Deadbeat nation
in [Design]
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From: dagmargoodboat on 6 Jun 2010 23:28 On Jun 6, 7:13 pm, "Paul Hovnanian P.E." <P...(a)Hovnanian.com> wrote: > dagmargoodb...(a)yahoo.com wrote: > > > On Jun 5, 9:06 pm, "Paul Hovnanian P.E." <P...(a)Hovnanian.com> wrote: > > > dagmargoodb...(a)yahoo.com wrote: > > > [snip] > > > > > But let's be clear about what "renegotiate their mortgage" means. It > > > > means the buyer wants the bank to take the loss. > > > > In part, yes. It means the buyer is thinking of mailing back their keys. > > > In a bad real estate market, that means the house will sit on the banks > > > books as an unperforming asset for months. Or years. While the > > > neigborhhood thieves strip it of copper wiring and plumbing. Or the > > > banks and buyer can negotiate a deal which will keep some money coming > > > in. > > > Blackmail, basically. Pay, or I'll make you lose even more. > > > And we're back to your original question of creating moral hazard. > > With any given case it may indeed be cheaper for the lender to pay > > $150k rather than fight. But overall, if this financial reward, plus > > society not just removing any stigma and penalty from default, but > > actively promoting it--like the NY Times--encourages a stampede of > > defaults, the system collapses. > > > "When plunder becomes a way of life for a group of men > > living together in society, they create for themselves > > in the course of time a legal system that authorizes it > > and a moral code that justifies it." -Frederic Bastiat > > > Or it would, except the taxpayer's backstopping all this anyhow. > > > The whole thing turns into a tragedy of the commons: it's in each > > citizen's interest to grab what he can from the kitty, but in so > > doing, the kitty is busted. > > > "Everyone wants to live at the expense of the state. > > They forget that the state wants to live at the > > expense of everyone." - ibid > > > > > That's wrong. It's unfair. > > > > The next time an airline defaults on a loan, 'fair' would be the > > > creditor seizing its assets and padlocking them. > > > The difference is we're talking about a quarter of America voluntarily > > defaulting as a financial strategy, and isolating them as a matter of > > policy from the customary consequences. > > That's a bit of an exaggeration. Its more like 10% that are behind on > payments. > > http://www.businessinsider.com/fha-mortgage-default-rate-soars-here-c... I was speaking of people who are merely upside down. Those are the potential "strategic" defaulters. http://online.wsj.com/article/SB125903489722661849.html By RUTH SIMON and JAMES R. HAGERTY "The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery." Of course that'll be getting worse: http://www.reuters.com/article/idUSN0526831020090805 By Al Yoon "NEW YORK Aug 5 (Reuters) - The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday." So that's the concern. If you remove all the stigma and penalties of defaulting, half of America could stampede demanding rebates on their mortgages. And if it's offered, they should, financially speaking. If they don't, they wind up paying for everyone else. If they do, everyone else pays for them. Of course it's still stealing, just done with approval. It's debasing. > > Basically, we're talking about making robbing banks legal, accepted, > > to the point of telling people they're actually crusaders, heroes > > somehow righting a wrong. > > Renegotiating terms is not robbing a bank if its a mutual agreement > between the parties. Even when coerced? > > I'd say let borrowers default, let them bear the usual consequences, > > and let the lenders go bust too, if they loaned foolishly. The > > problem is the lenders are insured through the GSEs, Freddie, Fannie, > > FHA, etc., so the burden's not theirs, it's ours. Again, moral > > hazard. The government did that. They made the whole mess. > > Actually, there's quite a bit of evidence that investment bankers leaned > on the government to keep the flow of collateralizable debt flowing into > the system. Once everyone had one house, the industry pushed to build > houses for speculation. > > And its not the banks that will get screwed by loan renegotiations. Even > with your assumption of a 25% default rate, the holders of the top CDO > tranches, mainly very wealthy and influential people who set this whole > mess up in the first place, will still see full income. Its the owners > of the lower tranches that will get screwed. And that isn't the banks > either. Most banks sell their mortgage paper off within months of > writing the loans. Sure, I know all that, it's just easier to say "bank" as a metaphor for the distributed harm you'll do to so many nameless faces. (In the list of the greedy, let's not forget those who bought something too good to be true, and too complicated to understand. Someone offered me 12-14%, "risk free, backed by mortgages" and my BS- meter instantly pegged.) Freddie and Fannie backed half the loans in the US, and deliberately made subprime-ish junk half their book, as they were obliged to do under Congressional mandate. So, we the taxpayers are on the hook for at least that much of it. Freddie and Fannie's need for junk made the market for this stuff. Thanks Barney. -- Cheers, James Arthur
From: Paul Hovnanian P.E. on 7 Jun 2010 19:51 dagmargoodboat(a)yahoo.com wrote: > On Jun 6, 7:13 pm, "Paul Hovnanian P.E." <P...(a)Hovnanian.com> wrote: >> dagmargoodb...(a)yahoo.com wrote: >> >> > On Jun 5, 9:06 pm, "Paul Hovnanian P.E." <P...(a)Hovnanian.com> wrote: >> > > dagmargoodb...(a)yahoo.com wrote: >> >> > [snip] >> >> > > > But let's be clear about what "renegotiate their mortgage" means. >> > > > It means the buyer wants the bank to take the loss. >> >> > > In part, yes. It means the buyer is thinking of mailing back their >> > > keys. In a bad real estate market, that means the house will sit on >> > > the banks books as an unperforming asset for months. Or years. While >> > > the neigborhhood thieves strip it of copper wiring and plumbing. Or >> > > the banks and buyer can negotiate a deal which will keep some money >> > > coming in. >> >> > Blackmail, basically. Pay, or I'll make you lose even more. >> >> > And we're back to your original question of creating moral hazard. >> > With any given case it may indeed be cheaper for the lender to pay >> > $150k rather than fight. But overall, if this financial reward, plus >> > society not just removing any stigma and penalty from default, but >> > actively promoting it--like the NY Times--encourages a stampede of >> > defaults, the system collapses. >> >> > "When plunder becomes a way of life for a group of men >> > living together in society, they create for themselves >> > in the course of time a legal system that authorizes it >> > and a moral code that justifies it." -Frederic Bastiat >> >> > Or it would, except the taxpayer's backstopping all this anyhow. >> >> > The whole thing turns into a tragedy of the commons: it's in each >> > citizen's interest to grab what he can from the kitty, but in so >> > doing, the kitty is busted. >> >> > "Everyone wants to live at the expense of the state. >> > They forget that the state wants to live at the >> > expense of everyone." - ibid >> >> > > > That's wrong. It's unfair. >> >> > > The next time an airline defaults on a loan, 'fair' would be the >> > > creditor seizing its assets and padlocking them. >> >> > The difference is we're talking about a quarter of America voluntarily >> > defaulting as a financial strategy, and isolating them as a matter of >> > policy from the customary consequences. >> >> That's a bit of an exaggeration. Its more like 10% that are behind on >> payments. >> >> http://www.businessinsider.com/fha-mortgage-default-rate-soars-here-c... > > I was speaking of people who are merely upside down. Those are the > potential "strategic" defaulters. > > http://online.wsj.com/article/SB125903489722661849.html > > By RUTH SIMON and JAMES R. HAGERTY > "The proportion of U.S. homeowners who owe more on their mortgages > than the properties are worth has swelled to about 23%, threatening > prospects for a sustained housing recovery." > > Of course that'll be getting worse: > > http://www.reuters.com/article/idUSN0526831020090805 > By Al Yoon > "NEW YORK Aug 5 (Reuters) - The percentage of U.S. homeowners > who owe more than their house is worth will nearly double to 48 > percent in 2011 from 26 percent at the end of March, portending > another blow to the housing market, Deutsche Bank said on > Wednesday." > > So that's the concern. If you remove all the stigma and penalties of > defaulting, half of America could stampede demanding rebates on their > mortgages. The issue isn't defaulting. Its renegotiating mortgage terms as a means of preventing high default rates. When someone defaults, they walk away from 100% of their remaining debt. I don't see any figures on what the anticipated average reduction will be. It certainly is nowhere near 100%. > And if it's offered, they should, financially speaking. If they > don't, they wind up paying for everyone else. If they do, everyone > else pays for them. > > Of course it's still stealing, just done with approval. It's > debasing. > > >> > Basically, we're talking about making robbing banks legal, accepted, >> > to the point of telling people they're actually crusaders, heroes >> > somehow righting a wrong. >> >> Renegotiating terms is not robbing a bank if its a mutual agreement >> between the parties. > > Even when coerced? The mortgage holders still have a choice: renegotiate or take back the keys. And they still negotiate from a position of placing a bad report on the homeowners credit record if they choose the 'walk away' option. Everyone wins except for the holders of the low risk CDO tranches. They get cashed out of high yield securities. And now the market isn't paying anything like it was when they bought the last ones. -- Paul Hovnanian paul(a)hovnanian.com ---------------------------------------------------------------------- Have gnu, will travel.
From: dagmargoodboat on 7 Jun 2010 22:07 On Jun 7, 6:51 pm, "Paul Hovnanian P.E." <p...(a)hovnanian.com> wrote: > dagmargoodb...(a)yahoo.com wrote: [snip] > >http://www.reuters.com/article/idUSN0526831020090805 > > By Al Yoon > > "NEW YORK Aug 5 (Reuters) - The percentage of U.S. homeowners > > who owe more than their house is worth will nearly double to 48 > > percent in 2011 from 26 percent at the end of March, portending > > another blow to the housing market, Deutsche Bank said on > > Wednesday." > > > So that's the concern. If you remove all the stigma and penalties of > > defaulting, half of America could stampede demanding rebates on their > > mortgages. > > The issue isn't defaulting. Its renegotiating mortgage terms as a means of > preventing high default rates. Right, under threat of default, for a payment of taxpayer money. Remember, we're also talking about people who are perfectly able to pay, but simply don't want to. Why not extend that technique those socks you bought last week, before they went on sale? Or your new tires? Or the haircut you just got-- why not renegotiate after the fact? Surely it's cheaper for the haircut guy to settle for, say, half, than to bother suing you to collect the rest? Shouldn't we all do that? And it's perfectly ethical to "renegotiate," even after he did his part, right? No, of course we shouldn't, and it isn't. > When someone defaults, they walk away from 100% of their remaining debt. I > don't see any figures on what the anticipated average reduction will be. It > certainly is nowhere near 100%. That information's available--something like 1/4 of Americans are more than 20% under water, a smaller group is 50% under, etc. > > And if it's offered, they should, financially speaking. If they > > don't, they wind up paying for everyone else. If they do, everyone > > else pays for them. > > > Of course it's still stealing, just done with approval. It's > > debasing. > > >> > Basically, we're talking about making robbing banks legal, accepted, > >> > to the point of telling people they're actually crusaders, heroes > >> > somehow righting a wrong. > > >> Renegotiating terms is not robbing a bank if its a mutual agreement > >> between the parties. > > > Even when coerced? > > The mortgage holders still have a choice: renegotiate or take back the keys. > And they still negotiate from a position of placing a bad report on the > homeowners credit record if they choose the 'walk away' option. > > Everyone wins except for the holders of the low risk CDO tranches. They get > cashed out of high yield securities. And now the market isn't paying > anything like it was when they bought the last ones. No! I think you're missing something important--the taxpayer pays for it. Directly. Freddie and Fannie and AIG pay off the losses, the "renegotiated" mortgage amount, then Mr. Obama's Treasury Secretary pays them, with our money. We take the loss, we wind up monetizing a debt that should've been dissolved in bankruptcy for forced defaults, or which should've been paid by the borrower for unforced defaults. It's a great evil, it really is. That creates a system where everyone loses _except_ the defaulters, who steal their gain from the rest of society. It creates a system where only suckers are honest, where it pays to steal (using the government) from your neighbor. That's moral hazard too--it wrecks everyone's honor. -- Cheers, James Arthur
From: Robert Baer on 8 Jun 2010 02:53 Paul Hovnanian P.E. wrote: > dagmargoodboat(a)yahoo.com wrote: >> On Jun 5, 9:06 pm, "Paul Hovnanian P.E." <P...(a)Hovnanian.com> wrote: >>> dagmargoodb...(a)yahoo.com wrote: >> [snip] >> >>>> But let's be clear about what "renegotiate their mortgage" means. It >>>> means the buyer wants the bank to take the loss. >>> In part, yes. It means the buyer is thinking of mailing back their keys. >>> In a bad real estate market, that means the house will sit on the banks >>> books as an unperforming asset for months. Or years. While the >>> neigborhhood thieves strip it of copper wiring and plumbing. Or the >>> banks and buyer can negotiate a deal which will keep some money coming >>> in. >> Blackmail, basically. Pay, or I'll make you lose even more. >> >> And we're back to your original question of creating moral hazard. >> With any given case it may indeed be cheaper for the lender to pay >> $150k rather than fight. But overall, if this financial reward, plus >> society not just removing any stigma and penalty from default, but >> actively promoting it--like the NY Times--encourages a stampede of >> defaults, the system collapses. >> >> "When plunder becomes a way of life for a group of men >> living together in society, they create for themselves >> in the course of time a legal system that authorizes it >> and a moral code that justifies it." -Frederic Bastiat >> >> Or it would, except the taxpayer's backstopping all this anyhow. >> >> The whole thing turns into a tragedy of the commons: it's in each >> citizen's interest to grab what he can from the kitty, but in so >> doing, the kitty is busted. >> >> "Everyone wants to live at the expense of the state. >> They forget that the state wants to live at the >> expense of everyone." - ibid >> >>>> That's wrong. It's unfair. >>> The next time an airline defaults on a loan, 'fair' would be the >>> creditor seizing its assets and padlocking them. >> The difference is we're talking about a quarter of America voluntarily >> defaulting as a financial strategy, and isolating them as a matter of >> policy from the customary consequences. > > That's a bit of an exaggeration. Its more like 10% that are behind on > payments. * Being behind on payments is FAR DIFFERENT than snubbing a legal contract. > > http://www.businessinsider.com/fha-mortgage-default-rate-soars-here-comes-another-tidal-wave-of-foreclosures-2010-2 > >> Basically, we're talking about making robbing banks legal, accepted, >> to the point of telling people they're actually crusaders, heroes >> somehow righting a wrong. > > Renegotiating terms is not robbing a bank if its a mutual agreement > between the parties. > >> I'd say let borrowers default, let them bear the usual consequences, >> and let the lenders go bust too, if they loaned foolishly. The >> problem is the lenders are insured through the GSEs, Freddie, Fannie, >> FHA, etc., so the burden's not theirs, it's ours. Again, moral >> hazard. The government did that. They made the whole mess. > > Actually, there's quite a bit of evidence that investment bankers leaned > on the government to keep the flow of collateralizable debt flowing into > the system. Once everyone had one house, the industry pushed to build > houses for speculation. > > And its not the banks that will get screwed by loan renegotiations. Even > with your assumption of a 25% default rate, the holders of the top CDO > tranches, mainly very wealthy and influential people who set this whole > mess up in the first place, will still see full income. Its the owners > of the lower tranches that will get screwed. And that isn't the banks > either. Most banks sell their mortgage paper off within months of > writing the loans. > > The people with the low risk tranches will get buggered by a wave of > early refinances (which is what these term renegotiations will > effectively be). Because they'll get cashed out of really high interest > rate paying paper and the market will have a smaller amount of lower > interest paying paper available to replace it with. > > I weep for the coupon clipping trust fund babies. I really do. >
From: Joel Koltner on 8 Jun 2010 12:57
<dagmargoodboat(a)yahoo.com> wrote in message news:2a479702-06d7-4ad7-ae37-8495aaff06f6(a)d37g2000yqm.googlegroups.com... > No! I think you're missing something important--the taxpayer pays for > it. Directly. Freddie and Fannie and AIG pay off the losses, the > "renegotiated" mortgage amount, then Mr. Obama's Treasury Secretary > pays them, with our money. If there was ever a good time wherein the political winds were that restructuring Freddie, Fannie, AIG, etc. such that they only made loans to people "very highly unlikely" to default, it would be now. But I'm not crossing my fingers that's going to happen. Heck, the banks have figured out that there's lots of money to be made from people with truly awful credit -- people who 30+ years ago would have *never* been able to obtain, e.g., an unsecured credit card. But now to them it's just a question of, "can we make money off this person before they default -- which we fully expect they will?" -- no moral judgment whatsoever as to whether or not engaging such a person is a proper thing to do in the first place; the only thing that matters is the money. That's wrong too. Seems to me they're doing just as much to "wreck everyone's honor" as all those folks defaulting on their mortgages and still squatting in their (former) homes. > That creates a system where everyone loses _except_ the defaulters, > who steal their gain from the rest of society. Most don't even realize this is happening in most cases, James. ---Joel |