patrick.net

klarek says

MarkInSF says

I’m not quite sure why you’re against no-recourse loans.

It gives deadbeats a free pass and it’s govt impeding on risk management. In fact, it increases risk, as is evidenced by the large numbers of people strategically defaulting.

I take it then you are in favor of getting rid of non-recourse loans for commercial real estate too? And what about corporate debt? Should owners of corporate bonds be able to come after the personal assets of owners / shareholders of the company?

ch_tah says

Tatupu’s logic is not flawed.
non-recourse state

Homedebtor comes along and says I want to buy a house for $1M. Lender says, here’s your $1M on the contingency that I get the house back if you don’t pay me back. Lender sure as hell better be sure that house is worth $1M or Lender is making a stupid loan since all he gets back is the house.
recourse state

Homedebtor comes along and says I want to buy a house for $1M. Lender says, here’s your $1M on the contingency that I get the house back if you don’t pay me back, and any difference between the price I get for the foreclosure sale and the loan amount, I’ll get a default judgment against you. No matter what the house sells for, Lender will get his $1M in time.
Therefore, using logic (rather than insults), Lender in a non-recourse state SHOULD do a lot more to avoid overlending which SHOULD reduce the chances of a bubble.

His argument is flawed because the opposite of what you described happened. Non recourse states had the biggest bubbles because the can buy way over their means and not have to worry about banks out the law coming after then if it goes south. Individual greed wins over bank worker diligence.

Mr. fantastic and klarek, you are entirely missing the point about non-recourse and risk.

Yes, if loans are non-recourse, borrowers will likely be less cautious, but banks - assuming they hold the loans - will be more cautions.

If mortgages are recourse, then borrowers may be more cautions, but banks will be more reckless, since they don't really care at all about the value of the property - only the value of the assets of the borrower they can seize.

Who do you think is better at judging risk? A borrower or a bank? I would sure hope it's the bank, since that is their business. So it's the bank that should have the onus of caution put upon them.

Of course non-recourse doesn't cause lenders to be cautious if they're not the ones actually taking the risk. And that's exactly what happened in the bubble. Loans were just packaged and sold to investors with fraudulent AAA rating slapped on them. The loan originators didn't give a damn how bad the loan they made was.

Serpentor says

Non recourse states had the biggest bubbles because the can buy way over their means and not have to worry about banks out the law coming after then if it goes south. Individual greed wins over bank worker diligence.

What bank worker diligence is that exactly?

I'm just completely baffled by this stupid statement. If lender was doing their due diligence they would not lend to somebody over their head.

Banker diligence in making sure the borrowers can actually afford the payments.

Did the bubble haopen in ca or not? And is ca a recourse state or not? Who is stupid now?

Serpentor says

His argument is flawed because the opposite of what you described happened. Non recourse states had the biggest bubbles because the can buy way over their means and not have to worry about banks out the law coming after then if it goes south. Individual greed wins over bank worker diligence.

That doesn't make his argument flawed, that just means there were other forces that affected the decisions of the banks. His logic makes sense, especially considering he said SHOULD. F'n A, man, you guys who try to play gotcha, why don't you get better at reading first.

Serpentor says

Banker diligence in making sure the borrowers can actually afford the payments.

Again. What evidence to you see that lenders were actually diligent in making sure borrowers could actually afford payments?

Three years from What????

day you stop paying?

the day you leave the house?

day bank files NOD?

it's been two years since my friends walked in San Diego, the bank still hasn't filed a NOD!!

who is starting the stop watch???

anyone??

Mr.Fantastic says

You think bankers are responsible and diligent, more so than borrowers.

But lenders ARE more cautious. By a longshot. But only if their own capital is at risk. You know, they way banks used to operate? That's the essence of the problem, not non-recourse loans.

CA has been non-recourse for many decades before the bubble. So why didn't they have a bubble before?

What changed was the way lenders operate, becoming simply loan originators, and the securitizing loans with fraudulent AAA ratings slapped on them. Home loans used to be carried on the books of the bank that wrote the loan, putting the banks capital at risk.

I never ever imagined the prices would be supported by NOT FORECLOSING on millions and millions of people.

I knew there was a massive bubble, but I didnt see that one coming.... or the 12 trillion in bailouts/loan guarantees the Feds have done....

And lets keep in mind people who 'saw' the bubble are probably a rare slice of the population. Who the hell can predict where this mess goes next?

ch_tah says

Serpentor says

His argument is flawed because the opposite of what you described happened. Non recourse states had the biggest bubbles because the can buy way over their means and not have to worry about banks out the law coming after then if it goes south. Individual greed wins over bank worker diligence.

That doesn’t make his argument flawed, that just means there were other forces that affected the decisions of the banks. His logic makes sense, especially considering he said SHOULD. F’n A, man, you guys who try to play gotcha, why don’t you get better at reading first.

His statement is flawed because there are other stronger forces that affected the result. Its retarded because real world results proved that his assumption was wrong. Its retarded because that statement was made after the mother of all bubbles happened in states with no recourse because buyers dont have to worry about banks coming after them.

Its not gotcha. Its real world proof versus a theory by a desperate house owner.

Just so we're clear, the statement we're talking about is:
Tatupu: Not really. It should cause banks to stop giving loans when houses are overpriced and stop bubbles from forming.

Yes, other stronger forces affected the result, that still doesn't make his comment flawed or retarded.

The bubbles occurred in the nonrecourse states because the BUYERS didn't have to worry, whereas buyers in recourse states did. That has nothing to with whether the banks SHOULD have stopped giving these people loans and whether such a law SHOULD encourage banks to be more careful. As MarkinSF pointed out, the banks seemingly didn't care since they were able to sell off the loans and get them off of their books for the most part.

It is a gotcha by a wannabe house owner who can't afford one since the bubble already occurred and whether or not nonrecourse loans caused it is irrelevant to those who purchased.

BTW, student debt is recourse and can't even be discharged in a bankruptcy. That's hasn't stopped the bubble in student loans and education costs.

Mr.Fantastic says

MarkInSF says

Mr.Fantastic says

You think bankers are responsible and diligent, more so than borrowers.

But lenders ARE more cautious. By a longshot. But only if their own capital is at risk. You know, they way banks used to operate?

Yeah I remember those days. What about when gas was $1.25 a gallon, people flew by zeppelin, and dinosaurs roamed the Earth?
Those were the days.

Ha. Ha. Very funny. No, you only have to go back to 1995, the year before the housing bubble got started.

Serpentor says

His statement is flawed because there are other stronger forces that affected the result. Its retarded because real world results proved that his assumption was wrong. Its retarded because that statement was made after the mother of all bubbles happened in states with no recourse because buyers dont have to worry about banks coming after them.

I'll give you credit because at least you are presenting argument for why you think I'm incorrect, which is more than the others are doing.

Where you're wrong is your assertion that the fact that a bubble formed disproves my point. It's a logical fallacy. Saying A makes B less likely doesn't mean that A makes B impossible. Nor does B happening prove mean that A didn't make it less likely to occur.

tatupu70 says

Mr.Fantastic says

tatupu70 says

OK–it should be easy to point out the flaw in my logic then, right?

There are about $9 trillion flaws in your logic.

And I was right again.

Yes, tats, adding risk to the system reduces risk. Nothing flawed in that argument. Your cogency is breathtakingly awesome.

ch_tah says

Therefore, using logic (rather than insults), Lender in a non-recourse state SHOULD do a lot more to avoid overlending which SHOULD reduce the chances of a bubble.

Except
a) that's not what non-recourse is used for, tatupu just made that up, and
b) states are putting unneeded risk on the lenders, yet the traditional role of the govt was to regulate industry and REDUCE risk since those lenders cannot be trusted

So it's entirely bullshit, left to right, inside and out, to suggest that this could in anyway minimize or even neutralize risk.

MarkInSF says

I take it then you are in favor of getting rid of non-recourse loans for commercial real estate too? And what about corporate debt? Should owners of corporate bonds be able to come after the personal assets of owners / shareholders of the company?

Remove it all. If for no other reason than to end the constant pathetic excuse of "well the corporations do it, so you should too," usually from the same anti-capitalist dumbasses who suddenly see the need to model personal financial behavior after the most unsavory of corporations.

MarkInSF says

What evidence to you see that lenders were actually diligent in making sure borrowers could actually afford payments?

Thank you for driving home the point that his argument is completely fucking stupid. "Let's add more risk and trust the bankers to make up for it". About as logical as drinking cyanide to teach your body to repel it".

Mr.Fantastic says

I guarantee you, he will spend the next half dozen post defending non-recourse loans as a way to save the financial system.

Perhaps he'll next argue that we should permit registered sex offenders from living anywhere BUT next to a school. That way it will increase student and faculty safety awareness. Increase risk to decrease risk, the logic is flabbergasting.

klarek says

ch_tah says

Therefore, using logic (rather than insults), Lender in a non-recourse state SHOULD do a lot more to avoid overlending which SHOULD reduce the chances of a bubble.

Except

a) that’s not what non-recourse is used for, tatupu just made that up, and

b) states are putting unneeded risk on the lenders, yet the traditional role of the govt was to regulate industry and REDUCE risk since those lenders cannot be trusted
So it’s entirely bullshit, left to right, inside and out, to suggest that this could in anyway minimize or even neutralize risk.

What is non-recourse used for then? It's main goal is to prevent people from being overly burdened in debt from a loan that goes bad, but that goes hand-in-hand with the people/banks making those loans to make sure they make good loans.

In what ways are states putting unneeded risks on lenders?

Removing locks from all cars and houses "should" reduce crime because the owners should be more vigilent in guarding their possesions.

Getting rid of jails and all punishment "should" make crime go down because it will force the police and citizens to be more vigilent.

I know this is just wikipedia, and its definition is probably worthless because you disagree with it, but here's what it has to say about non-recourse loans:

"The incentives and motivations for the parties is intermediate between those of a full recourse secured loan and a totally unsecured loan. While the borrower is in first loss position, the lender also assumes significant risk, so the lender must underwrite the loan with much more care than in a full recourse loan. This typically requires that the lender have significant domain expertise and financial modeling expertise."
http://en.wikipedia.org/wiki/Nonrecourse_debt

Sure as hell seems to support what Tatupu was saying.

Who gives a crap about what what its meant to do and what wikipedia says. Thats not what happened in real life is it?

klarek says

Except
a) that’s not what non-recourse is used for, tatupu just made that up, and
b) states are putting unneeded risk on the lenders, yet the traditional role of the govt was to regulate industry and REDUCE risk since those lenders cannot be trusted
So it’s entirely bullshit, left to right, inside and out, to suggest that this could in anyway minimize or even neutralize risk.

klarek-- I know you are not this stupid. The government is not putting any risk on the banks. The banks choose whether or not to take on the risk of a loan of their own accord.

I can't believe you and MFer are actually arguing this. It's very simple. Non-recourse loans are riskier. In order to account for that risk, prudent and smart institutions will require more down payment or a higher rates on those loans. Further, they should take every safeguard to insure that the asset used as collateral is fairly valued and will likely hold that value in the future.

Given all that, non-recourse loans should have the effect of making banks more careful about loaning out money as house prices get into bubble territory. Down payment requirements will increase, rates will go up, etc. which will cause houses to be more expensive.

klarek says

Thank you for driving home the point that his argument is completely fucking stupid. “Let’s add more risk and trust the bankers to make up for it”. About as logical as drinking cyanide to teach your body to repel it”.

No, you are right. Let's coddle banks as much as possible. Why would we trust them? It's only their whole fucking business model. You are seriously arguing that banks shouldn't trusted to know when to loan out their money????? Are you kidding me??

Outlawing condoms "should" make unwanted pregnancies and STDs go down because it "should" make the partners more careful and obstain.

klarek says

Perhaps he’ll next argue that we should permit registered sex offenders from living anywhere BUT next to a school. That way it will increase student and faculty safety awareness. Increase risk to decrease risk, the logic is flabbergasting.

Serpentor says

Removing locks from all cars and houses “should” reduce crime because the owners should be more vigilent in guarding their possesions

Serpentor says

Getting rid of jails and all punishment “should” make crime go down because it will force the police and citizens to be more vigilent.

lol. Great analogies guys. Because those are all the same after all....

I'm really astounded that you guys are arguing this. It's such a basic concept.

ch_tah says

What is non-recourse used for then?

I said above: "It was about helping people drop lots of debt since (before the bubble) almost all of the people in foreclosure had serious financial problems beyond the mortgage. It was never about making loans less risky."

ch_tah says

It’s main goal is to prevent people from being overly burdened in debt from a loan that goes bad, but that goes hand-in-hand with the people/banks making those loans to make sure they make good loans.

No, it doesn't. It sticks the bank with the loss and there's nothing they could do about it. It didn't encourage less-risky lending, look at the results by-state if you need further proof. Like I said, the foreclosures happened largely because of a financial problem unrelated to the house or loan, like disability, death, job loss, or a business venture gone bad.

Serpentor says

Who gives a crap about what what its meant to do and what wikipedia says. Thats not what happened in real life is it?

That's not what happened in real life because other factors were at play.

For the privilege of having a mortgage in a non-recourse state, one pays a slightly higher mortgage rate and pays more fees on average than a recourse state. Banks accept that risk that their is no recourse by accepting more profit. I am not sure that recourse or non factored into Banks national underwriting policy in the lead up to the bubble because the thought process is/was home prices always go up and we can always take back the house if the borrower defaults.

For reference the non-recourse laws were initially enacted in California as a result of the last great housing crash.... the Great Depression.

tatupu70 says

klarek says

Thank you for driving home the point that his argument is completely fucking stupid. “Let’s add more risk and trust the bankers to make up for it”. About as logical as drinking cyanide to teach your body to repel it”.

No, you are right. Let’s coddle banks as much as possible. Why would we trust them? It’s only their whole fucking business model. You are seriously arguing that banks shouldn’t trusted to know when to loan out their money????? Are you kidding me??

Wait, I forgot, how much tax payers money was used to bail the banks out? Was it 800 billion? Oh what? It was more then that?

Serpentor says

Wait, I forgot, how much tax payers money was used to bail the banks out? Was it 800 billion? Oh what? It was more then that?

Hey, I'm on board. Break up the banks and let them fail next time.

That's a completely different issue though.

Serpentor says

Wait, I forgot, how much tax payers money was used to bail the banks out? Was it 800 billion? Oh what? It was more then that?

...one the topmost reason why banks are still sitting on rotting REO listing...and delaying the inevitable.

klarek says

No, it doesn’t. It sticks the bank with the loss and there’s nothing they could do about it. It didn’t encourage less-risky lending, look at the results by-state if you need further proof. Like I said, the foreclosures happened largely because of a financial problem unrelated to the house or loan, like disability, death, job loss, or a business venture gone bad.

There's nothing they could do about it? How about not lending money to people who couldn't afford the loan? It was their (the banks) money, they had complete control over it. State by state results prove the point that the borrowers were more careful because they knew they would be on the hook. It proves nothing regarding whether banks in states with non-recourse loans were more or less careful.

Further definitions (sorry no stupid analogies):

http://banking.about.com/od/loans/a/recourseloan.htm

http://financial-dictionary.thefreedictionary.com/nonrecourse+loan

Every definition makes it clear that there is increased risk for the lender with a non-recourse loan. It doesn't take a 4th grader (yet, it apparently escapes the likes of Serpentor, Klarek and Mr.F) to realize that if there is increased risk, lenders should be more careful in making such loans.

ch_tah says

There’s nothing they could do about it? How about not lending money to people who couldn’t afford the loan?

That's a brilliant observation, I don't think anybody has thought of that.

Mr.Fantastic says

This thread is now my most favorite on Patrick. You have a guy (tatupu) who is willingly making himself look like a moron for our entertainment. This is great stuff.
Now he has ch_tah “I bought in 2008 because I thought it was the bottom”, and MarkInSF “Banks should lend to HELOC abusers, and short seller scum because that’s how they make money” defending him. You can’t make this stuff up.

Why do you lie? I bought in 2010. You did in fact make this stuff up.

klarek says

ch_tah says

There’s nothing they could do about it? How about not lending money to people who couldn’t afford the loan?

That’s a brilliant observation, I don’t think anybody has thought of that.

Well, you're the one who made the stupid comment there was nothing they could do.

It's amusing to me that you (Klarek, Serp and Mr. F) attack Tatupu as being stupid, retarded and illogical, yet with your continued inability to understand basic finance of being careful with your money when you have no recourse, your terribly inaccurate analogies and flat-out lies, you guys are the ones who look like idiots.

klarek says

MarkInSF says

I take it then you are in favor of getting rid of non-recourse loans for commercial real estate too? And what about corporate debt? Should owners of corporate bonds be able to come after the personal assets of owners / shareholders of the company?

Remove it all. If for no other reason than to end the constant pathetic excuse of “well the corporations do it, so you should too,” usually from the same anti-capitalist dumbasses who suddenly see the need to model personal financial behavior after the most unsavory of corporations.

klarek, I am afraid it is YOU that are revealing yourself as anti-capitalist here. A corporation is a founding cornerstone of capitalism, and it is meaningless if the shareholders are exposed to unlimited liability.

I did not in anyway suggest that people should model their behavior after the most unsavory corporations. I'm just as disgusted by you as somebody that took took out a massive HELOC during the bubble, spent it on vacations, and then walked or declared bankruptcy, but they are minority. I'm much more sympathetic to the majority that were not speculators or abusers of the breakdown in financial oversight, but just happened to buy at the wrong time.