dagblog - Comments for "Foreclosure for Fun and Profit"

"Moral" and "wall street"

CVille Dem — Fri, 14 Jan 2011 14:45:08 +0000

"Moral" and "wall street" don't belong in the same sentence!

I am given to understand that

jollyroger — Fri, 14 Jan 2011 14:40:53 +0000

In reply to Just out of curiosity, what

I am given to understand that they try to sniff out "straw man" purchasers, which to my mind makes them even bigger stinkers.

I have to believe that before they will watch the doors and windows chopped out by Visigoth Wrecking and Demolition (see link to Ellen's site) they will soften their stand.

Of course, the negotiation envisioned has to happen before the title actually leaves the homeowner, and since much of the "vig" that accrues to a foreclosed homeowner consists of rent free occupancy for some indeterminate but usually substantial amount of time following the filing of an action, any actual window/door removal would have to be delicately timed; no one wants to live in a house with big holes in the walls.

Of course, thus far the Goths have been cheated of their booty by the panic ridden bank caving before the removal occurs.

Just out of curiosity, what

Atheist — Fri, 14 Jan 2011 13:50:56 +0000

In reply to Actually, it gets worse:Enter

Just out of curiosity, what if Sam is Joe's parent? Does that change things any? (This is not meant to be snarky in anyway, but is a sincere question wondering how the banks would prevent that particular gaming of the system.)

Obey, I'm glad you responded

CVille Dem — Fri, 14 Jan 2011 12:37:10 +0000

In reply to I see your point CVille,

Obey, I'm glad you responded because I didn't realize it sounded like I think that walking away from a loan that you can't pay is a moral lapse. I really do believe that when you promise to pay, then, backing out AS A BUSINESS STATEGY is the wrong thing to do I was ithinkng back to the original example of a calculated scheme of walking away and cashing in on firesale pricing.

The banks who targetted those who clearly could not pay their mortgages are the ones who created this mess, and they did it knowingly and with the idea of making tons of money and then passing off the risk to some-anyone else. They are the thugs in this scenario, and I agree that restructuring the loan is not only the right thing to do, it is also better for the economy. Multiple foreclosures ruin the real estate market and contribute to the idea that times are bad

Again, thanks for your comments. I think we pretty much agree on the big picture.

I have promised to pay.Credit

jollyroger — Fri, 14 Jan 2011 05:50:57 +0000

In reply to I'm not sure I agree with

I have promised to pay.

Credit ratings, as you probly know, are a combination of

ability to pay

willingness to pay.

In the case of the walkaway from an underwater mortgage, we are obviously assuming ability bo pay (since otherwise there is no moral dilemma-blood from a stone, and all that)

You, clearly, are a better credit risk than, say, for instance, me.

If I find myself bound to a contract where the basic assumptions underlying the meeting of minds that occurred five years ago have soured, I'm not going to sacrifice my family's well being so that a bankster can drive a Lamborghini.

Call me a Bolshevik if you wish, I take it as a compliment.

But it isn't fair to use the analogy of stealing from a store...no one is proposing anything illegal.

(By the way, I think you could, if you wanted, jack the house up and roll it away as long as the foreclosure sale had not yet occurred. Of course, you'd need a place to put it and a hell of a big flat bed truck.)

Or, you could just take the copper, the furnace, the windows, doors, flooring, and anything else of value.

That's the law.

If "business" negates

cmaukonen — Fri, 14 Jan 2011 05:13:46 +0000

In reply to I'm not sure I agree with

If "business" negates morality, why not just steal what you need from any store you can get away with stealing from?

Oh...you mean like Wall Street investment bankers ?

As you say, in a non-recourse

jollyroger — Fri, 14 Jan 2011 04:11:56 +0000

In reply to I see your point CVille,

As you say, in a non-recourse state, the bank has implicitely priced the mortgage (going in) with the possibility that they will be left only with the asset, and not the full value of the loan indemnified by the full measure of the borrower's assets.

The recourse state loan, per contra, leaves the lender with the opportunity to levy on the borrower's assets or income to satisfy a deficiency judgment.

In such case, we have, as a society, made a policy decision that such judgments (absent fraud in the inducement to lend, a not insignificant contingency vis a vis current mortgages) are subject to discharge in bankruptcy.

Query: Does this not fully exhaust the moral issues involved in jingle mail? The alternative mandate (to, for instance, forego directing cash flow to your kid's school tuition, enroll her in the crappy public school down the street, so you can continue servicing the mortgage on your now deep underwater property) may allow you to maintain your good credit, but is there a moral imperative to do so?

The penalties for non payment are clear. The reasons to discontinue paying likewise.

The counterparty, after all, is not the little old lady down the street who has deposited her tiny nest egg with the bank and who is thus at risk by your default. That risk has been socialized by the FDIC, and all our taxes pay for the deep pocket into which the bank will reach.

As Senator Kaufmann warned us

Anonymous steve — Fri, 14 Jan 2011 02:49:35 +0000

In reply to I'm not sure I agree with

As Senator Kaufmann warned us recently, no one knows how many of the mortgages in relatively recent history are based on fraud, but he and his committee expected a lot are, and this administration's DOJ seems not to have the stomach for invvestigating and prosecuting the banks, but seem to prefer to cover the issue up, and hope for the best. (Not a good idea.)

Many leading economists say that there will be no economic recovery until public confidence is restored by prosecuting fraud, and getting the big banks books balanced, even if it means they take a bath. Disturbingly, the administration's good friends at Third Way (fresh thinking, or whatever) have put out a report that sounds great unless you dig deeper than the cover sheet. Emptywheel at FDL and Yves Smith at Naked Capitalism are furious at the potential perfidy and immorality; their plan, among other things, would preclude mortgage holders from suing banks.

That's just wrong, as is many points of their 'solution'. Morality should not just be the duty of the borrowers.

http://www.nakedcapitalism.com/2011/01/dc-puts-its-bankster-friendly-solution-for-foreclosure-fraud-on-the-table.html

I see your point CVille,

Obey — Fri, 14 Jan 2011 02:00:36 +0000

In reply to I'm not sure I agree with

I see your point CVille, though I tend to agree with Destor's general perspective on this. Maybe one counterpoint to what you say is that the 'promise' one is making - i.e. the contract one is signing - varies from state to state. In full-recourse states you are promising to pay the money back. Period. And failing to do so is, as you say, both a legal and a moral failing. In non-recourse states you are promising to hand over the money borrowed plus interest OR the underlying asset (the house). So no promise is being broken when one chooses to hand over the house and walk away.

In normal conditions, and with a normal contract (i.e. those without the interest and principal payments backloaded to the later years), it just won't ever be in a solvent borrower's interest to walk away and hand over the asset rather than pay off what remains of his debt. The question arises when conditions are not normal - i.e. a national drop of 50% in house prices and unemployment at 20%, and banks are failing to do what would be in both their and the borrower's interest - restructure the loan - what is then the 'responsible' thing to do?

There is one's responsibility to one's family, and to society, as well as to the lender. And the first two considerations will in many cases weigh in favor of walking away. The last consideration - one's obligation to the lender is also not so clearcut when the banks are themselves dysfunctional and not quite blameless in causing the crisis. In my opinion, at least, you can't have a successful economy if the only parties who act in accordance with morality over and above legalities and pragmatics are middle and lower class consumers while the corporates and the rich run riot. To continue to act morally in one's dealings with them even though they do their best on their side to screw you is a form of so-called 'moral hazard'. It just encourages more of the same immoral behavior on their part.

I find the whole issue of morality and economics incredibly hard. Steve Waldman over at his Interfluidity blog (by the by my favorite econblogger) has recently put up a series of posts on the issue - with a particular focus on the 'ethics of jingle mail' debate. In case you're interested...

I'm not sure I agree with

CVille Dem — Fri, 14 Jan 2011 01:02:00 +0000

In reply to I don't see anything absurd

I'm not sure I agree with your basic premiss, Destor. In the old days, banks were vigilant about making sure their risk in lending was minimal; job security, income, payment histories, and everything else that you could provide them were absolutely required. And in the end, if you defaulted, they got a house that was worth the same or more than it was when the loan went through in the first place. What you were paying for was interest on the loan because without the bank giving you a few hundred thousand dollars, you could not EVER save it up and own a home. In other words, risk was eliminated as much as possible by careful vetting.

All that changed when lending "instruments" were used to reel in sub prime borrowers. Anyone in the industry knew this was coming, but they all hoped to cash out before the floor fell , and many many of them did.

I actually DO view debt as a moral obligation, because a debt is something I have promised to pay. The fact that it is a business deal is irrelevant. If "business" negates morality, why not just steal what you need from any store you can get away with stealing from?

So when you say that you agreed to pay the bank for taking a risk, and so walking away is just part of doing business, I have to ask, "Where does it end?" When I borrow from a bank, I pay them interest for the opportunity to spend money that I don't have. Smart banks don't lend to people who make $40,000 a year and want to buy a $600,000 house with nothing down.