At this Rate, None of Us Will Own Homes

I saw this over at Bridgett’s: 180,000 homes were repossessed last month.  Yes, last month.

60 thoughts on “At this Rate, None of Us Will Own Homes

  1. Technically speaking, that’s not true. It was only 179,599. Still…the other 401 families probably took it in the ass on August 1st because their paperwork just didn’t get done on time.

    I’ve been looking for coverage of this in a US paper, but I haven’t seen it yet. I’m disappointed but not surprised that I have to read a British newspaper to find out what’s going on in my own country.

  2. I deeply suspect that the reason Bush has been pushing “amnesty” for undocumented workers is that he’d really, really like (and not just him, but our corporate overlords in general) for us to stop focusing on them, stop talking about them.

    Because I think that, for all of the other reasons (racism being my favorite) that people are angry about illegal immigrants, they have noticed that there aren’t as many jobs to go around, that it’s harder to get a foothold in a stable life, that no matter how many tax cuts there are, and how loudly they tout how great the economy is, people are struggling, really struggling.

    Yes, they complain about the Mexicans and we liberals would rather they didn’t complain about the Mexicans, but I think there are a number of folks who wish they just wouldn’t COMPLAIN, because it’s making all this talk of how great the economy is seem like a giant lie.

  3. With the new home construction market going in the shitter, I expect that much of the pull that’s been enticing immigration from Mexico and Central America (to build, among other things, all those McMansions in California, Georgia, Ohio, Michigan…which is exactly where everyone’s going under the fastest) is going to weaken considerably. Now whether that means that there will be a turning of the tide (coupled with a racist push designed to sweep them southward), I just don’t know. But you’re right that the two phenomena are joined.

  4. That’s just like you to whine about houses being repossessed without saying a word about all the unborn children that were mercilessly killed last month.

  5. First of all, red herring alert, let’s wait for an actual abortion post before we go ballistic on the subject. Trust me, I’m an expert on the subject.

    Back on subject. When a house goes into foreclosure, it then after a few months goes back on the market at a substancial fraction of the market value.

    This is where “vultures” can come in and buy. Many vultures are investors who then resell at market values. However, many foreclosures are actually held by govt agencies that give first precedent to potential single residence owners. Meaning that a house normally selling for 150k can be bought for about 80k by a potential homeowner.

    Just like anything else in an open economy, one person’s loss is another’s opportunity. The wise, not necessarily rich, but just crafty, can take advantage.

    It’s also a part of that whole personal responsibility thing conservatives keep harping about. While I’m sure there are hard-luck stories out there, most foreclosures are simply people who didn’t understand how their mortgages worked (aka ARMs, no interest loans, balloon mortgages, and such.)

    Mortgage companies deserve some blame, but unless a true hard luck story, somebody who gets a mortgage they can’t afford deserves most of the blame.

    Having closed on my first house in May, and knowing the homework I did, I feel little sympathy.

  6. Let’s try again:

    Red herring alert above. Let’s wait for a real abortion post before going all balistic on it. Take it from an expert on such outbursts,

    On subject.

    What you see as sorrow and disappointment I see as opportunity. Every foreclosure is another man’s opportunity.
    When a bank or govt institution forecloses, that foreclosee’s pain is another pleasure because that house will go back on the market for a price substancially below market value.

    A house selling say 150k can be bought for under 100k.

    This is where so called “vultures” will swoop in. A good number are investors who will then resell at market value, but many others are actual regular folks looking for a residence. Most foreclosure owned by govt agencies will give first preference to these potential home owners.

    One person’s pain, another’s home.

    And this is where that whole person responsibility thing that conservatives keep harping about comes in. Some of these foreclosures are true hard luck stories (severe health problems, prolonged unemployment). Many though, are simply people who bought a house they could not afford.

    There is blame to be given to mortgage companies selling loans to folks they know probably can’t afford it. But still… if you get yourself involved in a mortgage you can’t afford, or in a gimmicky one that you didn’t understand (ARM’s, baloon morgages, zero interest loans) that is your own damn fault — the before mentioned tear-shedding hard luck stories aside.

    Having closed on my first house this past May, and knowing the homework I did before I did so, there is very little sympathy on my part.

    But if you’re looking for a house, especially a starter, I’d check up on one of those foreclosures, and reap the benefits of someone else’s foolishness.

  7. There is blame to be given to mortgage companies selling loans to folks they know probably can’t afford it. But still… if you get yourself involved in a mortgage you can’t afford, or in a gimmicky one that you didn’t understand (ARM’s, baloon morgages, zero interest loans) that is your own damn fault —

    In my liberal worldview, taking advantage of another’s lack of “understanding”… to enrich myself by the financial destruction of those who can least afford it …is profoundly immoral.

    Go figger.

  8. Immoral…? Quite possible. Depends on individual cases.

    But it is not profitable for mortgage companies to have high levels of foreclosure. So immoral… not really. Just foolish.

    Just like the fools who were not forced but willingly signed on the dotted line.

    They’re adults, not infantilized man-childs incapable of intelligent decision.

  9. Ahunt, just to let you know that I am playing the bastard.

    I’m not that cold-hearted. Making a point that a good number of people on both ends of the transaction were being foolish.

    And that in all seriousness, if looking for a house, might as well take advantage of a house that is below market value. Foreclosures on FHA loans and VA loans give first precedence to folks looking for a house to live in, not investors looking to buy low and sell high.

  10. They’re adults, not infantilized man-childs incapable of intelligent decision.

    True, but they’re often not informed of all of the details, and not infrequently actively decieved about the terms of the contracts they’re entering into. Not to mention the fact that many companies are steering people (particularly people of color) into dubious lending arrangements even when they have the credit to rate better ones. And not telling them about it.

    And, of course, doing this kind of research takes time (which not everyone has), and education (not necessarily formal, but still) … and research skills and a certain amount of social capital. If you know nothing about finance, and you trust your bank to explain what you’re signing (or at least provide truthful and complete information in realtively accessible language), then you’re likely to get screwed. And even if you do go out and do independent research, if you don’t know much about finance, where would you start? Who would you ask? How do you learn to sift the useful information from the crap?

    None of this is to say that it’s impossible. Of course it’s possible. Lots of people do it. It is, however, neither easy nor straightforward, and admonitions to just ‘do [one’s] homework’ seem to me to miss the point. But I’m just prickly today, I think.

  11. Spoken like an upper middle class urban private college grad.

    Lemme clue ya, Slim. The days of high wage, blue collar manufacturing employment are over, at least here in Michigan. These are not the folks you want to be going down, not just because there are far fewer resources for climbing back out these days, but also because these folks are the heart and soul of lower-mid income communities, and they keep the communities clean and decent and viable.

    Enjoy your ivory tower…while it lasts.

    But it is not profitable for mortgage companies to have high levels of foreclosure.

    Ya think? So…who benefits?

  12. More like the son of a UPS man and grandson of a migrant farm worker, who went to the second cheapest public school in the state.

    They both have IRA’s. They both have stock portfolios. Neither have a college degree. Both educated themselves about the financial systems.

    Both saw what those with money were doing, and did it themselves but on a smaller scale.

    And most weekends I go to the farm to get knee high in cowshit to help tag, vaccinate, etc the cattle that helped pay for that state school education.

    You don’t need a life of luxury, a small fortune, or above average intelligence to go out and buy a Dave Ramsey book and take some notes.

    But if you want to try and out blue-collar me, do your best.

  13. I’m not that cold-hearted. Making a point that a good number of people on both ends of the transaction were being foolish.

    Dammit Lee, I was about to go for the jugular. Just ruin all my fun, whydoncha?

    Back on topic. Predatory/speculative lending is calculated and not foolish, and specifically targeting the most vulnerable among us. Not buying “lender foolishness,” given the golden parachute rule. Employee foolishness, maybe.

  14. They both have IRA’s. They both have stock portfolios. Neither have a college degree. Both educated themselves about the financial systems.

    And therefore, the world at large can do it too?

    Well Hell, my Uncle came out of the Louisiana bayous in the 1930’s, high school dropout…went to sea, and died leaving an estate worth $600,000.

    What’s your point?

  15. And I was getting ready to go for yours. Actually, I think I may have nicked it. My bad. Please ignore the caustic parts of my last response.

    Where I will agree with you %100 are the so-called “payday loan” places. These are places that make their business purely on the taking advantage of the foolish and desperate.

    While at my previous employment and highly frustrated with it, I had a coworker who got a job managing such an place of business. He told me the company was hiring, but I told him I’d let it pass.

    Later I joked to somebody that I wondered if they made that guy sign his employment papers in his own blood.

    I’m not a fan.

    Gimmick mortgages are more gray, because a mortgage is a powerful step towards financial stability and savings. You own a house, you have financial power. And those who are in marginal situations but are crafty can use the system to get into the housing market and take advantage. But those who are foolish will simply screw themselves.

    Some helped themselves, some screwed themselves. Some mortgage companies preyed upon stupidity, others gave options to those who were high risk but who then took advantage of that calculated risk.

    Let’t not start a blog war. I got to go to bed soon.

  16. Well Hell, my Uncle came out of the Louisiana bayous in the 1930’s, high school dropout…went to sea, and died leaving an estate worth $600,000.

    What’s your point?

    That people are not helpless. That “immovable societal factors” do not trap us. That the below average financially can become average. That the average can become above average, just by paying attention and avoiding a few big mistakes.

  17. Because in LeeLand, no one ever loses their job, and in LeeLand , no one ever gets sick, and in LeeLand, folks are financially savvy…

    Not the case, Slim. The most careful among us are being “outsourced.”

  18. Another perspective on that oh-so-conservative concept of ‘accountability’:

    We know what price the borrower/citizen must pay when the county comes a-callin’. But what is the penance for irresponsible corporate financial institutions? Prison sentences for dishonest loan officers? Hefty fines for CEOs and board members? Chunks of cash confiscated from shareholders?

    My guess is that a failing institution is far more likely to be bought up by a larger bank, or suffer the ignominy of accepting a taxpayer-funded bailout.

    In the conservative worldview, it’s the little guy who must be ‘responsible.’ Accountability is beneath the wealthy and powerful (and their corporate organs). If it weren’t for negroes, queers, and The Scary Foreign Brown Menace, I don’t know how any conservative would ever get elected.

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  20. I don’t know how many of you will click over to Lil’ P.’s link, but if you do, he quotes an article saying, “The state’s foreclosure rate was the 13th highest in July, with 3,526 foreclosure filings — a 49 percent increase from July 2006. In July 2007, there was one foreclosure for every 748 households.”

    I’m open to a personal responsibility argument, but when we’re talking these kinds of numbers, that, to me, points to something more systemic than just localized idiocy.

  21. ok, so how many here have seen “Maxed Out”?

    selling bad (awfully bad) forms of credit to those who can least afford it is plainly a huge industry, and a growing one. this cannot be unless there’s great profit to be had in exploiting the financially powerless. discuss amongst yourselves.

  22. In LeeLand, the streams run with champagne, the air smells of lavender, and the women are big breasted and easy.

    You really ought to visit. ;)

  23. “The state’s foreclosure rate was the 13th highest in July, with 3,526 foreclosure filings — a 49 percent increase from July 2006. In July 2007, there was one foreclosure for every 748 households.”

    I live in a neighbourhood that has 186 homes.

    You never know what goes on behind closed doors.

    We’ve had 13 homes foreclosed in this neighbourhood in the 8 years I’ve lived here:

    –One was an investor home. (In other words, not a family home–some dude bought a dozen around the city to rent out and then went bankrupt.)

    –One was a couple who then broke up. Funny thing was, they were a same-sex couple. Since they weren’t married and didn’t have both names on the mortgage, the guy who wasn’t listed was able to leave town letting his ex-partner hold the bag. The man who remained here (a friend of mine) wasn’t able to keep up with the payments and lost his home. To me that’s always been a good advertisement for Civil Unions at the very least. As crass as it sounds, CU/gay marriage at least holds both partners fiscally accountable during a breakup. They would most likely have lost the home anyway in a divorce, but my friend wouldn’t have had his credit ruined.

    –One was a family where the father died.

    –One was an extended family of about 15 people who then literally abandoned the house in the dead of night.

    I don’t know the stories behind the rest.

    I do know that we’ve faced foreclosure twice in the last eight years due to jobs not meeting payroll. But mortgage companies are EXTREMELY willing to work with borrowers. They don’t WANT to foreclose. There are all kinds of measures in place to ensure that you keep your home if at all possible.

  24. Sorry Josh about mistaking your comment. After taking a break from blogging, I didn’t recognize you like other folks who regularly comment here, and I knew B was having troll problems.

    “Lee — wait, are you and Exador neighbors?”

    Not trying to channel Exador. One Exador is all that is needed. I guess on this one we may sound similar.

  25. hey Hey HEY!
    Enough of that!

    No, this mortgage collapse didn’t just happen out of nowhere. What allowed the predatory bastards to sell crappy loans to rubes, who can’t afford them, was the fact that they realized they could bundle them, sell them off as mortgage-backed mutual funds, and let some other slob take the fall.

    THOSE folks DID take advantage of the ignorant, but that’s only part of the story. The other part is that there were an awful lot of dopes who thought they could pull it off, if they had JUST enough money to cover the payments, not thinking that life has a way of throwing up emergencies.

    Everyone knows that emergencies happen, but many people pretend that they they won’t. They make a decision to throw the dice and alot of them lose. Tough cookies to that group.

    If the lender lied to them about the conditions of the loan, they have my sympathy and support for prosecuting them. If they just had a pipedream (which is really greed for wanting more than you can afford) then screw um.
    I suspect there’s more of the latter than the former.

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  27. Story 1: A fellow (let’s call him Bob) is working for Manufacturing Co. LTD-North which moves a great portion of its operations from the upper mid-west to the southeast. Bob is offered a better paying position in the southeastern operation. Bob takes this offer. He heads down south while his wife and kids stay up north to put the house on the market. Bob gets an apartment here in the southeast and goes to work for Manufacturing Co. LTD-South. Meanwhile, back at the ranch, Mrs. Bob, et. al. can’t sell the house because, heck, so many of the manufacturing companies have left the area, that people just don’t have the kind of income to warrant leaving the security of their current home and folks who don’t have a home don’t have the income to buy Mr. & Mrs. Bob’s house.

    Flash forward one year later. Even though Bob has moved to an area of the country where the cost of living is lower, all the extra money he’s been making has been going into keeping up two households (granted, one is an apartment, but still, he’s shelling out $1,000-per-month to maintain a spartan lifestyle) and regular trips to-and-from the mis-west and southeast to visit his family. Bob eventually puts in to get his old (lesser paying) position back and heads on to the upper mid-west to be with his family before the bank can foreclose on his home.

    Story 2: Same Scenario–dude (let’s call him Tom) accepts transfer from Big Ole Company-North to Big Ole Company South. Again, leaving Mrs. Tom and kids up north to sell house. Tom, instead of taking apartment, buys house in town where he’s working, believing that old house will sell and wife and kiddies will be moving into new home ASAP. Same thing happens to Tom as to Bob: house up north won’t sell because no one has the money to buy a house. But unlike Bob, Tom now has 2 mortgages and a marriage that is definitely quite shaky (visiting every other weekend isn’t cutting it for Mrs. Tom). In a last ditch effort to save his marriage, Tom decides to go back to old position up north. He puts southern home on market. It doesn’t sell. Now he’s still stuck with 2 mortgages and is living on less pay in a part of the country where the cost of living is higher. He ends up losing both houses to the bank.

    Post Script: Bob may not be out of hot water. He just moved back last week, so it remains to be seen if he can hold it together and keep his house. Tom, on the other hand, is screwed. But before anyone goes vilifying him for trying to keep up 2 homes before selling the first, be aware that he moved south when the housing market was about to go bust but was still in its boom stage. He had the unfortunate luck (or lack of foresight) to hit the market at the worst time possible when all he wanted was to provide well for his family.

    There are a lot of reasons why someone might lose their home (and I have a few more stories in me of people I know), but Aunt B. is right in noting that there are A LOT more foreclosures then average. Some might be the fault of the buyer getting way over her/his head. But given the number of news stories out there about how lenders looked the other way when buyers came to them with less than sterling credit, given that companies are closing and moving away (either south or WAY south or to China), and given that people who need to move can’t sell their current homes… well…

  28. Wait, I’m still hung up on (hanged up on) whether Exador would prefer to live in a land of big breasted easy chicks or not. It seems like an easy enough question.

  29. My next question for this is, “Then what should be done?”

    Should the taxpayers bail out the folks that are defaulting on their mortgage, like one LA citycouncilman suggests?

    Should we pass a moratorium on forclosures, essentially sticking it to whatever institution is currently holding the mortgage?

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  31. Development has come to a screeching halt here in Green Hills. There are actually partially built homes without roofs on them, work crews haven’t been on the site in weeks.

    Developers bought up lots with old homes on them, then cleared the land of every tree, shrub and twig and are now deciding not to go through with their development plans. The corner of Glen Echo and Hillmont looks like a bomb was dropped on it.

    Thanks a lot, assholes.

    If we actually had a real “Planning Dept.” here in Nashville instead of “Permit Issuing Dept.” there would have been some controls on this wild building spree and we wouldn’t be in this mess. They’ve glutted the area with new homes that they can’t sell. I couldn’t sell my house now if I wanted to.

    As for mortgages, as I posted over at Mack’s place, does anyone else besides me have a problem with the fact that the U.S. government will probably use taxpayer money to bail out the banks that made these shaky investments but will do nothing for the people who have lost their homes?

    And I wonder why I am STILL seeing ads for Countrywide and other lenders like that?

  32. As for mortgages, as I posted over at Mack’s place, does anyone else besides me have a problem with the fact that the U.S. government will probably use taxpayer money to bail out the banks that made these shaky investments but will do nothing for the people who have lost their homes?

    No, I don’t. Why? Because I have my mortgage with Countrywide, as do literally tens of millions of other families. If Countrywide goes out of business, we’ll ALL be without homes. They’ll call all of our notes.

    And, frankly, I’ve busted my ass to keep my home (as you’ll see above.) I’ve worked 4 and 5 jobs AT A TIME to keep my home when my husband’s company failed to make payroll.

    As for the poor people losing their homes, I’ve been through the pre-foreclosure process. It’s not as cut and dried as it appears. The Federal Government has several borrower assistance programs in place already. They do PLENTY to help people who are in danger of losing their homes. Plenty. So you’ve got a false statement there, SB, not entirely formed by facts.

    he banks that made these shaky investments

    Well, for starters, Countrywide wasn’t necessarily one of the “banks who made the shaky investments”. They bought out several subprime lenders. Many of those subprime lenders made fraudulent loans (granting loans without proof of income, credit checks, etc.) and then misrepresented their loan portfolios to Countrywide and other acquiring mortgage bankers before getting out of the game.

    Most of the real “crooks” are people who have long ago skipped town, leaving above-board lenders like Countrywide holding the bag.

    And I wonder why I am STILL seeing ads for Countrywide and other lenders like that?

    Because Countrywide ISN’T only subprime lender. I have my FHA mortgage through them at a prime rate, as do many people I know.

  33. This NY Magazine article is a must-read:

    The subprime-lending crisis is worse than you think, and could crush financial and real-estate markets for years.

    “Our tale of woe starts not in New York but in flashy places like Las Vegas and South Beach and faraway onetime Okie haunts like Riverside, San Bernardino, and Ontario, California. In these towns, and dozens more like them, housing companies erected colossal communities of homes. Eager homebuyers and speculators fought each other for these properties, armed with cheap financing, courtesy of Alan Greenspan, who wanted to boost an economy reeling from 9/11 and create a legacy of homeownership for all, including those who could not document steady income or, for that matter, citizenship.

    “We think of him as Saint Alan now, but in a few years he will be known as the reckless Fed chairman who encouraged the creation and use of exotic mortgages that required you to put down very little money, odd creations like the “2 and 28,” an adjustable mortgage with low interest payments the first two years that explode into gargantuan fees for the next 28. Don’t have the money to pay for the 2 before the 28? Go “piggybacking”: Take out a home-equity loan against your new house to meet those minimal payments.”

  34. Most of the real “crooks” are people who have long ago skipped town, leaving above-board lenders like Countrywide holding the bag.

    Oh boo fucking hoo. Yeah, they were FORCED to buy those loans. Come on, they saw a chance to make a profit. They knew what they were getting.

    Excuse me for caring more about people than corporations. You’re a libertarian, I know where you stand on this issue.

  35. Come on, they saw a chance to make a profit. They knew what they were getting.

    They saw a chance to make a profit, yes.

    They didn’t necessarily know what they were getting.

    That’s why it’s called “Fraud”, you know.

  36. …does anyone else besides me have a problem with the fact that the U.S. government will probably use taxpayer money to bail out the banks that made these shaky investments but will do nothing for the people who have lost their homes?

    Why is it that a few years back (when my credit rating was even more shaky than it is now) I couldn’t even qualify for a $200 line of credit at Old Navy, but folks in far worse financial situations whose credit couldn’t have been any better than mine were given home loans?

    I actually heard something on NPR the other day where lenders were crying about the fact that people “lied” about their credit and financial feasibility and the lenders just didn’t know… WHAT? C’mon. If Old Navy is hooked up enough to deny me $200 of credit, you can NEVER convince me that the lending institutions don’t have thorough means of ascertaining a person’s financial viability.

    I realize that due diligence is in order when someone is in the act of purchasing a home, but.. uh uh, there’s no way these lenders didn’t know just what kind of screws they were twisting into these people when they came in and applied for a loan.

  37. you can NEVER convince me that the lending institutions don’t have thorough means of ascertaining a person’s financial viability.

    Oh, of course. That New York Magazine article talks about that a lot. The banks were offering these things to everyone, it was kid in a candy store time. Can’t make your house payment? Take out a home equity loan! Woo hoo it’s the wild west of lending here!

    Lefty bloggers like Atrios have been talking about this for YEARS. They saw the writing on the wall, said someone should rein the banking industry in. But no one wanted to, there’s tremendous “political capital” in releasing these figures about how many Americans are their own homes, the new housing starts, etc. etc. Made the Bush economy look vibrant and strong, but we all knew it was a house of cards about to tumble.

  38. I actually heard something on NPR the other day where lenders were crying about the fact that people “lied” about their credit and financial feasibility and the lenders just didn’t know…

    In order to get our home loan, we lied. It wasn’t our idea, we were encouraged to by the mortgage broker, builder’s realtor and our own incredibly shitty realtor. The builder’s realtor would call me up screaming about needing this paperwork in by X o’clock or we wouldn’t get our house. We already had so much money tied up in the deal that I did what I felt I had to do.

    I seriously doubt I was the only one, especially when you look at how many people in my neighborhood with the same builders have been foreclosed on. I still have my house because I was lucky.

  39. Sigh..

    There are lenders and then there are lenders.

    This is what is bothering me most about this argument.

    Too many people seem to put all lenders in one big pie.

    Here’s the deal. (And yes, I’m oversimplifying to keep it from getting too damned dull. But if you want detail I can delve deeper.)

    On the one hand you’ve got Reputable Lender (RL).

    RL has been in business for 50 years, making mortgages and other types of loans. They check credit, wade through the paperwork and do all other types of things.

    On the other hand you’ve got Speculative Lender (SL)

    Long about the mid-90s, the Fed decided to relax some lending restrictions. The idea behind this was that it would pump more money into the economy. Hey, if the government can deficit spend, let’s let everybody!

    Seeing this, several SLs got into the market. They created opportunities with “unconventional” mortgages which allowed people to borrow more money than they would have been able to conventionally. Then the SLs went slowly from making loans with unconventional repayment terms to making loans with unconventional support. Whereas people like CitiBank knew damn well who they’d give a $200 unsecured credit line to at Old Navy, the SL didn’t have such worries. Why?

    a) Home loans, unlike store credit cards, are secured–backed by collateral–and are therefore seen as lower-risk.

    b)by 2002 it was hot business to open a mortgage company, make a few loans and then get “acquired” by a larger mortgage company. So technically the speculative lender wasn’t in the business to actually finance the mortgage, but to build a large enough portfolio to be attractive to a purchaser. Unlike CitiBank, they didn’t have to be all that concerned with whether or not they’d get paid back by the mortgage holder. They just had to have “assets” enough to attract an acquisitions buyer.

    And in the world of mortgage lending, a $200,000 loan to someone else is an asset.

    Whether or not that person can pay it back.

    So, if you wanted fast money, easy money, quick money round about 2002/2003, you wrote a mortgage for anyone who wanted it. You didn’t need to see if they could pay it back. Who cares? Not your problem. Just lie and say “sure! He’ll pay us back!”

    Then you go to a bigger firm and say “Hey! We’ve got all of these assets! Buy us!” The bigger firm, a RL who is playing by the rules, buys your “assets” because you have affirmed that they are good. Doesn’t matter than you, a speculative lender, lied.

    You’ve sold your company for a few cool million. And you’ve left homeowners who are in over their head and reputable banks both defrauded.

  40. I seriously doubt I was the only one…

    You weren’t. I didn’t lie but I was encouraged by my realtor and my financial advisor to get an interest-only ARM to buy my present house. Encouraged isn’t the right word, actually. I was told I HAD to, or I could get my house. And they were probably right.

    Being self-employed, I didn’t meet federal income guidelines to get a regular fixed mortgage to buy my current house, while still carrying the mortgage on my first house (which was for sale but hadn’t sold yet).

    It all worked out in my case; my first house sold right away and I was able to put a big chunk of principal down on my current house. But I’ll never forget my financial advisor telling me what a GREAT thing these ARM’s are, how I can pay extra each month and immediately see my monthly payment go down, and they’re tied to the LIBOR so funky fluctuations in the U.S. market don’t affect it, and the interest rate is SO LOW and OH it’s just the greatest thing since sliced bread. Three years later the interest rate took a big jump.

    And I knew what an “interest only” loan meant. I knew it meant I didn’t own didddly, unless I paid principal each month too. But not everyone gets that.

  41. First, it is not likely that anyone with a mortgage with any company that goes out of business will have their loan called, provided you have been making your payments. It is more likely that the loan will be sold to another entity. There are plenty of financial institutions out there perfectly willing to buy and service loans (some of them for pennies on the dollar) where they know there is a profit involved.

    Secondly, one aspect of this that is being ignored in this discussion (and many others I hear/see/read) is the culpability of the government — particularly the Federal Reserve — in all of this. The Fed created this mess by inflating the money supply and driving down interest rates, originally because they became very concerned after the so-called “Dot Com Bubble” burst of a severe economic downturn. That created an environment where there was an ample supply of “easy” money available.

    Another aspect that I rarely see discussed is the culpability of fractional reserve banking — once again an invention of the government.

    Fractional reserve banking allows banks to lend into existence money they do not have (on the assumption that their depositors will not all want their money back at once), provided that they keep a certain percentage of their deposit base with the Federal Reserve to cover withdrawals. Ten percent would once have been a typical figure, but since the 1990s, the Fed has deliberately shepherded reserve requirements down, essentially to zero, through dropping required reserve percentages, reducing the categories of funds needing a reserve and allowing funds to be swept from a reservable category to a non-reservable category overnight (using sweep accounts). As reserve requirements have fallen, banks have been able to expand the money supply far more rapidly than would previously have been the case, at the cost of removing the cushion they previously held as insurance against financial accidents. As with everything else, the resilience has been stripped from the system in the name of efficiency, in this case in the use of capital to generate maximum returns.

    This led to the rise of the ubiquitous “mortgage broker” — predators that exist merely to sell people mortgage loans. Financial institutions began offering credit to those further and further down the credit-worthiness scale, with scant regard to the ability of those borrowers to repay their loans. Instead of holding debt on their own books as they would once have done, banks now make their money from fees and sell the loans on to investors as mortgage-backed securities. As they no longer bear the risk of default, they are unconcerned about it.

    Those of you looking to government to provide safeguards against things like this happening in the future should keep in mind that this mess was created primarily by terrible government policies.

  42. one aspect of this that is being ignored in this discussion (and many others I hear/see/read) is the culpability of the government — particularly the Federal Reserve — in all of this.

    David,

    I’m not ignoring this issue.

    That was part of the internecine stuff I decided to leave out when I oversimplified. ;-p

    But still, I’m glad you brought this part up, especially:

    Those of you looking to government to provide safeguards against things like this happening in the future should keep in mind that this mess was created primarily by terrible government policies.

  43. There’s enough failure to go around to everyone in this from the borrowers to the lenders, and to the schools if you push it far enough.

    Most people don’t have a clue how to manage money or budgets or how/when to decide if they buy insurance or make any other financial decisions. Period. They’re clueless and they have no idea where to start to find out. They figure that if they’ve got enough to make the payments, they’re ok.

    I went to a how to buy your own home class. It was run by a realtor and a mortgage broker whose main intent was to get clients, so they made it seem easy. It ain’t.

    And it’s nobody’s responsibilty to ensure that people do know how to do this stuff. Schools don’t teach it and few parents do (because they’re as clueless as everybody else). Most people end up going to their bank and out of fear of looking ignorant or shame or misplaced trust, they don’t ask questions because they don’t understand any of it – zip, zero, nada.

    Some lenders take advantage of that. Some don’t. The broker who taught our class tried to convince us that an interest-only mortgage might be the right thing if we intended to sell in a few years.

    The increase in the home value over 5 years would be (if prices continued to go up) way more than we would gain from actually paying down principal, so why not just enjoy that money now and reap the profits later? Sheer greed.

    We went with a conventional mortgage instead.

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  45. And it’s nobody’s responsibilty to ensure that people do know how to do this stuff. Schools don’t teach it and few parents do (because they’re as clueless as everybody else). Most people end up going to their bank and out of fear of looking ignorant or shame or misplaced trust, they don’t ask questions because they don’t understand any of it – zip, zero, nada.

    That’s kind of what I was trying to get at, albeit kind of from the other side. While a lot of individuals can get information and make sound decisions for their circumstances, a lot of others just can’t. Not in the “this is literally not possible” sense, but in the “I’ve tried everything I know how to do and it’s not enough” sense. You’re supposed to trust your bank. You’re supposed to trust your doctors. We live in an expert-run culture, and a big part of that is trust (and okay, economics of specialization) – you trust them to know what they’re talking about and to give you the information you need. And good government policies (and good corporate culture) provide incentives for this trust to be merited… but those safeguards have fallen over the years.

    (Which, incidentally, is why I have trouble with the “this mess was created primarily by terrible government policies” logic. The way the history played out in your post, it seems like it wasn’t that the government policies were bad to start with, but that they were weakened over time. Clearly, making them stronger (the way they were before) is the answer if weakened policy is to blame.)

    So yes, in many cases there’s individual poor decisionmaking. But it seems evident to me that a lot of that is the byproduct of bad structures, not ignorance and apathy on their own. (That is, many people are both ignorant and apathetic, but a lot of that is a product of the system rather than a cause.) If the information was easily available, people had the educational base to be able to readily use that information, and there were reasonable alternatives that were also readily available to people with the financial stability to afford them, then yes, I’d wholly support villifying people for not doing the basics to make good decisions.

    These things aren’t really true, however – information passed between companies is bad (see Kat’s fraud explanation), information passed between customer and companies is bad (all the people encouraged to lie by the people who should be working in their best economic interest, if only because making sure your clients do well is typically good business), corporate ties and structures aren’t readily apparent (your bank might take your interest, but they may not be the ones managing your loans; if you don’t know who is, then you don’t have all the information you need to make good decisions), and due to relaxing of policies, stupid profiteering, and sensible reactions to that profiteering, a lot of the ‘information on the ground’ (for instance, what one might get by going to an investment class or talking to one’s lender) is either biased toward less-savory deals or outright false.

    And that’s just the information angle. Then there’s (as was pointed out above) educational structures to think about, economic issues (middle class protections and overall social mobility are shrinking on a number of dimensions, not just homeownership; it’s harder to get going and keep going than it was, and this trend shows little sign of abating), and (overall, though largely concentrated on the shadier side of things, for obvious reasons) usual prejudices (race is a big one, but as usual class, education and the like are also important).

    Heh. Let’s see this one get eaten.

  46. You weren’t. I didn’t lie but I was encouraged by my realtor and my financial advisor to get an interest-only ARM to buy my present house. Encouraged isn’t the right word, actually. I was told I HAD to, or I could get my house. And they were probably right.

    Oh boo fucking hoo. Yeah, you were FORCED to buy that house. Come on, you saw a chance to get the house you wanted . You knew what you were getting.

    Why is sauce for the goose not supposed to work both ways, here?

  47. Sorry, lending institutions know, or should know, what THEY are purchasing. Best book I ever read on this subject is called “Liars Poker”, (I’ll look around for the authors name). Anyway, I am troubled a little by this assumption that all people have to do is a “little homework”, and presto, they are equipped with with enough facts to deal with brokers and loan officers. As someone who used to make a tidy living selling cars, mortgage insurance, life insurance, car insurance, annuities, etc, I can tell you that I LOVED it when people tried to arm themselves by reading up a little. Or a lot. As I explained in my long assed post about the car buying process, it is in fact the process thats slanted against most buyers. I think Ivy was right over at MCB, because yes, you MIGHT even find out what questions to ask, but that doesn’t mean you’ll understand the answers.

    The people I do not feel anything for are the “house flippers”. They knew the risks, and drove prices up for families looking for a first home.

  48. My neighbors across the street have had their mortgage sold two or three times in the past three years. One of the mortgage holders (not the original one and not the current one, thankfully) didn’t make the insurance payment one year. They are still dealing with the fallout from that: dealing with the insurance company (which cancelled their insurance without letting them know; all the correspondence went to the bank, since it was the bank that was supposed to make the payment), trying to pry the money loose from the bank (which has no incentive to deal with them since it doesn’t own the mortgage any more), and a couple of other issues that have resulted from the mess. They are solvent and hard-working and so far as I know have never missed a payment, but the system that has let banks and holding companies speculate with everyone’s futures this way is quite dreadful.

  49. And I don’t think it’s possible for a mortgage lender to call in your loan unless you have violated the original terms of the agreement. Otherwise, companies would do it when they have a large portfolio of low interest rate loans afloat. Why not call them in and re-loan that money at a higher rate?

  50. And I don’t think it’s possible for a mortgage lender to call in your loan unless you have violated the original terms of the agreement. Otherwise, companies would do it when they have a large portfolio of low interest rate loans afloat. Why not call them in and re-loan that money at a higher rate?

    It really depends on the terms of each individual contract, but some mortgage loan contracts do indeed include a demand clause that allows the lender to call the loan for any reason. Even more mortgage contracts contain demand clauses that allow the lender to call the loan based on certain conditions. (“Due-on-sale” is a popular demand clause.) This is why it is important to read your mortgage contract.

    In a rising rate environment, banks have been known to call loans in order to try to force the borrower to renegotiate the rate. Most banks wouldn’t do it unless there was a significant difference in the market rate versus the loan rate, however. It is much more common with shorter-term, commercial loans than it is with something like a single-family home mortgage.

    Banks generally don’t like to call loans. It can generate bad publicity, and it can damage the bank’s reputation. They usually have to be more or less forced into calling a loan. For example, I worked with a bank in Upstate New York in the early ’90’s that had loaned a guy over $1 million. He made all of his payments on time, and by all accounts was an excellent customer. Bank examiners happened to choose that particular loan to scrutinize during an examination. The examiners determined that the borrower was not worthy of such a high amount of credit and demanded that the bank call the loan. Bank management tried to argue with the examiners, but they forced the bankers to call the loan.

    The current mortgage market mess is somewhat unique. Lenders are not likely to call consumer mortgage loans simply because they know people generally do not have the cash lying around to pay off a home mortgage. The lenders don’t really care to have a bunch of foreclosed real estate they can’t move, particularly in a declining value environment such as we seem to be facing. And the lenders aren’t interested in forcing people to renegotiate loans, particularly when the credit requirements are tightening so drastically.

    As long as you make your payments, it is not likely your mortgage loan will ever be called. HOWEVER, we are venturing into somewhat uncharted territory with this mortgage debacle. It is difficult to predict what might happen before all is said and done.

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