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Punishing Foreclosure Victims Only Continues The Pain For All Of Us

While news stories, articles, and blogs continue to be written about “Strategic Default” and how those facing foreclosure shouldn’t be allowed to walk away or have their mortgage balance reduced, punishing foreclosure victims only continues the pain for all of us. The problem we face isn’t one of a few hundred or even a few thousand who carelessly spent beyond their means; this issue touches tens of millions of U. S. homeowners, the majority of whom acted responsibly, and with the knowledge available to them at the time. Most thought they were making wise choices.

home underwater How can we blame the homebuyer for not seeing the fallacy of never-ending home price escalation? In their recent testimony before Congress, the heads of the big banks said they didn’t see it. Jamie Dimon, Chairman and CEO of JP Morgan Chase said, “Somehow we just missed that home prices don’t go up forever,” an erroneous assumption shared by the U. S. Treasury. And if the “brilliant” minds on Wall Street didn’t see the crash coming, who could expect those on Main Street to have superior knowledge?

Regardless of what Mr. Dimon may have known, few anticipated the intensity of the housing crash or the scope of its reach. It’s time to stop blaming the home purchaser and to accept the only workable solution for both them and for the housing market in general. It’s time to see beyond what we perceive as the “morality” of the solutions for those facing foreclosure, and to look to what solution best serves the country as a whole. And that is to reduce the principal of homes underwater to their current value. Such an action would immediately help to stabilize a large portion of the market, and would protect neighboring homes from further declines in value. It would not affect the bank’s or investor’s equity, for the homes are only worth what they’re worth; and foreclosure sometimes results in below market returns.

Those who speak of the inherent unfairness of such a solution fail to consider the ultimate damage of continued foreclosures, the consequences of which will depress home prices for years. If we’re serious about solving the foreclosure crisis, let’s address the underlying cause—homes worth less than their mortgage.

I’ve recently seen comments from some who said, “I don’t care if my home declines in value, I don’t want to save those who acted stupidly.” And while I doubt that those making such statements really aren’t concerned about future decreases in the value of their own home, I do think they want to punish those who they perceive as taking advantage of the situation. However, the problem extends beyond housing, and millions will continue to suffer until we begin to restore economic order and sanity. We must do something; and the palliative measures of government have demonstrated their inadequacy to bring solutions. What is needed is bold action, from leaders unafraid of the political consequences. Whether it’s legislation to allow for “cram-downs” or forcing banks to lower principal balances on homes underwater, to fail to enact a workable solution is to allow the morass to continue; indeed to perpetuate it.

Finally, in an effort to inject a bit of humor into this otherwise depressing topic, watch the Stephen Colbert video on this topic.

The Housing Guru: The one source for all your housing questions

Posted by John Mulkey, Housing Guru on 01/17/2010 08:08 PM

Comments (263)

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Originally posted at: BluefoxToday blog : Punishing Foreclosure Victims Only Continues The Pain For All Of Us

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263 Comments on Punishing Foreclosure Victims Only Continues The Pain For All Of Us

JAN

2010

I just had this discussion today with a friend. If a home declines but you can make payments then I have no simpathy for you. The home is where you live as well as an investment. If you have a hardship then that is a different story. And yes people were stupid. But they could not have acted on their stuipidity of there wasn't a lender out there that was even stupider

There are some foreclosure people that just got tired of making their mortgage payment. That spent way too much on their day to day needs and never were held accountable for checks and balances.

Banks have investors and those investors sometimes just don't want to do what we think is right. Bottom. Interestingly, I am seeing that banks made huge amounts of money on mortgages where the now defunct homeseller didn't qualify for the mortgage to begin with.

I have a file right now where he made 1/4 of what he was allowed to borrow. He got tired of keeping up with the payments. He used the LofC to purchase a new car and then tooled around town in it .. showing and bragging.

Then there is the homeowner who pushed her sister to do a refinance because she had this huge hospital bill but the sister turns around and uses the money to buy a new car and all new furniture for her house.

I closed one where the dad was dying but pulled out $50K every six months for three rounds of cashouts for his wife, knowing that he couldn't repay it, that he was terminally ill and left her with the baggage. I got her approved on a short sale and forgiven.

Some of it, there are reasons by short sales but if we focused on getting the short sales closed, the median wouldn't drop as hard as it would under foreclosure. Yet, when looking at the homeowner who is in default with his primary residence, moved to another state and purchased another home yet is still in Chicago, and he has his corporation renting him the home that he has always wanted yet he decides to default the home he should be living in when he is here .... I say, punish him.

Just my two cents. Not an easy solution. Just because we forgive doesn't mean the consumer has learned a lesson! Some have. Some won't.

Charlie - Ultimately we either address the problem or allow these homes go to foreclosure, which will disrupt the market for a long time.

Barb - There are stories of home owners going on spending sprees, but the majority acted within reason, and those who drew out their home's equity were encouraged to do so by banks, some of which were lending to 125% of value. We're all paying for the problem and either need to develop workable solutions or to understand that we'll spend years working towards stabilization.

John, I reviewed close to 210 files this past year and only one came out smelling like a rose. You said "While the bank had encouraged them to draw on their home's equity", I fail to see the reasoning because people were using their equity to pay for their credit cards, that new car, keeping up with the Jones', etc. I looked at all of the loan applications on those 210 files. I fail to see how the majority acted within reason because it just wasn't explained to them. I had kids up in Michigan who is under 25 years of age, owns a brand new Volvo, has a home that has a mortgage of $245K and he makes under $50K a year! Another one had four cars, lived with their parents in the basement because they were broke, moved out of the house because it was purchasaed by the husband and his cousin was left alone in the house to make a mortgage payment of $1,400 on a $23K salary! They wanted to flip it yet nobody told them you dont' buy on a busy street, with a home that doesn't have good resale because of utility, in a market that is declining. The couple had money in their 401(k) yet they were going to Dunkin Donuts every other day, buying at Walmart opposite days, then going out to dinner 3 times a week at $60 a crack. Another couple here in Skokie, wanted a home. The father's credit was shot so the daughter's name and credit was used for the loan. Nanny, you know the ones that get paid $10/hour and work 50 hours a week yet the father, who is a realtor, sells the house to her, thinking they could flip it, without doing due diligence, the home was sold 90 days prior for $70K less and you know what happened.

John, I am seeing alot of files and the applications for the loans that they defaulted on. We made getting money way too easy back then. Banks turned their heads because they had money to sell. What bothers me is the people who own their homes free and clear, who have been responsible, and they are on the receiving end of declining values. I don't like the bailout and I don't like the fact that some are walking away scott free because they got tired, tired of the stress.

I have a home right now where I did roughly 60 hours of manual labor to get the property up to snuff to get an offer. The homeowner/seller was tired (young, but tired) of catching up with his spending. He borrowed money from Dad, then Mom, then three liens, and then credit cards, because his lifestyle was just so.

Serious down payments is what needs to happen. I don't like it, but people with 3 cents in their savings account got loans before those who had $20K. You tell me how that happened.

I agree with you John, but I do not believe people have been innocent. This has been "greed" driven and it started with de-regulation.

Barb - Certainly many buyers weren't "innocent," and we can develop solutions for preventing this to occur in the future; but we can't ignore the current problem. We may not like the proposed solution, but I haven't seen another that comes close to halting foreclosures and declining values.

Ginevra - Changing the prevailing attitude is a completely different and difficult issue. I'm not sure how to change the mindset.

John I know way too many people who are still suffering from this mess. Most of them didn't really do anything wrong other than to wake up one morning and find themselves un-employed. The truth is that in this neck of Pa things are not all rosy and it's the little guy who's in a world of hurt. Those of us who where doing well six months to a year ago are still doing well, but there are far more who just aren't.

I'm not even saying it's the bank's fault. At this stage of the game we need to focus on how to fix it rather than who caused it and the truth is the banks may well be the only ones who can repair the damage. Just my thought on the matter.

Sue - I doubt the banks will voluntarily solve the problem; they'll need some prodding. Good to hear from you again!

This is one of those situations where there doesn't appear to be a good solution, only lesser of two evil solutions.

Jon - I agree, but am willing to accept the only solution that appears to have a chance.

Most of the cases I have seen were two family household that lost an income. That lost of income set the downward spiral that left them without their home. Is that every situation? No. Does that mean people didn't live beyond their means? No. I think we need to get back to teaching basic finance at a young age. And I don't necessarily mean in schools. AT HOME. It all starts at home. My 8 and 10 year old get an allowance and have to set budgets. Nothing grand, but it starts their minds working that you can't spend every dime you get and you shouldn't spend the most you can afford to spend. It's all about choices.

The problem is that deciding to let people off who didn't pay they mortgage punishes those that for whatever reason continue and even struggle to continue to pay their's. It starts to get into financial and social morality. Very dangerous. I agree that it's all about choices.

Jason - It's great that you're teaching your children financial responsibility; many parents fail to understand it themselves.

Dean & Sonia - The problem is complex and riddled with issues that must be addressed; but address them we must, or continue to suffer the consequences.

John, I have this notion that somehow there ought to be a way to tie mortgages to cost of living increases and decreses. In other words if you are making less through no fault of your own----why couldn't the cost of your mortgage follow suit?

JAN

2010

John,

I didn't read any of the comments. My answer just jumped out. Those that forget history are doomed to repeat it. How could these clowns NOT know? All they have to do is look at trends. They knew.

John, You're headed in the right direction:

Federal Reserve study finds without principal reductions 51% of loan mods redefault
Foreclosures have created their own weather system. Appraisers are so confused they forgot they were supposed to adjust for distressed property sales. Therefore present home owners who have "done everything right" will continue to suffer without a policy change (bank and/or government)
Continued foreclosures also take the foreclosed homeowner out of the market for 2 -3 years further limiting the buyers that have access to the market.

And that my friend is MHO, lol

Steve

Charles - We're definitely going to have to be creative in order to develop a solution.

Terry - Of course they knew, but they still acted stupidly; and it appears that it hasn't ended.

Steve - Thanks for your input.

The home owner is not the cause of "negative equity".

The home owner is the victim of negative equity.

The home owner who has been literally wiped out by the perfidy of the government/regulatory/lending/investment banking cabal can only do what they perceive as best for themselves and their financial survival.

John:

I have seen too many who treated their homes as credit cards, doing cash out refi's three times in 3-4 years.

I have seen people who had no business getting a mortgage buying newly constructed, overpriced properties in below average neighborhoods.

I have seen mortgage brokers who told appraisers that the appraised value HAS to be $X (and I assume that they found an appraiser who met their number).

I have seen appraisals that supported overpriced properties by utilizing "comparables" in superior neighborhoods (which should have set off alarm bells) being reviewed only after a default.

The sad part is that these behaviors have caused honest, hardworking people to lose their most important investment or a large portion of their equity.

I guess nobody learned the lesson of the internet stock bubble, or all of the previous price bubbles.

John:

We have all seen situations in which people created their own problems by living beyond their means but dwelling on their lack of responsibility is not going to fix the problem. This is something that is effecting all of us - the housing market and the economy, in general. I am not an economist, but I see some value in a plan that would lower the principal on mortgages. I would certainly like to see that possibility explored.

John,

The stabilization of house values is an important ingredient in economic recovery. It doesn't make any real sense to have everyone "under water". Some kind of loan modification or bailout is needed to speed things up. There are thousands of potential solutions, and I suppose they all require a decision about the morality of the situation.

Brian

John:

You hit the nail on the head but unfortunately our lawnmakers don't seem to get it. Housing market vital part of the economy, so housing in trouble = economy in trouble.

You know it's time to re-read the book ,The Automatic Millionare !!!!!!!!!!!!!

The platform where our economy stands. .is real estate and it will always be.

The problem with cram downs is then the banks will have to realize their losses. It will expose all the banks to be bankrupt. Of course, there is too big to fail. So the taxpayer will then have to bail out the banks again. So there we go. All of the costs are spread out amongst the entire population and we all get poor together. All the people who were saving money for a down payment while renting will have to pay along with all the homeowners who lived well after doing cash out refis.

I'd say let the system work. Force the banks to foreclose as soon as possible. Make them realize their losses and then close them down when they can't meet their reserve requirements.

Prices of homes will drop, people with cash and good credit will be able to afford them. The people who got foreclosed will rent houses at a lower rate because an investor was able to buy it at a lower price. Landlords will have to adjust how they determine credit scores in order to adjust for unintended foreclosures. If not, their rentals will sit empty.

Will people be homeless? The number of homes will still be the same. It's just the ownership will change. With lower house prices, housing will be more affordable for more people. It will be disruptive for many but someone has to take the hit. So let it be the specific homeowners and the banks.

What if we do it your way and force cram downs? The disruption is lessened and house prices stay high. Therefore less people can afford to buy a home because incomes haven't kept pace with home prices. Also, no one would have any incentive to put any money down. They'll want to leverage their home for whatever it's worth. Why not when all the down side will be covered by future cram downs. And that's what got us here in the first place. Homeowners being overextended with leverage.

Lenn - And even those owners who are not underwater are still affected in more ways than the price of their home.

Jesse - Our economy has been built upon bubbles; until we change that we'll continue on this spiral.

Claudette - Nothing else is working.

Brian - Some may find it distasteful, but we're only "spinning our wheels" at present.

Markita - That's why we need to get their attention and kick them out if they don't listen.

Michael - We could certainly use some lessons in money management.

Fernando - That is, until the politicians find an easier way to inflate the bubble.

Tim - I support the free market, but this problem can't be solved by millions of foreclosures. Doing so only creates more foreclosures as values continue to drop. We haven't seen a crisis like this in our lifetimes, and it will take dramatic measures to bring it to an end.

As far as the banks realizing their losses; if they foreclose the losses are also real--the property is gone. The values of the homes underwater will either be reduced by the bank or by the foreclosure process; either way the asset is re-valued.

Cram-downs and principal reduction are the least painful and the fastest way to restore stability to the housing market. Allowing the foreclosure process to continue will take many years and will hurt everyone, much more than modification will.

Ultimately, I doubt the politicians will do what is necessary to make this happen; it's far too dangerous politically. But I also don't see the government or banks speeding up the foreclosure process either, for that would be political suicide.

John, i have seen it both ways up here. Most of our short sales happen because a homeowner loses their job and can't make the payment on one income. They used both to qualify.

I have seen some like Barb mentioned you should never have been qualified to buy a home, stated income etc.

I met w a family yesterday, they bought a foreclosure 100K under what the builder had built it for in 2006. Sounds good, right?

It was in 2007.

Now it is down 100K more.

So 536>426>330's.

John:

There is an old Indian saying that one must one a mile in that person moccasins to understand the "WHY". It is interesting that so many us what to judge a person, as having a unreasonable amount of greed. There is enough blame to go around, what I would like to see if more solutions and less finger pointing.

Hi John,

I very much agree that we need to stop the "Blame Game". But this stoppage needs to extend across the board. I look at responsibility a little differently. I think many clients did act out of character/without restraint. But so did lenders,mortgage brokers, agents, etc.

The point is everyone had a stupid hand in the game. By punishing borrowers, keeping lending standards tight, and continuing/advancing things like HVCC and the 2010 GFE (in all its faulted glory), this mess will continue on. If we started using fingers for solutions instead of to point with, we might get some where.

We are all adults here and we need to accept what has happened in the market and help those that are in need of help. If we don't help we all could be losing another 30% of the equity in the world. We are in a free fall until someone will stand up for our rights.

Thomas Minetti

www.georgetownmortgage.net

No one talks about medical bills. Still the number one reason for bankrupcy and foreclosure. it won't change any time soon.

It is called a mortgage mess for a reason. It is a mess. Now we are a country that helps its people (for the most part). Get a program to help most. Yes some bad apples will fall through those cracks (so be it) rather then hurt someone that needs the help.

Fix the job market and lets all get back to business

Tony

John,

I'm absolutely -- completely AMAZED of bailout suggestions and Cram down solutions and principal reductions when SO MANY Americans have already moved forward... with their credit ruined for several years.

Would you agree with changing the rules in the middle of the Super Bowl??

I don't think so...

OVER 30% of Americans Own their homes free and clear... what is the % of homeowners currently in default?

Hi John,

I think you are spot on. I also think that our biggest problem is our government is too big to fail. Politicians on both sides of the aisle lack the intestinal fortitude to do the right thing. They care far more about getting re-elected then they do about doing whats right for the country. It's a shame that doing the right thing is perceived as the wrong thing to get re-elected.

It will always be the haves versus the have nots. Placing blame always helps the one who is impacted. But, like you point out, all are or will be impacted. Nice presentation.

John, I'm sorry, I didn't read your whole article because you insulted me within the first paragraph! I too lost my home last year to foreclosure. My husband and I both are realtors, we built the home in 2001 and we're doing just fine until the real estate market began the slow burning decent into hell! We spent all the retirement funds and all the reserve funds even before we lost the house, so we tried to make good on our promise to pay that loan. I also spent the last 4 years trying to build an appraisal business, that also went to hell with the advent of HVCC. So it it wasn't all our fault and we didn't buy over our means! You need to choose your words more carefully. As you are well aware of, Realtors can't file for unemployment. Or food stamps! And finding jobs, who do you know hires realtors? I couldn't even get Kmart to hire me to stock shelves for the holidays. So don't sit on your throne and broadcast what you think you know about each and every case of foreclosure. You need to walk in our shoes.

I have mixed feelings your post. I agree that everyone got so caught up in the quick appreciation of homes and easy credit that it was hard to see what was coming. People took advice from so-called experts and just signed on the dotted line because they were told their home would appreciate, so they would be able to either refinance into a better loan or sell. But whatever happened to caveat emptor? Did anyone ever look down the road to see what would happen IF their home's value depreciated and if their mortgage payments increased? We have all taken bad advice and made poor decisions in the past in one aspect or other of life. And we live with the consequences.

But what happened is history and we have to move on. Now the best course of action would be loan modifications. Let people pay an amount they can afford each month and tack the rest on to the loan balance. No, negative amortization is not a good thing, but it would keep people in their homes, and increase the possibility of the bank recouping the money years from now after the home appreciates and it is sold. I understand banks have investors but how is this not better than writing off hundreds of thousands of dollars on a loan that will can never be recovered?

But here is the real problem I am beginning to see with short sales. Foreclosed homes are bringing prices up while short sales are bringing them down. In my area (and I realize it may be different in other places), a foreclosure is almost guaranteed to get multiple offers and, if the listing agent submits all the offers to the asset manager (and yes, this is a big IF), will almost always sell at or above its list price. The asset manager will usually choose the highest offer. This causes appreciation.

But with a short sale, the homeowner signs the offer, making it a contingent contract, and only one offer gets submitted to the asset manager. I recently had a homeowner accept an offer that was considerably lower than my buyer's offer because my buyer was an investor and the other buyer was an owner occupant, and he "felt good" about selling his home to an owner occupant. You can bet he would have taken the higher offer if it had been his money at stake. The bank never knew there was a higher offer out there. And as much as banks require that short sales not be sold to a relative, it happens... or the home gets sold to a friend. When I look at a listing or sold comp and see zero DOM, that is a huge red flag to me that the listing agent had a buyer lined up prior to listing the property.

The problem is that the homeowner has no accountability in a short sale. If homeowners were required to sign a promissory note for the difference between the amount at which the home is sold and the amount they owe on it, and were required to pay income tax that amount, we would see a lot fewer short sales, and the short sales we would see would sell at higher prices as homeowners would have incentive to hold out for the highest price possible, just as they do when they are selling a home where there will be a profit.

Unless they were downtrodden due to employment or major medical then we should punish them. The people the scammed the system should be put in jail...

stop using the word victim.. they victomized the economy.

Natalie Hartman

First Prudential Realtor

John:

I couldn't agree with you more. Yes there are those who abused the system, but I see more of the regular folks who have lost their jobs or have medical emergencies loosing their homes and credit. In this area we have a lot of military basis, so the loss of their home and credit also means the loss of a job. I am refering with people with security clearance.

My two cents. Tere

It is always reassuring to know they are some people who care to report what is happening to the public. If I told you the horror story of what I have gone through and still going through it would stand the hair on your back up. But in doing some research I found out something that might of interest to you.

Why do you think that the banks are dragging their feet? Here's why- it's called a "Shared-Loss" agreement. This agreement is with the FDIC, the government FDIC has this same agreement with around 50 banks. A couple of years ago a bank would do anything rather than get a foreclosed property back. Why now do they want them back? Because of their "Shared-Loss" agreement with the FDIC, they now make a profit on every foreclosure they get back. When the banks got the tarp money, they also made a agreement with the FDIC. Someone finally got the FDIC with the freedom of information act to show the agreement and it is on their site.

http://www.fdic.gov/about/freedom/IndyMacSharedLossAgrmt.pdf

So while everyone is looking at the banks and fannie mae, it is really the FDIC we should be looking at.

And someone is trying to but.......

Federal Reserve Fighting to Keep Its Bailout Secrets 2010-01-11 10:53:00 By Lita Epstein The

Federal Reserve is trying to ensure that what happens at the Fed, stays at the Fed.
In the first of two brewing legal battles, the Federal Reserve is trying to avoid disclosing the details of the $2 trillion U.S. loan program that kept banks afloat after Lehman Brothers Holdings collapsed in September 2008. Bloomberg News sued the Fed under the Freedom of Information Act, seeking the names of those institutions that were given loans under the program and details about how much they received. On Aug. 24, 2009, U.S. District Judge Loretta Preska ordered the release of the information, but postponed implementation of her ruling pending an appeal; the U.S. Court of Appeals in Manhattan will hear the case today

I say this to you, is because everyday someone is being forced out of their home and the courts have so many cases, they are pushing them through.The banks is not taking a loss, like everyone thinks, per this agreement. You can write about it , get people mad about it. Make the judges read it so they know, this has to come to a stop, for everyone that lives in Florida. I am trying to save my home and I would feel better, as others would, if this got out. Maybe someone will pick up the story and run with it. Nobody has thank you

It is starting to look like the smartest of us were the ones who borrowed 100% of the value (at the time) of the house. Now they are the only ones who have not lost their 25% down payment money.

Bankers, of course, look to the insurers to make up their losses. They certainly do not feel honor bound to back up their assurances (their "word") to the mortgage backed security buyers that they were providing good mortgages.

How do we actually punish foreclosure victims, anyway? What more can be done to someone who has already lost his biggest asset and is probably on the verge of bankruptcy?

Akron, Ohio

Great post!!!! MOST of the people I've seen injured in this market were people who made good decisions at the time and with the information they had when they made them. These are responsible people not big spenders, who spent what was within their means. I think nearly everyone believed the climb in housing prices had to stop somewhere....but how many people EXPECTED at catastrophic collapse!!! Nearly 30 years in this business, I've seen "pullbacks" in both seller's markets and buyer's markets...where "corrections" took place. But that's not what we're facting now. And how many of those folks in trouble do you suppose are REALTORS????? When your listings don't sell...or your WELL QUALIFIED buyers can't close (in great part because the house under-appraises, or the underwriter rejects the appraisal, causes a negative adjustment in value..heck, prior to 2 years ago, I didn't know such a thing happened!!!...resulting in the SELLER NOT BEING ABLE TO SELL at the agreed upon price!!!) and all your work was for nothing! Unless you have another source of income or a spouse who can support you through the downfall, or sufficient savings to tide you over...you're SOL!

And all those small businesses? How many employees have lost their jobs or had incomes drastically reduced because THEIR EMPLOYER COULD NOT GET THE TEMP LOANS REQUIRED TO MAKE PAYROLL!!! I've seen that happen over and over again....responsible employers who lose or see drastic reductions in credit lines that are designed to bridge the gap between what they spend to complete a job (including payroll!) and when their customer pays them for job completion! Those credit lines drop, lots of those small businesses cannot weather the storm!!!

John, thanks for this blog. The temptation to argue for not creating a new group of 'victims' by allowing all homes, even those owned by citizens capable of making current payments to be eligiable for principle adjustment lost its credibility when we look at how all of us have been and are currently being deceived and played by the banks.

The banks corrupted the checks in balances in the system, promised future options they did not deliver, made 700 billion dollars dissappear, negotiate in bad faith to receive HAMP money, conspire with each other to gaurantee majority foreclosure all the while bilking citizens with unconsiousable user fees, interest rates and yes penalties.

I want to see a plan where every 'too big to fail' institution will be broken down to 'ineligible for taxpayer bailout' status.

This may the the only moment in your lifetime where you have the opportunity to take a little back from the bank.

Here in northern Colorado we are just not seeing that many folks skipping out on their home mortgage just to be released from an upside down situation. And we had the highest foreclosure rates in the nation for years before the rest of the nation outpaced us. Our median sale prices are relatively stable too compared to most of the nation, but things happen. Lot job, forced transfer, divorce. Many homeowners are fully leveraged, and even a good stable market like ours doesn't often allow for liquidity.

We come back to the old question of principal reduction as a possible option for some borrowers. But the question is can we expect reasonable responses from an insane mortgage industry?

Although I do believe that some creative thinking is necessary to resolve this terrible situation, I think principal reduction ignores the larger problem: employment. Homes serve as more than an investment; they fulfill the fundamental human need for shelter. Housing is a commodity--it rises and falls in value. But homes are where people live, that place where they have to take you in. A drop in value does not make it less of a home. It just makes it a poor investment vehicle at this time. A drop in the value of the home is not what is causing homeowners to struggle with making their payments. Unemployment, or under-employment, is the issue.

At a time when the offical unemployment rate nationally is 10%, the number of adults displaced in the work force is actually higher. Consider not only those who have lost a job, but also those whose: hours have been reduced; those who have been laid off; who have had to endure a pay cut; who have had their benefits reduced (especially health insurance); and those who have had to take a much lower paying job. These are the homeowners who are now struggling to make their monthly mortgage payments. And while a principal reduction would lower their monthly obligation, it ignores the employment situation. If and when we, as a nation, can re-hire those who have been laid off, restore full time hours to those whose hours have been cut, restore valuable benefits, increase the rate of pay for those whose wages and salaries have been reduced, THEN those very homeowners will be able to pay their monthly mortgage obligations. Principal reduction treats a symptom. Increased employment is the cure.

I disagree with the policy if you made bad decisions we the tax payers will save you. If you make good responsible decision's the government will take money away from you in the form of extra tax and give it to people who mad foolish decisions.

The constitution does not state that everyone is to have the same stuff, the same amount's of money. It does not say if you are smart work hard or just have good luck and earn more than most people we are going to take it from you and spread it around to everybody else.

I do agree we should help those that are to sick, or got hurt and unable to work. And yes we should those who had unexpected job loss.

However if someone does not make there house payment but has money for beer, cigarettes and lottery tickets I am not willing to give them money for there house. I see many foreclosures that the walls are stained yellow from smoke and piles and piles of beer cans and whiskey bottles. The house is filthy not been cleaned in years. Trash piled everywhere and they have let dogs and cats use the bathroom all over the floor. I have been in homes that stunk so bad that after walking through the home my clothes stunk so bad that I wend home and took a shower. I got fleas several times from walking in homes. So there home is worth less than when they bought it because they wrecked it. I am not willing to help them pay because the made a mess of there home.

Stop the follishness! Shortsales should be abolished. This is a mechanism the presents a facade of the bank negotiating. Real estate professionals need to wake up and stop presnting this illusion as a possible solution with the exeption of the few small banks who do negotiate.

Bank of American must the recognized as the evil empire,(you can add the names of our villians here) that continues to suck the blood of citizens directly, and indirectly through making our tax dollars disappear.

All I can say is another very well-written post...you really hit the nail on the head...and the Stephen Colbert bit was hilarious!!!

I was told by my accountant years ago to use equity from my home to pay off cars, school loans and other things that weren't deductible. Because I had a large addition on my home, we could deduct the home equity loan. The big difference was my bank only allowed me to borrow 80% of the perceived value. I hear that others were able to get 110%.

When people bail from their homes but still own paid off sailboats, cars, vacations and educations, there is accountability that needs to occur.

Charlie....or a Realtor to sell them the house. There's plenty of blame to go around pal! It's just a little too convienent you left out your industry too! The comments made Mr. Dimon are just assinine. They knew better BUT if for some reason they are true, then there's the root of the problem. People at the top that haven't a clue. Give me someone that worked in the trenches FIRST to really understand the process.

If you want to force a cram down, you've got to do it for ALL borrowers, not just the ones that cannot, or do not want to pay their mortgages. If the underwater amount is to be forgiven, then you must do the same for those that are not in default as well.

As far as the decline in value, I will use my area as an example, obviously RE is local. In my area of Northern Virgina and the surrounding DC area, the damage has already been done. Many areas have seen up to a 50% decline. Due to an incredible reduction in inventory, (Loudoun County is at 33% of peak, 2007 inventory) many buyers can't find a property and are losing out on multiple bid listings. I currently have investors that are trying to purchase physically distressed properties to remodel and resell. I can't get them UC on anything. The few that have potential get 10-20 CASH offers. The point is, we have the buyer pool to absorb the foreclosures, as long as there is not a plethora dumped all at once.

The banks should make it a little easier to short sell if the sellers qualify. As it is, most buyers and BA are staying away from SS because they've heard the horror stories.

I've sold around 60 REOs in the last few years and have previewed hundreds. Approximately 20% of them had multiple families living in them. The signs are clear. Dining, family, and rec rooms converted to bedrooms. Key locks on all bedroom doors, kitchens in the basement, poor condition. These are NOT signs of people planning on staying in their homes. These are signs of people that had no intention of keeping the value up hoping to SS to get out of a bad situation. Only about 20% of the REOs that I've seen, need only paint and carpet. The previous owners in most cases just didn't care about the house. Are these the people that you want to buy down, to keep in their houses? How about, like many have posted, we get this inventory moved via SS,(preferably) or foreclosure, so the market can correct and we can get back to normal. Everyone seems to have compassion for home owners, why none for the many buyers out there that have been priced out of the market by the lack of oversight and regulation? Prices are finally getting near commensurate with wages. Why no sympathy for future buyers?

Hopefully, we will learn from our mistakes. FHA needs to raise the DP to 5%. Buyers need to have some skin in the game.

As far as forced cram downs go, it would be political suicide. Even Barney Frank is against it.

Lynn, I totally agree with you.

Shouldn't the real question be... why are people being foreclosed on? If you really know how money works... the banks never had anything at risk, never "loaned" anything, and really the whole process is just a scam. Yes, I participated in the scam, but only because there is no "real" money. The banks win always, regardless of the main stream media headlines... Just my opinion, but based on the truth, not the smokescreen : )

The Foreclosure Fraud

This article is presented for informational purposes only; it is not intended as legal advice.

1. The Fair Debt Collection Practices Act (FDCPA) codified at 15 USC 1692 stipulates that a debt collector must validate an alleged debt by affidavit, oath or deposition and cease all collection activity until validation is provided.

2. Validation or verification is defined as: confirmation of correctness, truth, or authenticity of a claim "to assure good faith in averments of statement of party." - Black's Law Dictionary, Sixth Edition, 1990.

3. A debt collector must swear true, correct, and complete that an exchange of valuable consideration has occurred that allows him to demand repayment.

4. On an alleged note dated 00/00/00 regarding loan 0000000000 (Servicing No. 000000-0) under No. 1. "BORROWER'S PROMISE TO PAY" the promise to pay is stated in these words . . . "In return for a LOAN, I promise to pay . . . to the LENDER . . ."

PLEASE TAKE NOTE OF THE FOLLOWING:

5. . . . loan: vb. to lend some thing, esp. money.

6. . . . borrow: vb. 1. to take some thing for temporary use. 2. to receive money with the understanding or agreement that the money is to be repaid, usu. with interest.

7. . . . The five essential elements of a lawful Note require . . .

7.1 . . . the signature of the maker, meaning the alleged lender;
7.2 . . . the signature of the receiver, meaning the alleged borrower;
7.3 . . . the due date, or dates;
7.4 . . . the specified amount;
7.5 . . . a clear sentence of intent.

8. . . . The signature of the maker - the so-called lender - is often missing from the note therefore the note is not a lawful note!

9. . . . It was not the bank's money that bought the defendants their home. The defendants received no value from the bank. The defendant's Promissory Note supplied the credit for the sale.

10. . . . In return for the defendant's Promissory Note (the defendant's credit) the bank leased the defendant's credit back to him as rent for thirty years and holds the title for having supplied nothing to the transaction at all.

11. . . . The defendant's Promissory Note has been sold many times without his knowledge or consent even though the defendant's Promissory Note still belongs to him.

12. . . . In monetizing the borrower's Promissory Note through fractional reserve banking practices, the bank increased its wealth by more than nine times the value of the Promissory Note and still demands that the borrower pay the bank the principal of the Note plus interest on the credit that the borrower himself provided.

13. . . . Americans have been engaged in commerce on a "Promissory Note Standard" (instead of a "Gold Standard") since 1933.

14. . . . Congress borrows Federal Reserve "Promissory Notes" from the Federal Reserve Bank with bonds backed by the credit of the people of the United States.

15. . . . The credit that Congress borrows from the people of the United States is called "the credit of the United States."

16. . . . "Congress shall have power / to borrow money on the credit of the United States." - Article 1, Section 8, clause 2, U.S. Constitution.

17. . . . Federal Reserve Notes represent the United States CORPORATION'S promise to pay interest to the Federal Reserve Bank on the alleged Notes that Congress could issue itself.

18. . . . The borrower's Promissory Note created the money that the lenders gave back to him as a so-called "loan."

19. . . . The Bill of Exchange that the bank gave the borrower (the bank check) is worth more than nine times that dollar amount to the bank when monetized on the discount exchange market and through fractional reserve banking practices.

20. . . . As a so-called "thank you" for the privilege of using the alleged borrower's Promissory Note to vastly increase the assets of the bank, bank officials expect the alleged borrower to pay back the non-loan that he received as his credit in changed form, plus the interest he is expected to pay the bank on the non-loan over thirty years, which nearly triples the cost of the alleged mortgage to him.

21. . . . In addition, the borrower pledged to the bank the collateral of the house that he had already paid for with his Promissory Note, should he default.

22. . . . There is no "contract" in the mortgage process from the beginning; a mortgage is not a contract, just as the Constitution of the United States is not a contract. It is a "constitutum."

22.1. A "constitutum" is 1. An agreement to pay one's own or another's existing debt. 2. The fixing of a day for the repayment of money owed. - Black's Law Dictionary, Seventh Edition, page 307.

22.2. The Constitution of the United States is basically an agreement to pay the United States Confederacy's existing debt to the British King. It in turn obligated all of the States of the Confederate United States who ratified it, to British King George.

22.3. A Mortgage is basically a unilateral agreement to pay the lender's duty to pay the borrower for his Promissory Note (his application for the "loan" of some "THING" called "consideration") - which he signed under non-disclosure, false pretenses, and fraud.

23. . . . A contract requires two parties, an "offeror" and an "offeree" (an acceptor) who at the time of the contract's acceptance (its creation) agrees to be bound by the offeror's terms, as evidenced by the signatures of both parties to the contract.

24. . . . Every mortgage lender intentionally obtains his customer's Promissory Note by non-disclosure, concealment, and suppression of the material fact that the alleged lender is not risking any of his own assets in the transaction, and that the alleged lender intentionally obtained his customer's Promissory Note (his credit exchange) by concerted action with full knowledge of the end results of his participation in fraud, larceny, and conspiracy to defraud, in contempt of the RICO Act.

25. . . . A mortgage lender is NOT a party to the mortgage according to the laws of contract.

26. . . . No agent or principal of the mortgage lender will sign an "alleged" mortgage contract because he knows that the mortgage lender is not tendering any consideration to bind the transaction.

27. . . . Having provided no consideration and having shown no intention to be a party to the contract by signing it, neither the mortgage lender nor any third party who may purchase the mortgage at a later date has any "standing" to enforce the terms of the mortgage. Therefore the so-called mortgage contract fails "for lack of consideration" and is void.

28. . . . After obtaining the note, the non-authorized actions of the mortgage lender, regarding the applicant's Promissory Note, create the "implied obligation" for him to disclose the material facts of the transaction to the obligor of the note.

29. . . . If the mortgage were really a contract, the mortgage lender would have tendered consideration and have in his possession the original unmarked and unaltered note in order to enforce the contract or sell the note.

30. . . . When the mortgage lender obtains the customer's Promissory Note without consideration, he commits constructive fraud by acts of concealment of the material facts.

31. . . . The acts of concealment of the material facts establish a "breach of contract" since the mortgage lender has the legal duty to act in good faith and disclose the material facts relative to the transaction.

32. . . . Having obtained the customer's Promissory Note "by constructive fraud," the mortgage lender is not justified to enforce the contract by any "implied consent" because true consent, expressed or implied, cannot be given under a cloud of non-disclosure, concealment, and suppression of the material facts, or a state of duress.

33. . . . The Sovereign is deceived by the use of "the mortgage fraud" into "use by privilege" of what he thinks is "possession by right."

34. . . . A contract is a living body of law; an agreement made between living people with their full knowledge and consent.

35. . . . The main issue in this case is the banking industry's long time practice of "constructive fraud" by breach of contract, nondisclosure of the material facts, and larceny to boot.

36. . . . A mortgage lender must be a party to the mortgage according to the laws of contract in order for the contract to be enforced.

37. . . . The alleged lender didn't loan one cent of the bank's assets or of its depositors funds!

38. . . . A bank loans nothing of substance as consideration because the bank is forbidden by Federal Reserve regulations from loaning any assets of the bank or of its depositors.

39. . . . The borrower is always the original source of the principle amount of any alleged loan by virtue of his "promise to pay" (his signature on his credit application and Promissory Note) from which a negotiable instrument is generated ("credit money" per UCC 3-104) which the alleged lender converts into another form (a cashier's check, bank draft, or account deposit) in accordance with the lending policies of the Federal Reserve, which other form is then issued to the borrower as the so-called "loan".

40. . . . This "loan" is nothing more than accounting digits entered on the bank's computer pad without the borrower's knowledge and consent.

41. . . . So-called loans that end in default are simply charged off, i.e. discharged by a bookkeeping entry with no loss incurred by the bank or the bank's depositors.

42. . . . The bank has no substantial risk in any loan transaction and therefore no valid claim because the bank only loans the customer's own credit back to him.

43. . . . Banks do not loan substance, only alleged credit (good will and intent).

44. . . . The New Deal banking system is fraudulent by nature and can't be made legitimate by a false affidavit.

45. . . . The only person who can validate a debt is the alleged borrower himself.

46. . . . The lender simply exchanges actual cash value for actual cash value and the borrower is charged for this equal exchange as if it were a loan of money to him.

47. . . . The bank claims that the mortgage transaction is a so-called loan but it is a quid pro quo exchange deceptively called a loan.

48. . . . The evidence of this quid pro quo exchange is in the bookkeeping entries according to GAAP (Generally Accepted Accounting Principles).

49. . . . No cash value was paid by the bank for the accused's Promissory Note; the accused's Promissory Note funded the bank loan check that the borrower received.

50. . . . When a borrower gives the bank his Promissory Note it has a value equal to the loan check that the bank gives him.

51. . . . Who paid for the accused's Promissory Note? No one. Title to the Promissory Note still belongs to the accused.

52. . . . When a bank grants a loan all they are doing is transferring cash value from the alleged borrower's Promissory Note to themselves which is theft.

53. . . . The bank did not loan one cent of the bank's money or its depositors funds to obtain the borrower's Promissory Note.

54. . . . The bank posted the alleged borrower's Promissory Note on its books as a deposit from the borrower to the bank and uses the credit the bank obtains from the alleged borrower via his Promissory Note to create the check-book money they give to him as the so-called loan, and vastly increase the assets of the bank through fractional reserve techniques.

55. . . . The check-book money they give to the borrower has an equivalent value of legal tender because his Promissory Note can be sold for legal tender cash.

56. . . . The bank uses the newly created check-book money to fund the bank loan check they give to the alleged borrower to be repaid to them at interest over time.

57. . . . "The practice of law cannot be licensed by an state or State." - Schware v. Bd. of Examiners, 353 US 238, 239.

58. . . . "The practice of law is an occupation of common right." - Sims v. Aherns, 271 S.W. 720.

59. . . . A promissory note is a negotiable instrument constructed in strict accordance with the Uniform Commercial Code.

60. . . . Debt is discharged upon tender of a promissory note whether accepted or rejected.

61. . . . No body has any obligation to pay in promissory federal reserve notes.

62. . . . A payment tendered and refused is paid in full meaning discharged.

63. . . . Promissory notes represent the holder's right to enforce the promise against the United States.

64. . . . Notes are legal tender for everyone.

65. . . . Commercial Redemption is a legal administrative remedy provided by Congress via Public Policy.

66. . . . The collective entity rule makes a distinction between natural persons and fictional persons that are created the State.

68. . . . No "exchange of valuable consideration" has occurred in commerce since 1933.

"ad Christi potentium et gloriam"
(for the power and glory of Christ)

http://restoretherepublic.com/economy/the-foreclosure-fraud

John, I think we are very shortshighted when we say just modify the loans and reduce the balances. The problem is there are a lot of people that are responsible by paying their mortgages even through their values have declined.

By modifying loans to say 80% of todays market value we tell all people it is okay, modify your loan which will just increase the cost to the taxpayer and investors incredibly. If this happens why will any home buyer put down more than the minimum possible, and what investor in their right mind would ever buy a mortgage again without interest rates going so high as to make the risk worth it.

We also must look at all those folks who may have put down 40%, 50% or even paid cash for a home. The person who has their loan modified may sell their home in a few years and make a nice profit, yet the person who was responsible by putting down a lot of money or even paying cash may lose a ton of money as they will not be made whole.

You could end up with two neighbors each buying their home for the same amount with one doing a 100% mortgage and the other putting 40% down. Under modification where the principle is dropped it could be that the person who put little to no money into buying the home could sell their home with profit in a couple of years. The one who put 40% down sells at the same time and loses all the money they invested the home. This will basically say that the responsible individual who did a large downpayment is an idiot.

I have seen buyers who with their home values down just 10% due to when they purchased the home have asked about a strategic default or short sale even though they can afford their mortgage.

I believe that loan modifications with principal reduction will end up resulting in more people asking for a reduction and will cause those that made a large downpayment to give up.

What are we going to do start saying anyone who loses any money by buying any kind of investment can get a bail out from the taxpayer?

The way to get the values back is to allow the real bottom to be hit and then the buyers will be buying the homes. The values will then come back.

Yes I do feel sorry for people who are being foreclosed on and the terrible things that are happening to them, and yes I do help these folks with short sales or getting loan modifications as that I will always give any advantage to my buyers and sellers, however I believe we are on a slippery slope when we end up saying that the taxpayers and investors will have to pay the price whenever anyone loses money in an investment.

Unfortunately the vast number of buyers always buy investments when there is a freeding frenzy of buying at the highs and they also sell at the lows. That will never change and even though many of us warned buyers that what goes up will come down, they did not listen. No we may not have expected that values would decline this much but anyone who believes the fallacy that values of any investment will only go up are sticking their head in the sand, and if we as Realtors believed that then we probably should find a job in a 7-Eleven.

Government is the main cause of our housing crash with their over 70 year policy of trying to make home ownership affordable for all. Even now we have 100% USDA loans, gifting, no closing costs and other policies that will unfortunately keep foreclosures and losses going for a long time.

And as Realtors if we are going to say it is all the fault of the banks and investors who gave the loans, we must look in the mirror also as many people blame us for selling homes to people that should not have purchased them. Should we be willing to pay back some of our commissions that we made off of these people? How about the appraisers that gave too high a value? How about the buyer who lied to get the loan? Are they any better than the lender who gave them the loan? I still see buyers saying they are buying the home as a primary home and then I find out later that it really is a vacation or investment home. And how many of the gifts from families that buyers are getting now are really a loan that will need to be paid back.

Ultimately, the buyer decided that buying the home was in their best interest. There are many of us that have lost a lot in value but are not walking away. At the same time many of us will if they start cutting the principal of homeowners when we saw them using their homes as ATM's as we struggle.

The key to the recovery is not bailing out the housing market, but in getting the economy going and creating jobs.

While distressed sales were not a large part of the landscape in previous years, we're seeing more and more of them these days. Some blame this on sub‐prime or other risky mortgages. While each geographic region is different, most of my distressed sale listings are a result of the downturn in the economy, not from risky loans. I've talked to many homeowners who have exhausted their savings trying to keep their homes after job loss. Others are not so "fortunate" to have large cash reserves. They list their homes in hopes of selling, but find that decreasing values make it impossible to sell and have the funds needed to close. They eventually wind up in default and lose their home to foreclosure. It's a vicious cycle.

The cycle does have some roots in sub‐prime and other risky loans. These loans foreclose at a higher rate and when the homes sell at foreclosure prices, they impact values in the area. The mortgage industry reacted to this by requiring appraisers to use a smaller window of comparable sales and to give greater weight to distressed sales.

Statistics I've seen suggest that loan modifications and other workout arrangements fail at an alarming rate and I'm can't see a solid rational for across-the-board reduction in mortgage balances for distressed homeowners.

Short sales are clearly better than foreclosures for all parties. Sellers take less of a hit to their credit scores and are generally relieved of debt liability. Buyers purchase homes at discounted prices. While not priced as low as foreclosures, the houses are usually in better condition and have not sat vacant. Lenders get to clear the mortgage and asset off the books and take less of a loss than they would if they had to foreclose. Finally, home values in the area are not as severely impacted by short sales as they would be by foreclosures.

I attended a presentation by Dave Liniger (CEO RE/MAX) last week and I understand that new government rules are going to be put into place in April to streamline the short sale process.

Everyones circumstances are different and having been on the brink with our own house due to my husband being out of work for 2 years, I can see why this happens. It is very sad, a close friend had to go the strategic default route. They offered the property up for sale, no takers, offered the bank a Deed In Lieu, never got a response so gave up, and now 2 years on the bank will finally own it in February. What a waste of time and resources and who knows what the property is like inside after being unoccupied for 2 years. Why did the bank not take a pro active approach - well we all know the stories and reasons and there is nothing we an do but hope.

Anyway we look at this "great new depression" the housing market needs lots of help. I feel the banks made it bad for the average homebuyer. When you started loaning 125% mortgages. What the H..... were they thinking about? GREED........... and I asked local lenders years back is this going to be a downfall? Smirks and lauaghs as if I was crazy. When someone had to invest nothing of themselves meaning 20-30% cash on a home is when trouble started. I am all for some rescue efforts because we are in a disaster that needs help. Please lets reshape a much sounder program for the future. The banks can afford to reduce these loans, they made 3-4 times the money on interest RIP OFFS alone for many decades.

John, good post. I think your right on. While not everyone is deserving of a adjustment, those who have lost their jobs def are. For most, losing their job was not a "decision". Most that are against this type of solution think it's "unfair" because they don't get anything out of it. Good ol fashioned "GREED" is what got us into this mess to begin with.

I showed a house yesterday to a couple who had not been preapproved... (mainly because I wanted to see it, too). They're house shopping although she confided that they have a terrible credit rating, because they believe there are government programs that will help them buy a house. Amazing. I'm betting they end up with a house, too. Ah well. Our govt at work.

In the early 1980's in Texas in the midst of the S&L crisis, the government stayed out of the way and allowed the foreclosures to take place. It was devastating for a very short time. Once the homes were foreclosed, the market took care of putting them back into use, either as a home purchase or investors.

Many many people walked away. Many filed bankruptcy to eliminate the deficiency debt they owed. Some did not because they could pay.

There are legal systems in place and have been in place for many decades that can handle the situation for both lenders and borrowers. For some reason, the public? the political system? doesn't seem to have the stomach to let the legal and free market system work.

Wow, lots of great input here.

Every week as part of my community outreach I meet with financially struggling people who thought they had very secure jobs and plenty of financial cushion for a rainy day. They are emptying their retirement accounts to avoid a foreclosure and are within months of being completely broke, with no hope of employment in a market that continues to tank both on the RE values side and the jobs sector. How can anyone blame these people and claim they should have seen it coming? Not everyone who is in trouble caused their situation or could even has reasonably predicted how fast and far values would have fallen.

Then I go to show another agent's short sale listing and I see a 50" or larger flat screen tv in every room and a brand new 60" tv in the box without a room to put it in and the sherrif sale sign on the front lawn.

Some deserving their fate, others clearly caught up in a down cycle that is accelerating faster than all but the most skeptical could have predicted.

John, you hit the proverbially nail on the head when you exposed the truth, that even the big Banks claim they had no way of knowing housing market values would not continue to climb! That in and of itself is enough evidence to show the fundamental beginning and responsibility of our current and ongoing financial crisis started with a flawed, failed Banker "too positive" outlook on the impact of their own lending practices. Certainly, the fact that our glorious and enlightened politicians, like Barney Frank and Chris Dodd, encouraged banking regulators to look the other way when qualifying buyers in order to perpetuate the "American Dream" and secure them more votes for re-election and more campaign contributions courtesy of their crony lobbyists!

To the Bankers I say, "Cry me a river!, and step up to your responsibilities in this current real estate debacle! John, judging from your article, I believe you saw the handwritting on the wall...as did many of us in the real estate arena. We all knew that the "miner's Canary", first time homebuyers, were running out of opportunities to be homeowners as these prices escalated! We all saw the greed factor kick in from all perspectives. We all saw the greed and stair-step unrealistic escalation of housing prices! How much more proof and information did Bankers and Congress need!? Sure, there are homebuyers that new better, but there are more homeowners out there that are paying the price for a Greenspan "over exuberant market place"! I would expect the major players in this real estate debacle to pretend they didn't know or didn't see the handwritting on the walls, but we all know now that the reality is and was...they knew exactly what would happen! I am sick and tired of the Black Hats changing to their White Hats when they get caught red handed!

How many of the Real Estate professionals on this blog feel they are responsible for the huge loss of equity that they themselves have suffered in their own homes? I did not cause this mess...John, I do not think you caused this mess, but it is a mess nonetheless and one that neither you or I should be expected to pay for by making payments on something that has been devalued by those in power and control so that they could gain a financial benefit. Would anyone expect us to purchase a $20,000 valued car from General Motors for $30,000 so we could help the economy??? NO!

Yes, our system is flawed! Perhaps fatally flawed! We live in "opposite world" where government and economic solutions are bass ackwards. This is not just about the housing crisis which is merely a symptom of a far greater and perilous ill! Bail out funds for Banks, Greedy self-serving political interests, billion dollar bonuses for Wall Street, no jobs for Main Street, lack of governmental transparency, more rights for Terrorists, States lining up for more Federal Gov't dole, total lack of governmental responsibility from top to bottom! Personally, I applaud any State in this current Union that takes the initiative to secede this stinking, sinking ship and make a fresh start as a true peoples' referendum based Democracy free of lobbyist cronyism, free of special interests. I recommend we all buy real estate there.

Missy - And the foreclosures and declines in prices continue until we do something.

Lorraine & Loretta - Solutions are all we need at this point.

Pat - I agree.

Thomas - Yes, righteous indignation won't solve the problem.

Teresa - That's another issue--connected to bankruptcy, but not as much to foreclosure this time around.

Tony - We have to elect some "leaders" who will make the difficult, not politically expedient choices.

Paul - Everyone will continue to suffer if we do nothing, and we're not talking about the Super Bowl. Ignore it if you wish, but that won't make it go away.

Bob - That's why many in DC need another job!

You go #55.. I want to work with you!

As Newt Gingrich said, we should have let the banks fail that were in trouble!

Fact is to keep the consumption up the government lends us money, as do the banks. Look a Japan, they have been a in a depression for over a decade.. Why because of to much to fast!

Reality is, WE ALL HAVE AN ADDICTION, some are just more socially exceptable than others... Shopping and consumption is an addiction, just like crystal but it is socially exceptable.

Consumers are walking away because:

1) It's an easier way out then paying

2) Our societal values are such that we do not feel the need to honor our commitments, this is emphasised by both big business and government not honoring theirs..

Mark my words - 2010 is the year of "all in" and in order for there to be winners there has to be losers. We are in a depression, and it is not over!

Successful agents will make a fortune but thousands of others will exited the industry forever !

Junk is what I say.

The crisis began when the banks were forced to make bad loan by the government. There are areas of St. Louis where no intelligent person wants to live. The banks did "red lining" saying that no loans in such and such zip codes. Does the car insurance company charge much more for a car in those areas and yet they are allowed to do so?

There are certain areas in St. Louis where appraisers knew the demand for those homes. There were at least 2 or 3 buyers when a home in those areas became available. Now, appraisers who don't know their a.... are called to make appraisals.

I don't own a home so I am a loser, I didn't have a clinker again, I'm a loser ....government needs to get our of the way

Government wants to own the banks and control the wages of Wall Street, but what are the wages of Fannie Mae and Freddie Mac which are not government entities.

AIG should have failed and the situation would have righted itself. Our children have no chance for a good life.

What about my friends who refinanced their homes several times in a year and took international trips...should they just skate?

Look at the mess you have trying to get approval on a mortgage?

Sonny Landau

Wow, some very detailed comments here! I think there needs to be a "refocus" of where we are spending our time and tax dollars. We need to keep people in their homes and find ways to do so. We are all one step away from a hardship, so instead of trying to find ways to bring more people into homeownership, let's save those who are already committed to a mortgage loan.

Gary - Many fail to see how severely the crisis will impact everyone and how long it will last.

Donna - You obviously missed the point; my first paragraph was a comment on what is being reported in the news and what others are saying. If you had read the post instead of "assuming" you knew what I said, perhaps you would have a differing opinion. I'm on your side, and am being criticized by others for taking that position. Next time read the post.

Neal - Studies have shown that negative equity does cause foreclosures. This problem won't go away on its own.

Natalie - That's an ill-considered position; and it's not going to happen anyway. We must develop workable solutions. Your anger does nothing to solve the problem, and you will be affected just as will all those who made prudent decisions.

Tere - Thanks for the support!

John:

Thanks for the post. I think that all of the insight provided in the comments here is outstanding. Thanks to everyone for your individual insight(s).

I think your premise is flawed, John. You are basically claiming that if the loans were modified and the balances were adjusted downward, then all things would go back to good ole days.

This premise is flawed for several reasons.

1. If my principal were reduced today, who says I will stop there and not ask for another handout a few months from now?

2. Statistics show that more than half of modifications result in ANOTHER foreclosure one year later:

http://online.wsj.com/article/SB125431960273352535.html?mod=WSJ_hps_LEFTWhatsNews

But banks and loan servicers are recognizing that modifications don't always work if the borrowers aren't given a big enough break. Of loans modified in this year's first quarter, 28% were in default again within three months, the OCC said. Among those modified in last year's second quarter, 56% were in default again a year later.

At some point, people have to be responsible for their choices. If they end up making money, great. If they end up loosing money, then too bad for THEM. Don't make me, the taxpayer, bail you out.

This is what's wrong with today's mentality. If you keep robbing Peter to pay Paul, eventually, you'll bankrupt Peter.

Some really 'out there' commentary here...wow. Schools need to educate kids on financial responsibility & money basics.

I think it is hilarious, some RE Agents come off so sanctimonial regarding over-extended Home owners !

I, as I'm sure other RE Agents also and REALTORS (R) do--make it part of my practice to receive a copy of my Buyer's Bank Statements for supporting documentation to include with my offers. So I have an idea of how much money they have available and what type of Loan they qualify for.

If my Buyer's funds seems to be tight, I have an idea whether or not they will be able to afford the Mortgage--just like the Lender does!

So don't just blame everyone else on this "meltdown" we also have a part in it. Should we be throwing stones?

Banks were able to qualify buyers for an initial mortgage payment, which was much lower than the adjusted payment a few years latter. Everyone knows that if your mortgage payment goes up, the cost of a gallon of gas it takes to get to work doubles, and your income stays the same, something has to give! Banks knew they would get most of these homes back, and had collected 3 or 4 years interest money in the process. If you cannot make your mortgage payment and you call your lender, the 1st thing they want to know is, "Is your home worth more than you owe?", if it is the Bank sells it and stands a chance of making a profit. If it is worth less they will get a subsidy from Uncle Sam to cover the difference.

Most members of the United States Congress are currently earning more money from Bank lobbyists, Insurance Industry and Oil Companies than their Government salaries pay. When this happens at the State Government level, it is called Bribery!

Until we can get our Government back, we will be a the mercy of the special interests....

JR - Long term, we need a total overhaul of the system, but we must address this problem soon.

Thomas - We can still save millions from foreclosure if we make a concerted effort. Not to make an effort punishes everyone.

TeaParty - The "too big to fail" banks have grown even bigger during this crisis.

Brett - To answer your question, No.

Chuck - I agree that employment is a part of the problem and have addressed it in several blogs; here's a recent post. However, studies have shown that negative equity increases foreclosures; and unless we address the problem, we'll all suffer.

Alan - I wish everyone had made prudent choices, but the reality is, they didn't. And many who did make sound decisions are also suffering. To ignore the problem is the worst of options.

Dear John,

Your characterization of what happened to the housing market is accurate, as well as your suggested solution. I find the number of "professionals" who post here who do not understand the financial situation our country is in just amazing. You obviously did not skip economics when you planned your education. Good for you.

Regards,

Jim Fitzgerald

Emotionally, these stories are so sad and cram downs make perfect sense.

Economically, cram downs are Pandora's Box with a long-tail of unintended consequences.

Which of those two separate topics are we addressing?

I think that there are already some good responses here, so I will keep my brief. I think that without significant hardship, your home is your home, and the debt as well. Because it is convenient and it is happening all across the country, does not make it right- walking away is unethical and should carry some major repercussions.

There are many people with stable jobs that purchased years and years ago that CAN afford to make their payments, but because they see home values dropping, they feel they can move on with a clear conscience which is only adding to the problem.

If there is no stigma or repercussion for walking, why should anyone continue to make their mortgage payments?

If there is no job loss or reduction in pay, no divorce, death or medical issue then it really isn't a hardship, it is a choice.

Michelle Montez, Broker Associate

Intero Real Estate Services

I don't know how many of you have read the NYT article by Roger Lowenstein, in which he shares his insights into the mindset of the huge corporations-- with special attention to the banks-- who routinely make financial decisions and take actions that greatly harm individual citizens. The actions are to break their word-- abandon their "honor"-- and they suffer no public outrage for having done so. They are viewed as acting to protect the investors they represent, and that makes it all ok.

Is that not what the homeowners who choose to walk away from a faulty mortgage-- which is allowed under the legal terms of the mortgage-- soing? Protecting their "investors" who happen to be their children, spouses, family members?

Folk wisdom says that what is sauce for the goose is sauce for the ganders.

Here is a link to the article:

http://www.money-rx.com/blog/2008/04/triple-failure-roger-lowenstein-nyt.html

Hi Steve, post #74,

I'd like you to prove your assertion. The way I see it, the current administration wants to take over the banking, regulating their salaries, profit, etc....

You are also wrong on the subsidy from Uncle Sam. Do you know that Uncle Sam makes NO money (unless they happen to take over a private institution and share in their profits).

All of the money Uncle Sam makes are from the taxes they collect. So, Uncle Sam's handout is really MY handout (and that of other taxpayers). And I don't want my money paying someone elses mortgage.

I wish that instead of extending the first time buyer credit they would have instituted money for keeping people in their homes if possible, and helping out on short sales to help people avoid foreclosure. I especially did not like the encouragement for people who are in their homes to go out and buy another home.

John,

Okay so bail them out. Encourage more irresponsible behavior. Problem is, there's more at stake than just the economy and home prices. There is the moral fiber of our nation, and the freedom which has allowed us in the past to generate the highest standard of living, and the best quality of life on the planet. If we as citizens allow the government to force lenders to lower the loan amount, we will lose forever the fundamentas which have blessed this nation's people- the freedom we enjoy, and the free enterprise system that has allowed us to prosper. It is NOT the government's place to force lenders to lower loan amounts. Companies and individuals with money have the right to determine under what circumstances they will lend. NO government, NO citizen has the right to deprive others of that right.

Okay, maybe I am a fossil, but to do anything else violates the Constitution of the United States, and if we do that, we might as well live in South America, Europe, Asia, or the Middle East, where the electricity, water, TV, etc SOMETIMES work and where the government tells you what kind of health care you can have. I think that natural consequences are the best tool for learning. Sorry, but at EVERY closing I had, I heard the attorney explain the loan in detail, and I fully disclosed to my clients the terms of EVERY loan. For borrowers whose loan officers and attorneys did not do this, there are courts and attorneys. You might have noticed that most of the loans that were modified STILL resulted in foreclosure, just at a later time, and with greater losses to the institutions who were trying to help homeowners. I say let nature run it's course, preserve the foundation that made this nation great, and bring to justice the people who helped cause this crisis by wrongdoing INSTEAD of rewarding them financially by bailing them out with my taxes!

It's about values and personal responsibility. I am sickened by those who are employed with high salaries and who took the principle of leverage to a new level and now feel they should be forgiven. They still have the job, still have substantial income and feel they should be entitled to walk because they don't believe they'll see the value of there home return for some years. To these folks, I have no sympathy. (And why are so many of these the product of the dot.com bust ... anybody see the cycle here?) If they were faced with capital gains on their short pay, they may re-think their position. There is a lesson here for the next cycle or for the next generation; they will be more responsible.

As for lenders, they have allowed so many properties to become eye soars. The 'laws' passed requiring even a nominal level of maintenance were never enforced. Had they been, maybe these lenders would have been more motivated to move files through the process. In our market (Sacramento), B of A and Wells seem to be the culprits. Nobody wants to expose them. But their advertising promotes how they are customer and community focused. Meanwhile, property values suffered, city, county, and state coffers plummeted and the banks took TARP and made billions on interbank lending.

The market is returning, as it will. The pendulum is coming back. I fear we will have this same conversation in another 10 years unless home buyers, lenders and investors act and promote best business practices and personal responsibility.

"New York Times" article got it right - Loan Modification is not the Answer, Foreclosure is

A January 2^nd article in the "New York Times" by Peter S.Goodman got it right by essentially stating that the Federal Government's Making Home Affordable program has been largely ineffective and likely is causing more harm than good.

The article, U.S. loan Effort is Seen as Adding Housing Woes, covers a lot of ground but several of the main points brought by the sources referenced in the article are: 1) The Program has hurt an economic recovery by stalling the eventual outcome - foreclosure -- as most homeowners in foreclosure cannot make or choose not to make even a reduced monthly payment, and 2) the modifications along with the high re-default rate give homeowners the false sense in the short term that they can keep their home only to ultimately loose it to foreclosure.

By some estimates, the leading cause of loan default is not mortgage payment affordability but strategic in nature. Simply stated, the borrower understands that they owe, often by a large margin, more than the home is worth. He or she then decides the best course of action is to stop paying the loan as it would take many years to recover the lost equity. For example, a home purchased for $200,000 in 2006 and worth $100,000 today, a common scenario in Florida, will take almost 15 years at an average annual appreciation of 5% to be worth $200,000 again. I know of examples whereby a borrower buys a comparable home for half of what he owes and then stops making payments on the original home, thus securing the new home prior to taking the credit rating hit.

The government's efforts, via directives to the lenders, to modify loans is akin to putting a band aid on a broken arm in most instances. At some point, the arm will need to be reset and cast to ensure proper healing. Foreclosure, while painful in the short term, allows the lender to recover a portion of its loan loss and relend the money to a presumably higher credit quality borrower and put the home into the hands of someone more likely to be able to afford and maintain it, thus addressing the negative influence on the neighborhood of a poorly maintained home. Foreclosure is a necessary healing process.

Ultimately, the banks will make a decision that is in their best interest without being forced into something that is politically expedient. If writing down the debt is going to be less costly than foreclosing and trying to sell the home, that's what the banks will do and the template for that is in place However, forcing any lender to take action that usurps their legal authority sets a bad precedent, just as the government forcing the creditors of the big autos to write off their debt despite being in a superior lien position to please the unions is also a scam. We never think about the "investors" who lose out here. The pension plans, mutual fund shareholders, and 401k investors, not to mention the taxpayers, who really end up taking it on the chin when the government takes action like this.

I live and sell Real Estate in Northwest Ohio and I have GREAT sympathy for everyone going through a short sale or foreclosure! In fact, I'm mad as hell that the banks (or their designee companies) can't do a better job than taking six months to tell a Seller whether they're accepting an offer or not! People have lost their jobs, used their entire 401K money to make their house payments to avoid foreclosure, only to have the market decline and be underwater. If we want to "blame" someone for the continuing problem, we need look no further than the lenders and the companies handling their mortgage short sales and foreclosures.

I had a client try in vain to get the bank to work with them two years ago when they knew they were going to have a problem. Today, we are still sending in paper and having them tell us one more thing is dated and needs updating before they can proceed. Who do we go to so the banks act more responsibly? And why the heck are they getting huge bonuses for delegating their responsibility to some collection company who employes minimum wage people to handle these issues?

Hmmm....more of a rant than a post, but I feel better now!

Many people saw this coming. I listened to the gray haired old investors in my market area. They had seen it before and said to sell quickly.

I have helped many people in foreclosure since 2004 - before the bubble burst. I would only describe a couple as victims - their mortgage broker changed the game at the closing table. The rest made poor business decisions or were greedy.

One man was able to borrow $750,000.00 on $1400 per moenth income. He never intended on making a single payment, was hoping that huge equity gains would sustain him until he flipped, and took a cut of his mortgage broker's fee. Another person I am aware of bought about 5 high end properties, threw some improvements at them, cashed out $1,500,000.00 in equity and fled to Venezuela.

The only true victim in this mess is the American Taxpayer. Since the 1970s our leaders have headed toward this pasth - yes, Wall Street shares some blame too but the bulk is our government - the CRA, making banks make bad loans, kickbacks, bonuses based on volume, not soundness.

Near the end, the only money flippers could get on the low end was the ACORN money via BofA. That says quite a bit.

Ever wonder why the government run school system does not teach about mortgages and finance? Should be required in every elementary school.

John, if you want to learn about foreclosure - loan your money to a homebuyer. See what you will do if they stop paying.

Hey Jim, post #77, which economics class did you take?

Ultimately, banks have to tighten their lending standards, requiring up to 20% downpayment. Anyone who purhased a house for 0% down should have been renting.

If, after several years of ownership they are still at 0% equity (all because of Bush, I know) what makes you think they are not walking away during the next down cycle?

Hmmm....more of a rant than a post, but I feel better now!

When I arrive at the foreclosed home with cash in hand from the lender that has not gotten a payment in over 12 months the prior owner always looks surprised and is broke and can not accept the measly $3000 offered by the lender for relocation. What? If I did not pay my house payment for 6-12 months I would have plenty of money to move. They spend and spend and spend because there is no accountability for their actions. Each time someone comes into my real estate office wanting to discuss a short sale I ask one question "what is your hardship?" Most stare at me and exclaim that they are just tired of paying for something that has lost 50% in value. When I ask them to hand me their car keys, their cell phone, their computer, and the clothes off their back they looked shocked. YUP they all went down 50% in value but they would not consider cutting them loose. Unemployment is definitely a hardship that many Americans are facing. My husband and I both went out and got second jobs to save our home. He was not too embarrassed to pump porta potties for the local sanitation company for $8.00 an hour if it meant we could pay our mortgage that we signed without anyone holding a gun to our heads. Maybe it is time for everyone to step up to the plate and do the right thing and pay their bills so the rest of us do not have to.

Good post, this is a very hot topic, yeah loan mods do not seem to be working as the default rates after loan mods is over 60% again. Perhaps letting clients have a 6 month break in payments to "catch up" and then reporting a delinquent mortgage as current and removing delenquecies with the credit bureaus may give homeowners the incentive to stay in their homes, I think once clients become delinquent they just give up. Just a thought

John,

Way to pick a topic that will definitely get many comments. This is a subject near and dear to all our hearts. I don't profess to have a solution. Both sides of the argument are valid and plenty on both sides have lost quite a bit. I think that you should do everything within your power to make your payments and the lender should work with those who cannot make their payments due to a true financial need. Giving up on either side should not be a viable option.

Fantastic discussion. There is no easy answer. Throughout history those with money win and those without lose. The system encourages us, requires us, to accumulate money in order to become a winner and leave the losers behind.

Exploiters and cheaters inevitably come along and bend or break the rules. They tell people there is a short cut to "wealth", and they encourage people to think they can win simply by talking a good game, being in the right place at the right time, or worse, taking advantage of others who are not as ruthless.

Occasionally the house of cards constructed by the exploiters and cheaters collapses. Because this has an impact on everyone we must adjust the rules to compensate those who have suffered from these abuses. Unfortunately the exploiters and the cheaters benefit too. Perhaps they benefit the most. Those who had nothing end up with something.

A "rational" person would conclude from this that the smart thing is to become an exploiter or cheater. This is what bankers, advisors, and agents are doing when they encourage people to take advantage of programs that are obviously doomed to longer term failure. They become exploiters.

This is also what buyers are doing who take advantage of overvalued mortgages, run their credit cards up with no intent to ever pay them off, buy big screen TVs with the "equity" in their homes, etc.

This is the kind of behavior that the current system encourages. You can talk about "principles" all you want. Given the system we have, the smart thing to do is to take advantage of opportunities that present themselves.

I'm surprised that the hard core capitalists who like to talk about "responsibility" don't recognize this. What we need is a change in the system so it does not encourage people to become exploiters and cheaters.

All good comments above. I enjoyed the post today.

Thanks,

Patricia/Seacost NH

The Land - We have lots of problem with the big banks, and will have to address those through legislation. In order to do so, we'll have to change the way elections are funded; and that's a separate problem.

Suzanne - Thanks for the support!

Amy - I'm afraid we're past the point of accountability; and if we continue trying to achieve some sort of "fairness," we'll fail to solve the problem and all those who did the right thing will also suffer.

Loansumlou - We certainly need to address all the problems that caused the problem, but the foreclosure mess won't wait.

Mike - All the workable solutions are politically dangerous; that's why we must get responsible leadership.

Jeff - We're in uncharted territory, and that requires bold actions. This is not a typical recession and will impact us for years. We must develop a workable system for reducing principal. But whatever we do won't be fair to all; it might however, help solve the problem.

Tom - The economy won't get going as long as we're having several million foreclosures per year. Certainly we need to stimulate private sector jobs growth, but that will take years to turn the economy around. With about 20 million unemployed or underemployed, we won't see a robust economy for a decade.

Mr. Mulkey:

Apparently, you have no regard for the validity of or reliance upon contractual obligations, nor the sanctity of their privacy.

Your posted "solution" wreaks of socialism.

Connie - There are many such stories and the numbers will only grow without action.

Gary - We certainly need the banks to "step up to the plate," something they have yet to do.

Doug- Thanks for your input.

Monica - We do need to rethink the down payment and qualification requirements.

Mike - The current crisis is unlike anything we have seen. I've been in the business for 40 years and have never experienced anything so severe--and it will only worsen without action.

John - There are lots of hard-working, decent people who are suffering; and they will suffer more unless we act.

Chuck - I agree that our system is severely flawed, and that bailing out some, while not others is distasteful to almost everyone; however, everyone will suffer if we allow the present situation to continue.

I think we should reward everyone who is still making their payments, not feel sorry for the people that won't pay. The true hardship foreclosures should be met with debt reduction not loan modification. The banks should be using the tarp monies for debt reduction, not their own debt repair.

Solutions are available to those who are underwater or even think they are going to face financial difficulties--they can be screened to see if they might qualify for a loan modification--People who are in financial distress need to help of those who can point them in the right direction. Short-Sale is an option as well and banks are much more willing to entertain this option--less costly than a foreclosure. Lastly, it seems people who are facing financial hardship freeze or are in denial and don't take they action they can on their own (like contacting the lender and putting together their own loan modification package--it can be done.) The worst thing people do is to do nothing. Whether you agree or not with the current bailout policies, help is there. It's our job to know where to get it and pass it on.

FHA

http://www.fha.com/fha_article.cfm?id=39

HUD
http://www.hud.gov/hopeforhomeowners/

FannieMae

http://www.fanniemae.com/newsreleases/2009/4631.jhtml

Freddie Mac

http://www.freddiemac.com/singlefamily/service/mha_modification.html

Loan Mod Guidlines

http://www.treas.gov/press/releases/reports/modification_program_guidelines.pdf

(Info about VA loans Below is from this web site)

http://www.mortgageloan.com/mortgage-loan-modification/federal-programs

"Veteran’s Administration loans are a bit different in terms of modification than either conventional loans (Fannie and Freddie) or FHA loans, as the VA has no broad loan modification program, as do the other three agencies.

This means that borrowers should call their specific lender and ask for a VA Loan Modification Package. This will describe what their particular lender is looking for, and what terms they are able to offer.

In some cases, if a modification cannot be worked out, the Veterans Administration will buy back the loan. Borrowers should check with their mortgage professional for details.

While VA borrowers are inquiring about a modification, they should also ask to see if they qualify for a VA Streamline Refinance, which may help to bypass the modification process. A streamline refinance can, unlike a loan modification, can be done by any lender offering VA loans."

The track record is clear that loan modifications do not work. The main reason is that the borrower ends up with a higher payment rather than a lower payment. The most viable solution is a cram down. This is just a nod to reality. If a house is worth $200,000 and there is a mortgage of $270,000, the lender no longer has a $270,000 mortgage, it is only worth $200,000. In bankruptcy proceedings, cram downs are allowed for all sorts of debts, including second mortgages and commercial mortgages. It used to be allowed for first mortgages in the resdiential setting until the bankruptcy reforms under the Bush administration.

Hi John, Terrific post. Plenty of blame to go around but that doesn't solve the problem. Your solution may be closer to an answer than any of us accept today !

The current entitlement culture is what will do this country in - not the foreclosure crisis. The choices one takes have consequences - people need to grow up and face them. If there are no consequences nothing will be learned.

I have sympathy for a very few. The majority were greedy and lived way beyond their means. We all have neighbors, friends and family that spent money like there was no tomorrow. Now is the time to pay the bills (or don't - and deal with the consequences.)

Yes, we all suffer as a result. But in the end the suffering will cleanse our souls, teach us a thing or two and hopefully make us do things better the next time around.

On a related note...the way short-sales, foreclosures and bankruptcy work in the US seems compassionate as compared to most of the world. In some countries you and your family would risk having to work off the family debt in salt mines for generations...

Briefboy - Many may not like my proposal, but I have yet to see another offered that offers solutions. What most ignore is the loss of value by everyone, most of whom acted responsibly.

Sonny - What I'm addressing is a crisis of monumental proportions, and one that impacts everyone. Yes the system is corrupt, and must be changed; but to ignore this problem is to create even an even larger one.

Weichert - I agree. Let's focus on one problem at a time.

Rick - And thanks for stopping by!

Vlad - The modifications aren't offered because you ask; they would be based upon actual value. And your point of modified loans re-defaulting actually supports my position. Studies have shown that modifications that only reduce payment while not addressing the loss of value do result in re-default. Modifications that reduce principle are much less likely to re-default.

Jeff - That's a problem I addressed in a previous post. We do need to increase our financial understanding.

Gloria - Hopefully, we can get beyond the blame game and work to solve some serious problems.

Even though this is a subject that has been "hashed" over many times in this forum, it's always interesting.

I skimmed through the comments, and apologize if I missed someone with this observation, but if we institute a "cram down" policy wherein lenders are required to lower principle balances, whether it be through loan modification or short sales we are risking having a secondary market for mortgages.

Without a secondary market, there would be so few mortgages available, most of us would have to get a "real job". The only secondary market we have now is the government buying mortgage backed securities. If they bail out (as expected), the yields on mortgages would have to increase to the point where other investors would get back in a market in which they have no confidence. If cram downs become part of the equation, who in there right mind would invest in mortgages?

Someone above mentioned requiring 20% down on all mortgages as the solution to our woes going forward. If someone loses their job, has a death in the family, goes through a divorce, is faced with a staggering medical bill AND their house has gone down in value 30-60%, the amount of down payment they made would be immaterial. They're a foreclosure.

FHA started insuring loans in 1934 with minimum down payments and until the recent downturn has been one of the most profitable branches of the government. In fact in the early 90s, they had such a surplus, they loaned money to other branches AND reduced the MIP premium from 3% to as low as 1.5%.

The talking heads are all on the recovery bandwagon. But unless it's being pulled by housing and employment, not sure how sustainable it is.

"if the "brilliant" minds on Wall Street didn't see the crash coming, who could expect those on Main Street to have superior knowledge?"

I agree.

Foreclosure victims? LOL... come on...

Why would you only reward people who are underwater? Why not reward people who purchased wisely?

John thanks for this post!! I have written to Senators and Congress people both in my state and out of my state, Democrat and Republican and it doesn't seem to do any good, they all seem to have their own agenda and ideas and aren't interested in listening to people who are in this industry and have been for years. I wish I could have read all the posts but too many things to do on a Monday morn. We, as an industry should be able to come up with a better solution and until we do the housing market is going to continue to erode, its really unfortunate that this problem was limited to mortgages initiated in the period 2004/05 through 2008 and could have been resolved there but now has spread and is continuing to spread to people who were/are totally outside the box.

so how do we keep the conversation going, or more importantly get people in Government and finance to start listening and taking action that fixes things. By the way the solution to the economic and housing recovery exists in the very group of people that have been affected by it!!!

Steve - We do need to get leaders in Congress, and need term limits.

Jim - Thanks for the support!

Chris - What I'm addressing is the reality that we'll all suffer severe economic consequences if we fail to act.

Michelle - There already is little stigma for those walking away, but what I'm addressing is the larger problem that impacts ALL homeowners.

Denver - There have been many such articles and blog posts written on the problem with our "too big to fail" institutions. Now we need real solutions for the problems we all allowed to occur. Thanks.

I know of two people off the top of my head that forced their employer to put them on part time status so they could try and get their modifications punched through. Both of these gents would always find excuses to only work a day or two a week. One was finally let go, and the other was laid off after the company caved in and just let him go on unemployment which is what he really wanted all along. Even though they liked this employee, it was a pain playing the game with him everyday so they relented and gave him what he wanted... an unemployment check.

If the government is going to force the banks to bend over and give away free money (no payments, reduced payments), why wouldn't everybody and their mother "try" and jump on the bandwagon. After all, it's a great way to get back at the man. :) The worst thing that could happen is you will live for free in the house for a year or two, and if you get kicked out, you move in to the rental next door for half the price. God I love this country. -Cory

While I agree that throwing blame around is not going to solve the problem, there are a number of issues with your "solution" John.

Not everyone whose house as declined in value has stopped paying their mortgage payment. Many that still have the ability to pay are still paying. You shouldn't get a loan reduction just because the value of your home has dropped AND you decided to do a strategic default. If you do stop paying, it's your choice and it's a business decision. No moral issues there. However, the consequences of that action is spelled out in the loan docs. I didn't see anywhere that getting the principle reduced as an option.

The socialistic tendencies of our recent government leaders largely helped create this mess in the first place. Adding another socialistic "law" in order to help get out of it doesn't really sit well with many of us that still like the benefits of a Democratic society and capitalistic economy.

You say that the Government should "force" the banks to reduce principle balances. So my question to you is how would you like it if the Government forced you to accept a flat fee price of $100000 on all your real estate sales. Not only current and future sales, but also on ALL your past sales. If those past sales were more than that...well, I guess you owe somebody money then, right?

I understand that the above is an extreme example and not exactly an apples to apples comparsion. Still, it would suck wouldn't it? Yet, that is exactly what you're suggesting our leaders do to the banks now.

I agree that if a borrower is financially able to make a payment at a reduced point, it is definitely in the best interest of the banks to reduce the principle AND create a performing asset than it is to foreclosure on the property, and sell it for less than even the current value of the home. BUT, that has to be their business decision and it shouldn't be forced on them.

A better strategy? Simply have the government STOP giving the banks money, etc that encourages banks to foreclose and then the lenders would have to start to seriously look at decisions that would make true business sense.

i haven't met as many "victims" as the post might imply.

i've met many dozens of retards who signed on for mortgages they COULD NOT AFFORD. just couldn't afford them.

i've met many dozens who lived very, very well for a few years as they repeatedly used home equity to support a lifestyle that they could not afford through income/cashflow. trips to baja, boats, new cars, motorcycles, golf club memberships.

i've met many dozens who bought income properties with no money down and who walked away when those sucker bets tanked.

i can introduce you to people who DID NOT WORK...they simply called themselves "investors", and floated loan after loan as they pretended they were fine. until the easy money machine shut down.

it's important to remember that this steaming pile we are up to our armpits in is not an unemployment or personal hardship one...these are certainly present (as they always are)...it is a result of a series of decisions by folks who are entirely responsible for their own situation. the fact that the dullards on wall street enabled it does not mitigate the fact that the very largest percentage of the loans were made to folks who wanted something for nothing.

the banks price their loans to allow for a certain number of foreclosures...the hardships...the rest of the "loans" are their problem. AND LET'S REMEMBER THAT MOST OF THESE LOANS WERE SOLD OFF TO INVESTORS WHO WERE EARNING INTEREST FOR THEIR RISK.

i resent being asked to fix their screw ups of any of the "victims". since the govt. only has that money which it extracts from us OR PRINTS any relief granted is at the expense of taxpayers...WRONG WRONG WRONG

I almost quit reading when you suggested to abandon morality!

I believe in a free market economy and not a quick fix. I believe in physics (for every action there is an equal and opposite reaction). If we did what you suggested of just dropping everyone's loan balance that would stop some of the defaults on mortgages, but would cause defaults on the banks thereby impacting even the retired people that have their life savings in there with a free and clear mortgage!

If we were to buy into this idea of writing balances down to fair market value, does that mean my credit card balance should be written down to zero since there is no current value of the meal I charged last month?

If we were to buy into this idea of writing balances down to fair market value, will we have to do this for all the automobile loans out there too since the cars are worth less than they day they were purchase?

If we were to buy into this idea of writing balances down to fair market value, does this pendulum swing both ways so that we can charge people more when their home values increase? Actually, I am all for a shared equity participation loan. If the consumers were allowed to use those and the government was the beneficiary over time on this, we could pay off the national debt since historically values have increased 3.8% annually and now we are below that growth line for the first time in recorded history of mortgages!

Time to cut and paste my response into todays blog.

Joe - I agree. Stimulating further sales wasn't the answer; and that's now evident.

May - My suggestion is to address the calamity we all face if foreclosures are allowed to continue unabated. I'm an old fossil too, but I do understand that we can't ignore this problem. And "letting nature run its course" as you suggest, is only to increase the problem and heap damage upon those who never participated in the problem. And the loans that were modified and re-defaulted were those that had no principle reduction. The government's own statistics have shown that principal reduction significantly lowers the re-default rate.

Bud - The market can't rebound until we clear out the foreclosures, and continuing with the current system will take years and will further harm those who had no part in creating the problem. I never said I like the solution, but I am a realist.

Jim - The current system of modification doesn't work because it doesn't address the problem of loss of equity. I've written about it several times. Some of the modifications actually resulted in a HIGHER payment for the borrower.

Mike - The investors have already received their losses. The properties are only worth what they're worth. If the properties are foreclosed then the losses in many cases will be greater.

What are you talking about "It would not affect the bank's or investor's equity"? I am a shareholder of B of A, Wells Fargo, and financial ETF's, etc., why should I take the losses and let those irresponsible walk away without consequence?

John, I have to agree with you. And I must admit its from a completely personal place. When my husband and I bought our condo as first time home buyers in Oct of 07 we were making 6 figures combined. Shortly there after I gave birth to our son 11 weeks early. He weighed only 1lb 4 ozs and spend 5 1/2 months in the hospital and required 24 hour nursing care once he came home. I lost my job. The market crashed. We are now a good 50-60K underwater. I tried desperately to find another job in my previously field with no luck. I have done well as a new real estate agent this past year but that does not make up for the fact that being so far underwater I can't even imagine at what point we would be able to sell without a short sale. 5? 10? years? Who knows.

I do believe that I have a contractual obligation to pay my mortgage. I am not giving up my house and yes, its a struggle every month. We were lucky to be able to obtain a modification from our bank but that doesn't erase the fact that the principle balance is so much higher than the market value.

I agree with your solution. I struggle every day thinking of how long it's going to take before my husband and I can sell without being in a short sale situation.

After reviewing the comments here, I believe many do not comprehend the scope of the foreclosure problem. Those who are inclined to blame homeowners seem to have experienced a case where obvious fraud were involved or someone financially secure just wants to walk away from a bad investment (which the financial institutions do all the time, by the way).

These are a minority. Most people who experience a foreclosure have been hit hard by job loss, ARM resets, extraordinary medical bills, etc., or a combination of these circumstances. It is widespread and will continue to drag down the economy unless we get programs that deal with the reality of the situation.

Not only do loans need to be re-calibrated to current market values, but we also need to minimize the credit impact of foreclosures and revamp policies that prevent foreclosed citizens from buying another home for 7+ years. Don't let a moralizing zeal to punish a minority of homeowners and investors who took advantage of a flawed system lead to punishing the majority of innocent victims who are in dire straits. This will only prolong the downturn by removing a large number of potential home buyers from the market for the foreseeable future while also promoting more foreclosures.

Jo - Lots of folks are asking the same questions.'

C J - Many people are doing the right thing, but will lose their homes. Not all of those facing foreclosure acted irresponsibly. And to ignore the problem will increase the problem for you and millions of others.

Michael - Thanks for your input.

Kyle - I agree that all parties need to do everything possible to solve the problem.

Rick - Good comments; I just don't know how to enforce morality and prudent action.

Patricia - Thanks for stopping by!

Ken - No, my suggestion reeks of realism. I'm frequently criticized for my conservative stance on issues; but I'm also a pragmatist. The problem won't fix itself, and the measures taken to date don't work.

Dear Vlad (post #89),

Quite frankly, I do not see where we disagree. Back in 2004, banks, major national lenders, and GSEs should not have acquiesced to pressure from certain elected officials to relax mortgage loan underwriting guidelines. But, once that occurred greedy players in other sectors of the industry jumped in to facilitate the marketing of high risk pass throughs to investors throughout the world. Now here we are.

Jim Fitzgerald

Great post! I love a topic that stirs the pot, and this one hit a nerve. We must not get caught up in "judging" buyers or sellers. We must make the tailored suit for the client that fits their particular need. While, at the same time, finding that place where we feel good about our role in this chaos. The "blame" game of who started it and bla bla bla will not get you anywhere but to a largely negative place! Let us move on and upward to the niche where people can appreciate our profession...

John, your posts are the fantastic and I always look forward to them. The Colbert video footage is a can't miss as well. keep up the good work ~ Brad

Obviously stabilization of home prices is an important - I think that the more we can focus on the demand side of the equation the better. With prices finally stabilizing now in my market (for the moment at least) it is easier for everyone to assess their individual situations. Some people will stay and keep paying - better for all the rest of us - while others will be faced with a difficult situation.

I think if the regulations were improved to allow for homeowners to short-sell - because the house is only worth what it's worth - makes the most sense to me. I find it tragic when a bank turns down a short-sale proposal simply because they will make more money by collecting on mortgage insurance. This happened to one a client of mine - she had put 20% down on a fully documented mortgage but lost her job. Our short-sale offer was deemed 'too low' even though it was at fair market value so the bank foreclosed. Then they sold the property for significantly less after foreclosure. Crazy.

Steve - It's not a matter of feeling sorry for those facing foreclosure, it's all about addressing a problem that impacts us all. Loan modifications should in many cases include a reduction of principal.

John - Thanks for the resources.

Paul - I agree.

Bill - I keep reminding folks that I don't like the course I suggest, but it's the only solution I've seen that may work.

Are - It's not a matter of sympathy, and I doubt most would readily accept the consequences of inaction if they could see them in advance. I doubt my solutions will be accepted, and then we'll see what the results will be.

Greg - Housing won't pull us out this time, but will continue to weight us down.

Dawn - Thanks for visiting.

I understand that universal access to the resources for self-development and the reduction of social suffering, such as poverty and illness are requirements for individual liberty and necessary for thriving societies. Provided by government in civilized societies these elements are paid for by taxing the citizens.How does this apply to the housing market? It doesn’t. Americans shouldn’t be forced to pay for a bankers bad debt, white collar crime, a neighbors bad decision or bad luck, period. In real estate 101 I learned that the market of real estate is based on supply and demand with little government intervention (civilization always needs regulation).

If the government decides to actively engage in the market and make subjective wide-scale determinations on who gets to own a home and who doesn’t then freedom will continue to ring a little less in this country.

While I do believe in responsibility for those who have made bad decisions their are plenty out there that are in this problem because of things outside of there control. The fact is that the market has crashed and the banks will lose some of their monies the question is who should own the house. there are some who should have never lived in their current homes, there are others that are where they are because of uncontrolled situations. I know many people who are in both situations and my heart goes out to them all. However until somebody comes up with a solution to stop the bleeding two things will happen, the market will continue to fall and peoples lives will continue to be destroyed.

If people can afford their mortgage they shouldn't walk away, it's wrong. You might think it's easy for me to point a finger, but I was in the same spot in 1986. Does anyone remember the 80s? My husband got transferred all the way across the country and we couldn't sell our house for what we owed, even though we had added a laundry room and garage to it (without creating additional mortgage debt) in the seven years we owned it and paid the mortgage. It was on the market for nine months, we sold it by agreeing to pay all the buyer's closing costs, and the loan was assumed. We paid the mortgage and paid rent on an apartment and on a storage unit for our household stuff that didn't fit in the apartment. Why did we do it? Because it was the right thing.

But the real point is, how were we able to do it? We had jobs. No government 'solution' is a fix until the market is allowed to flourish and start creating jobs again. Government spending = slowed economy. Economics 101.

Dan - Many choose to ignore the problem, but we'll all suffer the consequences. BTW, "victim" is defined as, "someone harmed by a condition or circumstance." That doesn't imply innocence. But it can also mean, "A person suffering from a loss, especially by being swindled," a definition that certainly applies to some.

Will - We're addressing a very real problem, not granting gifts for all.

Dan - And yes we continue to press Congress for meaningful action, and we change the faces of those who fail to listen.

Cory & Michelle - Such stories are the exception, not the rule; and we obviously have to look at each case.

Roger - You're not addressing the problem. What is your alternative solution? I'm a free market capitalist, but am willing to take actions that may counter my beliefs if it is best in the end; and I believe this is one of those situations.

Michael - And you can attempt to ignore the problem, but it won't go away. Your simplistic view, while shared by many, won't help us out of this situation.

I wrote out this very long comment and the system lost it -aarrrrggg. I am appalled by many of the comments. Many are simply short sited and in some cases ignorant.

I talk to 15 - 20 clients a day, most of whom have done everything in their power to stay afloat.

2 or 3 years ago the entire real estate culture was based on using "other people's money" and leveraging your home to the max. It was considered smart financial management and my guess is that quite a few people commenting here benefited from this culture.

We are a nation that waits until people have been buried alive to offer help. Then we give handouts that keep people trapped.

You can't have 10 - 12% stated unemployment and real unemployment of 25% or more and tell me that this is caused by irresponsibility.

Seems to me that a good solution would be similar to low income housing. Provide govenment assistance to keep people in their homes, but limit the future sales price to prevent abuse. It becomes a win/win.

The person in financial hardship keeps their home and the housing market stabalizes. The end result will be job creation as consumer confidence returns.

Ouor government took care of big business and threw the little guy under the bus.

It's not in our self-interest to punish others. I would have thought we'd have learned this growing up. My parents always told me that you "reap what you sow" and not to be concerned with what everyone else is doing. We need to get through this and move on. The victims are suffering and those who are scamming the system clearly live that way...what a horrible way to live? Pity, not vengeance.

Wow one of the best post I've read with great comments. Disagree that we should do anything but let the market correct itself. If it takes 10 years then so be it.

I think to many agents forgot that their client was their number one concern and not their personal pocketbook. Any agent letting their client get 100% loans, or more, is as much to blame for the current situation as the lenders, borrowers, govt, etc...

We don't need to do anything but let the market correct itself. Hopefully this will teach personal responsibility which seems to be missing in this country now-a-days. Maybe people will start saving and taking interest in what is going on instead of trying to take whatever they can get.

Ultimately, I blame the lenders. They set the borrowers up to fail or, with success, pay the lender even more down the line. Win/win for the lender. Now, people can't pay so the government pays the lender. I lobby that we all get the benefits and assistance the lenders get.

John,

Didn't read all the posts (reading blogs isn't my full time job) but I don't think any politician or lender/investor is going to make any effort along these lines without tying any reduction in principle to an adjustment upward, should there be a "Recovery" down the road, or, and this would be worse, an adjustment in interest "upward" after a recovery.

Also, I don't think that your plan would suddenly stop, or even slow down foreclosures. With employment figures where they are, if people are not working, a drop in their mortgage payment from $1500 to $1200 is not going to keep them in the house.

Reduction in principle, across the board, to me is like loping of an arm when a finger (well, maybe a hand) needs to be amputated. Home owners that now need to sell who are upside down, urgently need this relief. Legislation or policy needs to be changed to evaluate those situations. In other words, stream line the Short Sale process. The banks and their investors are going to incur the loss anyway, swallow the pill and move on.

I am with Tim Maitski, above, let the market work. We didn't do that with auto makers, and financial institutions and too much Government has us on a collision course with inflation. If you think it is tough now, add 2 or 3 points to the average mortgage rate, and see what happens to values!

Jim - You must have read a different post if you think I'm suggesting abandoning morality. And I'm waiting for your alternative suggestion for a solution.

Ed - The market has already reduced the value of the mortgages, and when the home goes to foreclosure you'll take those losses. The homes are only worth what they're worth, regardless of the mortgage amount.

Erin - Lots of folks want to ignore the reality, but you've seen it.

Al - Thanks for the refreshing comments. You seem to understand the realities we face.

Dave - Thanks for your input.

Brad - Thanks, my skin was wearing thin : )

Michael - There's still lots of irrational behavior from the banks.

J. Marie - Government intervention helped to feed this crisis, but we must look for solutions that will help restore balance. This problem is too large to wait for the market to function.

Dan - I agree, and am just waiting to see if there are other solutions offered.

Joetta - This isn't the 80s, and we'll have to deal with this problem or deal with the dire consequences.

From my views, I see that most homeowners who have had the misfortune of a foreclosure wanted to keep their homes and tried to work out whatever they could to pay for and keep their home with a 'finger' from the banks.

The foreclosure roll has to stop (for homeowners and families that lose income and/or jobs becuase of the economy) or our real estate markets will not recover.

This is a wake up call for everyone. It has changed my thought processes. I had high aspirations of many material things when I started my RE career. Many of these things are just not as important to me anymore and after seeing how many people close to me were effected by no fault of their own. I have also sen the effects on the people who have down it to themselves.

I think everyone is looking for someone to point the finger at! But what's important now is... how do we recover from this mess??? We need to find solutions without handing out BILLIONS of dollars willy-nilly! Ohh, but that's already been done!!

Kate - Yes the big banks have grown even bigger and more profitable, while Main Street has received little attention.

Karen - Nice viewpoint. Thanks.

Gary - And in the mean time, the economy will struggle in ways we may not be prepared to handle.

Karen - Ultimately, Main Street is too big to fail; allowing it to happen will be disastrous.

Freedom - I don't think the market will solve this problem. And many are still working, perhaps with less income; they can continue making payments if they're reasonable. I just think doing nothing will create an enormous problem.

Hi John -- 2.5 years after the start of the subprime fall, it seems to me that the core issues of this crisis are not yet in place. Inadequate modifications, punishing appraisals, lack of accountability and common sense regulation and the list goes on. Sure, some progress has been made, but it makes me think we are nibblling around the edges instead of taking a sledgehammer and really addressing this issue. I think it all boils down to power and money at the large institutional level and as long as that is the driving force, issues like this will continue to appear.

John,

What interesting discussion and many different perspectives on the crisis. Here in AZ.I have seen all kinds of different reasons for people being underwater, many of my clients are retirees, facing reduced income or substanial losses from their retirement investments, that coupled with devastating medical expenses is putting them out of their homes.

The rest are workers, who have lost their income due to the construction slowdown. There are no easy answers but with most of the people I see, they are not being irresponsible, just caught up in this mess.

Great post. Thanks.

Diana - I agree.

Sajy - This recession has changed the way we perceive many things.

Kathy - Solutions, not finger pointing--I'm ready to follow that course.

Do I rip the band aid off quick and get the pain over with? Or do I slowly pull it off and prolong the agony?

I tend to agree with the quick and painful vs slow and agonizing. Let the homes go to foreclosure, the modification programs are for the most part, a joke.

To prevent the problem in the future, require down payments, good credit, employment. Not everyone was meant to be a home owner regardless what the CRA says.

As for cramdowns, it will make mortgages more expensive on those of us who are responsible.

Just my 2 cents

As a mortgage lender who followed the rules throughout the frenzy of rising prices I "lost" a considerable amount of business because we would not agree with whatever somone stated as their income and often required supporting documentation when a stated income appeared to be higher than what one might expect. These borrowers didn't blink and just shopped for a lender willing to be complicit in their fraudulant activity. Why should taxpayers assist those who committed fraud knowingly? It would be easy to determine whether fraud was perpetrated before deciding who should be "forgiven" and those that should bear some pain for their actions. A simple IRS transcript from the year the loan was made could be compared to what income was stated on the application. If the borrower was truthful there should be some assistance. If not, I have little sympathy as these are the true culprits of the economic morass in which we currently wallow.

Chris - We know that to "follow the money" is to discover both the problem and the solution,.

Pat - Thanks. Yes, there is no easy or painless solution.

Roger - Allowing homes to go to foreclosure won't solve the problem, for it won't happen as quickly as removing the BandAid. It will take years as banks dibble them out. And if it did happen immediately it would create a crisis within itself. And "cram-downs" would only apply to those mortgages currently in place, not future mortgages. I'm open to solutions for I find the options all distasteful; I'm just seeking a realistic solution that takes best possible course for the long term.

Scott - I agree that we can discover those who committed fraud and should not bail them out, but perhaps require bail to be set.

I simply cannot accept the statement that the banks didn't see this coming. Bank executives have gotten rich, congress has remained in power due to campaign contributions - everyone was drunk on money. I wish there was something we could do to make sure this never happens again. And I hope that while the economy may not be great during my 'earning years' that it will heal enough for my children's sake. I'm very concerned about the debt accumulated on the shoulders of my children.

Great Thread, John has struck a cord!

I see a lot of "lets blame the consumer" and "what about personal responsibilty" here. I do agree with the personal resposibilty issue but not the Blame the consumer one, for the most part.

Lets not forget, this all came about from loans, both home purchases and refi's from about 2004/05 to 2008 and in large part the adjustables were/are causing the problem. I've had people say they got the nice surprise in the mail that their payment was going to double at the adjustment period because of all the fine print in those adjustable loans. Should there have been personal responsibilty, you bet, the "Professional Loan Officer" sitting across the table from them, when they applied should have made it crystal clear what was going to happen OR could potentially happen and if they did I can't imagine that as many people as have been affected by this were all about knowing and greed, just doesn't make sense. That said I will give the Lending Industry AND the Real Estate Industry some latitude, not much but some, remember they should be Professional. Think about this, in the early 2000's we had a recession, which primarily affected white collar middle management workers who couldn't go out and find other employment in their fields, A LOT of them turned to Real Estate Sales and Lending Opportunites, good money and easy to get into. So here comes this fabricated market and there are a bunch of people in the industry who think this is just commonplace for real estate, they have no experience of the RE business cycle, they just think this is the way it is, so the mess grows bigger, no one was watching or mentoring what they were doing so they just went with the flow? Thats the only excuse I will give, the rest falls flat on the shoulders of the powers that be in the Mortgage industry. I suspect those that had been around awhile saw this coming like I did but couldn't do anything about it. History shows the real estate cycle is pretty consistent, this one wasn't.

John..This a great post ..I could not agree with you more...Blame goes everywere...Finding a solution that will stop the downward trend ..which affects everyone in the long run can at least begin to stabilize the market place......don't ya just luv that Steve Colbert!

John, I didn't read all of the post but I felt compelled to comment.

It is always so easy for people to be judgemental and look down on a easy target. When compassion is asked of people all they can speak of is the few instances were the people "deserved" it. They can come up with a hundred expamples as to why people shouldn't have help or be shown sympathy.

"They paid off credit cards with the home equity"

"They brought more house than they could afford"

Blah, blah, blah!

"I helped them out of their situation although they were irresponsible"

These lines are starting to become so cliche and I was hoping they could be left in 2009.

I have news for all of you judgemental folks.........Any home is more than you can afford if you lose your job or develop a serious illness.

It kills me when especially professionals in our field get so self righteous and start sounding like a broken record about irresponsibility. You see the same post over and over again from the same people. Do you know why? Because it's easy and in most cases they will big props from the peanut gallery.

Solutions are needed right now and not finger pointing. Get over yourselves, stop looking into the past and let's get done what needs to be done.

I did read the post about walking a mile in someone elses moccasins but I have another one my Grandma used to say..........

That same shoe that fit the person who you are trying to judge can fit you to. So think about that.

John, I left two things out in first reply...first, good post (if 130 replies wasn't enough of an endorsement), and, second, thanks for the Colbert link.

I agree you're addressing the economics. Some of the moral issues are a separate topic and separate post. An example of someone we know is not a statistic. That's an example. One example of anything seems insignificant when you are talking about millions of anything.

Post #102 "cram downs are allowed for all sorts of debts, including second mortgages and commercial mortgages." Are those examples of what would help or examples of how to effectively trigger further problems in housing? Both of those credit markets are frozen right now. There is a reason that credit card rates are so much higher than mortgage rates.

I fail to see how freezing the mortgage market (a big percentage) would be less painful than dealing with foreclosures (a small percentage). The entire global financial structure is in the process of deleveraging itself. That's the pain. That's the problem. It stinks. Deleverage cycles are painful and can last a while.

I have proposed a solution. Replace the HUD ARM handbook with a copy of The Tortoise and The Hare. Clearly the last book wasn't getting through to people. It should be a standard disclosure on every real estate contract, mortgage application, auto loan, credit card, and perhaps be included as part of the Federal Tax return. The Tortoises won big in 2009.

John I think that there is enough blame and responsibility to go around. The brunt of the blame and responsibility has to be accepted by the lenders. There is no way on earth that a vast number of people ever should have been allowed to qualify for a mortgage.

No one twisted their arms to take on more than they could handle but before buyers could ever have qualified the lenders had to lower their standards of qualification. On the flip side you had those who actually qualified and were still jilted by those they should have been able to trust (lenders, mortgage brokers, bankers, etc) to legitimately guide them through the complicated mortgage process.

I don't buy that they did not see it coming. Lenders were smart enough to maniulate the system to their advantage, then surely they were smart enough to foresee the end result.

There is no one size fits all solution, because in the end somebody's still going to lose.

I had a blog about this very thing. I just think it is better to use the tools to figure out a way to pay back debt, not just walk away. Empty houses and homeless kids are uncalled for. There of course is a few sides to this story.

1. People paid for an overpriced home and are on vacation right now. When was the last time you or I took a vacation?

2. People who paid for an overpriced home and are struggling and are about to loose it all. I think modifying loans are a great plan plus incentives..... Keep people in there homes who are trying. This happened to a nice family I knew, they had to leave their home.

3. People who paid for an overpriced home and lost their job. There are basic categories that need procedures to help these people. There is no reason why a house should sit empty when there is so many in need.

Ummm ... yes, I know this isn't the 80s. But why are we so set on ignoring the fact that we had a real estate meltdown before, and we turned it around. Why is it so crazy to think maybe we should talk about how to make our economy start working again, and how that would help the majority of people, by creating jobs? I agree that doing nothing is bad, but making the problem worse for more people is worse. Unemployment keeps going up, that means a greater problem.

Christianne - I think the banks bled the system for all it was worth, knowing that there had to be an end, but not wanting to stop until the last minute. Unfortunately, many of them waited too late, but Uncle Sam stepped in to make their cronies whole. It's not right, but I'm not trying to get retribution, just stability in a crumbling system.

Dan - Long term, I think we can address many of the issues that created this crisis--whether we will or not is another issue. But I sincerely believe that the current problem needs to be addressed to minimize further damage to all of us.

Kathleen - Finding a solution is the key; we can't just wait to see what happens.

Kim - You seem to agree with me--obviously an indication of high intelligence : )

Chris - This time the Hare may die before crossing the finish line.

Charita - There is no easy nor simple solution, but we must try to find one that works.

Having read most of these, I'm not readily seeing what occurs to me as plain: the perceived current market value of a house has little bearing on the owner's ability to pay their mortgage. Am I to stop paying my mortgage because my house is now perceived by the market to be worth less than I paid for it 5 years ago? As long as I don't sell and lock in my loss, it's academic.

Having said that, of course there are those who have a reduction in income such that they cannot pay the mortgage or who "need" to sell for good reason, but "Market Value" in and of itself, while sad and worrisome, may mean I stay where I am and wait. My house is not a short-term investment, it's my home.

John,

Good topic and lots of good responses. It shows the breadth of the problem and the difficulty we will face in solving it. As Greg mentioned, increasing down payments isn't the silver bullet because of FHA's history (until recently) of being very successful and profitable with a 3% down program.

I have been a lender for 25 years, and I can tell you that for the most part, people tend to try to do as much as they can on the resources they have, accumulating obligations to the maximum their budget allows. They will buy as much as they can afford and it works well until something takes them off course - job loss, income reduction, medical, etc. They do not budget for an interruption in income or an unexpected expense - home repair, car failure, or medical cost.

I have found that when people budget housing expense at 25% of income or less and allow 5-8% for debt, they will be able to afford the home and still be able to save for the future and for emergencies. However, when I prequalify people using these principles, they want to push the envelope and get the bigger house. So, we have a twofold solution to deal with. First, we have to deal with the foreclosure problem. Second - how to educate people so the problem can be avoided in the future.

Since the economy is delicate, radical changes should be avoided. Putting a thermostat to 90% because the room is cold is not the best way to heat it up, because you then have to be there to turn it down once the room is warm. Set the thermostat to the desired temperature and it will get there. Likewise, we should set targets for industry reform and work toward those goals rather than go overboard.

It might be effective to have government funds available to match voluntary principal reductions that the banks provide. This would provide an incentive to bringing the economics of the property in line so the homeowner doesn't walk. Waiving late fees and crediting accrued interest can also be a partnership arrangement to provide the incentive for the banks to take action.

The biggest problem however, is the process. Servicing companies are overwhelmed with the volume of request and cannot process them quickly enough. This adds to the time a property is non-performing and that time equates to a huge amount of unpaid mortgage payments. In addition, these companies are working on data that is subjective (hardship letters) and cannot process the requests with an automated system. Effective manual underwriting is a skill and there are not sufficient numbers of these people available for the industry.

What we need is a formula program that can be implemented without a lengthy processing time. And it must encompass the lender, the government (which is providing the resources) and the borrower. One possibility is to create a loan of 90% of current market value, set the rate to the 60-day Fannie Mae 30-year fixed rate, re-amortize to 30-years. The borrower must agree to perform on the loan for the next ten years. If they do, the subsidy is forgiven.

The loan that is being replaced can be bought by the government at the original principal balance or current principal balance, whichever is less. The difference between the purchase price of the loan and the current balance (excluding late fees) would be the subsidy amount. Once the loan has performed for a year or two, it would be salable in the secondary market as a standard mortgage, giving the government opportunities to reduce its inventory of paper. By direct government lending, the bank gets the bad paper off its books. The government can shift from buying mortgage backed securities to this lending facility.

As far as the consumer attitude on debt, I think it's clear that household economics, debt management, and budgeting will serve our citizens a lot more than lessons in Greek mythology. It should be required material in high school to prepare our future wage earners on proper financial management.

Cathy - I do believe we can develop solutions if we try. None will be universally lauded, but we may solve the problem.

Joetta - I've addressed the unemployment problem in separate posts; and it is a very real an troubling issue. However, we have millions of potential foreclosures in the works, dramatically more than in past recessions. We need new solutions that will deal with the realities of today's crisis. Thanks for your input.

Bob - Thanks for your thoughtful comments. That's exactly the approach we need; analysis and suggestions, not continuing to discuss who is more responsible.

I love irony. And isn't it so . . .

On the macro-level those in charge -- all the good stewards of the funds -- packaged all kinds of sub-prime loans and sold them -- worldwide. A lot of the "investments" they pushed off were to countries who used their pension fund money to purchase these products. Iceland was in a tail spin, still is. Tip of the iceland berg?? Banks were not allowed to fail. They were not allowed to be 'foreclosed' on . . . they got bail out money. From taxpayers no less.

On the micro-level, all the individuals -- and YUP there are those that spent a lot of money which they were allowed to borrow, creating more debt on their mortgages -- who had just about the same mentality as those wonderful stewards of the funds. But they're allowed to be foreclosed on.

The wave of ARM adjustments were calculated. Like a Tsunami warning, we know in advance. There's another wave coming.

And what people don't get is that the overall affect is decline in equity -- your equity, my equity, your neighbor's equity, my neighbor's equity -- there's tighter credit (for businesses too), increase in taxes. Can you say 'inflation' boys and girls?? I knew you could.

And what about student loans?? There are millions of families that used their equity NOT to buy boats, wide-screen TVs, or stocks. They pulled money out to send their children to college. For those who have children in college or nearing that point, how do they fund this now? Hmmmm??

And for those who don't have college aged children, you better start socking it away now, and hope your little darlings get really, really good grades. What we are going through now has tentacles very far reaching.

Whoa! Nellie! What a response. I lost track around #20 or so. Some of these were so ong, I fell asleep. HOWEVER< you raise a good point. However, I gotta go with Jeff Coon #72 I believe. If schools would teach finance and ethics in high school instead of some of the other topics they teach, maybe, just maybe we would come out with a better class of young adults who become our future. Wow, where did I get that from.....lol

Well said,but we need to become part of the solution.

Helping those that were stupid or just plain sorry is a hard pill to swallow, but we all have to suck it up and do it. Protecting the value of every ones home is more important than the short term satisfaction we may get by punishing them.

John, with all due respect, I did offer an alternative. The first step is for the Government to STOP making it an easy decision for the banks to foreclose by STOP giving them money, incentives, etc, that make foreclosing a better option than a short-sale or loan modification. Simply put, right now, there is no reason for the banks to make a better business decision because they reap rewards for foreclosing.

You say correctly that there is no simple or easy solution to the problem and that a realistic solution is needed. This isn't it. Again, I agree that writing down the notes would be a far better solution, business-wise, for the lender than foreclosing and getting only that % of the current retail value for the property (if they weren't being supported by gov't). But it still should be a business decision, not a government forced decision. Clearly with the current mess, you can't really believe that MORE government intervention is the real answer.

Also, your solution still doesn't solve the real root of the problem, which is jobs, or lack thereof. If more people had stable jobs, then more people would choose to PAY their mortgages instead of defaulting, even if the values were less.

And finally, as I mentioned on another of your posts, the massive drops in value in housing is primarily within a few states. It's hardly the 'majority' of the Nation. For most of the country, this will simply work itself out, as painful as that may be, and eventually, get to a "normal" market. This problem can't simply be "quick-fixed."

On a lighter note, I've got to say that I think you could make some serious $$$ being a Robin Williams stand-in! It may just be the particular photo, but the resemblance is striking.

Whoa is right! Can we stop using the term "victims?" No one was a victim here. We all made investments in our future. These investments decreased in value. Why are we not taking responsability for our actions and accept the fact that what we chose did not pay off in returns we wished for? What comes up must come down. I educated my buyers from the boom two to four years ago. DO NOT use your house like an ATM. Who cares what the neighbors have? I also taught them to make extra payments if possible-even if it's only a $5.00 payment. Those that listened to me are about even with the market and making their payments. Those that didn't are calling me for short sales becuase they owe more than the house is worth and want to walk away because they made a bad decision? Our tax money is paying for it.

We should have finance classes in our education system to teach people about investments. (How many people do they say are living paycheck to paycheck yet still want to go buy a new car? ) Education is key.

Sorry for the soapbox but I am a passionate person!

Carla - Thanks for the input. Judging from many of the comments I think you've accurately described part of this problem, And what people don't get is that the overall affect is decline in equity -- your equity, my equity, your neighbor's equity, my neighbor's equity . . .

Jean - You address an issue that is critical to long term solutions.

Larry - Let's go!

Tom - I think those who acted irresponsibly are in the minority, but do agree that we'll all suffer if we fail to act.

Roger - Since I doubt anyone in government or banking really cares what I think, I suspect the end result will be a prolonged recession, exacerbated by continuing foreclosures. Yes, only a few areas were hit hard, but it is affecting all areas. In my area, where we've see far less foreclosures than the "hot" areas, we've still seen values drop significantly.

As for creating jobs, I'm all for it and have posted on the effects of continued high unemployment on several occasions, but we'll not solve the jobs problem until housing is stabilized.

Finally, you're the first to see a resemblance with Robin Williams, Mickey Mouse on occasion, but not Williams. Thanks for your input.

Shelly - I addressed my use of the term "victim" in #130, and agree that financial education is critical to the future. However, that does nothing to solve today's problem. In truth, we're not bailing out a few, we're solving a problem in which we're all a part. (I'm passionate in my beliefs, too.)

John,

I have mixed emotions on this topic. For that group of people who sold their home on a short sale so they could buy up in a fancier neighborhood at a discounted rate - SHAME ON YOU! For those who walked away from their house and then went to Disney World - SHAME ON YOU! But, for those who lost their job, lost their overtime, lost their spouse - this help is needed. This financial crisis is a great wake up call for people from all walks of life. Just hope we listen and learn.

I totally agree with you but this is such a touchy topic ,,, and such a mess

A very good blog, if that is what you call this? I usually tend to vote for the underdog here because my experience negotiating mortgage modifications and short sales for homeowners is that the banks simply don't care. Maybe they shouldn't....but clearly we are all suffering for their lack of any compassion. There is simply no doubt about it. I am quite sure that blame falls in a number of places and some on homeowners who should have not have purchased or refinanced the home true; but, the vast majority of the blame must fall on who profited most by all of this....I think by now we all know what entities those are! So, enough is enough, there will be losses and the longer this all plays out the longer we will all suffer. It is time to stop this and require the losses to be taken and for all of us to move on. There is simply no other way to see it. It is a loss, we all know it, it is not going away if we give it more time or ignore it, so let's recognize it a move on. Now,I do agree that some people should be throughly investigated and I doubt that will happen but it should. Further, there must be some oversight to make sure this ends here. Because, whether you like it or not, this is still happening. The short sale flips without any regard for anyone but the profit line, the fraud, the lack of scrutiny all of it continues. It is all about greed.

I think, we need to have some reasonable legislation that requires banks /servicers to work with property owners in some reasonable fashion. That means timely, reasonable given some objective analysis, and with the goal of restoring our market. If that means modifications with principal reductions, or short sales with a loss to the lender or bankruptcy with a cram down provisions, or a modification of our credit system in general then so be it. It is four plus years now and not much has changed. So, enough is enough.

Karen - The ones deserving shame are in the minority; and more will join the other group if we fail to act.

Gene - You said it best--it's a mess.

Paul - If we fail to force action, we'll be discussing this problem years from now with the loss of trillions more in equity.

You are 100% correct, where we are in Southwest Wisconsin its not so bad but its still hard to talk about.

Love the discussion, but I need a break--I'll be back later. Thanks to all for your interest and comments.

Remember when our parents and Grandparents bought their homes? I distinctly recall them telling me about their fear and struggle to pay their $300.00 a month house payment. At no point were they looking at their home as anything other than that, a "home"!

Fast forward to the last 10-years and most people that owned a home were convinced it was miraculously transformed in to an ATM of free cash there for the taking, if you just applied for a new loan. And, the banks were more than happy to give you the money because it wasn't going to stay on their books once is was sold off to Wall Street.

Once the Street got hold of S.D.O.'s & realized there was a massive international market, loan guidelines all but collapsed and money was there for the taking. So, most borrowers bought into the notion that their homes would never decrease in value and any money they got could be repaid even if they needed to sell in the future.

Most of the short-sale clients' we work with had every intention of paying back their loans. They had legitimately qualified under lender guidelines, had verifiable incomes, good paying jobs, low monthly expenses and properties that were met LTV requirements. Yes, there were some knuckleheads that were doing anything they could to take advantage of the system, but that wasn't the majority of borrowers'.

What they didn't know was that unemployment would reach 11% and their industry would be hit because another sector of the job market was all but eliminated. The ripple effect of our economy and the number of hard working people that can no longer work, even though they want to, is the major reason we have so many homeowners ditching their dream homes. Not because they want to.

This is why short-sales make so much sense in this market. Under the current FHA guidelines, buyers that have had a short sale in the past can qualify for financing after 2-years from the date of the short sale. This is gives buyers that got caught in this mess a "reasonable" chance to own a home in the future and not be penalized for 10-years with a foreclosure on their record.

Interesting how when Morgan Stanley makes an 8 BILLION dollar buy at the top of the market (San Francisco Towers) and then decides they don't want it anymore, they structure an "orderly transfer" to hand the property back to the lender. Even more interesting is how the Lender is the one negotiating the "orderly transfer".

Dec. 17 (Bloomberg) - Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an "orderly transfer" of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.

"This isn't a default or foreclosure situation," Barnes said. "We are going to give them the properties to get out of the loan obligation."

That last line says it all. If YOU do this there is some sort of "Moral Dilemma"? I guess not according to Morgan Stanley AND their Lender.

Both sides, Lender and Borrower took huge risks in the bubble. Lenders did many stupid things and so did many borrowers and the overwhelming majority of the players knew the risks. You can say that both sides of the equation should have known better so both sides get to take their respective lumps. It's not like walking away from your home/mortgage is some new option and, Lenders used to require downpayments to reduce that risk.

Who's to blame? The truth is out there plain as day but since it's political I'll leave that rant to another venue.

TARP funds are untrackable. Banks are in overkill on underwriting. No re-fi's available for those underwater (HARP program is a dismal failure) Mod's, for some secret reason, are not going through in any real measurable quantity. It looks like the foreclosure market is here to stay for the next 5 or so which suggests that we all better find a way to hang on for half a decade or jump on another train going elsewhere!

My bottom line: No borrower is owed a cram down or Mod. No Lender is owed anything more than the terms of the loan contract which is either the repayment of the loan OR, as the game goes, the property itself.

http://activerain.com/blogsview/1263914/so-to-whom-do-i-pay-the-note-60-million-uncollectable-mortgages-

HELLO FELLOW REALTORS,

I THINK ITS TIME TO STOP POINTING FINGERS... I DON'T THINK ANYBODY IS FREE OF BLAME... INCLUDING ME AND THE REST OF US WHO WERE IN THE BUSINESS.... WE ARE ALL HUMANS AND MAKE MISTAKES... ITS TIME TO TAKE ACTION AND JUST TRY TO RESOLVE THE ISSUES AT HAND. ENOUGH OF... IT WAS THE LENDERS FAULT, NO IT WAS THE BUYERS FAULT, NO IT WAS THE REALTOR. AT THIS POINT WHO GIVES A DARN....LET'S STOP TALKING ABOUT IT AND BE ABOUT IT (THE SOLUTION)

The short sales I've worked with involved divorce, jobs moving out of town, and death. I'm glad I was able to get these resolved and kept out of foreclosure. I've also seen many foreclosures from people who had NO idea how money worked. They nodded their head that they understood this rate and this payment, but they were trusting professionals who said they could make their payment. That was the homeowners fault. An individual is responsible for their decisions. As a nation, the best thing we can do is restore the economy and repair the damage that has been done. If that means some people screw the system, I don't care. People have either learned their lesson or not. The bank is not capable of teaching that lesson. Going forward, I think larger down payments are probably necessary.

John, you touched on a very sensitive issue here!

Thank you to all that contributed to the heated discussion. There is some definite valuable information included in the comment.

As for my opinion, I believe that there is a multitude of reasons why people default on their mortgages. Each situation is different and there is no "fit all" solution to the problem.

John,

Certainly there is no easy answer but I do like your proposal. If your proposal were to be implemented, there would be many who will fall on both sides. There will be those who are fiscally responsible as well as those who feign innocence.

My experience in San Diego is quite similar to Barb's in Chicago.

John,

Nice post, they ar many opinions regarding this issue and you have struck a cord with many people and there are many verry good comments to your post. Regardless on who someone feels is to blame, the fact is that we need to focuse on a solution and that is not happening.

I tend to agree with the cram down, as long as banks continue to forclose, property values will continue to decline. If the bank is willing to take the loss in a foreclosure sale or short sale and accept current market or less, why not do it with the family living in the property and lower their mortgage to current market.

Not everyone was just plain irresponsible, sure some were, but many more are a victom of the down turn. For example, I have a good friend who was effected by the turndown he was not irresponsible, he had 30%+ in equity and was not living above his means, his employer was forced to downsize and his income was cut by almost 50% and his property value dropped, he not only lost his equity, he found himself owing more than the market value and couldnt sell to downsize.

Another couple had just retired in their young 60's due to medical reasons, they had a retirnment portfolio that was suficient to sustain them and their lifestyle, then the market crash they lost 70% of their retirnment portfolios value, what was left was not even enough to pay off their house and because they lost so much equity, a reverse mortgage was nor even an option.

Our economic outreach ministry is purposing to teach people to not just survive these economic times, we are teaching them to thrive.

Thank for you great post.

Minister Mike

MichaelWhiteBlog.com

I strongly disagree. Short sales and deed-in lieu of foreclosure programs yes. Those have immediate and obvious benefits to the neighboring homeowners. They address the situation for what it is, the cleanup of a failed real estate venture. The reductions in principle you suggest are an undeserved gift to certain borrowers, unlucky, irresponsible, clueless, whatever - that is just plain wronng. What about the millions who have lost their homes? Your idea effectively creates two classes of people: them that lost, and them that got. In a few years, your lucky borrowers will certainly be selling at a profit. Are you suggesting an equity-sharing plan with the lender? Are you suggesting this forgiveness of debt/gift should not be taxed as income? Frankly, I don't want to live next door to anyone who gloats about having their mortgage chopped in half, regardless of how they ended up there.

John, great post! I agree with you wholeheartedly regarding a larger solution to an enormous issue that affects ALL OF US. I would like to see that happen!

Bill - I agree that we could streamline the short sale process and that it would help, but not everyone wants to give up their home. And if the bank is going to lose anyway, let's try to keep them in them.

Pete - I'm aware of the Morgan Stanley deal and wrote a POST about it. It is interesting how banks look at things differently when they're on the other side. And certainly no one is OWED a cram down or modification, but if we all ultimately benefit, it may be the best course.

Juan - I agree. Let's look for solutions to some serious problems.

Joseph - You make some valid points. Education is obviously important. Interestingly I did a POST several months ago about one of the economics writers for the NY Times, and he too, had fallen into the "home values will escalate forever" trap.

Monique - There is no one solution to the problem, but we must start working to develop the plan that will encompass the totality of the issue.

Eugene - That's why the solution will require effort to resolve, but we need to take action.

Minister Mike - Thanks for stopping by. I know many disagree, and doubt Congress will take the necessary steps to do what is politically dangerous; but I would like to see some meaningful action.

Brian - An it's an attitude such as yours that will probably prevail; however, you and I, along with millions of others will suffer the consequences.

Lisa - Thanks for the support!

I agree assigning blame for the housing bust and subsequently leading to one of the biggest economic crisis and recessions that I have ever witnessed has been misdirected. Being a Realtor in the housing industry has had great impact on my ability to sustain a livable income. Thus I have been strongly motivated to understand what really happened to create the housing bubble and why.

I am not claiming to have real life experience or have had formal education in economic theories and applications, and more directly in the monetary system our government currently adheres to, but of late educating myself with my own personal research and reading articles and books (I too have been watching the Financial Crisis Inquiry Commission on C-span has been astounding to me. How naive I have been. If you consider yourself middle class Americans who only want economic prosperity and parity, which I consider myself, and according to Economist classing Americans by wealth, the middle class is comprised of 95% of our population.

Who of us has not heard the adage, "Follow the money"? For myself, I'm finding this true to our current crisis. Are you interested in where the money leads? If not for your ability to make a sustainable living in real estate, than at the very least because you are also a taxpayer.

Our current monetary system is structured to encourage economic growth by consumerism and debt. We are lured into believing (the middle class) that wealth is achieved by spending and debt is better than saving. The last industry to perpetuate this myth upon of course has been the housing industry. Here are some questions to ask yourself?

Who really does profit from a boom-to-bust market?
Who really pays for the risky behavior?
Why aren't those who create false markets held responsible, at least from a monetary perspective.
Why do Wall Street Bankers and Investment firms get a "lender of last resort" (bailouts from taxpayer's- the middle class).
Why isn't the Federal Reserve Board require to disclose their responsibility in price inflation, recession, depression, manipulation of interest rates, and excessive debt? (They aren't legally required to - they don't have to be transparent)
Why can the Federal Reserve Board print money out of thin air to loan and even have less real capital to back their lending?

Who Is The Federal Reserve Board????? Probably the most important question to ask! My fact finding is limited in scope at this time, but I'm particularly interested in the "revolving door" between Large banking firms (i.e. Goldman Sacs), the Treasury Department, the Federal Reserve Board and Congress.

If you are interested in these type of questions, here are some resources that have helped me.

http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine (article by investigator reporter Matt Taibbi of the Rolling Stones)

http://www.youtube.com/watch?v=mIIAvdJvCes&feature=player_embedded ( There are 4, approximately 8 minute each videos on YouTube that expain our monetary system.) It's done in animation so its easy to watch and understand. Grab some popcorn. Worth the price of admission :)

The are many books on the subject, but I found these two books easy to understand and follow about the makings and doings of the Federal Reserve Board. "The Creature From Jekyll Island" by G. Edward Griffin and "End the Fed" by Ron Paul. Because Ron Paul's book came out in 2009 he can relate the workings of The Federal Reserve Board to our current housing bust, the bailouts, and our overall economic crisis. You don't have to necessary be in line with Paul's politics, but I do believe he is very informed and knowledgeable. You don't even have to agree to his solution for the US to return to a sound monetary system. But you will at least know why are current system works the way it does.

And lastly watch the hearings currently going on C-Span by the Financial Crisis Inquiry Committee. Go to http://www.c-spanvideo.org In there search field type in Financial Crisis Inquiry and all the sessions can be viewed on video on your computer is you can't watch them live. It's really quite interesting since it pertains so much to us as Realtors and taxpayers.

Many of the comments I am reading cast too big of a net on the situation. The Economy is having a trickle down effect for sure. Yes folks cashed out encouraged by daily mailings to home owners, but I digress.

I am seeing really goodhard working folks caught up by no fault of their own. Medical bills, job loss and business slow downs. One of my clients owns a pizza business, they did a bang up lunch business which consisted mostly of trades people and construction workers...that crowd is gone. Oh and the dinner business well most folks are not eating out anywhere near as much, their income has plummeted. I addition one of the owners of the pizzaria had to have a major medical procedure and we all as Americans know that spells trouble no matter what. Here is the effect - this family of 6 (4 kids) is most likely going to close this business which employees 8 people in this small town. They are going to lose their home & business due to a major loss of income. They had rainey day savings, we are having rainey years.

Another friend well her husband had a heart attack & stroke. Almost lost his foot due to infection. I really do not need to say much more because again as Americans we shutter collectively when we hear about anything major medical. Oh and both couples have insurance, not that it means much anymore, the bills are piling up. At this point I feel like Dr. Evil...throw me a fricken bone!

So you cannot cast a net or point a finger and say it is this guy, or them or this 1 financial lifestyle because the effect is deep and wide and many many good people are being effected. I do not know the answer or that there is one answer I just know the way it is going now & the confusion in dealing with lenders is not helping. This is a WE thing & it effects us all..doesn't matter if you come from Yale or jail it is upon US so blaming does no good. We need a solid sense of direction and we need it not to be heading toward the drain.

An interesting concept,.. But I believe one that is too big for the banks to embrace. Yes,.. they will be facing forclosure actions along with short sale action,.. but in the end,.. there was no guarantee ever given that the market would continue spiraling upwards. To make such a requirement would mean that the banks would, in essence be guaranteeing the market. They simply are not in the guarantee business.

The second principle is that there are currently millions who are making their payments on an investment that may have negative equity now. Should the banks start reducing the principle owed on every property that is upside down, what motivation is there for those who do not need help,.. whose jobs have not been effected,.. and their income has remained stable?

I do not believe it is about (Punishing) anyone,.. however,.. ultimately, what created this mess was our greed. We "wanted" more than we could afford,.. and capitalists found a way to meet that desire. No one twisted anyones arm or forced them to sign to buy that house that was more than they could afford,.. so yes,.. some fault lies also with the consumers,..

We as Realtors were a part of that,.. we ask how much they want to spend,.. and then some of us pad that amount upward,.. knowing that buyer will fall in love with a hgher price point and possibly buy that higher priced house,.. why?? Because the commission is greater,.. or the house they are looking for is more easily found in a higher price range.

Me,.. I would rather find the buyer a home 10% less than he/she wants to spend than 10% higher. Very few of my buyers experience repossession or forced sale and that,.. is my goal.

For what it's worth

Great post John. I think we need mediators to work out conditions between banks and borrowers. Someone who has a little common sense.

Kristie - I'm familiar with the sources you cite, and agree that the problem extends far beyond the housing bubble. At some point, perhaps, I'll share my thoughts on economic policy, but that's another topic and I'm certainly no expert--but then neither are the "experts."

Julie - Good, common sense comments. Thanks.

Randy - I doubt we'll see my suggestions implemented, but I do believe it important to look at our options. Developing a workable solution would be complex, politically dangerous, and would always be unfair to some; but if it helps solve the problem, it would be worth the effort.

April - I would love to see some common sense injected into the search for solutions. Thanks for your comment.

Sorry, but our area did not get hit as hard as some, so maybe it's just me, but I can't get over the moral issue. If two houses of similar value sit side by side, and one owner is behind in their mortgage and the other continues to make payments, why put the second owner at a disadvantage by reducing the amount of principal for the first and not the second? So every time there is a swing in the market we should revalue mortgage principal's to compensate?

We cannot always fix every problem - that darn law of unintended consequences. It may be painful, but I would rather let the market work it's way thru this mess rather than take this type of artificial effort to "fix" it.

John,

Exactly. It seems pretty clear that the answer to the mess is principal reduction. Banks obviously make more money doing something else, though, for instance what someone suggested earlier about FDIC and its "shared-loss" agreement with large mortgage lenders.

Bonnie - The second homeowner in your scenario benefits by not having the value of his home drop as it would if foreclosures abound. And we're not talking about minor swings in the market; we're talking national disaster that has already cost trillions.

Esko - I do understand the implications and the benefits that banks sometimes receive; what I don't understand is thinking of some that this will somehow work itself out. It won't.

There is a lot of hot opinions on this. I think that we all share some responsibility. Comment # 40 stood out to me though. If we are going to punish the homeowners we should also punish the members of our government and the banks. This should include Barney Frank and Chris Dodd, who seem to be getting off the hook but are largely responsible for this mess.

John,

In your utopian solution would everyone have their debts written down to current value? Even those who can afford their homes? Even those who max cashed-out and bought toys or paid off credit cards? Even those who are not faced with impending foreclosure?? And then I have to ask about ME! What about ME? I've spent the last year and half paying an additional $1,000/month towards my principal balance so I have no payments at retirement. Am I just throwing my money away? Will you write down my balance, too??

STOP the SOCIALISM!!

Jana

I have to say that I respectfully disagree... kind of. I disagree with cram-downs. If the banks want to alter their contract, that is fine, bt allowing the government to get too involved would lead to unforseen problems.

The real question that we must ask is? How many times should the bank be paid? Your lender was paid a sum equal to the total of your debt when it securitized your note. It was then paid again a sum equal to the amount of your note through TARP when the CDO's went south (consumer debt obligations). It will be paid again a sum almost equal to the sum of your indebtedness when you go to default and the bank makes claim against the mortgage insurance. Once foreclosed it will again be paid whatever your property sells for. I count four times so far...................... Those of us that tend to view the indebtedness as a moral obligation might be well advised to view the transaction the same as the bank views it. It is a contract and they seem to have violated the contract by Tortious interference.

The bank gets paid more than three times the amount of the note and we hesitate to ask for a reduction in principal? Who is apt to hire us to negotiate a contract if we are so timid as to pause for even a second while contemplating a renegotiation of the terms?

Fair or not something has to be done to slow the foreclosures. When you see homes and condos selling for 50 cents on the dollar or even less around you, it does not take one long to realize that if the government had helped your neighbor it would have helped you also.

Tom, I don't usually respond to other posters but, two points.

1) If the Govt. helps your neighbor it does so at a cost to you and possibly your kids and grand kids. If the Govt. doesn't help your neighbor there is also a cost to you.

2) At least consider that speeding up foreclosures might just be a better thing than slowing them down.

Thanks

as a realestate investor, I ran into one big problem. Its called ARM. Most of my mortgages are fixed. Everything was fine, until The three ARMS Adjusted far beyond what the tenants were paying. So much for positive cash flow.

It is difficult for investors to obtain modifications. When I purchased the mortgage, I was told to simply refi to a fixed rate just before the adjustment. Sounds like a good deal back then, but the economy changed my score to no qualify, oh well. I told the mortgage company that it would be to our advantage to create a fixed rate mod, with escrow, and make the monthly payments the same as before. The jury is still out

Most home owners in this situation, who still work, could keep the home with a win win for both sides

I'm always amazed by those that think a handful of career politicians are the best choice to fix everyone"s problems. It drives me absolutely crazy when I hear someone say "the government should...." Like a bunch of kids who can't take care of themselves. I've done well because I worked hard and did not depend on others to look after me. A mortgage is a piece of paper that contains a promise. It does not matter if someone lost their job today - they will work eventually and the debt should remain. If the mortgagee is willing to accept something in trade (like the home) then that should be the only option. Moving out and stopping payment should not pass the responsibility to the note holder to get something done with the collateral. Hey, maybe the government should own all the houses and then there won't be any foreclosures - we would all be tenants. Utopia for about 49% the population.

There are certainly some portion of people who are doing strategic short sales or foreclosures, but there are also many who truly need help. I understand that a huge percentage of people who modify, won't be able to make even the modified payments.

If mortgages are crammed down, what percentage would be able to make their new payments?

If mortgages were crammed down, what effect would that have on the market, on the banks, on the entire economy?

I'm not certain of these answers and would love to hear from an economist on this?

It sounds great in theory, but would it really solve the problem or would it cause others?

It seems to me the current solution is not working and simply prolongs the agony.

Well it is human nature to punish someone... so who is it going to be?

JAN

2010

Most of you are right. There are a few with whom I disagree. The variety of answers reflects the reality of the situation - There is no one size fits all solution. It's just not that simple. We're all going to be taking bitter pills for some time to come

Wow! It seems like those that scream the loudest haven't a clue what it feels like to lose a home! Now I am in TOTAL agreement with those that believe it is wrong to be in a home that you can afford and then you walk because you have lost equity. That is not ok! You agree to purchase the home for the price it is that day. Markets are cyclical and values do change over time. But if someone loses a home because of circumstances out of their control or a bad loan they were stuck with and didn't understand then that becomes a whole different matter! I know others will say then...they should have read the fine print. That is true as well, but people TRUST their Loan officers and their REALTORS to walk them through things. They don't understand the business. How many lenders "summarize pages" and say sign here after one sentence?

Gene - I'm not talking about giving a pass to those who committed fraud; and tax returns will ferret them out. I do believe we need to do something to deal with mounting foreclosures and would like to see some effort towards developing a system to do so.

Jana - If you'd take time to read my posts, not just this one, and to consider the alternatives, perhaps you could participate in the discussion and potential solutions. But to respond without thinking, is to become a part of the problem.

Lane - I've only come to this conclusion after much research and consideration. I was originally opposed to the idea and stated so in previous posts. However, I now realize that this problem is far different from past recessions and will require solutions previously unacceptable. If we fail to address the problem--and I believe we will--we'll seriously impact even more of the housing market and stifle any recovery. Of course the only opinion I can offer is mine; and I'm open to alternatives.

John - While I think your analysis is somewhat distorted, it is certainly accurate to say the banks, especially the big ones, have been the beneficiaries of the recession and forced taxpayer largess.

John, your premise for the blog is good, but not complete. Just reducing the principal on homes is not going to solve the problem. While I agree with many of you that there were way too many greedy homeowners -- anyone who saw the crazy housing mess in '87 should have known the end would be near and that home prices would not rise forever. HOWEVER, a few of you hit the nail on the head (Suesan, Missy, Donna, Tere, JR, & John Q) telling about those responsible people who have been impacted by this mess, those who actually tried to do things the right way. Those who have owned their homes for 20 or more years, who have worked steadily for those same years and now find themselves unemployed, due to no fault of their own, and unable to find employment anywhere near comensurate with their education and experience. These folks are now trying to afford their homes on unemployment income (generally less than half of what they were previously paid) while at the same time getting whacked with COBRA payments that are at least 3 times what they paid while employed. These people may or may not be underwater, but are unable to keep up with their mortgage payments due to these current conditions. These are the people who should be helped and protected, not those who borrowed recklessly and spent like crazy....... Anyway, just my two cents.......

I left out a piece too......not just those who are on unemployment, this should include those, who as in Donna's case, are perhaps sel-employed and are/were unable to collect unemployment or those who may not be unemployed, but are are now underemployed due to hours being cut.....

Tom - I've seen some condos selling for 10 cents on the dollar. Ultimately we all lose when prices get that distorted.

Pete - If all the foreclosures were dumped into the market it would create chaos; and to dole them out over several years, considering the millions involved, will also impact the market for years.

Kirk - Millions of honest, hard working homeowners could benefit from properly structured modifications.

Ed - Simplistic view such as, "I've done my part, too bad for you if you didn't," fail to address the problem, which will eventually, reach you and everyone else in the end. To judge those who are losing their homes to foreclosure and to ignore their plight is to ignore the depth of the worst economic crisis since the Great Depression. This is not just about foreclosure; it's an economic calamity that extends around the globe.

Christine - I'm not an economist, but I do see the potential dangers of failing to address the problem. What we need is a structure that can analyze the problem and enact the measures necessary to minimize the risk to all. Thus far, the government's plans have failed; and continued failure impacts each of us.

Earl - I can suggest quite a few, from bureaucrats to Congress to Wall Street, but that's a separate post.

Wendy - We must face the reality of this situation, something few are willing to do at this point. Until then we'll continue to suffer through the morass of foreclosures and economic doldrums.

Beverly - Without intervention, this problem will fester for a long time.

Linda - I agree that the situation is complex and there is no "one size fits all" solution, but to ignore the problem with mounting foreclosures and declining home values is to allow the problem to grow ever larger.

All this upheaval has created a new respect for home buying. At least that's what I'm seeing as first-time buyers see opportunity in the home prices and are adamant about certain aspects.

How much will my payment be, I don't want to be cash-strapped.

I only want a 30 year fixed loan.

I plan to be in this home at least 5 years.

I know I can afford more on paper, but I don't want a payment higher than I'm comfortable with.

We also need to education our buyers about purchase money vs refinancing and the long-term ramifications of the latter.

Karen - That's a great side benefit to an otherwise negative situation. Just as the Great Depression forever altered the thinking of our parents and grandparents, this recession will affect us all in ways yet to be seen.

This era will go down in history as the biggest readjustment in thinking, lending, borrowing, spending and living! All sides of the debate will go on forever. Blame the banks, the borrowers, the loan services, etc... No matter who is at fault, we need to rethink our lifestyles and spending habits. We can't own things we can afford, we can't loan money to people who can't pay us back, we have to take responsibilitly for our actions as individuals, businesses and industries.

Every bad loan has its own story. I think they need to be evaluated on a case by case basis.

If there was fraud in obtaining the loan and blantant overspending of cash taken out, I see no need for "forgiveness."

If there was misrepresentation on the part of the lender and obvious overlooking of facts regarding the borrower- work something out. For those who did not over-borrow, are current and underwater due to the current crisis, work something out.

For those who paid cash and will never be able to sell for what was paid- its a sad situation with no answers. Just enjoy your home and continue down the path of responsible living.

Linda Formella, Broker/Owner, Manatee River Realty, LLC Bradenton, FL

John, well said! I just posted a blog on http://ugeluxuryblog.com/ that contains information and links that support your reasonable approach to the problem. Living in the past does not give any room for the future....and re-living the facts does not get us where we need to go. Clearly there is plenty of blame to go around, but to assess the situation and figure out an approach that will get the mess cleaned up and the real estate industry (and our economy) should be the highest priority. Interestingly, this weekend I spoke with someone outside our profession and I was stunned at how much knowledge the general public has....and the accuracy. Thank you for including the link to the late night shows....I believe this enforces my perception that Americans know the situation and understand that resolving it quickly is the best path for a recovery. When the actual situation and the solution hits the late night shows....it gives me hope that the administration and therefore Wall Street will understand that they are dealing with an informed public....and hopefully our voices will be heard.

All the best, DL

Wonderful post John. If only the leaders of this country would take it to heart and do their job. We hired them to represent the people, difficult or not, not to protect their own interests and jobs. It doesn't matter whose fault it is anymore. I can't think of to many people who didn't benefit during the real estate boom in one form or another. So, now let's make the correction. Even just lowering the interest rate on a mortgage to help the lender be able to afford the payments would help. You don't necessarily have to adjust the principle downward. But, I can't believe the number of people I have met who have made an honest effort to deal with the banks only to give up in frustration and walk away. Wouldn't a lower interest rate make more sense than a total loss?

Linda - You won't get disagreement from me. Thanks for your input.

Donna - Thanks for your comments.

Judy - We'll have to evaluate each loan on a case by case basis, and that will be a massive undertaking; but to ignore the situation only allows the problem to fester and potentially grow even larger.

From all the answers I've read only #43 mentions the Insurers who were fed bad loans on the Banks word. That my friends is the biggest reason the Banks don't care. They foreclose and collect whatever they can get from the resale and file a claim with PMI, MGIC, etc. and collect the insured amount. When you add the two amounts together it's still more than the mortgage balance. Just another reason for them not consider Short Sales or Loan Modifications. The good news in this scenerio is, The private mortgage insurance companies are investigating for fraud before paying out on these claims.

I don't know the answer to the problem, but I pray that we get a viable solution before we all lose what little we have left. I've been a Realtor for 38 years, owned my own Company for 13 years up north. My dream was to retire here in Florida, but instead, I gave up my paid for Sailboat (my passion) and my midsize car for an economy car. I now work two additional jobs and have nearly depleted my 401k to make my mortgage payments.

I don't believe the problem is so much how we got in this mess as how we will stay in it as long as the Banks continue to do what is explained above.

John, I'm not for punishing those that are underwater or need to walk away... but I'm not for rewarding them either. If it is too easy to walk, people will walk. And the more that walk, the lower prices will go... to account for the increased supply of homes on the market. That means even more people will be underwater.

Not the cycle we want.

JAN

2010

John,

I am not sure I agree with you. I see many who took out loans later on for whatever their reasons were. It was however, not purchase money. Many, many were very irresponsible and I can't see how it helps to bail them out. If they are not getting their way though, through loan mod or complete debt forgiveness with their short sale, they are walking anyway. Maybe we need to let those consequenses that are a result of these homeowners actions take their natural course.

Interesting: You call them foreclosure VICTIMS!!!

The victim s here is the bank's shareholders. A lot of thesepeople CAN PAY!! Elect not to because, well, Obama bailed them out!!!!!

Making a person pay their deficiency balance is not punishment.... it is JUST!!

Cynthia - We won't see a viable solution unless we remain involved and demand action from all involved.

Lane - I'm not trying to reward anyone either, especially the banks, but I would like to see some workable solutions proposed.

DeeDee - It appears that many just aren't aware of the significant consequences to ALL of us if we do nothing. And while some are eager to relate anecdotal accounts of irresponsible action by home buyers, the numbers show such stories to be exaggerated and in the minority.

Tom - The point you're missing is that the bank has already suffered the loss. The mortgages are worth no more than the home's actual value; and as foreclosures continue, values continue to decrease. I had a conversation yesterday with a bank CEO and he agreed that writing down principle will help to alleviate the foreclosure problem. This isn't about achieving justice, for neither you nor I can determine what that is in every case; this is about slowing the number of foreclosures and restoring stability to the economy and housing market. Short sighted views do nothing but allow the problem to continue.

I'm beginning to get the sense that if Milton Friedman crawled out of his grave and weighed in on this issue, you would only acknowledge that he understands economics if he is pro-cram down.

Chris - I suspect Friedman might be appalled at the damage we have inflicted upon the economy and might agree that we've gone past the "tipping point."

Looking at the posts on this very long discussion it seems there seems to be a generally overall consensus of agreement with Johns premise.

Maybe everyone should forward the link to this article to all of their politicians, local, state and national just to let them know that we know whats going on and we are concerned about the economy, the welfare of our nation and we are in a position to participate in the conversation/solution.

Dan - Or just email or call your representatives and demand sensible action.

JAN

2010

Here is a blog post I wrote back on October 28, 2009, I guess John and I are on the same road.

http://speakoutamericans.wordpress.com/2009/10/28/foreclosures-will-continue/

JAN

2010

Victim is right. I purchased a gorgeous home out in Atlantic Beach FL from the VA back in 1998. They allowed my State Farm Homeowner's Insurance to lapse, then placed in-house forced-placed homeowner's insurance on it. When I asked why they let it lapse, they claimed they never got a bill from State Far. I called state Farm, and asked why they didn't send a bill, and they saif that they HAD sent several, and when they called Countrywide to find out why they weren't paying the bill, they were told that I had called them and "decided to go with someone else." That conversation never took place! After my lawyer read the Balboa "Homeowner's Insurance," he said it was actually a mortgage guarantee, not homeowners insurance.

Then Countrywide placed in-house forced-placed flood insurance on it for another $1000. When my lawyer looked at that Balboa Flood Insurance, well the same thing, it was another mortgage guarantee. The house isn't even IN an area that requires flood insurance! I have a copy of the FEMA LOMR-C.

My name was dragged through the mug for over 6.5 years. I lost my excellent credit, thus losing my real estate investment business. I have to hawk my two Los Angeles properties to keep my lawyers happy $$$. In court I proved my case, and won. But because the judge didn't want to penalize Countrywide, he ordered me to pay the 6 years of payments that Countrywide had been rejecting, instead of just allowing me to start making payments again. He said it was because Countrywide claimed they were going to lose "all that interest." How? I owed 26 years worth of payments back then, if I started making 26 years worth of payments now, HOW are they losing interest? Especially when my interest is 7.5% and not 4.75% which is what they are getting now!

However, the judge DID order Countrywide to clear up my credit, and it's back to 780 FICO again. However, I still can't get a loan to get my business started back up. Seems I can't prove any income. According to the IRS, I haven't HAD an income for over 6 years! They show the rent payments, but then my deductions for maintenence, interest, hospital costs from when I had a panic attack, etc etc all made it look like I had a negetive income.

So I'm going to lose the Atlantic Beach home after all. Oh, I almost forgot. The judge believed Countrywide when they claimed my payments for the last 6.5 years was $950/mo, and not the $708/mo I had been paying, so they are over-billing me by $25,000. I have to come up with $76,000, which I don't have. Sigh.

I'm lost. Where do I go from here? Another victim bites the dust.

Dan - We just need to think; to develop the creative solutions that will move us ahead--not just more of the same tired programs that can't work.

Miriam - Unfortunately, yours is one of thousands of such stories. The big banks have been more than negligent, criminal in some cases; but it's difficult to prove, costs thousands, and takes so much effort and time, most give up. Sorry for your plight.

Great post and great comments... just to be clear on one issue, the banks, in particule Goldman Sachs, definitely knew something was up with the mortgage market, as they were using their in-house funds to bet against mortgage backed securities they were hawking to their clients... hearings going on now should be asking why it was so...

Paul - Yeah, I know about the antics of GS; one of these days I'll post a series based upon material I've collected over the past year.

JAN

2010

I'm with Paul here and Jphn, I have been blogging about resetting the prnciple on mortgages for 2 years now! Stop the blame game. Remember the minimum wage did not go up and I believe one reason it didn't have to was because people felt they "already had money". Crazy, yes, but equity was being extended on EVERYTHING..it kept people buying, living beyond their means, believe they were worth much more than they were.

It's crazy now, but it will become even worse if the banks do not reset the mortgages. The tip of the iceburg for all the shadow inventory and here in the Coachella Valley that means mid to very high end..wil be hitting the market this year and next. Couple those foreclosures with the unemployment and you have a mess!

Thanks for the post and all the responses as well.

Kimberley - Our views still seem to be in the minority; and unless that changes, we'll not see a recovery.

JAN

2010

John - this is a great post and debate. I agree with you, most homeowners acted honestly yet the only ones we hear about are those that acted recklessly and spent beyond their means. As for those homeowners who choose to strategically default on their home loans - who can blame them. The government has refused to force the banks to reduce the principle of the loan and they are looking at a home they could afford when they bought it but will never be worth what they paid for it - so they will never have any equity no matter how long they own the home. The longer we drag this out the more it drags down the real estate market everywhere. A solution is needed but unfortunately I don't see one on the horizon.

Foreclosures are at such historic levels, that something other than the norm needs to be done. While some home owners may have abused the process, many more were just doing what they thought was the right thing. To be able to write down the loan to what it's worth makes sense. The Bank still only gets what the house is worth, but the social benefits of allowing the home owner to stay put are apparent. I think that we would get out of this mess much sooner.

A simple search of the net will bring up articles about the advisability of strategically defaulting on a mortgage. I once had some moral issues with the thought but they are quieted by investigation. It looks to me that the placement of my note into a REMIC is a violation of the Uniform Commercial Code. I believe that the right of any citizen to renegotiate a mortgage or other contract is violated when the other contracting party tortuously interferes with my ability to perform under the contract. I indeed owe the money to the "holder of the note" under my contract. It is the "holder of the note" that must be notified by the mortgagor should the mortgagor wish to prepay the note. If the note is held in trust (REMIC) then that option of the contract is no longer available to me. The mortgagee is prevented from lowering the principal due to the fact that the note is being held as security for paper issued for public sale by the trustor institution. If the mortgagee was to lower the principal it would be viewed as defraud against the holders of the paper. A strategic default, in light of the mortgagor's violated contract appears to be a simple alternative to a costly court battle.

It will be a cold day indeed when we see reductions in principal.

JAN

2010

Kathie - I agree that we're not yet being offered realistic solutions.

Wayne - The solution isn't politically acceptable, and that's why the politicians are avoiding it.

John - I agree that principal write-down is a complex process, but it could be achieved. I agree that it's still a long shot, but the odds are improving somewhat.

The only way this would work if the bank do it voluntarily, and no one is stopping them from doing it if they want.

But the original post ignores the issue of moral hazard.

Once principal reductions start being forced, many homeowners will game the system to ENSURE that they also participate in this giveaway.

Second, and this is the point that Mr. Mulkey does not understand:

Banks will respond by raising interest rates significantly in order to guard against future such forced reductions. Also, borderline borrowers will be denied mortgages altogether. So much for price recovery.

Mr. Mulkey:

Perhaps we should also have you repay any commissions you earned for any house that is underwater now, okay?

I'm sure you advised many clients that the property you sold them would appreciate. You were wrong to issue such advice and you must now pay. I bet you don't feel like having your previous contracts voided after the fact, yet you would force it on others.

Your post calls for the destruction of contract law, and in such a way that many people will game the system to their benefit.

Falling home prices is good for the economy, but it DOES deprive realtors of one of their chief motivating sales points - appreciation. Well, realtors sang the appreciation song for a long time, and now it is time for them to learn that eternal appreciation is not necessary for economic recovery.

One more thing for you to think about - even if you get your way and principal reductions are forced, there wil be MANY, MANY unforseen and unintended consequences. I'll bet money you have not considered the potential fallout - you think all will be roses and fat commissions when it happens. It won't.

It will be an equally long hard road, but with the innocent being punished instead.

Also, you punish new buyers with higher prices than the free market would otherwise present, to "protect" those who already own. Your desire for market manipulation is self-serving, which is evident.

I realize you will never agree, since it is not in your economic interest to see the truth. It is regrettable that so many in your profession are toxically ignorant of how an economy works.

Just One - If you'd bothered to read my profile, you'd see that I'm not a Realtor, so you inane comments about my self-serving position are meaningless. And if you'd bothered to thoughtfully read my post as well hundreds of posts and articles on this topic, as I have, you might begin to understand the gravity of this problem. My motives have nothing to do with preserving the real estate business; an endeavor from which I receive no financial benefit. I post my ideas and observations purely for the benefit of consumers in order to help them make the most prudent choices when buying or selling homes. Therefore I'll gladly return all the commissions I've earned during my lifetime because they're weren't any. I'm not nor have I ever been a Realtor, never earned a real estate commission. I have, however, been involved in real estate and construction for 4 decades and have observed how the market works.

We're in a crisis unlike any we've experienced in our lifetimes. This is far from a typical recession, and if the foreclosures (estimated to be as many as 12 million) are allowed to proceed it could drive the country into a depression. That's not just my opinion, but the opinion of some of the top financial minds in the country. According to Elizabeth Warren, chair of the Congressional Oversight Panel, "a single foreclosure brings prices down an average of $5,000 for every house in a two-block radius and costs investors and average of $120,000."

As for the morality issue, we're beyond that. This is a financial crisis that will only worsen if foreclosures continue unabated. I see nothing moral about everyone losing their equity as home prices continue to slide. With almost 8 million mortgages delinquent and more than 25% of homes worth less than their mortgages, we cannot ignore the problem just because we don't like the workable options.

And my solution to the problem was one formed only after careful consideratin of all the options and analyzing the potential for disaster should nothing be done. Will it be easy to administer? Of course not. And it will be inherently unfair, but it will be equally unfair to allow our economy to slide into a morass of continued high unemployment and trillions of dollars in lost equity.

What you seem to ignore is that the mortgages that are significantly underwater will, at some point, be written down to market value. If we wait to do so through foreclosure, we'll continue to pull down the values of all homes and the economy along with it.

Instead of making rash assumptions, perhaps it would be productive if you offered rational solutions. To ignore the problem is to become a part of it.

Just One and Mr Mulkey;

I believe that both of you have a point. The banks will naturally attempt to recoup losses and the only way for them to do that will be to increase interest rates and costs to recover the fee's, perhaps the MIP's will be increased. There are many things that we simply do not know. Just One speaks from a consumers heart that believes that "we realtors" are somehow also the villains and caused this.

While we did benefit from commissions,.. "Earned",.. not stolen or given,.. no agent in their right mind would guarantee appreciation any more than a stock broker would Guarantee a return on investment. Historically it has been true that Homes have been a much more stable investment than stocks or any other investment and I still hold true to that. Nowhere else has anyone been able to invest -0- dollars,.. sell in 6 years and double the banks money with the overage going into the consumers pocket. When they sold and made 100's of thousands of dollars,.. the Realtor did not split that amount 50/50 with the consumer,.. he charged what was realatively a small fee compared to their gain.

In today's market, Realtor's such as myself are reducing those commissions and attempting to find alternatives to help people get out of their homes.

An alternative could be to extend the length of the loans made already to a price that the consumers can now afford, reducing principle only when the property needs to sell and will not sell for an amount high enough to cover the cost. Finding short sale solutions for those who, for whatever reasons need to sell and requiring the banks to be efficient in their processing of these solutions. I have one under contract now that we have been waiting 6 months on the bank to simply say yes or no.

Due to the banks dragging their feet on the short sales,.. it removes a large number of people from the marketplace that simply do not have the time to wait. To me, this is the place where such a principle reduction makes sense. But there needs to be something that forces the bank to answer the offer in a reasonable and expedient amount of time and allows that property to close in a similar amount of time as their traditional salke counterparts.

Just my thoughts

I have to agree with Mr. Mulkey, and point out to Mr. Just one that an ad hominem is never productive of other than resentment. If we really examine, objectively, the contract violations created by the securitization process we may logically conclude that the mortgages have no real effect and as such may be dismissed in whole or in part. The congress by applying TARP and other funds to purchase toxic MBS has already paid or partially paid the indebtedness of the notes. If we take the position that the US or some subsidiary of the US (Fannie Mae) etc. owns all of the paper written against any particular REMIC then we may find that a proper case may be presented to the public to lower all of that particular REMIC note obligations. The drawback here, once again, is that not everyone wins.................. while, no one wins from a depression

I'd agree with your proposition if the problem was regular folks losing their homes. That is not what is happening in my area.

Specuvestors, who bought MULTIPLE properties with little or no money down, LIED about occupancy to get lower interest rates are the ones causing all of the foreclosures in my area. I have MLS access, I've seen the mortgages.

My wife and I purchased a foreclosure a few months back. The "investor" who lost the property signed FOUR OWNER_OCCUPIED mortgages with the SAME BANK on the SAME DAY!.

I am an agent, I see the listings every day, and 80% of bank owned properties are either the product of heloc abuse or flippers gone wild. There isn't a modification that will help that.

Of course it is resentment.

Mr. Mulkey is advocating market manipulation to the benefit of existing owners and the real estate industry.

I personally don't care if he is a realtor or not, what is evident to me is that a lot of hysteria is being whipped up over this crisis, and people without clear thinking are advocating "action" without thinking through the consequences. Mr. Mulkey has not offered no analysis of the possible downside to his theory, only breathless demands for action.

Well, throughout human history, there is always some cause or other where it would be more convenient to throw common sense and justice under the bus due to some sense of emergency.

To heck with property values. Let that problem solve itself. It will. It always has. It will again. I realize that most in the real estate industry are so married to the concept of appreciation that they are not interested in seeing the upside to letting the market find equilibrium on its own. These interventionist proposals are opportunistic and craven.

Maybe trying to "solve" the problem will create even worse problems. Maybe it will convince risk-taking debtors that they will get bailed out next time.

RE has had a full banquet of government intervention up till now - the very existence of the GSEs, the CRA, and the massive bailouts since the crash. And now they want even more, and hang the consequences. I think that the RE industry needs to take its medicine like adults and quit whining for more accomodation.

We've had enough of their "advice" already.

JAN

2010

John, I disagree with most of what you are thinking except one part---in 250 you've taken the good, the bad, and the ugly in stride. A well moderated thread.

Interesting read from John Mauldin's recent blog. http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/01/25/an-insider-s-view-of-the-real-estate-train-wreck2.aspx

My fundamental complaint is that real estate is micro-local and you are using national stats and a nationalized solution. In essence, the very pools that created this mess is what you are yourself doing when you talk about "housing" as a national statistic. It's not.

What that leads to is rolling in the bubblets and trying to distribute that loss throughout the country. For example, a Miami foreclosure does not impact South Dakota whatsoever in housing values alone. Yet, your system would directly tax the South Dakota homeowner and indirectly tax generations of future South Dakota homebuyers. South Dakota experienced no great gain before and a mitigated loss right now.

Of course, that's just my opinion and you can tell me I'm wrong now,

Randy - I'm open to discovering the best solution; that was the purpose of this post. Too many are caught up in blaming others and ignoring the situation at hand. As a country, we have the potential to solve this, but we won't as long as we fail to address it.

John - Thanks for your thoughts and for a rational look at the problem.

LiarLoan - Most everyone has seen the system abused, but regardless of what some seem to believe, that's just not the case in millions of loans. We can address cases of outright fraud; send them to jail; but that fails to address the larger problem.

Just One - Since you've obviously closed your mind and are unwilling to consider alternatives; and since you've had enough "advice," I see no reason to continue to try to insert reason into the conversation.

Chris - While I agree that housing markets are local, the collapse of the housing market has created a national crisis. Yet, to address the situation, we would have to deal with the problems on a local basis.

Some commentators are now calling on borrowers to start a mass mortgage strike.

"Most everyone has seen the system abused, but regardless of what some seem to believe, that's just not the case in millions of loans."

See, this is where we have a serious difference of opinion -

I tell you point blank that I can pull up the loan history on 80% of current foreclosures in my market and find that either the previous owner pulled out a pile of CASH, then walked away, ( effectively robbing the bank with a pen)

OR,

they Lied on the docs and bought multiple properties, hoping to get rich from future appreciation ...(specuvestors)

80% of the foreclosures in my area. Yes, it's devastating to the market, but it needs to be worked through, through the foreclosure process. A cash gift from the government, for those that have already abused the system will just ensure that honest people have no faith in the government.

As for prosecuting those that robbed the banks - it isn't happening at all here. The FBI announced a "house stripping task force" a few months ago - going after the desperate owners who took appliances with them - completely ignoring those that stripped out hundreds of thousands of dollars in CASH.

Oh, and FWIW, those that LIED on their mortgages, then walked away, can buy another house in just three years from the date of default.

You know what that means?

The LIARS that SPECULATED on my house, and robbed an FDIC insured bank of nearly $700,000 in four transactions are less than a year away from being able to get ANOTHER government insured loan!!!!!

Do the research in your area - look at the mortgage history of a few foreclosures, and I suspect you'll find the same thing I did, massive fraud.

I've presented some very rational points regarding your proposed solution. In your original post, it is you making the emotional argument that the opponents of forced redutions are simply seeking to 'punish'.

Maybe we have sound, well-considered reasons for our opposition. I regret that my logical objection to this proposal is not discernable as such.

Too many real estate workers are blindly obsessed with appreciation, and many, if not most, do not actually understand the economic mechanics of exactly how appreciation occurs.

As such, they will accept nearly any proposal that gets the ball rolling again.

The deleveraging of our ecomony will overpower any attempts at manipulating prices. Your proposal will only prolong the process, or else it will simply punish different people. Wealth has been destroyed in this crisis and cannot be artificially recreated by force. It must be rebuilt. Slowly, like every time before.

And you still have not satisfactorily addressed the issue of preventing the gaming of the system. Or is a bunch of fraud also a necessary price to restore the real estate industry to the good old days?

LiarLoan - Don't know who you seem to have done business with, perhaps they did commit fraud; if so, let's send them to jail. I have no sympathy for those who "gamed the system." But I am concerned for the overall stability of our economy. And, no I still don't accept your assertion that 80% of those facing foreclosure committed fraud or made risky investments; but regardless, I'm not proposing that they be given anything. The problem must be dealt with on a case by case basis. To do otherwise is sheer nonsense and not something I've suggested.

Jost One - If you read my post there's nothing emotional in my comments or suggestions. However, for you to make blanket accusations regarding Realtors diminishes your argument. My suggestions aren't aimed at selectively saving the real estate industry, but the economy in general--mine and yours.

And as I've previously stated, administering any program must necessarily be complex in order to prevent some from "gaming the system" and to identify cases of fraud. It's obvious you disagree, and that's okay. You're welcome to your views; in fact, they are shared by many. And I haven't been given the task of solving this problem, and truly doubt that the program I suggest will be implemented. So, ultimately, you may get your way; whether or not I agree should be of little importance.

I pray that those who still want to place culpability in the hands of those who accessed the easy money, will do their homework and study the lax underwriting standards that permitted borrowers to accomplish the deceit. A web search on terms will produce some insights. Try "table funded loan" try "REMIC" try " CMO CDO MBS and SPV" . We cry when the guy down the street absconded with $100,000.00. While we congratulate RESCO, JP Morgan, Deutsche Bank, and the rest for walking away with billions. Here is a filing form SEC. Dated September 29, 2005

CALCULATION OF REGISTRATION FEE

Proposed Maximum

Title of Each Class of Securities

Amount to be

Offering Price

Aggregate

Amount of

to be Registered

Registered(1)(2)

Per Unit(3)

Offering Price

Registration Fee

Senior Debt Securities

Subordinated Debt Securities

Guarantees of Senior Debt Securities(4)

Total

$12,000,000,000

100%

$12,000,000,000

$1,412,400

(2)

Such amount in U.S. dollars or the equivalent thereof in foreign currencies as shall result in an aggregate initial offering price for all securities of $12,000,000,000.

(3)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended, and exclusive of accrued interest, if any.

(4)

No proceeds will be received by Residential Capital Corporation for the Guarantees. Pursuant to Rule 457(n), no separate fee is required to be paid in respect of guarantees of the Senior Debt Securities that are currently being registered.

We notice that that is 12 Billion with a (B)

Here in plain English are the components of the scheme that deprived thousands of their retirement dollars and houses. (from the filing)

RESIDENTIAL CAPITAL CORPORATION We are a leading real estate finance company focused primarily on the residential real estate market. We conduct our operations through four operating segments: GMAC Residential, which represents substantially all of the operations of GMAC Residential Holding Corp., and the Residential Capital Group, Business Capital Group and International Business Group, representing substantially all of the operations of GMAC-RFC Holding Corp. Our globally diversified businesses include:


	•	U.S. Residential Real Estate Finance - We are one of the largest participants in the U.S. residential real estate finance industry. We operate this business through two segments, GMAC Residential of GMAC Residential Holding and the Residential Capital Group of RFC Holding. Through these segments, we:


	-	Originate, purchase, sell and securitize residential mortgage loans throughout the United States.

	-	Provide primary and master servicing to investors in our residential mortgage loans and securitizations.

	-	Provide collateralized lines of credit, which we refer to as warehouse lending facilities, to other originators of residential mortgage loans.

	-	Hold a portfolio of residential mortgage loans for investment and retained interests from our securitization activities. This portfolio provides us with a longer-term source of revenues.

	-	Conduct limited banking activities through our federally chartered savings bank, GMAC Bank.

	-	Provide real estate closing services.

These twelve Billion dollars are just the tip of the iceberg. Please note that the securities were sold and the money was made available for more "warehouse lending" and in fact that your mortgage from about 2000 through 2008 was table funded. The money was taken from the investors and given to fund your loan. None of the corporations involved had a vested interest in your loan. Do I hear PONZI?

We must never forget that JP Morgan was accused of starting a run on his own bank in order to buy up other banks caught up in the panic..............

John has the right question. What do we do now? Reward the Banks? Reward the homeowners? Do nothing? The country has a lot of options. Let's have the dialogue directed toward choosing the correct one.

Hi, John. I've been swamped and haven't been able to comment much. Looks like you hit a home run with this one...248 comments!!! Congratulations of the feature and also...GREAT graphic!

I have a house in the Florida panhandle that has been on the market for 4 years. It was originally listed for $627,000 then $595,000, $525,000, $499,900, $449,900, $399,900, $349,900 and now we can't give it away for $269,900!

We pulled the equity out in order to build here in Tennessee so we actually owe two mortgages and the offer that is currently in play will be a short sale, if the bank accepts. The primary, which was a loan with a small community bank, was sold to ....ugh...Countrywide and is now with....DOUBLE ugh...Bank of America. The junior mortgageholder, USAA, is being wonderful and You Know Who is making things as difficult as possible.

I have no doubt that they...and their ilk...are part of the problem, NOT part of the solution!

JAN

2010

John - What most are overlooking is that I'm asking that we deal with the problem. I don't claim to have all the answers, but I can see a significant problem that must be managed.

Leslie - This is a serious problem with which we need to develop workable solutions. While many would like to ignore it and allow those in situations such as your to suffer the consequences, they seem to have overlooked the fact that the disease is spreading with the potential to infect all of us.

There does not seem to be much appetite on Capitol (Capital) Hill to do anything more than drag heels. 60 Million mortgages is in fact a "significant problem". Is there anyone down in DC that has an inkling of the suffering caused by this whole meltdown?

JAN

2010

John - From the reading I done recently, the wind may be blowing in the direction of more significant action, but I'm afraid it will be too little, too late.

John, There is an interesting video posted by Tim and Julie Harris about the morality of people walking..............

http://timandjulieharris.com/2010/01/26/strategic-defaults-increasing-dramatically-why-keep-an-upside-down-home/

It asks the question ? why is a business deal concerning our own residence any different from any other deal? and, compares residential defaults with an apartment default in New York. A five + Billion dollar default.

John - Thanks for the link. I'm familiar with the deal, but had not seen the video. There's a similar deal in San Francisco, involving a multi billion dollar default on commercial space. The big lenders "hope" that homeowners will continue to be concerned with the issue of morality in walking away from their homes, while continuing to work out deals with commercial borrowers.

You people are clinically insane.

Just as Obama has recently (and painfully) realized how out of touch he is with a large portion of America, so have the readers of this blog.

The consumer speinding via mortgageg equity withdrawal and easy credit directly led to the issue wer are in now. Another government scheme will only postpone the inevitable.

The ONLY real solution IS to allow homes to fall to their TRUE market value. Every bubble frenzy has a painful and powerful downside, yet too many here can't acpet this in the housing indusry due to their personal employment business interests.

Many do not understand that FORECLOSURE is the solution for all of these individual who overspent.

Grow up people - the only Real way to go through hard times IS TO GO THROUGH IT. proved how out of touch he

Steve - What you seem to overlook is that not all those losing equity or facing foreclosure made poor decisions. If foreclosures continue unabated, the process will pull down the values of even greater numbers of homes. We have nothing in our history to compare to the potential disaster that could occur.

And, this doesn't have to be a government "scheme." I've opposed all the bailouts and stimulus packages associated with this recession, but I'm also a pragmatist who is willing to adjust my thinking if conditions warrant. The banks can make this work; some are already doing so. Amazingly some of them do see the benefit. A year ago, Wilbur Ross, owner of the third largest third-party mortgage servicing company, stated that aggressive principal reduction would help to stabilize the market--and ultimately the economy.

Furthermore, the program could demand that those receiving principal reduction would be liable for repayment upon sale of the home if it sold for a higher price. There are ways to alleviate this problem without creating a total collapse of the housing market, and we should consider those that will ultimately benefit the overall economy.

You and others seem to think I have some "skin in this game." I don't, other than owning a home, which would experience a drop in value, but it wouldn't alter my life. For many it would be disastrous, such as those who are nearing or in retirement and have "banked" upon their home's equity as their savings.

Obviously you don't have to agree, but to simply state that you know the "ONLY REAL SOLUTION," is short-sighted and patently inaccurate. Neither of us can see into the future to KNOW what the ultimate outcome will be; we can only analyze what we see and make projections. And regardless of our opinions, neither of us will make the ultimate decision. That's probably a good thing.

JAN

2010

John, I'm not disagreeing with you that there is a widespread economic problem and that housing is at the middle of the solution.

As a pragmatist, you had to go through countless options to end up with the convictions that you now share with us. What was, in your opinion, the second best idea? Let's presume Congress stalls out on cram downs and can't get it through. What's your audible?

I'm not going to email with some passive-agressive anonymous post and I'm not claiming that you write on AR because it pays well :) If there is ONE thing that caused the current mess, it is that the American intellectual skin has become razor thin and no one thinks anymore.

...oh, and BTW, didn't Wilbur Ross buy the American Home Mortgage (AHM) portfolio? That WAS specifically a liars loan pool and might actually be the single worst pile of mortgages out there. Their ideas actually got worse and market share surged AS the bubble got more out of control. His opinion is **slightly** self-serving, but at pennies on the dollar, he'll make another fortune.

Chris - What I think might work would be a combination of plans; as you know the issue is complex and would be difficult to resolve, whatever the choice. I would like to see more emphasis placed upon principal reduction, for I believe that's the biggest obstacle to overcome.

As I've stated, I don't claim to have the answers, but have offered my opinions to stimulate dialogue. Collectively we can develop solutions to help alleviate the pain, but I'm well aware that much suffering will still remain and will be a necessary part of any recovery. Ultimately, I think Congress will be reluctant to force any significant measure for obvious political reasons; and I suspect we'll have many years to talk about what we "should" be doing.

FEB

2010

Hi John. Interesting take on solving the problems we face right now.

Matthew - It's the only option I see that seems to have the power to minimize the impact upon all of us.

FEB

2010

This may sound stupid, but it's kind of like the weight loss craze. We all know we need to eat less, but we continue to see all these fattening foods that looks so good and tempting to eat and then we eat and eat. then we see all these great diet plans to lose.

So, yes, people might have said 'hum, maybe i shouldn't take out equity to buy a new car', but it was thrown in your face over and over again that it was okay to do, everyone is doing it. then when it was too much refinance and/or consolidate.

I refuse to believe the totally blame can be put on 90% of the homeowners anymore than I can say that all of us here totally to blame for the extra 10+ pounds we're probably stuffing into our pants every day. It was a societal thought process and norm.

The difference is me getting fat doesn't directly hurt you (yet) so you could care less...but me going into foreclosure does.

John: great discussion and congrats on so many comments!

Bev & Bob - Thanks for your analogy. Banks were bombarding the public with ads touting their loan products; but when things turned sour, they won't return our calls.

JUL

2010

The better solution is to have Fannie & Freddie buy all owner occupied home loans and re-fi them all at 1.5% for 30 years.

Banks get paid, homeowners get rellief in terms of payments and home prices could stabilize without tanking...

Let ever small bank in america write the deals, get a fee and then straight to fannie and freddie... problem solved.

This even helps those that acted responsibly.

Doug - Don't expect the government to commit any extra money trying to bail out homeowners; they never were than concerned about Main Street.

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John Mulkey, Housing Guru

Waleska, GA

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