Walk Aways

[Steve Hoffert]

My analogy of this situation is:

A food manufacturer using extra virgin olive oil high in mono-saturated fats as ingredient for his food (the fixed rate mortgage) switches to partially hydrogenated soy bean oil which is much more profitable (the ARM). The consumer expecting that the "new" product is the same as the old product continues to buy it resulting in an increase in sickness and death some time in the future but an instantaneous increase in profit for the manufacturer.

Now one might suggest that the consumer should have read the label but the average individual has a reasonable (and I would say misplaced) trust in societies institutions that they wouldn't knowingly harm them.

Legally the consumer signed the contract and is obligated to the terms and the conditions of such, but the game (ingredient) was changed midstream without implicit understanding by the consumer.

I suggest that even though the average borrower may minimally understand the concept of a fixed payment or compound interest the idea of an Adjustable Rate Mortgage is much more foreign.

When they hit the principal/interest wall (or have that heart attack caused by trans fats) they'll look up with those sheep like eyes and say why me?

The bank looks down on them and says thanks for the tangible asset...sucker! We've just converted our worthless paper into property!

After all, in the end the government will bail out the banks not the consumer.

[sharon kinsella]

Less goverment - okay I can go with that if they don't try and bail out the Wall Street gurus who lost money due to these loans.

Ryan - if we went all the way with the "less government" agenda, why not get rid of the FDIC, or the FBI, hey maybe we could get rid of the Army, the Navy and the Marine Corps.

You can't say one is okay and the other isn't.

The government is supposed to be of the people, for the people, and by the people. Maybe it's about time it starts protecting people and quits protectin big business.

The people losing their hones in this city are our neighbors, our friends. The people we see in the grocery store, in your churches and at the schools picking up their kids.

They are also the idiots who are out at Cracker Park buying Coach purses and shopping at Chicos.

A lot of people got their loans before 2002 when you say they started licensing mortgage brokers. That's why we're seeing it hit so bad now, 4 - 6 years into their loans when the ARMS kick or have kicked in.

Justine and I worked in that snake oil pit before you were out of high school. We saw a different side of that "industry".

I'm done arguing about it. I know what I saw. I also know what some of my friends, good hard working people who never seem to catch a break are losing - everything.

[Bryan Schwegler]

I'm totally appalled at the attitude of many people on here that show no regard of their fellow human beings.

To be honest, I think giving people carte blanche and gov't handouts is showing no regard.

You know the old wisdom..."Give a man a fish".

I think it's rather ignorant of you to assume that just because some of us may disagree with your position that the gov't should come in and the banks should give these guys a free house that we don't have regard for our fellow human beings.

In the absence of outright fraud, I think people need to deal with the mistake they made. That's how we learn. You don't teach them how to fish...guess what, it's going to happen again. And that applies to both the banks and the people.

[Richard Cole]

I was in London six months after the "pole tax" put 18% of Brits out of their homes. Families sleeping in door way after door way. The city and churches delivering them a gray gruel at night which would end up in the streets. The government finally came around about 6 years after many lost their homes and savings forever. Redistribution of wealth on a grand scale.

Poll Tax, based on electoral register - Trafalgar Square Riots March 31st 1990 - Thatcher resigned later that year - Major replaced Poll Tax with Community Charge with the Local Government Finance Act 1992.

Interested in the 18% figure - can't find a source for that - nor the "gray gruel at night" - but that sounds more like Dickens than Orwell

The Riots were a direct result of the "redistribution of wealth" - the final nail in the coffin of the Thatcher Years

[Will Brown]

I agree that there have been some disreputable mortgage originators who have taken advantage of people, particularly in the inner city. But the people who took out these foolish loans signed a contract which plainly sets out the terms of the potential adjustment. I realize that some people don't read or understand what they are signing, but what solution is there for that problem. Should you have to take a test before signing a contract to prove that you know what you are doing? Should some bureaucrat have to review each contract, even those of competent people, to insure that everyone understands what they are doing? Are there any bureaucrats who know enough to actually make that decision?

In any event, I think the number of people who got into that situation is relatively small, and now we are faced with a far larger problem. I think most Americans are incapable of saying "no". Their consumption decisions are taken with no regard for the costs. In part, this may have been caused by an extended period of relative economic growth. When I bought my home 35 years ago, my payment was a large part of my income. Over the years, inflation and experience increased my income, while my payment remained relatively fixed (the taxes and insurance components did increase). At the same time, the value of my home increased steadily. Near the end of my mortgage, the payments were almost nothing compared to my other expenses, when they had once been the largest.

During that period, legitimate lenders started offering second mortgages, and adjustable mortgages that enabled people to buy what they couldn't realistically afford, and at one time they would actually finance more than the value of your property. Since we live in a competitive society, soon all the lenders were vying to make sub-prime loans, and that got us into a situation where an economic glitch was enough to upset the whole system, and that is the major problem facing us now. If you got a $250000 mortgage on a property worth $200000, and the value of the property goes down to $150000, you, and your lender, have a major problem, especially when so many of us are also carrying the maximum balance on every credit card we can get. Refinancing becomes impossible, and unexpected expenses can ruin everything for you. Mass renegotiations are often foreclosed as the original loans have been pooled, and the owners of the pooled securities have a lot to say about whether they will accept less.

But one of the things that has made this country so attractive is our freedom, and that includes the freedom to make mistakes and learn from them. I think the borrowers who allowed themselves to get into such straits need to see that what they have been doing is dangerous, and bailing them out en masse will prevent their learning that lesson.

From what I have read of the federal government's plan, it is a plan to bail out some lenders, disguised as a plan to help some borrowers (a politician's dream: getting votes from the borrowers and contributions from the lenders!).

So I think a government rescue plan is counterproductive, and the costs of these failed transactions should be born by both the borrowers and the lenders. Americans have been through similar situations before (witness the depression) and have survived. People will not die nor go bald just because they have lost a house; they can learn from the experience and start over. Perhaps we need a law governing how much of an asset can be collateralized, as the banking industry seems unable to restrain itself, but I would hope that something less than government interference would work, such as standards established by the accounting profession.

I think the original poster is substantially right about his ex-neighbor; by just walking away, he leaves an eyesore behind (one wonders if he even notified the bank, so who is looking after the property?). As an eyesore or repo, no doubt poorly maintained, the property will sell eventually for very little. Meanwhile, the original poster's property value will decline due to having an eyesore in the neighborhood, and will also decline with neighborhood prices in general, due to the low sales price of the eyesore.

What the runner apparently doesn't realize is that surrendering the house to the lender is not the end of the story. He is still on the hook for any balance of the mortgage that is not satisfied when the lender sells the property, and since he apparently does have some money, he is very likely to become involved in litigation and possibly bankruptcy.

[Justine Cooper]

My analogy of this situation is:

A food manufacturer using extra virgin olive oil high in mono-saturated fats as ingredient for his food (the fixed rate mortgage) switches to partially hydrogenated soy bean oil which is much more profitable (the ARM). The consumer expecting that the "new" product is the same as the old product continues to buy it resulting in an increase in sickness and death some time in the future but an instantaneous increase in profit for the manufacturer.

Now one might suggest that the consumer should have read the label but the average individual has a reasonable (and I would say misplaced) trust in societies institutions that they wouldn't knowingly harm them.

Legally the consumer signed the contract and is obligated to the terms and the conditions of such, but the game (ingredient) was changed midstream without implicit understanding by the consumer.

I suggest that even though the average borrower may minimally understand the concept of a fixed payment or compound interest the idea of an Adjustable Rate Mortgage is much more foreign.

When they hit the principal/interest wall (or have that heart attack caused by trans fats) they'll look up with those sheep like eyes and say why me?

The bank looks down on them and says thanks for the tangible asset...sucker! We've just converted our worthless paper into property!

After all, in the end the government will bail out the banks not the consumer.

That is the greatest analogy I heard on this subject!!! Combining two "poisons" that were sneaked into this unsuspecting country.

[Justine Cooper]

Will,

That was a well rounded great post and does prove debating issues can have some middle ground. I for one, never uttered words leaning toward a total government bailout so I am not sure who implied that. The one issue that you did not address, though, is that while borrowers had choices, the industry that hired any one who could breathe and sell should have had legislation in place to safeguard the homeowners who did trust the brokers. There are far more than two sides to this story, this drama, and at the end of the day, it is not the homeowner who walked away who ultimately suffers the most. It is the rest of us putting money into fixing up our home and losing value on it. All of us in every community are hit by this. Any help from any government agency, which I don't even know how could be done at this point, would ultimately be saving the neighborhoods, not just an individual homeowner. Instead of rebuilding Iraq it would be nice to be rebuilding our neighborhoods.

[sharon kinsella]

Bryan -

You have a lot of nerve calling me ignorant - you only seem to see things through the lens of your life - I do acknowledge that some people have been totally irresponsible about their obligations.

But what is ignorant is assuming you understand other people's lives and then have the audacity to call someone ignorant in a debate. You might have a 4.0 but you seem to have missed your debate and civility classes and the realities of what degeneracy this country has stooped to in the last 8 years and the serious damage it is doing to all of us, yes, even you.

If things keep going the way they are now, Lakewood will be the inner city. Housing values are dropping now. If you're waiting for a market correction, think again.

Maybe some people in this town will identify better with people who need a hand up when they are one of them.

We are up to hips in it now.

[Bryan Schwegler]

Bryan -

You have a lot of nerve calling me ignorant - you only seem to see things through the lens of your life - I do acknowledge that some people have been totally irresponsible about their obligations.

Sharon,
I stand by my description of you as ignorant, i.e. uninformed, because of the over generalizations and your overly negative assumptions of those in this thread who disagree with you.

I would challenge that it doesn't take alot of nerve, but rather just the eyes of anyone who can read to notice the ignorance in some of the posts.

[Stephen Eisel]

Bryan -

You have a lot of nerve calling me ignorant - you only seem to see things through the lens of your life - I do acknowledge that some people have been totally irresponsible about their obligations.

Sharon,
I stand by my description of you as ignorant, i.e. uninformed, because of the over generalizations and your overly negative assumptions of those in this thread who disagree with you.

I would challenge that it doesn't take alot of nerve, but rather just the eyes of anyone who can read to notice the ignorance in some of the posts.

I will not pour gas on the fire. I will not pour gas on the fire. I will not pour gas on the fire.

[sharon kinsella]

Bryan -

I'm done arguing with you.

Just not worth it. I've said what I had to say.

I'm done.

But you will not chase me off this board. Just not gonna happen.

Stephen,

Raspberries!

[Rick Uldricks]

deleted

[J Hrlec]

Lenders are at fault, uneducated people are at fault, people trying to live outside their means are at fault.

I think this covers it all.

[Todd Shapiro]

Let me take my stab at solving this problem. We have two factors in play A. Bryan has a 4.0 GPA so he must be smarter then most. B. Sharon thinks that Big Brother (ie. the government) should protect people from themselves because they are either too ill-informed or uneducated to read the contracts they sign. Solution: We create a new government position where Bryan can read mortgage contract word by word to new applicants so that they MAY understand what these documents mean. Bryan can use has 4.0 GPA and Sharon can protect us from ourselves and we can have peace on earth and Great Society for all.

[Justine Cooper]

Let me take my stab at solving this problem. We have two factors in play A. Bryan has a 4.0 GPA so he must be smarter then most. B. Sharon thinks that Big Brother (ie. the government) should protect people from themselves because they are either too ill-informed or uneducated to read the contracts they sign. Solution: We create a new government position where Bryan can read mortgage contract word by word to new applicants so that they MAY understand what these documents mean. Bryan can use has 4.0 GPA and Sharon can protect us from ourselves and we can have peace on earth and Great Society for all.

Todd,
If you think this country can legislate if gay people can get married, but not legislate institutions that hold control over people's money and mortgages, thus creating a crisis in the country with a decline so bad in the housing market there is no light at the end of the table, and interpret that as "protecting ourselves from ourselves" than you really don't realize the root of the crisis. Nor do you want to. Nor does it matter, as the crisis will continue regardless. If the government's job includes "protecting" us with the FDA and OOPS some toxin ridden toys have gotten in, or OOPS we are allowed to use an oil DIRECTLY related to cancer and deaths, and OOPS some medicines slipped by that actually kill instead of helping, then I guess we won't have to worry about the government actually "protecting" us from ourselves, because the big old lobbyists will make sure there is not much left to protect.