Consequences of Massive Bailouts

That's more for the people who are working the system, squatting in their houses after they have stopped paying, destroying the houses' interiors, whining about how none of it is their fault, flush with assets, and wanting to buy again soon.

Noone wants blood from people who are getting foreclosed upon due to hardship and who truly can't pay - though I do think if you are foreclosed upon you should not be allowed to buy a house for 10 years - no exceptions.

I have an issue with people choosing foreclosure to game the system, just as I have an issue with someone declaring bankruptcy to avoid creditors, yet being well off financially a year later because they transferred all their assets to a family member, then got them back.

Scooty,
When the bottom drops out of your personal world in spite of careful planning & modest living, what is your game plan?

This all sounds very reasonable to me. I guess I had the impression that folks wanted more blood.

Actually- for many, the ability to start out from zero/with zero is like the promised land.

But please also be aware of another i-bank goodie called the deficiency judgement. Florida being a recourse state means they can take 5 years to file the judgement 20 years to collect and another 20 if they reup the judgement.

That's for the difference between the foreclosed/short sale cost and the resale price. Florida is the promised land for mortgagors.

Scoots,

So someone can lose everything trying to keep their home (including the home itself), have their credit destroyed, face the possibility of a deficiency judgement and you believe they shouldn't be allowed to buy another home for 10 years?

I believe that would be reasonable if each of the banks that helped create the situation where the home couldn't be sold be disallowed from lending money for mortgages for 10 years.

One thing I don't understand with all the talk of "upside down" and "walking away". If you are upside down in your primary residence and the estimated value is expected to rebound long before your mortgage is due to be paid off, why does it matter so much?

Aren't you just saving on taxes w/ a lower assessment in the meantime?

Are people just fixated on the supposed value of their "asset" when it is really a roof over their head?

Or I am just missing the point because the Scooterbug clan tends to stay in houses for decades/generations?

Another question - what happens if you stop paying your mortgage, then start paying again when your situation improves? Can you avoid the whole mess, but just have more interest racked up?

Because you are talking about paying double or more its value per year for something that is illiquid and in all likelihood will not return to the break even point for a decade or more. So what you are lighting money on fire because you want to appease the ethics police. If you have little equity this is honestly a no-brainer. As Dune-ahh pointed out, credit scores are a bogus construct. Don't buy things with money you don't have and they are worthless.

Many people can't stay in one place their whole lives and don't buy homes intending to live there for 30 years. They buy so that they don't "lose all that money paying rent". In an economy like this people lose jobs/businesses and have to go where the work is. Historically one could buy a house and expect that if they had to sell, it could be done within a reasonable amount of time, and certainly not at a 50%+ loss in two or three years.

Whoever's fault it is, who cares? A rational person needs to recognize the rules of the game, look for the best way through, do a cost benefit analysis and ethics police be damned. If you walk the lender gets a property it felt was good collateral for your loan. No one on either side of the table was doing anything out of good will. It's just business.

Which one?

The hurricane destroys my house game plan? The fire destroys my house game plan (it's a different plan than the hurricane)? The unemployed game plan? The oil spill takes out the entire Sowal economy game plan? The I get sued somehow and loose all my assets game plan? The medical emergency game plan? The medical emergency if I lose my health insurance/they refuse to pay game plan? The how do I dress myself well if I go blind game plan? The my bank fails game plan? The entire economy melts down game plan? The identity theft game plan?

The absolute worst case scenario is that I fall back on one of my safety nets and use it to tide me over until I can get back on my feet somehow - insurance, family, friends, government handouts, you name it.

I've never been rich, so I don't have far to fall, don't worry about appearances, and I will do just about anything if necessary. Hell, I'll go to different Sowaller's houses and mooch dinner/wine on a rotation in exchange for chores if that is what it takes to stay fed.

I started out as an agricultural worker (machete provided) at $5 an hour and a babysitter back when you got $6 an hour for 5 kids and wages have gone up since then.

Andy, I know you believe you are describing people. But you're not. Your description better fits the corporations.

The little guy loses everything. The bank gets the asset, a bailout and then pursues a deficiency judgement. The shareholders get a dividend check. The executives get bonus check. And the little guy as a bonus gets your stigma and dogma.

Scoots,

So someone can lose everything trying to keep their home (including the home itself), have their credit destroyed, face the possibility of a deficiency judgement and you believe they shouldn't be allowed to buy another home for 10 years?

I believe that would be reasonable if each of the banks that helped create the situation where the home couldn't be sold be disallowed from lending money for mortgages for 10 years.

The problem is that money is literally created out of thin air through lending. That would cause a full blown 1930s style depression.

Scoots,

So someone can lose everything trying to keep their home (including the home itself), have their credit destroyed, face the possibility of a deficiency judgement and you believe they shouldn't be allowed to buy another home for 10 years?

I believe that would be reasonable if each of the banks that helped create the situation where the home couldn't be sold be disallowed from lending money for mortgages for 10 years.

I think a large part of this is banks lending when they shouldn't have, so I want something built into the system to keep it from happening again and again and the taxpayers continuing to pay for it that doesn't freeze up credit.

As it was pointed out, credit scores are hooey, so I think there should be another penalty to break the cycle. This takes potential customers away from the banks for a set time. No special cases, no FHA propping you up, no loopholes.

If you have just suffered such severe financial losses that you lost your home and had your credit rating destroyed, won't it take that long to regain your footing and build up assets enough to buy a house anyway?

A note on bailouts in general brings a quote from the 1800's to mind.

"The American republic will endure until the day congress discovers that it can bribe the public with the public's money."

A note on the fundamentals of Value. From the time property taxes were legislated in Florida (1940's???) it took all the way until 2003 (50+ years) for the Net Assessed Value of real property to reach 1.1 trillion dollars.

Four years later 2007 it had doubled to 2.25 Trillion. It took 4 years to do what it had taken 50+ years to do. No amount of building in the state could have made that possible.

This all sounds very reasonable to me. I guess I had the impression that folks wanted more blood.

Actually- for many, the ability to start out from zero/with zero is like the promised land.

It's really not that bad a deal either for the homeowner, they lose the interest payments they've made, any down payment, and they take a credit scoring hit. Most probably didn't pay big down payments, and some even had LOCs that were used to buy other stuff, or were used to pay off other loans! (I've got a ex-neighbor that did that, used the LOC to pay off his primary mortgage, and walked away from the second home. Unbelievable!) The bank takes the biggest hit of all, they have to cover the loss on the house.

Andy, I know you believe you are describing people. But you're not. Your description better fits the corporations.

The little guy loses everything. The bank gets the asset, a bailout and then pursues a deficiency judgement. The shareholders get a dividend check. The executives get bonus check. And the little guy as a bonus gets your stigma and dogma.

The bank takes the loss on the house. A lot of these banks are now failing because of this.

CRimages: 2010-05-23

The bank takes the loss on the house. A lot of these banks are now failing because of this.

CRimages: 2010-05-23

Damn! That is a sobering list - with too many familiar names and locations!

The bank takes the loss on the house. A lot of these banks are now failing because of this.

CRimages: 2010-05-23

I'm not an economist, but isn't it indeed true that if too many banks fail, lending goes way down and the economy goes into the crapper. So isn't a bailout of the banks effectively a bailout of people who have defaulted on their loans? Sure looks that way to me.

Which one?

The hurricane destroys my house game plan? The fire destroys my house game plan (it's a different plan than the hurricane)? The unemployed game plan? The oil spill takes out the entire Sowal economy game plan? The I get sued somehow and loose all my assets game plan? The medical emergency game plan? The medical emergency if I lose my health insurance/they refuse to pay game plan? The how do I dress myself well if I go blind game plan? The my bank fails game plan? The entire economy melts down game plan? The identity theft game plan?

The absolute worst case scenario is that I fall back on one of my safety nets and use it to tide me over until I can get back on my feet somehow - insurance, family, friends, government handouts, you name it.

I've never been rich, so I don't have far to fall, don't worry about appearances, and I will do just about anything if necessary. Hell, I'll go to different Sowaller's houses and mooch dinner/wine on a rotation in exchange for chores if that is what it takes to stay fed.

I started out as an agricultural worker (machete provided) at $5 an hour and a babysitter back when you got $6 an hour for 5 kids and wages have gone up since then.

Every single one of them... with every single Safety net tapped out!

You and I were raised in very very similar backgrounds... same values, strong work ethic, thoughtful teachings from pioneer families made strong through experience, strife, deprivation & hardship.

The very-very bottom line passed down from my forebears is "SURVIVE and the King's court be damned." Somewhere in the priorities mix, those teachings included knowing when to cut your losses and walk away from your farm payment before you lose the last mule & milk cow. And above all... cautions about not being too hard on your neighbors, 'cuz one day you may be standing next to them... needing them to teach you how to spear snapping turtles out of the creek for supper!

I'm not an economist, but isn't it indeed true that if too many banks fail, lending goes way down and the economy goes into the crapper. So isn't a bailout of the banks effectively a bailout of people who have defaulted on their loans? Sure looks that way to me.

What are the banks doing with the bailout funds?

Are they proactively utilizing the funds to work with people who want to do the right thing? NO they are not. They are cutting off their noses to spite their own faces. They are so fixated on their pieces of paper that they won't think outside the box to save their own arses.

How about using some of those bailout funds to proactively modify fixed loan terms (change 15year to 30year terms... or just flat out lower 8% loans to 4% loans) BEFORE people are totally tapped & in default? Why not get over themselves and their pieces of paper and accept partial payments? Wouldn't it be better in the long run, to work with folks before they're tapped dry and stop paying? To actually get down in the trenches, loan-by-loan, and seek out ways to cut people's payments by a MEANINGFUL amount... keep them paying SOMETHING for 30 more years rather than 'in full' for 30 more days?

Bird-in-the bush-and-all-that-jazz?
The banks may have played the 'coy debutante' game for too long.

Considering the demographics... are today's 50-60 year old defaulters likely to let their Depends get in a wad over cobwebby deficiency judgments when they're 75-85 years old?

I just can't get over the fact that the banks won't accept a partial mortgage payment when the other option is 0 and a foreclosure process that costs the bank money and is sure to end in a loss.

The Fictional Bank of Scooterbug would be happy to get a partial payment instead of none at all in this situation and the interest on the unpaid amount is in the bank's favor. Plus every partial payment improves the bank's balance sheet just a little bit.

They aren't moving forward quickly with foreclosures - I think the FL average is in the 500 day range, the short sale process is still a cluster, they don't want these properties and they aren't selling, so WHAT DO THEY HAVE TO LOSE by accepting partial payments?

What are the banks doing with the bailout funds?

Not much. Most of the money lent has been paid back. The FED also purchased stock, the proceeds of which went into increasing savings for capital requirements. Most of this money exists in a virtual world maintained by a computer at the FED. (i.e., it doesn't exist.)

Every single one of them... with every single Safety net tapped out!

You and I were raised in very very similar backgrounds... same values, strong work ethic, thoughtful teachings from pioneer families made strong through experience, strife, deprivation & hardship.

The very-very bottom line passed down from my forebears is "SURVIVE and the King's court be damned." Somewhere in the priorities mix, those teachings included knowing when to cut your losses and walk away from your farm payment before you lose the last mule & milk cow. And above all... cautions about not being too hard on your neighbors, 'cuz one day you may be standing next to them... needing them to teach you how to spear snapping turtles out of the creek for supper!

thank you for putting things into a more human, thoughtful perspective Dune-ahhh, as you usually do. also, let me point out that most of us came from the same background with strong work ethic, strong families, educated, successful but not without hardship - and most of us were raised to work hard to build our home and family - and also to live within our means. nearly every friend and family member I have ever known is highly responsible in their personal financial and other matters. though all of our experiences and perspectives are different.

I just wish "how I was raised" were not part of a discussion about real people here doing the best they can in a really hard situation. . because you are so right: it could be YOU. (I'm not talking about you Dune-ahhh.. you so definitely get it). It is about a lot of economic/social/business/corporate/government factors coming together over the last dozen or so years. It isn't all about how you were raised or what kind of person you are, or even what kind of decisions you have made. these are personal judgments which may or may not apply but I have a hard time reading some of these posts making such sweeping statements. none of which apply to a single person I know.

What are the banks doing with the bailout funds?

Are they proactively utilizing the funds to work with people who want to do the right thing? NO they are not. They are cutting off their noses to spite their own faces. They are so fixated on their pieces of paper that they won't think outside the box to save their own arses.

How about using some of those bailout funds to proactively modify fixed loan terms (change 15year to 30year terms... or just flat out lower 8% loans to 4% loans) BEFORE people are totally tapped & in default? Why not get over themselves and their pieces of paper and accept partial payments? Wouldn't it be better in the long run, to work with folks before they're tapped dry and stop paying? To actually get down in the trenches, loan-by-loan, and seek out ways to cut people's payments by a MEANINGFUL amount... keep them paying SOMETHING for 30 more years rather than 'in full' for 30 more days?

Bird-in-the bush-and-all-that-jazz?
The banks may have played the 'coy debutante' game for too long.

Considering the demographics... are today's 50-60 year old defaulters likely to let their Depends get in a wad over cobwebby deficiency judgments when they're 75-85 years old?

I'm not sure what they're doing with the bailout money. The smarter banks might be making better loans for one thing. Some of them have paid some of the money back. Thing is, a major source of their income has always been things like fees and credit card interest, so they don't really have to worry about saving their arses.

I guess I haven't witnessed one single person, living frugally or living the "high life", get a free bail out of any kind. yes, I'm watching good people lose homes, some of them very nice homes. they are working very hard to rebuild lives and financial means. not a single one is going to be comfortable financially for a very long time due to their investments in their careers of real estate and development/building. its a double whammy for them. there is nothing free whatsoever about what they are dealing with here. or elsewhere for that matter.

maybe there are those who work the system in a way that is completely inappropriate. but I don't know who those people are and I probably wouldn't have any reason to know them or care what they do. consequences do catch up to people doing the wrong thing for very long (if they are in fact doing anything wrong) - but that is really not what has caused this mess. certain people always work the system. nothing whatsoever new.

I think every single person here on this thread has hit the nail on the head with the many factors involved in this economy. but when we start to say people did this to themselves because they failed to make good decisions because they did not behave as I did over the last 25 years, well I do take exception. only because I do know too many around me who just do not deserve one extra ounce of negative thought or blame. I know how they are already blaming themselves.

The failed and failing banks were part of what Hank Paulson called the "system". Remember he never said he wanted to save the economy he wanted to preserve the system. Now those failed banks for a number of years were able to sell all their mortgages to ibanks for bundling and selling as derivatives to fund managers and gov. investors etc.

Colonial and Wamu (probably as well as others) set up mtg brokers with less regulation than FDIC banks to sell even the crappiest of loans, no risk when you can sell the junk plus huge upfront fees. It was only when the system realized that the quant algorithms were bogus and ponzi like did the local banks get stuck holding the bag of unsellable loans.

Many years before the bust some called the CDO and CDS market economic weapons of mass destruction. But the lobbyist did their jobs successfully in 2000 and again in 2010 (see the watering down of derivatives regulation.)

Dune-AHH and Tootsie,

Thank you for such thoughtful, compassionate posts and positions with this mess. There are several here who have repeatedly pointed out that this is not a one size fits all situation and that every case has its own extenuating circumstances.

I know good people, great people who are losing their homes right now and it is heartbreaking. Florida is seriously affected by this economy and for many the only way out is to walk away.

A lot of these people deserve a pat on the back and an 'attaboy' for trying to do the right thing AND for actually doing the right thing for as long as they did, however have been caught up in a very repressive economy that has been unforgiving and is tenuous at best. I know no one who has been cavalier in their decision, but rather wrangled with the options and lost sleep until slamming into their personal thresholds before missing their first mortgage payment. They are and have depleted their savings and retirement plans.

The banks are still playing games. They won't talk modification or short sale unless payments have been missed thereby backing people into corners and leaving practically no choices. For the Gubernatorial Race in GA, the democratic nominee is making this his #1 platform - banks cannot foreclose without mandatory negotiation. (Foreclosure in GA is easy because it's not a judicial process like in Florida.) This makes sense to me and GA is not a state with as heavy a foreclosure rate like FL, AZ, CA and NV.

Also, statistically, the percentage of foreclosures nationwide are at 6%. Listening to the news makes it seem like we are at 50% or more. Banks/creditors build into their proformas (and rates) a default rate of approximately 3% +/-. I fear for many what is down the road with commercial properties sitting vacant and anchors filing BK, closing their doors. I look forward to the entire world pulling out of this and no more blame because there is plenty to go around.

very well said Lynnie. thank you .

you know, I've seen a range of folks lose jobs, lose property, etc. even though everyone is effected greatly, it does appear that the people with the "most" to lose are hit hardest. that may be an unfair statement, I don't know if it has a bit of validity. But, in SoWal where real estate and development were the main industry, people worked very hard working and building their careers and personal investments. whoever said it was money for nothing is wrong. in the end there were plenty of inexperienced people throwing money at investments for a flip. but those were amateurs. but the pros were working their butts off around here many years building, developing, buying, selling, etc etc etc. yes, the market built up to a frenzy. yes, we knew something had to give. but no one really knew how or what or when.

my point is that those who had worked long and hard to build their careers in a real estate based community were the ones to take the biggest hits. many have hit the road. many remain here to stick with a community they helped build. they are even now working harder than ever to work within a new market. they are still here, humbled, and just as professional, just as giving to their families and community, and just as wonderful as ever. living in SoWal is always a good thing, it can be healing, even when times are difficult.