patrick.net

Well, on the one hand you feel some glee that the greedy banksters are being forced to produce the paperwork and get their acts in order,

but on the other hand I am pissed that the guy bought a $1.5 million house and is welching on the deal he made when he borrowed the money

- it's not like it's a little old lady in a $100,000 property or a family of four near the proverty line that is trying to hold onto their property.

At some point in time, could he claim the property free and clear as in "homesteading"?

At some point in time, could he claim the property free and clear as in “homesteading”?

I would be in favor of a 100% tax on any gains from acquiring a house free and clear because you stopped paying on a loan. Tax due as 100% of the unpaid balance of the welched loan. Use the proceeeds to help fund the inevitable bailout.

@Claire,

I've got no love for obvious system-gaming sleazeballs like Joe Lents. However, the idea that it's A-ok to be so f**in irresponsible and cavalier to lose the deed to a house, then expect to be able to foreclose & evict the occupants at will is ludicrous.

Banksters have been playing fast and loose with the rules for years because it was so (short-term) profitable for them. Now, the "efficiency above all else" chickens have come home to roost and it's creating real headaches for them.

Tanta over at CalculatedRisk has been beating this drum for some time now, but to see it play out in real time is just priceless.

I had a friend a couple years back who got a NOD on his house, despite having dutifully paid up his mortgage by the 1st of each month. Took him a little investigating, but it turns out the originating lender had sold it downstream and it changed hands several times among various MBS servicers.

The note-holder is required by law to notify the mortgagor of the change and provide a new mailing address to send the checks to, but --surprise, surprise-- they played fast and loose, cuz' due diligence would cost them money 'n cut into profits 'n stuff.

Funny thing is, his checks were still being cashed by the old servicer, not returned uncashed as they should have been. So, all the while he thought he was current, the new servicer was marking him delinquent. Even better, it dinged his credit rating and he had to hire a lawyer in order to fix things and recover his wrongly-cashed mortgage payments.

Joe Lents and these corporate sleazebags deserve each other.

@HARM

Don't get me wrong - I'm definitely not on the side of the banks, like you say, they deserve each other.

I just wonder if, again, those of us on the sidelines will somehow be made to pay for this.

I'm thinking that banks will want to be changing the wording and terms on all their mortages that they orginate in the future - to our detriment.

Off topic but I couldn't resist. I've read this blog for 3 years and have learned more than I did in 4 years of college. I would like to thank everyone sharing your opinions. I haven't posted in quite a while but yesterday I came across a situation I had to share. I have been renting for almost 3 years now and couldn't be happier. Quick history; bought a triplex in 2001 and sold in 2005 for a large profit. Currently renting a 1.5 million dollar house on Lake Sammamish for $2850/month with a 3 year lease. I regularly browse craigslist for similar rentals on the lake. Yesterday I came across a rental down the road from mine. 4200sf remodeled 4br 3.5ba. A beautiful home on a great piece of property. The listing said something very odd; no use of the dock at request of owner. I've never seen this and who would rent a waterfront home without use of the dock/lake? I went to Zillow figuring that someone bought the house thinking they could hold it for a few years and make a killing. Turns out it was bought in December for 2 million. I then called the listing agent and asked about the dock rule. Turns out it was bought by the City of Bellevue and they don't want the liability. I go on to learn that the city is buying up the homes in order to build a park in about 7 years. They now own 2 that I know of. I drove there to take a look and the home next door was obviously bought over a year ago and is vacant and boarded up. My tax dollars are being used to buy multi-million dollar properties at all-time high prices that they will sit on for 7 years and pay to tear them down and develop a park. I would like to have been at the city council meeting where they came up with this use of my money. For all I know this is very common, but even so, it's just another example of the gov't playing with monopoly money.

HouseLessInSeattle,

I would suspect that someone on the Bellvue council or someone with influence has property at that lake they need to be rescued from.

@houseless that story is common in CA.

In los angeles the government bought a huge huge ranch (Ahmanson Ranch - google it) to stop 8,000 desperately needed homes from going in. Condos/affordable home/McMansions - a whole city was planned with greenspace.

Environmental/Nimby groups fought it for 10 years and finally won supposedly to save a rare frog...really to make boomer house prices always go up since that is thier retirement as we know..... And theyve done a great job and running up prices...

This happend at the peak bubble when they bought them out (for cheap since they stole the land) and it was very discouraging....the 'prices only go up crowd were behind it'.

Headset

I can see where you would suspect that, however, these homes have not seen any depreciation yet, they have leveled out and are staying on the market for a lot longer than just six months ago. The party is just starting here in the high rent district. You have to remember, Seattle is different. I'm going to put together a proposal and see if I can't get a 5 year lease on the place.

Countrywide Treats Bankers to Ski-Resort Trip
The U.S. home-mortgage industry is in the dumps. That doesn't mean the party is over for mortgage bankers.

Countrywide Financial Corp., the nation's largest mortgage lender by loan volume, will host about 30 representatives of smaller mortgage banks for three nights next week at the Ritz-Carlton Bachelor Gulch ski resort in Avon, Colo. At one of the country's most-glamorous skiing spots, a regular room on a weekday starts at $750.

The first items on the agenda for guests arriving Monday evening: Cocktails and ski fittings. Next is dinner at the Spago restaurant, whose menu includes Kobe steak with wasabi potato puree for $105. (For the budget-minded, pan-roasted buffalo filet with Kabocha pumpkin flan is $54.)

The annual event is for bankers at correspondent lenders, which originate loans and then sell them to Countrywide. The Calabasas, Calif., lender is paying for hotel rooms, meals, skiing and tips, according to a program distributed to attendees.

The schedule calls for four-hour business meetings Tuesday and Wednesday mornings, followed by skiing and dinner. Those dinners are at Zach's Cabin, where diners arrive by sled, and at Larkspur in Vail, Colo., where the menu includes California farmed Alverta President caviar, listed at $140.50.

Many companies entertain business partners in luxurious settings, of course. But this event stands out because of the company's circumstances. Countrywide's board agreed last month to sell to Bank of America Corp. for about $4 billion, less than a fifth of its market value 12 months earlier.

Rising defaults and falling home prices led to losses of about $1.6 billion at Countrywide in the second half, and the company has reduced its work force by 11,400, or 19%, since July.

Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.

Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages. About 60 per cent of all mortgage origination between 2005 and 2007 had "reckless or toxic features", argues Prof Roubini. Goldman Sachs estimates mortgage losses at $400bn. But if home prices fell by more than 20 per cent, losses would be bigger. That would further impair the banks' ability to offer credit.

Step three would be big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth. The "credit crunch" would then spread from mortgages to a wide range of consumer credit.

Step four would be the downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends. A further $150bn writedown of asset-backed securities would then ensue.

Step five would be the meltdown of the commercial property market, while step six would be bankruptcy of a large regional or national bank.

Step seven would be big losses on reckless leveraged buy-outs. Hundreds of billions of dollars of such loans are now stuck on the balance sheets of financial institutions.

Step eight would be a wave of corporate defaults. On average, US companies are in decent shape, but a "fat tail" of companies has low profitability and heavy debt. Such defaults would spread losses in "credit default swaps", which insure such debt. The losses could be $250bn. Some insurers might go bankrupt.

Step nine would be a meltdown in the "shadow financial system". Dealing with the distress of hedge funds, special investment vehicles and so forth will be made more difficult by the fact that they have no direct access to lending from central banks.

Step 10 would be a further collapse in stock prices. Failures of hedge funds, margin calls and shorting could lead to cascading falls in prices.

Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Behind this would be a jump in concerns about solvency.

Step 12 would be "a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices".

Homeowners Losing Equity Lines
As House Values Fall, Some Banks Withdraw Credit

By Dina ElBoghdady
Washington Post Staff Writer
Saturday, February 23, 2008; A01

In one brief phone call, Nancy Corazzi's lender yanked away what was left of the $95,000 home equity line of credit that she and her husband took out five months ago.

The lender informed her that her Howard County home had plummeted in value and the company did not want the risk that she would owe more than the house was worth.

"I got off the phone and I was shaking," said Corazzi, who was using the money to pay preschool tuition for her twins ."I was near tears. We needed this credit line to get us through some tough times."

Several of the nation's largest lenders, along with smaller ones, are shutting off access to home equity lines in areas where home values are declining. It's an unusually aggressive move as the industry grapples with fallout from the mortgage crisis that began unfolding last year.

Now that home prices have dropped in many parts of the country, lenders are nervous that they may never collect the money that they extended to borrowers. They are responding by freezing or lowering the credit limits on home equity lines, leaving thousands of borrowers like Corazzi in the lurch.

"Nearly all the top home equity lenders I know of are doing this or considering doing this," said Joe Belew, president of the Consumer Bankers Association, which represents some of the nation's largest home equity lenders. "They are all looking at how to protect themselves as real estate values go down, and it's just not good for the borrowers to get so overextended."

Countrywide Financial, the nation's largest mortgage lender, suspended the home equity lines of 122,000 customers last month after reviewing their property values and outstanding loan balances. The company, like others, has an internal automated appraisal system that tracks values.

The company declined to disclose how many of the affected borrowers lived in the Washington area. About 381,000 borrowers in the region had home equity lines at the end of last year, according to Moody's economy.com.

USAA Federal Savings Bank froze or reduced credit lines for 15,000 of its customers, including Corazzi, and will not reconsider its decisions until "real estate values improve substantially," the company said in a statement.

Bank of America is starting to do the same and is contacting some borrowers, said Terry Francisco, a bank spokesman.

"We know this can cause hardship to our customers," Francisco said. "If they used the credit to make payments that are in the pipeline, we will work with them to make sure the payment goes through."

The appeal of home equity lines has always been their flexibility.

They operate like credit cards, with the home as collateral. Borrowers can use the money when they want, up to a limit, then repay it over time. The limit depends on the amount of equity they have in the house. Home equity lines, which grew popular in the late 1980s, have typically attracted educated borrowers with above-average incomes and job stability who tend to repay what they borrow in a timely manner, industry studies show.

Since the crisis in the housing and mortgage markets started, however, delinquencies on home equity lines reached 0.84 percent in the third quarter, the highest level in a decade, the American Bankers Association said.

Because missed payments are often a precursor to foreclosure, lenders are spooked. Companies that hold credit lines typically recoup little, if any, of their money in a foreclosure, hence the retreat on home equity lending.

Larry F. Pratt, chief executive of First Savings Mortgage in McLean, said most mortgage documents he has seen give lenders wide latitude to suspend or freeze credit lines.

"A layperson would not recognize the language because it's not that blatant," Pratt said. "It talks about deterioration of the value of the asset or the value of the collateral. . . . It's not boilerplate language by any means."

Maggie DelGallo did not realize that when she took out a home equity line a few years ago on her home in Loudoun County. Her lender recently froze the line.

DelGallo, a real estate broker, has used some of her credit line over the years. Had she known the freeze was coming, "I would have drained it," she said. "I would have taken every dime and possibly placed it in a money-market vehicle."

DelGallo said she does not think she is in dire straits. "It's more like a huge disappointment," she said. "I have this line of credit attached to my home that's useless."

Last year, 34 percent of borrowers said they used their home equity lines to pay off other debt and 29 percent used them for home renovation, according to a survey of lenders by BenchMark Consulting International. Another 31 percent used them to pay for other things, such as medical bills, weddings or vacations.

Corazzi initially used her line to consolidate debt. She and her husband took out the credit line in October because they thought her job was in jeopardy.

It was. In December, her salaried position as a loan-processing manager at a local mortgage bank changed to a commission-only job.

Given the slowdown in the industry, Corazzi has collected only one paycheck since then. Her husband, Ron, sells large-format copiers and printers to builders, and his salary alone cannot support them and their four children, ages 4 to 8.

By the time their lender called, the couple had $45,000 remaining unused on the credit line. Ron Corazzi is now looking for a second job, and his wife is hoping to pick up work as a substitute teacher.

Meanwhile, they are trying to open a new home equity line elsewhere, but chances are slim given the change in Nancy Corazzi's job status and the drop in their home's value. Five months ago, the Ellicott City house was appraised at $560,000; the lender says it is now worth $469,100.

"I told them, 'You guys are wrong,' " Nancy Corazzi said. "They said, 'Sorry, this is what we're doing in the entire area.' "

Corazzi said she was blindsided by what's happened. "I didn't know they could do that. I thought I was too smart to have something like this happen to me."

cutting of HELOC is unheard of. yet another 'never happened before' during the credit catastrophe.

most people use it up within the first year I bet. thus the huge losses.

with high LTV those HELOCs are essential unsecured. So its an 8% credit card with a 150K balance, losses will continue to be staggering when you compare them to credit cards. 30k is a 'whopping credit card' max, but it takes 300k for a HELOC to be out of the ordinary large.

http://tinyurl.com/3d35ye

Even Northern Trust?!? This world has gone completely mad.

Corazzi, who was using the money to pay preschool tuition for her twins

Why the heck does fancy-pants private-preschool tuition require going to the poorhouse via HELOC?

And a bailout is coming! How the hell can we stop Washington from bailing out the banksters et al? Any suggestions greatly appreciated!

I wouldn't get change for a dollar at Washington Mutual.

>>Why the heck does fancy-pants private-preschool tuition require going to the poorhouse via HELOC?

Pre-school can range from "horrible" at $1000 a month to "ok" at $1500 a month to "excellent" at $2500 a month.

Seriously - that's the business to be in. (Though I bet their insurance costs must eat all the profit.)

Yup, preschool is pricey. And the lady has twins. That would be about $3k per month for "OK."

Of course, I am going to guess that pulling the twins out of preschool and staying home with them would work out better, money-wise, than leaving twins in preschool and working as a substitute teacher.

Re: preschool as a business...I have a friend who just started a small daycare. She's doing OK with six kids at $12/kid/hour. That puts her in tech salary range for finger painting and sand play. I'm not saying that engaging with kids is not work, it is, but times have changed since the days when there were tons of stay-at-home moms who would be happy to bring in a few pennies for watching the neighbor's kids.

What did Reagan, Clinton and Obama have in common?

Their dads abandoned them at an early age. And they didn't go to hoity toity elite preschools.

Claire Says:
February 23rd, 2008 at 9:38 am
"And a bailout is coming! How the hell can we stop Washington from bailing out the banksters et al? Any suggestions greatly appreciated!"

I think I still have my letter from Barbara Boxer stating there was no planned bailout or bills pending for a bailout.
-Dey are not near Bagdad~Iraqi Info Minister

I have seen the sex tape in valleywag.com:

http://valleywag.com/358401/gene-simmons-sex-tape-leaked-on-web-nsfw

Gene Simmons’ lawyer confirms sex tape is real

Gene Simmons’ lawyers have started sending out cease and desist letters to those that have posted the now infamous ‘Gene Simmons Sex Tape’ - and have pretty much confirmed it’s him in the video.

The letter, sent to Valleywag.com, reads, in part, “The video in question was surreptitiously filmed without Mr. Simmons’ knowledge by a woman named Traci Anna Koval.

“To the the extent that Ms. Koval ever claimed to have any interest in the video, which is both disputed and inconceivable, given its surreptitious filming, such rights were acquired by our client Allied Industry in 2003, pursuant to a written assignment and release agreement in which Ms. Koval assigned all of her interest in the video to Allied Industry, including the copyright, represented and warranted that no additional copies would be exploited or distributed and expressly consented to injunctive relief.”

The video, which surfaced yesterday, shows Simmons wearing his T-shirt in various sexual positions on a bed. It was originally posted on a website that is selling the tape to those who wish to download the footage.

In a recent blog entry, the Kiss rocker spoke out about the sex tape scandal, calling it “garbage”.

Gene’s statement, which hints at legal action, reads: “Hi everyone,

“You may have heard or seen garbage that has sprung up from my past.

“Rest assured the proper legal team is looking at all ramifications and options.

“And us? Shannon, Nick and Soph are happy and healthy.

“All is well.

“And thank you all for the kind words of support.”

cutting of HELOC is unheard of

That brings up a question that has been running around for a few days in my mind, and which I think I will raise on each of my favourite blogs (here, Ben's and CR :) ). Hopefully I can get at least one definite answer.

Can the lender do a similar thing on an Option-ARM? By that I mean call force majeure based on declining values, and demand that the borrower pay at least the monthly interest going forward.

According to Tanta at CR, no.

Why the heck does fancy-pants private-preschool tuition require going to the poorhouse via HELOC?

Because, DennisN, the clowns see any bill paid by HELOC as being paid with free money, not as a loan with interest that must be paid back. Note that she only needs to find work now that the HELOC ATM is closed. Further proof of that demented mentality comes from another lady quoted in that article:

Had she known the freeze was coming, “I would have drained it,” she said. “I would have taken every dime and possibly placed it in a money-market vehicle.”

Does she really think she can find a money-market vehicle that pays higher interest than the HELOC would charge? Her statement implies she thinks of HELOC money as "profit" to invest.

“I would have drained it,” she said. “I would have taken every dime.."

@Headset. Yup, agreed. And another interpretation is "I don't want to lose that financial security, that lifeline. After all, that's my cheap money isn't it?"

A worrisome speculation. Is the implication that once this gets out, will widespread reaction be this kneejerk "crisis" withdrawal? Its very possible that many consumers will want to do this very thing, yank out that cash before that opportunity disappears. I wonder what controls the banks have in place, it could get out of control in a hurry. Ummm, folks are sitting on checkbooks and debit cards to do the drawdown, right?

I even hear this from my friends, "well, we always have the heloc if things get a little more messy".

Who is up for a HELOC bank run, anyone?

Had she known the freeze was coming, “I would have drained it,” she said. “I would have taken every dime and possibly placed it in a money-market vehicle.”

How great would this be if she had done that only to see the money market fund "break the buck" due to losses in SIVs, etc..

Imminent spike in non performing loans, this will clear out all those folks paying their firsts via Heloc withdrawal mighty quickly. Or maybe these 759 Fico's are all sitting on 100K in unused credit card lines to tap now. Fair Issac needs to get busy on profiling those who look like they lost Heloc via new credit card activity. Wonder if they are sophisticated enough to do this?

No doubt the major credit card issuers have their eyes on this one, already some significant activity reducing unused credit card lines. I suspect we will see a whole wave of pull back in short order.

No more soup for you. Credit and lending is about to finally seriously contract.