I wrote something similar to this a month ago.  It is a band-aid for a flesh wound.  As I mentioned before, if we took the speculators out of the equation we would be experiencing what I believe would be "normal" foreclosure rates.  

Lenn even mentioned that government intervention has helped this along by the fed softening up rates and handing out easy money post 9/11.

Interesting theory and I have tossed it around. 

Brian,

The blood in the streets will simply be the result of the fat being cut off of those over-valued houses. I agree. If the lenders want to help, re-appraise, cut the fat and bring the prices back to reality. The market will right itself, one way or another, and it'll be just that. Die from losing the limb or bleed to death slowly because the bandage doesn't cover the wound.

Brain... it basically comes down to giving these clients the license not to pay their mortgage, instead of trying. Sure, there will be certain income and asset tests to see if the consumer will qualify for the bailout. But as some have said, those with nothing invested into their home, how can you say that they lost anything....??? 

Overall, it seems that the loan officers & realtors that have been doing this for 10 plus years have a better idea than the politicians who as Renee mentioned, just using a band-aid like approach to patch things for now. Let it take its course as you and so many have mentioned.

Brian,

You are absolutely right. Nobody fooled anybody. People knew that this was too good. They gambled, they lied to themselves, and NAR kept saying that the market was strong.

And now Realtors are screaming that media scares buyers, that we need to make them buy homes now, as if it was not enough that we had them buy more than they could 3-4 years ago, as if the licensees did not talk people into stretching themselves and grabbing as many properties for flipping, as they could afford to put the down payment for.

We were looking the other way, and now we should have some decency at least to acknowledge it, and not keep bashing the media. I love it when agents write "the media was late to warn us about the sub-prime..." as if the media, and not us, Realtors, were working with the buyers.

I am not surprised that buyers do not have much regard for Realtors.

Thank for a sober voice. We need to stop being on drugs.

One of my running partners pointed at houses in a neighborhood we ran thru last week and explain the issues, appraisal and crooked loans each had.  They'd called him for a refi so he had the ugly on them all and wasn't able to help a single one of them.  Loan sharking 101.  Hmmf.

It will be tough for the politicians to leave this to the market forces with the presidential election year already started.  They perceive that they have to do something.  It will not be pretty.

Brian - I think Philip Turner makes a heck of a point, you know politics....Right?  There is an election around the corner and everyone has their collective panties in a bunch.  Why?  Well, things are in Dire Straits and as usual, people want a quick solution.  The solution, er, correction....is already taking place and I really do believe the Government should stay as far away from it as feasible.  I have NO trust in Politcians or the Government doing anything but opening up further the gash that Greed created.

Brian, I know sellers, right now, who are deliberately missing payments so they can negotiate a "short sale" with their Lender. They could afford to make their payments if they just got rid of one of their brand new vehicles. But why should they? They are "entitled" to a short sale because they are "victims" of unscrupulous lenders. It's all a joke. Modifying their loans will NOT solve the problem. The problem is lack of personal responsibility.

It is with out a doubt time for us to take our licks like a man and then move forward. Postponing the inevitable will do nothing but sink us further into denial.

Brian- We are certainly in for a bumpy ride but the truth is that I'm not so sure we are going to see massive price reductons across the board in CA.   Inland Empire, Sacramento, Central Valley and parts of San Diego County are in big trouble.. but other places may not wind up in the same amount of trouble.  We are moving toward two sets of housing in CA.. the rich and the rest of the state.  I don't think anyone making $100,000 or less will ever be able to buy again in any of the coastal cities with the possible exception of Imperial Beach, Long Beach and Huntington Beach.... and Huntington Beach close to the water is about out of reach.

parking to watch the debate.

umkolo 

Here's my Bloodhound response reprised for AR viewers:

The actions of the Governor-brokered payment freeze as it relates to these four lenders might have been a logical forthcoming event anyway for those companies, but let's not forget that they are servicers on these loans at this point, not the actual owners, so it's more significant than them just deciding this - it's a collateralized pool of owners that is taking the hit.  They aren't doing it just out of the goodness of their hearts, of course, they are doing it because if lenders hate ending up owning real estate, wall street syndicates REALLY hate it - they don't have the first idea what to do, so they will do anything to avoid having to foreclose.  This is the next logical step.

That said, I have to say this:  it doesn't matter how underwater a borrower is on their appraised value vs. market value if they make their payments.  Caveat emptor - buyer beware - and be prepared to take responsibility for your actions.  If you unexpectedly lose your job, well, that's a bit hard to plan for, but if you just overextend yourself and want me as an investor in lending conduits or instituations, or worse as a fellow taxpayer, to bail you out, guess what, you're not getting my sympathy. 

We all make bad decisions, but just expecting continual get out of jail free cards is not right.  Sure, it might take another 5 years for the market to more moderately move itself back to where those buyers can sell their home and get out from under their "oppresive" mortgage, but that's hardly horrific - my grandparents owned the same house for 50 years and probably never knew what it was worth in between buying it and the time they left this world.  It doesn't matter if you buy high, unless you're a flipper.  If you buy a home to live in it and you take out a responsible mortgage, who cares if it goes down 20% in value one year, and conversely, what does it matter if it goes up 30% in over the next two years?

This is why the bankruptcy laws were overhauled in recent years - people would just rack up big credit charges and then get them written off without having to face up to their own actions.  Welcome to reality Mr. Subprime Borrower.

Nice work Brian - "Rather than take my FREE advice, most have decided to wait for a government bailout." I need say no more. Welcome to the Socialist States of America. I'll scoot over and make room for you on the hot plate because anytime we write or speak the plain and what should be obvious truth we get attacked. KEEP WRITING!

Keep Government out of it. You have greedy lenders loaning money to anyone with a pulse and now those chickens are coming home to roost. Oh well - you made your bed now go lie in it - literally! As for the market - there's more money to be made right now than there ever was in the so called boom. You just need the smarts on your side.

We all make bad decisions, but just expecting continual get out of jail free cards is not right.

Powerful words.

Kaye, while I agree with you in principle, I think the "exempt" areas are much smaller than you do. 

Brian, As you know know a forebearance isn't actually any help at all. The piper still needs to be paid.

All the politicians will do is "posture." Since most of these loans are NOT OWNED by depository institutions, the government (and the FDIC) is not going to take the hit. It is not like the S&L crisis by any stretch of the imagination.

Time will cure everything. Prices in ten years will make todays prices look cheap.

Bill Roberts

Bill - the last comment you made is so true. I did a piece on my radio show a couple of weeks ago that showed the movement in the US median home price every ten years since 1960. The gap between 1980 and 1990 (don't forget the double digit interest rates of the 80s) was HUGE!