patrick.net

Primary is 1st to try sure, but remember what I said about the 2nd/3rd policy guys having to wait in line...and squeezing blood out of a stone.

Foreclosure these days usually means repossessing a property that is upside down on the loan, often by 20% or more, which usually wipes out the 2nd/3rd's anyhow. If there still is anything left the primary usually eats it up, and again the borrower is broke with no savings or assets.

So yes in theory they can garnish wages, but wether they actually get anything is a whole nother story and they know it so they usually don't bother trying.

TTS,
Thanks so far as I try to follow this. You have brought up some missing gaps in what I had known.

My opinion is that some of these people should never be able to get a mortage again (certainly not with less than 20-30% down!) No wonder things are so screwed up still. These deadbeats are still able to get FHA loan while still owing money!

tts says

You appear to have a)misread and b)made an unfounded declarative statement, an opinion if you will. I wasn’t trying to insinuate that “Mr. Fantastic” was defending the banks at all. The point was to demonstrate the flaw in his “logic”. He heaps blame on those who took out bad loans, a few of which were no doubt knowingly fraudulent but most not, calling them idiots while giving the industry that gave them away a free pass.

Well it takes 2 to tango, and if he wants to call borrowers idiots then fine he must apply that same standard of intelligence to not only the banks but Wall St. big finance houses, the governments of the world, most economists and even many economic professors since they all either endorsed, assisted in the creation, or actively signed off on the loans.

Again, I don't see anything in his argument that gives the industry a pass. Where was he defending the banks and lenders? That's an unfair accusation.

fatblond says

In your opinion. Fortunately, that is not shared by everyone.

In addition, individuals acting in their best interest can’t take the supposed “taxpayers and public at large” argument seriously. We are in a capitalistic society which mandates competitive forces and creative destruction. If Banks are doing a end run by corrupting the public officials, the individuals can’t help it.

If they were acting in their best interests, they would have done ten seconds of homework before signing off on the biggest and stupidest purchase in their lives. Now that they are pretending to be responsible (and have doubtlessly learned NOTHING), they want to dump their financial mistakes onto other people. That's not serving one's best interests, that's greed and an abdication of personal responsibility.

tts says

Intelligence has nothing to do with perception, smart people can be deceived as well as anyone, and bubbles are all about perception.

There's no "people get fooled all the time" rationalization. Millions of people saw it coming and stayed away, while those who couldn't resist ignored every ominous warning sign they could.

Intelligent people can think for themselves. If you're going to pause when deciding what you want on your $5 sandwich yet not bother to research buying a house, or rationalize paying $500k for what four years prior sold for $200k, you're a fucking idiot plain and simple.

klarek says

Now that they are pretending to be responsible (and have doubtlessly learned NOTHING), they want to dump their financial mistakes onto other people

This is where you lose me. If someone doesn't pay their mortgage, they aren't dumping it on other people. The borrower did not decide to bail out the banks with public money. If you are mad about the bailouts, then at least direct your anger at the right people.

> "If you’re going to pause when deciding what you want on your $5 sandwich yet not bother to research buying a house..."

LoL!

Still I am surprised how easy it is to get a loan with almost no money down (as low as 3%) courtesy of the FHA. Wasn't any lesson learned?

See:
http://patrick.net/?p=29220

klarek says

Again, I don’t see anything in his argument that gives the industry a pass. Where was he defending the banks and lenders? That’s an unfair accusation.

You're still misreading. I'm trying to point out by his measure there is hardly anyone out there that isn't a "stupid fuck". When you're measuring stick for stupidity writes off that much of the population, most of whom know well and good how to do math and on a calculator too no less, something is wrong with your rule and not the people.

klarek says

There’s no “people get fooled all the time” rationalization.

Of course there is. You can be smart as all get out, smartest in the world, but if you're fed improper info. and/or lied to by a trusted source you're going to fuck up. GIGO right?

klarek says

Millions of people saw it coming and stayed away, while those who couldn’t resist ignored every ominous warning sign they could.

For every million that saw it coming there are apparently tens of millions that didn't. Some of them will certainly be stupid, but clearly not all of them are. When you have these mass financial manias that go on like this it is always the result of some sort of massive systemic failure, in this case the banks/gov.

klarek says

Intelligent people can think for themselves. If you’re going to pause when deciding what you want on your $5 sandwich yet not bother to research buying a house, or rationalize paying $500k for what four years prior sold for $200k, you’re a fucking idiot plain and simple.

No, you just have to be in a bubble. People are not rational actors regardless of intelligence, smart people get played for fools too.

Ever hear the expression "penny wise, pound foolish"? Well that is what a bubble is but writ large.

tatupu70 says

This is where you lose me. If someone doesn’t pay their mortgage, they aren’t dumping it on other people.

Neighbors, condo/homeowner association, property taxes, taxpayer-subsidized bank losses, etc.

tatupu70 says

The borrower did not decide to bail out the banks with public money.

So what? The strategic defaulter who knows that the public money will bail out the bank is knowingly dumping his financial mistake on other people. Hence I think it's immoral, and he's a deadbeat.

tatupu70 says

If you are mad about the bailouts, then at least direct your anger at the right people.

I do blame everybody. You're trying to redirect the conversation from actions people are taking now to decisions that were made by public officials three years ago.

klarek says

So what? The strategic defaulter who knows that the public money will bail out the bank is knowingly dumping his financial mistake on other people. Hence I think it’s immoral, and he’s a deadbeat.

If a strategic defaulter was going to lose the home anyway and knew it is he really being immoral or just being financially smart to mail the keys in? Remember, cutting your losses is a perfectly valid economic move.

klarek says

I do blame everybody.

Really? So you of course blame yourself as well?

tts says

I’m trying to point out by his measure there is hardly anyone out there that isn’t a “stupid fuck”. When you’re measuring stick for stupidity writes off that much of the population, most of whom know well and good how to do math and on a calculator too no less, something is wrong with your rule and not the people.

Nothing is wrong with the "rule". How much of the population are we talking about? 10%? I'd say one in ten people can be classified as "dumb fucks".

And on a calculator too no less... hahahahah. Despite making the biggest purchase in their life on a whim, Mr. and Mrs. Jones understand rudimentary math at a 3rd grade proficiency, and they even know how to use a calculator. Therefore they aren't dumb fucks!

The bar is set mighty low in your universe.

tts says

You can be smart as all get out, smartest in the world, but if you’re fed improper info. and/or lied to by a trusted source you’re going to fuck up.

What did I say above? You're talking about people that would spend more time picking out the right toaster at the right price from the Sears catalog than rationalizing a six-figure purchase. The smartest person in the world does not do this. Somebody of average intelligence does not do this either.

tts says

For every million that saw it coming there are apparently tens of millions that didn’t. Some of them will certainly be stupid, but clearly not all of them are. When you have these mass financial manias that go on like this it is always the result of some sort of massive systemic failure, in this case the banks/gov.

Wrong. A third of the country rents. They outnumber the pool of dumbfucks. In fact, their stock went way up during the bubble since dumbfuck renters rushed into buying an overpriced house.

tts says

No, you just have to be in a bubble. People are not rational actors regardless of intelligence, smart people get played for fools too.

Ever hear the expression “penny wise, pound foolish”? Well that is what a bubble is but writ large.

Yes, I've heard the phrase and that is exactly my point. I fully recognize the irrationality of home buyers. But the housing bubble was not a hidden phenomenon. Their decision was one of abject stupidity. To argue in defense of their intelligence makes me wonder if you're one of them.

tts says

If a strategic defaulter was going to lose the home anyway and knew it is he really being immoral or just being financially smart to mail the keys in?

No, "strategic default" is choosing to lose the home when able to keep it. Better google those terms you don't understand.

tts says

Remember, cutting your losses is a perfectly valid economic move.

It's financial, not economic. And being "valid" doesn't mean being right or not being a deadbeat, and it doesn't make up for the stupidity that put them in that situation.

klarek says

Nothing is wrong with the “rule”. How much of the population are we talking about? 10%? I’d say one in ten people can be classified as “dumb fucks”.

I'm sure you've got well sourced numbers to back that up too. On the other hand I can point to all the people who bought from at least 2003 until...well hell anyone who still buys as a better example of sample size. There are plenty of doctors, scientists, experts, skilled tradesmen, etc. who bought in that time period which easily shows the lie to your and Fantastic's hasty and shrill hand waving.

klarek says

And on a calculator too no less… hahahahah. ...
The bar is set mighty low in your universe.

That was "Mr. Fantastic" who set the bar that low, which is my whole point.

klarek says

What did I say above?

And what did I say that you cut out? Is that intentional or are you blanking it out mentally? Address the issue of how even a very intelligent man could make a correct answer when given incorrect information, or more simply GIGO.

klarek says

Wrong. A third of the country rents. They outnumber the pool of dumbfucks. In fact, their stock went way up during the bubble since dumbfuck renters rushed into buying an overpriced house.

1)How many of these renters were foreclosed on in the last few years? I know home ownership has dropped considerably from its peak a few years ago and there have been millions of foreclosures. 2)Why are you counting renters as dumb fucks? Some of them at least had enough financial sense and restraint to not buy a house during a bubble, you call that stupid? 3)1st 3 sentences appear to be internally inconsistent with the last one. What point are you even trying to make? You say 1/3 rents and they outnumber the dumbfucks, yet the renters are dumbfucks for rushing to own a home during the bubble?

klarek says

Yes, I’ve heard the phrase and that is exactly my point. I fully recognize the irrationality of home buyers. But the housing bubble was not a hidden phenomenon. Their decision was one of abject stupidity. To argue in defense of their intelligence makes me wonder if you’re one of them.

How can you say that you've heard the phrase and then say that it makes your point? It exactly goes against it and illustrates in just about as few words as humanly possible how someone can be smart on details and still foolish in big ways! Also I argue in their defense because I know they're the victims in all this, and blaming the victim is...you know, wrong.

You do know its wrong to blame a victim right?

klarek says

No, “strategic default” is choosing to lose the home when able to keep it. Better google those terms you don’t understand.

Not according to the gov or the banks its not. They say if you can pay you should as long as possible, even if it means reducing your standard of living to do so. Also bear in mind for many a home was purely a financial decision during the run up, they bought to "invest" since it was the "smart thing to do". How is it moral to lose money on a financial decision you know can't work out? You do know people have families and personal needs too right? How can you expect them to sacrifice both and get nothing in return but a depreciating asset they can't sell? Is that moral or even sane to you?

klarek says

It’s financial, not economic. And being “valid” doesn’t mean being right or not being a deadbeat, and it doesn’t make up for the stupidity that put them in that situation.

Economic in the sense of "mass strategic defaulters", who BTW still make up less than 1 quarter of all defaults. Which means around 3/4's of all defaults still would've defaulted no matter what. We still have ~10% U3 and ~20% U6 numbers 2 years into a supposed recovery!! Strategic defaulters are NOT what you should be railing on about at ALL.

"Valid" in this situation does count as being right BTW since if you can't make money then you should at least not lose any more if you can on a bad deal either. Also giving the home back to the bank is built into the contract in most cases too, so you can't really call these people deadbeats either, at least in a legal sense. The contract is one that is agreed to by the bank as well, which means they will accept the home back in lieu of full repayment, so I guess their personal stupidity IS made up for after all.

tts says

klarek says

Nothing is wrong with the “rule”. How much of the population are we talking about? 10%? I’d say one in ten people can be classified as “dumb fucks”.

I’m sure you’ve got well sourced numbers to back that up too.

http://www.nmhc.org/Content/ServeContent.cfm?ContentItemID=1152#us_househols_renters_and_owners

Type of Household:　　Renter-Occupied Housing　－　38,777k = 38.8m
Type of Household:　　Owner-Occupied Housing － 78,795k = 78.8m

http://www.newser.com/article/d9lr7suo0/negative-home-equity-mortgages-rise-as-home-prices-hit-post-bust-lows-in-11-major-us-cities.html

"About 11.1 million households, or 23.1 percent of all mortgaged homes, were "underwater" in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic."

Going by those numbers alone, 11.1 / (38.8 + 78.8) = 9.4%. That is counting the couple of million households that went from owning -> foreclosure -> renting as renters, but probably more than made up for by the number of people underwater that did not buy into the bubble, rather cashed out their equity.

So in essence, my guesstimate was pretty spot-on. So why didn't you bother to this up yourself in an effort to disprove my point if you didn't believe it?

tts says

And what did I say that you cut out? Is that intentional or are you blanking it out mentally? Address the issue of how even a very intelligent man could make a correct answer when given incorrect information, or more simply GIGO.

That wasn't intentional.

Your excuse would be analogous to somebody being justified in paying $350k for a Honda Civic simply because the sticker price says that's what it costs. No research, no rationalization, no homework, not a minute's worth of analysis as to whether there's any fundamental reason Civics increased twenty-fold. "They were simply fed bad information and ignored every possible sign that it was a rip-off" would be a nice stretch from the truth: they're fucking idiots.

tts says

Why are you counting renters as dumb fucks? Some of them at least had enough financial sense and restraint to not buy a house during a bubble, you call that stupid?

That was exactly my point. I said that the fraction of renters that left rentership to partake in the stupidity of the bubble thus elevated the average intelligence of the renter pool during that period.

I don't know how that confused you, but my point was that those who rushed into a fool's market are a tiny fraction of those who didn't. Why do you seem to imply that those who abstained are the exceptions rather than the norm?

tts says

How can you say that you’ve heard the phrase and then say that it makes your point? It exactly goes against it and illustrates in just about as few words as humanly possible how someone can be smart on details and still foolish in big ways!

Because somebody that spends more time picking out grass seeds for their new lawn than judging the actual purchase and the market of their house is an idiot. That's not being smart about one thing and dumb on another, that's being so fundamentally retarded that they have no proportional priorities or risk assessment.

Also I argue in their defense because I know they’re the victims in all this, and blaming the victim is…you know, wrong.

That's the biggest crock of shit ever. They are not victims, they are greedy fools.

You do know its wrong to blame a victim right?

Of course it's wrong to blame a victim. You do know it's unfair to actual victims to conflate their victimhood with the actions of reckless, irresponsible, and greedy idiots, right?

klarek says

I do blame everybody. You’re trying to redirect the conversation from actions people are taking now to decisions that were made by public officials three years ago.

Not really. I'm just trying to point out that the individual entered into a contract with the bank. Not with the government, or the taxpayers. If said individual defaults on the contract, the only impacted party is the bank. Not the taxpayers.

If a bank makes a bad loan, then the proper recourse is default. That's how a free market system works. If you underestimate the risk, then you will probably lose eventually.

The bailout has already happened and one individual defaulter is not repsonsible for it.

Mr.Fantastic is now taking an enforced break from commenting.

tatupu70 says

If a bank makes a bad loan, then the proper recourse is default.

Hmmm yeah, that's not the case with strategic default. The problem isn't the loan.

tatupu70 says

The bailout has already happened and one individual defaulter is not repsonsible for it.

Until he intentionally stops paying when he could afford it, correct.

We have obviously reached an impasse on this issue.

Klarek: The quote wars are getting tiresome. What I will say is that you are making assumptions all over the place, lack empathy, and don't really understand even the basics of housing market and economy and even quote and say things which are directly contradictory to each others.

Your reaction to the truth that the vast majority of defaults were not strategic, which goes a long way towards undermining everything you think about strategic defaults and their effects on the market, shows that you will not nor cannot argue in good faith. I will just end up repeating myself in an endless growing stream of quotes to someone who doesn't care anyways.

Quite frankly just the idea of trying to educate you over the internet, especially when you truly don't want to be educated, makes me tired. Enjoy wallowing in ignorance and hatred and the false sense of superiority that you get from assuming everyone who participated in the bubble is less intelligent I guess.

klarek says

Hmmm yeah, that’s not the case with strategic default. The problem isn’t the loan.

Of course it is. If buyers are stupid fucks for not knowing homes were overpriced, how the hell couldn't the banks have known?? If housing is in a bubble, then it's going to go down. And if it goes down, then people will strategically default. It's not rocket science.

This isn't the first time this has happened.

tts,

You don't like quote wars? More likely a capitulation on points I've made.

I am not lacking empathy at all. Those who are dealt negative circumstances have my utmost sympathy. Job loss, health problems, etc. Those are real victims, not the dumb fucks that bought into a greedy fool's game. These people get to live and fight another day, paying little for their largess.

None of my quotes have been contradictory. You just can't follow because you are factually deficient. You talk in circles about strategic default, then reveal that you don't even know what it is. Why would you waste somebody's time like that? Why would you accuse them of contradictory statements when the problem isn't my output, but rather your input?

Whether strategic default were 10, 25, or 90 percent of the foreclosures is irrelevant to the conversation. I wasn't avoiding it at all, and I never ONCE said above that they were the majority of defaults. You created that position as a straw man, hardly worthy of acknowledgment, yet you persist. Like I said, I was engaged in a discussion with other posters about SD, and then YOU jumped in. Only after you got your tail tied in a knot did you go for the straw man. Again, not my fault if you are ill-informed and uncomfortable staying on topic.

Don't preach education and ignorance if you don't understand the terms or the subject matter you're talking about. You engage in a conversation about strategic default, yet reveal you're utterly clueless as to what it is. You try to argue about the proportion of people that made bad house-purchasing decisions, I throw a rough guesstimate as to the percentage, you challenge me without doing ANY research, and I subsequently prove my point with the numbers. You are not being dishonest as much as you are lazy. Instead of taking a position about something you know little of, try learning first. Then you won't waste others' time.

Wow what a battle of words... just curious what would happen in different cases....

I thought with secured loans, the security for the loan ensured that you could not 'rob' the bank even if you defaulted. So the existence of the property made it such that they could always take it back if you breached the contract. This way they always win. I would have thought it was up to the bank to decide how much was a fair risk since they had agreed to take it back. I don't know when they started gambling, but somewhere in there they started taking on some pretty high risk ventures.

I won't even lie and say I understand how Equity loans make sense. If I was a bank I wouldn't be giving them out so I won't speak to those.

If someone stopped paying on a car (for whatever reason) and it was repossessed... would we say they had robbed the dealership if the price of that car happened to be lower by this time than when they purchased it? It's the dealership that gets to sell the car all over again not the guy who lost it, and they get to keep any money he had paid so far. As long as I can make sure I'm selling good cars, I'd take the spot of the car dealer in this deal! :)

Is California State University tuition still $85 a semester for all the hours one wants?

jnsaisquoi says

.....

Hyperbole aside, I think it's fair to say that at least during the two year period around the peak of the housing bubble, no intelligent person who did their homework would have bought without accepting that their house was likely to fall in value by a significant amount. If (for instance) they did do their homework but did not care, or paid all cash, then I wouldn't call them a moron. In fact, there's some modesty in taking a hit like that on the cheek.

I'm talking about the people who were irresponsible or blindly stupid about the biggest purchase in their life. People who thought they were going to see 20% yearly gains on their house's value. Folks who thought that renting wasn't a viable option due to their self-perceived social stratosphere or belief in realtor propaganda. Those people who are now demanding principal reductions and walking away in the absence of freebies to compensate for negative equity, those are the stupid fucks. If amongst them there are intelligent people, then their decision-making abilities are defined by their lack of diligence when making the biggest purchase in their life. The increase in prices is in no way comparable to any point in history, even California in the 1970's (which, even then, there was not a lot of data to make an informed opinion on the market).

Gold is very likely to be in a significant bubble right now. But if the inflation theorists are proven correct about the USD, then the gold purchasers will not be burned. That and they're not going to be underwater on their gold purchases, stuck with a 30 year mortgage on a piece of depreciating metal. Gold is transferable and in demand all over the world. Houses are stationary and a townhouse in Raleigh, NC has a value determined by the demographics and supply/demand within Raleigh. So the comparison in terms of risk/reward and fundamentals isn't apt.

I completely agree about college tuition costs. They're absurd, and in many cases, not worth it for an individual. Part of what is feeding that is the same as the housing bubble: easy credit. It doesn't take much these for a 17 year old to get a six-figure loan to pursue a worthless degree when they should be learning a valuable trade skill.

the same people who bought at the peak now walking away at the bottom. These people are not financially sophisticated. Book smarts doesn't equal street smarts and most people are too busy at their 9-5 to become smart about finance they just needed a place to live.

I wouldn't say they're dumb, it's just that real estate is complicated business and the industry advisors who are supposed to be helping you mostly can't be trusted.

Schizlor says

People who cannot do mathematics past the 6th grade level, or understand one word of the disclosures being sent to them, do not have any business buying a home any more than I have any business climbing into the cockpit of a Boeing 757 and “giving it a go” without any knowledge of what I’m getting into.

I have learned from other posters on this forum that if somebody gave you the keys to the 757, it's not your fault if you try to fly it. Nothing is anybody's fault, ever, which is why they are all victims.

klarek says

Schizlor says

People who cannot do mathematics past the 6th grade level, or understand one word of the disclosures being sent to them, do not have any business buying a home any more than I have any business climbing into the cockpit of a Boeing 757 and “giving it a go” without any knowledge of what I’m getting into.

I have learned from other posters on this forum that if somebody gave you the keys to the 757, it’s not your fault if you try to fly it. Nothing is anybody’s fault, ever, which is why they are all victims.

It's kind of like blaming a drug dealer for your addiction to cocaine, because he dastardly offered you, "just a taste" and you decided to take it without thinking of the consequences first.

This is a plague on this country. Parents tell their children not to hang around certain "bad" kids because of the poor influence they have on the child...instead of doing what they did back in our grandparent's generation...which was smack them upside the head for being a naive, foolish idiot for listening to their jackass friends in the first place. The minute our society changed from, "take some goddamned responsibility for yourself", to, "Let's get to the REAL root of your poor decision making....the outside influence of "bad" people who "made" you do what you did", the country begain it's slow, inexorable, winding procession down the wall of the toilet bowl.

This is what happens in recourse states such as Texas, Florida, Georgia, Illinois and others:

http://finance.yahoo.com/loans/article/113605/house-gone-debt-lives-on-wsj?mod=loans-home

quote: "Some close observers of the housing scene are convinced this is just the beginning of a surge in deficiency judgments."

California recently passed SB458, which prevents deficiency judgments on junior liens in a short sale.

Whether it's retroactive or not remains to be seen.

My short sale was in '08. If I'm sued, SB458 will be one of my defenses. If I lose, my only true recourse is Chapter 13 BK. I will fight the whole way.

It's a numbers game. If they think they can get more from me in a Chapter 13... enough to offset the court costs and risk of losing, then I suppose they'll go for it.

It remains to be seen.

I think a case can be made that buying into the bubble was a rational choice and not necessarily stupid. Investing in real estate in many areas allows one to privitize the gain and socialize the loss (such as several banks have done). This is unlike any other investment that I know of. I happen to think gold is in a bubble but of course I don't know for sure; If I had a fool proof way to make a highly leveraged investment in gold which would allow me to keep any future gains but walk away from any future losses I would seriously consider doing it.

I don't think it's moral for people to have speculated on a highly leveraged RE investment during the bubble knowing that if the investment continued to rise they would keep the profits but if the investment fell they would walk away relatively unscathed, but I think a case can be made that it was rational. BTW, I did not buy in the bubble and am a long term RE investor, not a speculator.

@fatguy

Interesting this SB458 -- so this law is actually retroactive. I think lenders of a second mortgage will hesitate more in allowing short sales, since their interest may be wiped out. Any other comments on this?

Banks may be more hesitant to start new litigation based on SB 458, but I'm sure they're just as interested as to whether it's retroactive or not. The only way to test that is in court, unless the legislature amends it one way or the other.

StoutFiles says

A lot of people got burned on that risk and now they don't want to own up for it.

I heard,now lots of responsible people who bought after 2004 can't refinance their mortgages.

fatguy says

California recently passed SB458, which prevents deficiency judgments on junior liens in a short sale.

Whether it's retroactive or not remains to be seen.

My short sale was in '08. If I'm sued, SB458 will be one of my defenses. If I lose, my only true recourse is Chapter 13 BK. I will fight the whole way.

Why would it be retroactive? Do you see any language in the law that suggests it would be?

The practical effect of SB458 is that second mortgagees and third mortgagees will just stop agreeing to short sales unless they get what they want (more money). This is not really a good law.

fatguy, did you take a cash-out refi?

bubblesitter says

I heard,now lots of responsible people who bought after 2004 can't refinance their mortgages.

They weren't *that* responsible -- they paid bubble prices voluntarily and bid up prices with stupid loans. How many people do you know that were truly responsible who can't pay their mortgage now? I've never seen one mentioned in a media article, despite the fact that sometimes the media refers to them as "victims."