Report shows strategic defaults increasing

User Forum Topic
Submitted by Arraya on March 27, 2010 - 5:04pm

http://blogs.reuters.com/rolfe-winkler/2...

How widespread are strategic defaults? Laurie Goodman and her team at Amherst Mortgage Insight yesterday released a report that shows they are indeed on the rise and for reasons we might suspect: negative equity and a more borrower-friendly environment.

The second reason should be kept in mind as we consider President Obama’s soon-to-be-announced plan to encourage principal reduction. If the plan is structured so that it gives incentives to default in order to secure principal forgiveness, well, expect defaults to spike.

Strategic default isn’t necessarily synonymous with mailing your keys to the bank and walking away. It may simply mean a borrower choosing to stop payments to the bank when economic incentives would have him do so. Amherst has come up with a novel metric to measure strategic default — the “default transition rate.” DTR looks at the percentage of borrowers who’ve never been more than one payment behind on their mortgage suddenly missing two payments in a row.

Lo and behold, negative equity leads more folks to strategically default, regardless of their credit score and whether they took out a liar loan:

Submitted by briansd1 on April 5, 2010 - 7:35pm.

SD Realtor wrote:
If people want to stop paying and feel good about living for free then that is their prerogative. Why stop there though. The same opportunity is available with credit cards as well.

Considering that credit card companies are charging 20% to 30% (all in a near 0% interest rate environment) and they get paid 2% to 5% of every transaction, the risk premiums should be already built-in.

Submitted by scaredyclassic on April 5, 2010 - 9:48pm.

the news says people aren't paying their mortgages but they are paying their credit cards. kind of intriguing, really. credit card credit is worth something, but the house is a f**cking anchor around your neck. weird!

Submitted by flu on April 5, 2010 - 10:20pm.

SDR,

Actually, one positive note about people having more disposable income...They're actually spending...Now just need to figure out how to channel some of that discretionary spending into your own pockets....Once a poor saver, always a poor saver imho....

I'm pretty jovial at how things are going. Have you seen how crazy people are? Those ridiculous iPads flying off the shelf...Comscores showing significant increase in smartphone spending....

http://www.comscore.com/Press_Events/Pre...

Hell, I'm pretty happy people are wasting money on this crap and indirectly making my services more in demand .Because I'm sure as not spending on all this crap to support myself :)

Submitted by briansd1 on April 5, 2010 - 10:36pm.

flu wrote:
Those ridiculous iPads flying off the shelf...Comscores showing significant increase in smartphone spending....

http://www.comscore.com/Press_Events/Pre...

I didn't think people would open up their wallets for more mobile services.

But I've come to realize that it's a lifestyle thing driven by kids with texting and mobile internet.

I resisted texting for a long time, but I now need it to communicate with friends and relatives. Of course with the iPhone and all the other smart phones out there, a $30 data plan is compulsory. Add texting that that's an extra $50.

It's an affordable luxury. Consumers are now hit with so many affordable luxuries that it's hard to keep up.

Of course, without increasing home equity to finance it all, people can't make the mortgage payment but the feel that those affordable luxuries are now necessities of life.

I'm not seeing people line-drying their clothes to save money or eating at home. They go out just as much as before, albeit to cheaper restaurants.

Submitted by scaredyclassic on April 5, 2010 - 11:02pm.

funny you should mention line drying; i just bought an iphone last weekend and also line dried my clothes tonight! I love the damned iphone. i love it so much i could kiss it. ive only had it one week but im certain i will always have it or something comaprable on my person for the remainder of my existence. maybe the line drying and ironing of shirts will pay for half or thereabouts...totally worth it. life is so incoherent you need a phone to pull yourself togetehr...

also we ate home tonight ona night we might ordinarily go out. i guess one meal out for the family is my whole monthly iphone bill easy. it was more laziness than cheapness for eating in.

that iphone boy; it sure is loveable. i've taken more picures/videos of my kdis int he last few days than I have in 5 years. cause it's all in the phone! neat! i cannot carry more than one device. i just love it! now where is the piggingotn iphone app?

Submitted by jpinpb on April 6, 2010 - 6:57am.

scaredycat wrote:
the news says people aren't paying their mortgages but they are paying their credit cards. kind of intriguing, really. credit card credit is worth something, but the house is a f**cking anchor around your neck. weird!

HA! The irony. And explain that. Your credit is shot anyway. Stop paying the credit cards. Still pay the car. You need to drive something and they'll come take that. Wait a minute. Credit cards recourse? They'll attach wages or accounts? That could be your answer.

flu wrote:
Actually, one positive note about people having more disposable income...They're actually spending...

That's what I've been saying. IMO our economy would not be doing as well as it is were it not for the extra money people have as a result of not paying their mortgage and therefore, spending it elsewhere.

scaredycat wrote:
now where is the piggingotn iphone app?

LOL. We need a budget app.

Submitted by UCGal on April 6, 2010 - 7:56am.

briansd1 wrote:
flu wrote:
Those ridiculous iPads flying off the shelf...Comscores showing significant increase in smartphone spending....

http://www.comscore.com/Press_Events/Pre...

I didn't think people would open up their wallets for more mobile services.

But I've come to realize that it's a lifestyle thing driven by kids with texting and mobile internet.

I resisted texting for a long time, but I now need it to communicate with friends and relatives. Of course with the iPhone and all the other smart phones out there, a $30 data plan is compulsory. Add texting that that's an extra $50.

It's an affordable luxury. Consumers are now hit with so many affordable luxuries that it's hard to keep up.

Of course, without increasing home equity to finance it all, people can't make the mortgage payment but the feel that those affordable luxuries are now necessities of life.

I'm not seeing people line-drying their clothes to save money or eating at home. They go out just as much as before, albeit to cheaper restaurants.

I also benefit, professionally, from the way people spend on what I consider non-essentials. And I'm WAY to cheap to pay for a data plan for my phone. I have acquaintances who are on the brink of bankruptcy - but justify their smart phones w/data plans, their full package cable/satellite bills, and insist on putting their kids in Gap and Gymbo clothes... I roll my eyes when I hear how broke they are. It's like the government - they don't have an income problem, they have a spending problem.

I'm waiting for everyone to rush out to get 3-d capable tv's... Most folks I know just recently upgraded to flat panel... and now their tv's will be out of date because 3-d is the next big thing... I give it 2-3 years before we're being told we can't live without 3d tvs to replace our new HD tvs.

Oh - and I line dry about 1/2 of my family's laundry... Too labor intensive for socks/undies... but for sheets/towels/pants/t-shirts - it's easy... It's free, zero carbon footprint, clothes smell fresh... I love it. My husband was surprised that I actually use the lines as much as I do... he expected it to be fad but we're going on 3 years of 2-4 loads a week getting line dried.

Submitted by BillS78 on April 22, 2010 - 9:34pm.

patientrenter wrote:
BillS78 wrote:
......

SD Realtor wrote:
Fifth, Bill did you stop making payments because of a hardship? Did you lose your job? Did you suffer some medical hardship? Were you defrauded by somebody? Did something happen to you that severely reduced your cash flow? Can you explain exactly why you stopped paying?
Because I felt like it and it is well within my rights under the purchase agreement. My number one priority as the CEO of myself is to maximize my shareholders' wealth. Didn't you get the memo? Corporations are people now, and we're all individual corporations.

I figured that posting my experience here would bother some but I didn't realize people like you and Swine Flu would be such little bitches about it. This is getting boring, have fun telling other people how to live their lives.

It is good to hear what's actually happening out there. For those like myself and SDR (and a few others) who don't really like the idea of having less careful and less responsible people getting rewards for their behavior, paid for by people like us, it is very trying to see their actions and their attitude.

When next we hear that poor unfortunate homeowners need to be bailed out with another trillion dollars of our money, we will be that much less sympathetic. Of course, we will be outvoted, but we will be less sympathetic, maybe even completely unsympathetic.

I thought I'd check back in after reading so many articles on strategic defaults in the last two weeks.

Why in the world don't you people understand that it's the banks and lenders that have been bailed out, not the homeowners. TARP was a bank bailout and HAMP is completely voluntary for lenders, they only agree if it's best for them. I've been advised that the modifications just screw the homeowner, same with short sales. The lawyer that I spoke with told me that neither option is worth pursuing and that lenders try to write in recourse language. It's just another banking scam.

Lenders created this mess and they and realtors profited from it. I'm against TARP and HAMP, the banks should have been allowed to fail. I haven't been bailed out and I'm not looking for a bailout, I'm just following the terms stated in the purchase contract. The ball is in my lenders court, I'm waiting for them to make their move.

Submitted by BillS78 on April 22, 2010 - 10:00pm.

SD Realtor wrote:
Look, extension of credit is extension of credit. I am loaning you money and you promise to pay me back or return the asset I loaned you the money for.
This is not true, no surprise here I expect realtors to lie.

There is no promise in the sales contract for the buyer to "return the asset the lender loaned the borrower the money for". There is a lot of legal speak defining the options the lender has for recovering the property if the borrower fails to pay, but there is no promise to return the asset.

It's the lender's obligation to go through the legal process to recover the asset that is the collateral for the loan.

Try being honest for a change.

Submitted by Arraya on April 22, 2010 - 10:06pm.

BillS78 wrote:

Why in the world don't you people understand that it's the banks and lenders that have been bailed out, not the homeowners. TARP was a bank bailout and HAMP is completely voluntary for lenders, they only agree if it's best for them. I've been advised that the modifications just screw the homeowner, same with short sales. The lawyer that I spoke with told me that neither option is worth pursuing and that lenders try to write in recourse language. It's just another banking scam.
.

Well this is what I've been saying for months. No homeowners are getting "help", the are getting screwed over again.

Hopefully the 10s of thousands, in SD, in the same position as bill are in, wise up and don't take the help that everybody is complaining about

Submitted by BillS78 on April 22, 2010 - 10:40pm.

UCGal wrote:
After a week long vacation I came back to this monster long thread.

A couple of thoughts.
* I agree with everything CAR said. The bailouts actually hurt us, longterm. We'd have been better off without them.

* I'm troubled that someone who has no financial hardship thinks it's morally ok to just stop paying. I, personally, couldn't do it. I'm sure I'll be called a ball-less bitch for admitting that I like to honor my word and contractual obligations.

* I keep thinking of the contractor I'm in litigation with. He received his NOD on his house in Oct. His NOT in Dec. He's had 2 extensions on his trustee sale. He doesn't qualify for HAMP because his loan's too high. Yet he's living rent free. I actually have a slight bit more sympathy for him since he's faced financial hardship (contracting sucks these days)... But I still feel strongly that he shouldn't get free rent. It bothers the crap out of me that my tax dollars are helping subsidize people who have the capacity to meet their contractual obligations but selfishly choose not to.

Bill - what you're doing is legal. In my book, it's not moral.

I don't have a problem with your opinion, morality is subjective. I think anyone who willingly joins the military to go fight in Iraq or Afghanistan are murderers and Bush is a war criminal. We can disagree. The problem I have is with people like SDR who are dishonest hypocrites. He has to lie to sell his position. That's just sad.

You are very misguided when you complain about your tax dollars subsidizing people like me. Your tax dollars are subsidizing banks. I could have mailed in my keys over a year ago and the bank would probably still be sitting on the property.

I'm doing my neighborhood and lender a favor by keeping my house looking great.

Submitted by sdrealtor on April 22, 2010 - 10:36pm.

That lawyer was probably a BK lawyer and I'm guessing that just maybe he thinks BK is the solution to everyone's problems.

I've seen odifications that greatly help homeowners and I've seen them that tdo nothing to help homeowners. I've seen (and done) short sales that greatly help homeowners and I've seen homeowners get screwed in short sales by agents that dont know what they are doing.

real example: I got a call about someone that was about to lose their home to foreclosure in 3 days. They had refinanced a few hundred thousand out of their longtime home in OC. The house was worth slightly more than the outstanding debt to the 1st. The first was about to foreclose and the recourse 2nd would have been wiped out. The sellers would have been liable for about $250,000. I got the first to postpone the sale for 45 days and said they would be paid in full without incurring foreclosure fees. I would also get all their penalties and fees incurred thus far paid. They gave me the chance to get it done. I got the property sold in 2 days at a price which left over $20,000 toward the 2nd. The sellers contributed $7,500 more out of their own pockets and the 2nd lender granted them a full written release. We closed exactly 45 days later and had we not made it, it would have gotten foreclosed on the 46th day. For $7,500 the sellers escaped a $250,000 deficiency judgement which would have forced them into BK. One of the sellers was an attorney who worked for the attorney general in Sacramento. Her career would have been over. The lawyer who was my client thanked me for saving her career and wiping out her family. I guess this is yet another homeowner who got screwed doing a short sale.

Blanket statements are worthless. Every situation is unique and needs to be evaluated on its own merits.

Submitted by Arraya on April 22, 2010 - 10:54pm.

Accountants say rising numbers of California taxpayers who did short sales or received loan modifications in 2009 now fear they will be walloped anew by a cash-starved state government intent on taxing their forgiven debt.

Read more: http://www.fresnobee.com/2010/03/06/1849...

Submitted by SD Realtor on April 22, 2010 - 10:58pm.

Bill there is nothing that I have lied about. Nor has there been anything that I am hypocritical about. Yes the majority of the bailout money is going to the banks and Wall St. I know that, I have posted about it all the time. It is pathetic and is yet another display about how Wall St is in the hip pocket of the govt. Yet there are people who have been bailed out and had loan modifications. Those modifications in most cases will only further bury those people in debt. They are idiots for taking the mods. The only one making money off of them is the lender.

Yes you could have mailed in your keys and perhaps the property would sit empty. However you would be living in an apartment paying rent and obviously that is an inconvenience for you. Yes you are taking advantage of your situation. Every day people pick and choose on what loans they will repay and what loans they will not. It doesn't matter if it is a credit card, a car payment, or a home. Some people have true hardship and cannot pay, and some don't. I think people who walk on loans for pure business decisions do so for good reasons. Those who walk away from the asset or short sell or give it back, I get that and applaud them for showing some integrity in the wake of a purchase they should not have made. You chose to pay most bills and walked on your home and brag about what a great rockstar life you lead while you still live there. There is no shame in your tone, nor remorse or regret, just proud banter about the life you lead. Oh and anger and vitriol for being called a deadbeat. Fantastic and good for you, like I said... Tell your kids and family and friends about it. I am sure you are the envy of them all. They all probably say wow I wish I could be like Bill. Yet you are still a deadbeat in my eyes. Kind like my 5 year old... he takes advantage of situations until he is taken care of by his parents. You will take advantage until the bank kicks you out. You could short sell, you could mail in the keys, you could go rent but you don't because it is advantageous for you. Wow you are keeping the neighborhood up by watering the lawn. Kudos, in your eyes your a saint. In mine you are a deadbeat, but a deadbeat with a nice lawn.

Submitted by Aecetia on April 22, 2010 - 11:21pm.

SDR,

You are way too polite.

Submitted by sdrealtor on April 22, 2010 - 11:24pm.

Arraya
Open mouth...insert foot buddy!! You should be careful when you quote month old articles. The governator just signed the bill last week that eliminated the state income on forgiven mortgage debt for primary residences in most of these cases.

Better luck next time...

Submitted by Arraya on April 22, 2010 - 11:36pm.

....lol... Thanks for the update. I'm surprised you had time with you saving so many lives realtoring and all

Submitted by sdrealtor on April 22, 2010 - 11:40pm.

Atta boy! When completely discredited, try insults and sarcasm.

I'd love to see some original thoughts from you. I know you must be capable of more than the rampant cutting and pasting of articles you so enjoy. Give it a try sometime....you might enjoy it.

By the way I look more like Mel Gibson than Christopher Reed;)

Submitted by BillS78 on April 23, 2010 - 1:46am.

SD Realtor you are a liar and a hypocrite. Here's a few quotes of your lies.

SD Realtor wrote:
Yes they are living for free. Just remember you are paying for them. As will everyone else in your family who pays federal taxes.
The TARP money went to banks not home owners, you know this and yet you continue to lie about it. We are paying for banks and lenders. No one's federal taxes are paying for me. I made it clear from my first post that I wasn't looking for a loan mod. I bet I pay more federal taxes than you do.

SD Realtor wrote:
Bill there is nothing that I have lied about.
B.S. That's a good one.

SD Realtor wrote:
Look, extension of credit is extension of credit. I am loaning you money and you promise to pay me back or return the asset I loaned you the money for.
Wrong, you know for damn sure that there is no promise to return the asset. This lie of yours just fits in with your "mail in the keys" mantra.

You are a hypocrite because your excuse for profiting off your clients' poor decisions to buy overpriced real estate was to say "I didn't force anyone to do anything" while expecting me to not profit off my lender's poor decision. I haven't forced my lender to let me live here for free. I haven't forced anyone to do anything.

You are a pathetic hypocrite. Either your clients and my lender have the free will to make their own decisions or they don't. Only a hypocrite like you wants to chose who's legal free will is right or wrong. If you wanted to be so high and mighty you should have taken yourself out of the transactions and not taken the commissions. You have no problem profiting off your clients' poor decisions just like I have no problem profiting off my lender's decision to let me stay.

You say it's not your job to convince people not to buy, well it's not my job to force my lender to foreclose or to mail in my keys.

Get it hypocrite? Probably not, being a lying hypocrite is a requirement for being a realtor.

Submitted by IForget on April 23, 2010 - 5:44am.

sdrealtor wrote:
For $7,500 the sellers escaped a $250,000 deficiency judgement which would have forced them into BK.

How often do banks pursue deficiency judgements? Do you have any idea?

My guess is no. Good thing most of your clients are idiots.

Submitted by jpinpb on April 23, 2010 - 6:34am.

BillS78 wrote:
I haven't been bailed out and I'm not looking for a bailout, I'm just following the terms stated in the purchase contract. The ball is in my lenders court, I'm waiting for them to make their move.

Bill - indirectly you are being bailed out. Because of the fact the banks got money from the government (taxpayers) they are not foreclosing on you as soon as they normally would. Had they not gotten a bail out, you would have been on the streets a lot sooner. Hence, their bail out becomes your bail out indirectly in the the form of the ability to live there for free for an indefinite period of time.

Yes, you are following the contract, but the bank's bailout thereby becomes your bailout b/c of their inaction. Their inaction is b/c they are in no hurry since we gave them a shitload of money for their pain and stupidity and greed.

Arraya wrote:

Well this is what I've been saying for months. No homeowners are getting "help", the are getting screwed over again.

My gf did a short sale after living in her place for a minimum of 8 months w/no NOD. Her credit will suffer for 2 years. It was strictly a purchase loan, no HELOC. She consulted an attorney. She has no and will have no other reprecussions other than her credit is shot for 2 years. At the rate of this recovery she will be able to buy a house for what she bought the condo for at peak. I'd say 8 months of living free and only suffering bad credit for a couple of years is "help" not getting screwed.

Anyone really getting screwed are the taxpayers and renters.

BillS78 wrote:

You are very misguided when you complain about your tax dollars subsidizing people like me. Your tax dollars are subsidizing banks. I could have mailed in my keys over a year ago and the bank would probably still be sitting on the property..

As I said, indirectly we are subsidizing you. If the banks weren't bailed out, trust me, they would've acted quickly and swiftly in booting you to the curb.

BillS78 wrote:

I'm doing my neighborhood and lender a favor by keeping my house looking great.

Very neighborly of you.

Submitted by Arraya on April 23, 2010 - 7:03am.

I never saw anything wrong with short sales, except that article. My main warning as per my posts is principle reductions becoming recourse loans.

Submitted by jpinpb on April 23, 2010 - 7:15am.

Okay. Then I'm w/you. I agree that if I were in their shoes, I'd be concerned w/loan mods and/or principle reductions becoming recourse.

Submitted by AN on April 23, 2010 - 7:34am.

How's loan mods and/or principle reductions causing the loan to become recourse any different than refinancing causes the loan to become recourse?

Submitted by sdrealtor on April 23, 2010 - 7:54am.

Exactly! Loan mods are just like refinancing which both help people stay in homes they want to stay in. Also, you didnt even consider that a very high proportion of the loans getting modified were refinanced loans that already had recourse.

Submitted by briansd1 on April 23, 2010 - 8:02am.

Recourse or non-recourse mean nothing. CA has a one-action rule. If the lender forecloses, there's nothing else that the lender can do

Despite some stories in the press about people in Florida or other states, I've not heard of any lender collecting on anyone thanks to a recourse loan, in California.

Submitted by Arraya on April 23, 2010 - 8:03am.

AN wrote:
How's loan mods and/or principle reductions causing the loan to become recourse any different than refinancing causes the loan to become recourse?

It's not, that's the point. It's a high risk move given market dynamics. The risk far outweighs the reward.

Submitted by briansd1 on April 23, 2010 - 8:11am.

jpinpb wrote:

Bill - indirectly you are being bailed out. Because of the fact the banks got money from the government (taxpayers) they are not foreclosing on you as soon as they normally would. Had they not gotten a bail out, you would have been on the streets a lot sooner. Hence, their bail out becomes your bail out indirectly in the the form of the ability to live there for free for an indefinite period of time.

I don't begrudge Bill getting indirectly bailed out. We should be angry at the bank more than Bill since the banks go direct bailouts.

The banks could do anything with that bailout money, including pay multi-million dollar salaries and bonuses.

We live in an electronic age where the mortgages get sold over and over again; and the paperwork gets lost in cyberspace.

I believe that had the banks collapsed en masse, overnight, people have have been laid off, and computer systems shut off.

The paperwork would have been lost. And foreclosures would have been delayed for years. The banks cannot foreclose if they cannot produce the paperwork to prove that they are owed money.

Submitted by Arraya on April 23, 2010 - 8:44am.

jpinpb wrote:

Bill - indirectly you are being bailed out. Because of the fact the banks got money from the government (taxpayers) they are not foreclosing on you as soon as they normally would. Had they not gotten a bail out, you would have been on the streets a lot sooner. Hence, their bail out becomes your bail out indirectly in the the form of the ability to live there for free for an indefinite period of time.

Yes, you are following the contract, but the bank's bailout thereby becomes your bailout b/c of their inaction. Their inaction is b/c they are in no hurry since we gave them a shitload of money for their pain and stupidity and greed.

First of all, if no bailout had been made, you have no idea that amount of mess that would be made or the amount of time Bill could have stayed in that home.

We know foreclosures would have been much greater and home prices would have fallen much more spurring even more defaults and a deflationary spiral.

For all you know he could have stayed in the home for 4 years. you just can't make that claim with any certainty.

Second, we all know if Bill moved out or the other 7 million people for that matter, the amount of money allocated to the banks would not be different. So you can't say he is indirectly being bailed out only that he is personally benefiting from a screwed up situation that would have been equally as costly if his actions have changed. Put another way, Bills living in the home for free is not driving bailouts. So why should anybody care if he does it, unless you are jealous.

Submitted by jpinpb on April 23, 2010 - 9:02am.

Jealous? No. Resentful that my tax dollars go towards supporting the greed and stupidity of others, bankers or whoever contributed to this mess, yes.

I think if the banks were not being subsidized, they would want to act quickly to remove any non performing loans and start to generate income. I think in a free market, most businesses would want to act immediately to get revenues. I know that in today's times that just sounds like crazy talk.

Clearly from all the multiple offers I keep hearing about, there are people wanting to buy these homes from the banks. If we are hearing about it, I'm sure the banks are also. They know there are people out there ready and waiting to buy their nonperforming asset. Why are they not selling? Well, why should they? They are being compensated to do nothing. The joke's on us.

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