FANNIE MAE SET TO COLLECT ON DEFICIENCY JUDGMENTS CAUSED BY STRATEGIC DEFAULTS.

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FANNIE MAE SET TO COLLECT ON DEFICIENCY JUDGMENTS CAUSED BY STRATEGIC DEFAULTS.

Lenn Harley

HEY FANNIE MAE. I HEAR YOU'RE PLANNING A COOKOUT FOR THE 4TH OF JULY.

GAMES FOR THE PARTY. FANNIE MAE PLANS A TREASURE HUNT.

Hey Fannie Mae! I heard you're COOKIN' UP some new ways to bury the American home owner deeper into financial ruin.

YOU'RE PARTNERS AT THE FED AND TREASURY DID A PRETTY GOOD JOB WITH THAT "TARP" thing where you gave the investment banks, commercial banks and insurance companies about $2,000,000,000,000. That's Trillion.

Since you started this COOKOUT when you approved and purchased all of those sub-prime, Alt-A and other mortgage instruments that were securitized and sold by fat cat traders to fat cat investors on Wall Street You know the guys, the ones that sold the securities backed by mortgages on American home owners' property.

IF THE AMERICAN HOME OWNER IS IN A POSITION OF NEGATIVE EQUITY, WHY CANNOT THEY CLAIM A FINANCIAL LOSS FOR TAX PURPOSES AND "WRITE IT OFF" as a corporation can do when they lose money on investments or P&L???? Why is the American home owner the entity that many would FORCE to have to HOLD THE PROPERTY WITH NO MARKET VALUE, LIVE IN IT AND CONTINUE TO PAY FOR IT WHEN IT NO LONGER MAKES ANY FINANCIAL SENSE.

The corporation USES THE TAX LAWS TO MITIGATE THEIR LOSSES.

Only the American home owner is forced to live in and continue to pay for their financial loss even when they didn't make the decisions that caused the loss.

Some other ideas to put some money in the treasury. I know where you can collect a cool, $50,000,000.

Prosecute Franklin Raines for falsifying the Financial Reports for Fannie Mae to enhance his bonus income. Of course when the gig was up, he walked away with a cool $50,000,000. Mr. Raines is a known FOB, (Friend of Bill (Clinton).

Or. . . .

You might go after Christopher Dodd too for promoting sub-prime loans that were the Countrywide speciality while he got favorable interest rates from Countrywide as a "Friend of Angelo".

AMERICAN HOME OWNERS DON'T HAVE ANY FRIENDS IN HIGH PLACES. They're prime targets (pun intended). Oh sure, the home owner is the easier target because, for starters, although they haven't broken any laws, they won't have the resources to fight you when you bring the power of the federal government down on them. Collection will be easy, just assess, garnish and rake in the money. You have the power. Of course, the economy will be slowed that much more by taking a few million consumers out of the credit market, but shucks, isn't that part of the plan??? To reduce the American consumer to a supplicant with no credit, no resources and no financial future.

Another idea. Why not give the collection job to your buddies at ACORN.

Inspired by Richard Zaritsky's post, BANKS BEGIN TO GO AFTER DEFICIENCY JUDGMENTS - FANNIE MAE POINTS THE WAY

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

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Posted by Lenn Harley, Real Estate Broker, Virginia & Maryland on 07/03/2010 07:22 PM

Comments (220)

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220 Comments on FANNIE MAE SET TO COLLECT ON DEFICIENCY JUDGMENTS CAUSED BY STRATEGIC DEFAULTS.

JUL

2010

Go Get 'em Lenn! Clean up the mess at Fannie Mae!

Lenn,

Have you thought about running for office? I think that you could stir things up on the Hill and the Oval Office.

Good points. We've got quite a mess to clean up!

John. Thanks. Every chance I get.

Don. HA! They don't like "hard core talk". They like the "talking points" handed out by the leadership.

Janet. Don't hold your breath. It hasn't started yet.

Lenn, I went and read Richard's post that inspired this, reblogged both his and yours. Then of course I have hit the suggest button for this one. You are certainly eloquent, to say the least!

Sure does make one sick to the stomach.... you are so right, with the federal government behind them, they can take whatever money they want when they want from whomever they decide should pay.

There has to be a better way, oh wait, you just gave them 2 great suggestions!

Andrea. It just keeps getting worse and worse.

I disagree with this post, Lenn, and here is why. First of all... it appears that not everyone who is contributing material to this post is being truthful. So, I went back, followed the links, and ended up at the original CNN Money article.

Just the wording of Strategic Default... differs from a simple foreclosure or short sale. Both foreclosure and Short Sales carry with them the idea that the owners had no other choice. NO other choice, but to "give up."

In most foreclosures and Short Sales, the owners are not "walking away." They are usually scratching and clawing, doing anything possible to save their homes... and finally simply give up.

What the CNN Money article said, is as follows:

"Sometimes lenders go after borrowers walking away from their homes if they have other assets. Banks are pulling credit reports to see if it's a "strategic default." If you're behind on all your other payments, you're okay. But if you're not, they'll come after you."

There is "the rub." If you lose your home through no fault or decision of your own, you may very well be ok. If you simply choose to freely "walk away" from your home, and from the debt you freely signed on for... and a credit report shows you could have continued to make the payments... but you decided to "walk away"... calling it a "business decision."

Losing one's home through a foreclosure or a short sale is not a "business decision." It is a family tragedy. Simply quitting making the payments and calling it a "business decision"... is another thing. And so is the lender in coming after your assets. The lender is not being the bad guy. After all, what the lender is doing... is simply a "business decision."

Put Paulson in that pan too! He's evil

Lenn * I feel like a SUCKER with a BIG L on my forehead * I'm paying my mortgage on my home AND I'm paying the mortgage on an investment home with the rental income from my tenant!

Hi Lenn,

I don't have a problem with them going after those who just put the keys down and walked-away (strategic default). It's the ones who are bitten by the government when they attempt to restructure their loans due to job loss or any of the other 'distressing' reasons and are doing everything that they can to salvage their home and keep their families intact. All of those you mentioned should be placed in the shoes of these distressed homeowners for just one day--although I don't think it would truly have any impact on them--they're simply soul-less.

And, I have to agree with Carla!

Hope you have a fabulous Fourth...

There are many who have followed every step suggested by BAC, for loan modification, and it just seems to be an unending mousetrap. I had one customer who actually got a notarized document from BAC, verifying the loan mod approval, then never made adjustments to the loan, then 6 months later said it was a clerical error. Meanwhile, all the paid mortgage (from over a year) was held in an "escrow" account, causing the mortgage to appear delinquent on the credit report---which is now shot to heck. No light seems to be at the end of this tunnel. Way too much stress for folks actually trying to diligently do the loan mods, but I don't always blame them for throwing up their arms and walking away. Thanks for an excellent post!

Small business and individual home owners do not have any friends in high places. Financial reform is giving us a new agency, and little of anything else.

Ah, Richard! I would not count on any new federal agency to help consumer in any meaningful way.

Oh! And Lenn! I love these new photos of you looking menacing! The frying pay is a nice touch.

Well stated Lenn!! I couldn't agree more. It is a mess created at the top and now the homeowners are left to deal with the mess.

I do like your suggestions for the solutions.

JUL

2010

I agree with the sentiment of your post but feel that Karen-Anne and Debe make good points that need to be considered.

Lenn,

I've done a couple of posts on Fannie Mae as well. Is there any end to this debacle?

Lenn,

Associated with this was Holdman Sachs bundling up garbage and selling it overseas. What happened to that story? Did it just go away?

Parking to see where this goes. There's nothing like a one sided story that gets attention, only to have the other side chime in....

Lenn- Oh and what about how Fannie and Freddie are SUCH LOSERS that they even had to be DELISTED!!!!!!

WOW, taxpayers are sure getting their money's worth from these losers! Ah yes, and how Fannie and Freddie are above the law! You are right,

They just recycle the same crooks over and over again!

And what a scam this FAKE financial reform bill is! Of course Fannie is EXEMPT from everything!!!! I have NEVER seen such a mess in my lifetime such as this and they just keep getting away with it.

WHy was RAINE NOT PUT IN JAIL????DODD?????

Ah and look at Geitner- who was in charge of the NY SEC and did NOTHING but look the other way! And they put him in charge:

His father Peter F Geithner worked for the FORD Foundation. Did you know that Peter Geithner was the person who was overseeing the microfinance programs for Indonesia and guess who developed those programs? Ann Dunham-Soetoro. ( Pres Obama's mother).

Another coincidence or is this world just way too small or......

I think we're all pretty upset about this huge mess, but I think the blame in this post is a bit one-sided. There's plenty of blame to go around - on both sides of the political spectrum!

@ Katerina Uhmmm hello? Geitner has a first name too, it's Turbo Tax Tim! Bwhahahaha! Lenn is right, she'd never make the primary because they don't want straight talk, they want more funds- from any and all of us. Better get one of these cards... (check out that http://atr.org website)

The Obama Tax Hike Exemption Card

Lenn, I see many separate issues … clearly we need top down accountability, recoverability & responsibility. One wrong does not make another right. Homeowners walking away when they have the ability to pay, only makes an already bad situation worse.

Great post, Lenn. You are so right. American homeowners don't have any friends in high places. Look who owns Fannie Mae now. I wonder what the "Fannie Mae guidelines" are going to be to determine a "strategic default." I agree with Terry #19, what ever happened to the Goldman Sachs scandal? Oh, yeah, that's when the oil spill disaster happened in the Gulf and became the news media #1 story (as it should be, of course), taking the light off the SEC and Wall Street, and now, no mention at all. The question I ask is this all a coincidence?

Lenn, we have a major fight ahead for our rights, equality and freedom. Our Nations' pendulum swings drastically in either direction. No norm. Great read!

Deb

@#25 - Oh, wait . . .it's the Russian "spies" now.

What scares me about these judgments is that if they don't pay, they will go into a default judgment. If they don't go to court for the default judgment hearing, they could have a warrant issued for their arrest, failure to appear. Then, in an odd twist of fate, they get picked up on the warrant and go to jail. All of a sudden, it's debtor's prison on the back end.

Surely the great minds of 185,000 Rainers can offer some solutions. What can be done between now and November (and beyond) to improve this situation?

Hi Lenn, I have been here three times. From the time you wrote it, I made a "Suggest" , wrote a comment and deleted it. I came back again, wrote you a comment and didn't submit it. I love the others comments and a couple stand out, but the tragedy of this whole sordid mess leaves me often looking for words that can express the depth of this tragedy and the often bizarre responses to it. When you think it just couldn't get worse it does. And some might believe that walking away is just an easy choice. That would be totally wrong. When the options run out and things don't look like they can improve , walking a mile in those shoes would reveal a whole plethora of emotions that can't be lumped up in a few sentences. For those of us that have seen this in our markets, we simply can't judge the wisdom or the veracity of their judgments about wanting to just throw in the towel. I certainly hope there are some visionaries somewhere in this country that will come forward and take the lead on fixing this mess. All the lines drawn in the sand hopefully will soon be washed away with a good strong tide and then we can talk about ways to fix all this mess.

Stratgeic default is such a gray area. Some people are walking away when they are perfectly capable of paying up. Others are watching themselves sink into poverty. Someone lost a job and now they are underwater. They might be able to pay, but should they put their whole life savings into a sinking ship knowing that it will leave them impoverished? That type of walk-away deserves help and compassion.

But there is plenty of blame on the right - its not just the left and I take exception to singling out the democrats on this. YOu are smarter than that Lenn. It was Paulson who initially bailed out the banks with absolutely no strings attached. The banks vaulted the money and now the credit that it was supposed to loosen is locked up. Putting us in a MESS.

@ Orange County SEO - WRONG , WRONG, WRONG!!! A friend of mine forwarded that crap to me today and it is totally inaccurate.

Read Snopes on this issue and ABC News.

Ruthmarie: You should know that when anyone sees garbage like that, that supports something they already believe, they just open up wide, and swallow hard. Very foolish of them. They are not looking for truth, just for someone who agrees with them.

Karen Anne. My post was not about the merits of stragetic default. My post is about the heavy hand of government stripping the assets of Americans who have broken no law but will be easy targets of government for their remaining assets in order to give those assets to groups or persons who are in favor with the government. It's not about strategic default. It's about POWER and CRONYISM.

Larry. Sadly, the secondary market is much needed to keep mortgage money circulating. The mission of Fannie Mae helped the housing industry grow to the valuable part of our lives that it was. It was when Fannie became a tool of social engineering that it lost it's way. I don't believe that it was a mission failier. I believe that the power of Fannie was corrupted by Congress putting their power hungry hands in their business.

Carla. HA! Paulson was, is and always will be a tool of Wall Street. Bush should have fired him the minute he suggested TARP.

Debe. I agree with Carla too. However, I don't believe that picking and choosing whom to help is fair. The government already failed in helping underwater home owners restructure. That ship has sailed and millions have not gone to foreclosure. By pursuing the owners who HAVE BROKEN NO LAW in order to bring the heavy boot of government on the necks of folks who are not willing to be a prisoner in their own homes (they didn't cause the housing crash), the government is merely creating more Americans with no assets, no hope and no property.

Mara. I don't blame anyone for walking away.

Richard. Financial Reform is giving us more government power over our everyday financial decisions.

Patricia. Thanks. HA! Fannie Mae is the one cooking up new ways to "COOK OUR GOOSE".

This is just the beginning. I'm now concered over the 8k tax credit that people received. How many of those people were borderlining approved? It is all far from over.

Barbara. Thanks. Letting Dod and Raines walk away Scott Free is what is criminal.

Christine. Karen Anne and Debe are of the opinion that being a prisoner in your own home because you aren't in foreclosure is a desirable condition. I don't believe that any home owner with negative equity, whether they have the assets to continue to burn more mortgage money should be forced to support the financial institution that continues to rake in profits out the gazoo from citizens who make a personal decision that they wish to use what's left of their money in other ways. Otherwise, they're looking at about 10 years of pouring more money down that financial black hole. Karen Anne and Debe are ignoring the freedoms that Americans have under our Constitution and want to give the government the right to decide for us how we spend our own money LIFE, LEBERTY AND THE PURSUIT OF HAPPINESS does not include being forced by the government to support a piece of real estate that has no value when the legal instruments of the lien provide for legal remedies. The home owner, who didn't contribute to the mortgage mess and perfidy of Wall Street and the government is now going to forfeit what assets he has left to Fannie Mae. I see no justice in that.

Terry. YES! It went away because the criminals involved were the Wall Street gangs and the government entities that enabled them.

William. I'm on the side of the American Home Owner citizen exercising freedom of choice. Who's side are you on???

Katerina. I'm not necessarily a conspiratorialist, but that small group does have far more influence than would seem to be accidental.

Melissa. Addressing a specific injustice to the American victims of the mortgage mess is specific in nature. There are no other sides to the fact that Fannie Mae is planning to strip Americans of their resources, ruin their credit and force them into forfeiting their remaining assets to the government. When the government uses the heavy hand of the IRS and other government entities to prosecute collections against American citizens, it is a TAKING.

Kathleen. IF, and it is a big IF, the instruments of security for the mortgage loan that financed that property for the home owner said, IF THIS INSTRUMENT OF SECURITY IS SECURED BY A PROPERTY WITH NEGATIVE EQUITY, YOU WILL BECOME A PRISONER IN THE PROPERTY UNTIL IT CAN BE SOLD WITH NO LOSS TO THE MORTGAGE COMPANY OR LIEN HOLDER, then there would be two sides. There are no sides. There is the former home owner who will now be working for Fannie Mae and perhaps not even have the funds left to pay rent, where ever they live.

Pamela. There are no coincidences. There is incompetence and strategic planning for power. There is an abundance of each.

Lenn,

The sad truth is that nobody knows how to get us out of this mess. We're going to see a lot more July 4th celebrations without any solution.

The American people are still on the hook for about a Trillion in Fannie/Freddie poor performing loans.

It's always good to rant though.

Rich

Deb. Thanks. Sadly, Fannie Mae is now planning to TAKE a bit of freedom from another group of Americans.

Carla. GOOD POINT!!! Debtors prison is the logical extension of an American walking away from the prison of negative equity.

John. Little to nothing. It was all over when the government permitted the off balance sheet instruments secured by MBSs to be sold for obscene profits and Fannie Mae forced banks to make worthless loans to feed those same MBSs. The fact that the Wall Street gangs got off is one matter that will never be rectified. Going after individual citizens who try to exercise some financial freedom simply puts more Americans under the boot of poverty.

William. If only you were right. Sadly, I don't believe that there are any in government looking out for the American home owner caught in the mortgage mess. 25 years from now, they'll look back and say, "We should have protected the American home owner rather than the Wall Street Gangs. It will be too late.

The damage to our economy from the loss of equity, loss of credit and loss of dignity is complely ignored by government because that makes Americans powerless to remedy what government is doing.

Ruthmarie. I have never singled out the Democrats for the mortgage mess. It occurred before the elections of November 2008. Not my fault that Dodd and Frank and Raines are all Dems.

See: http://activerain.com/blogsview/122552/wall-street-wants-to-buy-and-sell-loans-like-chicken-parts

Who fed the $Billions to Wall Street Investment Banks better than Henry Paulson, a product of Goldman Sachs? Who followed his lead better than Geithtner, a product of Paulson and the Fed????

Fact is, the party that is now in power will be the one who is responsible for the financial ruin of more millions of Americans when Fannie Mae uses their power to send more Americans into financial ruin.

Jackie. Indeed and that will be the IRS and not Fannie Mae. I have no sympathy for home buyers or agents who assist them falsifying documents to get their hands on the tax credit when it isn't justified.

Rich. Ah, the voice of calm. Indeed it is. Indeed it is.

THANKS REBLOGGERS.

Re-blogged by 2 agents

Almost in a nanosecond, houses went from being homes and turned into commodities. Homeowners went from being families and turned into statistics. Realtors went from helping people buy and sell homes into becoming short sale debt collectors for the banks. The new landscape of real estate would not be recognized or probably even imagined by those who make July 4, 1776 an extraordinary day, moment and time in our collective American history.

I left living inside Washington DC's beltway over 15 years ago because of the political class and their self-serving attitude and lifestyle and frankly distain for real people. My first 4th of July in Santa Fe was celebrated on our historic Plaza with a pancake breakfast made by volunteers for charity.

This year Santa Fe is 400 years old and somehow has managed to survive. Making a difference here is what people do more than I have experienced anywhere. Perhaps the solution begins in each of our communities. Imagine what could happen if the focus shifted away from power and back to the people by making a positive difference in someone else's life everyday. It's worth a try!

Emily. Well said. The people will survive the self-servers inside the beltway.

Sadly, there will be a grave yard of wrecked home owners along the way.

Lenn, excellent post. Unfortunately the American homeowner is just the pawn in the chess game. It's sad, but true.........

Can't imagine Fannie Mae taking such a vindictive approach (sarcasm intended)! I know, how about passing a law making heirs responsible..then they will never really walk away - even after they are carried away!

This article brings up valid issues of corruption. I don't agree however that DJ's should be automatically waived because someone with a connection got a bonus. I would like my 3 year old to be able to borrow money to buy a home one day and that will only happen if mortgage lending remains a viable investment vehicle for banks. I guess I need a plan "B" for her like encouraging her to be a cash buyer.

Jennifer. Sad but true.

Gary. BINGO! Then not only can folks with negative equity be ruined in life, their heirs can be ruined in the afterlife.

I still beleive that debtors prison is a real possibility. If the IRS is involved in collections, it's likely.

Robert. Relying on cash buyers will end the ability of 99% of home owners to own their homes.

I can only say that in a nearby neighborhood there are 20 houses for sale and 40 or more vacant homes.

This is a true "American Tragedy!" Many of these people had refinanced their home when prices were inflated

partly by loose credit and "friendly appraisers" and greedy lenders! This money was used for other bills and

family events in many cases in this area of homes.

I'm not happy that these people got "FREE MONEY" and I am paying for it! Yes, it is a tragedy and they are

clawing to keep their homes. My rehab friends don't want those homes because they have become "gut rehabs"

and at the price they would need to sell the properties for they would not be making their proper return on investment.

What about when the short seller is provided a 1099?

The idea of a write down similar to a bad loss still carries the 1099 which again there individuals will be hurt for

a long time and many will never have a "family home" again.

How much would it have cost the government to give every homeowner a credit on their mortgage paid to the

"greedy firms that got the money" and thus would have helped correct the situation from the bottom up instead

of from the top down?

St. Louis Painter

Lenn.. Thank you, for being so direct. You are right on the ball, now if only the government can get their act together. OK, I think winning the lottery will be easier.

As mentioned by Don Rodgers.. I think you should run for office. You'd have my vote. I'd even work on your campaign.

Michael. Fannie doesn't have to prove anything. The home owner does not have the resources to fight the TAKINGS.

Sonny. Sadly, the government can't help the American home owner with negative equity because THEY GAVE ALL THE MONEY TO THE BANKS and WALL STREET.

Valerie. Can you imagine me in the same room with a bunch of politicians?????

Very few people are just walking away in my area. They are going through the process. They try to do the loan mod and of course that doesn't work. They can't do a DIL because they have more thna one lien. So....they try a short sale. That fails and they get foreclosed on. And of course they now have the threat of the deficiency judgment hanging over their heads.

Lenn, I don't think it was Fannie Mae who passed TARP and decided who got what. Wasn't that Congress? Homeowners can't write off a loss on their primary residence because that don't pay taxes on the gains. I think that makes sense. I like to focus on Congress because they can make the necessary changes. Maybe if we had a huge tea party starved the government of our money then they might wake up and listen. Taxpayers have the ultimate power because they are the only ones with the money. It's time for some civil disobedience.

I like others hear feel for the homeowner in distress, loss of job and other financial stress (medical as example); but have no desire to help those want to walk because of value loss (business decision).

I realize that FEDS (read taxpayers) have bailed out the business man, so why not the homeowner. Well when does the bailout stop? Wait till I am OK and the stop!

Bryant. Yep. The American home owner will not only lose everything, they will continue to pay for years and years.

That's smart economic planning from our government. HA! It's just putting that famous BOOT on the necks of Americans.

Tim. Thanks. That was my mistake. Corrected.

Bob. I've given up looking for help for home owners. I'm just outraged that Fannie Mae is making sanctimonous judgments and planning to go after home owners who default.

Rock on Lenn ! Some of the news that comes out is just amazing that makes one shake their head. It will be a long time before our country rebounds from the financial mess / crisis .

Lenn, until we have a National Revival or uprising of the American people things are going to get worse. No I am not a pessimist but a realist. The tragedy of the economy is not going to get better until we have true patriotic men in elected offices, starting on the local boards and filtering down. Heck, I had to do my part and am running for Precindt Delegate again after 10 years of focusing on my business and not politics.

Going after the homeowners, not helping them modify their loans, go through a foreclosure, and now a deficiency is absurb.

Last AUGUST, I had an offer on a short sale for 350K, actually 2 of them. HSBC said no, they wanted 370K, so we lost it to foreclosure. Then listed by a REO agents and just closed this week at 350K, 11 months later. Does this make sense? NO, and I am sick and is my seller but he is holding on to all the offers and me the emails, if they go after him we will have the proof they could have sold it 11 months ago.

Lenn, I don't see how a major consumer revolt is avoidable. Renting is now an acceptable living arrangement for many, but having undergone the indignity of losing a home, accepted the inevitable rental situation, and then STILL getting pursued is not going to become a norm that will be accepted. At some point, looking at ones children, understanding that breathing has become arduous with no health issues except stress, and futures ripped out from under responsible citizens in an unexpected MESS will usurp civility when dealing with what's happening. It seems inevitable- something is going to give.

"Strategic default": wouldn't a home owner who can maintain other bills, so does at the expense of walking away before all is lost, fall into this category, if a credit report is the go to? How many are really, truly walking away "strategically"??

Lenn: What fun it was to read your response to the other post. You really know how to stick it to 'em--wish I was as clever!

Great post, and great comments. I love that we can speak openly here on AR, even about politics.

Thanks, veterans, for the freedom to speak freely.

let the revolution begin.

I see your points, to an extent, as many people see things this way... but no one ever considers the car they just bought and how it just lost 50%+ of it's value as soon as you drove it off the lot, yet they still make the car payments because that's what they agreed to pay for the car. Why is that any different?

When I paid cash for 2 iphones when they first came out (no lines or hysteria) and they dropped in price by 25% within a few months, I can tell you this, Lenn: had I financed them through Apple, I'd have carefully wrapped them up, delivered them to an Apple store, and insisted that they either provide the "new" price for my two month old phones, or take them back. If they sued me for the deficiency that was clear to them, and known by them (bubble pricing), but not me, outrage would have been the response. Apple knew. The banks knew.

Car dealerships know, and provide a transparent method to search used car pricing, so consumers know via the kelly blue book- the bubble is obvious, so it isn't (no pun intended) apples to apples, that comparison, IMO.

Lenn: I nominate you as the Amabassdor to "Homeowner and Economic Survival"...won't you please, please, please write a letter to congress on behalf of all of us, homeowners and real estate professionsls alike? An impassioned plea may not do a lot but it will get it out there and on the record of the suffering we are witnessing and in many cases, experiencing.

Remember, we make our income from the very people who are being devastated right now (and I feel like it IS getting worse) and we have no protection from loss of income either!!! We can't collect one red cent for "unemployment" ahould we lose our desks....who will need agents if everybody, at some point, loses their home (all but the very wealthy) and the number of agents increases? I have seen a huge number of people flock into the real estate business now because they can't get another job!!!

We are building a huge pent up loss of homes and income; and I agree with you: eventually, if the government has it's way, those of us OUTSIDE of government will become the financial surfs of those who rule! The proverbial "boot" is on the neck of homeowners and all who are connected with homeownership!!!

There are lots of good points in this discussion, but I would have to agree with those that have pointed out in "Strategic Default", these home owners are definitely freely walking away from their obligation because it is not in their best interest to honor their financial commitment. Yes, there was fraud on the parts of the banks and goverments on some loans, but the bottom line is NO ONE held a gun to these homeowners head and said "YOU MUST BUY THIS HOUSE RIGHT NOW". These people bought a home and they put themselves in this situation. These people are part of why the bottom fell out of the housing market. It has been a snowball effect: prices started dropping, so people started bailing on their loans because now they owe more than they paid for the house, so house prices further slide and more people bail.

I agree completely with some of the posts above that if the homeowner has the financial capacity to be held responsible for what they committed too, then they should pay up. If they lost a job or other financial hardships, then they have already paid the price with loosing their home. The problem today is no one wants to take responsibility for their own actions. Even our own current leader will find someone to blame other than himself for his mistakes.

Great post. I am rebloging this. I agree with every word and have been saying this for the last two years.

I think this is more rhetoric from Fannie Mae that just adds to the mess in general. Fannie Mae cannot police themselves, process common sense modifications, or approve logical short sales in a reasonable amount of time. Where are they finding all this time and resources to pursue these supposed "strategic defaulters"?

Great article Lenn, and as usual very clever and funny. BTW, I am really loving all of your pictures in each post. Your looking great!

"These people bought a home and they put themselves in this situation." Beyond being a cold statement, it's simply crap. The "American Dream" has always been to own your own home. The Government (every administration) has always wanted more people to be able to buy their own home and have supported programs to make home-ownership more affordable and possible. The banks jumped in with both feet, they saw the potential to make huge sums of money. And we all know that banks are greedy! They provided the programs to convince people that they could afford to buy a home, even it that was only for the first few years. They convinced people that their income would probably rise and when the payments increased, they would be OK. We spiraled into several years of obscene increases in home prices and somehow the appraisals always came in. Then we all know what happened. Or do we? Whatever, we are where we are today. Foreclosures, short sales, people walking away. Yes, some are walking for a 'business decision", most are walking because they tried everything and nothing worked. Don't punish the majority because of the few who are walking away as a business decision. They are down hard and now the Government and the banks want to stick it to them again. The few programs to help these homeowners like HAMP have been a total failure and people just don't know what to do. What if the Government forces the banks to deal with these homes that are under water. Reset the principle to current value and reduce the interest rates. Help people keep their homes, really help.

I agree with fannie mae when it comes to strategic defaults, but there are ways out of the deficiency judgment anyway; bankruptcy, 1099, etc. Either way, I like your opinions, and its a very well thought out and contructive post. Thanks!

It is all a big joke, the golden parachutes that get handed out. The people who create the mess walk away with millions while the American middle class is left to pay for the damages.

I understand strategic default and why someone would do it. You also have to understand that you can be pursued for your deficiency. It is a risk, you are hoping that the damage to your credit and possible deficiency will be less than if you stayed and made the payments. Some times you win and some times you lose. That is why it is a strategic default.

You have to include those mortgage brokers who made these loans which is not affordable to the customer but made it up with stated income and other ways. They are also part ofthe whole scam and be prosecuted. An average middle class home owner is the one who suffering and do not have any help from anyone.

Lenn, I love it... and it's so true! It's just one more thing that's killing middle class America and shrinking it.

I hesitate to wade into a pool full of such strong opinions. So I'll just ask, Lenn -- have you traded in your rifle for a frying pan?!? I love the picture!

Carla in #27. I'm no lawyer, but I think they only issues a "warrant issued for their arrest, failure to appear" in criminal cases. If you don't appear at a civil trial, you just automatically lose the case (default judgment).

Lenn,

I think you pointed out what really is the sad fact about this mess...no matter who is in power, no matter who makes the decisions, no matter who benefits (it will never be the private citizen)...

The American people at large will be left holding the bill for decisions that the top 5% made and profitted from.

I wrote a blog not too long ago explaining the differences between "us" and "them"...like it or not, if you are blogging, reading, or commenting on ActiveRain, you are hereby classified as an "us"...Also Known As NOT THEM!

Lenn, The strategic walkaway just to buy something different may be in question. However, I agree 100% that if a business can write it off why cannot a homeowner do the same when they did not creat the mess.

Oh boy, it was only a matter of time really before they realized that this was a potential source of additional $$$ for them that they hadnt seriously gone after yet, so I'm unfortunately not surprised to hear they are stepping up the heat on this now...

... btw, I can think of a few individuals in high places that I would like you to pay a visit to, with your trusty frying pan, and give them a little clonk round the noggin to maybe jolt a few better ideas to help us claw out of our current mess !

It is amazing what people are tying to get way with. why, they purchased the home I understand things happen. but people are shortselling homes that are investment property or because they want another home. I nderstand but, we can not ask Fannie Mae to pay for it, actuall we will all pay for it down the road you and I.

Very Well said... freedom is just another word till you have nothing left to lose and we are all on that path if something doesn't change soon...

I love the honesty and the anger!! You're not just one of the best bloggers on AR .. you're a national treasure!!

Keep calling it like you see and I'll keep reading..

Isn't it amazing that there was a $50,000,000 bonus in an organization that was bleeding money?

In favor of short sales for homeowners who actually need help, against strategic defaults with no penalties.

Lenn, Great points. Until we collectively stand up and run these SOB's outta here they are going to keep kicking us around. Today is our Independence Day!

I remain in awe that, in a consumer driven econcomy, the consumer is so abused and beaten up. Maybe it's time for ajnother Revolution, a non-violet political one.

Lenn: Thank you for writing the post I really wanted to write when I first read about this nonsense. When corporations dream up new ways to screw us, they are celebrated as efficient. When the general public figures out a way around the effects of corporate greed and corruption, it is punished.

@ Richard #73 . . . read the article and watch video: "In Jail For Being in Debt"

Today credit card debt . . . tomorrow . . . the world deeficiency judgments

Christopher and Stephanie. I'm looking at no less than 10 years. It will be that long before folks foreclosed this year get their credit back.

Missy. We know by now that the banks and government simply give lip service to short sale remedies.

Laurie. None to very few. Once there is negative equity, the balance of decision making tilts towards "what is the use?"

Bravo Lenn Bravo. Thank you.........for a most delightful, thought provoking post.....

Melissa. Don't sell yourself short. Get angry enough and the words come.

Waynette. Thanks for the reminder.

Bill. I'm a volunteer.

Donna. If one cannot understand the difference between real property and a machine, I can't help.

Lenn, lets not forget that a home is just that, a place to live, my parents and a lot of folks bought a house and paid for it over thirty years. It never mattered whether they owed more than it was worth or whether they were ahead, it was a home and as long as they paid the monthly note they got to live in it.

The nature of politics and money today has morphed into something so huge and the gains are so massive that the public has little hope of controlling it. It is disgusting the lengths that politicians will go to in order to line their filthy pockets (not only an American problem but in Ireland!)

People have forgotten that every penny the government spends is their money.

Laurie. I refuse to cp,[are the intrinsic value of a HOME to that of a machine.

Paula. They get tired of hearing from me.

Stephen. The home owner who walks away does pay. He pays by the loss of credit and the loss of dignity. Who will decide what is strategic???? There will have to be a new law with debtors' prison at the end for those who cannot recover from the loss of credit, loss of home and then have their income go to pay for the bank's loss.

Ed M. MY HERO!

Rhonda. Easy. They'll give the job to the IRS and hire more IRS lawyers.

Jerry. Thanks. I appreciate it. They are fun.

Tom B. You are smarter than your years. When it comes to taking money out of the pockets of American home owners, the government is like a hound sniffing the scent of a rabbit.

Phil S. THANKS. I've been recommending bankruptcy as the consumers' remedy for 3 years now. Sadly, while commercial property, second homes and businesses can "modify loans in bankruptcy court, home owners cannot modify the principal balance of a primary residence. The banks lobbyied for that exclusion.

Michael M. Precisely.

Linu. HA! They surely do not have any of the $870,000,000,000 of TARP money.

Leanne. BINGO! The American middle class is GROUND ZERO.

Richard S. HA! I was offering the utensils to Fannie Mae to cook all our gooses. BTW, I believe that if the judge issues a subpoena for you to appear and disclose all of your assets and you fail to appear, the Sherrif will "escort" you to the hooskow to appear before the judge to answer why you didn't answer the subpoena. I think.

Jenna. I prefer the company of us and not them.

Ted T. BINGO.

Sheldon. Yep. Sadly, it was money sitting there and they'll probably collect it, put it in the treasury and claim it "Saved" 100 jobs.

Ken. You speak of the small percentage. The majority are simply home owners who purchased a home in good faith and then saw half the value evaporate through no fault of their own, yet they are expected to continue to pay for twice thevalue of the property.

Debra. HA! I suspect that the brain trust at HUD that dreamed up this program are wearing tee shirts with BOBBY MCGEE on the back.

Mike. HA! This old dog is too old to learn any new ways.

Vicky. Indeed. He should have been run out of town and stripped of his assets for falsification of the Fannie financial statements.

Dean and Sonia. How much penalty should a home owner who sends the keys back to the mortgage company pay and in what form???? Especially the ones who try short sales and they fail.

Erik. You bet and I'm looking for some "equal protection" for home owners who are drowning in mortgage payments for a property with half it's value.

Kate. It's underway as we speak. We just have to stay strong and not be swayed by their lies, trickery and deceit.

Aaron. Sad but true. The politicians can't identify a sufficiency of campaign contributions from us.

Carla. You are on the ball.

Richie. My pleasure.

David. You wrote: " It never mattered whether they owed more than it was worth" I suspect that it DID matter to your parents although they didn't speak about these things.

They relied on that little 2-3% appreciation to fund their retirement. The home equity is what launched the middle class in this country.

Comment #27- Carla- Here in Florida that would never happen. You don't go to jail for failure to appear on a judgment. The judgment just gets entered. But we have wonderful asset protections here.

Thank you for bringing this perspective, Lenn.

A lot of commenters are saying that if the homeowner has the means to pay their mortgage then they should pay it. But if you read your loan documents and your note that you signed when you got the loan for your house - it is an agreement between you and the bank.

The bank made you get an appraisal. The bank chose your appraiser. You had NO say in who appraised the property you wanted to buy. The bank then made a business decision that they decided that they would take the risk to loan you the money to buy the property. They weighed the value of the property along with their risk factors and scored the deal.

You then signed a note to repay the money that was lent to you. However, there is specific language within your note. THere is no where in the note that says you have to pay it or else! What it does say is that you will pay the note. In return for the loan you will offer up your property as collateral for the note. If you don't make your payments, then the bank exercises their right that you gave them through your mortgage ( this is here in Florida) to foreclose on you and take back the property that you offered up as collateral.

There is no moral clause in your note or in the mortgage instrument that says that you HAVE to pay. There is nothing in there that says you don't have to pay if you lose your job. There is nothing in the note that says that you will go to jail if you don't pay. There is nothing in the note that says that you are going to hell if you don't pay. There is nothing in the note that says it is a moral sin if you don't pay.

This is a business transaction between you and the lender and then there are certain things you both agreed on-

1. what happens when you do pay

2. what happens when you don't pay.

I do not agree that paying or not paying is somehow tied to morals or values. I don't see that this is even in the discussion that there is a judgment on those that do or don't pay. Katerina

Katerina. I have yet to see a Contract of Sale, Deed, Mortgage, Deed of Trust or Note that contained a morals clause.

That said, it wouldn't surprise me to now see them inching their way into legal documents.

Lenn - I'm going to take a slightly different tack here. I generally agree with you that your loan is a contract with specific terms and laws that govern it. Don't pay the loan and the bank takes the house and that's fine. I think the moral arguments are just plain garbage - much of what has happened was outside the control of individuals and homeowners have to make whatever they feel is the best decision for them and their family based on the consequences.

However, it is equally true that in jurisdictions that permit deficiency judgments (I am in AZ which is generally anti-deficiency but there are limitations to that), the law permits the creditor to go after debtors for the shortfall. This is no different from the debtor exercising his/her right to bail on the contract and let the lender take the house back per the law. To that extent, I have no problem with the banks going after the homeowner to make up the loss and in fact, I think they should to the extent it makes fiscal sense. What's good for the goose is good for the gander.

BTW, this would be a good spot to remind homeowners to make sure they KNOW the repercussions of their actions before they commit to them - is your state anti-deficiency or not? What are the exact limitations? Don't jsut go by what your friend at work tells you will happen, know what CAN happen. I'm sure you'd agree.

Bottom line...it's discouraging for all of us. Pin cushion comes to mind.

Eric. It isn't the banks going after the home owners in this case, it's Fannie Mae, the note holder. The banks sold the notes to Fannie Mae. Fannie has decided to collect on the note. This is a discretionary move, not one they have to take. The banks have been made whole by Fannie.

Sally. Yep. That's just about what it represents.

JUL

2010

Some of the problem is people fell into the false value when they refinanced at 125% of value .

Real Estate is a long term investment, I think the ones upside down should do what ever

to keep there home, Not be allowed to just walk away.. You buy a new car, drive it off the lot, it

looses 20 percent withing a week, Should you be allowed to walk away from your car note.

Four THUMBS UP from the Fennell's... and lest we forget, politicians from both parties have their own interests in mind as they seek to keep their jobs and accrue as much personal gain as possible on the backs of 'we the people'.

And on a side note to those who fault consumers seeking relief from their 'bad investments,' let's remember that the lenders also made bad investments when they chose to make loans on what turned out to be inflated values (regardless of the conditions/reasons that made it so)... plenty of blame to go around so why not all share in the restitution?

I'm trying to think about what happens if there are no consequences for any sort of defaults other than the bank taking back the home. Let's say there is no credit impairment and no deficiency judgements. Everyone just walks away and buys another home down the road at a much lower price.

I guess Fannie Mae stops getting those mortgage payments and can't make interest payments on their bonds. The bonds probably lose at least 50% of their value.

Who owns those Fannie Mae bonds? I think it's people like you and me who have these bonds somewhere in our mutual fund accounts or our retirement accounts.

If Fannie Mae gets bailed out by the government, who pays the tab for that bailout? I think it's the taxpayer.

So just let everyone walk away in order to make a smart financial decision and then see who eventually get stuck with the losses.

Thanks for noticing and giving me credit for the issue - (but you spelled my name wrong... ZARETSKY)

Lenn rarely, but this is one time, I have to disagree with you. Some folks being dirt bag crooks do make it ok for others to walk away. The money given the commercial folks was to restore liquidity. Now we could have not done that and watched the system collapse. But in the end we held our nose and gave them the money. I do agree with you and am frustrated and outraged over the whole mess. But letting others walk away is not the answer.

Lenn, You rock. Great post. There are people with money that get away with many things. Unfortuately our elected officials are easily bought when they get into office. We could shut many federal agencies down like the energy department and not miss anything. BP and Obama have partnered up on the Cap and Trade mess. You see both are taking their time cleaning up the oil spill. Obama's friend George Soros appears to be scooping up millions of taxpayer's dollars with his deal with FDIC on Indymac. What happened with Obama's transparency promise or Pelosi's Draining the Swamp promise. All lies. More corruption and no one is doing anything about it. Time to replace just about everyone in D.C.

My experience with short sales is that the folks selling there home at a loss are on the verge of bankruptcy anyway, they will just include the lenders in theie filings and the lenders will still get nothing. I have not seen one yet where the borrower had anything for the banks to legally grab.

I think the recovery percentages will be very small

Rog

Great post Lenn. Doesn't this action seem to contradict the Bush Debt Forgiveness Act of 2007 which forgives consumers any unpaid debt from 2007-2012? Not to say they can't change the rules, but you're right, this will only make things worse and create a slower recovery.

The banking system has been in bed with the government for so long now (think 1913) that I don't know that it CAN be fixed. One thing-we certainly need to look further than the last few administrations to get a feel for the depth of the problem.

I wonder how things would be if banks KEPT their notes in-house and didn't sell them to Fannie or Freddie.

Great Post - I am amazed at the increasing level of corruption. Not making Fannie and Freddie a huge part of the alleged finance reform bill is pure corruption.

It's such a mess. The fact is.....we are probably going to see strategic defaults for years to come and the consequences. I have so many clients that bought during the high time. Homes sold for $700,000 that are now $400,000, homes that are now $700,000 that sold over $1 million. If these people need to move for jobs, or family, or just move....what are they going to do? And if they have scratched and saved $200,000 or more for retirement....just give it up? Start over because of a job transfer and they can't break even on a house?

It's scary what the next 10 years might bring.....

Fantastic post. We should all be yelling this from the rooftops!

Lenn-Thank you, thank you, THANK YOU for this post! I am disgusted by Fannie Mae's declaration that they are going to do this. Fannie Mae, when they were one of the parties who engineered and enabled this whole mess. Why, when a corporation or bank does "it", is it clearly and unquestionably a "business decision" yet when a smart, savvy homeowner actually figures out that it is a smart financial decision to walk-away now it's deplorable? Many savvy homeowners are figuring out that eventually something may happen and they may not be able to continue to pay (future job loss, unforeseen circumstances) and since no end is in sight to the mess why not start their own recovery now? Did the bank not go into the deal along with the homeowner? Did the bank not have tools available to it that the homeowner did not have (appraisals, models, the knowledge of how many shaky loans they had already written and sold off) that should have told them it was a bad investment and this type of scenario was likely to happen? The homeowner could not have purchased the home without the bank agreeing to "partner" with the homeowner in their purchase. The bank would not have written the loan without someone to sell it to. The political environment fed the monster. But the homeowner is the one that is left holding the proverbial bag...and now let's pursue them to the ends of the earth...

Great post. The American people walk around with blinders on. When I bring up things like this they act like my elevator doesn't go to the top. I wish more would pay attention and look into these agendas.

Lenn: Great ideas! I can see that the government is looking to force homeowners to live up to their obligations regardless of the consequences to their financial future and that of America. The sooner that income producers recover and get started again, the sooner the Great Recession of 2007 to ??? will be ended.

Eric Lee wants homeowners to know what CAN happen if they default and that is so VERY true. One of the things they should know and that many BK attorneys don't even know is that if there is no equity for the security of Junior Loans...IE the first loan is larger than the value of the home...the Junior Leins can be "stripped" in BK and there is NO deficiency available. They were contracted as "secured debts" and when the security for them no longer exists...they can be removed by a competent BK attorney.

Homeowners should know that one of the ways they can recover without many of the deficiency judgements is through a strategic BK as well as the strategic default. Advise your clients to see a "competent" BK attorney before defaulting.

Good points! I do think that homeowners should be able to make these decisions as "business decisions" just like the big banks do!

But the average homeowner also then has to think like a big bank, protect their assets, use good legal counsel, etc - just like the big banks do. Becuase there will be other "business decisions" being made by the lender, Fannie Mae, future borrowing, etc!

I have been following a great attorney lately on this subject - Matt Englett - and a great resource at http://www.kelattorneys.com/strategic-default.html

Homeowners typically are making decisions based on the moral obligations put upon them in our society....rather than on sound business and legal principles.

Lenn, the whole situation is a mess and we all have to continue to make the public aware of how messed up it is until something works that begin to fix it. GREAT POST, and I agree with one of your previous; posters you should run for office!!!

I agree that a lot of the problems with the U.S.A.'s real estate market are a direct result of the banks policies. However, in Canada buyers have always been responsible for any shortfall on the sale of a foreclosure sale including any and all expenses incurred by the banks in selling the property. As a result it is extremely rare that anyone "walks away" from a home for strategic reasons because there are no good strategic reasons when you will end up footing the bill in the end. The only time one does not pay the losses is if you are also going through a bankruptcy and the house is included in the filing.

The most obvious result of this policy is that our real estate markets have been much more stable. Most Buyer's do not want to "max out" their mortgage potential. Yes, we still have a foreclosure rate but it is only around 0.25%. Are there over heated markets? Yes, in some areas but not all and buyers and home owners understand that there are risks when buying a home in an over heated market, which is likely to adjust. I believe that the Vancouver area is one area that is statistically over priced, however in the Toronto area home prices are fairly reasonable on average (based on average incomes, average home prices and current interest rates.

The banks may have set the stage for the housing "crash" in the U.S. but the strategic defaults have magnified the resulting dilemma by flooding the market with even more homes than would have naturally been available. This flood of homes makes prices drop more, making more home owners unqualified to renew their mortgages, based on the value of the home relative to the debt owed, which makes for more foreclosures and strategic foreclosures......... and down goes the market until everyone's credit is ruined. Then when nobody but the rich can buy homes, which they will pick up at rock bottom prices, they will; to rent out and sell in several years once everyone else fixes their credit scores and can start qualifying for a mortgage again. The rich get richer and the middle class and poor get the a credit roller coaster ride with no financial benefit in the future except the expectation that it will happen again unless policy changes are made. No accountability (for banks or home owners) means no stability.

The reality is that just about everyone involved was responsible for today's real estate market. The banks are responsible for offering bad mortgages and "playing the system" and many buyer's are responsible for trying to "play the system" and accepting that what was too good to be true was true. We all know that something that is too good to be true often isn't. Before the crash the U.S. real estate market was almost like a pyramid scheme where as long as you can get someone else to join in and pay more you can keep going. unfortunately, like in pyramid schemes you eventually run out of suckers to prop up the bottom and it crumbles and the only people who win are the people who got out fastest and didn't get back in.

We all want to blame others for our problems but nothing gets fixed that way. Yes, the banks messed up, but so too did the buyer's. Changing the policies to make people accountable is a positive step to having a more stable real estate market in the future. However, the banks also need to be regulated better so that they do not find another way to "work the system" and create another situation where the markets become so excessively over heated before a correction is made.

Go Get 'em.. They did a complete inventory dump by not re-financing the subprimes.. a move that has shook the globe. Firewood anyone..:)

Why we haven't consolidated Fannie/Freddie is beyond me..... It would havee money. to sav

Thanks for the info

Love your honesty, Lenn. Thank you!

Emily said this so well

As is typical Washington is sticking it to the little guy while letting the big banks off Scot free with trillions in bailout funds. Whether Democrat or Republican neither party is looking out for anyone but the big businesses that line their pockets. Everyone was a victim of this recession, not just Wall Street and Washington. Reblogged.

This post is a mess. As I understand the law, bank have a right to go after deficiency judgements. How one got there involves many. If it's going to get political as it has here...count me out.

Great post, Lenn! Sad days indeed for this fine Country. Sure hope the right kind of change starts to take place in November (but after seeing the last election, it's highly doubtful that people will wake up and take a stand).

Well said, Lenn! Who is looking-out for the working class? Not Wall Street or its friends...

Forget about moral hazard - the banks and wall street bought that responsibility with bad loan offerings and mortgage derivatives, aided and abetted by congress who rewarded them with TARP when they ran into trouble and have let them keep on doing it. Then when the banks find out they have put people in a hazardous position they stick them with payments on an asset perhaps worth half the value. Actually, maybe they planned this - 1) it was obvious the RE bubble would break 2) they loaded up consumers with debt based on the bubble 3) there was and is no intent to reduce payments to match new asset values 4) the payments would drive people out of their homes 5) the banks wind op controlling the largest slice of the RE market 6) they can stll go after the consumer for any unpaid debt 7) the consumer and their children will pay off the tax debts generated by the banks and wall street and suffer the consequences of the crash for the rest of their lives.

The banks win, the rest of us lose

I haven't read all of the comments, and I am sure mine may have already been posted, but I just had to add my agreement to your post. I have been following this debacle for several years now, and I have to say I don't think there is anyone in Washington with a clue on how to solve this problem. Throwing money at a problem has never solved it, just created a new set of problems. I am a registered Republican, but I have to say this issue crosses party lines and both groups have to accept responsibility for the situation we are in. We need fresh blood and fresh ideas at the top. Not a puppet president intent on pushing a socialist way of life on us. Let's get someone that has read the Constitution and will actually live up to their oath to uphold and defend it, not circumvent and try to rewrite it. There are a lot of realtors in this country and I hope all of us will take these hard lessons to the polls in November and in 2012 and let's start anew with fresh ideas and put the good ol boys out to pasture.

Lenn, I only made it to comment #37. Your posts are educational and informational, for which I am most grateful.

On the other hand, they do nothing to stop the little voices I have in my head that make me wonder when my world will come crashing in. Already, it's hard to get listings that are sellable, and the buyers are few and far between.

I'm working on my new website, blogging my ass off, and working to get my name in front of those few buyers that are out there.

And you imagine the American homeowner going through all this mess.....and then years from now, they will still come after them....

Will this madness EVER stop?

Thank you for your post! You said it so well. I just reblogged it. This is actually my first blog. Connie

What's a strategic default. Is that the planning of the american consumer for the best way to exit the financial mess they are in. Her's what I think. the goody goodies that feel this is wrong need to pull there head out of the ground. Any good business would immedialty dump a non performing asset. Especially when the cards are stacked against such business. All of these govy help programs are a disguise for the government. Look we're here to help. But out of all the people that you know need help, how many have actually got it. B of A continues to spue garbage at the media. They do not fulfill any of these promises.

But if you are a big bank or a dirty filty wall street crook, or one of those "friendly" politicians, you get to walk away with millions and give billions in bonuses. FOR WHAT. For taking advantage of the people. The very same people that make it possible for you to take home those millions in bonuses.

Here is how it should work. I do a strategic foreclosure and when it is done, I get to colect a big fat bonus. No you say, I ddn't create the mess, I don't get one. Wake up, remember, We the people own this country. We made it what it was and is today. get these shmuck out of office and lets rebuild.

Interesting post. I agree that the American Tax payer should not be forced to bailout corporations, however, should they really be forced to bailout the typical the HELOC abuser in Orange County Califronia that's pulled $400,000 out of their home to go on vacation, buy a nice car, and a boat? Your article seems to imply that this is fine and that the American people should pay for it since they are already paying to bail out corporations. I have responded with a blog post

http://activerain.com/blogsview/1727956/the-tax-payers-should-pay-for-heloc-abusers-that-strategically-default-

If the real estate industry is to return to its previous robustness, there must be concentration on helping the large percentage of potential home buyers and sellers who are not in trouble. I'm referring to the folks who have great credit, great income, but also have negative equity in their current, outgrown homes.

Find a way to facilitate the transfer of that negative equity to another more desirable home, and there could be enough new buy/sell activity to nudge property values upward. From a bank's point of view, they would be exchanging a loan with, say 140% LTV for a loan with 120% LTV and a higher payment collected each month. The consumer would get the home they want, and real estate professionals would get some additional activity.

Instead of fixing the industry and the economy, our government continues to try to tread water while the storm passes. There are still a pile of accidental homeowners who have not yet returned to the rental market. Helping people who can't afford to live in their homes is delaying their return to stability and prolonging their personal agony. Punishing them is certainly not an option.

LENN,

Always on point....but the GREAT AWAKENING is happening...as sure as the sun sets and rises again...the SILENT MAJORITY will begin to speak in the next round of elections. I recently meet with an old college buddy who had become a US Congressman and is now running for Senate...during our discussion it became obvious that he was completely disconnected from the "man on the street"...believes in National Health Care, Earmarks, the whole GOVERNMENT CAN DO IT BETTER AND WE'RE HERE TO HELP YOU" concept....as the Fire of London cleared the way for a complete rebuild, we too, will rebuild...for inspiration read the "DECLARATION OF INDEPENDENCE" daily.

Best personal regards,

NED BERNDT

Why not let the market take care of itself? Creating government programs that keep home prices artificially high only delay the recovery process. Of course prices needed to drop, in many areas they more than tripled in 10 years while during the same time period incomes went up less than 20%. Once prices come down in line with incomes we will have true stabilization and recovery. As long as we try to keep people that can't afford it in properties, reward irresponsible behavior, and continue the attempt to stabilize artificially high home prices we will suffer.

They built it and they milked it.

Now they are coming after people who are already being crushed. And I am just talking about taxes.

at the risk of being unpopular...many persons who are 'strategic defaulting' are well able to contribute to the kitty on a sale. are you proposing that the business decisions/losses of defaultors be backstopped? maybe we can have the casinos refund losses, and securities brokers. when the topic is "strategic defaultors' we are not talking about the job loss, military transferee, medical catastrophy segment of the population here. and we are not talking about folks who are broke either. can we agree that many of the 'strategic defaultors' are making a simple businessmans calculation and sleeping well afterward? they might even be driving by you in the lexus they bought with the cash from their cashout refi as they stop by their "rental" to collect the rent they are pocketing.

if someone is able to make their payments and chooses not to...no problem. they should be aware though that their choice, like the one to borrow, has repercussions. they may be expected to repay the money they borrowed...IMAGINE THAT!

society has created a mechanism for those truly in trouble and the bankruptcy court allows persons with provable hardships to see their situation solved for less than $3,000. the stigma is gone from that choice.

the IRS accommodates those who are INSOLVENT to avoid discharge of debt income.

many lenders are waiving their right to pursue deficiencies if the borrower ponies up some cash and when analyzed the contribution is a bargain...pay back 10 cents on the dollar and the lender foregoes the right to collect the rest? that's a deal that any savvy business man would jump at.

lenn, the owner occupant does not deduct a loss because they do not report a gain. 250k for single, 500k married. we're all familiar with that massive gift from congress.

prosecute franklin raines...he is an example of pure incompetence. prosecute angelo mozilo...i'd pay for a seat in that courtroom. prosecute chris dodd...hell yeah, he's as crooked as a dogs back leg! but let's not forget that the vast majority of homeowners are not in distress and to have us subsidize the crappy investment losses of our neighbors while never having had an opportunity to share in the gains is wrong.

Good post Lenn, can't add anything that hasn't been thrown around in this discussion.

Whoa.. and lets not forget the rest of the world we sold all the MBS's rated AAA.. we wonder why our pleas are falling on deaf ears.. Why the Prez is considered non valid and China not wanting to buy our debt?? We thought they cooked the books.. (think frying pan)

If they would have told people the numbers and said they WOULD NOT re-finance all those loans.. and dump them on the market to make a free fall creating it's own gravity.. what do you expect

I find it amazing that the government bails out big business and leaves the mess to the taxpayers.

Bankruptcy is a wonderful thing for those who exercise poor judgment and is should have been exercised in this case.

Now many taxpayers will be forced to use the bankruptcy laws and pay for the mistakes cause by big business and enabled by our government.

What I find most disheartening at this time is the general public failure to see through all the distractions and focus on the root cause of the issues. Without some form of unified effort on some level, nothing is going to change.

Great job focusing on the real issues and not the distractions. I hope over time enough people will realize real change in the government has to be made.

Real estate agents aren't attorneys, and homeowners need to consult with a good attorney before making decisions concerning short sales, foreclosure, strategic defaults and bankruptcy. I like the comment from an earlier post that says don't just rely on what you've heard can happen if you walk away from your house, and this applies to bankruptcy also. Seek competent legal advice from an attorney with experience in foreclosures and bankruptcy.

I also agree that the future looks pretty bleak for those that have experienced either a short sale, foreclosure or bankruptcy. We are creating a whole class of people that can't buy a house for at least two years. I'm in the business to help people buy and sell homes, and this scares me. But the banks are in the business of loaning money to help people buy homes. My guess is the banks will come up with different programs to get these people into homes sooner...whether it be a higher interest rate loan, or whatever. Once the banks see they are cutting their own throats, they will respond.

Not everyone who owes more on their home than the home is worth should be allowed to walk away. There are plenty of circumstances that would allow people to modify or do a short sale and if allowing a property to go into foreclosure is a family's only hope for meeting basic survival needs then so be it.

I do have a problem with people simply walking away when their home is now worth less that the mortgage. If it's because their home is worth less than what they paid for it they should tough it out, they have a legal and moral obligation to do so. If it's because they refinanced when home values were at their peak and used the money to pay down debt or buy toys then I especially don't feel too bad for them. There is plenty of blame to go around and the borrowers need to take at least some responsibility.

whats this world coming to???

Great post. Thanks for posting this Lenn.

Wow Lenn...you certainly struck a chord huh? I see an up-rising or a revolution in our future very soon. However, I have to agree with a previous comment that we should focus on our own communities and lend a hand wherever we can to help our local citizens. Even if that only means being the most informed and educated agent that is willing to pass along information and assistance to homewoners in need.

In our market manufactured homes were very popular. Now that home prices have fallen and buyer's can get a stick built house for what it cost to buy a manufactured house, we are seeing a lot of manufactured home owners that are upside down and they can't give the house away. This is throwing a lot of them into the short sale situation. It's sad, but the market has dropped out on this type of housing in my area.

We are also seeing these homeowners lose their jobs. Now they are stuck with a house they can't sell and a house payment they can't afford. I've talked with people that have tried a loan modification, but they don't get approved because of the loss of income, and even with a loan modification they can't afford the house.

We are starting to see the commercial foreclosures. The above mentioned problem is going to grow even bigger when the businesses shut down and more people are left without jobs. When you see first hand, the families that are caught in this situation, it makes if difficult for me to support those that are just walking away because they simply no longer want to make payments on a house that is worth less than what they paid for it. This is just adding to the problem and causing home prices to drop even more.

I love it when real estate agents start defending owners who walk away from their contractual obligations. Did their loan documents state anywhere that the value of your property will never go down and if it does, don't worry you can just walk away with no consequence's! Strategic default is BS and is no better than any of the other highlights you posted. I hate all government intervention. Owners that don't pay their mortgage should held accountable. The people at Fannie and Freddieas well as the idiots in DC like Frank and Dodd. There should never have been a tax rebate for that matter either.

What got us into this situation? Really?

The banks? No!

The government? No!

Job loses? No!

Fraud? No!

We are in this because home owners did not read or understand their mortgages and stopped paying their mortgages when the payment obligation did not meet their income. Did the other issues above make it easier? Yes. Did any of you tell a buyer's"No" or "I don't think you should stretch yourself that far" when they wanted to purchase a new home? Did you explain to them in terms they could understand how much their payment would go up if the interest rates went up and property values were stagnant from when they purchased. Or did you sit there and say, "Hey real estate is a great investment and has not gone down in 20,30,60, years??? When your new payment resets, we'll simply refinance your property"..

Never understood my fellow agents and loan officers using rediculaous statements like that. Never had one client sigh up for those BS loans and have not received a single call me asking for help or from pissed off clients because of it. I was a builder baby in the late 70's and new this was coming when I say 15% a year appreciation in my market for 3-4 years in a row. If you had even a bit of understandings about any market whether real estate, gold, stocks, commodities is that they cannot sustain long periods of constant appreciation. Never have and never will. This issue was created by ignorance and a lack of financial understanding buy home owners and the people they chose to advise them. Funny how Robert Kirasawas info mercials are no longer on TV huh??? Borrow your way to financial freedom???? Maybe short term, but it will always bite you in the ass.

You think last year was bad?? What's coming is worse. Tons of prime mortgage defaults, more strategic defaults and more pointless regulations. All will provide a choke hold on the economy and create a double dip. One of my asset managers and I had a conversation and they are hiring 20% more managers to deal with the upswing they are facing it the end of this year. I also had a friend highered and RELS to re-evaluate a load of appraisals. Why? The feds are looking to make Wells Fargo buy back a load of bad loans due to faulty appraisals created by their auto appraisal system. Oops think they still have that software engineer on staff? My advise.. Tell your clients to follow their obligations and ride out the storm. If they do, the sooner we all can recover.

Whatever happened to personal responsibility? It has always been the case both personally and corporate that debt forgiven is income to the person being forgiven. Your facts are incorrect. Many people are using this as a one time get out of jail free. Not all, but you have to look at the individual circumstances. The only reason for not paying back debt in my opinion is for predatory lending, not greed.

There are all too many of us going to pay the bill for the irresponsibility of other, although that seems to be the way this Country is heading.

Great post. I'm certain we could of got better bang for our buck for two trillion. What a waste.

Eric:

Interesting post. I didn't know that Wells was coming under fire for faulty appraisals. That explains a few things to me.

I practice the way you do. Just a few months ago, I had a young couple come to me and tell me thay were pre approved for 200K. I know where one of them works. I know they can't afford the payments at the top end of what they were approved for. As it turns out, one of them lost their job, and now they have to wait to buy a house.

Nice Post Lenn,

I'm a little new at this blogging thing, but an old hand at real estate and now a seasoned "pro" at short sales, if anyone can really claim to be a pro in a constantly changing field like this.

Apparently some new rules took effect on July 1, 2010, but I have not found them actually spelled out anywhere, yet. In one transaction, the 2nd lien holder actually instructed me that I was not allowed to talk to anyone at the bank any longer. All contact must be trough their attorney, who has taken the negotiations off on one tangent after another, including accusing me of practicing law without a license, when I made statements to his clients, "the bank". Could there really be a banker stupid enough to think that the agent for the "seller" is dispensing legal advice to a banking institution? Could there really even be a banker stupid enough to think that the Seller's real estate agent even has a fiduciary relationship or obligation to the bank at all? Apparently so.

His next diversionary tactic was to threaten me with committing fraud if I was representing that this was a property that qualified for the new HAFA program. To qualify it had to have made an attempt under the HAMP program to do a loan mod, and it had to be owner occupied. Obviously the attorney went forward waving his rubber sword based on what he was told, not based upon what he read or the facts. I wonder which part of "Tenant Occupied" please view virtual tour first before calling to schedule showings, this guy didn't understand?

And the very next day, on another transaction that the bank had turned down the previous week (different bank - 1st lien) and at that time had stated that they needed $xxx and that number was very tight. If a buyer needed closing cost, they would have to be added on top of the "magic" number. A different selling office than the previous offer brought in a new offer at the number requested by the bank, complete with a pre-approval letter, etc. We submitted the new package foolishly thinking we "had a deal".

The call came from the bank on July 2, Now they had changed their mind, needed a lot more money and really did not want to do a short sale. Now they want to do a Deed in Lieu of Foreclosure (DIL). they are still willing to pay the 2nd lien the typical $3000 for a lien release, and here come the best part........ Are you ready .........? They are going to "give" me 1% of that magic number price they wanted, if I help convince the Seller to do this.

So, let me summarize what they really said. Instead of a short sale, which hurts your credit for a few years, but is not on your credit forever, they want the Seller to do a DIL which does get entered into the public records FOREVER, THE SAME AS THE FORECLOSURE THEY WERE TRYING TO AVOID. A Seller should weigh out this choice carefully, as future employers will always be able to go back and see this. And, they will not release their right to a deficiency judgment unless the Seller brings $10,000 to closing. Of course I'm going to make a big payday at 1% (barely covers marketing costs and virtual tours etc.) and the other agent that has the buyer gets Nothing! But, the bank has the buyer's name, address, pre-approval letter, with loan officers name and phone number.

What's going on here? Is this Fannie Mae changing the deal at the last moment? It's almost as if they "want" the property. I'd realy love to hear Lenn's comments and from the many that have commented on this post already.

Lenn,

I think your post would carry more weight if you could have shared some blame on Republicans as well. It is either naive or partisan to think the Democrats alone are to be blamed for this mess.

A more balanced view point would have inspired some deeper thinking on behalf of the reader.

You just joined the shouters out there which won't make anyone change their minds. The shouters and the right wingers are driving the 'Moderate Republicans' away. Well done!

Wake up and smell the coffee.

Vote all incumbents out.

Break the cycle of career politicians.

They are only in it for themselves.

It's the only way to send the message.

It's no longer about Democrats vs. Republicans.

If we leave the career politicians in office America won't survive.

There are weeds in the wheat, if we pull the weeds to soon, we may destroy the yount growing wheat. If we let them both grow till harvest we can bundle and burn the weeds and then bundle and process the wheat. I think our biggest problem is we have allowed weeds posing as wheat in to positions of power. This has been happening for the last 40+ yrs. Surely my genertation is starting to see who is which and will get involved come election time. - cheryl

First, Lenn, I echo the comments here urging you to run for office. We obviously need some real world clear thinking within the beltway.

I also urge everyone who condemns strategic defaulters to listen to those here who have pointed out the grey areas. The people I know who have walked away from upside-down mortgages did not make their decisions lightly. To them, it was (is) a case of weighing all the options and making the best choice they can under the circumstances for their financial health...and in most cases, their financial survival. It is ironic that they should now be treated like criminals or moral outcasts for something that Big Business does all the time.

Well they will either shake the people down of force them into BK, so no one can ever get a loan again. Then the banks will own all the houses, the government will own all the banks, and we will all be living in defacto government housing and working at government jobs.

I normally don't comment on political posts, but this one is one worth commenting on. I don't think it has to do with democrat vs republican or the government. I have a hard time when something goes wrong in America, no matter what it is, we always blame the government. What about "US" We are the most to blame. The PEOPLE need to be accountable for making poor decisions. Are we that naive and uneducated that when these loans were put in front of our faces that we didn't think something was wrong. I have only been in real estate for one year. I have purchased three homes in the last 8 yrs. NOT ONE TIME DID I DO ANYTHING BUT A 30 YR FIXED RATE LOAN!!!! I knew all those other loans were too good to be true. Yes, my homes have lost value just like everyone else, but I am not sitting in a place where I can't afford the payment and can keep my homes until the market comes back, which it will. I really wish we could stop focusing on the blame and focus on a solution. I think that would be the best thing for the american people. :)

Lenn --- U R so wrong on this one... Walking away only because the home is worth less than you owe is not the lenders fault. There are as many innocent lenders as there are consumers in all of this. If you can pay you should. Unfortuantely most home owners believed they could not lose on real estate --- but there never was a guarantee of future value. Greeenspan said it right - Irrational Exuberance!

Lenn: Great post and kudos to you for writing it. Not to speak for everyone, but your sentiments sure ring true. I see it and hear it everyday. Here in Phoenix our market is 40% short sales, 20% REO's and 40% regular sales. Short sales are a real pain, but we do them because this is our new norm. I think the number of people walking away will only grow as they have heard the long drawn out process called "short sale." And the sad truth is that I've seen homes go into foreclosure simply because the 2nd wouldn't cooperate. They (2nd lienholder) do it strategically and unfortunately, the out of work homeowner bears the brunt of this. It is heart breaking. Of course there are those that are walking away for no other reason than they are upside down on their homes, but can afford to make the payments. This one gripes me as we have legitimate circumstances wherein the homeowner reaches out to us to short sale their home to salvage their dignity and their credit score. Shame on those just walking away.

What happened to the AR idea that we could collectively make a statement? I'm seriously thinking about putting a cap on my voting. If you're running for anything beyonda 2nd term, you're out. It simply feels like all this will continue until we break the connection between corporate theft and politics.

A number of years ago a brilliant young man by the name of Joseph Ripuoff, started a nonprofit organization called Future Homeowners of America. The specific purpose of FHOA was to enable and insure that people who did not have money in the bank were able to fulfill the American dream and purchase a home, later he invited people who could not afford a house payment to join the ranks of FHOA thus insuring he would have enough people in his organization to have some major political clout. He asked a couple of prominent mathematicians' with the last names of Fair and Issac to join FHOA, and write a statistical logarithmic formula that would show that individuals in FHOA, based on the FICO principle of credit worthiness', would be excellent people for Banks to throw money at. Fair and Issac (who through their buddies TRW/Experian, Transunion and Equifax) were able to convince the poor and under educated Bankers that based on their long and super intelligent formula, it did not matter how much income or money in the bank FHOA members had, and if their FICO score was high enough there would be absolutely impossible that a FHOA member would default on a loan. Soon FHOA became a super large organization with enough members to force the Government to force banks to give FHOA members, (based only on their FICO score) the infamous " NINA" loan (No Income No Asset Verification). This wasn't enough for Joseph and his organization, no way FHOA and their voting strength forced, no bullied their congressmen and women to make the Banks have this NINA loan available to purchase a home with absolutely no money down. But even this wasn't enough for Joseph and his crew at FHOA, through nefarious and underhanded pressure based on their voting power, they made FANNIEMAE and FREDDIEMAC change their Mortgage loan underwriting guidelines to include NINA and NO MONEY DOWN. WELL!!!! LOOK WHAT HAPPENED!!! Thank God we woke up and smelled the petunias. We are on the right track now, lets' get Joe and his crew and make them pay.. Let us give those poor duped Bankers the money back that we allowed FHOA to take from them. (oh I forgot we already have) Well then lets' support the poor bankers in their quest to take the money back from those thieves who robbed them.

People that just walk away should be taken to the cleaners. It is people that lost their home due to no dault of their own that should be left alone. My income is down by 65% and I am working harder then I have ever worked to make LESS MONEY. I lost my home because my sales prices are down 65%... And Wells Fargo had ZERO heart... Screw the banks that helped cause this mess. They got bailed out...

Where is the bailout for us???

Oneil:

That's an entertaining story.

I love this post!!!!

I feel ya and I hear ya, but you are dreaming if you think the feds are gonna come to our rescue when they are a big part of the problem in the first place.

Dodd? That's asking for small-time results. Throw everything at Angelo - that's the big money and the big crime.

This is very interesting to me. I have read post after post written by many Realtors that have railed against folks that strategically walked away form there homes. What FNMA is planning should make all of them very happy. Nice to see a small majority have some understanding about what is really going on here.

Thanks Lenn.

This is all about politics. And those who say, "If this is about politics, count me out" are the ones who make these kinds of situations possible. And they are the same ones who squawk the loudest when a decision is made that they dislike.

And some say, "vote out all the incumbents!" what an easy solution. Throw the baby out with the bathwater. There are many good politicians who should be supported and if they get thrown out without any analysis what chance do any of us have to find and keep good representatives.

Lenn: Keep up the drumbeat for common sense. It needs all the help it can get.

Take this type of homeowner to the cleaners:

I read this story in the Sacramento Bee a few weeks ago and for the life of me I can not understand why a bank would approve a short sale to a basketball player with many years of million dollar contracts ahead of him.

"Ron Artest paid $1.85 million in 2006 for the five-bedroom, four-and-a-half-bath house, but the property attracted no buyers as he bounced from Sacramento to Houston to LA. That finally changed late last month, when the property was sold to local businessman for $1 million. Artest resorted to a short sale, in which the lender agreed to take less money than was owed on the property.

Lenn-- wow this post certainly evoked a lot of emotions.

One more way to make home owners pay. Morgan Stanley defaulted on 5!! multi million dollar office buildings in San Francisco, they still sit empty, Morgan Stanley get a great write off for a business decision. American families are not afforded the same luxury.

How stupid as I - my mortgage I pay every month is TWICE what my home is worth. 4 kids to put through college, retirement for my husband looming.... what are my options. I can make the payment -- 7% interest, but I can refinance.

So the sage continues. Until AMERICA returns to THE PEOPLE first not business things won't get better.

FYI: VA has been doing this for years!

VA takes the difference between what the Home sold for and what the amount owed was plus the fees!

The Average is about a $35,000.00 collection on their credit report. The Vet usually can't buy a home again and their credit is wrecked.

They use hardcore collection agencies to collect! Not Fun.

I would not wish this on anyone!

Lenn, no one said they broke any laws--other than contract law. Which a defaulter did indeed break.

It would be unreasonable to charge them with manslaughter or give them a parking ticket. They're being charged with not repaying a debt. That's pretty reasonable.

Lenn:

I could not agree more and there is not much left to say except thanks for putting it out there for a great discussion. Hope your Independence Day was great!

"Strategic default."

"Walk away."

Why should a homeowner be chastised for exercising this action?

When a home buyer signs the mortgage note and promises to pay back the loan that the lender has provided, that promise must generally be honored. SO WHAT if the real estate market has tanked and the home has lost some of the value it enjoyed on the day of closing? Does that mortgage note have any language that infers "Hey, if your house loses value once you sign this mortgage paperwork, you're off the hook for paying the lender back."?????? Silly me, of course not.

When a car shopper walks into a dealership and signs the purchase agreement and car loan docs that obligate that buyer to pay back the car loan, does that car buyer have any entitlement to refuse to pay back the loan because that vehicle's value begins to slide the minute it leaves the dealer's lot? I know it's not the same thing, but really, it IS the same thing.

Just so it's very clear here, I do agree that if a homeowner fall onto personal hard times and can no longer afford to pay the mortgage that he/she/they promised to pay, then of course there must be a legitimate discussion about loan modification, short sale action, etc. Like most other agents in America, I have been serving both buyers and sellers who are involved in either a short sale or a foreclosure situation. It's wrenching, it's horrible, it's stressful, and I cannot wait for this era of our country's economic history to be finished.

But I just want to remind us all that putting your signature on a legal document is binding. Arbitrary decisions to ignore that legal document is just plain unwise, inadvisable. I believe that it is our responsibility as licensed real estate agents to remind the public of that fact. And by the way, homeowners should be careful to check the laws in their home state about defaulting on a mortgage. In my state, Illinois, the lender will get a judgment against that homeowner who has abandoned the mortgage and the home, and will pursue that homeowner for payback for the rest of that person's life. Is it worth it?

Yes,for sure the pendulum has swung the other way.And some owners are getting bitten in the rear. Repeatedly. But where was the outrage fron 2002 to 2007 when homes were appreciating ASTRONOMICALLY in value? Were any of you complaining? Were you complaining of the flippers who you sold a home to and you made 10k commission and then helped THEM sell it 6 months later for ANOTHER 12k commission? How about the family of three whose 2200 sf home was just too damn small and their home appreciated so fast,that they then bought a McMansion of 4500sf that was WAY too big for them and then they cry"I'm being ripped off as my home is losing value" Where was the outrage? How many of these homeowners used their homes as an ATM? All of them? Hell no. Many of them? No doubt. Remember this acronynm? HELOC? How many people are taking out HELOCs anymore? When was the last time you have EVEN heard>>>HELOC? There was so much money being made in that time span it makes ones head spin. And now it is going the other way. People get rich>>>>people get poor. WHO STANDS IN THE MIDDLE?

Eric Helmers(post 152)>>>>you are my kind of guy!!

Judging from the posts I would conclude that about 85% of the folks agree with the poster. The post could almost be viewed as a political rant, sadly.

Any lender who has legally enforceable documents should be able to pursue someone who does a strategic default. That's the law, except where it is prohibited, like in Arizona. Otherwise if a homeowner is in a bad way, they should be able to process a DIL or a short sale.

Of course that would assume the banks have people that actually know what they are doing, which they have overall currently proven they do not.

Has anyone stopped to think that unless the banks fired everyone involved in issueing bad loans, top to bottom, we are now dealing with this same "talented" group, who we now expect to step up and do the right thing, as allowed by law. Not so far.

Fannie and Freddie didn't just become idiots since January 2009, which is the sentiment I feel from most of the folks herein. They were allowed to become "aggressive" with their coverage as far back as 2000. The various states attorneys general tried to look into what was going on and were rebuffed by the administration then in office.

You can look that up if you wish. Just Google the phrase "bush administration and subprime lenders" The subprime crisis is generally considered the start of the overall housing mess. At least that's what some say.

I imagine most readers disagree with me, and that is their right, something our ancestors fought and died for. One of MY distant and remote ancestors, George Mason of Virginia, actually helped to inspire then young Thomas Jefferson with his writings. Which people fought and died for in the 1700's. Just my opinion, is all.

Not scientific but this is yet another side to what is going on. And nothing ever has but one side.

THANKS TO MEMBERS WHO RE-BLOGGED THIS POST.

Love ya!

Re-blogged by 20 agents

Jon Q. Your thoughtful comment is much appreciated. We may disagree with the degree to which the American home owner must pay for their circumstances, but your opinion is noted. You're not alone.

Eric H. You wrote: "This issue was created by ignorance and a lack of financial understanding buy home owners and the people they chose to advise them."

The American home owner is not the "expert" when financial understanding is required. The "experts" that advised them failed them, often deliberately. I am of the opinion that the American home owner has paid enough.

Great analogy,Lenn!And oh so true!

Isn't it great that we can say what we want, when we want ,with no FEAR of reprecussion! Makes me appreciate this day-after Independence day even more!

Lenn,

When I hear the term "strategic default" to describe a dead beat that walks away from a financial obligation, other politically correct terms come into mind such as "undocumented worker" to describe an illegal alien.

This has been a tremendous cost not only to taxpayers but also to you and I who sell real estate. This phenomenon has played a major role in driving down property values and perpetuating the decline of the real estate market. The declining values have obviously caused significant reductions in sales commissions.

I'm certainly no supporter of Freddie Mac and Fannie Mae and their role in causing the collapse of the housing market but I don't think that gives anyone the right to use that as an excuse to engage in unethical behavior.

Tim. As one who has no home owners who defaulted and one who discouraged exotic loan instruments, I and my agents did not "cash in" during the boom. That said, when the mortgage companies qualified, Fannie Mae bought the loans, how much blame can be placed on the consumer whose ignorance was relied upon to further the boom for the guys who did capitalize on the times.

Susan. And now Fannie Mae is going to do the collection for the banks.

Lisa. Thanks. Indeed it was. Hopefully you and those little ones enjoyed the celebration too.

Chris. Not to worry. They'll pay and Fannie Mae will do the collecting.

Ben Y. HA! We didn't sell homes to Active Duty VA buyers during 2006 until recently when prices crashed. I knew that when they got orders to move, they wouldn't be able to sell. We lost a lot of sales but it was a decision I'd make again. I told the buyers to rent. Once I explained that they would need about 6% more than they paid to sell and prices were falling, they understood and rented. 2-3 years later, they moved on. I began to sell to ActiveDuty VA buyers about 18 months ago - very carefully.

Susan G. You're in the negative equity prison.

Jim S. WOW! I wonder if the bank officer got tickets to some games.

Thomas M. I may be right. I may be wrong. However, I cannot sit idly by.

Mike W. Thanks. I've worked with home buyers for far too long to hold them responsible for this mess.

Tchaka. Angelo of course. That's already in progress. I agree that Dodd is little money. It's just the outrage.

Morris M. Hope springs eternal.

I may be about to find out what happens when a rental property is sold as a short sale or goes into foreclosure. Having had the tenant from hell for 3 months at the end of 2009, I evicted them, found the money to rehab the unit and got a good tenant as of April 1st. All that time I have been talking with both lenders, and working at getting a "modification" to put the amounts now owing (since I am not allowed to pay the mortgage even now) on the back of the loans. Am about to submit the paperwork for the 4th time, at their request. The inefficiency is stunning and I have told them that, if I don't get this "modification", they can foreclose and I'll bankrupt myself out of any deficiency judgment. I refuse to believe that I should carry debt for life for a falling real estate market and banks who cannot see their own best interests. Let's hope it does not come to that.

I'm English and just celebrated "Independence from the English" day with you. I agree with a previous writer: a new revolution is called for.

Amy P. I love that you love it.

Richard F. There isn't any.

Aloha Lenn,

Thank you for the post. I don't understand why more people aren't grasping the horrific simplicity of our credit system and how it is crushing the American consumer. The magic money machine which is our Federal Reserve, has been enslaving people with debt for decades. When anyone signs their name to a loan document, which is automatically converted to a cash equivalent by the banks(thanks to deregulation), poof, money is created out of thin air. Bundled loans do not need to be sold in the secondary for this cash creation to take place, laws already exist stating that your signed IOU is equivalent to cash and can be used as such. There is an enormous amount of money that has been and is being created by our fractional reserve banking system and all of it is being funneled to a tiny minority of unseen billionaires. While everyone else is left with inflation, steadily devalued currency, and financial chaos.

The reselling of mortgaged backed securities on the secondary is simply another venue for investment banks to create more money out of nothing, except the average ignorant consumers willingness to pay back the balances of mortgaged based derivitives. The banks don't care if the debt is secured because they can get the Federal Government to flip the bill for bad debt. When one decides NOT to pay the IOU, the bank keeps all the money it generated from the loan to cash conversion and sticks the government with a trillion dollar bailout. The Banks are still making money out of nothing and the American Consumer is stuck with a giant fish hook in it's mouth as we pay for our own enslavement and the enrichment of Bankers, Big Business, and Corrupt Government.

Our Credit system needs to be removed from the hands of Bankers, destroyed and rebuilt by ethical non-partisan consumer advocacy groups NOT the FED, Banks, Government or special interest.

Peace,

FANNIE / FREDDIE need revolutionary reform and so do Realtors. Mixed on the Strategic Default issue. Homeowners that are stuck with little options and good faith. I understand and empathize with their actions. Wealthy folks who have the means to pay / absorb the loss. Not so much. Most despicable in my eyes...Realtors, with means, executing Strategic Defaults on investment properties. IMHO that exercise should be immediate revocation of license. If we don't stand by our contracts...who will?

If only they would listen to you and all of us others that agree with you! Joy

Lenn, I get that you're mad as heck and not going to take it anymore, but I just can't agree with what you are saying. Yes, I am a FOB, partly because I remember that he left his 8 years in office with a surplus. Then after 8 years of Bush's leadership, O'Bama was handed an economy ready to fall off a cliff. The world financial markets were headed for a melt-down, and while I wasn't around for the last Great Depression, I am glad that at least until now we have averted that catastrophe. If the financial markets collapse, so does my pension, savings, etc. So the purpose of TARP was to keep the financial markets afloat, which helped us all.

I may be wrong, but my understanding is that Fannie Mae was created, at least in part, to help people buy a home. And while I blame the Mortgage Companies and Wall Street for much of this mess, I think that a Buyer who bought a home with a mortgage, and promised to pay that loan, should not be able to walk away because the market has taken a downturn. If they are upside down and can't afford their mortgage, that's one thing. But strategic defaults are a whole other ballgame.

Why shouldn't Fannie Mae try to get their money back? And why should they give these folks another loan? I certainly wouldn't. I don't know what happened to moral values, but I just can't agree with walking away from a debt, unless you declare bankruptcy or go into Short Sale or Foreclosure. There should be consequences to your actions. Just one person's opinion.

Great blog! It really resonated with me... Fortunately, I purchased my investment property just after the "boom" so it has retained most of its value; however, I have close friends and family members who were not so fortunate. They have continued to pay their outlandish mortgages because it's the "right thing to do" or because "they still can"... meanwhile, their property values have plummeted to ground zero as more and more of the neighboring homes have been sold at a (very SMALL) fraction of what my family and friends payed for their homes. The government has opened up these once-palatial subdivisions to anyone who can afford the new pricing - and believe me - there is no discerning line when it comes to who can afford to pay $50,000 for a "half-million-dollar" home! People are moving into houses that they paid pennies on the dollar for and treating them, as well as the surrounding premises, as such!! There has been theft, vandalism... not to mention gang activity and a fear-induced, substantially lower quality of life. And yet the do-gooders who think that they SHOULD continue to pay their mortgage as long as they still have the ability to do so...

...well, they're getting the short end of the sticks that were used to build the house that is no longer suitable to call a home.

So sad!

Hi Lenn,

I started writing a comment back to you yesterday and it became so long that I wrote a post about my thoughts on this. I'm just now returning to see if my suggestion worked to get you featured and it did! Boy, did it ever!

I would like to further clarify my stance on this topic so that you understand where I'm coming from:

I am certainly not saying that being in a position of negative equity is a desirable position to be in (which I am currently experiencing on two of my properties) but, what if every American who is in this position walks away? And who is going to pay if we all do just that? In my opinion, it will ultimately be the taxpayers.

I make my payments because I can--the alternative would be just too difficult for me to swallow. My feelings could change tomorrow but, for now, I'm commited to my contract with the bank in the form of a mortgage note.

I don't agree, however, that those who are in distress should be further bitten by our greedy, scruple-less government. I am not in distress (I can and do pay my mortgages) and am, perhaps foolishly, hanging on to the fact that what goes up, must come down and vise versa!

Consider this: Many communities built after 2000 have a good number of homeowners who are now in negative equity. If all who can pay their mortgages were to bail (walk away), what does that do the the rest of the homeowners in that particular community? That then puts them into a negative equity position. If everyone walks, what then? It's a horrible snow-ball effect that is plaguing our country and I see no end to it.

I am in complete agreement with you that the government should focus on FIXING the problem rather than further perpetating it by coming after the assets of those who defaulted. How do we get out of this cycle though?

WE the People need to reclaim this country and if we do, hopefully we'll be seeing the beginning to the end of this senseless cycle in November!

Lenn, i agree with you in almost everything you mentioned. Certainly everyone who has had a home that has been devalued by the home next door can understand that some neighbors due horrible things to your home's value... ugly purple siding, unkempt lawn, trash and toys everywhere, but you don't "walk away" from your home because of it. I do understand and agree that FOB's have made tons of money off the American taxpayers back, and so have the other FOB(Friends of Bush)..that too, sadly, is the American Way..

However, if one were to lose their home due to illness, unemployment, etc..no one...... No One.....should have to pay a deficiency judgement. Stratigic Foreclosure hurts everyone. Just like the dominoes or the house of cards..one topples and all the rest go too! If your neighbor decided he wanted to buy house across the street that is on the market considerably lower than the value/mortgage on his current home and had more amenities than the one he was living in, and he bought the distressed home, and let his become a distressed home....HUMMMM! I think the entire neighborhood is now "upside down" and every one is paying more than they should be..and so on...

We Americans need to take a stand in November...not one incumbent should be voted back in..clean slate..clean house and start fresh..not one person, hopefully, on any Lobby or Big business payroll...get rid of all the jerks who allowed this to happen. All the 3-4-5 terms senators and congressmen/women..OUT!! you have done us no good what so ever..all they have ever done is feather their nests.. I agree with Debe....endless cycle..endless!

Love it!! Truth to power!!

JUL

2010

Look at it this way, the Federal Reserve is not a government agency, it's a private group of the richest people and companies. They make monetary policy and influence (control) the political process. It's a good read on Wikepedia.

Once you understand this, it explains our banking policy, and the management of our money.

Wall street makes big money selling mortgages to consumers. They don't want you to default, it affects their pockets. That's why you'll never see bailouts for homeowners. However, when the same people from the Federal Reserve need a bailout, they get it from the federal government they control, and they use the money again that comes from taxpayers - the consumers.

Once we understand that process, it answers a lot of questions why we have a bailout using taxpayers money and why homeowners cannot "write-off" their motgage losses.

Right on Lenn! I still think that if they'd given every family $1M, we could have paid 1/3 of it for taxes, most of us could have paid off our mortgage, paid off our credit cards, taken a luxury vacation and put money in the bank. We, the American public would have actually saved money, which is a novel idea! Honestly, I'm really upset about are these huge bonus' paid out to CEOs, COOs, CFOs and UFOs (unidentified friends of others), when we could have kept employees working - another novel thought. Who cares about the litte guy it just doesn't look like the little guy has any friends in government. I'm frustrated with short sales and almost broke because of them! What's a girl gunna do?

Great post Lenn.

I've wondered if I was the only one that was extremely upset about Fannie Mae deciding to go after homeowners that had to give up their homes. I have learned so much from your post and from all of these comments! I think the idea of a tax revolt is EXCELLENT! I think it would take something that drastic to make any kind of change in Washington.

Thanks for another AWESOME post!

Ronda Densford signature

I agree with Sheldon - that frying pan upside a few heads might make a difference! Shall we make a list of where to start?

Marte. Does make us want to "BOP" a few heads, doesn't it??

Ronda. There's a small one going on but most politicians and the media is trying to hide it or vilify it.

Joan. There isn't enough money in the hands of home owners to grease the palms of the politicians to get them to think about the little guy. Their money comes from those execs and corps that have the big bucks.

Richard B. You are smarter than the average bear. I believe that TARP was approved in about 36 hours???????

Scott. Truth? Yes. Power??? Not much. Just the power of the keyboard.

#199. I'm not smart enough to get to decide who gets to walk and who doesn't. You can have that job.

Debe. Glad you came back. I dread to see the Draconian tactics that will be used by Fannie Mae to collect on those Notes. In the normal course of events, the banks are protected by MI, PMI or the VA guarantee. With Fannie going after the value of the Notes, several million more Americans will forfeit what little they have left, their income.

Sean C. You wrote: " There will be at least a whole generation lost to this" THAT is the really sad part of this matter, isn't it????

Arris. The damage done by the Wall Street Gangs and their enablers in Congress and the Executive will be with us for at least a generation.

Bonnie and Melinda. You wrote: "So the purpose of TARP was to keep the financial markets afloat, which helped us all."

THAT, IMO, is a conclusory statement with, IMO, no basis in fact and no evidence to support it.

BTW, who gets to decide which "moral values" must be followed. Should the government through Fannie Mae get to decide??

Joy. HA. Shucks, I've got folks disagreeing with me all over, even in private mail by AR folks who crawl out from under their rock to throw nasties.

Billy J. Judgment is for higher authorities than I.

Kimo. You just reminded me of something that has bugged me for ages. Many agents/brokers/lenders/politicians, etc. want to make "skin in the game" a lot more than the 3.5% required by FHA. 20% DOWN IS THEIR MANTRA.

HA! Many of us put 20% or more down and still have negative equity.

HERE'S THE RUB! Banks are required to have far less in assets than even 3.5% to borrow from each other or get money at ZERO interest from the FED.

You gotta love it.

Lynn

This is a great post that raises a lot of concern. I agree with Debe Maxwell and Karen Stone. I don't believe people who are able to pay should walk away from their responsibility. On the other hand, people who are suffering legitimately because of economic or unforeseen family situations should not continue to be penalized.

If you hear me bleating, its cause I've been fleeced....

Great post! What a way to put it out there so that everyone can really understand it.

If a corporation can walk away from its obligation to pay and write it off, why shouldn't the home owner be? They just got us for 800 billion, and now they want to collect deficiencies from the public? Get real people. In this economy?

Anna. Who gets to decide???

Nogui. Sadly, folks who want to imprison folks in a home with negative equity are not focused on the economy. They are focused on the perceived morality of what they believe that other should and should not be able to do based on their own mores.

RE Tax Deduction on Losses:

I realize that trying times seem like they call for knee jerk reactions, but they really don't. That's just the emotions talking. Don't listen.

What you are outlining would be the single-largest tax on the middle class and you just killed 80% of the Realtors.

About the only really good tax credit that Main St. really gets is the primary residence exemption. This is one tax credit that is for people above the poverty line and below the mega-wealthy line. If you create a write-off on losses, you will then get taxes on gains during the every normal market. 90% of the time, the middle class loses on this idea and the big loser is the senior whose retirement plan you just trashed.

As for the death of the salesman, how many buyers would upgrade to Property #2 if they were paying 20-30% tax on the gains from selling Property #1. If they outgrew the house and Uncle Sam is getting paid, full-service brokerage as you know it is dead. Discounts and FSBO's would pressure commissions to the floor.

Chris R. HA! We're to busy now trying to figure out how to make American home owners whole to worry about House #2.

Strategic Defaults...

On one hand..the homeowner signed a promissary note saying that they are financially responsible to repay the mortgage and that they will do so..these people also can afford the payment

On the other hand..they lost money...we all did. The difference is that they can afford to stay in the house they promised to pay for where others couldnt afford to do so. When you buy stock and the price drops before you settle up your account you have to pay the difference on the acocunt at market close that day. When the price of your home drops, you still owe what you borrowed. Letting people walk away from houses that they can afford to pay for and promised to do so will just put us further into debt as a nation.

If fannie wants to do something about this they should make it impossible for someone who defaults strategically to buy another property for 7-10 years or something to that effect as they are going back on their word even though they can afford to pay.

Lenn, did some beltway incumbent steal your keyboard ??? That was beautiful.

How did you weave a non-answer regarding a predatory tax hike that hurts the middle class and seniors into trying to help "American home owners?"

Your idea just sounds inherently more patriotic than mine--I didn't even think to explicitly reference that I was talking about America. I'm not believing that you're not running :)

Joe. I'm sure that Fannie will do as you suggest or worse.

Chris. HA! If you follow my blog, you'll know that the American Home Owner inspires everything that I write.

Lenn once again a great post & a good discussion. The powers in DC will always gravitate toward the money. Heard this AM that several Wall Street firms have pulled back their campaign donations from those politicians who appear to be for a strong Financial Reform Bill under the justification that they are anti-business. My response is that in the small business world when your P&L shows more loss than profit you cut back until you either stay afloat or you sink & go out of business. How many of the banks that took TARP or other Federal assistance (extremely low interest rates) cut back on expenses or close up shop? None. The top 5 banks now makeup approx. 35% of the GDP.

As for the strategic walk away, I think if they can afford the loan you should stay put but if your family finances are borderline where you are taking from Peter to pay Paul then something should be done to help them more than a loan mod. Fannie Mae's decision is wrong and will do more harm to our already fragile economy.

Wow! Very Powerful Stuff! I certainly agrre with everything you said. Unfortunately, I think our economy is way our of wack- Much to slanted to big business. The little guy, whether homeowner or small business owner, doesn't have a chance. I don't think that people should be allowed to walk away from their responsibility, but many rich and powerful people have done just that, so why can't a struggling homeowner? And how do we separate the legitimate hardship cases from the people who just want to take advantage of the system? Not an easy task.

George. The country will rue the day that the government, lenders, real estate agents, other citizens et al., threw the American home owner under the bus.

The real estate industry has always been the foundation for the economic engine for this country. Folks have forgotten that and throught that Wall Street was our economy.

The lesson will take many hardships before they remember.

Linda. Out of wack is the understatement of the week.

I am sure that they will..but something has to be done as I have many "rich" investors that are walking away from 2nd and 3rd homes that they can afford just because it lost value..I think the guidelines should be on homesteaded properties only...those that own 2 or more homes should get penalized for walking away.

Joe. They will be penalized by loss of their investment, loss of credit and who knows later one. The thing that investor owners are not losing is the HOME.

JUL

2010

Lenn, I agree that by the time our congress & banks wakeup to realize what they have done to the homeowners & consumers; no amount of money that the Fed throws at the problem will be able to solve the situation and we will have a 1930s recession again. My HS World History teacher had a favorite saying that has stuck with me for years: "History is cyclical and repeats itself because people & governments fail to learn from the past."

George. I used to believe that the past was a good teacher. I no longer believe that. I now believe that we need to break from the past and go forward with new a paradigm built on a clean sweep of Congress. As long as the same old representatives in the pockets of special interests are in power, nothing will change, only the rhetoric will change.

AUG

2010

Lenn, Don't know how I possibly missed this post.....and, after reading many of the comments, all I can say is "Amen" to yours. Every time I see another "solution" presented by Congress I want to pull my hair out...they have put more time and money into creating the paperwork than they have in helping the American homeowner. Makes me crazy.

Deborah. I have learned to my dismay that Congress does nothing except that which they believe will reflect well on themselves or favor a special interest or otherwise work for their re-election.

MAY

I agree 100%. I've been hearing they were going to do this, but it's now months later and I haven't heard of a single person that's been pursued for the deficiency.

Matt. That post was July 2010. Not to worry. They'll get to it as soon as they can get some congress folks on board.

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Lenn Harley, Real Estate Broker, Virginia & Maryland

Leesburg, VA

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Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate

Address: Lovettsville, Fairfax, Arlington, Alexandria, Stafford, Woodbridge, King George, Fredericksburg, Leesburg in VA., Rockville, Laurel, Columbia, Baltimore, Waldorf, Frederick, Eastern Shore, Bowie, Harford, Annapolis in MD. , Maryland, Virginia

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Maryland and Virginia real estate agents and brokers serving buyers and sellers with experience. Search listings in Maryland and Northern Virginia and get daily updates of new homes for sale by e-mail. Contact Lenn for a tour of homes. REALTORS available every day for home tours. Homefinders network of experienced agents and brokers includes new home specialists, resale specialists and luxury home experts. We can help you with your home buying needs. Homefinders offers discounted 5% listings for Maryland, Northern Virginia home owners. Experienced agents helping buyers and sellers in the Washington Metro area since 1985.

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