View Full Version : Worse than subprime?
LargoWinch
06-20-09, 09:47 AM
Surely the stock market is discounting all of this? Or perhaps counting on the Central Banks' "put"?
... The bulk of outstanding option ARMs — a product no longer available to homebuyers — were issued between 2004 and 2007. Monthly payments on these mortgages are due to reset to a higher lending rate between 2009 and 2012...
Full article dated June 18, 2009 here. (http://www.mcclatchydc.com/227/story/70321.html)
http://media.mcclatchydc.com/smedia/2009/06/18/18/33-20090618_MORTGAGES.large.prod_affiliate.91.jpg
Kadriana
06-20-09, 10:06 AM
Scary. Slightly OT but when they calculate housing inventories, are For Sale By Owner homes included in that calculation? I don't know about other parts of the country but around here, 70%+ of houses you see for sale are by owners.
This is old news here on iTulip. The Credit Suisse charts told the story. What they didn't show was that the sub-prime loans, now having run their course, blew the frothiest fictitious equity off the top of the housing pie. The Alt-As, pick-a-payment and defaulting 30-year fixed (due to employment and debt stress) will dig deep into the pie plate itself.
karim0028
06-20-09, 11:02 AM
This is old news here on iTulip. The Credit Suisse charts told the story. What they didn't show was that the sub-prime loans, now having run their course, blew the frothiest fictitious equity off the top of the housing pie. The Alt-As, pick-a-payment and defaulting 30-year fixed (due to employment and debt stress) will dig deep into the pie plate itself.
You know its going to get worse when 100K+ folks (prime borrowers) begin contemplating/actually walking away....
Thats the latest discussions in the office and with friends.
You know its going to get worse when 100K+ folks (prime borrowers) begin contemplating/actually walking away....
Thats the latest discussions in the office and with friends.
Why would they walk? No equity or can't afford. If no equity, give me a break.
metalman
06-20-09, 12:02 PM
This is old news here on iTulip. The Credit Suisse charts told the story. What they didn't show was that the sub-prime loans, now having run their course, blew the frothiest fictitious equity off the top of the housing pie. The Alt-As, pick-a-payment and defaulting 30-year fixed (due to employment and debt stress) will dig deep into the pie plate itself.
previously covered exhaustively... (http://www.itulip.com/forums/showthread.php?t=7222)
google site:itulip.com credit suisse option arm (http://www.google.com/search?client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&channel=s&hl=en&q=site%3Aitulip.com+credit+suisse+option+arm&btnG=Google+Search)
swgprop
06-20-09, 12:12 PM
Why would they walk? No equity or can't afford. If no equity, give me a break.
Care to elucidate?
Care to elucidate?
If they can't afford the mortgage, I can understand. If they just don't like the idea that they bought a house and it's now worth less. Please. Did you think I meant anything else?
Btw: The first time I typed worth less I forgot the space: worthless.
swgprop
06-20-09, 12:38 PM
If they just don't like the idea that they bought a house and it's now worth less. Please. Did you think I meant anything else?
I'm sure there is an extensive collection of folks that indeed don't like the fact that their home is worth less than what they paid for it. That data point by itself won't induce them to walk.
What may induce them however is a broader analysis of their predicament and available options. If your monthly housing expense is say $3000 per month including mortgage, property taxes, insurance, etc. and you can reduce it to $1200 per month by renting the identical house across the street would you not consider it?
The downside is a credit smackdown. Beyond that, what? The shame of foreclosure? Welcome to a new affinity group, growing by leaps and bounds. Failure to meet your moral obligations? Please, to whom - is anyone involved with the origination of your mortgage still involved with it - or even still in existence?
I would submit that for a lot of folks the walkaway option is viable. And I would recommend it in a heartbeat over draining one's 401K to bring cash to closing if they had to sell.
I'm sure there is an extensive collection of folks that indeed don't like the fact that their home is worth less than what they paid for it. That data point by itself won't induce them to walk.
What may induce them however is a broader analysis of their predicament and available options. If your monthly housing expense is say $3000 per month including mortgage, property taxes, insurance, etc. and you can reduce it to $1200 per month by renting the identical house across the street would you not consider it?
The downside is a credit smackdown. Beyond that, what? The shame of foreclosure? Welcome to a new affinity group, growing by leaps and bounds. Failure to meet your moral obligations? Please, to whom - is anyone involved with the origination of your mortgage still involved with it - or even still in existence?
I would submit that for a lot of folks the walkaway option is viable. And I would recommend it in a heartbeat over draining one's 401K to bring cash to closing if they had to sell.
My original comment was based on what karim0028 wrote. After rereading it I'm not sure if those conversations were about themselves, or others. Banks will go for the short sales. There isn't any need to tap other assets.
karim0028
06-20-09, 01:06 PM
My original comment was based on what karim0028 wrote. After rereading it I'm not sure if those conversations were about themselves, or others. Banks will go for the short sales. There isn't any need to tap other assets.
No, im talking specifically in Cali and AZ, people making 100-200K (combined) they can afford it and they will walk when its non recourse (100K underwater or more) and they can rent for 1/2 the price. Im already seeing it happen with colleagues and its being openly discussed... They will stay rent free for a year and then go rent afterwards... Shortsale is not much better on your credit than a foreclosure. Hell even if the debt is recourse for the most part you would be better to settle if they come after you as long as you have cash you will be fine for the most part...
As for the shame of foreclosure, please...... If you have income and put a good chunk down payment you can buy half price in a couple of years...
It becomes a business decision at that point.....
karim0028
06-20-09, 01:12 PM
Ugh........
Keep in mind im not advocating it; im simply telling you what IS going to happen.... You talk about the option arms and im just telling it as i see it from within the folks in the income bracket i mentioned... Which will only add to the glut of properties coming on the market.
My original comment was based on what karim0028 wrote. After rereading it I'm not sure if those conversations were about themselves, or others. Banks will go for the short sales. There isn't any need to tap other assets.
There was a CNBC video posted here a bit ago where a man told his tale: he put down $300,000 on a $700,000 house in CA in 2006. So at the time he had a $400,000 non-recourse mortgage. The house is now worth about $300,000. Thus he has -$100,000 invested in this house. If he walks he is back to zero.
Is it irrational to walk away from -$100,000?
swgprop
06-20-09, 01:31 PM
Banks will go for the short sales. There isn't any need to tap other assets.
Servicers require information before approving a short sale. That information often includes:
Bank Statements
Pay Stubs
Tax Returns
Hardship Letter
Under Karim's posted scenario a short sale would in most cases NOT be approved due to lack of hardship. The lender/servicer would expect payments to continue or other assets tapped to make up the shortfall.
karim0028
06-20-09, 01:32 PM
There was a CNBC video posted here a bit ago where a man told his tale: he put down $300,000 on a $700,000 house in CA in 2006. So at the time he had a $400,000 non-recourse mortgage. The house is now worth about $300,000. Thus he has -$100,000 invested in this house. If he walks he is back to zero.
Is it irrational to walk away from -$100,000?
Exactly, not to mention that in AZ and Cali the law mandates that if its a purchase money loan then all the bank gets as collateral is the house.... Meaning they cant come after you for their loss, they accept that risk and supposedly factored it as a cost of doing business... The banks knew this full well and they accepted that risk... Is it so bad when someone cuts his loss but it seems to be fine (not just fine, its demanded) when a business does the same thing? If a business didnt cut its loss and mitigate its risk it would most likely be sued by shareholders for malfeasance; think of it as the same thing but on a single share holder level....
Its simply a contract, if you dont pay as per the contract the bank takes back the house... Your obligation has been kept. The bank takes the house, you accept any monetary loss you had sunk into the property.
karim0028
06-20-09, 01:45 PM
Servicers require information before approving a short sale. That information often includes:
Bank Statements
Pay Stubs
Tax Returns
Hardship Letter
Under Karim's posted scenario a short sale would in most cases NOT be approved due to lack of hardship. The lender/servicer would expect payments to continue or other assets tapped to make up the shortfall.
Bingo, if you have cash or access to cash equivalents and the bank finds out about it (through their draconian paper reqs, bank accts, 401K, income, taxes, etc, etc...); they will expect you to tap your 401K to make payments... Which is about the dumbest thing i have heard of....
And in all cases i have seen of colleagues asking to renegotiate loans (they have income and cash); banks wont even talk about it until your in default..... So either way your credit is fucked..
And if you foreclose instead of going the shortsale route, you get to stay for ~ 1 year rent free and then take that cash cushion.
I also tried going into negotiating shortsales as a side business last year but it was a pain in the @ss so i dropped it, with broke folks the bank rep (country wide) actually told a lady i was working with that may be her kids should eat a little less "as it may be better for their overall health" and that she would be a good member of society by making up the interest and principal on her loan and "maybe we can help save your credit"...
What a crock of shit.... These banks deserve everything they get, there is no good will negotiation its pure bull, they attempt to suck you dry and either way if you come current and re-default you will lose it all anyway (but this time without a cash cushion), so alot of times is better to make a clean break...
swgprop
06-20-09, 02:04 PM
And if you foreclose instead of going the shortsale route, you get to stay for ~ 1 year rent free and then take that cash cushion.
Get creative and you can push it out to 2 years easily. :cool:
vinoveri
06-20-09, 03:32 PM
Its simply a contract, if you dont pay as per the contract the bank takes back the house... Your obligation has been kept. The bank takes the house, you accept any monetary loss you had sunk into the property.
ah yes, so far so good, but you forgot the next step in the process, which has becomse a sticking point ... when the bank becomes insolvent because of many of these bad loan write-offs, instead of going bankrupt and into receivership and managed by the FDIC, according to the law, wiping out shareholders and a good many bondholders, the bank gets bailed out by taxpayers to continue in existence.
no one trusts "anyone" anymore, and the moral hazard which has been perpetrated and elevated as a result of what's going on means our society is going to rapidly devolve into gambling, fraud and graft, and generally "whatever I can get away with, I'm going to do" mentality.
Get creative and you can push it out to 2 years easily. :cool:
Care to elaborate?
-Thanks
Kadriana
06-20-09, 03:44 PM
Care to elaborate?
-Thanks
A lot of banks are letting you continue to live in your house even if you're paying such a small amount because it's cheaper for them to have you keep up the house and wait for things to turn around instead of having the house go in disrepair and sell it for nothing.
Keep in mind im not advocating it; im simply telling you what IS going to happen.... You talk about the option arms and im just telling it as i see it from within the folks in the income bracket i mentioned... Which will only add to the glut of properties coming on the market.
And, these more expensive houses will raise the median home sale price in the short-mid term. So, MM will report things are improving, when in fact they are getting worse.
( e.g.: A short sale of a formerly $1 million dollar home for $500,000 raises the median home sales price, but hides the truly enormous loss. This will be one of the "green shoots".)
A lot of banks are letting you continue to live in your house even if you're paying such a small amount because it's cheaper for them to have you keep up the house and wait for things to turn around instead of having the house go in disrepair and sell it for nothing.
Can you define a small amount? Is this negotiated before the home goes to foreclosure, or after?
Kadriana
06-20-09, 04:22 PM
Can you define a small amount? Is this negotiated before the home goes to foreclosure, or after?
I think it was as low as $50. I forget where I read it. I'll try and find it again. I'm not sure if it was before or after foreclosure. I'm starting to feel like we're the dumb ones sometimes though where we're still paying on our house that we got in 2005.
ETA: I can't find it anymore. I ust remembering reading some where that if you were at least paying a partial payment, that banks weren't in a huge rush to kick you out where they already have a huge supply. I don't know how accurate that is where I can't find the original source.
I must admit, I am really happy to hear that people are starting to walk away from their houses. It gives me hope that there are people out there who still know some basic math.
FIRE advertised, promoted, lobbied for, and lied to get people to believe HOUSE = SAVINGS = INVESTMENT
Well, FIRE can now enjoy a million enlightened "investors" who will cut their losses and walk.
I believe there is a side-effect to all of this: extra money goes into the consumer (real?) economy for every foreclosure. If you can live rent free for a year, this may be as much as $50,000 dollars in extra cash flow spent into the economy. And then when you do start renting, your payments are 50 - 75% of your former mortgage. You might even be able to afford that new car (to keep up appearances). Of course, the net effect for the country is more wealth concentration, but the temporary boost to our economy might not be inconsequential. Or, this extra cash might be used to 'invest' in the stock market now that it has "corrected" and there are "green shoots". Or, these higher earners will just spend like normal (best chance). This would be inflationary as best I can tell.
1 million homes * $20,000 in free rent spent on crap = $20 billion power-inflation-money. Does every foreclosure save a U.S. job?
karim0028
06-20-09, 04:44 PM
ah yes, so far so good, but you forgot the next step in the process, which has becomse a sticking point ... when the bank becomes insolvent because of many of these bad loan write-offs, instead of going bankrupt and into receivership and managed by the FDIC, according to the law, wiping out shareholders and a good many bondholders, the bank gets bailed out by taxpayers to continue in existence.
no one trusts "anyone" anymore, and the moral hazard which has been perpetrated and elevated as a result of what's going on means our society is going to rapidly devolve into gambling, fraud and graft, and generally "whatever I can get away with, I'm going to do" mentality.
I agree; but, that is what the govt set in motion, to play by the rules when the rules just got rigged is plain stupid, bc everyone else will make out like a bandit and the person who played by the rules ends up broke.... When J6P finds out that he is screwed either way; he will walk. The money the banks got would have been enough to cancel almost every mortgage in the US, but instead the banks simply get to have it....
Debt that cannot be repaid will not be repaid. My friend at work was just telling me yesterday that he feels like he got screwed by playing by the rules, has a good high paying job, bought house, paid 30% down, now underwater by 80K and his colleague just told him that he walked away and bought a house in his wife's name and credit... While he sits there trying to negotiate w/ the bank about simply changing to 30 yr fixed (not asking for shortsale or principal reduction).....
He is loaded up on gold and has cash, now he's contemplating walking...
Another house on the market in an upper middle class area....
If banks start to aggressively go after people for the mortgage debt i would venture to guess that we would have a large scale migration to other countries in order to escape debt servitude.
swgprop
06-20-09, 04:54 PM
Care to elaborate?
-Thanks
The automatic stay provisions of bankruptcy law stop a foreclosure from proceeding to sale. By filing chapter 13, filing the required documents, disclosures, submitting a plan etc. will extend matters by months. Once a repayment plan is confirmed, should you fail to stick to the plan another few months will go by before the trustee files an order for dismissal or the servicer files for relief of stay.
Now the foreclosure resumes. Now you get creative. The Bankruptcy Abuse Prevention and Consumer Protection Act, passed in October 2005 presents some barriers but the system still gets gamed. Here (http://tinyurl.com/mw9h55) are some examples of system abuse in an article written prior to the 2005 act, however these types of delaying tactics still continue - at least from what I've seen in CA.
I'm not advocating frivolous BK filings, I'm just pointing out what I've experienced.
I think it was as low as $50. I forget where I read it. I'll try and find it again. I'm not sure if it was before or after foreclosure. I'm starting to feel like we're the dumb ones sometimes though where we're still paying on our house that we got in 2005.
ETA: I can't find it anymore. I ust remembering reading some where that if you were at least paying a partial payment, that banks weren't in a huge rush to kick you out where they already have a huge supply. I don't know how accurate that is where I can't find the original source.
Thanks.
I hope you are not alone. I realized how dumb it was a few months ago. Moreover, I do have some moral qualms about feeding FIRE before my own kids. I know some might cry that the bankers have to feed their kids too. That is what TARP is for (and the trillion they've fleeced from us over the past decade). In other words, fuck them.
I am not sure how long non-recourse will be non-recourse. Contract law does not seem to apply in the U.S. anymore, and I am especially worried now that most loans are owned directly, or indirectly by our government. So, not only do I think that walking away is a good thing, I think the window to do so may not be open forever. (think Mortgage Czar working out of the IRS)
Servicers require information before approving a short sale. That information often includes:
Bank Statements
Pay Stubs
Tax Returns
Hardship Letter
Under Karim's posted scenario a short sale would in most cases NOT be approved due to lack of hardship. The lender/servicer would expect payments to continue or other assets tapped to make up the shortfall.
And, don't forget to mention that it is virtually impossible to settle on a house in a timely manner when you have to get in line to beg your bank's "investor" to allow the short sale.
The ongoing flood of mortgage resets, people walking away from their homes, foreclosures, etc. is the main thing that makes me wonder whether serious inflation is on the horizon.
Don't we still have a huge amount of debt deflation ahead?
metalman
06-20-09, 05:41 PM
The ongoing flood of mortgage resets, people walking away from their homes, foreclosures, etc. is the main thing that makes me wonder whether serious inflation is on the horizon.
Don't we still have a huge amount of debt deflation ahead?
but deflating debt against the currency is the foolproof way. (http://www.google.com/search?client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&channel=s&hl=en&q=site%3Aitulip.com+liquidity+trap+foolproof+escap e&btnG=Google+Search)
The ongoing flood of mortgage resets, people walking away from their homes, foreclosures, etc. is the main thing that makes me wonder whether serious inflation is on the horizon.
Don't we still have a huge amount of debt deflation ahead?
I do not know even know what debt deflation is anymore. I can only see what is on the ground and use simple logic. Only a small percentage of higher income professionals have lost their jobs. The remainder have a lot more money to spend on average since they can tap into their "foreclosure equity". Perhaps home equity was a big part of spending until 2006, although I have my doubts in relation to prime borrowers. But, I can see "foreclosed equity" being a strong driver of spending for this group going forward. Heck, they may even be smart enough to buy some gold!
metalman
06-20-09, 06:17 PM
I do not know even know what debt deflation is anymore. I can only see what is on the ground and use simple logic. Only a small percentage of higher income professionals have lost their jobs. The remainder have a lot more money to spend on average since they can tap into their "foreclosure equity". Perhaps home equity was a big part of spending until 2006, although I have my doubts in relation to prime borrowers. But, I can see "foreclosed equity" being a strong driver of spending for this group going forward. Heck, they may even be smart enough to buy some gold!
what is debt deflation? (http://www.google.com/search?client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&channel=s&hl=en&q=site%3Aitulip.com+debt+deflation+keen&btnG=Google+Search)
J: What is you definition of debt deflation?
K: Okay. A debt deflation is where you have an unsustainable level of debt in an economy, so a level that has already caused a crisis and therefore the types of affects we’re seeing with a credit crunch start to occur. And those are regarded as threefold. First of all people try to reduce their debt. Secondly, banks that were allowing a large rate of creation of new money are no longer willing to allow the creation to occur, certainly not at the same rate. And thirdly the banks are tempted to in turn reduce available funds for re-lending that in particular drops drastically. So rather than going to an airport and having to fight your way past half a dozen booths that are trying to give you a new credit card, suddenly credit cards scarce and you’ll find your credit card limits being reduced rather than expanded.
aps1087
06-20-09, 09:47 PM
Walking away wouldn't necessarily be so bad if it weren't for the fact that the taxpayer has to pick up the tab for losses. When you sit in your home mortgage free, do you really think that is free? Someone is paying for it, and it won't be the banks.
Servicers require information before approving a short sale. That information often includes:
Bank Statements
Pay Stubs
Tax Returns
Hardship Letter
Under Karim's posted scenario a short sale would in most cases NOT be approved due to lack of hardship. The lender/servicer would expect payments to continue or other assets tapped to make up the shortfall.
With all due respect to you and the information you have provided. The bank in the end will okay the short sale. If you have money they say will ask you to put some skin in the game. In the end they hold NO CARDS.
flintlock
06-20-09, 11:19 PM
I have no problem with people in places like California walking away, where you put $300k down and still are upside down. :eek: The bank gets its collateral back, and the whole market was so manipulated, I don't think people should have to lose everything because they were duped into thinking our economy was based on reality. :D But living there for 2 years without paying? That's a different story.
I know a buddy who made it almost 20 months without a payment before he got kicked out of his house. And that was three years ago! He was trying to work a short sale but couldn't make it happen.
swgprop
06-21-09, 11:23 AM
With all due respect to you and the information you have provided. The bank in the end will okay the short sale. If you have money they say will ask you to put some skin in the game. In the end they hold NO CARDS.
I agree, in most cases they have only one hammer, they can take the house, no bargaining position beyond that. Doesn't mean they will always take the logical path however. If logic dictated business practices we wouldn't be in this mess.
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