ucodegen fair argument. Here is what I take issue with….
“We got into this problem with the banks/loan originators feeling that the increasing property value would cover any loss even with the fact that the loans were non-recourse. The property would give them back their money on foreclosure. The lenders made the bad assumption that the current rate of property appreciation would continue unabated.”
No I have an issue with this statement 100%. To speculate that lenders made an assumption such that property appreciation would continue unabated is not accurate at all. In fact one would argue the exact opposite, that in fact they DID know that the cycle would turn and they were either negligient or assumed some sort of bailout or delay would save them. Or that they didn’t give a hoot because the loan would be sold to another party.
Seriously though, to argue that they felt unabated appreciation would continue is something that I feel you do not really believe.
“For responsible lending to exist, the lenders have to realize that they can loose their skin in the game, not just the borrower.”
Now I do agree with this of course. However you are talking a massive reform. No more GSE backing… Basically any lender has to either be direct or every lender has to insure every mortgage or something drastic like that. I would buy into that.
The other regulatory measures you spoke of could not hurt either. Altough again, if you are going to allow someone to walk away from a loan, then why not let them walk away from a security or stock bought on margin? Why the difference? If you classify them as assets, if you let a guy walk from his loan simply because of a market adjustment, (which as you can see I disagree with) then why the difference.
uco this last rant is not aimed at you but at the topic overall… why are any piggs waiting to purchase then? If there is no issue at all with walking out on a loan (besides a hit on credit), then theoretically why not purchase a home at 100% financing anytime in the cycle, walk away when you cannot afford it and save enough cash to buy a home for cash in the future? Yes I know I am taking the argument to a ridiculous extreme but I do think you can see my point.
