EN has been around a zillion dawg years aka internet 15min years and I thought people would like to see an exchange from July 10, 2006, just one yerar ago. Keep in mind one year ago the idea of a a housing bubble and wholesale financial lending exposure, etc, was still tinfoil hat stuff.I'm curious: If you wrote the laws, what fate would you intend for fucked buyers? Just to keep things simple, assume there was no fraud involved in the person's acquisition of their home, they just happened to buy at the top of the bubble, ignorantly chose a risky loan, and are now in severe financial distress.
Assume you had no control over the law until now, and that you now have complete control.
[reply]
Good question. I think we can work something out. There's no getting blood out of a stone after all. Look what happened with the usurious conditions imposed on Germany after WW-I, we got paid back with WW-II. I'm thinking something along the lines of the Resolution Trust Corp. The RTC wasn't to bail out the F'd S&Ls but to contain the damage. So, the FBs get a new loan from the Mortgage Trust Corp. The terms will be such that they only apply to primary residences and require liqudation of other properties and disgorgement of any equity withdrawn asset purchases. Terms will incude forbiding 2nds and restricting future purchases of non-primary residences. These will be full recourse loans, no turning in the keys. I imagine some form of indexing as well. Finally I think an extended repayment schedule for the tax liability incurred with these writedown loans.
It'll be a way to keep the house but with pain. There's always the alternative of losing the house so don't think I'm being too hard.
[followup]
Interesting--that's more generous then I was expecting, and probably more generous then I'd be. The arguments over "bailouts" had seemed insubstantial; all rhetoric and no policy details. Your actual proposal isn't heartless at all.
One thing that jumps out from your plan is the tax liability. Someone who had to liquidate a second property and take out new loan on their primary residence could easily incur a tax liability that exceeds their yearly income a few times over (if I understand it correctly).
Even with an extended repayment schedule, the tax issue would make bankruptcy a more attractive option for the most deeply f'd buyers. But perhaps that's your intent. :)
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A year later does anyone have a better idea?
17 comments:
First, Murst and Moist!
One aspect of the Mass. plan is that lenders take less than 100% of the loan balance in cases where the house price has declined. I haven't seen any mention of the tax implications but I assume the lender who only gets 90% of the loan value is going to issue a 1099 for the other 10% and the borrowers are going to find that they have a pretty big tax bill.
Why should the FB's get special loans? They should loose their overleveraged real estate just like the during the 1990s, then prices will float back down where they belong. Giving special loans to the FB's would act to prop up the stupid prices.
Lou,
I don't see as we have any choice at this point. We have to keep them paying and paying and paying. It would be great in the abstract to have them crushed for all the mischief they've caused but you and I know full well that FEd, State and municipalities are going to come after us for "their" lost revenues and "expenses."
I think my comparison of the onerous terms post WW-I ultimately planting the seeds of WW-II is appropriate.
Timely, yet late.
This topic plays at the heart of everything CaseyBus and everything housing bubble.
Casey runs up millions in debt and walks away with sweet cashback laughing.
A million (actually many more) FB's have shit for lives as they struggle to just fucking survive. A few pigmen make out like bandits.
A few of are neither...we're just dumb savers now waiting to buy a house...and very frustrated. We haven't lied, we haven't done shady deals, we've just kept doing the most stupid thing possible...saving.
This isn't going to be very pretty however it turns out.
Dawg, the only real choice we have at this point is to cut off the loosers, protect the banking system, and jail the criminals.
Prices must and will revert to affordable levels. Throwing the FB's life preservers doesn't do this. Moreover, why would they take the life preserver? If I paid $600k for a tract house in 2005 using an option ARM, I don't know that I'd jump through hoops to qualify for a new loan on the house if it was in the process of dropping to $200k.
"At 8:41 AM, Rob Dawg said...
Lou,
I don't see as we have any choice at this point."
And that's exactly what the pigmen and government want. You already gave up on people being responsible for shit choices, theft and fraud.
You accept it now. Welcome to the herd of sheeple. Welcome to the long slow slide down.
When it's easier to give up than to expect our government and citizens to do the right thing they we have already lost NOT only control, but any wet dream of control our children may have.
I'm depressing myself. This is against everything I believe and teach my spawn.
Brother Lou! Testify!
Auurggh, deep in my heart I fear ourcountry will give in like Rob is pontificating.
eh, in the long run we're all dead.
Dawg,
Personally, I think you are being too generous but then again, I want housing prices to fall a great deal without causing a great depression. Ambitious? Yes, but a man can dream.
I would caution you about using Germany's reparations under the Versailles treaty as an example, however. In Margaret MacMillan's "Paris 1919", she points out that the amount that Germany actually wound up paying to the Allies was less than what France wound up paying to Germany as reparations after the Franco-Prussian war.
NR
Dawg,
The only provision I would be OK with is cutting the FBs slack on the 1099s. Assuming the FB is honest and simply made a bad decision after drinking too much NAR Koolaid, dinging them for taxes on tens of thousands of dollars in "income" is pouring salt on an open wound. The FBs are destitute anyways and don't have the money.
Again, I would apply that to HONEST FB's only. They can walk away, rebuild their credit, then be as good as new in 7-10 years.
Regarding your comments about forcing FB's to give back the toys purchased with HELOC mad money. I appreciate the idea, but I will wager that the vast majority of FB's would rather keep their flat panels and Escalades than commit themselves to 30 years of payments on a depreciating asset.
OPTION 1:
Locked in to 30 years of payments on a depreciating asset. Lose toys.
OPTION 2:
Walk away, rent similar house for much less, keep toys, rebuild credit scores.
Monty, I'll take what's behind Door #2.
First, remember that I wrote this a year ago. A lot has changed since then and I am in a far less forgiving mood. THat change is part of why I brought up a post from a year ago; perspective.
My new point about not having any choice relates to government budgets. When all these FBs fail to cough up the taxes they owe government isn't going to go after them, government will go after us.
NR,
You are correct about Versailles reparations but I was taking about the terms which were quite harsh. They caused a political backlash that included the Nazis.
I'd love to see the FBs crash and burn but we still need them to pay and pay and pay. What do we offer them to keep them paying? We've got 4 million extra houses. Why not use them as the enticement to keep paying? The valuation writedowns will get we responsible owners the price breaks we expect and the financial system gets as much blood out of these turnips as can be expected. It is far from perfect but prefereable to wholesale financial disaster.
interesting topic. I think something like this will ultimately happen, and we will see LOTS of upside-down FB's.
Imagine having to forgo that awesome new job because you are upside down on the 600K tract crack-house albatross.
This plan will lead to an adequate level of teeth gnashing.
Imagine having to forgo that awesome new job because you are upside down on the 600K tract crack-house albatross.
But will they stay put? Or move on to the new job and just mail the keys to the bank after an initial attempt to sell.
King XIII has it correct. Two years ago I was describing this as being under house arrest. Under the terms of my bailout there will be no turning in the keys. And yes I considered this as part of the punishment. They want to move? Fine but the debt obligation follows them.
By my estimate there's about $7 trillion in assetless debt that needs to be worked out of the system. I'm just trying to keep as little of that off the backs of the innocent.
Maybe a good starting point of keeping this debt off the back of the innocent is for our legislature balancing our budgets using 2000 #s instead of grossly inflated 2006/7 projections. Yes, we'd take a hit, but let's get it over with and move on.
I know it's a simplistic approach, but I think many times we like to complicate things.
why not go back to the old bankruptcy law.
Let Mortgages be treated as secured credit,
let the unsecured creditors take write downs,
and let the judge decide where the best outcome
is, in letting the property go to the bank
or letting the FB'rs have new terms.
if teh FB'res have jobs and can support some form of payment, let them stay, if the mortgage was just
unconscionable, but if you have painter who
bought million dollar house on an upside down
loan, well, they are going to have to move.
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