw the huge bailout of banks and wall street. In your grandfathers day, those companies would have failed for their stupidity and greed. So, IMO, if things have changed for them, then things have changed for the average man. All that will happen is the cost of borrowing may get a little more expensive for all as the banks have to figure in the costs of strategic defaults too.

[mcsquared]

Gibo, I was with you until I saw the huge bailout of banks and wall street. In your grandfathers day, those companies would have failed for their stupidity and greed. So, IMO, if things have changed for them, then things have changed for the average man. All that will happen is the cost of borrowing may get a little more expensive for all as the banks have to figure in the costs of strategic defaults too.

Just wanted to take the opportunity to quote my favorite TGR post of all time.

I can't believe I read this whole thing, but since you are asking for advice:

You are asking a question you already know the answer to. You are reaching the point in life where you must decide: Tourist or Traveler?

Take the high road. Life is full of weak, souless tourists for whom life is one giant scam. They do whatever they are going to do because it is impossible for them not to. And even when they appear to do the right thing, it is only because others are watching, and the good act only serves to continue whichever impression they are currently trying to project. You will find them everywhere. In every setting. The words flow like water: "Can I borrow, Mine broke can I use yours, I forgot, It is not my fault, I didn't know, I was going to, It's not fair, They didn't tell me"

The good news: The farther you get afield, the harder the journey, the fewer bragging rights for having been, the fewer tourists you will be bogged down by.

Be a traveler. Take your lumps without complaint. Don't be muddied by a debate over the obvious. Technicalities, Rules, and Rulings are no victory. Hold the high ground: Honor, Character, Truth. Once you fall to their level there is no returning to the high ground and there is an endless supply of Tourists waiting to do the same to you.

Eventually in life you will find enough persons of similar character to yours that you can exclude the others. You will have friends, a family, business partners, mentors. My life is a string of unreturned books, unpaid debts, stolen equipment, unreciprocated kindness. Fuck 'em all because I can look every one of them in the eye, and they know what it really is and cower away like the maggot tourists they are.

Even with all of the money, and my shit back (particularly my SCUBA gear, Biography of Burton, Rossi 4S 203s... you know who you are if are reading this) I would not be ahead of where I am now. Because the other Travelers have tested me over years and I am one of them. And now that I know, I can freely reach in my pocket for my last dollar and know that I will get it back when it matters, hand over my prized 8 weight and it will be returned with a new fly tied on, and one for the box. Any kindness shown to a Traveler is always returned ten fold. Give abundantly and your life is enriched beyond measure. Count every change and keep an account book of that given and returned... you are a Tourist destined to have a life limited by the balance of those accounts.

The price sucks, but you are paying for a lifestyle that can't be bought any other way. When you see the weak bastard that owes you the $500 he will know, and you will know, but eventually it won't matter to you anymore... and he will always be a Tourist.

[khakis]

god that was such a great post. what was that about, some model rocket competition or something, right? THanks for quoting...gonna email that to about ten people right now....

[Toadman]

Check this out. It's just stunning, in a way, how we are being butt fucked almost out in the open, and nobody knows it. I swear, I almost thought the health care reform was a smokescreen for this, and, maybe it was, since the boys who pulled this knew the boss was busy with his legacy grooming. We are fucked.

(Watch the Dean Baker/Barry Ritholtz video)

http://seekingalpha.com/article/2048...urce=commenter

Makes the the GS dog and pony show look like a kindergarten play compared to what's going on with Fannie and Freddie, and no one seems to give a crap. I guess when reality does hit, and the main stream media picks up on it, they will wonder why everyone was asleep at the wheel.

[GiBo]

Gibo, I was with you until I saw the huge bailout of banks and wall street. In your grandfathers day, those companies would have failed for their stupidity and greed. So, IMO, if things have changed for them, then things have changed for the average man. All that will happen is the cost of borrowing may get a little more expensive for all as the banks have to figure in the costs of strategic defaults too.

OK, I know I said I would leave this thread to the financial policy wonks, but I just can't leave it alone.

My personal moral compass doesn't change based on others. This seems to be the main tenant of the new moral logic: 'Hey, it may not be right, but they did it first, man!"

mcsquared, thanks for posting that. TexER is a fucking prophet!

[liv2ski]

OK, I know I said I would leave this thread to the financial policy wonks, but I just can't leave it alone.

My personal moral compass doesn't change based on others. This seems to be the main tenant of the new moral logic: 'Hey, it may not be right, but they did it first, man!"

mcsquared, thanks for posting that. TexER is a fucking prophet!

Gibo,
My take on this housing mess, and larger financially catastrophe we may find ourselves in down the road is, you, I, our children have already paid, been obligated to, a huge indebtedness that easily gives anyone a pass on walking from a home loan or more IMO, if that is what they need to do to shore up their future financial security.
What has transpired in the last 12 months has shaken this "Traveler" to the core. What I see going forward, alarms me even more. The outright corruption of the Federal Government/Fed as it supports Wall Street and the Banking industry honestly has me wanting to sell everything and get the fuck out of this country before it implodes. My wife thinks I am overstating the mess we are in, so here I wait, hoping I am wrong and that our leaders will finally be replaced by individuals that will acknowledge what is happening and make the tough and unpopular financial calls to turn the USA around. Some of those calls will likely be a repeal of being able to strategically default. Other calls will be allowing to big to fail financials fail if the upfront and ongoing insurance premiums they need to start paying are not enough to bail their asses out. The more risky the investments are they play with, the bigger the premiums they need to pay.
I could write a book on what needs to be done, but nobody would read it because I have something that pisses in every bodies little pond for the greater good.
End rant

[Benny Profane]

I found this thought intriguing when I found it out in the clouds today.



Monday, May 10, 2010 10:18 AM ET
A bank that only lends to walk-aways?
By Zach Fox

On the crucial question of whether underwater borrowers will continue to pay their mortgages or walk away, Luigi Zingales, a professor of finance at the University of Chicago Booth School of Business, told SNL that much could depend on whether a new business idea gets off the ground.

Zingales' comments, which did not quite fit into the Block's rundown on strategic default risks, suggest foreign entrepreneurs could play a large role with a new type of bank: a lender that specializes in giving new mortgages to high-credit quality borrowers who walked away from an underwater property.

Without legacy assets, the bank would have no fear of encouraging strategic default or cannibalizing its customer base.

"That would really be gasoline on the fire. The main reason why people don't [walk away] is because they think they will have a very hard time getting a house in the future," Zingales said. "But if somebody comes and says, 'You know what, you have always had a good credit, you're in a bad situation today, I'm sort of going to give you that offer,' then I think [strategic default] might become irresistible."

Although Zingales declined to offer any detail on who might be considering such a business idea and noted that it remains purely hypothetical, he said the idea has been floated.

"It makes perfect sense," he said. "If I am a new lender, that's the way to do business."

If it does happen, the fallout could verge on pandemic; Zingales' latest study indicates that 74% of borrowers consider a good credit score "very important."

[liv2ski]

I found this thought intriguing when I found it out in the clouds today.



Monday, May 10, 2010 10:18 AM ET
A bank that only lends to walk-aways?
By Zach Fox

On the crucial question of whether underwater borrowers will continue to pay their mortgages or walk away, that much could depend on whether a new business idea gets off the ground.

Zingales' comments, suggest foreign entrepreneurs could play a large role with a new type of bank: a lender that specializes in giving new mortgages to high-credit quality borrowers who walked away from an underwater property.

Without legacy assets, the bank would have no fear of encouraging strategic default or cannibalizing its customer base.

"That would really be gasoline on the fire. The main reason why people don't [walk away] is because they think they will have a very hard time getting a house in the future," Zingales said. "But if somebody comes and says, 'You know what, you have always had a good credit, you're in a bad situation today, I'm sort of going to give you that offer,' then I think [strategic default] might become irresistible."

"It makes perfect sense," he said. "If I am a new lender, that's the way to do business."

If it does happen, the fallout could verge on pandemic; Zingales' latest study indicates that 74% of borrowers consider a good credit score "very important."

That would be fucking classic from a business model standpoint except for two things:
1) All loans are presently made to be agency sell-able. FNMA/FHA/VA guidelines obviously are not going to buy these loans so the lender will have to hold them for 3-5 years before they can be sold off. That would require some big time portfolio lending ability. Sure the Saudis or Chinese could do that though.
2) As they start making these loans, for prudence sake, they would need to be lower LTV loans. Why, because as they assist in allowing strategic defaults, they will be killing property values, which will effect the early loans they made.
It would be fucking classic to have some foreign power come in and open a portfolio lender and just put the screw to FNMA and FHLMC. I can hear the up roar now.

[jayfrizzo]

TexER's feelgood, not-relevant post.

How is his post applicable in this discussion. There's a tremendous difference between some SCUBA gear and a contract for $300,000.

Like, last week I loaned a guy I just met my favorite fishing rod for a week because he just moved to the area and doesn't have his gear down here yet. I could have loaned him another rod, one I didn't like as much, but the one I loaned him best fit the conditions he'd be fishing while I was out of town. I offered to loan him the rod and didn't think twice about it. No big deal.

However, if I was $300,000 underwater on a mortgage I'd consider walking away. I'd likely try to renegotiate the terms of my principle first, but if the bank was being a hardass I'd probably bounce, within the terms of the contract. The only way I could see staying put is if we were super attached to the house, neighborhood, etc.

The difference, I suppose, is that I love the fishing rod. It's given me 15 years of fun, and will give someone else enjoyment, too. Whereas the loan is a business deal and I can be cold about that shit.

Also the difference is $299,800.

J-