Posted: Thu Jun 12, 2008 8:15 pm Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
I am sorry, I guess this term "upside down" is alien to me.
My point is if you sell your house bought at $400K for $300K and buy another at $300K elsewhere you are in the same predicament, not worse, except for transaction fees.
Upside down means you owe more on the house than it's worth.
You buy a house for $400,000. You spend several years making payments and accumulating equity. You've managed to pay down $50,000. Then your house suddenly looses value. You sell it, but only get $300,000. You now have no house, no equity, and you still owe the bank $50,000. Assuming the bank even approved the sale in the first place, no way are you going to find a new bank to loan you money on a new mortgage while you still owe $50,000 on a house you don't even own anymore.
People have been buying houses, basically, as a way to do leveraged speculation in the real estate market. Now they're finding out that leverage works both ways. If you buy a $400,000 house and it goes up in value, you win big. It goes down in value, you loose everything, plus some. _________________ "So while you sit and whistle Dixie with your money and your power.
I can hear the flowers a-growin in the rubble of the towers.
I hear leaders quit their lying
I hear babies quit their crying.
I hear soldiers quit their dying, one and all." - OCMS
Posted: Thu Jun 12, 2008 8:21 pm Post subject: Re: Why the trauma about falling house prices?
seahorse wrote:
Many homeowners are either walking away from the houses bc they can't pay or filing bankruptcy. In either case, the bank takes the house back and now has a bad loan on its book.
The other option in a bankruptcy is that the bank may decide to renegotiate a loan with the original borrower, but the bankrupt borrower is only required to negotiate for the market price of the house. The amount by which the loan was upside down becomes unsecured debt which is discharged in the bankruptcy, and the bank has to write it off. _________________ "So while you sit and whistle Dixie with your money and your power.
I can hear the flowers a-growin in the rubble of the towers.
I hear leaders quit their lying
I hear babies quit their crying.
I hear soldiers quit their dying, one and all." - OCMS
Joined: Sep 04, 2005 Posts: 396 Location: central MA, USA
Posted: Fri Jun 13, 2008 10:35 am Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
I am sorry, I guess this term "upside down" is alien to me.
My point is if you sell your house bought at $400K for $300K and buy another at $300K elsewhere you are in the same predicament, not worse, except for transaction fees.
If you actually paid $400K cash for that first house, and had no mortgage, then yes, you'd still have $300K to use to buy the second house.
Most people in the US have mortgages when they buy a house, and many (perhaps even most) who bought within the past decade brought less than a 20% down-payment to the table when they bought. At the height of the mortgage madness, many put 0% down. Any decline in their home's value after they purchased, means they are now "upside down" on the mortgage: They'll have to pay the bank to sell, to pay off the mortgage. --Steve
Posted: Fri Jun 13, 2008 10:42 am Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
Well, if houses generally are going down in price, and you need to move, then it would seem you could sell your house at less than you paid but buy a similar house with the proceeds elsewhere as long as you are not moving to a high home price area.
What proceeds? After paying off the mortgage with the proceeds from the sale, you still owe money on it.
edit: Sorry should have read the entire thread. you guys covered it. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: Jul 17, 2004 Posts: 490 Location: Amerika (most of the time)
Posted: Fri Jun 13, 2008 11:09 am Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
Seeing so many business news items lately in magazines and the net about this issue. You'd think th roof was caving in. But, its not all bad.
You are missing the big global picture. The vast majority of the homes that were sold in the past few years had their mortgages sliced and diced into securities that were then magically sold all over the world to many different types of investors. This junk is sitting like a time bomb on the balance sheets of God knows how many different companies and banks. The kicker is that this junk was sold on the underlying assumption that housing prices will never go down. Now that housing prices are crashing, this junk is sitting like a cancer eating away at the solvency of our entire global financial system. It is very, very bad. _________________ Simon's Law: Everything put together falls apart sooner or later.
I don't think of all the misery, but of all the beauty that still remains.--Anne Frank
Posted: Fri Jun 13, 2008 2:17 pm Post subject: Re: Why the trauma about falling house prices?
Well, if everybody just practices some patience, over the years it will blow over. Both the owners and banks need to relax and not be so quick to hit the panic button.
So, maybe it wil take 5 years or maybe 25, but no need to lose heart. If the bank overextended the loan, that mistake is in the past, no need to make a fuss now.
Joined: Sep 04, 2005 Posts: 396 Location: central MA, USA
Posted: Fri Jun 13, 2008 2:32 pm Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
Well, if everybody just practices some patience, over the years it will blow over. Both the owners and banks need to relax and not be so quick to hit the panic button.
So, maybe it wil take 5 years or maybe 25, but no need to lose heart. If the bank overextended the loan, that mistake is in the past, no need to make a fuss now.
A lot of the US economy has been built lately atop the housing industry: Building new homes, selling homes, moving people from one sold home to the next bought home, extracting equity from homes, spending it on random other crap, etc etc. That stops now. And that mistake is going to haunt the US economy for years to come. Banks and investors (many who didn't even realize they were players in this unfolding mess) and tax-payers are going to eat huge losses. Jobs will be lost as a result of all of the above.
That's why some folk are making a fuss about it. The scale of this thing is enormous. --Steve
Posted: Fri Jun 13, 2008 2:51 pm Post subject: Re: Why the trauma about falling house prices?
Sure, the price drop would impair the "flippers" as they will have to wait so long now to see any profit, especially when one considers the interest charges. But, there will always be lots of renovation potential on existing housing stock to keep some work for carpenters and Home Depot. Not as much as before, but some. Also, the outcome of many natural disasters - fire storms, floods and tornadoes creates house building work.
Also, I am sure many people, who have been more careful with their money, will want to move upward from the cute bungalow to a four bedroom as the family grows and as their careers progress. So, that will retain work for real estate people, not as much work as before and likely smaller commissions as the sale prices wil be lower, but still a lot.
The U.S. is a huge country, and even if the sales rate is down, that massive size makes for a lot of work to be done.
Joined: Oct 15, 2004 Posts: 2196 Location: Arkansas
Posted: Fri Jun 13, 2008 3:02 pm Post subject: Re: Why the trauma about falling house prices?
Quote:
banks need to relax and not be so quick to hit the panic button.
Denny, again, you're posts border on assinine. Banks relax? How do you think banks make money? By being paid interest on their loans you dope. When a home loan defaults, they bank loses monthly payments. The bank forecloses to get some of its money back. Further, it has to act quickly for several reasons - one, bc it just lost $400k on a home for example and needs to recover some of that back. It can't simply "be patient" and let the home sit there for multiple reasons, like the fact it loses money paying insurance and real estate on the home that is sitting there, and home repairs to keep the home from deteriorating. Use your brain.
Asking a bank to be patient and not be paid is like asking you to go without a paycheck for the next 5 or 25 years you want people to be patient. Get real.
Posted: Fri Jun 13, 2008 3:19 pm Post subject: Re: Why the trauma about falling house prices?
seahorse wrote:
Quote:
banks need to relax and not be so quick to hit the panic button.
Denny, again, you're posts border on assinine. Banks relax? How do you think banks make money? By being paid interest on their loans you dope. When a home loan defaults, they bank loses monthly payments. The bank forecloses to get some of its money back. Further, it has to act quickly for several reasons - one, bc it just lost $400k on a home for example and needs to recover some of that back. It can't simply "be patient" and let the home sit there for multiple reasons, like the fact it loses money paying insurance and real estate on the home that is sitting there, and home repairs to keep the home from deteriorating. Use your brain.
Asking a bank to be patient and not be paid is like asking you to go without a paycheck for the next 5 or 25 years you want people to be patient. Get real.
I was not suggesting the bank ingore things if its not getting its monthly payments, just not to be so concerned if the house price drops. The context of this was the case of somebody carrying a mortgage whose house price has dropped and who now wants to move to another property.
I think the bank should go for it. My point is if the customer has been carrying the load, then its smart for the bank to just transfer the mortgage on to the new place even if the home is not worth the mortage. The initial mistake has already been made and can't be easily fixed. But, in the interests of good customer relations, let the owner move to an equivalent house with the same mortgage burden. Just think how happy that customer would be. Over the long haul the house price will generally grow.
On the other hand, if the a house if foreclosed due to non-payment, no need for the bank to fret, just sell the house for what it can get in the marketplace. That is the best that can be done. There seems to so much anguish right now about this issue, but in the end it is just about money.
Joined: Apr 08, 2006 Posts: 1340 Location: Somewhere there
Posted: Fri Jun 13, 2008 3:26 pm Post subject: Re: Why the trauma about falling house prices?
seahorse wrote:
Quote:
banks need to relax and not be so quick to hit the panic button.
Denny, again, you're posts border on assinine. Banks relax? How do you think banks make money? By being paid interest on their loans you dope. When a home loan defaults, they bank loses monthly payments. The bank forecloses to get some of its money back. Further, it has to act quickly for several reasons - one, bc it just lost $400k on a home for example and needs to recover some of that back. It can't simply "be patient" and let the home sit there for multiple reasons, like the fact it loses money paying insurance and real estate on the home that is sitting there, and home repairs to keep the home from deteriorating. Use your brain.
Asking a bank to be patient and not be paid is like asking you to go without a paycheck for the next 5 or 25 years you want people to be patient. Get real.
Conclusion: do not keep more than a buck or two in the bank. 2% minus income tax ( that 'interest" is supposed to be an incom e ) are just simply not worth it, with current inflation rate.
Joined: Sep 04, 2005 Posts: 396 Location: central MA, USA
Posted: Fri Jun 13, 2008 6:59 pm Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
Sure, the price drop would impair the "flippers" as they will have to wait so long now to see any profit, especially when one considers the interest charges.
Many flippers have variable-rate mortgages that have been resetting to much higher rates. The flippers can't afford to make the payments, they default and walk away. At best, the bank repossesses the place, drops the price by some huge percentage, and is able to re-sell at a loss. At worst, the place sits vacant and is vandalized and/or begins to decay. Either way, the bank's out money, the neighbors' property values fall, and the community may not be collecting real estate taxes if the bank refuses to take legal possession and just lets the place rot (this sounds dumb, but apparently there's been some of that happening).
This is not to sound sad for the flippers; I have little pity for them. They gambled wildly and many are losing. But you're underestimating the effects on others, I think.
Quote:
But, there will always be lots of renovation potential on existing housing stock to keep some work for carpenters and Home Depot. Not as much as before, but some.
Sure. But again, lots of economic pain until only the "some" are left standing.
Quote:
Also, the outcome of many natural disasters - fire storms, floods and tornadoes creates house building work.
Well, yes, but that's kinda orthogonal to falling home prices.
Quote:
Also, I am sure many people, who have been more careful with their money, will want to move upward from the cute bungalow to a four bedroom as the family grows and as their careers progress.
It entirely depends on when they bought, and how much equity they have (or had) in the cute bungalow.
Look, I've played this game. I bought a house in 1989 for $165K, sold it in 1994 for $128K. However, I still had a lot of equity in it, and I was able to use that to buy a larger/new house in 1994 for $180K, which I sold in 2001 for $250K. However, from what anecdotes I've read or heard, I think I was unusual to have so much equity in the first home that I could easily weather a 22% drop in home value. Home values in many regions have declined that much already, or more. I expect further declines over the next few years. At some point, even the frugal family is nailed to that bungalow whether they want to be or not.
Once again, I think you're fluffing this off too easily. It's going to hurt, and for some time to come.
Quote:
So, that will retain work for real estate people, not as much work as before and likely smaller commissions as the sale prices wil be lower, but still a lot.
Repeat: Lots of economic pain until only the "some" are left standing.
Quote:
The U.S. is a huge country, and even if the sales rate is down, that massive size makes for a lot of work to be done.
Yeah, I'm sure all those realtors can become radiologists or something. After all, it's not so hard to go to school for several years to learn a new profession while you have no income.
--Steve
I wonder if the couple discussed would do better to have one of them stay at home and work on reducing their dependence on cash? What would happen with a lot of cooking, a big garden, getting rid of one of the cars? Of course, the heat would have to be on more in winter ...
Posted: Wed Jun 25, 2008 2:00 pm Post subject: Re: Why the trauma about falling house prices?
Denny wrote:
Well, if everybody just practices some patience, over the years it will blow over. Both the owners and banks need to relax and not be so quick to hit the panic button.
So, maybe it wil take 5 years or maybe 25, but no need to lose heart. If the bank overextended the loan, that mistake is in the past, no need to make a fuss now.
Denny -
The issue here is that many many banks and lending institutions can't be "patient" as you state. Decades ago lending restrictions were relaxed, banks got to play broker instead of holding loans until their maturity some became both lender and broker by creating divisions to sell to themselves immediatly pocketing commissions and then the finance arm slicing and dicing and selling again. The average bank before this mess had loan rations of 10/1 The loaned the same dollar 10 times! Read this mess about a tiny regional bank who had to literally hit the panic button and then multiply this by every stupid lending institution. This bank has a capitalization of only 68 million. Yet the have borrowed from the feds 5.86 BILLION!
Joined: Dec 07, 2005 Posts: 1872 Location: Australia
Posted: Fri Jun 27, 2008 12:13 am Post subject: Re: THE US Housing Thread (merged)
I think it has been mentioned here before that mortgagees can get away with defaulting on payments and keeping the property.
Here is however a new article.
Apologies for the long post, but it is from a pay-site (LeMetropoleCafe), so can't link. I did truncate the article though, to keep size down a bit.
Will be very interesting to see if defaulting home owners start spending their last money on solicitors rather than mortgage payments.
Quote:
...The Legal Trump Card: Make Them Produce the Note
A basic principle of contract law is that a plaintiff suing on a written contract must produce the signed contract proving he is entitled to relief. If there is no signed mortgage note or recorded assignment, foreclosure is barred. The defendant must normally raise this defense, and most defaulting homeowners, unaware of legal procedure and concerned about the expense of hiring an attorney, just let their homes go uncontested. But when the plaintiffs bringing subprime foreclosure actions have been challenged, in most cases they haven’t been able to produce the notes.
Why not? It appears to be more than just sloppy paperwork. The banks that originally entered into these risky subprime arrangements generally did so because they had no intention of holding the loans on their books. The mortgages were immediately sliced and diced, bundled up as mortgage-backed securities (MBS), and sold off to investors. Loan originators sold the mortgages to financial institutions or other banks, which then sold the rights to the monthly mortgage payment income to investors, while transferring the responsibility to collect these payments to specialized mortgage servicing companies. The result has been to slice up the mortgage contract, with no party really having ownership of the original paperwork. When foreclosure has been initiated, the servicer or trustee acting as plaintiff now has trouble proving that it originated the mortgage or owned the loan. In order for a second bank or financial institution to have standing to bring a foreclosure lawsuit in court, it must have been assigned the mortgage; and with the collapse of the housing market, many of the subprime lenders have gone out of business, making it impossible to contact the originating mortgage company. Other paperwork has just been lost in the shuffle.2
Why weren’t the mortgage notes assigned to the MBS holders when they were first sold? Apparently because the investors aren’t even matched up with specific properties until after default. Here is how the MBS scheme works: when the mortgages are first bundled by the banks, all of the subprime mortgages go into the same pool. The bundled mortgages are chopped into “securities” that are sold to many investors -- banks, hedge funds, money market funds, pension funds -- with different “tranches” or levels of risk. The first mortgages to default are then assigned to the high-risk “BBB-” tranche of investors. As defaults increase, later defaulting mortgages are assigned down the chain of risk to the supposedly more secure tranches.3 That means the investors get the mortgages only after the defendants breached the agreement to pay.
It also means the investors weren’t a party to the agreement when it was breached, making it hard to prove they were injured by the breach.
The investors have another problem: the delay in assigning particular mortgages to particular investors means there was no “true sale” of the security (the home) at the time of securitization. A true sale of the collateral is a legal requirement for forming a valid security (a secured interest in the property as opposed to simply a debt obligation backed by collateral). As a result, the investors may have trouble proving they have any interest in the property, secured or unsecured.4
The Dog-Ate-My-Note Defense
When the securitizing banks acting as trustees for the investors are unable to present written proof of ownership at a time that would entitle them to foreclose, they typically file what’s called a lost-note affidavit. April Charney is a Florida legal aid attorney well versed in these issues, having gotten foreclosure proceedings dismissed or postponed for 300 clients in the past year. In a February 2008 Bloomberg article, she was quoted as saying that about 80 percent of these cases involved lost-note affidavits. “Lost-note affidavits are pattern and practice in the industry,” she said. “They are not exceptions. They are the rule.”3
In the past, judges have let these foreclosures proceed; but in October 2007, an intrepid federal judge in Cleveland put a halt to the practice. U.S. District Court Judge Christopher Boyko ruled that Deutsche Bank had not filed the proper paperwork to establish its right to foreclose on fourteen homes it was suing to repossess.4 That started the ball rolling, and by February 2008, judges in at least five states had followed suit. In Los Angeles in January, U.S. Bankruptcy Judge Samuel L. Bufford issued a notice warning plaintiffs in foreclosure cases to bring the mortgage notes to court and not submit copies. In Ohio, where foreclosures were up by a reported 88 percent in 2007, Attorney General Marc Dann was reported to be challenging ownership of mortgage notes in forty foreclosure cases.5
Few defendants, however, are lucky enough to have advocates like Charney and Dann in their corner, and most defaulting debtors just let their homes go. A simple challenge can be filed to the complaint even without an attorney, and some subprime borrowers have successfully defended their own foreclosure actions; but retaining an attorney is strongly recommended. People representing themselves are often not taken seriously, and they are likely to miss local rule requirements. With that warning, here is some general information on challenging standing to foreclose:
Some states are judicial foreclosure states and some are non-judicial foreclosure states. In a judicial foreclosure state (meaning the matter is heard before a judge), if a promissory note or recorded assignment naming the plaintiff is not attached to the complaint, the defendant can file a response stating the plaintiff has failed to state a claim. This can be followed with a motion called a demurrer to the complaint. Different forms of demurrers can be found in legal form books in most law libraries. In essence the demurrer states that even if everything in the complaint were true, the complaint would lack substance because it fails to set out a copy of the note, and it should therefore be dismissed. Ordinarily there is no need to cite much in the way of statutes or case law other than the authority reciting the necessity of showing the note proving the plaintiff is entitled to relief.
In a non-judicial foreclosure state such as California, foreclosure is done by a trustee without a court hearing, so the procedure is a bit trickier; but standing to foreclose can still be challenged. If the homeowner has filed for bankruptcy, the proceedings are automatically stayed, requiring the lender to bring a motion for relief from stay before going forward. The debtor can then challenge the lender’s right to the security (the house) by demanding proof of a legal or equitable interest in it.6 A homeowner facing foreclosure can also get the matter before a court without filing for bankruptcy by filing a complaint and preliminary injunction staying the proceedings pending proof of standing to foreclose. A judge would then have to rule on the merits. A complaint for declaratory relief might also be brought against the trustee, seeking to have its rights declared invalid.7
An Equitable Settlement for Everyone
These defenses can help people who are about to lose their homes, but there is another class of victims in the sub-prime mortgage crisis: investors in MBS, including the pension funds and 401Ks on which many people depend for their retirement. If the trustees representing the investors cannot foreclose, the lucky debtors may be able to stay in their homes without paying. However, the hapless investors will be left holding the bag. If the investors manage to shift liability back to the banks, on the other hand, the banks could go down and take the economy with them. How can these tricky issues be resolved in a way that is equitable for all? That question will be addressed in a followup article. Stay tuned.
_________________ It's not a bailout, it's a buy-in" - Nancy Pelosi
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) are just simply not worth it, with current inflation rate.
