Consequences of Massive Bailouts

Wouldn't this be the consequence of all the things that first led to the sitution of the bailouts (e.g. lobbyists, politicans, deregulation, underwriters, appraisals, investulators, bundled loans, etc etc)

Bailouts have nothing to do with it - people made bad choices and are now continuing to make bad choices and try to work the system.

Read the whole article and you will find that they are in this pickle because they kept borrowing against their minimal equity - in one case to buy a car to offer as a prize! :angry:

Scooter, I agree with you that people made bad choices. Buy I no longer agree with you that they are continuing to make bad choices. I know longer believe in the "moral" stigma that we see attached to someone who makes a rational business decision.

When the ultrarich (e.g. Donald Trump) find themselves on the wrong side of market conditions they don't keep throwing good money after bad and they don't let emotion or morals cloud their judgement. They "work the system" and start over. It's not personal- it's business.

I have a friend who was professionally advised a year ago to stop paying on his house. But he refused this course of action because it didn't *feel* right. A year later he is wiped out, umemployed and not paying on his mortgage because he paid on it until he could pay no more. Cashed out all investments and what little savings he had to keep paying on it as long as he could
because it was the "moral" thing to do. And as it has worked out- the stupid thing to do.

I think there is a big difference between not paying the mortgage and wisely using that money to regain your financial footing and not paying the mortgage, living frivolously, not changing your ways, and trying to justify it.

Filling up your gas guzzling airboat vs. paying other outstanding bills. :roll:

The King of Bankrupcty - very smart man. I also just read a stat that 59% of homeowners who are upsidedown would never consider walking away. That leaves 41% and I would guess a fairly large percentage of those would rather keep their homes and modify than leave due to foreclosure. I've said before, there are many variables to this equation and it doesn't just fall on the homeowner. Typically, when we move in a financial recession, we know what to expect, but this one took many by surprise, and like Trump, added to their debt loads while trying to float. Some will make it, some won't.

Donald Trump - Wikipedia, the free encyclopedia

Um, that needs some severe editing.

Holy Smokes, not sure what happened with that text.

Nothing wrong with skirting the rules and trying to survive. There are side effects to this, the credit ratings of the folks in the NYT article are dropping like rocks every time they miss a payment. In the end, they'll likely push the limits too far, lose the house, and have to rent. They won't purchase another house for years.

Geo, your friend's credit is ruined, he'll not be able to purchase a house for quite some time as well. Once he's shown the ability to make better decisions he'll have the chance to purchase again.

Even the people getting bailed out by the government are defaulting at significant rates and their credit is getting destroyed. Such is life.. lessons learned.

The thing that angers me the most - FHA insured loans that are being made today by Freddie and Fannie, which make up a majority of the loans being issued. A lot of these loans are headed into foreclosure because the politicians in Washington are allowing the FHA to underwrite people who can't afford the payments, and F&F are government owned now, so they have a congressionally sanctioned bottomless pit of funding (courtesy of the democrats in power I might add). In the end we all have to pick up the tab. But even in these cases, credit ratings get destroyed, and all the people making bad decisions right now will pay a heavy heavy price.

Here's the rub, Shopper. My friend thought he was making good decisions. In hindsight, renting instead of buying would have been a good decision. In almost any other moment in our lifetimes folks like my friend would have had as a worst case scenario having to sell their houses. Not an option when the market demonstrates that it is worth literally half of what one paid for it 3 years earlier.

Scooter, I completely agree with your distinction...

Here's the rub, Shopper. My friend thought he was making good decisions. In hindsight, renting instead of buying would have been a good decision. In almost any other moment in our lifetimes folks like my friend would have had as a worst case scenario having to sell their houses. Not an option when the market demonstrates that it is worth literally half of what one paid for it 3 years earlier.

Scooter, I completely agree with your distinction...

What's the rub? He bought high, couldn't sell low. Tried to hold on.. failed. Such is life. Lesson learned.

The long term consequences of all this should be a more tepid housing market. That's good for all of us (i.e., the folks who are capable of making good financial decisions and can actually afford to buy a house.)

Here's my question -

You are upside-down because your home's estimated value has significantly dropped, so you decide not to pay knowing it will take at least a year to get thrown out.

But aren't you being incredibly shortsighted to not pay if you can? When the dust clears you will not have a house, not have all the money you paid already, AND your credit score will be shot to hell so everything from car insurance to a future mortgage will cost more.

I understand reaching a certain point and then making a hard decision and letting a house go before it bankrupts you, but IMO those thinking they will "work the system" are just going to hurt themselves more in the long run.

And my other question -
Are most of these because of a major income change, a perceived loss of value skewing the numbers, or should they have not gotten these houses/loans in the first place?

in a society where institutions are saved from themselves but individuals are required to bite the bullet, you will see more of this moral backlash. we can't have it both ways.

The rub is the way we are lumping many folks who bought high and got burned into a category of irresponsible/bad decision makers.

It was conventional wisdom that real estate was the smart play. Even conservative players didn't see it realistic that you could buy a place and three years later have the place two doors down sell at short sale for literally half.

When you are growing up you are told to get good grades so you can get a job, earn and save and buy a house because renting is throwing your money away. You aren't told that buying a house could be a horrible idea and you could lose everything and then folks will call you immoral and say you made bad decisions.

The rub is the way we are lumping many folks who bought high and got burned into a category of irresponsible/bad decision makers.

It was conventional wisdom that real estate was the smart play. Even conservative players didn't see it realistic that you could buy a place and three years later have the place two doors down sell at short sale for literally half.

When you are growing up you are told to get good grades so you can get a job, earn and save and buy a house because renting is throwing your money away. You aren't told that buying a house could be a horrible idea and you could lose everything and then folks will call you immoral and say you made bad decisions.

"It was conventional wisdom that real estate was the smart play."

:roll: It was a speculative play, and everybody knew it. Some just got caught with their pants down.

If it sounds too good to be true, it usually is.

"folks will call you immoral and say you made bad decisions."

Immoral? I think you meant something else. But yes to the latter part, bad decision were made. When we make bad decisions, we pay a price. Such is life.

in a society where institutions are saved from themselves but individuals are required to bite the bullet, you will see more of this moral backlash. we can't have it both ways.

True dat. Although the federal government is also bailing out homeowners currently, so a lot of individuals are currently getting a piece of free pie too.

When I purchased my little house, my mom was livid with my choice. "You can afford better than that" she told me. I told her, " Mom, If I lose my job and have to work at McDonalds, I can still afford my house payment."
She tells me now, 14 years later, "You were smart to buy the house you got." My little abode has appreciated and as a home owner, I was able to qualify to get some improvments needed with a grant/low interest loan last year. My house payment was half what rent would have cost as well. Buy what you can afford, not what you want or others think you should have.

Shopper, I agree with what you said about it being speculative and everyone knowing it if we are talking about folks who got in high looking to flip property before the first payment was due on the note.

But what if we are talking about someone who bought a primary residence with the intention to live there full time indefinitely with the mindset that the worst case scenario is if they face financial hardship they could always just sell the house they love if necessary.

Very few on this forum besides SHELLY aren't speaking without the benefit if hindsight.

I have other friends who wanted to buy here but couldn't afford it/didn't qualify then because of bad credit/irresponsibility so they rented thinking they were throwing money away. And now their credit is good, they have cash and they are buying these same places from the bank.

Aleonard, what if you did everything exactly the same as you did but the outcome was the opposite. Your house was worth half and you couldn't sell it, you no longer had the income to cover the payment and it seemed apparent that the value wasn't coming back for 7-10 years. Your mom wouldn't tell you you were being speculative or that you were doing something immoral by trying to start over after your place got taken away, would she?

Aleonard, what if you did everything exactly the same as you did but the outcome was the opposite. Your house was worth half and you couldn't sell it, you no longer had the income to cover the payment and it seemed apparent that the value wasn't coming back for 7-10 years. Your mom wouldn't tell you you were being speculative or that you were doing something immoral by trying to start over after your place got taken away, would she?

Since at the time I purchased my house I had saved more than 20 percent for the down payment and worked it so it would be paid for in 10 years, it would have been tough to screw it up. But lets say that I fell ill and could not make the tiny( compared to most) monthly payments I set up. I would have contacted legal advice about my options. No, I doubt my mom would have said those things, but if my lawyer advised me to sit in the house and not pay my bills, I would have probably gotten different advice, filed chap 7 or 11 or moved out of the house. I'm one of those people that dosen't like to leave things hanging over my head. I would worry too much that someone was going to show up and evict me.

I read this article last night and although I understand the frustration that some of these home buyers have, no one forced them to buy these houses. If the loan officers lied to them, that is a different issue. I got the feeling that a lot of these people were extracting revenge on the banks because they felt taken advantage of. I had a car loan officer do that to me once and I told them to come and get the car and I took the hit on my credit report because they switched interest rates on me. It was messy enough that they did not want to go to court. But, in the end, people have to live the best way they can. I love scooty, but I also know there are times when you are so screwed it's tough to find an honorable way out and a roof is a roof. Everything is not always black and white about the situations we find ourselves in. It would be nice if they were.

That was my only point. I would not buy something I could not pay for, even when my family offered me money (for the down payment)to buy something much more expensive. I wanted to be able to have a home that was mine and not worry that if something happened, I would lose it. My house payment was 350 a month. I could have dug ditches and made that and I did run an event crew along 30A for two years during my divorce to make it in the dead of summer putting up tents and stages during much leaner times.

(forgive me if I have misspelled anything, I don't have spell check on this computer and I am about blind from proofing today)

Maybe we should all move into one of these. I have been experiencing some wanderlust recently.

http://abcnews.go.com/Technology/Home/mcmansions-make-mini-houses/story?id=10793263

Shopper, I agree with what you said about it being speculative and everyone knowing it if we are talking about folks who got in high looking to flip property before the first payment was due on the note.

But what if we are talking about someone who bought a primary residence with the intention to live there full time indefinitely with the mindset that the worst case scenario is if they face financial hardship they could always just sell the house they love if necessary.

Very few on this forum besides SHELLY aren't speaking without the benefit if hindsight.

I have other friends who wanted to buy here but couldn't afford it/didn't qualify then because of bad credit/irresponsibility so they rented thinking they were throwing money away. And now their credit is good, they have cash and they are buying these same places from the bank.

Ahh come on Geo, if they bought a house with a loan/payments they could afford, a downturn in the market wouldn't effect them in the least bit.

We're talking about folks who got creative with financing - interest only periods, negative amitorization, cash back refinancing, lines of credit, and variable interest loans.

A very small percentage of all these folks are worthy of compassion - people who took out normal, non-risky 30-year fixed loans on a house and ran into financial trouble through job loss or some other unexpected financial burden. The rest are all learning a valuable lesson in the down-side of risky behavior, which while painful to watch, will be good for them and the rest of us long term.

Ahh come on Geo, if they bought a house with a loan/payments they could afford, a downturn in the market wouldn't effect them in the least bit.

We're talking about folks who got creative with financing - interest only periods, negative amitorization, cash back refinancing, lines of credit, and variable interest loans.

A very small percentage of all these folks are worthy of compassion - people who took out normal, non-risky 30-year fixed loans on a house and ran into financial trouble through job loss or some other unexpected financial burden. The rest are all learning a valuable lesson in the down-side of risky behavior, which while painful to watch, will be good for them and the rest of us long term.

See, I'm not convinced it's a very small percentage, not with unemployment in the double digits and with the rampant flat out lying and cheating that mortgage brokers did. I have one relative that was just stupid, one that was cheated by a refi offer, and one that had a serious financial downturn. Not exactly a scientific poll, but that's only 33% stupidity.

It's hard to tell, sitting in Sowal, because such a high percentage of foreclosures around here are due to speculation and stupidity, but I think the NYT article played up the fast and loose aspect of these "squatters".

I don't think it was immoral (or whatever you want to call it) for the couple to forego mortgage payments and save their business. That's long-term thinking. All of these people are completely hosed now, credit-wise, and will probably find it difficult to rent a nice place when they are finally evicted because of that credit rating. Nobody's skating (except Wall Street, apparently).

As for them gassing up the airboat once or twice and going to Outback, lighten up. The investment bankers couldn't forego their million dollar bonuses, even when you and I were footing the bill. Let these people have a $12 steak. I know we're all paying for it, but what do you want to do? Re-institute debtor's prisons? These people will have to live in crappy rentals and pay cash for everything they buy for the next few years. It's a much heavier sentence than Countrywide got.

Everyone's sad story is different. There are many like you say. But there are also situations like I have described.

I was really just reacting to the labels of "good" vs. "bad" decisions without regard to what for many is really a smart decision.

I'm trying to point out the double standard we have in place for big business and the ultrarich.

When a very large financial institution walks away from its obligations for a commercial development because the numbers no longer make sense it's just business. When Trump declares bankruptcy and starts over there's no harm or foul. But John Citizen sees his primary residence literally worth half its purchase price in three years and he has a moral obligation that doesn't apply to the "haves"?

Well said HereforGood

If someone cannot make their mortgage payments because of reduced or lack of employment due to the economy, they have my sympathy - I know some people for whom that is the case.

If someone is behind the financial eight ball and is robbing Peter to pay Paul and willing to accept the consequences of doing that they have my sympathy.

If someone truly got screwed on their mortgage - NOT JUST DIDN'T DO THEIR OWN MATH AND/OR READ THE PAPERWORK - they have my sympathy and cause for legal action.

But someone who is justifying their continued fiscal idiocy (read the whole article about that couple and you will see it isn't that I begrudge them an occassional meal out, it's that they are dumb with money) with "everyone thought the housing bubble would last forever" and "my house isn't worth what I paid for it so I am going to bail" does not.

People both in Sowal and beyond knew the housing market was too good to be true and it would end at some point.

The bottom line is that people borrowed more than they should have to buy more than they should have......................and the banks let them because they could profit off of it.

And the chickens have come home to roost.

P.S. I don't judge individuals differently than businesses. I think EVERYONE has an obligation to be financially responsible and live up to their responsibilities.

Everyone's sad story is different. There are many like you say. But there are also situations like I have described.

I was really just reacting to the labels of "good" vs. "bad" decisions without regard to what for many is really a smart decision.

I'm trying to point out the double standard we have in place for big business and the ultrarich.

When a very large financial institution walks away from its obligations for a commercial development because the numbers no longer make sense it's just business. When Trump declares bankruptcy and starts over there's no harm or foul. But John Citizen sees his primary residence literally worth half its purchase price in three years and he has a moral obligation that doesn't apply to the "haves"?

Don't think anyone has a moral obligation, but they might feel they do. Home loans are just contracts, when you stop payment, the contract stipulates what happens in response. If you can live with the long term repercussions, I say walk away. (I did that myself for a number of checks I wrote to Dominos when I was in college. ) Just tell them not to go begging John Q "responsible borrower" Public for a bailout, mkay?