Monday, January 21, 2008

HELOCs Not Really Forgiven


WSJ:
"The customer still owes the money, but it is no longer an asset on our books." That doesn't let the borrower off the hook: The lender keeps the lien in place, however, in the hopes that it will receive some money when the property is sold.

This is so wrong. These banks have a free parking space on the board where they can hide potential assets at zero but they think have value? NFW.

29 comments:

Sweet Cashback said...

Premier et vive la France!

Kenneth said...

Well, at least its better than what they (and their ENRON/Worldcom older brothers) had been doing, which is presenting assets as valuable when they are/were not.

This new policy is like doing my financial planning by what my bank account and paystub says; but, if I find enough change in my couch, I may go to Costco and buy a slice and a coke.

While the previous policy was: if I had found $1.25 after a a half a minute of looking, I was claiming my income was 150 bucks an hour.

j9359 said...

It seems better to understate the value of an asset than to overstate the value. Perhaps some day under some circumstances they will recover something.

I wonder what happens in the case where the bank holds both the first and the second? Do they eat the second as long as the first is still being paid, or do they figure it is only a matter of time before the first goes bad too.

Rob Dawg said...

Lying about hidden assets is never better than telling the truth. This is just the worst form of borrower and investor deception. They tell the investor they've written the loan off but they hold the lien and if there is ever any recovery they clean up. Worse they mislead the borrower who thinks the loan is discharged. Then someday when they sell or whatever the debt reappears to take anything. If they knew they'd never see anything from the sale they wouldn't sell or might even possibly walk away.

H Simpson said...

Rob

That is so true.
Un frick'n believable.
Can you imagine the ex-shareholder lawsuits on this?

If I got burned I'd have the SEC and FBI tearing the place apart because of cooked books.

I also wonder how long until the investment community DEMAND valuation of all financial paper because even the bankers are turning into crooks.

Who would want to pick up any more commerical paper, errr, I mean toxic waste?
-Written by crooks.
-Assessed by crooks
-Loaned to crooks.
-Portfolio managed by crooks.

Might as well put your money on the superbowl with Dutchie the bookie. At least you know you know where you stand on Monday morning.

h.

Bill said...

Sure, there's no incentive for a second to instigate foreclosure.

There's no money in it, since there usually isn't enough equity to satisfy the first's lien.

And here at least foreclosure discharges all liens against the property.

wagga said...

Somebody has to say this, & I guess it devolves upon me.

I like the points you bring out in the picture.

Got me 'at & coat - Taxi!!

Rob Dawg said...

And here at least foreclosure discharges all liens against the property.

Most liens. Taxes almost never discharge and mechanics liens can sometimes survive.

Akubi said...

Oooh,
Hillary is getting bitchy.

Akubi said...

K, I’m watching the SC debate and wondering how all of these women voters supposedly supporting Hillary think it’s a step forward for women (or something along those lines) when Bill is fighting her battles for her in the media? It is clearly *not* an even playing field between Hillary and Obama.

Rob Dawg said...

For those of us with popcorn and good seats my favorite quote about the markets:

Goldilocks?
She's what's for dinner.

Lex said...

BAC is writing down the 2nds not to deceive shareholders, investors, or borrowers, but because they have to (FASB rules). Believe me, investors know the difference between a write-off and a discharge. This is not an attempt to "hide assets," and borrowers in no way are being misled into thinking that their 2nd has been discharged.

And the issue of 2nds clogging up foreclosures and loan modifications has always existed; it was only in this last RE bubble that greed overcame common sense, and lenders started offering 80/10/10 purchase programs,* or even more foolishly allowing a 2nd for a purchase from a different lender. For lenders that lent on 2nds for purchases or afterwards based on inflated appraisals or fake or nonexistent financials, the real pain is yet to come.

*even crazier, lenders (CF in particular) wouldn't count seller's concessions in figuring the D/E ratio. The first time I heard from a MO that lenders would allow this, I thought "this can't possibly be legal."

"For those of us with popcorn and good seats my favorite quote about the markets:
Goldilocks?
She's what's for dinner."

Tomorrow Goldilocks may get eaten, and not in a good way.

Lou Minatti said...

No need to panic! Everything's contained!

Centipede said...

The Boomers can take their Halliburton stock, SUV's, bullshit ethics and HDTV and shove it up their fucking asses.

Curious said...

@ Lex & Rob:

BAC is not out of the HELOC business, just tonight they offered me a no points, no fees, .75% discount to open one.

I would have to say it would be my first and my last. Not every boomer has shit away their home equity. For shits and giggles I clicked apply now to see what came up, the first disclaimer I read said that they got two full days to attempt to contact me by phone if I didn't complete the app. They can talk to voice mail for the next two days while dreaming of tapping my home equity.

@ centipede: This boomer hates Halliburton more than you, I own no SUV (does a fully paid off 3 year old euro count?) I have great ethics, always have and I paid cash for my HDTV so you can shove your attitude straight up your fucking uptight ass.

It ain't age that fucked up this economy, it's fucked up ethics AND entitlement fantasies that are anything but age specific.

I can, however, point you towards a mid 20's couple, and a mid 30's couple I personally know very well who fit most of your criteria. I can also point you towards some boomer couples I know who fit almost as well.

But young Mr. Serin has done more harm than anybody I know aggregated together.

Centipede said...

@Curious,
I'm glad you hate Hallibutthead and SUVs - and hopefully have a low energy HDTV, but it seems to me the fucking *Boomers have reaped _far_ more than what they've sown* and I'm fucking sick of them - if you can give me one solid reason why the generation of fucktards and spawn deserve respect I'd be willing to listen. Otherwise shove it up your Boomer ass.
What are your "ethics" and what are they based upon anyway?

Buzz Saw said...

Centipede, some old guy will probably kick your ass some day. I think maybe George Foreman or something.

BJ said...

An interesting side effect of not trying to collect on the loan over a period of time, is that the loan may end up being not enforceable/collectible. I don't know what the period of time is, but after a period of time w/ no collection attempts, the loan may be effectively discharged (with out consent of the bank). It has to be done as a court action. The length of time is in years (many years). The intent is to prevent 'surprises' from 'buried' loans, and ties into the bank not trying to make collections on the loan to the bank not being interested in collecting on the debt.

Curious said...

centipede typed with her 100 legs:
@Curious,
I'm glad you hate Hallibutthead and SUVs - and hopefully have a low energy HDTV, but it seems to me the fucking *Boomers have reaped _far_ more than what they've sown* and I'm fucking sick of them - if you can give me one solid reason why the generation of fucktards and spawn deserve respect I'd be willing to listen. Otherwise shove it up your Boomer ass.
What are your "ethics" and what are they based upon anyway?

First and most important to me, are my ethics. Be honorable in your work and in your life. Don't fudge, if fudging/fucking off is required, move on. I may have fudged this one a little in that my moving on has been to leave a department rather than the company. Find an ethical place to work. Don't spend your company time fucking off...you may have noticed that you'll never find me here during the day when I am earning my paycheck. That's just me, but I only have a looser w2 job and I feel like I owe my employer the time they're paying for.

Maybe I was trained by a better generation but even though I don't work anywhere close to outside customer service, if a customer finds their way to my telephone, I may be pissed off, but that customer will never know it. They get the 100%+extra attention they and their problem needs. They'd never have found me if my company hadn't failed and I have the utmost respect for our customers.

The rest of my ethics? Never break a promise. If I promised to pay off a loan, I would. You think it sucks now? I agree, it does, but something reminded me today of my youthful credit status. No bad credit, but young. I wanted a new car but even my corporate credit union wanted 18% interest and I paid it, happily, because they agreed to loan me the money and it was the best available rate, I was thankful I didn't have to pay even more.

My original mortgage interest with excellent credit several years later? 10%. Home loans, at that time, were around 17-19% if you didn't have great credit. Lucky me.

Whatever. You didn't really want to know.

Hmmm..boomerism...like you fucking care. Well, for one thing, stupid mother fucking boomers had almost no choice to go to Viet Nam, unless they were upper middle class (basically 85% of the male generation you're so derisive of had to enlist, leave the country, or bribe their congresswhore), so you can throw the homeless mentally ill into your boomer basket.

Yeah, you're welcome, you should probably study them since you're about to have your own lost sad segment of your generation following in their stead.

May I say that I did not vote for that boomer turd who calls himself the president? Twice.

What else? Tell me, who paid for your college education? You? The state(boomer taxes)? Your parents?

I know, you're so smart, you got a full ride scholarship. Geez, who funded that endowment? Boomers or "the Greatest Generation, Ever" according to Tom Brokaw, or the robber barons of the late 1800's-early 1900's?

My dad was first generation American, he fought in WW2, he had the first GI bill schooling and he still couldn't finish. Was he a retard or a dilettante? No, he had a widowed mom with no income so he had to quit to support his family. No social security, no welfare, no social safety net back then.

So, here comes that privileged boomer generation you loath so much.

Snapshot of one privileged boomer family:
My oldest brother? He worked his way through high school and junior college while working a full time job, as a janitor. Wasn't his life cooshy? He went to work for a small company and with hard work and smarts made it his company and he made it bigger. Instead of 3 employees it has around 65-70, I guess that silver spoon he was born with made everything else work, 'cuz I'm sure his wife would agree he slagged off and only puts in 18+ hour days six or seven (whatever it takes) days a week...for the last 30+ years. You can't even get that guy to relax.

Me and my one year younger brother? Shit, we paid room and board because times were so tough in the seventies that you see as our spoiled "golden youth". We worked and went to school full time, both in high school and college and paid our parents 10% of our gross just to live at home. We both quit college, it was too freaking tough to work 40+ hours per week and carry 18 units. My younger brother joined the Navy (hello, Vietnam), lived through two tours there and learned some valuable skills that pay him pretty well in a middle class life kind of way. When he works. Don't even start me on the walking wounded, he's upright, he pays his taxes...is he alright? No.

Welcome to your generation's next nightmare...a lot of these guys in Iraq and Afghanistan are never going to be "right".

Me? I was freakin' lucky to be bright enough to be the one hire in a public company as a summer intern in the small town we lived in. I was even more lucky when they hired me "permanently" a few months after that position ended.

I actually made "decent money" there...maybe 1.5 x minimum wage. Enough to go back to school on my own dime. You wanna bitch about the cost of textbooks on your employer/scholarship sponsored tuition plan? There wasn't one when I was in school and textbooks (used) were 40+ dollars in California back in the 70's. I think the minimum wage was something like $1.35, so I probably made around $1.90. Gas was probably .50 a gallon, but the point is, one used textbook cost almost a week's wages and there wasn't any reimbursement plan!

And it took years longer doing it that way, years and years of putting off everything else to be a drone who worked all day and went to school all night.

Fuck it, you're not worth the time.

All you see is where we are now and not how we got here.

You see older people and think we all had it so freakin' easy. Wake up, it's only gotten easier the further along the generations have come. Unless you're still a teenager, then I don't know how their parents will set them up for a better life.

This way of life is in crisis, but you, my dear, unless you're 18-22 need to shut the fuck up about boomers.

Maybe even if you're 18-22, if you're one of the lucky ones whose parents, aunts, and uncles have regarded you well enough to make sure your life is better than the one most boomers were handed.

All three of my adult nieces and nephews were given the opportunity, if they chose it, to attend college without having to work their way through it as we had to. My siblings and I pulled our youngest sister through college without her having to have a job, like we had to to get through. Our two youngest brothers (now in their late 20's) were given the same option. They didn't take it.

My minor niece and her 1/2 sister will as well. I will not discriminate between them. They both need an education and none of the parents have seen the need to fund/fuel these children into a better life.

My brother's three small grandchildren will have opportunities, God willing, that we never could have dreamed of.

So here the responsible boomers sit, paying down for others to have a better life and paying up to make sure their parents are comfortable in old age...and still trying to fund their own retirement.

Because, God knows, you're not the only generation to believe that Social Security will not cover them. But you sit there and flail away over your 5+ years of paying into Social Security and the dire indignity of it. You have no idea. The worst part is not only will you pay into it, but those you rail hardest against, those who paid the most into it, will see no benefit either. SS will bankrupt itself upon supporting that greatest generation ever. The gallows humor? It's not enough to keep them alive without substantial boomer help. We spend over $2k a month to support our mom along with her SS and my dad's RR pension (touted as among the best). The irony is, those who worked hardest to make it are those who support her. Maybe all college pukes should have to clean off the trays after lunch. Just a thought. If you didn't work to get it, maybe it doesn't mean so much to you. Don't even try to tell me every TinkerBell in the world works as hard as others. Those who worked know it. Those who didn't need to STFU about things they don't know about.

One boomer's life view. Weren't we the lucky ones.

Curious said...

Rob said "The customer still owes the money, but it is no longer an asset on our books." That doesn't let the borrower off the hook: The lender keeps the lien in place, however, in the hopes that it will receive some money when the property is sold.
Here's what I don't understand: Right now the seconds and HELOCs really are worthless (probably) but instead of foreclosing on a worthless assest, the lenders are waiting on future time when there may be a bit, or all, of a recovery from the devalued asset.

Why is this a bad thing?

I mean, I guess that I'd rather see the borrower beholden than forgiven and written down as a permanent loss. Isn't there a good chance that the lender might see recovery in 10-15 years?

Shouldn't the borrower stay "on the hook"?

If you can't call it an asset now, then it should be a zero. But should it always be a zero if there's a possibility/probability that the asset will appreciate at some point to be able to recover costs?

My worst nightmare involves borrowers who were given huge amounts of capital who were able to retain those profits yet were forgiven the debt that allowed them to purchase that capital in the first place!

If you were loaned the money to pay for X, and you get to keep X, then you frickin' need to pay for X.

Now, or in 15 years when you sell the house at a profit? Who cares?

Why should the debt obligation end before your pay for your possession?

That may be the biggest moral hazzard for me. I don't mind if they stay in the house if they're making the monthly payment, but I sure as hell mind if they can come or go and keep the toys. Granted, most of it probably ended up in the house and not in a ski boat, but they borrowed the money and nobody held a gun to their heads (on either side).

Arthur Wankspittle said...

Don't you have like a "statute of limitations" on debt like we do here? In the UK you can't collect a debt if you have done nothing about it and made no contact for 6 years or 12 years where it is secured on property (roughly, IANAL).

spooq said...

The helicopters are back! CHOPCHOPCHOPCHOPCHOP go the rotors!
CHOPCHOPCHOPCHOPCHOP go the rates!
Exclamation mark!

spooq said...

Has anyone got an opinion on gold? Over-priced asset or under-priced safe haven?

spooq said...

Market says its an asset and is marking it accordingly.

Rob Dawg said...

even people who like gold are going to be selling it to pay for other mistakes.

spooq said...

That seems to be what's happening. Is there a medium-term upside though?

Rob Dawg said...

IMO, no upside because of what happened in India last two days.

chickenlittle said...

Is that in reference to the bird flu in India?

Centipede said...

@Curious,
Pissed off about the general state of the economy and just about everything else I felt like ranting last night, but clearly one cannot generalize an entire generation. Thanks for the reminder that they can’t all be as bad as George W and my neighbors.
For the record, I paid my own way through school, etc. when I turned 18.