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TCO
03-12-2007, 05:19:15
Bush is such a moron.:shoot:

Oerdin
03-12-2007, 06:11:27
Having my house lose $120,000 in value when I only had $70,000 in equity makes me think a bail out is a good idea.

TCO
03-12-2007, 06:36:55
I don't want to bail you out. And I'm really bailing out the bank.

Dyl Ulenspiegel
03-12-2007, 07:13:58
What bailout?

Oh, and Hello, Japan2!

MDA
03-12-2007, 13:05:06
Ours hasn't devalued, but it sure didn't increase in value much. I feel sorry for people that bought borrowing the whole chunk on flexible interest.

KrazyHorse
03-12-2007, 14:06:05
Originally posted by TCO
Bush is such a moron.:shoot:

Not just him. Everybody's trying to ride to the rescue on this.

Part of the reason for the large difference between the price of US housing and Canadian housing in similar urban areas is the existence of massive US subsidation of home ownership. The FMs and mortgage interest deductions spring to mind. Add to that the innovativeness of US financial markets (this is not a euphemism for anything bad) and you get a paper thin margin for many home owners in the US. Most of the people who are in trouble right now had no business buying the house they bought at the price they paid. Why would it possibly be a good idea to try to keep them there?

Funko
03-12-2007, 14:16:05
To win votes (or at least not lose votes) for your party at the next election

KrazyHorse
03-12-2007, 14:19:39
Thank you for stating the obvious, bad reason.

Funko
03-12-2007, 14:21:43
If you're a party strategist a year away from an election, it's a very, very good reason.

KrazyHorse
03-12-2007, 14:24:56
Especially in the urban housing markets of the last few years it seems to me that renting is a pretty attractive alternative to buying. Rents are stickier on the rise than house prices are. Why encourage people to make bad financial decisions? What's the fascination with home ownership? What effect does this have on urban sprawl, pollution, fuel consumption etc?

I'll be quite happy to rent for the rest of my life if it makes financial sense. I don't need to own the place I live in...

Dyl Ulenspiegel
03-12-2007, 14:49:55
Originally posted by Funko
If you're a party strategist a year away from an election, it's a very, very good reason.

Not really.

The party strategist just needs the appearance of trying to keep people in "their" (actually bank-owned) homes.

The politician needs to satisfy his donors, ie bail out the banks and wall street clowns.

And the outcome will be exactly that.

King_Ghidra
03-12-2007, 14:59:05
Originally posted by KrazyHorse
I'll be quite happy to rent for the rest of my life if it makes financial sense.

quite an "if" though isn't it

at the risk of stating the obvious, fundamentally a house and mortgage means you will one day have an asset. paying rent means you are giving someone else money/an asset.

unless that changes, then i don't see how paying rent your whole life could ever make financial sense when compared with buying.

Funko
03-12-2007, 14:59:17
Well from what I read the theoretical bailout would only help ~ 80k homes, most of whom were not that much in need out of 2-3m who were potentially in trouble. Which I think satisfies most of your criteria?

KrazyHorse
03-12-2007, 15:04:10
Originally posted by King_Ghidra quite an "if" though isn't it

at the risk of stating the obvious, fundamentally a house and mortgage means you will one day have an asset. paying rent means you are giving someone else money/an asset.

Yes, and house prices are at a premium over rent for exactly that reason.

The question is whether the level of the premium of house price over rental price is justified or not. If you believe in efficient markets, then it is exactly justified (in other words, with the same level of risk it would come out even whether I rent and buy securities with the savings or buy a house and forego the securities).

Now, I think that most people are overly optimistic about the likely future course of house prices, and it's well-established that people overestimate the risk in the equities market (the equity premium puzzle), so to me it seems as though the market is more likely to overprice houses relative to equities than the other way around.

Greg W
03-12-2007, 15:05:04
Originally posted by King_Ghidra
quite an "if" though isn't it

at the risk of stating the obvious, fundamentally a house and mortgage means you will one day have an asset. paying rent means you are giving someone else money/an asset.

unless that changes, then i don't see how paying rent your whole life could ever make financial sense when compared with buying. There is an argument that paying rent and investing the difference between that and what you would pay on a mortgage will lead to better returns in the long term. That is of course ignoring the fact that IMHO most people will just piss that money up against the wall instead of investing it.

How true that is, I don't know, and I am personally not a subscriber to that theory. Mainly because once you own a home, that's it, no more repayments/rent ever, just repairs. Whereas the renter will still be paying rent until the day they die.

KrazyHorse
03-12-2007, 15:09:26
In other words, when making an investment decision you have to simply take two things into account:

1) How might the current market be inefficient
2) How do I differ from the average investor

I've given two ways that the market may be inefficient. The second question may push you toward home ownership or even further away. For instance, if you have an extremely low level of risk tolerance then equities may be a bad idea. If your marginal tax rate is very high then the mortgage interest deduction may be worth more to you than to other buyers. Both of these would indicate home ownership as an investment vehicle over rent+securities.

KrazyHorse
03-12-2007, 15:12:51
There are even less cerebral reasons at work here If you're good with your hands and enjoy doing repairs/upgrades then home ownership will provide an opportunity to work on something you enjoy with a positive net financial outcome. If you hate dealing with repairs then it's worth something to you to have somebody else deal with that type of nonsense.

KrazyHorse
03-12-2007, 15:21:10
Oooh. Just thought of another important consideration: how your creditworthiness is viewed. If you've been offered a low (relative to the average) interest rate mortgage then it's an indication that home ownership is a smarter choice for you (since it's easier to take advantage of a good credit history with a mortgage than through the leveraged purchase of securities)....

MOBIUS
03-12-2007, 15:26:12
If I were renting I would be paying about +25% more than I am currently paying for a mortgage. So that alone for me is a good reason to buy.

maroule
03-12-2007, 15:35:26
I bought because of that but also because:

- I don't like the idea of living in someone else's place... so the very act of ownership has value to me

- I lost most of the money I put in stocks... I find it easier to protect my capital through ownership, basically you only need to make sure of two things 1/don't buy in a neighboorhood that might go down 2/ make sure you won't be forced to sell at the wrong time (but a flat/house is good for that, you can rent instead of selling, to ride over bad market conditions)

Lurker the Second
03-12-2007, 15:50:38
I'm not at all convinced there will be a real bailout. I'm sure you'll see a political reaction, but any real substance will probably focus on regulations that are intended to prevent a recurrence of whatever it is the pundits/spinners consider to be the source of the current problem. Of course, the market is already correcting that on its own.

KrazyHorse
03-12-2007, 15:56:55
Originally posted by MOBIUS
If I were renting I would be paying about +25% more than I am currently paying for a mortgage. So that alone for me is a good reason to buy.

If you got a good deal then I'm happy for you. I also note that markets are not static, and short-term fluctuations can more than wipe out the long-term differences...

KrazyHorse
03-12-2007, 16:00:22
If you ever find yourself in a situation where the interest on the price of a house is less than the rent on an equivalent house then it's probably a good idea to buy (unless there's some sort of weird external factor like very high property taxes)...

Dyl Ulenspiegel
03-12-2007, 16:52:30
Originally posted by MOBIUS
If I were renting I would be paying about +25% more than I am currently paying for a mortgage.

So you still got the 1 % teaser rate?

MOBIUS
04-12-2007, 00:23:42
Interest only mortgage.

Oerdin
04-12-2007, 01:11:29
Originally posted by TCO
I don't want to bail you out. And I'm really bailing out the bank.

That's fine. When you get into office I'll care but for now I don't. :p

Oerdin
04-12-2007, 01:16:40
Why is it ok for Farmers to vote their interests demanding ever increasing farm subsidies but if a home owner does the same it's stupid? As long as there is a trough with pigs feeding I want my share.

Oerdin
04-12-2007, 01:25:21
Originally posted by Dyl Ulenspiegel
So you still got the 1 % teaser rate?

I don't have one of those highly risky interest only loans but nor could I qualify for a fixed rate. The best I could due was a 2 year fixed which converts to an adjustable afterwards. So far I've been able to keep up with my mortgage, even after I lost my job, but the interest portion of my payment has gone up $500 a month in the last year. That hurts especially considering the original monthly price.

My original plan was to refinance after the end of the fixed period but then the liquidity crisis hit and now it is a lot harder to qualify for a loan especially considering home prices have declined 20%. Thus I'm stuck and have to pay. I just feel sorry for the folks who can't pay more.

Dyl Ulenspiegel
04-12-2007, 08:32:22
Originally posted by MOBIUS
Interest only mortgage.

Iow, you rent from the bank.

Dyl Ulenspiegel
04-12-2007, 08:43:02
Oerdin, home owners, especially home owners with mortgages, are heavily subsidized in the US already. That's part of the bubble problem.

You're 50.000$ under water with an ARM and can't refinance? Ouch.

Funko
04-12-2007, 10:24:21
Originally posted by Dyl Ulenspiegel
Iow, you rent from the bank.

Yeah, buy to let landlords will typically have interest only mortgages but add a premium on the top for their management costs and profit.

The plus side for the landlords because of our stupid laws is that they can deduct their mortgage payments as business expenses, but as a private owner MOBIUS can't.

Dyl Ulenspiegel
04-12-2007, 11:26:01
Well, the landlord will usually have some equity in the object on which he will seek a return, too.

As for "stupid law", not IMO. If as a private owner you could deduct mortgage interest, than the return you earn on the real estate should also be taxed. Whether you rent it out or consume the capital service of shelter does not matter in that regard.

Funko
04-12-2007, 11:46:12
I don't think the private owner should be able to deduct mortgage interest, I think the buy to let landlords shouldn't be able to so it's a level playing field. It's stupid (from my point of view as a recent first time buyer) because it makes Buy to Let so attractive that there's huge demand for houses from landlords and it's helping fuel house price inflation, especially because they tend to be looking at the same kind of properties as first time buyers.

Dyl Ulenspiegel
04-12-2007, 11:48:32
Well, they have to pay tax on their rent income, so they have to be able to deduct expenses like any other business.

Funko
04-12-2007, 11:58:55
Bah.

Dyl Ulenspiegel
04-12-2007, 12:35:03
No taxes for everyone!

Oerdin
04-12-2007, 18:21:11
Originally posted by Dyl Ulenspiegel
Oerdin, home owners, especially home owners with mortgages, are heavily subsidized in the US already. That's part of the bubble problem.

You're 50.000$ under water with an ARM and can't refinance? Ouch.

Tell me about it. I put $70k down which was all the money I had saved up, the inheritance my grandparents left me, and some money my parents gave me so I could buy buy this house. Unfortunately it seems I bought at the peak of the market as the prices plateaued for the first 18 months then started declining for the next 18 months. Its now down $120,000 dollars meaning my original $70,000 investment is gone on paper and I owe more then it is worth at present market conditions. I don't plan on selling because I like the house and plan on living here for some time but it also means refinancing is out of the question due to owing more then the house is worth.

Bush's proposed rate freeze would be very welcome by me. Provided I am in one of the protected classes of loans.

JM^3
04-12-2007, 18:39:50
Give it 20 years and it will very likely be a good inestment.

JM

Dyl Ulenspiegel
04-12-2007, 18:46:23
If I understand the "plan" correctly, the rate freeze would lower your payments, but the debt would keep rising.

As for good investment, honestly, no. There's a good chance the nominal price will recover to the level he bought at, but in real terms it will still be a considerable loss.

Unless the next big bubble is brewing then.

Oerdin
04-12-2007, 23:00:18
Originally posted by JM^3
Give it 20 years and it will very likely be a good inestment.

JM

It took around 5 years for the market here to recover after the 1991 recession. San Diego was especially hard hit as most of its heavy industry was related to defense manufacturing (ship building, aircraft, missiles, etc...) and the end of the cold war meant the end to the gravy train for that sector.

Still, the recent 20%-25% yearly price hikes in housing was clearly a bubble and we will have a hang over from that.

Oerdin
04-12-2007, 23:05:59
The housing market really was out of control from 1998 to around 2004. My parents owned/own five rental houses in addition to the house they lived in and I remember my dad bragging he'd made $1 million in capital gains on paper in just one year. These are just run of the mill suburban houses and town homes. Clearly a bubble.

TCO
05-12-2007, 03:29:49
Have him bail you out.

Funko
05-12-2007, 09:09:59
"on paper" means if he didn't sell them then, he'd have lost that gain as the house value dropped the same way Oerdin did.


Originally posted by Oerdin
I don't plan on selling because I like the house and plan on living here for some time

Yeah, this was one of our considerations when we bought this year. We knew the market wasn't brilliant, so it was important we had somewhere we'd be happy to stay for a good amount of time rather than buying somewhere for the short term. This meant we went for a larger house than we originally thought, but it is great.

TCO
06-12-2007, 00:16:52
Bush is pushing for a bailout. Rebirth of Nixon. What a pussy. I wish he had literally been strangled at birth. Or maybe just thrown in the trash by Barbara.

VetLegion-
06-12-2007, 00:51:57
Oerdin sorry to hear that, your situation really sucks. You can always hope Bush will start printing money and intlation will go up -- say back to the Nixon era levels -- thus helping you repay your loan :D

MOBIUS
06-12-2007, 00:58:44
Originally posted by Dyl Ulenspiegel
Iow, you rent from the bank.

I'm also saving the money (more actually) I would be spending on the extra in a 8% interest savings account, which is over 3% more than the interest - so as long as I keep my discipline, I'm quids in...:)

Still, it's all getting interesting in the property market here right now...:nervous:

MOBIUS
06-12-2007, 01:15:53
Originally posted by Funko
"on paper" means if he didn't sell them then, he'd have lost that gain as the house value dropped the same way Oerdin did.

Yeah, this was one of our considerations when we bought this year. We knew the market wasn't brilliant, so it was important we had somewhere we'd be happy to stay for a good amount of time rather than buying somewhere for the short term. This meant we went for a larger house than we originally thought, but it is great.

It is a great house BTW, certainly one you could stay in for a very long time...:)

The plan for mine is long term as well, as it has quite a large basement that is essentially ripe for a cheap renovation. On top of that I am right in the centre of town in quite a dodgy area which is just beginning to show signs of gentrification - so I'm banking on having already arrived before people realise its potential. I saw it all happen in London, so why not Cardiff - especially at the rate this city is expanding!

Still, it's all a gamble innit?:D

Greg W
06-12-2007, 01:29:04
Originally posted by MOBIUS
I saw it all happen in London, so why not CardiffCos it's full of smelly Welsh people? :cute:

TCO
06-12-2007, 01:52:40
let the bubble burst. The surest way to promote more bubbles is to cushion those who take a loss when asset values decline. Let the market function. It will work just fine. So Oerdin has to go bankrupt. Big deal. Better than his hand in my pocket. I'm not there to sheild him from the downsides of his speculation.

Oerdin
06-12-2007, 03:31:27
Fucking Bush! I don't qualify.

Oerdin
06-12-2007, 03:37:24
Originally posted by TCO
Have him bail you out.

Don't need a bail out but thanks.

Oerdin
06-12-2007, 03:44:59
Originally posted by TCO
let the bubble burst. The surest way to promote more bubbles is to cushion those who take a loss when asset values decline. Let the market function. It will work just fine. So Oerdin has to go bankrupt. Big deal. Better than his hand in my pocket. I'm not there to sheild him from the downsides of his speculation.

Up yours. 20% of American homes are at risk and it doesn't make any sense for a politician interested in America's well being, as opposed to a few money men's well being, to allow one in five Americans to lose their homes. Those type of numbers are a catastrophe and just show the Republican theory of ignoring the need for regulation is wrong. The proper thing is to deflat the bubble slowly and then regulate the industry to prevent such speculative lending.

Oerdin
06-12-2007, 03:55:58
Originally posted by TCO
let the bubble burst. The surest way to promote more bubbles is to cushion those who take a loss when asset values decline. Let the market function. It will work just fine. So Oerdin has to go bankrupt. Big deal. Better than his hand in my pocket. I'm not there to sheild him from the downsides of his speculation.

Are you dense? I said I was keeping up with my mortgage just fine.

KrazyHorse
06-12-2007, 04:12:26
20% of American homes are at risk

:lol:

Oerdin
06-12-2007, 05:47:14
The number is above 10% no doubt about it.

Oerdin
06-12-2007, 06:45:29
Just look at the number of houses effected by Bush's order. There are a truly large amount of people with ARMs. It could well be far more then 20% of home owners.

Dyl Ulenspiegel
06-12-2007, 09:30:24
If anyone could figure out the number of "homes at risk", it would help the financial markets a lot.

For the potential scope:

http://calculatedrisk.blogspot.com/2007/12/homeowners-with-negative-equity.html

Dyl Ulenspiegel
06-12-2007, 09:36:43
Originally posted by MOBIUS
I'm also saving the money (more actually) I would be spending on the extra in a 8% interest savings account, which is over 3% more than the interest - so as long as I keep my discipline, I'm quids in...:)


You have a 5 % adjustable rate mortgage and an 8 % savings account?

With comparable libor about 6-6.5%.

Strange.

TCO
06-12-2007, 11:19:47
The houses aren't at risk. They're not about to burn up in a fire. People's credit ratings and banks shareholders are at risk. Take your haircut and move on. That's the free market, Oerdin.

TCO
06-12-2007, 11:21:23
Originally posted by Oerdin
Are you dense? I said I was keeping up with my mortgage just fine.

Sorry...I'm doing that read 2 seconds of other people's stuff and just reply like a :shoot: thing.

Glad to hear you are keeping up.

TCO
06-12-2007, 11:24:36
How about we selectively exterminate all executives and recent executives from Goldman Sachs? I don't trust these Rubin, Paulson types. They all want to create reasons for getting government to sheild Wall Street from the free market. Thain is just as bad. Takes a screwed up NYSE (which enjoys some legal protections because of US securities laws) and uses the scandal to solidify the advantage.

Dyl Ulenspiegel
06-12-2007, 12:00:12
TCO, the rebel.

MDA
06-12-2007, 12:27:43
poly thread!

Dyl Ulenspiegel
06-12-2007, 12:31:44
True. TCO, the poly rebel, then.

MDA
06-12-2007, 12:55:05
didn't mean to discourage, but this is more seriously serious than usual, and was even somewhat interesting at first

the introduction of personal attacks and asshattery put a quick end to that

Dyl Ulenspiegel
06-12-2007, 13:01:33
Well, we had a couple of serious housing discussions when the bubble was in full swing, IIRC. So this may be the only topic with a tradition of serious seriousliness here.

MDA
06-12-2007, 14:20:11
We bought about six months before it ended, and only had 15% of the mortgage as flexible rate, made couple of extra payments on that in the first year to knock it down a bit... so we're still gaining ground. Based on the recent sale of our neighbor's home I'd guess we're up about 5% of the price we paid, which I suppose over two years isn't great as an investment, but we have a place to live and haven't lost money.

Oerdin
06-12-2007, 15:09:49
I'd settle for that. :b:

MOBIUS
06-12-2007, 15:15:27
Originally posted by Dyl Ulenspiegel
You have a 5 % adjustable rate mortgage and an 8 % savings account?

With comparable libor about 6-6.5%.

Strange.

No, 4.73% Fixed interest only.

Then a separate 8% interest account I can put in up to Ł300 a month into. It’s an introductory thing I can do for a year. The banks do it to get more customers. The best one on the market is 12%, but only for new customers and I already bank with that one. I had one last year at 10% for up to Ł250 a month. I’ll do a different one next year…

The point is that the 250-300 is more than I would be paying off on a standard repayment mortgage anyway, so the ‘profit’ is mine – as long as I’m not tempted to spend that money…

Dyl Ulenspiegel
06-12-2007, 15:33:39
Ok, you get 8 % on a limited amount for a limited time.

As for the fixed rate, fixed for how long? Full duration?

Lurker the Second
06-12-2007, 15:38:18
Originally posted by TCO
Takes a screwed up NYSE (which enjoys some legal protections because of US securities laws)

The US markets are pretty much considered the best in the world, to a large degree because of regulations. I suppose your point might be that they aren't perfect, and I wouldn't disagree with that.

VetLegion-
06-12-2007, 20:00:04
Originally posted by TCO
let the bubble burst. The surest way to promote more bubbles is to cushion those who take a loss when asset values decline. Let the market function. It will work just fine. So Oerdin has to go bankrupt. Big deal. Better than his hand in my pocket. I'm not there to sheild him from the downsides of his speculation.

You're cruel! :bounce:

MOBIUS
06-12-2007, 20:02:00
Wow, either you only just worked that out, or you're stating the massively obvious...

TCO: Person I'd most like to see bad stuff happen to, if only so he knows what it feels like...

TCO
07-12-2007, 03:29:48
Originally posted by Lurker the Second
The US markets are pretty much considered the best in the world, to a large degree because of regulations. I suppose your point might be that they aren't perfect, and I wouldn't disagree with that.

My point is more of an impression than an assertion. I'm not an expert on securities transactions. Just think that there are some strange things with the market makers, seats, verbal auction, roach motel (hard to delist), industry watched etc. aspects of NYSE.

But like I said, I'm going off impression and freely admit to not having taken the time to unwrap the snail shell.

TCO
07-12-2007, 04:14:54
WRT Roland's graph of negative equity houses, need to remember that the fraction of homes that are negative equity is not the same as fraction of mortgages. I think more than 50% of homes are owned outright. Of course total number of upside downs will be the same.

Also that the price of a house is a bit hard to calculate and there is some lag/stickiness in a declining market. Basically people tend to hold on to homes in a declining market until the market forces a correction. IOW, the market is not having enough transactions to allow accurate pricing. Knowing what the house on the corner sold for a year ago is not the same as knowing what it sold for last week. The latter is more indicative of what a forced sale would bring today.

Koshko
07-12-2007, 04:16:21
If they are going to bail out people, how about bailing out everyone. Freeze it for all.

TCO
07-12-2007, 04:17:05
Maybe we could sell these houses to Europeans. Worked with Chrysler. Worked with real estate with the Japanese in the 80s. Then have them sell them back after the correction. Nice wealth transfer.

Dyl Ulenspiegel
07-12-2007, 10:31:37
According to the source I linked, 30 % are owned outright. Equity for all homes (including those without mortgages counting for 100 %) is about 50 %.

As for Chrysler, let's have a pukefest.

Lurker the Second
07-12-2007, 16:54:46
Calling what happened a "government bailout" is a marketing coup for the politicians.

Dyl Ulenspiegel
07-12-2007, 16:57:46
The real bailout is for banks only and through the Fed. As usual.

TCO
08-12-2007, 05:16:12
30% is a lot lower than what it used to be. Or that number is wrong. Or I'm wrong. :)

KrazyHorse
10-12-2007, 21:06:50
She usually buys her grandchildren, nieces and nephews lots of gifts around the holidays -- bicycles, educational games, clothes -- but this year she is just struggling to keep her North Las Vegas, Nevada, house.

The interest rate on her four-bedroom home loan shot up in October and she is $6,000 behind on her payments. She now owes $168,000 on her home, which once was worth $220,000 but is now worth about $150,000.

In the past, when times were tough, she would borrow against her home's equity -- that's no longer possible.

"I was always seen as the person that's giving, but it's kind of affected this year," said Castleberry, a former casino buffet supervisor who now makes $11 an hour, 30 hours a week, supervising children before and after school. "This year, I can't see anything right now as far as gifts."

http://www.cnn.com/2007/US/12/10/subprime.christmas.ap/index.html

How fucking retarded is this reporting?

Yeah, like it's really the subprime crisis which has made her house unaffordable, not the fact that her income has dropped to the point where she owes 9.8 years of her salary on her house.

Venom
10-12-2007, 21:13:52
Adjustable rates are a bitch.

Dyl Ulenspiegel
10-12-2007, 21:14:37
You forget the monumental sense of entitlement. They deserve 10-20 % returns on assets they hold on borrowed money. For consumption. It's their birthright.

KrazyHorse
10-12-2007, 21:33:16
Originally posted by Venom
Adjustable rates are a bitch.

You didn't hear these people whining when they were paying rates far below the long-term trend...

Shining1
10-12-2007, 22:56:52
We must be losing altitude.

There's a popping sound ringing in my ears.

Oerdin
11-12-2007, 17:57:49
I honestly don't know why anyone would wait to get foreclosed on. It would be less of a hit to arrange a short sale and walk away from the property.

Lurker the Second
11-12-2007, 19:18:24
Depends. If you can forestall a foreclosure sale and subsequent eviction long enough, you can avoid paying a lot of rent. Biggest issue then becomes whether you face any liability for a deficiency after the house is foreclosed and sold. For some people it doesn't matter b/c they just plan on filing a bankruptcy petition at the end of the day. For others, a short sale might be a better option.

mr_B
11-12-2007, 19:23:41
^^ he knows!!

Oerdin
11-12-2007, 20:19:44
How long does it take to foreclose on someone? I thought the process could start once you were 2-3 payments behind. Of course even if you get behind most lenders will agree to modify the loan (especially if the market is down) rather then spend all the money to go through the legal process of foreclosure only to have to sell the house at a loss six months later.

I imagine the borrower would really have the lender over a barrel by simply pointing out "It will take you 5-6 months to foreclose where you don't get any income from this loan and you'll lose more trying to sell the house. Alternatively, if we can agree to new terms on a loan modification you lose much less and save yourself a lot of headaches.

Let's face it if the lender is facing $100,000 in losses (lost income, court expenses, the fact that the house's resale won't cover loan amount, etc) and you offer a way he can cap his losses at $25,000 and save himself a big headache then it is in the bank's interest to cut a deal.

Lurker the Second
11-12-2007, 21:02:40
How long it takes depend on where you live. In NJ, you would be doing well to actually evict someone within six months of filing a foreclosure complaint and a determined borrower can drag that out longer in many cases. In some (maybe most) states, the process is much faster.

I think in California lenders have two choices -- they can foreclose on mortgages through the court system or they can sell via private sale. The former takes a lot longer, probably even longer than NJ, but at the end of the day the property is sold and the lender retains the right to pursue any deficiency. The private sale can occur within 4 (maybe 3, can't remember) months of the lender giving notice of default. If a private sale, though, the lender cannot pursue a deficiency.

I'm not sure I'd go so far as to say borrowers have lenders over a barrel, but there certainly are times when a lender will negotiate. I've seen lenders pay people to move. I wouldn't count on it in this market, though.

I've also seen contested foreclosures take so long that by the time it was concluded the market had turned around and a lender who was under water on a loan was eventually made whole because of the rising value of the collateral.

Venom
11-12-2007, 21:19:31
You know...you sound like some kinda law guy.

Oerdin
11-12-2007, 21:21:11
My girlfriend was reading this thread over my shoulder and she came up with a reason why a defaulting borrower might want to opt for foreclosure instead of a short sale. She says her Aunt did a short sale 15 years ago as part of a divorce and then the IRS came after both her and her ex for taxes due on the amount of the short sale. I.E. The bank's $50,000 lose on a short sale would be considered a $50,000 gain by the borrower so he'd get a nasty surprise just when he thought the whole mess was over.

That honestly doesn't sound right to me but I didn't want to tell her that. ;)

Lurker the Second
11-12-2007, 21:39:40
Forgiveness of debt is considered income in general. I'm not sure how that plays out in all circumstances, but it certainly is plausible in a short sale scenario.

Dyl Ulenspiegel
11-12-2007, 21:42:29
Well in principle, a debt forgiveness is taxable income. From the things I've read on your bubble, most said that borrowers could face tax troubles that way.

What I didn't quite understand, but I assume Lurker knows (jesjes): Won't happen with bancrupcy, and without it the debt is still standing - unless you walk away from a first loan on the home when you are under water. In that situation you'd be clear of debt, but with a tax problem if I understood that correctly.

Oerdin
11-12-2007, 22:07:53
To my understanding the government has rigged the bankruptcy laws so that you can stiff everyone else but you can't stiff the government. So declaring bankruptcy wouldn't effect debts to the government such as student loans or theoretic taxes owed on forgiven debts due to a short sale.

That little bit of info has made me change my opinion by 180 degrees. I retract my previous statement about a short sale being preferable to a foreclosure and now think many of the people did the right thing by running out the foreclosure clock, saving their money, and not getting stuck with a big tax bill from a short sale.

This is especially true if you live in a state which doesn't let lenders get deficiency judgments against borrowers such as California. The one halfway decent item in favor of a short sale vs foreclosure is you wouldn't be responsible for deficient balance/outstanding remaining debts; that's not a worry if the state has outlawed deficiency judgments so might as well run out the clock on foreclosure if you're stuck in that situation.

Lurker the Second
11-12-2007, 22:09:25
There is also a caveat to the discussion above about how lenders can proceed in California. If the loan is a purchase money loan, lenders do not have recourse against anything but the property. I presume purchase money loans are almost always foreclosed by private sale b/c I can't see any advantage of using the judicial foreclosure process. Maybe I'm missing something, though.

Bankruptcy will eliminate the tax problem. The downside, of course, is that you'll lose all your non-exempt assets in the process. As a practical matter that won't be a factor for most people, though.

HERE (http://touchngo.com/lglcntr/usdc/bnkrptcy/briefs/bnk34.htm) is a discussion of debt forgiveness.

Oerdin
11-12-2007, 22:18:42
I'm actually just bored and a modestly drunk so I'm reading more about this stuff. It's interesting in a sad pathetic way to examine the financial demise of other people.

Lurker the Second
11-12-2007, 22:26:36
Originally posted by Oerdin
To my understanding the government has rigged the bankruptcy laws so that you can stiff everyone else but you can't stiff the government. So declaring bankruptcy wouldn't effect debts to the government such as student loans or theoretic taxes owed on forgiven debts due to a short sale.



That's partly true, but the forgiveness of debt tax issue is more complicated than that. The vast majority of people who end up filing chapter 7 bankruptcies will not have tax obligations related to that, even if the debt is forgiven or discharged. Your girlfriend's aunt probably had too many assets to make bankruptcy enter the picture, but think of it this way: it is better to pay income taxes on $50,000 than to pay $50,000.

Dyl Ulenspiegel
12-12-2007, 08:10:48
I think here comes the real bailout:

http://www.ft.com/cms/s/0/0546b38e-a84b-11dc-9485-0000779fd2ac.html

That the Fed switches to issueing tenders and taking bids (if I understand that correctly) is just a technicality, seems like the ECB's operations.

The interesting thing is taking more stuff from more people. So Countrywide & co have maxed out the FHLB, now they might be able to go to the Fed with their mortgage portfolio.

Next step - change duration and/or allow for rolling over Fed credit. The Fed has already done that for the discount window.

Et voila - all the crap gets nationalised through issuance of new dollars. Seems the lesson from Japan is: take foul loans from the Bank's balance sheet and move them to the Fed.

I'm curious if it goes down that way.

Lurker the Second
12-12-2007, 15:22:01
How does that happen without the Fed drastically overvaluing the collateral?

Dyl Ulenspiegel
12-12-2007, 16:08:49
That's the 1 trillion $ question.

Initially they only took agency stuff, I think. Now maybe more, haven't seen the details yet. But overvalueing the crap has been also the idea behind MLEC.

Dyl Ulenspiegel
12-12-2007, 16:25:01
From the Fed:

"“Collateral Value” means, with respect to the assets pledged by a Participant to its Local Reserve Bank, the value, as of the Bid Submission Date, assigned by the Local Reserve Bank to such assets."

So this can be mark to market, to model or to fantasy. I think they will start conservatively and let the standard deteriorate slowly.

Oerdin
13-12-2007, 11:17:38
Originally posted by Dyl Ulenspiegel
I think here comes the real bailout:

http://www.ft.com/cms/s/0/0546b38e-a84b-11dc-9485-0000779fd2ac.html

That the Fed switches to issueing tenders and taking bids (if I understand that correctly) is just a technicality, seems like the ECB's operations.

The interesting thing is taking more stuff from more people. So Countrywide & co have maxed out the FHLB, now they might be able to go to the Fed with their mortgage portfolio.

Next step - change duration and/or allow for rolling over Fed credit. The Fed has already done that for the discount window.

Et voila - all the crap gets nationalised through issuance of new dollars. Seems the lesson from Japan is: take foul loans from the Bank's balance sheet and move them to the Fed.

I'm curious if it goes down that way.

That seems to make sense as a way to get the banks to restart lending. Of course unless new regulations are enacted to curb the types of market distorting behaviors we've seen then eventually we'll find ourselves with a new bubble and Banks demanding another bail out.

Oerdin
13-12-2007, 11:32:05
Originally posted by Lurker the Second
How does that happen without the Fed drastically overvaluing the collateral?

In the end we'd likely see a repeat of 1987 where the fed just gave away subsidies and/or heavily discounted loans to banks in order to help recapitalizes them.

It seems the people responsible for issuing bad loans will get to keep the money they made speculating over the last few years and they'll get bailed out for their recent loses. :/

New question: If I'm an underwriter on loans which I know are very risky but have high profit potential (like virtually every subprime loan) would I still be facing potential liability for the defaulted loans or do the loans become the problem of who ever invests in the bundled & repackaged "mortgaged backed securities"?

If the loan originator is no longer liable at all then it seems like speculators or out right fraudsters could easily game the system by taking out iffy loans then disguising their iffiness as the loans are bundled together and reissued as securities. As long as the iffy loans get sold on before the borrower actually defaults then technically no one has done anything wrong, right? Even though defacto you know the loans are ticking time bombs and tried to disguise that fact.

Lurker the Second
13-12-2007, 14:17:45
Underwriters won't be liable for not predicting the future, but they could face liability for fraudulently submitted applications or even applications that don't meet certain criteria, regardless of whether there was any fraudulent intent.