Fascinating piece on 60 Minutes about the jingle mail phenomenon:
Chris Deaner could still make the mortgage payments on the home he bought but chose not to, forcing the bank to begin foreclosure proceedings. And there’s an estimated million more like him. He’s part of a rising epidemic of Americans who, despite having the money, walked away from homes “underwater,” or worth less than their mortgages.
“60 Minutes” correspondent Morley Safer reports on “strategic default,” a trend that could hurt the economic recovery, this Sunday, May 9, at 7 p.m. ET/PT.
In Arizona, where Deaner lives, half of the homes are “underwater.” So he wasn’t the only one walking away from a house and mortgage, says the Sun City resident. “It’s almost like the in thing to do right now, it seems like,” he tells Safer. He paid $262,000 for his home at the height of the boom, only to see it fall to an estimated $142,000. He says he tried to renegotiate his $250,000 mortgage, but his bank refused because he could afford the payments. “I thought, initially, it was immoral. My family raised me to believe…you should take care of your contract liabilities,” says Deaner.
He’ll get a bad credit rating for his action, but says he’ll save enough money to overcome that when he decides to buy a home again. Deaner says he doesn’t feel any responsibility for walking away. Then, reminded by Safer that if everybody in his position did what he did, the economy would be even worse, he says, “If that starts happening, then that’s for the professionals to figure out.”
When you’ve got a business community that has completely shirked all public responsibilities, and would and are doing exactly the same thing, it is hard to blame individuals for making the cold, hard calculation that any corporation would make without even blinking. Does anyone here think for one minute that Goldman or anyone else would think twice before walking away from obligations if there was an upside?
Obviously this could be disastrous for the United States, but the banks know it is happening and refuse to renegotiate, and cramdown bills have been rejected for people who can’t afford to pay, so we’ll probably eventually see another punitive piece of legislation ala the Bankruptcy Bill from a few years ago pushed by the Banksters, the GOP, and the blue dogs. Of course, they’ll completely ignore the side effect of making owning a house a suicide pact, lowering the number of people willing to buy a house, but hey- we don’t do long-term thinking here. We just do what the banksters say and scream green balloons into our pillow.
schrodinger's cat
John Cole@ top
Has Tunch received his pawdicure? Was there blood? Do we have pictures?
max hats
Somehow I don’t expect the Galtians to be praising this guy’s economic rationality. Not sure why. They are, after all, a group guided by high-minded principle.
General Egali Tarian Stuck
Man oh man, we sure agree on this. They perpetrated a massive bubble scam from the top down in the housing market and sent us the bill when the scam went south.
Fuck em, and the economic recovery if it hurts that. Turnabout is fair play and I would argue the economic recovery of individuals that were the marks in this racket will pave the way to a better recovery. That is if we get decent new finance rules and consumer protections that work and might prevent the same greed virus from infecting our economy and our national soul.
John Cole
@schrodinger’s cat: I got three of the four paws done before the blood and screaming became too much. My blood and screaming, of course.
I’m planning to do a sneak attack on the final paw tomorrow after I furminate him and get him in a relaxed mood.
schrodinger's cat
@John Cole:Good to know you survived if only with some damage. Your post motivated me to give my boss kitteh a pawdicure too, I only do the front paws. There was no blood, I caught him when he was sleepy and relaxed. The tyrant usually does not surrender his weapons of destruction without a fight.
RJ
I’d really like to not endorse somebody walking away from their debt like this, particularly when they can pay. But I sympathise with him, and if the alternative is that the bank is just going to screw him further (after playing a joyful part in messing up the housing situation in the first place), it’s hard to condemn him.
Mind you, @General Egali Tarian Stuck
“Fuck em, and the economic recovery if it hurts that.”
Seems to me you’re going a bit overboard there.
And @John Cole
Hope you’re still alive after the pedicure.
ChockFullO'Nuts
On the other hand ….. the rental market is strong in the Phoenix area. The economy is still in pretty good shape here, and the weather is always warm, so people keep moving here. The demand for housing is not that weak, but thanks to walkaways, the inventory of houses for sale is too large for a resale recovery to get a toehold.
Meanwhile the rental market is getting the benefit. People who don’t want to pay on an upside down mortgage will pay for a good rental in a good location. According to local canvassers and real estate people, rental prices are strong. As someone getting ready to rent out a house, that’s good news for me.
Things balance out. And screw the banks. They created this situation, let them eat a few more thousand houses for all I care.
max hats
I see it as fully rational. He didn’t sign a covenant with God, he signed a contract with the bank. Pay us x amount over 30 years and the house is yours, don’t and the house is ours (and we will bone your credit). I don’t see wrong or right playing into it in the least.
General Egali Tarian Stuck
Maybe, but I no longer care after eleventy billion bailout dollars. Now the same people tell us we are hurting the economic recovery, while they still bilk ordinary citizens for their lack of ethics and incessant greed. I am looking at the demand side, that has shrunk to nothing from lack of attention. This one person and others like him are making little individual economic recoveries. For the demand side of the econ equation. Maybe that is the real path to economic recovery, not whether some fat ass banker gets to keep his spare Mercedes Benz. Change forced from the ground up, not the other way around.
Punchy
Fiz’zicked.
Napoleon
Lets see, since 2 of my major projects over the last 2 weeks involved reviewing legal documents for 2 different business clients to see if and when they can walk put me in for no.
ChockFullO'Nuts
@General Egali Tarian Stuck:
You got it right. The banks cried for bailouts, and in my view, rightly got them …. putting a net under a freefalling economy and shoring up the system just in time.
But the public also saw bankers getting paid bonuses for screwing up, while homeowners faced rising costs, flatlined paychecks or no paychecks, and the disappearance of their equity. Why should the homeowner eat shit and bark at the moon so that bankers can socialize the rescue from their own mistakes? The branch manager over here at the local Chase branch just bought himself a new BMW. I don’t see how he is suffering much for the turmoil his industry created. Sure, the Treasury Dept will probably get back most of the money it floated to the banks, but the homeowner doesn’t benefit no matter who wins in the Treasury v Bankster contest. The homeowner takes it in the shorts.
Until he walks away.
Nylund
Every bank on Wall St. and nearly every large US corporation would break a contract if it was what was best for their bottom line. They will go back on their word, give you a crappy product, get out of their responsibility, and choose profits over decent human goodness nearly every time.
And then people act like someone is a terrible person when an individual makes the same choice against a corporation that corporations make against the individual all the time.
But more than that, a contract is really just something that says, “If you do A, I do B. If you fail to do A, C will happen.” What’s wrong with choosing to go with option C if its whats best for you?
Mike Kay
word on the street is Elena Kagan was at the barber today getting her mustache shaved.
look for the petulant left to freak out tomorrow when Obama introduces the new york city, jew, butch, lesbian, former dean of harvard law. with credentials like that, she’s an obvious blue-dog corporatist.
debit
I don’t know. I’m in the market for a house. No one is going to promise me when I buy it that the value will never go down.
I can see walking away if you’re stuck with an out of control ARM and the bank refuses to deal. I can see walking away if you have to relocate, or in a situation where you couldn’t make your payment. But, assuming the guy could still afford his mortgage payment, walking away because his house was worth less? That to me smacks of someone buying a stock then complaining because it went down. Last I heard, your broker doesn’t refund the difference.
Catsmeat
If people bought houses to live in instead of as some kind of get-rich-quick scheme, it really wouldn’t matter how much the house was worth on paper. Many people who finance cars owe more than the car is worth the minute they drive it off the lot. (That’s why they sell gap insurance.) Not a problem unless you want to turn right around and sell it. If that is the case, why would you buy it in the first place?
ChockFullO'Nuts
@debit:
You left out one key component. When house prices fall precipitously, people are trapped in those houses and can’t sell them unless they are willing to eat the gap between the mortgage and the degraded value. And most people today cannot afford to do that.
And why should a bank get to act in its own interests at every turn, while asking homeowners to bear down and keep their noses to the bank grindstone out of some “moral” obligation?
The banks seem to own the game, and the government, while the homeowner is worse off than a sharecropper when things go south.
kommrade reproductive vigor
How dreadful. Doesn’t this man know the little guy is supposed to get fucked, not do the fucking? Sheesh!
Mike G
It’s not just individuals – Morgan Stanley ‘gave up’ a group of office buildings in San Francisco that became worth less than their loan.
http://www.bloomberg.com/apps/news?pid=20601206&sid=aLYZhnfoXOSk
I didn’t see any complaints in the press about Morgan Stanley’s ‘morality’ – the asset is worth less than the loan, give the asset back to the lender and be done with it. It’s just business.
So the banksters can cram their pieties about loan obligations. Being able to walk away, without the banksters coming after your other assets, is part of the mortgage contract.
As for the economy, the several thousand a month the walker now has to spend or invest, instead of pissing away on a zombie mortgage, is probably doing more for the economy than it would sitting on a bank’s balance sheet.
4tehlulz
Obviously, this is the fault of the CRA.
Ruckus
Real change never comes from the bottom up.
We can walk away from all the mortgages that we want, make all the rational business decisions that we need to, but until the laws allowing us to be fucked for profit are changed, that’s exactly what will continue to happen. There will be of course collateral damage to the economy, and those who continue to make the irrational business decisions, but there will be damage to the economy in either case and irrational decisions are just that.
And with no way to get those changes made from the top down, I think we will see that other governments, amateur temporary airline pilots, shoe bombers and underwear barbecue starters won’t be our downfall, it’s greed, plain and simple that will bring us down.
ChockFullO'Nuts
@Catsmeat:
Housing markets rise and fall on small changes in numbers. When the small percentage of houses for sale goes up a little bit, the bottom falls out of prices. It’s a tight supply and demand market.
As soon as people who want or need to sell and move can’t do so because they are stuck under water on a mortgage, the house of cards is going to fall down. This was totally predictable, and predicted, long before it happened.
It’s not because of an army of flippers, it’s because that’s the way an overheated housing market generally corrects itself. Thunk.
Catsmeat
Maybe I’m just old fashioned. I still think of a home purchase as a long-term commitment. There are rentals for people who need to move around a lot.
mr. whipple
I look at this a little differently. There was never any guarantee that housing values would go up continuously, and no one buying in a bubble is entitled to a do-over for buying into it if/when values decrease.
It wasn’t just the banks acting stupid.
kay
@Mike G:
Is California like Arizona?
Everywhere else it’s still a debt, right? It’s not secured anymore, but it’s still a debt. I’d do it in Arizona, but I’d be afraid they’d come after wages in the other 40 states.
DonBoy
Well, hold on now, Morley Safer:
Really? Are we sure? The money’s not getting burned, it’s just staying in one guy’s pocket instead of going to the bank’s pocket. Maybe he’ll even spend it on consumer goods. I mean, maybe Safer’s right, but it sounds from the excerpt like he’s just assuming that.
debit
@ChockFullO’Nuts: Like I said, if someone needs to relocate, or can’t afford the payment anymore, they should walk. But walking just because the value dropped?
Perhaps I’m missing something. In general, one doesn’t have any real equity in a house anyway until after about seven years. If you bought a house a year ago for 200,000 and today it’s worth 100,000 you can’t really have negative equity because you had almost none to begin with. I mean, I’m sorry and it would suck, but does anyone really doubt that in a few years time that house prices will start rising to the point where normal people can’t afford them anymore? Then we can all go back to treating our houses like magic money machines again.
General Egali Tarian Stuck
@Catsmeat: As I understand it, the bubble, or rapidly inflated values of homes, along with shady and irresponsible loan making, added to all the derivatives gaming was all responsible for bringing the whole thing crashing down. It was like a giant group reach around doing things for purposes of greed, that were unsound and bound to blow up at some point. They were the pros and it was their primary responsibility to act ethically and within industry norms. They didn’t do that and consumers, who were not pros, and expected ethical delivery now are stuck with the excesses. And many banks refuse to even let their victims renegotiate down their loans, which seems awful fair to me, so some of them are walking.
They don’t get out unscathed, it ruins their credit for a long time, if not life. I think that might be a pretty good poor mans rule for these jokers (bankers) not to do the same thing again, maybe even better than new laws with loopholes they always have.
disclaimer, not an expert on this stuff, so if i got it wrong, then my pre apology is offered.
anon
I am one of the people forfeiting my mortgage. I bought a home in Florida. We had a warranty from the builder, we had the house inspected, we had insurance on the house.
The house had Chinese drywall.
The builder says he will have to declare bankruptcy if he has to fix mine (and several other of his houses) so he will not honor the warranty. Meanwhile he is buying five million dollars of land to build new houses in a different subdivision. The inspector says he was not required to inspect for chinese drywall, the insurance company says chinese drywall is “pollution” and therefore an exception to their insurance coverage. I offered the bank the house (and I would take a large loss at that), but the bank turned it down so they could take me into foreclosure, ruin my credit and come after whatever money I might get from a settlement.
As an added insult, the builder knew he had problem houses before he sold them. Not that we can prove, but he had scented candles, and repainted the houses to cover the smell before he sold them.
Anyhow, talk of moral obligations when dealing with modern American business rings pretty hollow.
The Grand Panjandrum
Whip me, beat me, make me write bad checks!
SpotWeld
The free market at work.
Of course this is when the banks start demanding government intervention.
Mike G
@kay:
Yes, California is a non-recourse state, at least for first mortgages.
If we get another Bush-style crony-capitalist administration in power, I’d be surprised if they don’t pull another Bankruptcy Bill-type corporate giveaway and do away with non-recourse mortgages — so the banks can clean out all your assets if you default.
Larkspur
Actually, there are people who rent their dwellings for their entire lives, and some of them are productive, useful members of society, and are sometimes happy. I swear. I am not lying.
Jennifer
Yes and no.
I think those who are stuck in a home they lived in, in areas where unemployment is high, are justified in walking away, particularly if they find themselves upside-down due to deceptive or fraudulent lending practices. If they need to relocate to find work, the house becomes just an expensive, useless albatross.
Those who bought as an “investment” rather than a home to live in, and who just happened to get in at the wrong point in the game, well, investments all carry risk, and no one should take on more risk than they can cover, or expect others to cover their losses when they do take on too much risk and get caught out on it.
Though of course it’s the latter group that’s probably more likely to just walk away.
debit
@anon: I am so sorry. In your case, you absolutely should walk. I really am so sorry.
Larkspur
Jeez, anon. I only just googled Chinese drywall, having not come across the term before. That sucks mightily. You should do whatever you have to do.
superking
TALK TO AN ATTORNEY IF YOU ARE CONSIDERING DOING THIS.
Most states allow deficiency judgments against borrowers who simply walk away from their mortgage. So, if you have a large loan and decide to just leave the property, after the foreclosure, they can seek a judgment for the difference between the loan amount and sale price. It is quite possible that you will ruin your credit rating and have a large judgment against you.
OK, that aside, when this issue comes up in the media it is important to keep in mind that there simply is no hard data showing how many people are strategically defaulting. It can be virtually impossible to tell a strategic default from a person who honestly couldn’t pay their mortgage. In both cases, the mortgage servicer stops getting checks without an explanation from the borrower. There is no way to determine the intent of a person who stops sending checks and doesn’t talk to you. IT IS IMPORTANT TO REMEMBER THAT BANKS ARE MAKING THIS SHIT UP SO THAT THEY CAN ARGUE THAT BORROWERS ARE JUST DEADBEATS.
It is in the interest of the mortgage servicers to show that people can pay their mortgages and are choosing not to. If they can show that, it relieves them of any obligation to offer loss mitigation to people who are actually struggling.
Be careful with these stories, folks. It is very likely based on nothing.
patrick II
Wiki:
Non-recourse states cannot pursue you for their financial losses beyond the value of the home.
Alaska
Arizona
Arkansas
California
Colorado
District of Columbia (Washington DC)
Georgia
Hawaii
Idaho
Mississippi
Missouri
Montana (if non-judicial foreclosure is used)
Nevada – (lender can get a deficiency judgment)
New Hampshire
Oregon
Tennessee
Texas (lender can get a deficiency judgment)
Virginia
Washington
West Virginia
The following states allow non-judicial foreclosure:
Michigan
Minnesota
North Carolina
Rhode Island
South Dakota
Utah
Wyoming
Jennifer
Agreed that anon should walk – with all the parties who actually are responsible or sold themselves as being responsible (insurers) should the unforeseen occur, anon is the one innocent of the entire bunch and should not be left holding the bag.
Zach
I wonder how widespread the population of people is who could benefit from doing this, but aren’t aware of how to go about it or aren’t doing so out of some misplaced pride.
kay
@Mike G:
I approve of state law that protects consumers.
We’re getting some debt = sales price offers here, and people are turning the houses in. They’re relieved. They feel as if they’re lucky to get away without a judgment on the debt left after the auction price. The whole thing has been incredibly sad. I am generally a “rule person” but I really feel as lenders violated trust. They cannot count on the general moral rule that you stick to your contract when they were so reckless and dishonest at the creation of the thing.
We’ve also had an absolute boom in land contracts, which were always widely used in rural areas, so we’re used to them, as a “mortgage”. People are just skipping the lender entirely. They’re wheeling and dealing among themselves.
scav
oh dreads, the hoi polloi behaving like their corporate person overlords?! < faints away >
superking
@debit If someone is having trouble paying the mortgage, under no circumstances should they “just walk.” Most mortgage servicers are participating in HAMP, and while it is not the best deal, it may help them to lower their payment and stay in their home.
If HAMP, or other loss mitigation, won’t work for the borrower, they still need to talk to their mortgage servicer about either a short sale or a deed-in-lieu as both can allow the borrower to get out of the mortgage without the threat of a deficiency judgment.
Again, don’t “just walk.” That is possibly the worst thing someone can do for themselves. The servicers and owners of the loan take the hit no matter what happens. The best thing someone can do is find out what their options are.
General Egali Tarian Stuck
This Blog Is Obama’s Katrina
LOL
mak
I’m with Max Hats @8. This was a negotiation. The bank said fuck you, and the homeowner said, No, fuck YOU. It cost him, but not as much as staying in a house worth half what the bank-created frenzy sales price would have.
Good on him. If the banks want a world where the bottom line is the bottom line, then two can play at that game.
Catsmeat
Of course there are good and just reasons for walking away from a bad situation or filing bancruptcy. But the topic was people who bailed simply because of a valuation drop. In 2007, I bought Bank of America stock for $55 per share. Who’s to blame for that brilliant move?
debit
@superking: Of course, I meant “walk” when all other options have been exhausted.
I don’t know about how every bank is handling these matters, but from people I’ve talked to at work (I do payroll for about 40 companies) in this situation, they are staying in their homes by the skin of their teeth, with monthly payments double (if not more) than what they were making before. Maybe that’s why it irks me to see people who can afford their mortgage, but choose not to pay it.
Jim, Once
I just don’t get it. Why wouldn’t a bank/mortgage provider NOT be willing to work with homeowners to let them keep their homes, to the benefit of both client and loan provider? And then there’s this, from the potential buyer’s side: Our son attempted to purchase a foreclosed house at a whopping ten grand less than the current asking/market price. The bank said “Nuh-uh. No way. We won’t come down for anything.” That house is still on the market, nearly two years later, for the same price. Again – I just don’t get it. I’m sure there’s some arcane financial calculus at work here – but I. just. don’t. get. it.
WereBear
I am seriously furious when there’s one set of rules for the banks, and another for the consumer.
As for that rigged game known as the “credit rating,” that has me boiling with rage, too. Every few years they change the rules, just so they can have something to hold over your head, and it’s set up to make them happy. Then they ignore it and offer only ridiculous rates on mortgages anyway, on an overpriced home they blew up in a bubble.
I know several people with sterling credit ratings who had their interest rates jacked up on their credit cards of late… just because they can.
Jim, Once
@WereBear:
Word. To your entire post. But this in particular:
Happened to us (Visa, BOFA). When we asked a relative of ours who works in the ‘industry’, we were told that it was because we were
‘deadbeats’ . In other words, we pay off our credit card bill in full every month.
Anne Laurie
@superking:
I second this, vehemently. Now that the full extent to which the banksters were simply pulling a slightly-more-sophisticated version of three-card-monte is becoming clear, suddenly “jingle mailers” are being presented by Our Media as the new ACORN. It’s not that the mortgage-holding banks are trying to squeeze whatever juice might be left from their unfortunate clients… while their accountants keep whining about the commercial real estate collapse that’s just starting to unfold… it’s just that wicked, thoughtless, immoral nobodies are walking out on their fiscal responsibilities! Morley Safer has been assured that “jingle mailers” are the latest incarnation of Barney Frank’s fiendish Fannie-Freddie “ninjas”, stealing precious pennies from Real America’s pockets! Quick, everybody get huffy at that one local family that’s suspected of walking away from a perfectly good mortgage, because the bank hasn’t been able to turn over the foreclosure and it’s letting the property go to seed! Pay no attention to the fact that the same bank took millions of our money to fail to renegotiate in good faith — it’s always the fault of the guy at the bottom of the pyramid, or what’s our whole modern economy for?
suzanne
I’m really torn on this issue. On the one hand, if looking at this from a purely mathematical free-market perspective, it makes all the sense in the world to walk.
But on the other, I can’t completely say with a straight face that it’s A-OK to leave entire neighborhoods empty and devastated (Phoenix has many of these–formerly thriving neighborhoods now full of meth labs). We all have some responsibility to our neighbors and our communities, to make them healthy, safe, vital places to live, and that moral responsibility transcends the pure cost/benefit analysis, yanno? And just because a bunch of rich bankers are immoral bastards doesn’t make it OK for me to be, either.
I guess I fall on the side of not-walking-unless-you-really-can’t-afford-to-stay.
superking
@Jim
The thing is that for most loans, there are actually three parties involved: The borrower, the owner of the loan, and the mortgage servicer. The servicer often does not own the loan, but rather makes money by skimming a percent of the interest paid every month. In most cases, the servicers actually make money when a house is foreclosed or a bankruptcy filed. In some cases, the servicer has to purchase the non-performing loan from the owner before any modification can take place. They purchase it, modify it, and sell it back.
So, it’s not as straightforward as you would think. The servicers have a different business model than the owner of the loan or secured party. The owner/secured party theoretically made the loan with the expectation of profiting from the difference between the interest rate and the rate of inflation. The servicer bought the servicing rights to a pool of loans with the expectation of making from the regular performance of the loans.
The problem with all this, of course, is that many mortgage servicers are owned by banks–Chase, Bank of America, Wells Fargo, Citi, etc, all have servicing arms that are distinct from their deposits and other businesses. So, while people think their servicer owns their loan, that is often not the case.
WereBear
@Jim, Once: Yes, what a rationale. It is possibly meaningless as long as you are paying in full each month. But what about the reason I have a credit card… to have emergency money for car repairs or whatnot.
So… then what? You’re supposed to pay extra money in interest… to save money on interest?
DecidedFenceSitter
Note when you buy a house; you aren’t buying a house – you are renting from the bank which believes it has a good investment at whatever interest rate you are paying. You are just doing the footwork and saying “Look I found a person who’s willing to make the payments on the investment.”
Until the lien is closed, the property is the banks. If the BANK fucked up and that house isn’t worth as much as they thought it was, that’s their fuckin’ fault. They are the ones buying the house and then renting it back to the “owner” over the course of 30 years.
Jim, Once
.@superking:
And is this still true when the house is on the market for years?
Americanadian
@WereBear: You’re just supposed to pay money, period. If the banks can’t get your money one way they’ll just try another one.
Roger Moore
@Jim, Once:
I can think of two main reasons. One is that figuring out how to work out the deal can be very tricky. The banks are terrified that somebody is going to cheat them and get an undeserved write-down, and then go out and tell all their friends and relatives how to do the same. The bank wants to make damn sure that they’re writing off as little as possible. That means going over their finances with a fine-toothed comb to make sure they’re not concealing income somehow, which requires a lot more skill than the initial check needed when issuing a loan. The banks may lack enough of the skilled people who can do that more exhaustive checking to write down all the loans they could.
The other aspect is that the banks are afraid of writing down assets. Not only does it eat into their reserves, but it might hurt their own credit rating and trigger a bank run. They’d much rather keep the assets on the books at their nominal value for as long as possible. That means avoiding writing down loans, and it means never selling a foreclosed property for a dime less than the remaining value on the mortgage.
Jim, Once
@WereBear:
Yeah, we’re pretty immoral, aren’t we? Paying our bills. Disgusting. Obviously, we don’t recognize the harm we’re doing to our country.
mai naem
I know of 4 people who have walked or are planning on walking away in the next couple of months. One was somebody a couple of years ago who had a well paid job who had a regular loan but she bought at the top of the market and didn’t see the house being worth what she paid for it for at least five years. This woman could actually have afforded the payment. Also too, did I mention she stripped the house before she left? As in the kitchen cabinets, outdoor kitchen stuff, all light fixtures, bathroom fixtures? The other three people had whacky loans where there payments skyrocketed and couldn’t afford them.
Here’s the thing – there is no way the US financial/RE/mortgage business is not going to let this many people buy houses down the road. Yeah, they’ll penalize them with a slightly higher interest rate but there is no way they are going to let this sizeable market go unserviced. Ain’t gonna happen.
Jim, Once
@Roger Moore:
This makes a little more sense to me. At the same time, I’m remembering how eagerly our bank attempted to talk us into a mortgage far beyond what we knew we could afford. We refused their insistence that we go with a more expensive home. Their response was a barely concealed sneer.
superking
Jim,
The buy-back provisions are part of the contracts between the owner of the loan/secured party and the servicer. That’s why it’s only in some cases. If the loan was securitized, you might be able to find it in the SEC filings, but if not, you would probably have a hard time figuring it out. There aren’t regulations on these issues.
If the secured party purchases the property at a foreclosure sale, goes to what’s known as the REO department. REO stands for real-estate owned. I honestly don’t know what sorts of limitations banks put on their REO sales. It’s not something I’ve dealt with. However, REO sales are really the first opportunity for a bank/secured party to recover their loss at the foreclosure sale.
Foreclosure sales are supposed to pay off the debt–that’s the theory of foreclosure–but in reality, the secured party is likely to lose something like 60% of the value of the loan at any foreclosure sale. It is my understanding that most foreclosures don’t have third party purchasers. That is, the owner of the loan becomes the owner of the property through their automatic bid of the loan value.
Part of the problem with foreclosure sales is that the property is often still occupied and people can’t get inside to determine the actual value. So, if there is a purchaser, they probably won’t offer a high price.
The point is that in most circumstances, a foreclosure sale doesn’t bring in any money. But if the process is completed and the former owner is evicted and the property cleaned up, the house can be put back into the normal market. Potential buyers can come in and view it with a realtor, etc, etc. So, these REO sales obviously bring in more money than the actual foreclosure sale.
In your son’s case, it may have been that they knew exactly how much they could sell it for and finally get some money out of it. Like I said, though, REOs are not something I’ve dealt with before.
scav
@Jim, Once: We have failed to provide them with a profit. Forgive us our sins against those that indebt us.
Bob K
The fewer peasants that own their own property – the better the Lords of the universe like it. Peasants living in their own houses are just too uppity.
clone12
It’s not clear that jingle mail is on the whole bad for the economy in all circumstances. The money that would have gone into his mortgage payment is now spent on other things, and depending on relative multiplier effects, this might actually be better for the economy.
Lurker
@Ruckus:
William Bernstein wrote a similar thought last year. He was talking about investing in general rather than mortgages in particular, though:
Man, I suck at block quotes…
Joel
John, you can’t call out the pitchforks for Goldman and give this guy a pass because he’s not suited up while pulling the long con. He’d fit right in at the banks; the only thing that separates him from the banksters is circumstance.
Ron
I guess I don’t get the whole idea of not paying your mortgage just because you’re underwater. If it was as a pure investment,maybe. But as a home? Unless you are planning to sell your home soon or want to do something like getting a home equity loan, the current value of your home is pretty meaningless. I have a lot of sympathy for those stuck in mortgages they can’t afford and should have never been given because they were doomed to fail. I can’t say I have sympathy for someone who just decides to not pay because the value of his home has fallen.
Steeplejack
John Cole:
The cold, hard calculation that corporate apologists would tell you they are required to make because of their sacred duty to the shareholders, yadda yadda yadda. And then they would expect to be praised–and would be–for “being hard-nosed” and “making the tough decisions.” But if it’s Joe Six-Pack, he’s an immoral weasel. He should “do the right thing,” honor his obligations and go down with the ship.
racrecir
Does anyone here think for one minute that Goldman or anyone else would think twice before walking away from obligations if there was an upside?
Not Morgan Stanley…
http://www.ritholtz.com/blog/2009/12/morgan-stanleys-commercial-jingle-mail/
Steeplejack
@Lurker:
The secret is to put a pair of underscores in between paragraphs you want included in the block quote. Should end up looking like this:
(h/t Monkeyboy © 2009)
Jim, Once
@superking:
That’s a problem Why not, after all the ugliness we’ve been going through lately? (No need to answer, really. Rhetorical question.)
Well, not here in rural and small town Iowa. Those homes are empty.
This is the key issue. If the mortgage provider OR servicer won’t (or seemingly can’t) work with the buyer to keep him in the house, and paying off his mortgage, it sounds like a lose/lose situation. So why not do everything we can to prevent foreclosure? Especially in light of what’s brought down our economy.
I know this is just one anecdotal case – but I could point out many other situations like it, in which the house is STILL for sale after two and three years – at the original asking price.
Again, thanks for your informed responses. But they still beg the question: Why can’t banks (with the help of the federal government) help people stay in their homes, and banks not lose their skins by doing so?
racrecir
The FT this week reported two cases of international property funds run by big investment banks – Morgan Stanley and Goldman Sachs – getting into trouble. Henny Sender has details of a Goldman-managed fund that has lost almost all of its $1.8bn in equity.
Morgan Stanley has warned investors that an $8.8bn property fund could face the worst losses in real estate private equity history owing to the fall in value of investments made at the peak of the market.
Msref (Morgan Stanley Real Estate Fund) VI International could lose as much as $5.4bn, having been forced to take writedowns or hand back the keys on a range of investments round the world.
http://blogs.ft.com/gapperblog/2010/04/jingle-mail-spreads-to-wall-street-property-funds/
limniade
I think it was Salon who had an article several months ago about how when companies (particularly banks and other financial institutions) walk away from their contracts in order to preserve their bottom line, it’s considered purely business, and how when borrowers walk away from their homes, it’s considered a moral failing. They explored the discrepancy between the two attitudes and wondered how we as a nation got tricked into believing that we have a moral obligation to uphold our word to an institution that clearly doesn’t feel that it shares that obligation, even when their name is on the dotted line next to ours. It was a great article and I wish I could find it again, but my search-fu is failing me.
In some ways I feel very glad that my home purchase was post-meltdown (late September 2009). Not only because the extra eight grand came in handy, but because lenders had already apparently flipped back to more traditional attitudes about affordability. My mortgage broker didn’t even mention the word ARM, much less try to talk me into the fallacy that I should try to get as large a mortgage as I could qualify for. Everything was very by-the-book. Maybe I just got a particularly awesome broker.
Jim, Once
@scav:
Duh. (Slaps forehead.) I forgot. I can’t believe my dimmitude sometimes.
Jayne
It makes sense to me. To get into a rental may cost first and last month and cleaning deposit. I’d rather see someone living in an affordable rental than dutifully paying an unaffordable mortgage.
When this whole bubble first to collapsed, there was a phrase, “jingle mail” for people who paid all their bills, except for the mortgage. When they were evicted, they just sent the keys back to the lender.
There have been cases I’ve read about of landlords being foreclosed on and not telling the tenants, and not giving them their deposits back. Some landlords were even in the foreclosure process when they first rented the house. I don’t know how you could guard against that.
Jay S
I wonder if this guy is too clever by half. With credit checks a standard part of reference checks and rental agreements, strategic default might have significant economic consequences. Perhaps he has the skills to be an entrepreneur or his potential future employers are economic sophisticates that don’t worry about the potential for a strategic default on the employment contract.
I’m not sure he is getting enough for his100k (up to 250k depending on market futures) potential loss reduction. He’s out at least 12k in down payment plus the payments he has already made, less the imputed income from the rental value of the house while he lived there.
Hopefully his employment is secure and he can find an affordable place to live. Presumably he’s prepared to pay cash for everything for a few years. It’s hard to tell, but I’d guess strategic defaulters at the low end of the economic ladder will fare less well than those that go bankrupt.
Bernard
you’d be stupid to pay more than what the house is worth. if the house lost so much value, it’s stupid to continue over paying for that house. Cut your losses and move on. sound so stupid to pay more than it’s worth. common sense. you’d have to consider what would happen to your credit, your ability to buy anything after foreclosure.
so you are stupid for paying more than the house is worth. and you are damned if you aren’t able to buy later on if you let the bank foreclose.
Business do this all the time. why do you think business close.
stay open and lose money? it’s the same situation. just here there is the “shame” business wants the owner to “buy.”
there are all kinds of “excuses” banks/mortgage companies use to deny refinancing. so to say anyone is “bad” for cutting their losses is a shame game. it’s done all the time, under the name of saving your skin, lol.
just amazes me to think banksters give a damn about anyone else. they write the rules to screw us all. called “business.”
here in Louisiana, you lose it all. the bankruptcy laws were written to screw the “filer.”
don’t think for a minute they/banksters/ care one way or the other. they are out for money. morals be damned. give me the money is their only purpose, aim and to think they would do otherwise is ignorance of the nth degree.
Lurker
Thanks, Steeplejack! :-D
@Jim, Once:
I do this as well with my Citibank credit card — pay in full every month. Citibank raised my rate to 30% last December.
I’ve had it with credit cards issued by unregulated South Dakota banks. I recently acquired a credit card from a federal credit union. By law, federal credit unions cannot charge more than 18% interest on credit cards. I will eventually ditch the Citibank card.
Jim, Once
@Bernard:
I like the way you talk.
Church Lady
He better hope the IRS doesn’t come after him:
http://taxprof.typepad.com/
Count me as one of those that had no idea that “forgiven debt” was considered taxable income.
Jim, Once
@Lurker:
We belong to a local credit union. Is that the same as a federal credit union? BTW – when it comes to the banks and their credit cards, what asianGrrl likes to say – sideways and back again.
Bernard
the government is owned by the Banksters, i think Sen Durbin said so a few months ago. can’t remember who said it, the senator said, “they own the place”, referring to the Senate.
i also remember reading about the same situation after some huge corporation bought the Stuyvesant Cooper deal, some huge billion(s) dollar deal. they forfeited their investment and decided against paying anymore on the deal. this was in NYC, recently.
so anyone who says Business isn’t out to cut losses, contracts or moral highground otherwise, get real.
the real difference is working people have to live with the consequences of filing for bankruptcy or foreclosure. Business are different. people sometimes don’t have the deep pockets/politicians to bail them out with taxpayer money.
everything i have read is that the banks don’t want to re finance. why would they? they have got the owner hook line and sinker. so far all the programs the Obama corporatists have offered requires banks to agree to refinance. and they have chosen not to in the majority of cases.
so looking our for number 1 is okay for banks and not for home owners? that i don’t get. lol
Jim, Once
@Bernard:
Exactly.
ksmiami
But this is where the us policymakers failed – If homeownership was such a major goal in the US than policymakers (I am looking at you Greenspan) had a moral obligation to prevent wide spread speculation and asset bubbles because they should have known how dramatic the fallout would be/ That is the whole notion behind hoocoodanode – that the people who could have foreseen the risks and potential fallout either knew, but kept quiet because there was so much money to be made, or they just didn’t get it and so they were totally incompetent and neither willful denial, or stupidity is a good excuse for people in high level FED positions, period.
Jay S
@Jay S: Ah, Sixty minutes has finally arrived at the left coast. I see he has already extracted 5 months free rent, so he may recover a lot of his sunk costs.
It still seems that the other couple, with over 400k purchase price and 85k in current value have an easier case to make for a reasonable risk reward ratio.
ETA link to previous comment.
Bernard
thanks, jim,once, for correcting my misspelling. lol.
another thing, church lady is correct. the IRS will get you on the forgiven debt issue. don’t think the laws were made to protect you. the Republicans passed the new bankruptcy bill under W which basically screwed anyone who files for bankruptcy. of course, the Democrats gladly helped, lol.
have we seen anything done for the average worker, lately?
lol, don’t hold your breath.
Ron
@Bernard: A business is generally something whose primary purpose is to make money. For me, our home was not primarily bought to make money, but rather to have our own home. The value of our home compared to what we owe on it is not really important to me since I am not currently planning to sell nor do I plan to borrow money against my equity. So if someone told me my home had dropped 30% in value today it means nothing to me. While the housing bubble couldn’t last forever, neither will losses of value. For an investor, I can see maybe walking away from a house that is way underwater rather than keep paying a mortgage.
Jim, Once
@Bernard:
You know, when I consider all this, I try to think rationally and not allow myself to fall prey to my emotions. But sometimes I just have to say, fuck them all with a gardening fork, and can we please blow up their luxury automobiles with a bomb whose main ingredient is skunk oil? I’m too old for this shit. I grew up in a country that loved its people and worked for their betterment. How has it come to this?
Jay S
@Church Lady:
I had heard about and forgotten debt forgiveness as a taxable event.
The description here is actually a little more rational than I expected. The claim that they will only go after equity extraction is new to me. But I doubt that they will distinguish properly between equity extraction and remodeling repair and reinvestment for long term owners.
MikeBoyScout
In a world where banksters need to be handed huge bonuses despite the poor performance of the organization, otherwise they’ll leave and perform poorly for another bankster capo, what is the motivation of the bankster to improve his company’s long term position by renegotiating the upside down loan?
To the bankster, the foreclosure shows up on the balance sheet as a net zero. Forestalling the foreclosure by not negotiating in good faith for the borrower doesn’t hurt too bad either, slight loss of income.
The banksters have built us a fine house of cards.
Lurker
@Jim, Once:
There are federally-chartered credit unions and state-chartered credit unions. I think all federal credit unions have “Federal Credit Union” in their title. Ex: “Pentagon Federal Credit Union” or “Los Angeles Federal Credit Union.”
I am not sure what regulations govern credit cards issued by state-chartered credit unions. State-chartered credit unions like Alliant Credit Union and First Entertainment Credit Union have interest rates up to 23%.
For what it’s worth, Credit Card Connection lists federal and state credit unions that offer fair deals on credit cards.
Jim, Once
@MikeBoyScout:
I like what you say, also – even though it nauseates me.
@Lurker:
Thanks for that information. It looks like I’m with a good one.
electricgrendel
Yeah- I have no sympathy for the banks. I understand that if people were to abandon their mortgages when they’re underwater. It may damage the economy, but I’d rather have the economy damaged by consumers saving money than by greedy corporations sucking more blood out of the masses.
In short: fuck ’em.
electricgrendel
Yeah- I have no sympathy for the banks. I understand that if people were to abandon their mortgages when they’re underwater. It may damage the economy, but I’d rather have the economy damaged by consumers saving money than by greedy corporations sucking more blood out of the masses.
In short: fuck ’em.
KXB
In a few months, I will need to move back to NY to look after my aging parents. I am not thrilled about it, but duty calls – and since I am single with no kids, I have the least number of people to uproot and move. Thankfully, I do not own, so I will not have to worry about trying to sell in the market. Finding a place to rent on Long Island is another problem.
Similarly, my sister in Pittsburgh may or may not have to move to Indiana this year. She is not sure, but she wanted to know whether she should renew her lease, which expires next month. I told her to go ahead and renew, saying that if she had to move within a year, she can sublet easily. She lives in a nice neighborhood, so her place would go quickly.
Renting does give a lot of flexibility for young people. Why we encouraged everyone to own a home straight out of college boggles my mind.
Watching the 60 Minutes report, my thought was, “If this were any other business deal that went south, wouldn’t we expect the parties to break their agreement, and incur penalties? Banks have shown little respect for contracts or customers, why put the onus on individuals?”
rb
A house (condo, flat etc) is an asset, not a holy commitment. What you call your “home” has to do with your loved ones, not the sheetrock and plaster they mark up with the furniture.
We’ve been relatively lucky in this market, compared to some, but I have a fiduciary responsibility to my shareholders (wife and kid) to do what’s best to protect their long-term interests, and its unclear whether in a couple of years our payments will be sustainable. I will walk in a second if that becomes the rational choice. BofA can take a long look in the mirror, rearrange the piles of cash to soothe the butthurt, and cram its complaints. They’ve got less credibility than the clergy at this point.
I think it’s very important that people understand that if we DID walk – even today, when we can still make the payments – that would be entirely consistent with the contract we signed. Whether you or anyone else thinks the reasons for doing so are frivolous or unsound is just so much irrelevant commentary. If we walk, the bank can likewise repossess and penalize according to the terms of the contract they signed. All is as agreed.
People want to bitch and complain about reasons and circumstances, as if it’s their business or their place to judge. But you can afford it! How DARE you disrespect the sanctity of the mortgage! Well motherf–k THAT moralizing bullshit.
The average American cares more about the NFL “protecting the shield” than about collectively protecting the working people that make this country go. So get yourself a fainting couch and get out of my way.
@suzanne: Yours is the only argument with which I’m sympathetic, but for better or worse, the world has moved on. I say this with a sincerely heavy heart, but looking around you know it’s true. This isn’t like schools and ‘white flight,’ where citizens are abandoning a shared investment in an asset. Americans shitcanned the neighborhood concept long ago when we decided we wanted acres of mcmansions with no community space or access to any resources worth our kids’ time. We quite literally step on and over the victims of the past economic neutron bombs on the way to buy bigger plasma televisions.
At this point, when I’m dealing with a bank I know I’m dealing with the mob backed by the power of the state. I know I’m all by my lonesome, and that they guys and gals across the table with knife and gut me if I let them. So I conduct myself accordingly; it’s nothing personal.
DonBelacquaDelPurgatorio
@debit:
That’s a point, but not the only point. Another point is that the false equity you refer to looked like heroin to the banks who were eager to loan against it, who pimped it and sold it to people who didn’t understand the true nature and risks of the situation, banks who fell all over themselves selling those loans …. and then want to cry when the equity evaporates and the homeowner discovers he has been had. Those nice people think nothing of running those homeowners off their property if they have to to minimize THEIR losses, but want to talk about the “morality” of people walking away from their mortgages.
I am underwhelmed by the moral outrage of banks in this situation. I don’t know of a bank that has a legitimately solid “moral” position in this story. They treat us like crap.
What goes around, etc.
Ecks
@Catsmeat:
The point is, he could walk out and buy another equivalent house for way less than he owed on the existing one.
Basically he bought a house for a massively jacked up price because the banksters had inflated a bubble under him. It is now within his legal rights to walk away from that terrible deal and find himself a much better one (with maybe a brief pause to get his credit back in shape). As the others point out above, tell me that Goldman would hesitate for a microsecond before making that same decision? They wouldn’t. Just business, right? And hey, the bank also has the option to offer him a mutually beneficial deal by lowering the principle he owes (i.e., so he still pays more than the bargain basement price they’re going to auction it for when he walks)… It’s business, all sides have options, whether or not they choose to avail themselves of them.
rb
Those nice people think nothing of running those homeowners off their property if they have to to minimize THEIR losses, but want to talk about the “morality” of people walking away from their mortgages.
Ding ding ding! This. Show me a bank that will lower my mortgage debt if I take a pay cut, and I’ll think about trying to stick it out when I’m way underwater and better off walking.
People want to say “but you knew the risks!” No shit. Me walking away and taking the credit hit was one of the risks.
KS in MA
@Jim, Once: What country was that?
Karmakin
A house is a place you live in. Not an investment. It’s that attitude that caused a lot of the financial mess that we’re seeing today. That’s what inflated the bubble.
Not that i see holding to a mortgage as a moral obligation. But all the same, the attitude is familiar. I got mine, screw you.
That…has to stop. No more McMansions. No more razing lower-class wages for middle-class bonuses. No more using the threat of comfort to the middle-class to keep us from fixing the problems we need to fix in terms of the environment, the economy and the society at large.
If that means that we have to dump the retirement plans and the housing prices for the upper-middle class, so they have to live on an equal footing with all those equally hard working if not more so “pleb” people, then so be it. And I’ll tell you this.
There’s no way around it. Not in my opinion. The economy needs to be built about long-term (as in 50-100 years at least) stability, and not short-term capital gains speculation. I’m really sorry that a lot of people are going to lose a lot of money because they believed in the ponzi game that is our financial system. But propping it up is only making the problem worse.
And you know all those things we complain about Obama doing that we don’t like? That’s why he does them. It’s propping up the ponzi scheme. Because among “swing voters”, they have a lot to lose when the ponzi scheme goes down. It’s why health care couldn’t have been taken care of, it’s why financial reform is toothless. It’s why any sort of real futuristic energy and labor policy will never happen.
The ponzi scheme has to be maintained. That’s the conventional wisdom.
TenguPhule
The realtor agents will soon cure your real estate virginity.
rb
@Karmakin:
I’m really sorry that a lot of people are going to lose a lot of money because they believed in the ponzi game that is our financial system. But propping it up is only making the problem worse.
Continuing to make payments on an inflated mortgage is part of ‘propping it up.’ If you want a correction, you should be encouraging people to walk away.
You can’t have it both ways, asking people to treat a mortgage contract like it’s holy writ, and then chastising them for wondering what they’re getting out of the deal. Either we treat homes rationally, like assets (the way the bank will if they foreclose), or we decide that homeownership is ‘special’ and homeowners need protection at a time like this.
Asking homeowners to grin and bear it while letting the banks behave only out of rational self-interest is the worst combination of all. It’s nice to pretend ‘upper middle class’ people will just have to make due with one fewer Benz in the driveway, but (as usual) its those who can barely afford a home who are getting hammered hardest in this environment.
TenguPhule
Fixed.
TenguPhule
People voted Nixon into the White House and never learned their lesson when Reagan and George WMD Bush swaggered into town.
TenguPhule
First, get their fingerprints and DNA when you sign the lease. Then make sure to always have a current photo of them. And it helps to know where they live.
Handguns, IEDs and Baseball bats are optional.
TenguPhule
At some point Rational self-interest must prevail. If the bank is boning you on your upside down mortgage, your wonderful neighbors are not going to help you there.
suzanne
@TenguPhule: I get what you’re saying, for reals.
I guess I just don’t think “I got mine, fuck you,” is a good way to live one’s life, even if someone did it to you first. I completely understand why some are walking away, and I can very easily imagine scenarios in which I’d do the same. But let’s not forget that there can often be harm done in doing this, not just to the banks, but to your neighbors and friends, and I do think there’s a moral dimension to that separate and apart from the financial situation.
TenguPhule
Its not a case of “fuck you, I got mine”, it’s a case of “This 15 inch spiked dildo in my ass really hurts, I’m taking it out and fuck you Mr. Bank for not using lube”.
ChockFullO'Nuts
Yes, and then the new GOP came along and said that the only way government worked was to emasculate it. And emasculate it they did. And so the corporations and banks were free to do whatever they wanted to do.
While the Republicans lied and said that reducing government was for your benefit, the corporations and banks they gave your fortunes and fates over to didn’t give a rat’s ass about your betterment. And therefore your betterment went by the wayside while the Republicans’ friends got rich and made huge profits at your expense.
And so now those institutions reap what they have sown, and that’s a good thing. To repeat what has been said several times on these thread, fuck them. Fuck them very much.
Ecks
Suzanne, what are you suggesting? That people keep paying way too much to their local bankster in the interests of slightly propping up the values of the local housing market?
Reminder of the situation: Banks figured they could take blocks of mortgages, package all the monthly payments they would be making into big “CDO” pools of cash that would be reliably delivered. They sold these CDO cash streams to all kinds of institutional investors like pension plans, etc (i.e., “give us the pension money you are collecting now, and we’ll send you these gobs of mortgage payments later so you can pay for your members retirements”)… Then they got greedy and realized that if they weren’t holding on to these mortgages they really didn’t care if the people paying them defaulted. So they started trying to sell houses to absolutely everybody and anybody, never mind whether they had a job, never mind if they would be able to keep up with payments. Never mind if they had to sell a fancy sounding “adjustible rate mortgage” that gave a nice low repayment rate for a few years before demanding enormous payments – so long as they could talk some rube into signing one they would package it into a CDO and make a pretty penny selling it on to someone else (with Moody’s complicit blessings) who would take the hit when reality reasserted itself. And this artificial attempt to sell houses to anything that moved (or looked like it might move with enough severe prodding) jacked house prices into the stratosphere (at least in places without room to expand – elsewhere it just created McMansion mega farms).
And now that the gig is up, there are a whole lot of ordinary people left looking at mortgage payments that bear no relation to the house they have and what they should have paid for it, had the banksters not been busy running their big scam… And some of those people don’t feel like it is fully incumbent on them to keep paying the bank the artificial jacked up price that the bank talked them into. And the US gov’t is now a partially owned subsidiary of the banks, so they can’t expect any legal support on that front. Yeah, if they’re in a state that lets them walk away, then pretty much good on them for getting, as TenguPhule calls it, the spiked dildo out their ass (why finance speak has quite this fixation on anal analogies is a whole other kettle of fish. I’ve never understood that one).
ChockFullO'Nuts
Only on a blog could someone equate walking away from one’s house after being treated as a sharecropper by a giant corporation as being the equivalent of “I got mine.”
ChockFullO'Nuts
Actually, it’s just colorful profanity that has a lot of crude body part references in it.
That’s kind of why “You’re a cocksucker” has a rather well understood negative meaning, while “finger lickin good” is used to sell fried chicken.
If finger licking were where the shock value was, we’d call bankers “finger lickers.”
Ecks
@ChockFullO’Nuts: Talked to a guy who grew up in Montreal once. The English and French kids would yell at each other, and so they discovered that all the english swears were body functions, while all the french ones are religious. In quebec you drop F bombs with “tabernac” (tabernacle), and “chalice” (pronounced “koh-leese”).
Apparently it’s only a Quebec thing though, not a french thing. In WW I the French troops were in awe of the Quebecer’s piety, because even when they were angry they prayed to God ;)
Calouste
@Jim, Once:
What, those 17 months between Loving v. Virginia and the election of Tricky Dick? Damn man, you grew up fast.
ChockFullO'Nuts
@Ecks:
I think good swearing is essential to civilization.
As for what swearing is, I think that’s an agreement between the communicating parties. Whatever is off limits in polite conversation is the most likely material for good swearing.
Ecks
@ChockFullO’Nuts: In that case, sir, I say to you, Rahm firebag it all to heck!
(and/or “ma’am”, as the case may be)
BeccaM
People have some pride, some self-respect, and many of them do have a desire to meet perceived obligations and contracted debts.
Does anyone here think that your typical corporation or business will do anything but what is right for their bottom line? The instant a bean-counter says it’s in their economic interest to walk away from a commercial mortgage or other loan, they’ll walk.
goblue72
Assuming one lives in a non-recourse state and one can avoid a deficiency judgment, then if you your home is so underwater that it makes no economic sense to continue making your mortgage payments (even if you can afford to do so), then yes, you SHOULD jingle mail your house. A house you paid $500k for that is no worth $250k will never appreciate back to $500k quickly enough to make all those mortgage payments worth your while.
Its a piece of frickin’ real estate – some dirt with a wood-frame and dry-wall box on top. This quaint notion that we have some moral imperative to pay our mortgages no matter what is something that went out with Ozzie and Harriet. Its a sham foisted on ignorant rubes. I’m in multifamily real estate development – believe me, amongst us professional wheeler-dealers, if there’s no point at which one is every going to see a return on a deal, then everything else being equal, we’re dumping a sour deal back on the bank if we can. (or holding a gun to their heads in order negotiate a better cramdown)
Its a contract, nothing more – which means, at a certain point, its more economically efficient for a contracting party to breach the contract if the damages (direct and indirect) the breaching party has to pay are less than the economic loss they would suffer by performing under the contract. (Just google efficient breach)
Its Law and Economics 101 – in a sort of delicious irony, its exactly the sort of thinking esposed by arch-conservative, Federalist Society poo-bah Richard Posner.
And if one wants to really hoist the conservatoids on their own economics petard, the quicker everyone hands in their keys and the quicker everything gets foreclosed, then the quicker the residential real estate market will find a price (i.e. a “bottom”) at which the market can clear – and thus, kick-start a healthy real estate market.
Everything else is just piddling around the edges and dragging on the pain longer than necessary.
Wolverines! Also, too.
matt
It is the moral responsibility of the little guy to be left holding the bag.
rb
@ChockFullO’Nuts:
Only on a blog could someone equate walking away from one’s house after being treated as a sharecropper by a giant corporation as being the equivalent of “I got mine.”
Well, not ONLY on a blog. Hank Paulsen is doing it on TV, too.
We truly are down the rabbit hole.
justme
Would? Hell.
Two words. Stuy Town.
A brief mention upthread (83) but I thought it deserved another visit. The largest real estate deal of modern times. Gone bad. $5.4 billion. Ouch. The CA State pension fund alone got stuccoed for $500 mil.
This is not to mention Tishman’s wretchedly corrupt and basically evil actions as owners in the first place. Just that they felt no compunction at all about tossing the keys at whomever held the paper. A whole other question in and of itself, what with the way real estate financing is chopped up these days.
Funny, we haven’t really been hearing so much about “Moral Hazard” lately. I suppose there’s little reason to elaborate about the status quo.
Karen
I’m gonna get flamed but Deaner could afford to make the payments. He just chose to walk away because the value of his house went down. He has such a laid back attitude about purposely defaulting and apparently a lot of people do.
I find that such a parasitic thing to do. I don’t care of the banks screwed the country, I sold my house when I could no longer afford to pay mortgage by myself. That’s what a responsible person does. It scares me that people find it not only perfectly okay but the in thing to do to not pay debts. People can say all day long “The bank deserves it” or “frack it, I’m getting mine” but the lack of obligation or personal responsibility is all on them. Not the bank.
Ruckus
It seems that a large percentage of the population has bought into the idea that signing a contract is a moral obligation. But we know that one party signing the contract has no morals. They have the right of free speech. They can buy politicians. And surly have. They can load the system in their favor. And very much have. They are corporations. Their reason for being is to make money and protect those that own them from legal peril. They live (are only successful) if they do. The most successful make the most money. They will fight very hard and not having any morals and lots of money they will fight dirty. And have and continue to do so.
And we have to bend over and take it?
Our system is broken. It is important to know that it is broken, it is important to know who broke it, it is important to know how it was broken, and it is vital that it be fixed. But I don’t see anyone or any group in power who can or will fix it. The powers that be don’t seem to have any desire to fix it, even if they had a clue how to fix it.
@goblue72:
Its Law and Economics 101 – in a sort of delicious irony, its exactly the sort of thinking esposed by arch-conservative, Federalist Society poo-bah Richard Posner.
And if one wants to really hoist the conservatoids on their own economics petard, the quicker everyone hands in their keys and the quicker everything gets foreclosed, then the quicker the residential real estate market will find a price (i.e. a “bottom”) at which the market can clear – and thus, kick-start a healthy real estate market.
Everything else is just piddling around the edges and dragging on the pain longer than necessary.
This is the only fix.
We can’t fix it from the top because we can’t get the laws fixed, we can’t hire (vote in) anyone soon enough even if they existed, and the economy will not recover more than marginally until it is fixed.
This is the only fix. The people have to speak and act in the only manner the corporations understand. We have to play their game.
DonBelacquaDelPurgatorio
@rb:
Paulsen’s game is up if the rubes turn on the carnies, right?
Chris
By the decade…
1980s: “greed is good” (on wall street)
1990s: “money is free” (in the stock market)
2000s: “hoocoodanode” (that greed and “free money” would bring everything down?)
2010s: “the death of trust” (“you corporations are out to screw me… well screw you!”)
Xenos
We went through this whole rigamarole back in the late ’80s in the Northeast. People defaulted and walked, the Boston Herald had 40 pages of foreclosure notices each week, and then the banks went after deficiency judgments… since the banks have only one year to file the case and make service, the vast majority of deficiency judgments were default judgments after the bank served borrowers at addresses the banks had driven the borrowers from.
For any legitimate judgments the borrowers could march right into bankruptcy court, so it is a bit telling that the banks knew they had block that route before the bottom fell out.
The deficiency judgments were nearly worthless. The banks sold them off to collection attorneys by the hundreds at discounts of 80% or more.
So timing is everything. If you walk in 2005, the bank will nail you. Walk away in 1989 or 2010 and the bank may never find you. But they will get your credit good and hard, because that is the only thing they have left.
Ruckus
@Chris:
I thought that when a decade was over and a new dominant deviant behavior was named, the old one ended. These seem to be adding up, to a not so charming crescendo.
rb
@Karen:
I don’t care of the banks screwed the country
That is a luxury most of us do not enjoy. Your entitlement and privelege is splattering all over everything. I hope you choose your words carefully in mixed company. You may have heard: there’s a recession on.
I sold my house when I could no longer afford to pay mortgage by myself. That’s what a responsible person does.
Well whoop de frickin’ doo. The stench of these morally inferior folks who CAN’T FUCKING SELL must really drive you nuts.
It scares me that people find it not only perfectly okay but the in thing to do to not pay debts.
Really? Is it scaaaawy?
Let me fill you in on something: the debt IS BEING PAID. That is the point of collateral. If you don’t keep the house, you don’t owe the debt. It isn’t the buyer’s fault that the bank bet more on the house than it’s worth.
The bank may not like it and may not want to do business with you in the future. That’s what credit ratings are for.
Jesus H, we’re crossing from moral idiocy into just plain idiocy.
debit
@rb: Perhaps we’re from different generations. For me, if you incur a debt and you can pay it off, you pay it off. There’s no question or debate. When my ex left, he left me with two kids, a house with a mortgage and about 20 grand of credit card debt. I worked two jobs for longer than I care to think about to keep food on the table and pay everything off. I don’t think this makes me morally superior or better or what have you. It just never crossed my mind as a possibility that I would do anything but pay it. I realize my situation then and the housing situation now are different, and have stated that I think there are times when there’s no option but to bail.
And I think you’re being unfair to Karen. She mentioned the guy on 60 minutes who could pay, but decided not to, not the people who cannot sell and must walk.
Yeah, just like it isn’t his neighbor’s fault that the buyer did the exact same thing, then devalued the entire neighborhood by abandoning his house and leaving it vulnerable to squatters, scavengers and meth labs.
EconWatcher
I’m with debit. I can see circumstances (like Anon’s) where you’re within your rights (morally) to walk away. And I know of people in my original home state (Michigan) who’ve had to abandon their homes to go somewhere where they’ll have some slight chance of getting a job to feed their kids.
But how many of the underwater mortgages come from situations where people used the bubble prices on their houses to take out home equity loans for BMWs, big-screen TVs, expensive vacations, and the like? I see a lot of that out there. There are whole developments of McMansions full of people like that–spoiled and entitled.
Are people who live within their means and honor their obligations just suckers? The truth is, our society isn’t going to work if everyone games out their obligations on a pure monetary cost-benefit basis, with no regard to reputation or morality. Banksters and others who don’t honor their obligations should be held to account. That’s no excuse for everyone to do it.
Craig
Lowering the number of people willing to buy a house would not be the worst thing that could happen to our society. Homeownership in America is a strange fetish that seems at best unhelpful and at worst damaging to our well-being. We are told to diversify our investments, but homeowners pour incredible fractions of our net worth into the single residential properties in which we live. We are told that mobility of our labor force is one of the things that makes us so much cleverer than those silly Europeans, but homeowners find themselves shackled to lumber-and-drywall anchors whenever there is a downturn. I’m not convinced homeownership does much of anything for us.
slippy
@scav: This.
You pretty much said what I was going to say. The wealthy hold us to one standard, themselves to another. What seems like a good business decision to them is a kick in the nuts to us.
Kicking back at some point becomes acceptable. Like now. I also like to tie this back to the whiny requests for sympathy we were hearing a few days ago when BP representatives were squirming on the TV and complaining about how hard it was to clean up after themselves. My attitude towards them is pretty much the same as the attitude employers have held towards us workers for the last couple of decades: if you fuck up, you take responsibility and shut your whiny mouth.
For some reason, the wealthy don’t like being held to those standards either.
slippy
@Ecks:
A million times. Banks bet that housing would always rise, and now they are trying to get homeowners to pay a bet they didn’t realize they were making.
If this happened to me, after the way I have been treated by my creditors, I can assure you I’d walk in a heartbeat.
Karen
@rb:
Where to begin…
That is a luxury most of us do not enjoy. Your entitlement and privelege is splattering all over everything. I hope you choose your words carefully in mixed company. You may have heard: there’s a recession on.
My entitlement and privilege? Where the frack did you ever get the idea of that? Just because I say that Deaner had the money to pay and should?
Well whoop de frickin’ doo. The stench of these morally inferior folks who CAN’T FUCKING SELL must really drive you nuts.
Where the frack is this hostility coming? I never said anything about morally inferior people. I don’t think people are morally inferior but I do think that people like Deaner are using it as an excuse to not pay anything. You’re generalizing. I’m speaking about people who bought the house then up and left even though they were able to make the payments.
Really? Is it scaaaawy?
Yes it is. You’re saying that because the banks are screwing us, you don’t have to pay any debt. When people walk away, it’s not just the bankers who get “screwed.” The people still in the neighborhood who are paying mortgages are screwed too since the neighborhood will depreciate even more with abandoned houses.
I understand loss of a job, I understand that very well. But when I bought the townhouse was when I was married. We looked at what we knew we could afford and every time the real estate agent tried to bring us to very expensive neighborhoods, we told her what our spending limit was. We had savings as a cushion just in case. This isn’t a moral superiority argument. It’s not buying beyond your means.
Deaner was able to pay but chose not to because his house was worth less than he bought it for. Buying property is a gamble, the value soars or crashes down or stays stable. I’m 44 and know that because of my one income, even with savings I will never be able to afford a house again. I rent now. I know that a house is an investment that people should have. But I also think that people shouldn’t buy beyond their means. Are you saying I’m an idiot for thinking that?
Bob Arctor
Sorry, but the guy in this story is an asshole if he walks away from his house. Walking away because he doesn’t like the fact that he’s underwater is garbage. It’s particularly crappy because he can make the payments but doesn’t want to. Not to mention the fact that he’d be fucking his neighbors by helping to keep their home prices depressed as well. This guy and those like him considering doing the same thing are completely ridiculous.
suzanne
@Ecks:
What I am suggesting is that the decision to walk away, which may end up being a good decision, also has some other consequences that shouldn’t be ignored when making the decision. Housing *is* different than other investments, since shelter is a basic human need and a healthy community very much protects the vulnerable in our society by reducing the likelihood of crime and improving educational prospects. There are *most certainly* cases in which I think it is probably the better thing to walk, Anon’s example above, any situation in which, by paying for your housing, you are unable to afford other basic needs, etc.
But I do think the moral responsibility of being a member of a community is important, and that, if one looks at housing as “just any other investment”, is likely to be ignored. If one *can* afford one’s home, but is merely less likely to make less money as previously expected, I think it is less harmful to one’s immediate community to either stay, or wait until one can sell to someone who will actually occupy the home. My old neighborhood on the exurbs of Phoenix has been devastated, because about half the homes were bought by investors who never lived there and rented out to families, and now most of those houses sit empty. The families that remain are now doubly fucked, stuck in homes they can’t afford (because bankers are assholes) that are now worth even less because they’re vacant and unkempt (because their neighbors were assholes). What used to be a safe place to let your kids outside to play is now the scene of drug deals.
Look, I am a social liberal specifically *because* I believe in weighing the needs of the self against the needs of others. At times, the self wins. At times, others do. And the best situation is when what’s good for one is good for all. But let’s not pretend that being wronged by someone, even by a system, morally absolves us from our own responsibilities. The absence of moral thinking is the realm of the right-wing; let’s not hop on the bandwagon.
rb
@Karen: Where the frack is this hostility coming? I never said anything about morally inferior people.
You said that “that’s what a responsible person does.” Then you have the temerity to lecture about “he moral responsibility of being a member of a community ” and go on about “the absence of moral thinking”.
Care to retract?
jpbelmondo
As goblue72 points out, the right not to perform on a contract, and to commit an efficient breach, is as American as steroids, high fructose corn syrup and Wall Street. In the business world, legal obligations are not moral obligations. No corporation will continue paying off a loan if they will make more money by not doing so; in fact, in such a case, they may have a very real legal duty to their shareholders to breach the contract.
There is no moral reason to hold individuals to a higher standard than their corporate partners in a deal, particularly when doing so will impoverish them. Furthermore, the banks held all of the power when these mortgages were negotiated, and specified all of the terms of recourse in the event of a breach. They should have devalued their loans when the value of the property dropped, and they also should have renegotiated with the homeowners when they had the chance. Their failure to do so is bad business on their part.
Ecks
@suzanne: Right, but I’m going to suggest yoru problem is with property speculators who try to buy and sell houses just to make money off movements in property prices.
I don’t think an of us have much sympathy for these people. They help inflate house prices faster when times are good (“fuck you” say all the people wanting to find somewhere to live), and then they leave a glut of surplus housing on the market when things go bad (“fuck you” say all their “neighbors”). But the guy above appears to have been living in his house. He bought it, apparently, as a residence. He just paid a lot more for it than he should have due to the banksters and the speculators who thought they had a sure thing money maker rolling.
And yes, the flippers all get burned when the market goes down – their “investment” tanks in value, and their credit rating gets shredded if they go jingle mail… but people think six months is a long term to plan over, and so markets that boom and bust over years will suck the greedy assholes in time after time… and on average house prices go up,so they’ll probably make money in general on it. Those guys I have just as little sympathy for as the banks.
Ecks
@jpbelmondo: Just to elaborate a touch more, in the case where someone buys from ANOTHER person, and you have two citizens dealing with each other, in THAT case there’s more of a moral obligation to do right by the other person and do your best to pay the debt, blah blah blah. I think there’s a far more defensible case there for the social contract to reasonably extend a little beyond the legal contract.
But you have to decide if you’re dealing in a communal frame, where both sides have an obligation to help each other out, or a business-exchange frame, where it is impersonal, and it’s all about invisible hands and invisible spiked dildos.
BTW, here’s this same idea in relation to how people treat brands.
TenguPhule
Can I interest you in paying me $100,000 over 12 months in exchange for loaning you $30,000 today? And utterly destroy your credit rating if you fail to pay me another $120,000 I’ll add on top of that?
Surely you can understand your *moral obligation* to make me rich, right?
debit
@TenguPhule: Now you’re being silly. Do you have the same outrage for people who buy new cars that lose value upon being driven off the lot? What about people who had BP stock before the rig explosion? Should they get their money back because the stock value went down?
If you’re buying a home to live in the value is going to up and down with the market. Unless you have to sell it, it shouldn’t matter. If you buy a house to invest in, and the value goes down before you could flip it, that’s the risk you take.
Karen
@rb:
I love how you quote me with sentences I never used to bolster your argument.
I did say this:
that’s what a responsible person does.
But this sentence I never said:
If you bother to check, suzanne was the one to state that, not me.
And this:
That was suzanne too.
And suzanne, I’m not commenting one way or the other about what you said. I’m just letting rb know who said it.
Care to explain rb?
suzanne
@rb:
That would be me that said that, BTW.
And I still stand by my statements. If one is truly unable to afford one’s home without sacrificing one’s other basic needs, then, by all means, walk, mail the keys back. But if you’re still able to keep making mortgage payments, and the problem is that you’re not going to make the profit you thought you would, then I still think the better thing to do would be to sell or stay.
This is the sort of thinking that culminates in Kitty Genovese-esque shit. And it’s not okay from anyone.
Evinfuilt
There’s a reason why you pay interest on these loans, to cover potential losses if someone does this. So why should we feel bad about foreclosure? Why should people be shamed not to foreclose. Its part of the contract.
When you’re deep underwater, you’re being an idiot if you don’t cut it and have the banks take the lost.
Evinfuilt
@debit:
But you don’t own the house, you own the stock. You bought a loan on the house, the bank took a risk (thus charging you interest.)
Also, if you lose money on a stock sale, you can take a tax deduction, Uncle Sam cares about stock brokers.
Bernard
amazing to think that i must think of my neighbors before i go bankrupt/save money. moral values, societal values, economic values. there are so many variables in this equation. if this guy wants to walk away cause it is not in his self interest(losing money) to stay and feed the scam he brought upon himself, then that is his decision. i think the societal morality issue is secondary to the self interest here.
and in America we consider society an aberration, the accident that occurs when the “rugged Individual” pulls himself up by his own bootstraps. not that i agree with such a view, it is just the common view of our society. “Medicare is evil, social security is evil, public transit is evil, the poor are evil.” you know, the whole fuck them if they can’t do it on their own, Rugged Ayn Rand stupidity our country is known by and for.
when society/neighborhoods are valued as important and worthy, the dominant view of business won’t be to screw us all. “getting over” is the common euphemism. Until the view of Americans is that we are in the same boat and we act accordingly, from business to government, i find such “oh, how selfish of this guy to walk away and care only about his bottom line” to be the idealistic and incorrect view of the society we live in today.
and i don’t like the “screw you before you screw me” attitude that has been ingrained as the American Way. the form of capitalism we have is designed to encourage the dog eat dog view that exists in our mindset unless experience will hopefully show as short sided.
When society values each other as valued members, the ability to scam each other will be frowned upon/seen as bad. that’s not the America we live in. The Banksters represent the society we are and value. With a 97% re-election rate for member of Congress, nothing will change either.
dcdl
I know I’m late coming to the thread, but I just had to comment on this one. My husband and I are going through this issue at the moment. We are looking at doing a deed in lieu of foreclosure. We started a doing the HAMP last June and are still in the process. We call the bank every week and they say everything is fine and then usually near the end of the month they say we need to resubmit the paperwork or we need a different form. While this is going on they are paying stuff that we can pay without telling us like property taxes and charging interest. We now owe more than we started a year ago and our house is upside down. We have been in the trial payments for over 7 months and owe the difference plus interest and they say we haven’t been paying our mortgage and sent us a foreclosure notice. We have not missed a payment and have been doing everything they’ve asked. When we called about the foreclosure notice they tell us to ignore it. Whatever. Also, our credit is taking a hit.
I used to feel guilty, but when I found out that Sachs caused the housing bubble on purpose and Wall St. caused the economy to crash I don’t care anymore about being honorable or whatever. My husband’s hours got cut so we lost basically 1/3 of his income. I figured Wall St caused the scenario that everyone is living and they are still trying to squeeze money out of ordinary people who are living in difficult situations now. They don’t care.
We are lucky to have a rental house to move into until our credit is better. We also have had our house for sale for almost a year.
Anyways, I just had to vent since I’m living it at the moment.