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XBoxBoy
Participant[quote=equalizer]However flawed the part ownership, it is better than outright principal reduction. [/quote]
While I’m not exactly sure of the details of Taleb’s plan I think it’s straightforward principal reduction in exchange for a part ownership that has little if any value and potentially lots of administrative headaches. If that’s better than outright principal reduction it is only a very small amount better.
[quote=equalizer] Do you have any better ideas short of foreclosure? [/quote]
Back up a second. The problem is that the banks hold loans that due to falling prices are no longer sufficiently collateralized. If the borrower continues to pay the mortgage, the bank does not have a problem. However, if the borrower stops paying the mortgage, the bank has three choices:
1) Take their losses either with a foreclosure or short sale.
2) Outright principal reduction. This is a particularly bad option because doing this for one person only encourages others to go into default hoping to get their principal reduced.
3) Try some scheme that kicks the payments down the road, hoping that some time in the future somehow the borrower coughs up more money. My perspective is that virtually all the schemes put forward, including this one from Mr. Taleb, are nothing more than a fancy cover for this option. They are not a fix, just a postponement of the problem.
Notice that before I listed the bank’s options, I made clear that if the borrower continued to make payments there was no problem. So, if the bank was thinking things through they would realize that a very high priority is to make sure that people keep paying in full at the agreed upon terms. Option 2 and 3 undermine that. (As we’ve discussed in a number of threads here on piggington)
So, regardless of the area I think it’s pretty clear foreclosure and/or short sales are the best answer.
In regards to your comments about areas where the economy is collapsing. (Modesto, Bakersfield, Detroit) In these areas, it’s the broad economic issues that need to be addressed first before housing can be addressed. (ie, what are people in these areas going to produce/sell that will generate the cash coming into the community so that it can grow) Since these issues are not being addressed seriously, I doubt that any kicking the problem down the road will work, only postpone the problem.
XBoxBoy
Participant[quote=equalizer]However flawed the part ownership, it is better than outright principal reduction. [/quote]
While I’m not exactly sure of the details of Taleb’s plan I think it’s straightforward principal reduction in exchange for a part ownership that has little if any value and potentially lots of administrative headaches. If that’s better than outright principal reduction it is only a very small amount better.
[quote=equalizer] Do you have any better ideas short of foreclosure? [/quote]
Back up a second. The problem is that the banks hold loans that due to falling prices are no longer sufficiently collateralized. If the borrower continues to pay the mortgage, the bank does not have a problem. However, if the borrower stops paying the mortgage, the bank has three choices:
1) Take their losses either with a foreclosure or short sale.
2) Outright principal reduction. This is a particularly bad option because doing this for one person only encourages others to go into default hoping to get their principal reduced.
3) Try some scheme that kicks the payments down the road, hoping that some time in the future somehow the borrower coughs up more money. My perspective is that virtually all the schemes put forward, including this one from Mr. Taleb, are nothing more than a fancy cover for this option. They are not a fix, just a postponement of the problem.
Notice that before I listed the bank’s options, I made clear that if the borrower continued to make payments there was no problem. So, if the bank was thinking things through they would realize that a very high priority is to make sure that people keep paying in full at the agreed upon terms. Option 2 and 3 undermine that. (As we’ve discussed in a number of threads here on piggington)
So, regardless of the area I think it’s pretty clear foreclosure and/or short sales are the best answer.
In regards to your comments about areas where the economy is collapsing. (Modesto, Bakersfield, Detroit) In these areas, it’s the broad economic issues that need to be addressed first before housing can be addressed. (ie, what are people in these areas going to produce/sell that will generate the cash coming into the community so that it can grow) Since these issues are not being addressed seriously, I doubt that any kicking the problem down the road will work, only postpone the problem.
XBoxBoy
Participant[quote=jficquette]
He is saying take part ownership now in exchange for loan modifications.Basically selling part of the property to the Bank.
[/quote]If that’s true, then it’s a horrible idea for the banks.
Ask yourself, what does part-ownership mean and what would be its value? It means nothing and has for all practical purposes no value.
Say the bank approached a “homeowner” who was struggling and said, “Ok, we’ll reduce your million dollar loan by 40% in exchange for owning 40% of the house.” Great, but what a can of worms the bank has just gotten itself into.
What if the person lives in it for the next 30 years, pays off the loan but never sells the place. Then when they die, passes their 60% ownership to one of their kids. All the while, the bank owns 40% but receives no interest or rent on their share? What’s the value to the bank? The bank also can’t sell this interest, after all who wants to buy a 40% stake in a house that you can’t live in and can’t collect rent from?
What if the person lives there for 5 years, and then puts in a pool and adds a cabana. Then two years later wants to sell. Does the bank get 20% ownership in the value of the improvements? The “homeowner” is not going to want to do improvements if that’s the case.
The most likely scenario though is that the house doesn’t appreciate any time soon, and a year or two from now the “homeowner” wants to sell. But the “owner” now only owns 60% of the house. Suppose the money from the sale is first used to pay off the loan, then there will be nothing left to compensate the bank for its share. (To see how this works, use some numbers. Imagine the original purchase was a million with nothing down. The house is now worth 600k, and the bank reduces the principle to 600k, and takes a 40% ownership. Without any appreciation, the house sells a year or two from now for 600k. That pays the loan but leaves the bank with a big fat zero for its “ownership” share)
It’s important to realize there is no new value generated by the bank taking an ownership stake in the house. All that really happens is the bank takes a loss through principle reduction, with a potential to maybe recoup some back in the future. But that potential is too dependent on the “homeowner” to be really worth much of anything.
Bottom line here is there is no free lunch that’s going to make things better. And “experts” like Taleb need to stop proposing things as if they will.
XBoxBoy
Participant[quote=jficquette]
He is saying take part ownership now in exchange for loan modifications.Basically selling part of the property to the Bank.
[/quote]If that’s true, then it’s a horrible idea for the banks.
Ask yourself, what does part-ownership mean and what would be its value? It means nothing and has for all practical purposes no value.
Say the bank approached a “homeowner” who was struggling and said, “Ok, we’ll reduce your million dollar loan by 40% in exchange for owning 40% of the house.” Great, but what a can of worms the bank has just gotten itself into.
What if the person lives in it for the next 30 years, pays off the loan but never sells the place. Then when they die, passes their 60% ownership to one of their kids. All the while, the bank owns 40% but receives no interest or rent on their share? What’s the value to the bank? The bank also can’t sell this interest, after all who wants to buy a 40% stake in a house that you can’t live in and can’t collect rent from?
What if the person lives there for 5 years, and then puts in a pool and adds a cabana. Then two years later wants to sell. Does the bank get 20% ownership in the value of the improvements? The “homeowner” is not going to want to do improvements if that’s the case.
The most likely scenario though is that the house doesn’t appreciate any time soon, and a year or two from now the “homeowner” wants to sell. But the “owner” now only owns 60% of the house. Suppose the money from the sale is first used to pay off the loan, then there will be nothing left to compensate the bank for its share. (To see how this works, use some numbers. Imagine the original purchase was a million with nothing down. The house is now worth 600k, and the bank reduces the principle to 600k, and takes a 40% ownership. Without any appreciation, the house sells a year or two from now for 600k. That pays the loan but leaves the bank with a big fat zero for its “ownership” share)
It’s important to realize there is no new value generated by the bank taking an ownership stake in the house. All that really happens is the bank takes a loss through principle reduction, with a potential to maybe recoup some back in the future. But that potential is too dependent on the “homeowner” to be really worth much of anything.
Bottom line here is there is no free lunch that’s going to make things better. And “experts” like Taleb need to stop proposing things as if they will.
XBoxBoy
Participant[quote=jficquette]
He is saying take part ownership now in exchange for loan modifications.Basically selling part of the property to the Bank.
[/quote]If that’s true, then it’s a horrible idea for the banks.
Ask yourself, what does part-ownership mean and what would be its value? It means nothing and has for all practical purposes no value.
Say the bank approached a “homeowner” who was struggling and said, “Ok, we’ll reduce your million dollar loan by 40% in exchange for owning 40% of the house.” Great, but what a can of worms the bank has just gotten itself into.
What if the person lives in it for the next 30 years, pays off the loan but never sells the place. Then when they die, passes their 60% ownership to one of their kids. All the while, the bank owns 40% but receives no interest or rent on their share? What’s the value to the bank? The bank also can’t sell this interest, after all who wants to buy a 40% stake in a house that you can’t live in and can’t collect rent from?
What if the person lives there for 5 years, and then puts in a pool and adds a cabana. Then two years later wants to sell. Does the bank get 20% ownership in the value of the improvements? The “homeowner” is not going to want to do improvements if that’s the case.
The most likely scenario though is that the house doesn’t appreciate any time soon, and a year or two from now the “homeowner” wants to sell. But the “owner” now only owns 60% of the house. Suppose the money from the sale is first used to pay off the loan, then there will be nothing left to compensate the bank for its share. (To see how this works, use some numbers. Imagine the original purchase was a million with nothing down. The house is now worth 600k, and the bank reduces the principle to 600k, and takes a 40% ownership. Without any appreciation, the house sells a year or two from now for 600k. That pays the loan but leaves the bank with a big fat zero for its “ownership” share)
It’s important to realize there is no new value generated by the bank taking an ownership stake in the house. All that really happens is the bank takes a loss through principle reduction, with a potential to maybe recoup some back in the future. But that potential is too dependent on the “homeowner” to be really worth much of anything.
Bottom line here is there is no free lunch that’s going to make things better. And “experts” like Taleb need to stop proposing things as if they will.
XBoxBoy
Participant[quote=jficquette]
He is saying take part ownership now in exchange for loan modifications.Basically selling part of the property to the Bank.
[/quote]If that’s true, then it’s a horrible idea for the banks.
Ask yourself, what does part-ownership mean and what would be its value? It means nothing and has for all practical purposes no value.
Say the bank approached a “homeowner” who was struggling and said, “Ok, we’ll reduce your million dollar loan by 40% in exchange for owning 40% of the house.” Great, but what a can of worms the bank has just gotten itself into.
What if the person lives in it for the next 30 years, pays off the loan but never sells the place. Then when they die, passes their 60% ownership to one of their kids. All the while, the bank owns 40% but receives no interest or rent on their share? What’s the value to the bank? The bank also can’t sell this interest, after all who wants to buy a 40% stake in a house that you can’t live in and can’t collect rent from?
What if the person lives there for 5 years, and then puts in a pool and adds a cabana. Then two years later wants to sell. Does the bank get 20% ownership in the value of the improvements? The “homeowner” is not going to want to do improvements if that’s the case.
The most likely scenario though is that the house doesn’t appreciate any time soon, and a year or two from now the “homeowner” wants to sell. But the “owner” now only owns 60% of the house. Suppose the money from the sale is first used to pay off the loan, then there will be nothing left to compensate the bank for its share. (To see how this works, use some numbers. Imagine the original purchase was a million with nothing down. The house is now worth 600k, and the bank reduces the principle to 600k, and takes a 40% ownership. Without any appreciation, the house sells a year or two from now for 600k. That pays the loan but leaves the bank with a big fat zero for its “ownership” share)
It’s important to realize there is no new value generated by the bank taking an ownership stake in the house. All that really happens is the bank takes a loss through principle reduction, with a potential to maybe recoup some back in the future. But that potential is too dependent on the “homeowner” to be really worth much of anything.
Bottom line here is there is no free lunch that’s going to make things better. And “experts” like Taleb need to stop proposing things as if they will.
XBoxBoy
Participant[quote=jficquette]
He is saying take part ownership now in exchange for loan modifications.Basically selling part of the property to the Bank.
[/quote]If that’s true, then it’s a horrible idea for the banks.
Ask yourself, what does part-ownership mean and what would be its value? It means nothing and has for all practical purposes no value.
Say the bank approached a “homeowner” who was struggling and said, “Ok, we’ll reduce your million dollar loan by 40% in exchange for owning 40% of the house.” Great, but what a can of worms the bank has just gotten itself into.
What if the person lives in it for the next 30 years, pays off the loan but never sells the place. Then when they die, passes their 60% ownership to one of their kids. All the while, the bank owns 40% but receives no interest or rent on their share? What’s the value to the bank? The bank also can’t sell this interest, after all who wants to buy a 40% stake in a house that you can’t live in and can’t collect rent from?
What if the person lives there for 5 years, and then puts in a pool and adds a cabana. Then two years later wants to sell. Does the bank get 20% ownership in the value of the improvements? The “homeowner” is not going to want to do improvements if that’s the case.
The most likely scenario though is that the house doesn’t appreciate any time soon, and a year or two from now the “homeowner” wants to sell. But the “owner” now only owns 60% of the house. Suppose the money from the sale is first used to pay off the loan, then there will be nothing left to compensate the bank for its share. (To see how this works, use some numbers. Imagine the original purchase was a million with nothing down. The house is now worth 600k, and the bank reduces the principle to 600k, and takes a 40% ownership. Without any appreciation, the house sells a year or two from now for 600k. That pays the loan but leaves the bank with a big fat zero for its “ownership” share)
It’s important to realize there is no new value generated by the bank taking an ownership stake in the house. All that really happens is the bank takes a loss through principle reduction, with a potential to maybe recoup some back in the future. But that potential is too dependent on the “homeowner” to be really worth much of anything.
Bottom line here is there is no free lunch that’s going to make things better. And “experts” like Taleb need to stop proposing things as if they will.
XBoxBoy
Participant[quote]
As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.
[/quote]When I see comments like this I just shake my head. Doesn’t Taleb understand that the bank already owns 100% of the house since the mortgage is more than the house’s market value? How can the bank take part-ownership when they already own 100% of the house?
I agree that it’s disheartening that our government leaders don’t know what’s going on, but it’s just as disheartening to see “experts” who also don’t get it.
XBoxBoy
Participant[quote]
As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.
[/quote]When I see comments like this I just shake my head. Doesn’t Taleb understand that the bank already owns 100% of the house since the mortgage is more than the house’s market value? How can the bank take part-ownership when they already own 100% of the house?
I agree that it’s disheartening that our government leaders don’t know what’s going on, but it’s just as disheartening to see “experts” who also don’t get it.
XBoxBoy
Participant[quote]
As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.
[/quote]When I see comments like this I just shake my head. Doesn’t Taleb understand that the bank already owns 100% of the house since the mortgage is more than the house’s market value? How can the bank take part-ownership when they already own 100% of the house?
I agree that it’s disheartening that our government leaders don’t know what’s going on, but it’s just as disheartening to see “experts” who also don’t get it.
XBoxBoy
Participant[quote]
As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.
[/quote]When I see comments like this I just shake my head. Doesn’t Taleb understand that the bank already owns 100% of the house since the mortgage is more than the house’s market value? How can the bank take part-ownership when they already own 100% of the house?
I agree that it’s disheartening that our government leaders don’t know what’s going on, but it’s just as disheartening to see “experts” who also don’t get it.
XBoxBoy
Participant[quote]
As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.
[/quote]When I see comments like this I just shake my head. Doesn’t Taleb understand that the bank already owns 100% of the house since the mortgage is more than the house’s market value? How can the bank take part-ownership when they already own 100% of the house?
I agree that it’s disheartening that our government leaders don’t know what’s going on, but it’s just as disheartening to see “experts” who also don’t get it.
XBoxBoy
July 2, 2009 at 3:01 PM in reply to: San Diego Home Sales about to be revised downward BIGTIME (89% to 6.5% increase in May) #424467Participant[quote=temeculaguy]The reason some of us have too much time on our hands these days is that we are in the sports doldrums…[/quote]
Temecula Guy, This is why you should not have bought in Temecula. It’s bikini season at the beach. Who cares about sports if you live near the beach.
XBoxBoy
July 2, 2009 at 3:01 PM in reply to: San Diego Home Sales about to be revised downward BIGTIME (89% to 6.5% increase in May) #424819Participant[quote=temeculaguy]The reason some of us have too much time on our hands these days is that we are in the sports doldrums…[/quote]
Temecula Guy, This is why you should not have bought in Temecula. It’s bikini season at the beach. Who cares about sports if you live near the beach.
XBoxBoy
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