[SK in CV]

[quote=patientrenter][quote=SK in CV]….
You think it’s all about the borrowers. It isn’t. It’s about the lenders.[/quote]

I like your reasoning: Repaying loans is not the borrowers’ responsibility, but doubtless you think lenders should keep lending.

So then you won’t mind sending me a cashier’s check for your net worth, as a loan that won’t be repaid. I am waiting.[/quote]

You’re misunderstanding what I’m saying. The problems in real estate began with the lenders, not with the borrowers. The borrowers were the last piece of the puzzle, not the first. They weren’t blameless, but nobody was. From the loan originators and every broker, lender, underwriter, packager and investor. For the most part, the lenders still hold the cards. I’m sure most borrowers fully intend to repay loans when they’re made and only stop paying when they simply can’t afford the payments. But I would make no judgement with regards to an underwater borrower who chooses to exercise their contractual option and stops paying. The loan contract has quite specific language on the recourse the lender has in that circumstance.

And yes, I think the lenders should keep lending. But only to qualified borrowers and carefully underwritten loans. If I sent you a check for my net worth, I’d be as dumb as many of the lenders that made bad loans over the last 5 years, except there would be little chance of me be being bailed out by the government when you failed to repay.

[SK in CV]

[quote=patientrenter][quote=SK in CV]….
You think it’s all about the borrowers. It isn’t. It’s about the lenders.[/quote]

I like your reasoning: Repaying loans is not the borrowers’ responsibility, but doubtless you think lenders should keep lending.

So then you won’t mind sending me a cashier’s check for your net worth, as a loan that won’t be repaid. I am waiting.[/quote]

You’re misunderstanding what I’m saying. The problems in real estate began with the lenders, not with the borrowers. The borrowers were the last piece of the puzzle, not the first. They weren’t blameless, but nobody was. From the loan originators and every broker, lender, underwriter, packager and investor. For the most part, the lenders still hold the cards. I’m sure most borrowers fully intend to repay loans when they’re made and only stop paying when they simply can’t afford the payments. But I would make no judgement with regards to an underwater borrower who chooses to exercise their contractual option and stops paying. The loan contract has quite specific language on the recourse the lender has in that circumstance.

And yes, I think the lenders should keep lending. But only to qualified borrowers and carefully underwritten loans. If I sent you a check for my net worth, I’d be as dumb as many of the lenders that made bad loans over the last 5 years, except there would be little chance of me be being bailed out by the government when you failed to repay.

[SK in CV]

[quote=patientrenter][quote=SK in CV]….
You think it’s all about the borrowers. It isn’t. It’s about the lenders.[/quote]

I like your reasoning: Repaying loans is not the borrowers’ responsibility, but doubtless you think lenders should keep lending.

So then you won’t mind sending me a cashier’s check for your net worth, as a loan that won’t be repaid. I am waiting.[/quote]

You’re misunderstanding what I’m saying. The problems in real estate began with the lenders, not with the borrowers. The borrowers were the last piece of the puzzle, not the first. They weren’t blameless, but nobody was. From the loan originators and every broker, lender, underwriter, packager and investor. For the most part, the lenders still hold the cards. I’m sure most borrowers fully intend to repay loans when they’re made and only stop paying when they simply can’t afford the payments. But I would make no judgement with regards to an underwater borrower who chooses to exercise their contractual option and stops paying. The loan contract has quite specific language on the recourse the lender has in that circumstance.

And yes, I think the lenders should keep lending. But only to qualified borrowers and carefully underwritten loans. If I sent you a check for my net worth, I’d be as dumb as many of the lenders that made bad loans over the last 5 years, except there would be little chance of me be being bailed out by the government when you failed to repay.

[SK in CV]

[quote=patientrenter][quote=SK in CV]….
You think it’s all about the borrowers. It isn’t. It’s about the lenders.[/quote]

I like your reasoning: Repaying loans is not the borrowers’ responsibility, but doubtless you think lenders should keep lending.

So then you won’t mind sending me a cashier’s check for your net worth, as a loan that won’t be repaid. I am waiting.[/quote]

You’re misunderstanding what I’m saying. The problems in real estate began with the lenders, not with the borrowers. The borrowers were the last piece of the puzzle, not the first. They weren’t blameless, but nobody was. From the loan originators and every broker, lender, underwriter, packager and investor. For the most part, the lenders still hold the cards. I’m sure most borrowers fully intend to repay loans when they’re made and only stop paying when they simply can’t afford the payments. But I would make no judgement with regards to an underwater borrower who chooses to exercise their contractual option and stops paying. The loan contract has quite specific language on the recourse the lender has in that circumstance.

And yes, I think the lenders should keep lending. But only to qualified borrowers and carefully underwritten loans. If I sent you a check for my net worth, I’d be as dumb as many of the lenders that made bad loans over the last 5 years, except there would be little chance of me be being bailed out by the government when you failed to repay.

[SK in CV]

[quote=patientrenter][
Why argue with SK in CV? I like his (or her) reasoning. Using it, I can now quit being prudent. I can buy the home I ‘deserve’, without paying for it. And I would like to own a Ferrari. Until now, I thought that would be a bit extravagant. But if I don’t have to pay for it, it’s quite sensible to go get one. I could go on, but I think you can see how SK in CV’s world is wonderful.

His argument is quite respectable these days. Ben Bernanke agrees, as does Larry Summers, and Tim Geithner, and Barney Frank, and so on. How is it being sold to the general public? Well, if we don’t do this, our banking system will collapse, and if that happens our economy will collapse. So there’s a good reason to do these things that are counter to our own commonsense. We troglodytes with our dull commonsense are too stupid to understand what these financial wizards understand. Never mind that these wizards were cheering as the bubble inflated and trillions in bad loans were being made.[/quote]

You think it’s all about the borrowers. It isn’t. It’s about the lenders.

[SK in CV]

[quote=patientrenter][
Why argue with SK in CV? I like his (or her) reasoning. Using it, I can now quit being prudent. I can buy the home I ‘deserve’, without paying for it. And I would like to own a Ferrari. Until now, I thought that would be a bit extravagant. But if I don’t have to pay for it, it’s quite sensible to go get one. I could go on, but I think you can see how SK in CV’s world is wonderful.

His argument is quite respectable these days. Ben Bernanke agrees, as does Larry Summers, and Tim Geithner, and Barney Frank, and so on. How is it being sold to the general public? Well, if we don’t do this, our banking system will collapse, and if that happens our economy will collapse. So there’s a good reason to do these things that are counter to our own commonsense. We troglodytes with our dull commonsense are too stupid to understand what these financial wizards understand. Never mind that these wizards were cheering as the bubble inflated and trillions in bad loans were being made.[/quote]

You think it’s all about the borrowers. It isn’t. It’s about the lenders.

[SK in CV]

[quote=patientrenter][
Why argue with SK in CV? I like his (or her) reasoning. Using it, I can now quit being prudent. I can buy the home I ‘deserve’, without paying for it. And I would like to own a Ferrari. Until now, I thought that would be a bit extravagant. But if I don’t have to pay for it, it’s quite sensible to go get one. I could go on, but I think you can see how SK in CV’s world is wonderful.

His argument is quite respectable these days. Ben Bernanke agrees, as does Larry Summers, and Tim Geithner, and Barney Frank, and so on. How is it being sold to the general public? Well, if we don’t do this, our banking system will collapse, and if that happens our economy will collapse. So there’s a good reason to do these things that are counter to our own commonsense. We troglodytes with our dull commonsense are too stupid to understand what these financial wizards understand. Never mind that these wizards were cheering as the bubble inflated and trillions in bad loans were being made.[/quote]

You think it’s all about the borrowers. It isn’t. It’s about the lenders.

[SK in CV]

[quote=patientrenter][
Why argue with SK in CV? I like his (or her) reasoning. Using it, I can now quit being prudent. I can buy the home I ‘deserve’, without paying for it. And I would like to own a Ferrari. Until now, I thought that would be a bit extravagant. But if I don’t have to pay for it, it’s quite sensible to go get one. I could go on, but I think you can see how SK in CV’s world is wonderful.

His argument is quite respectable these days. Ben Bernanke agrees, as does Larry Summers, and Tim Geithner, and Barney Frank, and so on. How is it being sold to the general public? Well, if we don’t do this, our banking system will collapse, and if that happens our economy will collapse. So there’s a good reason to do these things that are counter to our own commonsense. We troglodytes with our dull commonsense are too stupid to understand what these financial wizards understand. Never mind that these wizards were cheering as the bubble inflated and trillions in bad loans were being made.[/quote]

You think it’s all about the borrowers. It isn’t. It’s about the lenders.

[SK in CV]

[quote=patientrenter][
Why argue with SK in CV? I like his (or her) reasoning. Using it, I can now quit being prudent. I can buy the home I ‘deserve’, without paying for it. And I would like to own a Ferrari. Until now, I thought that would be a bit extravagant. But if I don’t have to pay for it, it’s quite sensible to go get one. I could go on, but I think you can see how SK in CV’s world is wonderful.

His argument is quite respectable these days. Ben Bernanke agrees, as does Larry Summers, and Tim Geithner, and Barney Frank, and so on. How is it being sold to the general public? Well, if we don’t do this, our banking system will collapse, and if that happens our economy will collapse. So there’s a good reason to do these things that are counter to our own commonsense. We troglodytes with our dull commonsense are too stupid to understand what these financial wizards understand. Never mind that these wizards were cheering as the bubble inflated and trillions in bad loans were being made.[/quote]

You think it’s all about the borrowers. It isn’t. It’s about the lenders.

[SK in CV]

[quote=DWCAP]
Why? Why should they have? Your statement about ‘driving houses down further’ doesnt hold too much water. By just about any reasonable metric housing prices are either ‘fair’ or ‘over’ priced in the majority of the USA, with the possible exception of Detroit which has been on a downwards sprial for 40-50 years now. In SD they are flying off the shelf. So the argument is that banks should have done mass modifications so that prices could have stayed overpriced and the people who would have benifited the most from increasing prices/leverage can also benifit from decreasing prices/leverage too?

Please define the reasons for “should”.[/quote]

First of all, my reasoning is purely based on the motivation of the lenders. It has no element of morality because I don’t think that any moral judgement should play a part in lenders deciding whether to foreclose or modify. It has nothing to do with the borrower. It should only have to do with the collateral.

I think that if lenders modify for some qualified borrowers, rather than foreclose, it provides stability to the market. It would have been a fruitless exercise a year ago (as the track record for the very few modifications will attest) But ultimately, fewer homes on the market, less downward pressure.

Without undue influence, prices are always right. From 2002 through 2005, there was undue influence because of lending practices. An abundance of distressed properties on the market the last 2 years has provided an opposite undue influence. Prices will find a stable level only when distressed properties become a minor part of the inventory. That stability should be the goal of both government and lenders policies.

[SK in CV]

[quote=DWCAP]
Why? Why should they have? Your statement about ‘driving houses down further’ doesnt hold too much water. By just about any reasonable metric housing prices are either ‘fair’ or ‘over’ priced in the majority of the USA, with the possible exception of Detroit which has been on a downwards sprial for 40-50 years now. In SD they are flying off the shelf. So the argument is that banks should have done mass modifications so that prices could have stayed overpriced and the people who would have benifited the most from increasing prices/leverage can also benifit from decreasing prices/leverage too?

Please define the reasons for “should”.[/quote]

First of all, my reasoning is purely based on the motivation of the lenders. It has no element of morality because I don’t think that any moral judgement should play a part in lenders deciding whether to foreclose or modify. It has nothing to do with the borrower. It should only have to do with the collateral.

I think that if lenders modify for some qualified borrowers, rather than foreclose, it provides stability to the market. It would have been a fruitless exercise a year ago (as the track record for the very few modifications will attest) But ultimately, fewer homes on the market, less downward pressure.

Without undue influence, prices are always right. From 2002 through 2005, there was undue influence because of lending practices. An abundance of distressed properties on the market the last 2 years has provided an opposite undue influence. Prices will find a stable level only when distressed properties become a minor part of the inventory. That stability should be the goal of both government and lenders policies.

[SK in CV]

[quote=DWCAP]
Why? Why should they have? Your statement about ‘driving houses down further’ doesnt hold too much water. By just about any reasonable metric housing prices are either ‘fair’ or ‘over’ priced in the majority of the USA, with the possible exception of Detroit which has been on a downwards sprial for 40-50 years now. In SD they are flying off the shelf. So the argument is that banks should have done mass modifications so that prices could have stayed overpriced and the people who would have benifited the most from increasing prices/leverage can also benifit from decreasing prices/leverage too?

Please define the reasons for “should”.[/quote]

First of all, my reasoning is purely based on the motivation of the lenders. It has no element of morality because I don’t think that any moral judgement should play a part in lenders deciding whether to foreclose or modify. It has nothing to do with the borrower. It should only have to do with the collateral.

I think that if lenders modify for some qualified borrowers, rather than foreclose, it provides stability to the market. It would have been a fruitless exercise a year ago (as the track record for the very few modifications will attest) But ultimately, fewer homes on the market, less downward pressure.

Without undue influence, prices are always right. From 2002 through 2005, there was undue influence because of lending practices. An abundance of distressed properties on the market the last 2 years has provided an opposite undue influence. Prices will find a stable level only when distressed properties become a minor part of the inventory. That stability should be the goal of both government and lenders policies.

[SK in CV]

[quote=DWCAP]
Why? Why should they have? Your statement about ‘driving houses down further’ doesnt hold too much water. By just about any reasonable metric housing prices are either ‘fair’ or ‘over’ priced in the majority of the USA, with the possible exception of Detroit which has been on a downwards sprial for 40-50 years now. In SD they are flying off the shelf. So the argument is that banks should have done mass modifications so that prices could have stayed overpriced and the people who would have benifited the most from increasing prices/leverage can also benifit from decreasing prices/leverage too?

Please define the reasons for “should”.[/quote]

First of all, my reasoning is purely based on the motivation of the lenders. It has no element of morality because I don’t think that any moral judgement should play a part in lenders deciding whether to foreclose or modify. It has nothing to do with the borrower. It should only have to do with the collateral.

I think that if lenders modify for some qualified borrowers, rather than foreclose, it provides stability to the market. It would have been a fruitless exercise a year ago (as the track record for the very few modifications will attest) But ultimately, fewer homes on the market, less downward pressure.

Without undue influence, prices are always right. From 2002 through 2005, there was undue influence because of lending practices. An abundance of distressed properties on the market the last 2 years has provided an opposite undue influence. Prices will find a stable level only when distressed properties become a minor part of the inventory. That stability should be the goal of both government and lenders policies.

[SK in CV]

[quote=DWCAP]
Why? Why should they have? Your statement about ‘driving houses down further’ doesnt hold too much water. By just about any reasonable metric housing prices are either ‘fair’ or ‘over’ priced in the majority of the USA, with the possible exception of Detroit which has been on a downwards sprial for 40-50 years now. In SD they are flying off the shelf. So the argument is that banks should have done mass modifications so that prices could have stayed overpriced and the people who would have benifited the most from increasing prices/leverage can also benifit from decreasing prices/leverage too?

Please define the reasons for “should”.[/quote]

First of all, my reasoning is purely based on the motivation of the lenders. It has no element of morality because I don’t think that any moral judgement should play a part in lenders deciding whether to foreclose or modify. It has nothing to do with the borrower. It should only have to do with the collateral.

I think that if lenders modify for some qualified borrowers, rather than foreclose, it provides stability to the market. It would have been a fruitless exercise a year ago (as the track record for the very few modifications will attest) But ultimately, fewer homes on the market, less downward pressure.

Without undue influence, prices are always right. From 2002 through 2005, there was undue influence because of lending practices. An abundance of distressed properties on the market the last 2 years has provided an opposite undue influence. Prices will find a stable level only when distressed properties become a minor part of the inventory. That stability should be the goal of both government and lenders policies.

[SK in CV]

Another way to look at this.

[quote=pri_dk]
There’s another way to look at this:

Assume the homeowner put zero down. (Not uncommon, and explains why they are so underwater.)

The homeowner has a neighbor (in an identical house) that put $100K down when they purchased, so they are at zero equity also.

Ten years from now, RE eventually recovers and the homes appreciate by $50K. Both homeowners sell.

The person who put money down loses 50% of his initial investment — the one who got a principal reduction goes on a $50K spending spree with the “nothing” that they received.[/quote]

No argument, but there still is no immediate give away to the homeowner. He simply reverts to exactly the same place he was when he originally bought the house with no money down. And the lender has less a valuable, but performing loan.

I know many wouldn’t be happy with this kind of false reward to buyers who made bad decisions, but it’s what lenders should have been doing for the last year in cases with qualifieed borrowers, modifying loans to current market value of the collateral, rather than foreclosing and flooding the market with properties, driving values down further.

I know why they don’t do it. But they should.

[Author]

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