[analyst]

[quote=patientrenter]I acknowledge that there are valid points to be made on both sides of this argument.

But I am ticked off by people pretending that there isn’t often a selfish motive when arguments are made that it’s OK to walk away from repaying your debts. Let’s face it, not many of us think of ourselves as investors who loaned large amounts of our own personal money to people overpaying for homes, and might lose a $1 of our own money for each $1 that’s not repaid. But lots of us are, or plan to be, homeowners. As homeowners, it would be nice if we could avoid repaying our mortgage, and feel no pangs of conscience or the pain of social opprobrium. We may never have done it, and we may not have an opportunity to do it now, but we wouldn’t mind having the option to do it in the future. “It’s OK if I steal a little, isn’t it”. My answer is No.[/quote]

Being selfish, by itself, is neither illegal nor unethical.

Recall that this discussion is about non-recourse loans, whose entire proceeds went to the purchase of the homes. No part of the money went to the borrowers.

What is it that is being stolen?

The borrowers are not holding any of the lender-provided money.

The lenders, who were given clear notice not to lend more than the house is actually worth, can take back the house at any time. The fact that the lenders have agreed to a deal that precludes them from doing so is nobody’s fault but their own.

The borrowers will ultimately be returned to their beginning positions, without homes and without loan proceeds, and will have lost any money that they put in along the way.

Any free rent benefit that the borrowers receive should be viewed in the same way as punitive damage awards – money that the law awards to parties who don’t “deserve” it, in order to penalize other parties who are responsible for harm caused by their intentional acts or negligence.

[analyst]

[quote=patientrenter]I acknowledge that there are valid points to be made on both sides of this argument.

But I am ticked off by people pretending that there isn’t often a selfish motive when arguments are made that it’s OK to walk away from repaying your debts. Let’s face it, not many of us think of ourselves as investors who loaned large amounts of our own personal money to people overpaying for homes, and might lose a $1 of our own money for each $1 that’s not repaid. But lots of us are, or plan to be, homeowners. As homeowners, it would be nice if we could avoid repaying our mortgage, and feel no pangs of conscience or the pain of social opprobrium. We may never have done it, and we may not have an opportunity to do it now, but we wouldn’t mind having the option to do it in the future. “It’s OK if I steal a little, isn’t it”. My answer is No.[/quote]

Being selfish, by itself, is neither illegal nor unethical.

Recall that this discussion is about non-recourse loans, whose entire proceeds went to the purchase of the homes. No part of the money went to the borrowers.

What is it that is being stolen?

The borrowers are not holding any of the lender-provided money.

The lenders, who were given clear notice not to lend more than the house is actually worth, can take back the house at any time. The fact that the lenders have agreed to a deal that precludes them from doing so is nobody’s fault but their own.

The borrowers will ultimately be returned to their beginning positions, without homes and without loan proceeds, and will have lost any money that they put in along the way.

Any free rent benefit that the borrowers receive should be viewed in the same way as punitive damage awards – money that the law awards to parties who don’t “deserve” it, in order to penalize other parties who are responsible for harm caused by their intentional acts or negligence.

[analyst]

[quote=patientrenter]I acknowledge that there are valid points to be made on both sides of this argument.

But I am ticked off by people pretending that there isn’t often a selfish motive when arguments are made that it’s OK to walk away from repaying your debts. Let’s face it, not many of us think of ourselves as investors who loaned large amounts of our own personal money to people overpaying for homes, and might lose a $1 of our own money for each $1 that’s not repaid. But lots of us are, or plan to be, homeowners. As homeowners, it would be nice if we could avoid repaying our mortgage, and feel no pangs of conscience or the pain of social opprobrium. We may never have done it, and we may not have an opportunity to do it now, but we wouldn’t mind having the option to do it in the future. “It’s OK if I steal a little, isn’t it”. My answer is No.[/quote]

Being selfish, by itself, is neither illegal nor unethical.

Recall that this discussion is about non-recourse loans, whose entire proceeds went to the purchase of the homes. No part of the money went to the borrowers.

What is it that is being stolen?

The borrowers are not holding any of the lender-provided money.

The lenders, who were given clear notice not to lend more than the house is actually worth, can take back the house at any time. The fact that the lenders have agreed to a deal that precludes them from doing so is nobody’s fault but their own.

The borrowers will ultimately be returned to their beginning positions, without homes and without loan proceeds, and will have lost any money that they put in along the way.

Any free rent benefit that the borrowers receive should be viewed in the same way as punitive damage awards – money that the law awards to parties who don’t “deserve” it, in order to penalize other parties who are responsible for harm caused by their intentional acts or negligence.

[analyst]

[quote=patientrenter]I acknowledge that there are valid points to be made on both sides of this argument.

But I am ticked off by people pretending that there isn’t often a selfish motive when arguments are made that it’s OK to walk away from repaying your debts. Let’s face it, not many of us think of ourselves as investors who loaned large amounts of our own personal money to people overpaying for homes, and might lose a $1 of our own money for each $1 that’s not repaid. But lots of us are, or plan to be, homeowners. As homeowners, it would be nice if we could avoid repaying our mortgage, and feel no pangs of conscience or the pain of social opprobrium. We may never have done it, and we may not have an opportunity to do it now, but we wouldn’t mind having the option to do it in the future. “It’s OK if I steal a little, isn’t it”. My answer is No.[/quote]

Being selfish, by itself, is neither illegal nor unethical.

Recall that this discussion is about non-recourse loans, whose entire proceeds went to the purchase of the homes. No part of the money went to the borrowers.

What is it that is being stolen?

The borrowers are not holding any of the lender-provided money.

The lenders, who were given clear notice not to lend more than the house is actually worth, can take back the house at any time. The fact that the lenders have agreed to a deal that precludes them from doing so is nobody’s fault but their own.

The borrowers will ultimately be returned to their beginning positions, without homes and without loan proceeds, and will have lost any money that they put in along the way.

Any free rent benefit that the borrowers receive should be viewed in the same way as punitive damage awards – money that the law awards to parties who don’t “deserve” it, in order to penalize other parties who are responsible for harm caused by their intentional acts or negligence.

[analyst]

[quote=patientrenter]I acknowledge that there are valid points to be made on both sides of this argument.

But I am ticked off by people pretending that there isn’t often a selfish motive when arguments are made that it’s OK to walk away from repaying your debts. Let’s face it, not many of us think of ourselves as investors who loaned large amounts of our own personal money to people overpaying for homes, and might lose a $1 of our own money for each $1 that’s not repaid. But lots of us are, or plan to be, homeowners. As homeowners, it would be nice if we could avoid repaying our mortgage, and feel no pangs of conscience or the pain of social opprobrium. We may never have done it, and we may not have an opportunity to do it now, but we wouldn’t mind having the option to do it in the future. “It’s OK if I steal a little, isn’t it”. My answer is No.[/quote]

Being selfish, by itself, is neither illegal nor unethical.

Recall that this discussion is about non-recourse loans, whose entire proceeds went to the purchase of the homes. No part of the money went to the borrowers.

What is it that is being stolen?

The borrowers are not holding any of the lender-provided money.

The lenders, who were given clear notice not to lend more than the house is actually worth, can take back the house at any time. The fact that the lenders have agreed to a deal that precludes them from doing so is nobody’s fault but their own.

The borrowers will ultimately be returned to their beginning positions, without homes and without loan proceeds, and will have lost any money that they put in along the way.

Any free rent benefit that the borrowers receive should be viewed in the same way as punitive damage awards – money that the law awards to parties who don’t “deserve” it, in order to penalize other parties who are responsible for harm caused by their intentional acts or negligence.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel]Great post, analyst. One comment, though: everything you’re saying holds true only if no fraud or misrepresentation was made in the loan application. I believe, and I strongly believe that, a majority of loans made at the 2005-206 peak involved fraud in one form or another. It could be a vast majority (as in 80% of loans or so). I’m not kidding. A lot of fraud went under the radar. [/quote]

A lender has two tasks:
1. Evaluate the property.
2. Evaluate the borrower.
Both are easily accomplished by a serious lender living up to lender responsibilities. Even for people with complex income situations, there are procedures for the borrower to have tax records released to the lender directly by the taxing authorities.

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.

[analyst]

[quote=Daniel]Great post, analyst. One comment, though: everything you’re saying holds true only if no fraud or misrepresentation was made in the loan application. I believe, and I strongly believe that, a majority of loans made at the 2005-206 peak involved fraud in one form or another. It could be a vast majority (as in 80% of loans or so). I’m not kidding. A lot of fraud went under the radar. [/quote]

A lender has two tasks:
1. Evaluate the property.
2. Evaluate the borrower.
Both are easily accomplished by a serious lender living up to lender responsibilities. Even for people with complex income situations, there are procedures for the borrower to have tax records released to the lender directly by the taxing authorities.

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.

[analyst]

[quote=Daniel]Great post, analyst. One comment, though: everything you’re saying holds true only if no fraud or misrepresentation was made in the loan application. I believe, and I strongly believe that, a majority of loans made at the 2005-206 peak involved fraud in one form or another. It could be a vast majority (as in 80% of loans or so). I’m not kidding. A lot of fraud went under the radar. [/quote]

A lender has two tasks:
1. Evaluate the property.
2. Evaluate the borrower.
Both are easily accomplished by a serious lender living up to lender responsibilities. Even for people with complex income situations, there are procedures for the borrower to have tax records released to the lender directly by the taxing authorities.

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.

[analyst]

[quote=Daniel]Great post, analyst. One comment, though: everything you’re saying holds true only if no fraud or misrepresentation was made in the loan application. I believe, and I strongly believe that, a majority of loans made at the 2005-206 peak involved fraud in one form or another. It could be a vast majority (as in 80% of loans or so). I’m not kidding. A lot of fraud went under the radar. [/quote]

A lender has two tasks:
1. Evaluate the property.
2. Evaluate the borrower.
Both are easily accomplished by a serious lender living up to lender responsibilities. Even for people with complex income situations, there are procedures for the borrower to have tax records released to the lender directly by the taxing authorities.

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.

[analyst]

[quote=Daniel]Great post, analyst. One comment, though: everything you’re saying holds true only if no fraud or misrepresentation was made in the loan application. I believe, and I strongly believe that, a majority of loans made at the 2005-206 peak involved fraud in one form or another. It could be a vast majority (as in 80% of loans or so). I’m not kidding. A lot of fraud went under the radar. [/quote]

A lender has two tasks:
1. Evaluate the property.
2. Evaluate the borrower.
Both are easily accomplished by a serious lender living up to lender responsibilities. Even for people with complex income situations, there are procedures for the borrower to have tax records released to the lender directly by the taxing authorities.

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.

[Author]

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