Big Banks in Trouble: Huge Mortgage Write-Downs Seem Inevitable 91 comments
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Are The Banks Paying Back TARP Money Too Soon?
Since the beginning of the year, major banks have raised over $200 billion in capital, far in excess of the $75 billion of new capital that the government stress tests had called for. The market prices of major bank stocks have recovered dramatically since March, indicating that Wall Street investors see a recovery in the banking industry.
In addition, the banking industry is enjoying one of the largest net interest margins in history due to a very low cost of funds. Wells Fargo (WFC), for example, in the fourth quarter saw its average cost of funds decline to 1.5% while its net interest margin exceeded 4%. With banks able to access cheap funding thanks to the super low rate money policy of the Federal Reserve, banks almost have a license to print money.
The big question is will the banks be able to earn enough to offset the huge amount of future write downs that will be needed on their troubled loans? Earlier this year, Bloomberg reported that the International Monetary Fund (IMF) estimated U.S. banking losses through 2010 at $1.06 trillion. To date, the banking industry has taken write-downs of only half that amount, indicating further write-downs of an additional $500 billion will be necessary.
In addition, delinquency rates on $1 trillion of commercial real estate loans held by banks have been increasing at a higher rate than anticipated. Credit card losses for the banks have also been rapidly mounting from previous estimates.
Mortgage Default Surge Could Wipe Out Banking Capital
Total Estimated Losses
Courtesy: T2 Partners LLC
The banking industry’s mortgage portfolio is the real wild card and may result in the need for huge additional write-downs to cover the cost of mounting defaults. The banking industry is facing a potential nightmare surge in mortgage loan defaults, even if real estate prices stabilize at current levels due to the large negative equity positions of many homeowners. (The above chart shows the total estimated banking losses of which only a fraction has been realized to date.)
There is no historical model to predict the correlation of mortgage defaults to equity position, but one would expect that being deeply underwater on the mortgage will result in a strong economic motive to stop paying or simply walk away. How many homeowners, for example, will continue to make a mortgage payment on a $200,000 mortgage when the home is valued at $100,000? The greater the negative equity, the greater the odds of a mortgage default, especially if the homeowner is under financial stress.
Unfortunately, the problem of negative equity is not theoretical. In the latest overview of housing and the credit crisis, T2 Partners LLC assembled an in depth, excellently documented case on why the pain in housing is not about to end quickly. One eye opener in the report is the estimate, by type of mortgage borrower, of negative equity. T2 shows the following stats: 73% of OptionARMs, 50% of subprime, 45% of Alt A and 25% of prime mortgage loans are underwater. Combine this with a weak economy, job losses and negative income growth and the potential for additional huge write-downs on residential mortgages seems inevitable.
The impact of a poor economy and huge negative equity is already being reflected in default rates never experienced in modern economic history. Almost 10% of all mortgages are in some stage of delinquency or default. The delinquency rate on prime mortgages, never expected to exceed historical delinquency rates of approximately 1%, are now over 4.5%. Note that prime mortgage loans are the loans that were never expected to have more than a minimal default rate based on the borrower’s credit and income characteristics.
The banking industry is likely to need every dollar of newly raised capital and then some to cover future loan losses. If future banking industry profits are overwhelmed by additional loan losses, it will be years before banks can be solidly classified as well capitalized. A capital-constrained banking industry will survive in some form, but it may not be able to provide the new lending necessary to foster future economic growth.
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This article has 91 comments:
I sufferered through the oil patch bust in the 80's. Out of school I bought a cheap condo and watched its value plummet to 30% of what I paid for it. I couldn't afford a credit hit. I lived in it for 11 years and rented and paid on it for another ten...taking a loss every month... until the value came up to what I owed.
I think a lot of people will do this. I think the major implications will be a diminished move up market.
A smaller home but at least the fridge isn t empty like it was a couple months ago. You can t eat a house and with a family of 5 one must do what s best for his family. I bet you Milkweed lives a free stress life.
Maybe not... while they're current. But they take a KEEN interest in how much they owe once they do fall behind on payments. Don't think for a minute that people aren't doing the math to see if the LTV is within their tolerance level.
Many borrowers were stupid enough to take the loan they were given. But they're not stupid enough to keep it.
I agree with the gentleman that mentioned once someone gets to the point where they are considering defaulting on their loan they start looking into the "current" value of their house but I don't agree that "current" value of the house is what is causing people to consider defaulting at this point in the game. A couple of years ago when housing first started crashing the speculators and flippers were bailing based on market value however common sense tells you anyone who has been current on their loan this late in the game is looking to keep the house and only defaulting due to personal finances.
You can give me all the anecdotal evidence you want I'm sticking with common sense.
Have to disagree. Most people are stupid.
I told my friend 5 months ago he was stupid to keep the condo when he way over $100,000 under and he still has it.
Americans are not very smart. It is a wonder where we are today.
Disclosure: Lost my ass in the market over the last year, (i.e. Washington Mutual, 401K and IRA). Bought a second property one year ago that is worth significantly less than I paid for it, I can't raise the rent on the other one because the market won't stand for it and my damn property taxes are up again this year.
People are coming to Houston and doing exactly that.
I don't think that this will be most people. Most people will want to stay in their home and will want to maintain their credit. I also think that the "this late in the game comment" is accurate. I know someone who is interest only on his mtg...and he has lost his job, but if he can find a job he is going to hang on to the house. He has a back up plan to move in his girlfriend to help out. (I know..bad plan)
The point is that he is 40 years old now and doesn't want his credit destroyed if he can help it and he doesn't want to leave his home.
1) It would be helpful if the author could provide some stats from the T2 report which segment "how far" under water each of the product segments is. For example, if X% of the estimated 25% of prime mortgages were !0% under water, the liklihood of a foreclosure is far less(probably quite small) than the segment which might be 40% underwater.
I tried the T2 website for its report, but was undable to access the report without a paid subscription. Perhaps the author can answer my question, but I'd be very surprised if there's any segmentation.
2. Given the IMF, T2, Roubini, and GS(Which I consider most accurate) projections, what is the relationship between the estimated "losses to come" and the bank's loan loss reserve accounts which are targeted to the various product segments. To assume that estimated losses are competely uncovered by reserves---and that seems to be what the author is assuming----is highly misleading.
3. IMF financial institution estimates have been notoriously off the mark in the past. GS projections have been historically.....conse...
4. Mr. or Ms. Milweed has an excellent and realistic point: When time passes and the real estate market even starts to improve, most of the borrowers who were going to turn in their keys have already done so. The obvious question, then, becomes "Where are we in this cycle?". If real estate were to continue to decline markedly, the author's assertions could become partly true. I say partly because their are a few questions to be cleared up first, namesly Nos. 1 and 2.
By the way, I don't work for any financial institution---or Wall Street, or consultancy outfit: I'm just a retired dope who's trying to get a few simple answers so I can objectively analyze risks to my portfolio. Easier said than done.
The housing market will bottom when people stop losing their jobs which should be coming in the not too distant future.
Any opinions on how owners (or banks in the name of the owners) should hedge property value to prevent default caused by negative equity as described by Bill?
I think that CME's solution is a good start, however their scope is too narrow - only ten cities and a composite index. It would be great if banks made use of the information they gather while assessing the mortgage subject and consolidated it into some indexes. Then speculators seeking RE exposure could trade on those indexes, whereas the bank and the owner could take short position. It's a big deal and tough to accomplish, but should keep value in place and therefore prevent default.
I think it is time for you to walk away.
On Jun 22 08:20 AM Gill wrote:
> Say what you want Milkweed (first comment), but I owe over $2M in
> mortgage debt and my homes (7) are worth about half that now. My
> "commission only" income is down substantially. I am seriously considering
> walking away from all of it and renting for the next 5 years just
> so I can get a good night's sleep. I don't believe I am alone.
On Jun 22 09:24 AM doubleguns wrote:
> I think Milkweed and Gill are the two sides of the coin and we will
> probably get a 50-50 toss on this situation. Personal factors will
> dictate each persons outcome to a large part but often it will simply
> come down to how important a person views thier credit rating directly
> linked to how much pain they will tolerate.
On Jun 22 07:46 AM Milkweed wrote:
> The vast majority of people buy a home to live in it not as an investment
> and the ones that did buy as an investment have pretty much been
> wiped out by now. You academdic types need to get out in the real
> world once in a while, you're thinking about this too much. Most
> people don't even know what the "current" value of their house is.
> There will certainly be more foreclosures due to job losses but the
> idea that significant numbers of people are walking away from their
> houses because the current value is less than they paid for it is
> idiotic. Where are they going to go?
Glad JPM paid back TARP. All is right in the world.
On Jun 22 08:20 AM Gill wrote:
> Say what you want Milkweed (first comment), but I owe over $2M in
> mortgage debt and my homes (7) are worth about half that now. My
> "commission only" income is down substantially. I am seriously considering
> walking away from all of it and renting for the next 5 years just
> so I can get a good night's sleep. I don't believe I am alone.
On Jun 22 09:42 AM buoy wrote:
> I agree with Milkweed, most people don't just walk away. And if you
> do, you're probably a loser.
Funny, that. Is Donald Trump a loser? He has had several businesses sporting his name go belly-up. He coulda not been a loser and supported them with other assets. Ditto Paul Allen here in the Northwest a few years ago. Owned the Rose Garden sporting arena and the Trailblazers basketball team. Defaulted a couple hundred million on the Rose Garden. This 'loser' was worth tens of billions at the time. He made a business decision. How is it different for the little guy trying to feed his family? Cannot he make the same decision as these billionnaires?
The IMF estimate of loan losses is a gross figure. In addition to capital raises, all net interest on all performing loans for the period is available to cover those losses.
The banking system has, to date, taken large write offs and raised large amounts of new capital, while simultaneously earning net interest on most of its loan book, recently at very high rates (because funding costs have cratered).
Fundamentally, banks are middlemen. When people do not repay their loans, savers do not earn anything on their deposits. Borrowers are charged far more than savers earn. The resulting wider spread covers loan losses. Until it does, the spread between rates charged to borrowers and rates paid to savers will widen and widen.
In fact they have already done so. Beyond subprimes, try to name a loan category for which the loss rate exceeds the rate charged on such loans. Yes, credit card loss rates around 10% are horrible and unprecedented, fine. But they are still much lower than the 13-18% rates charged on credit card loans. When funding costs are an immaterial 1-2%, that alone is enough to preserve capital (if not to earn anything).
The other usual doom mongering distortion in the article is to conflate deliquency rates with write off rates. Of course the former always run higher, frequently twice the latter.
Another way of analyzing the situation objectively is to look at cash fllow losses at banks since the crisis began. Additions to loan loss reserves and price mark downs are non-cash charges. Actual write offs of loans as irrecoverable are a different story. But those have basically been covered by net interest margin all along. Yes the banks have real losses compared to their previous accounting expectation from all of the above. But that is quite different from actual consumption of their capital. Cash flow can also forced toward a bank simply by running off its loan book.
It is really hard to run out of capital with a cash flow in your own direction of $45 billion per quarter.
On Jun 22 07:46 AM Milkweed wrote:
> The vast majority of people buy a home to live in it not as an investment
> and the ones that did buy as an investment have pretty much been
> wiped out by now. You academdic types need to get out in the real
> world once in a while, you're thinking about this too much. Most
> people don't even know what the "current" value of their house is.
> There will certainly be more foreclosures due to job losses but the
> idea that significant numbers of people are walking away from their
> houses because the current value is less than they paid for it is
> idiotic. Where are they going to go?
we won't really know the damage until the 2010 elections.
JasonC excellent post, I 'm getting a little tired of the doom and gloom crowd IMHO trying to create some self fulfilling prophecies by scaring people into stuffing cash under their mattress and planting ideas like walking away from your mortgage if you owe more than you paid. I have no problem with constructive criticism of the economy but IMHO many of the doom and gloom crowd are more interested in I told you so than helping the economy recover. The author of this article strikes me as in that camp.
On Jun 22 02:56 PM Milkweed wrote:
> I suggest you take reading comprehension lessons tipalia I did not
> argue we are at a bottom in housing, in fact I acknowledge the job
> market is going to be a drag on housing. The author of the article
> is suggesting however that there is a mass of homeowners out there
> that three years into the housing downturn are just now discovering
> that their houses are worth less than they paid for them and are
> going to be walking away from their house based solely on it's "current"
> market value in the near future. My argument is that shoe has already
> dropped.
>
> The housing market will bottom when people stop losing their jobs
> which should be coming in the not too distant future.
so the doom a gloomers should do what? convince their friends a relatives to a buy a house that is still 10-50% overvalued? Reverse trickle down economics? I dont think so
On Jun 23 09:23 AM Milkweed wrote:
> To the people who suggest that borrowers will be waiting for resets
> to walk away I say, the creditworthy ones are refinancing and most
> of the rest have bailed already as the writing has been on the wall
> for a couple of years now. Why bother paying anything if you know
> you are going to walk eventually? IMHO the coming resets will be
> mostly a non event.
>
> JasonC excellent post, I 'm getting a little tired of the doom and
> gloom crowd IMHO trying to create some self fulfilling prophecies
> by scaring people into stuffing cash under their mattress and planting
> ideas like walking away from your mortgage if you owe more than you
> paid. I have no problem with constructive criticism of the economy
> but IMHO many of the doom and gloom crowd are more interested in
> I told you so than helping the economy recover. The author of this
> article strikes me as in that camp.
On Jun 22 08:20 AM Gill wrote:
> Say what you want Milkweed (first comment), but I owe over $2M in
> mortgage debt and my homes (7) are worth about half that now. My
> "commission only" income is down substantially. I am seriously considering
> walking away from all of it and renting for the next 5 years just
> so I can get a good night's sleep. I don't believe I am alone.
On Jun 22 09:42 AM buoy wrote:
> I agree with Milkweed, most people don't just walk away. And if you
> do, you're probably a loser.
On Jun 22 07:46 AM Milkweed wrote:
> The vast majority of people buy a home to live in it not as an investment
> and the ones that did buy as an investment have pretty much been
> wiped out by now. You academdic types need to get out in the real
> world once in a while, you're thinking about this too much. Most
> people don't even know what the "current" value of their house is.
> There will certainly be more foreclosures due to job losses but the
> idea that significant numbers of people are walking away from their
> houses because the current value is less than they paid for it is
> idiotic. Where are they going to go?
On Jun 23 04:23 PM Milkweed wrote:
> Why do I think the job losses will end? Because this is not my first
> recession. The one thing all recessions have in common is "it's always
> different this time" and "we're not going to recover from this one".
> Evidently this is your first recession, watch and learn.
I've met several (fully employed) people in the past few months who were denied refinancing of their homes because their mortgages are underwater. One is renting out a spare room, one turned in the keys to the bank and is now renting, and one is preparing to walk away (looking to rent first before his credit rating gets hit). People are being squeezed hard, and they're discovering that switching to renting is a great way to ease the pressure. Anecdotal...but also common sense.
Credit ratings? Who cares about your future rating when you can't pay the current bills? In that circumstance, credit ratings are just an intellectual concept dreamed up by MBA accountants. People seem more inclined to go with "Cover your butt as best you can and get the hell out."
On Jun 22 11:55 AM Milkweed wrote:
> O.K. I'll try to hit a few in one post: $2M on (7) homes does not
> represent the average homeowner out there and while you can always
> come up with anecdotal evidence like the person claiming to be walking
> away from a $1,250 mortgage for a $700 rent three years into the
> housing downturn but that doesn't make it commonplace.
>
> I agree with the gentleman that mentioned once someone gets to the
> point where they are considering defaulting on their loan they start
> looking into the "current" value of their house but I don't agree
> that "current" value of the house is what is causing people to consider
> defaulting at this point in the game. A couple of years ago when
> housing first started crashing the speculators and flippers were
> bailing based on market value however common sense tells you anyone
> who has been current on their loan this late in the game is looking
> to keep the house and only defaulting due to personal finances.<br/>
>
> You can give me all the anecdotal evidence you want I'm sticking
> with common sense.
On Jun 22 12:15 PM SAH wrote:
> I am sad to see virtually every comment, here and elsewhere, focusing
> on credit scores and what people think their loan to value is all
> the while vilifying the banks. "People were stupid enough to take
> the loans, but not stupid enough to stay in them" what kind of sentiment
> is that. People are stupid to take a loan that is more than they
> can comfortably pay back. Sometimes circumstances change and what
> you can comfortably pay back become a significantly different number
> but the fact remains that the loan was taken and that there is a
> moral obligation to do everything humanly possible to return what
> you borrowed under the terms of the agreement, whatever those terms
> may be. If you speculated that the value of your 7 properties was
> going to go up and you borrowed money to obtain those properties
> then you gambled and lost. Gill your efforts are worthy, and it sucks
> that you can't sleep. Do the best you possibly can to meet the obligations
> that you agreed to and be disappointed in yourself if you fail. Don't
> just walk away. America's strength is in our morality not our diversity.
> We shouldn't let those values go. Now, on the issue of evil banks.
> Greedy foolishness that made millions for a few and caused pain for
> many more. We shouldn't be spending tax money to "fix" the problem.
> If banks had the option to go out of business or to adjust the terms
> on existing loans you can bet they would be scrambling to adjust
> some terms. As it stands today they just hold out a hand to the Feds
> and drag their collective feet on modifying loans. Some of those
> banks didn't need TARP money to begin with but they took it to make
> a little money with it. When they were told that the money came with
> strings they couldn't pay it back fast enough....anyone remember
> that part? This current down-turn may have lasted longer had poorly
> positioned banks been allowed to fail and it would have had world
> wide consequences but when we regained our footing, and we would
> regain it, we would have been so much stronger. By printing money
> to prop up a broken system we simply become more dependent on the
> Federal Government and weaker because of it. Living through pain
> and hardship will make us stronger. Ask your grandparents.
>
> Disclosure: Lost my ass in the market over the last year, (i.e. Washington
> Mutual, 401K and IRA). Bought a second property one year ago that
> is worth significantly less than I paid for it, I can't raise the
> rent on the other one because the market won't stand for it and my
> damn property taxes are up again this year.
news.morningstar.com/a...
BTW, I'm the son of a union carpenter and an architect, I've spent my entire life in the highly cyclical construction industry. Although the "90" recession might not have been quite as bad overall as the current recession it was caused by a construction bubble and the construction industry got hit nearly as hard if not as hard as this recession.
I remember at the time sitting around with my thumb up my a$$ praying for some work to materialize wondering if I wasted my time and money getting into this profession. The couple of clients my office was getting at the time were some lawyers buying up vacant office buildings from the RTC that they were occupying part of and looking to rent the rest out. A couple of years later these buildings were fully rented and the lawyers made out like bandits.
"But this time it's different"
"The housing market will bottom when people stop losing their jobs which should be coming in the not too distant future."
You're saying that people will stop losing their jobs in the not too distant future - or is my comprehension off? Is there some dark subtle twist between the lines that I'm missing? Does 'the not-too-distant future' not mean that it will happen soon? Actually I think I understood perfectly well, and as I've said your statement is incorrect based upon the following logic:
1.) Job losses continue for about a year even after a recession is officially over.
2.) This one ain't over, officially or otherwise.
3.) And it's is worse than anything we've seen in a long time because it is deeply rooted in our financial system, which means that its ill effects (based upon history, statistics, etc.) will be deeper and longer lasting than your normal, run of the mill recession.
In other words jobs losses will continue for the foreseeable future. There, does that about clear it up?
On Jun 23 05:11 PM Milkweed wrote:
> I see we have another candidate for reading comprehension class.
> Steve G. I did not say the recession was over. It might be, then
> again it may take a little longer but it will end. It's already been
> one of the historically longest so that would rule it out as average
> in duration and it's one of the most severe so that would rule out
> average magnitude. What does this have to do with the fact that it
> will end?
In 2001 the unemployment rate continued to rise for 19 months after the recession ended.
On Jun 23 05:59 PM Milkweed wrote:
> BTW Steve G. unemployment rates tend to lag a recovery by 6-8 months
> not a year and new unemployment claims tend go down nearer to the
> official recovery date than the turn in the unemployment numbers.
> Discouraged workers not counted in the unemployment stats tend to
> start looking again once the economy turns adding to the unemployment
> number even as new claims are dropping. So the jobs and housing markets
> can start recovering before the widely watched unemployment number
> recovers.
Yes 90 unemployment peaked at 15 months while new claims peaked a month before the official end of the recession and 01 unemployment peaked 19 months while again new claims peaked a month before the official end of the recession the average peak of unemployment is 7.7 months after the official end of a recession while new claims average peak is 1.7 months prior to the official end of a recession. Your point is?
I bought my home (paid in full) to live in and not as an investment.
A lot of people have much to answer for, but will never be brought to book. Too big to fail and too big to nail !
On Jun 23 08:02 PM nobby73 wrote:
> Am I the only one who's totally astonished that a guy on a commission
> only income can get $2m of loans for 7 properties? This sort of collective
> idiocy on the behalf of borrower and lenders makes me hugely worried
> about the stuff that's been dumped on the Fed, and I am still unclear
> about who takes the risk on these assets?
Rather than getting a multiplier wher $700 billion turns into $7 trillion by putting it into banks to loan they rather put in $700 billion and go almost no marginal growth in bank loans or money supply. Thus they found the only way to demultiply TARP. Trust the Treasury to find tyhe most backward way to do anything.
The example set by the government bailing out the banks and insurance companies who turn around and pay out millions in bonuses is this: gamble, lose, and be rewarded.
People who are underwater in mortgage or behind in credit card debt are PAID a bonus for it or have half the debt "forgiven".
Moral Hazard!
If you are responsible you are getting SCREWED.
Why not join the party? Think about it. Is it "moral" or "right"? No. But how long will people play the mule or Ass?
HUGE credit card defaults and people walking away from underwater mortgages. Why be an indentured servant to the government and banks?
On Jun 22 12:15 PM SAH wrote:
> I am sad to see virtually every comment, here and elsewhere, focusing
> on credit scores and what people think their loan to value is all
> the while vilifying the banks. "People were stupid enough to take
> the loans, but not stupid enough to stay in them" what kind of sentiment
> is that. People are stupid to take a loan that is more than they
> can comfortably pay back. Sometimes circumstances change and what
> you can comfortably pay back become a significantly different number
> but the fact remains that the loan was taken and that there is a
> moral obligation to do everything humanly possible to return what
> you borrowed under the terms of the agreement, whatever those terms
> may be. If you speculated that the value of your 7 properties was
> going to go up and you borrowed money to obtain those properties
> then you gambled and lost. Gill your efforts are worthy, and it sucks
> that you can't sleep. Do the best you possibly can to meet the obligations
> that you agreed to and be disappointed in yourself if you fail. Don't
> just walk away. America's strength is in our morality not our diversity.
> We shouldn't let those values go. Now, on the issue of evil banks.
> Greedy foolishness that made millions for a few and caused pain for
> many more. We shouldn't be spending tax money to "fix" the problem.
> If banks had the option to go out of business or to adjust the terms
> on existing loans you can bet they would be scrambling to adjust
> some terms. As it stands today they just hold out a hand to the Feds
> and drag their collective feet on modifying loans. Some of those
> banks didn't need TARP money to begin with but they took it to make
> a little money with it. When they were told that the money came with
> strings they couldn't pay it back fast enough....anyone remember
> that part? This current down-turn may have lasted longer had poorly
> positioned banks been allowed to fail and it would have had world
> wide consequences but when we regained our footing, and we would
> regain it, we would have been so much stronger. By printing money
> to prop up a broken system we simply become more dependent on the
> Federal Government and weaker because of it. Living through pain
> and hardship will make us stronger. Ask your grandparents.
>
> Disclosure: Lost my ass in the market over the last year, (i.e. Washington
> Mutual, 401K and IRA). Bought a second property one year ago that
> is worth significantly less than I paid for it, I can't raise the
> rent on the other one because the market won't stand for it and my
> damn property taxes are up again this year.
On Jun 22 08:20 AM Gill wrote:
> Say what you want Milkweed (first comment), but I owe over $2M in
> mortgage debt and my homes (7) are worth about half that now. My
> "commission only" income is down substantially. I am seriously considering
> walking away from all of it and renting for the next 5 years just
> so I can get a good night's sleep. I don't believe I am alone.
Play by the same rules as the banksters. Don't ever feel morally indebted to them. To quote Painfully Aware, "TO ASSUME BENEVOLENCE IS FOOLISH."
On Jun 24 08:37 AM ebworthen wrote:
> What morality?
>
> The example set by the government bailing out the banks and insurance
> companies who turn around and pay out millions in bonuses is this:
> gamble, lose, and be rewarded.
>
> People who are underwater in mortgage or behind in credit card debt
> are PAID a bonus for it or have half the debt "forgiven".
>
> Moral Hazard!
>
> If you are responsible you are getting SCREWED.
>
> Why not join the party? Think about it. Is it "moral" or "right"?
> No. But how long will people play the mule or Ass?
>
> HUGE credit card defaults and people walking away from underwater
> mortgages. Why be an indentured servant to the government and banks?
>
theburningplatform.com...
I agree, but it might help to go back further and remember that many congressional “leaders” castigated any lending institution that would attempt to exercise fiscal responsibility in asking for verification of income beyond a simple signed statement by the beneficiary of the note being created. This was seen as a response to societal injustices…yadayadayada…
The fact remains that…
Contracts are contracts- if you are in a non-recourse state, both you and the bank took a risk when you closed on the house. You are under a contractual obligation…[and as such, you may elect to fulfill]… the non-payment clause and cede ownership of an asset.
Too bad the education many of us received didn’t include swift painful consequences to inappropriate childish actions. Perhaps many of these larger, more painful “adult” sized consequences wouldn’t have to be addressed at this time if we’d learned the relationship between motive, action and consequence. Who knows, we may have actually acquired foresight along the way.
In conclusion,
…Do the best you possibly can to meet the obligations that you agreed to and be disappointed in yourself if you fail... America's strength is in our morality (education) not our diversity. We shouldn't let those values go….SAH June 22 12:15 pm
On Jun 23 08:02 PM nobby73 wrote:
> Am I the only one who's totally astonished that a guy on a commission
> only income can get $2m of loans for 7 properties? This sort of
> collective idiocy on the behalf of borrower and lenders makes me
> hugely worried about the stuff that's been dumped on the Fed, and
> I am still unclear about who takes the risk on these assets?
Those who speculated with others' oney or default on loans and credit are given taxpayer money at 0%; contracts abrogated or terms changed w/out consent of one party, bondholder rights usurped for political expediency.
The morality is GONE. I feel like a stupid mule for not being in on the "game" and playing fair and being responsible and paying my bills for so long only to have someone elses mistakes foisted upon my back and that backs of my children.
I'm sorry, but I believe that last tyrannical rulers were rebelled against for just this kind of indentured servitude.
NO MORE!
On Jun 24 04:01 PM Boxed Merlot wrote:
> …Go back to history and see where it all started...The mortgage crisis
> started from this people who offered these stupid loans for their
> gain even to the extent of giving extra benefits to brokers just
> to get even people who does not have documents to present to validate
> their income (stated income) or those whose credit score is above
> 620 to sign up for a loan. Did'nt you know that it was their fault...eveski77
> June 22 1:14 pm
>
> I agree, but it might help to go back further and remember that many
> congressional “leaders” castigated any lending institution that would
> attempt to exercise fiscal responsibility in asking for verification
> of income beyond a simple signed statement by the beneficiary of
> the note being created. This was seen as a response to societal injustices…yadayadayada…
>
>
> The fact remains that…
>
> Contracts are contracts- if you are in a non-recourse state, both
> you and the bank took a risk when you closed on the house. You are
> under a contractual obligation…[and as such, you may elect to fulfill]…
> the non-payment clause and cede ownership of an asset.
>
> Too bad the education many of us received didn’t include swift painful
> consequences to inappropriate childish actions. Perhaps many of these
> larger, more painful “adult” sized consequences wouldn’t have to
> be addressed at this time if we’d learned the relationship between
> motive, action and consequence. Who knows, we may have actually acquired
> foresight along the way.
>
> In conclusion,
> …Do the best you possibly can to meet the obligations that you agreed
> to and be disappointed in yourself if you fail... America's strength
> is in our morality (education) not our diversity. We shouldn't let
> those values go….SAH June 22 12:15 pm
If you think you're a victim for making a bad decision, or that someone who doesn't step up to their responsibilities is an ass, please do the rest of us a favor and go live in a different country. In case you hadn't heard, the leeches don't always win; they're going to be increasingly on the defensive as the anger level from honest, responsible people in this country get sick of their BS. Grow up.
On Jun 24 08:37 AM ebworthen wrote:
> What morality?
>
> The example set by the government bailing out the banks and insurance
> companies who turn around and pay out millions in bonuses is this:
> gamble, lose, and be rewarded.
>
> People who are underwater in mortgage or behind in credit card debt
> are PAID a bonus for it or have half the debt "forgiven".
>
> Moral Hazard!
>
> If you are responsible you are getting SCREWED.
>
> Why not join the party? Think about it. Is it "moral" or "right"?
> No. But how long will people play the mule or Ass?
>
> HUGE credit card defaults and people walking away from underwater
> mortgages. Why be an indentured servant to the government and banks?
>
On Jun 25 12:53 AM CuriousMonkey5 wrote:
> "Join the party" logic is part of what inflated the bubble in the
> first place. Party if you choose, but don't expect there to be no
> hangover afterwards. Whether you're willing to sacrifice your credit
> rating, your conscience, your name, whatever -- you will still pay
> a price, if not now then later.
>
> If you think you're a victim for making a bad decision, or that someone
> who doesn't step up to their responsibilities is an ass, please do
> the rest of us a favor and go live in a different country. In case
> you hadn't heard, the leeches don't always win; they're going to
> be increasingly on the defensive as the anger level from honest,
> responsible people in this country get sick of their BS. Grow up.
>
That may have been true once, but it is certainly not true now. During the era of using the home as an ATM, a homeowner would know the approximate value and how much equity remained. The remaining equity was like a checking account, to write a check on at some future date. They knew, and they budgeted for it, and included equity as part of their net worth.
The current housing crisis/fiasco/meltdown has made everybody more alerted to their property values. They know approximately what their house is worth now. They may not admit it, but being in denial is not the same as not knowing.
Now, about "The vast majority of people buy a home to live in it not as an investment"....
That was more true before the start of he 20 year (?) housing run-up, and it is likely very true at this moment. But during the housing run-up, and especially during the frenzy that recently ended badly, the cause of the "frenzied" part was a fear of being left behind as everybody else made out like a bandit in the equity department. Sure, people still wanted a place to live and raise the family, but the investment aspect was what sent prices soaring. Cheap and easy mortgages ceated a spark, but the excitement over escalating prices caused the massive fireball.
Walking away once might have brought shame or embarassment, but it is now acceptable-- even encouraged-- behavior. It is now considered to be just a "financial decision". Every financial planner or consultant now considers "walking away" a serious option to consider when people get in over their heads financially.
Things have changed.
On Jun 22 07:46 AM Milkweed wrote:
> The vast majority of people buy a home to live in it not as an investment
> and the ones that did buy as an investment have pretty much been
> wiped out by now. You academdic types need to get out in the real
> world once in a while, you're thinking about this too much. Most
> people don't even know what the "current" value of their house is.
> There will certainly be more foreclosures due to job losses but the
> idea that significant numbers of people are walking away from their
> houses because the current value is less than they paid for it is
> idiotic. Where are they going to go?
Few people are vulgar enough to translate their early-morning hangover anger into their posting efforts on a finance community forum, but since you've blindly staggered right through that informal barrier that most people respect, I guess I'll have to respond to your comments head-on.
Now, you went directly on the warpath in responding to Mr. Zielinski's article, claiming in it that the author stated that the disparity of the actual value of a home and the current value of that home, the result being an equity gap for those whose mortgages exceeded home valuations, was in fact the actual reason that explains just why "significant numbers of people are walking away from their houses." I assume this is where you pulled this notion from, but I'm sure your ass is probably one of the primary suspects:
"How many homeowners, for example, will continue to make a
mortgage payment on a $200,000 mortgage when the home is
valued at $100,000? The greater the negative equity, the greater
the odds of a mortgage default, especially if the homeowner is
under financial stress."
Now if I was a fractional reader, then I'd see more of your point about what's being implied. There's just this one problem: this was the second sentence of the paragraph you're referring to, and what clears it up is what Mr. Zielinski said directly before that:
"There is no historical model to predict the correlation of
mortgage defaults to equity position, but one would expect that
being deeply underwater on the mortgage will result in a strong
economic motive to stop paying or simply walk away."
The "equity gap" for homeowners is a correlated event, guy. A correlation is not a cause. It's something associated with a cause, and "The Cause" is probably complex and varied amongst different groups who have different principles and practices that play into this particular situation.
In general, though, Mr. Zielinski's position isn't idiotic or out of touch. Just do some Google searching and check out the number of firms that have sprung up to aid consumers who are considering "walking away" from mortgage obligations, and maybe you'll also see the myriad of articles that have cataloged the phenomenon of people who have done it (and done so against their preference to stay and somehow make due without food or utilities).
In particular, Mr. Zielinski never said what you accused him of. Right there, just in this little paragraph, if you'd have chosen to read it, you would have reined yourself in and not have had to parade around here like a neanderthal. An apology on your part is in order.
In closing, I should tell you that timing really is everything... I sorely hope you find yours.
On Jun 22 07:46 AM Milkweed wrote:
> The vast majority of people buy a home to live in it not as an investment
> and the ones that did buy as an investment have pretty much been
> wiped out by now. You academdic types need to get out in the real
> world once in a while, you're thinking about this too much. Most
> people don't even know what the "current" value of their house is.
> There will certainly be more foreclosures due to job losses but the
> idea that significant numbers of people are walking away from their
> houses because the current value is less than they paid for it is
> idiotic. Where are they going to go?
My living area is the Bay Area of CA, my current home worth is ~190K, my mortgage balance is 302K. My finance rate is 5.6. Tanked is a good word. I am 61 and out of work as of 2 28 09. I want my house but may well have to give it up and loose all the cash money I put down, a devastating loss. The purchase price was 410.K and purchase time was 9/04. My payments are 1888.00 not including property tax or home owners insurance. (Add ~425. a month.) "Comps" is the reason no re-fi is available. I hate the thought of retiring at 62 simply for the loss in Social Security montly benefits ... I mean I'm pretty used to living poor but come on ... I've enough $$ for maybe 5 more months - AND I have it better than MANY ... I am not late or in default on anything .. yet. Get out or stay?? Will a bank accept interest only payments on the mortgage?? Obamies assistance will only cover the difference between selling price and the amount owed the BANK ..... its nothing I did, its nothing I didn't do ... yet it is happening and mine to deal with ... I ask for views from ones who might know ... the decision is mine and mine alone but I would very much enjoy opinions of others who may have studied or who study this 'situation' we are all getting to endure ... I mean I thought we all paid enough for our country during Vietnam, but the costs keep on coming, the expectations of a form of payment from us all ..... thanks charles.dilley at sbcglobal dot net. (One thing you know about me already, I am not prideful, just worried, Ok, REAL worried.) PS I thought it noteworthy when Obama stated on the Jay Leno show that nothing was done illegaly ... no company acted illegally .. and yet look as us now .... ops ... hmmm ... moral responsibility and money ... another tanked concept.
incidentally i am not an american, and although i sympathise with those who have suffered greatly because of this, i have always learned not to go beyond our means by our parents and not count the chickens before they are hedged......i do hope that americans will learn from this recession which if anything is a blessing in disguise......i have always paid for anything in full including the house i live in today.....credit is for banks to milk the innocent
I live in a community where many homes are in foreclosure and the Home Owners Association will beat me up to take care of my front yard and the banks do not have to even honor the commitment ... seems like one gardner business could do it all ... for a special rate of course ... but the banks don't have to do anything for a forclosed property ...
Zillow dot com lists 661 homes in foreclosure in the town I live in .... wonder how many homes are in foreclosure in the town 'across the street' from this one .... wonder how many are in your home town ....
I'm sure Mr. Zielinski appreciates you helping him over analyze and over intellectualize a simple situation. Three years into the housing downturn the flippers and speculators that would be willing to walk based on the market value of the home are gone who ever is still making payments this late in the game wants to keep the house if they can, period end of sentence.
BTW I got a good laugh at all the over intellectualizing last year when the "experts" were claiming the world was decoupled from the U.S. economy and would not go into recession with us. Common sense should have told them as the largest customer to the rest of the world if we go down they go with us. You might be impressed with what the "experts" are saying but all I'll take common sense over the experts any day.
Feel free to bore me with more over analysis about Joe Six Pack's financial acumen, I'll stick with common sense again.
However, to blame folks...even call them "losers" for walking away from an equity-trap that they had very little hand in doing...yet makes us ALL out to be LOSERS, is pretty damned unfair. AND...I don't think those that "walk away" did so because the "handout" never came. As you put it - they LOST! They concede..."YA GOT ME!"
Lighten up - idealogue, see the culprit in all of this (pleeeease?).
On Jun 22 03:29 PM User 296044 wrote:
> I think that anyone who just walks away from their home and responsibilities
> is a loser. If you have to walk away from your home within a few
> years of buying it because you can no longer afford it, you deserve
> to be homeless. Everyone is looking for a handout. I am tired of
> everyone whining. Stand up and take some responsibility.
On Jun 25 12:23 PM want2see wrote:
> Milkweed, Yo'Mamma - I hope you both email me directly on this as
> I would gladly accept your point of views on my situation. I do not
> know what to do and am running out of time (and money.) I don't want
> to just trust Wells Fargo when / IF the times comes
> My living area is the Bay Area of CA, my current home worth is ~190K,
> my mortgage balance is 302K. My finance rate is 5.6. Tanked is a
> good word.
want to see,
I'm not milkweed or yo'mama and I'm not sure this will help, but please know you're not alone. Our area has been especially hit hard and one thing I think is different than other places is that the people that are still hanging in there are going to be essential in the rebuilding of our communitites. I'm hopeful we will not fall for all this hopey feely baloney when the worm turns and that all these folks that were here "on vacation" will return to their places of origin. I love Northern California and the proximity to so many places of enjoyment. Yosemite, Tahoe, Monterey, S.F, (well, in measured amounts), even L.A. and Reno. All within a couple hours drive. And our weather. Don't get me started. 100 degree summer days followed by a 62 degree evenings with gentle breeze. ( and no measurable humitity...eat you heart out midwest!) It's a freakin' paradise. Please, just stick it out, if you're this concerned with plowing through, you're gonna be needed on the other side! It may sound crazy, but we may even be able to bring some sanity to Sacramento when this is all through. Maybe I should change my name to Pollyanna!
On Jun 23 05:27 PM ElTiante wrote:
> Walking away is a valid part of the mortgage agreement. Can't pay...give
> the house back to the bank. Those are the terms of the loan and that
> qualifies as "meeting your obligation." If the banks miscalculated
> the benefits of repossessing homes, they are as much to blame as
> the buyer who miscalculated what he or she could afford. Maybe we
> should stop villifying the defaulters also. (Although I tend to villify
> both, honestly.)
On Jun 22 07:46 AM Milkweed wrote:
> The vast majority of people buy a home to live in it not as an investment
> and the ones that did buy as an investment have pretty much been
> wiped out by now. You academdic types need to get out in the real
> world once in a while, you're thinking about this too much. Most
> people don't even know what the "current" value of their house is.
> There will certainly be more foreclosures due to job losses but the
> idea that significant numbers of people are walking away from their
> houses because the current value is less than they paid for it is
> idiotic. Where are they going to go?
On Jun 23 03:43 PM AndyS wrote:
> Did you really need 7 houses you idiot?
On Jun 25 12:23 PM want2see wrote:
> Milkweed, Yo'Mamma - I hope you both email me directly on this as
> I would gladly accept your point of views on my situation. I do
> not know what to do and am running out of time (and money.) I don't
> want to just trust Wells Fargo when / IF the times comes
> My living area is the Bay Area of CA, my current home worth is ~190K,
> my mortgage balance is 302K. My finance rate is 5.6. Tanked is
> a good word. I am 61 and out of work as of 2 28 09. I want my house
> but may well have to give it up and loose all the cash money I put
> down, a devastating loss. The purchase price was 410.K and purchase
> time was 9/04. My payments are 1888.00 not including property tax
> or home owners insurance. (Add ~425. a month.) "Comps" is the reason
> no re-fi is available. I hate the thought of retiring at 62 simply
> for the loss in Social Security montly benefits ... I mean I'm pretty
> used to living poor but come on ... I've enough $$ for maybe 5 more
> months - AND I have it better than MANY ... I am not late or in default
> on anything .. yet. Get out or stay?? Will a bank accept interest
> only payments on the mortgage?? Obamies assistance will only
> cover the difference between selling price and the amount owed the
> BANK ..... its nothing I did, its nothing I didn't do ... yet it
> is happening and mine to deal with ... I ask for views from ones
> who might know ... the decision is mine and mine alone but I would
> very much enjoy opinions of others who may have studied or who study
> this 'situation' we are all getting to endure ... I mean I thought
> we all paid enough for our country during Vietnam, but the costs
> keep on coming, the expectations of a form of payment from us all
> ..... thanks charles.dilley at sbcglobal dot net. (One thing you
> know about me already, I am not prideful, just worried, Ok, REAL
> worried.) PS I thought it noteworthy when Obama stated on the
> Jay Leno show that nothing was done illegaly ... no company acted
> illegally .. and yet look as us now .... ops ... hmmm ... moral responsibility
> and money ... another tanked concept.