The Bad News Thread

[SportsDino]

Every day I check the news I happen across articles that generally make me frown. Not all are worth a thread of their own, so I'll just jumble them together here:

Mortgage lenders pursue homeowners even after foreclosure - Yahoo! Finance (http://finance.yahoo.com/news/Mortgage-lenders-pursue-cnnm-3107909798.html?x=0)

Mostly posted this as a warning to those who are dealing with the potential of foreclosure.

I am so happy we spent billions in bailouts and government backed fed loans to banks so they could avoid their little margin call and stay afloat. It means they are relatively unscathed and in no real need for traditional profitability, so they have plenty of time and resources to pursue sticking it to the average man! I really should write a book on how bailing out the banks may have made us worst off across the board than letting them fail.

Anyways, the article is about people being foreclosed on and than still being chased by the banks on the grounds that the difference between the mortgage amount and the sale price should be considered an unsecured debt since you 'promised to pay'.

Works out fine for the banks, everyone work together to over inflate the housing industry to ungodly prices (if we used housing as a measure of inflation the dollar would have disappeared by now I'm sure)... convince people they can afford these high priced lows by using discount gimmicks. Make sure to completely ignore the theory of default risk, and if it does come to pass, lawyer up and reclaim your losses by completely liquidating the consumer.

Funny thing is this is a trick that can be easily recycled. You break closer to even (if not ahead, the combo of fractional reserve and inflated mortgage balances I can calculate scenarios where you actually come out ahead pretty nicely with a cycle of defaulting loans, particularly if you can seize assets to cover a portion of the loss, and provide the mortgage to the new buyer)... there may actually be a major incentive to incite defaults if you can keep finding buyers with other assets.

Anyhoo, this was pretty vomit-worthy. I'm sure someone will bring up the moral factor of walking away from a house, but in my opinion it takes two mistakes to make a dumb default (the bank and the person). Also there are still a lot of people out there sandwiched between unemployment and the housing bubble, both things that despite all the 'tsk tsk' you might do in hindsight, I'd venture almost all of you on this board were bit in some manner by those two phenonmenon (either in the form of not being able to profit as much as you planned on flipping a house, having to forgo expected pay raises the last couple years, or the depression bubble reducing the value of your stock holdings or business income). A lot of people are going to be chased by a bank covering its ass on a dumb mistake, simply because they got fired when the companies got scared and didn't have the reserves to handle what has been at least a couple years of recession (maybe not the official measurement, but I'd like to see who was cheery in 2008, GDP numbers or no).

[RainMaker]

Saw this the other day. Not really bad news but one of those that makes me frown. Can't fathom what this guy is going through on a daily basis.

Trial stirs painful memories of brutal home invasion - CNN.com (http://www.cnn.com/2010/CRIME/02/01/connecticut.petit.slayings/?hpt=C2)

[JediKooter]

I don't see a moral thing at all. It's a business agreement and nothing more. In a business where you loan money, there's always the chance that you will not get repaid and there are legal remedies to try and get that money back. Nothing more than that in my opinion.

[RainMaker]

I don't see a moral thing at all. It's a business agreement and nothing more. In a business where you loan money, there's always the chance that you will not get repaid and there are legal remedies to try and get that money back. Nothing more than that in my opinion.
I agree for the most part. But it still kind of stings considering what the taxpayers did for them. It'd be like loaning your brother $1000 and then having him turn around and go "Oh yeah, remember when I loaned you $20 the other night at the bar when you left your wallet at home. Can I get that back from you?".

[flere-imsaho]

Plus, it's not as if businesses themselves don't walk away from their own mortgages (http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html?pagewanted=print):

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with.

More LOL:

Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

More serious:

There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.

The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.


More reality:

Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.


Plus, ask any mayor or town manager around this country how many homes they have in their town which are now owned by banks and have been left to rot (by the same banks). Where's the moral imperative to keep the properties up to be good citizens and not drive down prices in the neighborhood? I guess it's not there: it's just about the money. So the banks will foist a moral imperative upon people so they can get their money, but won't adhere to the same moral imperative themselves if it'll cost them money. Hypocrisy doesn't get much more pure than that (or cynicism, depending on your viewpoint).

[stevew]

I agree for the most part. But it still kind of stings considering what the taxpayers did for them. It'd be like loaning your brother $1000 and then having him turn around and go "Oh yeah, remember when I loaned you $20 the other night at the bar when you left your wallet at home. Can I get that back from you?".

It would be like George smashing Jerry's car, costing Jerry like 2000 dollars. And George offering to buy Jerry's coffee, as if that even matters.

[SportsDino]

I don't know how many mortgages would be sold if it included a clause stating:

- In the case of default, we will seize the house. Also we will sell the house. And if we don't make as much money when we sell the house as the mortgage is worth, we'll make you pay for it. Because even though its obvious you can't afford the house, have no remaining equity or interest at that point, and the house has depreciated as an asset in terms of spot price or we decided to sell it on the cheap... we have successfully managed to get the courts to interpret promissory note as a 'promise' (they sound similar) that in itself makes you responsible for insuring we do not suffer a loss on the transaction.

Or simplified version of the clause:
- In making this loan, you are guaranteeing us the right to make our negotiated balance back on the loan, as well as all interest we collect during the duration of the loan's viability, as well as assuming the cost of our default risk.

If you've forgotten your finance 101, unless we are assuming that the bank's interest is purely for the sake of providing transaction liquidity (actually to some degree it may)... the bank is being paid to TAKE NO RISKS.

In that case, I can completely understand how the risk controls at banks have gotten completely out of control (oh so punny)... they have literally invented a way to generate interest without risk (all it involves is the help of the enforcement arm of your friendly United States Government).

I don't know, maybe that is how we want business to be run. I may be too fuckin smart for my own good when it comes to trying to understand economic and financial theory... but I'm adverse to the notion of a bank 'earning' interest without correlation to risk. And I'd rather not have the risk calculation become a measure of the probability that the bank will win a lawsuit and the defendant will have the ability to pay.... it seems so ass backwards and frivilous lawsuity to me, which I thought corporations were so opposed to. Well only if its wronged people seeking to get money to fix their lives when weighed against corporate greed... gotta keep that share price up after all.

Do they have a legal avenue to do this? Yes they do, just like Halliburton can rape its employees in Iraq. I'm starting to distinguish the law from ethics and economics... it really is a system for the institutional skullfucking of the populace. We should put it in the constitution and Miranda rights. You have the right to sit there and be skull fucked without the common courtesy of a reach around. Do you want fries with that?

[digamma]

Melodramatic much?

[JediKooter]

I agree for the most part. But it still kind of stings considering what the taxpayers did for them. It'd be like loaning your brother $1000 and then having him turn around and go "Oh yeah, remember when I loaned you $20 the other night at the bar when you left your wallet at home. Can I get that back from you?".

I can totally see that for sure.

[SportsDino]

I'm in a ranty mood today it seems. Of course, I'm always operating at full overkill... so don't mind it much. I don't even want to get started about the home invasion article, can't begin to imagine how horrific it would be to live with that.