[patientrenter]

Thanks SDR and Deal Hunter.

Two comments stood out for me:

“I have found that even with recourse loans on some short sales, people are getting the deficiencies forgiven.”

“We’ve done this in Las Vegas with 3 short sales since November of 2007. The homeowner never went late, preserved their credit and successfully sold their homes on short sale.”

I read this, and thought about the whole debate over moral hazard and the economic sense behind allowing home purchases with less than, say, 30% of the borrower’s own money at risk.

I don’t think there are many, if any, Piggingtons who have savings who would volunteer to lend a significant portion of those savings to borrowers if those borrowers get to keep most of the winnings if home prices go up, and hand back most of the losses if home prices go down. Especially not if there is forgiveness of debt on recourse loans, and only minor or short-term credit damage for the borrowers when they walk away.

Almost all the money put at risk in buying homes in the last few motnhs has been from taxpayers. Adding FHLB lending, FHA guarantees, and implicit FNMA and Freddie Mac guarantees, virtually all the risk in new home loan lending is now borne by taxpayers. With moral hazard reaching the levels described by SDR and Deal Hunter, it is hard to see savvy private investors replacing the govt role for the next generation or two. It seems that taxpayers have been drafted to be the sole supporter of inflated home prices for the foreseeable future.

Has any mainstream economist with broad credibility done a good job of analyzing the real economic damage of such a massive move away from the free enterprise system? Right now, everyone in a position of authority seems to support the notion that it’s better to feed the long-term hazard to starve the short-term recession beast. Only a few peripheral “nut-jobs” say otherwise.

Patient renter in OC

[patientrenter]

Thanks SDR and Deal Hunter.

Two comments stood out for me:

“I have found that even with recourse loans on some short sales, people are getting the deficiencies forgiven.”

“We’ve done this in Las Vegas with 3 short sales since November of 2007. The homeowner never went late, preserved their credit and successfully sold their homes on short sale.”

I read this, and thought about the whole debate over moral hazard and the economic sense behind allowing home purchases with less than, say, 30% of the borrower’s own money at risk.

I don’t think there are many, if any, Piggingtons who have savings who would volunteer to lend a significant portion of those savings to borrowers if those borrowers get to keep most of the winnings if home prices go up, and hand back most of the losses if home prices go down. Especially not if there is forgiveness of debt on recourse loans, and only minor or short-term credit damage for the borrowers when they walk away.

Almost all the money put at risk in buying homes in the last few motnhs has been from taxpayers. Adding FHLB lending, FHA guarantees, and implicit FNMA and Freddie Mac guarantees, virtually all the risk in new home loan lending is now borne by taxpayers. With moral hazard reaching the levels described by SDR and Deal Hunter, it is hard to see savvy private investors replacing the govt role for the next generation or two. It seems that taxpayers have been drafted to be the sole supporter of inflated home prices for the foreseeable future.

Has any mainstream economist with broad credibility done a good job of analyzing the real economic damage of such a massive move away from the free enterprise system? Right now, everyone in a position of authority seems to support the notion that it’s better to feed the long-term hazard to starve the short-term recession beast. Only a few peripheral “nut-jobs” say otherwise.

Patient renter in OC

[patientrenter]

Thanks SDR and Deal Hunter.

Two comments stood out for me:

“I have found that even with recourse loans on some short sales, people are getting the deficiencies forgiven.”

“We’ve done this in Las Vegas with 3 short sales since November of 2007. The homeowner never went late, preserved their credit and successfully sold their homes on short sale.”

I read this, and thought about the whole debate over moral hazard and the economic sense behind allowing home purchases with less than, say, 30% of the borrower’s own money at risk.

I don’t think there are many, if any, Piggingtons who have savings who would volunteer to lend a significant portion of those savings to borrowers if those borrowers get to keep most of the winnings if home prices go up, and hand back most of the losses if home prices go down. Especially not if there is forgiveness of debt on recourse loans, and only minor or short-term credit damage for the borrowers when they walk away.

Almost all the money put at risk in buying homes in the last few motnhs has been from taxpayers. Adding FHLB lending, FHA guarantees, and implicit FNMA and Freddie Mac guarantees, virtually all the risk in new home loan lending is now borne by taxpayers. With moral hazard reaching the levels described by SDR and Deal Hunter, it is hard to see savvy private investors replacing the govt role for the next generation or two. It seems that taxpayers have been drafted to be the sole supporter of inflated home prices for the foreseeable future.

Has any mainstream economist with broad credibility done a good job of analyzing the real economic damage of such a massive move away from the free enterprise system? Right now, everyone in a position of authority seems to support the notion that it’s better to feed the long-term hazard to starve the short-term recession beast. Only a few peripheral “nut-jobs” say otherwise.

Patient renter in OC

[patientrenter]

Thanks SDR and Deal Hunter.

Two comments stood out for me:

“I have found that even with recourse loans on some short sales, people are getting the deficiencies forgiven.”

“We’ve done this in Las Vegas with 3 short sales since November of 2007. The homeowner never went late, preserved their credit and successfully sold their homes on short sale.”

I read this, and thought about the whole debate over moral hazard and the economic sense behind allowing home purchases with less than, say, 30% of the borrower’s own money at risk.

I don’t think there are many, if any, Piggingtons who have savings who would volunteer to lend a significant portion of those savings to borrowers if those borrowers get to keep most of the winnings if home prices go up, and hand back most of the losses if home prices go down. Especially not if there is forgiveness of debt on recourse loans, and only minor or short-term credit damage for the borrowers when they walk away.

Almost all the money put at risk in buying homes in the last few motnhs has been from taxpayers. Adding FHLB lending, FHA guarantees, and implicit FNMA and Freddie Mac guarantees, virtually all the risk in new home loan lending is now borne by taxpayers. With moral hazard reaching the levels described by SDR and Deal Hunter, it is hard to see savvy private investors replacing the govt role for the next generation or two. It seems that taxpayers have been drafted to be the sole supporter of inflated home prices for the foreseeable future.

Has any mainstream economist with broad credibility done a good job of analyzing the real economic damage of such a massive move away from the free enterprise system? Right now, everyone in a position of authority seems to support the notion that it’s better to feed the long-term hazard to starve the short-term recession beast. Only a few peripheral “nut-jobs” say otherwise.

Patient renter in OC

[patientrenter]

Ranjan, requiring 10% down is only a very small protection for the (ultimate) lender in a non-recourse purchase loan state like CA facing major and persistent price declines. Credit scores, and wealth in other assets, mean even less. About all that protects the lenders in a market in major decline is the borrower’s downpayment, and a 10% downpayment is less than the projected one-year decline in home prices in most CA markets. It’s so small it’s a joke.

Consider this situation: Someone buys a $1 million house now with 10% down, so the ultimate lenders put up $900,000. In 3 years time the house is sold for $600,000. How do the lenders get their $900,000 back? They don’t of course, regardless of the credit or other assets of the borrower. No matter who the (non-recourse state) borrower is, the lenders get back just $600,000 less the sale expenses, and take a massive loss.

In my example, which isn’t too outlandish, the lenders would have to have received annual interest of $100,000 in excess of the Treasury rate for 3 years in order to be compensated for their $300,000 loss at the future foreclosure, ignoring their foreclosure and other costs. That’s 11.11% extra interest annually over and above the risk-free rate! Clearly, lenders still are not charging anything even close to the interest rates required to justify 10% downpayments. Before now, the lenders were all pricing in never-ending home price inflation. Now they are all pricing in huge government bailouts.

Patient renter in OC

[patientrenter]

Ranjan, requiring 10% down is only a very small protection for the (ultimate) lender in a non-recourse purchase loan state like CA facing major and persistent price declines. Credit scores, and wealth in other assets, mean even less. About all that protects the lenders in a market in major decline is the borrower’s downpayment, and a 10% downpayment is less than the projected one-year decline in home prices in most CA markets. It’s so small it’s a joke.

Consider this situation: Someone buys a $1 million house now with 10% down, so the ultimate lenders put up $900,000. In 3 years time the house is sold for $600,000. How do the lenders get their $900,000 back? They don’t of course, regardless of the credit or other assets of the borrower. No matter who the (non-recourse state) borrower is, the lenders get back just $600,000 less the sale expenses, and take a massive loss.

In my example, which isn’t too outlandish, the lenders would have to have received annual interest of $100,000 in excess of the Treasury rate for 3 years in order to be compensated for their $300,000 loss at the future foreclosure, ignoring their foreclosure and other costs. That’s 11.11% extra interest annually over and above the risk-free rate! Clearly, lenders still are not charging anything even close to the interest rates required to justify 10% downpayments. Before now, the lenders were all pricing in never-ending home price inflation. Now they are all pricing in huge government bailouts.

Patient renter in OC

[patientrenter]

Ranjan, requiring 10% down is only a very small protection for the (ultimate) lender in a non-recourse purchase loan state like CA facing major and persistent price declines. Credit scores, and wealth in other assets, mean even less. About all that protects the lenders in a market in major decline is the borrower’s downpayment, and a 10% downpayment is less than the projected one-year decline in home prices in most CA markets. It’s so small it’s a joke.

Consider this situation: Someone buys a $1 million house now with 10% down, so the ultimate lenders put up $900,000. In 3 years time the house is sold for $600,000. How do the lenders get their $900,000 back? They don’t of course, regardless of the credit or other assets of the borrower. No matter who the (non-recourse state) borrower is, the lenders get back just $600,000 less the sale expenses, and take a massive loss.

In my example, which isn’t too outlandish, the lenders would have to have received annual interest of $100,000 in excess of the Treasury rate for 3 years in order to be compensated for their $300,000 loss at the future foreclosure, ignoring their foreclosure and other costs. That’s 11.11% extra interest annually over and above the risk-free rate! Clearly, lenders still are not charging anything even close to the interest rates required to justify 10% downpayments. Before now, the lenders were all pricing in never-ending home price inflation. Now they are all pricing in huge government bailouts.

Patient renter in OC

[patientrenter]

Ranjan, requiring 10% down is only a very small protection for the (ultimate) lender in a non-recourse purchase loan state like CA facing major and persistent price declines. Credit scores, and wealth in other assets, mean even less. About all that protects the lenders in a market in major decline is the borrower’s downpayment, and a 10% downpayment is less than the projected one-year decline in home prices in most CA markets. It’s so small it’s a joke.

Consider this situation: Someone buys a $1 million house now with 10% down, so the ultimate lenders put up $900,000. In 3 years time the house is sold for $600,000. How do the lenders get their $900,000 back? They don’t of course, regardless of the credit or other assets of the borrower. No matter who the (non-recourse state) borrower is, the lenders get back just $600,000 less the sale expenses, and take a massive loss.

In my example, which isn’t too outlandish, the lenders would have to have received annual interest of $100,000 in excess of the Treasury rate for 3 years in order to be compensated for their $300,000 loss at the future foreclosure, ignoring their foreclosure and other costs. That’s 11.11% extra interest annually over and above the risk-free rate! Clearly, lenders still are not charging anything even close to the interest rates required to justify 10% downpayments. Before now, the lenders were all pricing in never-ending home price inflation. Now they are all pricing in huge government bailouts.

Patient renter in OC

[patientrenter]

Ranjan, requiring 10% down is only a very small protection for the (ultimate) lender in a non-recourse purchase loan state like CA facing major and persistent price declines. Credit scores, and wealth in other assets, mean even less. About all that protects the lenders in a market in major decline is the borrower’s downpayment, and a 10% downpayment is less than the projected one-year decline in home prices in most CA markets. It’s so small it’s a joke.

Consider this situation: Someone buys a $1 million house now with 10% down, so the ultimate lenders put up $900,000. In 3 years time the house is sold for $600,000. How do the lenders get their $900,000 back? They don’t of course, regardless of the credit or other assets of the borrower. No matter who the (non-recourse state) borrower is, the lenders get back just $600,000 less the sale expenses, and take a massive loss.

In my example, which isn’t too outlandish, the lenders would have to have received annual interest of $100,000 in excess of the Treasury rate for 3 years in order to be compensated for their $300,000 loss at the future foreclosure, ignoring their foreclosure and other costs. That’s 11.11% extra interest annually over and above the risk-free rate! Clearly, lenders still are not charging anything even close to the interest rates required to justify 10% downpayments. Before now, the lenders were all pricing in never-ending home price inflation. Now they are all pricing in huge government bailouts.

Patient renter in OC

[patientrenter]

contraman, clearly you’re irritated by the shenanigans that borrowers engaged in, and the reaction of the “adults”, who are falling over themselves to prevent full punishment for the multitudes who enagaged in the shenanigans.

It is absolutely infuriating when people who were given very valuable and almost free put options on a housing asset now are portrayed as victims, and everyone is throwing money in their direction, pretending that it’s a rescue effort for the larger economy, “to help us all out”. It’s nothing but a selfish bailout for the people who took a risk and lost the bet.

All but the dumbest 1% of buyers, mortgage brokers, investors etc knew in their hearts exactly what was going on, that they were going to get rich if the markets kept going up at unsustainable rates for just a few more years. Now some realize the music has stopped and they lost the bet. And they don’t want to pay. Now they want to have someone else to pick up most of their tab, “in the interests of the greater economy”. And they are getting lots of help. BS.

OK, I’ve had my evening wine and am now finished my emotional rant. Back to figuring out how I can get a decent home of my own without paying an arm and a leg.

Patient renter in OC

[patientrenter]

contraman, clearly you’re irritated by the shenanigans that borrowers engaged in, and the reaction of the “adults”, who are falling over themselves to prevent full punishment for the multitudes who enagaged in the shenanigans.

It is absolutely infuriating when people who were given very valuable and almost free put options on a housing asset now are portrayed as victims, and everyone is throwing money in their direction, pretending that it’s a rescue effort for the larger economy, “to help us all out”. It’s nothing but a selfish bailout for the people who took a risk and lost the bet.

All but the dumbest 1% of buyers, mortgage brokers, investors etc knew in their hearts exactly what was going on, that they were going to get rich if the markets kept going up at unsustainable rates for just a few more years. Now some realize the music has stopped and they lost the bet. And they don’t want to pay. Now they want to have someone else to pick up most of their tab, “in the interests of the greater economy”. And they are getting lots of help. BS.

OK, I’ve had my evening wine and am now finished my emotional rant. Back to figuring out how I can get a decent home of my own without paying an arm and a leg.

Patient renter in OC

[patientrenter]

contraman, clearly you’re irritated by the shenanigans that borrowers engaged in, and the reaction of the “adults”, who are falling over themselves to prevent full punishment for the multitudes who enagaged in the shenanigans.

It is absolutely infuriating when people who were given very valuable and almost free put options on a housing asset now are portrayed as victims, and everyone is throwing money in their direction, pretending that it’s a rescue effort for the larger economy, “to help us all out”. It’s nothing but a selfish bailout for the people who took a risk and lost the bet.

All but the dumbest 1% of buyers, mortgage brokers, investors etc knew in their hearts exactly what was going on, that they were going to get rich if the markets kept going up at unsustainable rates for just a few more years. Now some realize the music has stopped and they lost the bet. And they don’t want to pay. Now they want to have someone else to pick up most of their tab, “in the interests of the greater economy”. And they are getting lots of help. BS.

OK, I’ve had my evening wine and am now finished my emotional rant. Back to figuring out how I can get a decent home of my own without paying an arm and a leg.

Patient renter in OC

[patientrenter]

contraman, clearly you’re irritated by the shenanigans that borrowers engaged in, and the reaction of the “adults”, who are falling over themselves to prevent full punishment for the multitudes who enagaged in the shenanigans.

It is absolutely infuriating when people who were given very valuable and almost free put options on a housing asset now are portrayed as victims, and everyone is throwing money in their direction, pretending that it’s a rescue effort for the larger economy, “to help us all out”. It’s nothing but a selfish bailout for the people who took a risk and lost the bet.

All but the dumbest 1% of buyers, mortgage brokers, investors etc knew in their hearts exactly what was going on, that they were going to get rich if the markets kept going up at unsustainable rates for just a few more years. Now some realize the music has stopped and they lost the bet. And they don’t want to pay. Now they want to have someone else to pick up most of their tab, “in the interests of the greater economy”. And they are getting lots of help. BS.

OK, I’ve had my evening wine and am now finished my emotional rant. Back to figuring out how I can get a decent home of my own without paying an arm and a leg.

Patient renter in OC

[patientrenter]

contraman, clearly you’re irritated by the shenanigans that borrowers engaged in, and the reaction of the “adults”, who are falling over themselves to prevent full punishment for the multitudes who enagaged in the shenanigans.

It is absolutely infuriating when people who were given very valuable and almost free put options on a housing asset now are portrayed as victims, and everyone is throwing money in their direction, pretending that it’s a rescue effort for the larger economy, “to help us all out”. It’s nothing but a selfish bailout for the people who took a risk and lost the bet.

All but the dumbest 1% of buyers, mortgage brokers, investors etc knew in their hearts exactly what was going on, that they were going to get rich if the markets kept going up at unsustainable rates for just a few more years. Now some realize the music has stopped and they lost the bet. And they don’t want to pay. Now they want to have someone else to pick up most of their tab, “in the interests of the greater economy”. And they are getting lots of help. BS.

OK, I’ve had my evening wine and am now finished my emotional rant. Back to figuring out how I can get a decent home of my own without paying an arm and a leg.

Patient renter in OC

[patientrenter]

I heard there were services that provided you with W-2s etc to “help you out”. Paulson and Bair and others have made it clear they really, really, don’t want the loan servicers to go through the borrowers one by one and actually discover and weed out the ones who committed fraud, or can afford to pay. If Paulson and Bair and a lot of other people in charge of setting and enforcing the rules are showing near-desperation in their efforts to ensure lots and lots of voters will get nice deals in workouts, I don’t think the servicers will be allowed to get too fussy. We’ll see.

Patient renter in OC

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