Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

38 responses to “Poll: Should the federal government be trying to prevent foreclosures?”

  1. Ray Pepper

    Gotta Love Fed Intervention! Every hopeless penny of it…

    Fed Intervention reminds me of Liam Neeson last night in The Grey…..You try and try but in the end the results prove futile…..However, so I don’t spoil it for everyone…Stay until ALL the credits are done at the end of the show..(about 5 minutes) You will see the final scene and it will be left up to you to decide the fate..

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  2. Scotsman

    Not a simple answer. Had the government stayed out of the mortgage business then yes, they should stay out of the foreclosure business. But since they did get involved, thus putting taxpayers on the hook, they have a duty to try and minimize the current cost of their prior involvement. No doubt they will f this up too before it’s over.

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  3. Kary L. Krismer

    Five poll choices and none of them fits the answer I’ve given for years.

    I think the federal government should allow the so called “mortgage cramdown” in Chapter 13. Chapter 13 debtors can do that with virtually every other asset which might have a secured claim against it, and could even do that with a house they owned for rental purposes. There’s no reason to protect the mortgage lenders from “cram down.”

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  4. Kary L. Krismer

    RE: Scotsman @ 2 – That’s one of your best answers ever!

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  5. whatsmyname

    RE: Kary L. Krismer @ 3
    Kary, that’s one of your best answers ever.

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  6. Kary L. Krismer

    RE: whatsmyname @ 5 – LOL.

    Connecting the two posts together, the bankruptcy provision I’m talking about is one of the things the government did to interfere with mortgage financing referenced by Scotsman. It made mortgage lenders (and those buying such interests) less concerned about a decline in value.

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  7. Ira Sacharoff

    The federal government bailed out the banks that drove our economy into a ditch. The brokerages that packaged these loans that included toxic subprime and no income verification loans, and threatened the ratings agencies to package these loans as ultra safe AAA have suffered no consequences. But the homeowners are on their own. They’re not too big to fail.
    I am not suggesting that taxpayers be on the hook for preventing houses from going into foreclosure, but there was massive deception going on, on the part of the banks and brokerages. They should suffer some consequences. Former Goldman Sachs execs always hold top positions at the treasury and at the Fed. It’s the fox guarding the henhouse. It just doesn’t make sense for the government to bend over backwards to accommodate the needs of the bankers and then tell homeowners to go screw themselves.

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  8. John Bailo

    I think we should get to vote on it, like we did with TAARP, Stimulus…

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  9. bob

    Why does anyone have to be “on the hook?” It doesn’t even seem to make a lot of financial sense for the banks. Say a mortgage holder owes $10,000 back payments on a $400,000 house with $300,000 principal still on the mortgage. The house has lost half its value since then thanks to the bubble pop. The bank forecloses on the holder, then sells that house at auction for $100,000. (Maybe $150,000, but I doubt it, in a buyers market on a sight unseen or as-is property.) The bank takes a loss of $200,000 (maybe only $100,000 if they provide the new mortgage) because they couldn’t be bothered to modify or forebear the mortgage over being owed $10,000.

    I’m not a banker, but that looks like pretty obviously bad math to me. Perhaps the Bush Bank Bailouts actually made the mortgage situation worse, by making it possible for banks to make dumb decisions without risk.

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  10. Jillayne Schlicke

    The people who were victims of predatory lending, fraud, and steering deserve help from the banks/lenders who now hold those mortgages. The problem is that everyone now believes they deserve help and it’s challenging to figure out who was a real victim and who went forward willingly. People who lied when they received the loan would probably lie to loan servicing to get a loan mod, short sale, or foreclosure help.

    Government assistance in this mess is political. It doesn’t matter who is in power, Dems or Republicans, either party will want to pander to the lil guy facing foreclosure. I have not been watching the R debates but have any of the candidates answered The Tim’s question?

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  11. leanne

    This is not yes or no. Should the government try to keep people in houses they can’t afford? No. Should the government put in place moratoriums or other steps that slow the process? No.

    On the other hand, should the government pressure banks to modify bad loans for people who could afford the home under more reasonable terms, yes. Should government provide some kind of oversight and recourse for the bad servicing, robo-signing and other general bad bank behavior, yes. Also totally agree with the cram down point.

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  12. Dirty Renter

    By Ira Sacharoff @ 7:

    The brokerages that packaged these loans that included toxic subprime and no income verification loans, and threatened the ratings agencies to package these loans as ultra safe AAA have suffered no consequences.

    Like Bear Stearns, Lehman Brothers & Merrill Lynch?
    3 of the top 5 U.S. Investment Banks went pfft……

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  13. Hugh Dominic

    RE: bob @ 9 – It’s because banks understand moral hazard when it applies to their customers, but not when it applies to themselves.

    If they start forgiving loans and debts, then everyone will skip a few payments to take advantage of them. Just like if you bail out banks that make risky loans, banks will keep making risky loans.

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  14. Jonness

    By Kary L. Krismer @ 4:

    RE: Scotsman @ 2 – That’s one of your best answers ever!

    Had you never smoked the crack in the first place, you would vote to put the dealer in jail. But since you got yourself addicted, it makes sense that the crack dealer continue to supply you with what you need.

    I never smoked any of the government crack. Thus, my answer is, of course the government shouldn’t be borrowing money from China in an attempt to prop up house prices above what the free market can support.

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  15. whatsmyname

    RE: Jonness @ 14
    Johness, Why do you want to jail the crack dealer? He’s just participating in the free market. Isn’t this just a lot of regulation and government intervention? At least, thank God, the government’s not taxing these people.

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  16. pfft

    By Kary L. Krismer @ 4:

    RE: Scotsman @ 2 – That’s one of your best answers ever!

    that’s the best he’s got?

    the housing market crashed when the banks went in and lent about as recklessly as possible.
    they caused the crisis not the government.

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  17. pfft

    By Ray Pepper @ 1:

    Gotta Love Fed Intervention! Every hopeless penny of it…

    Fed Intervention reminds me of Liam Neeson last night in The Grey…..You try and try but in the end the results prove futile

    if by futile you mean prevented another depression you are right…

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  18. pfft

    the government should prevent foreclosures by having a stimulus project to close the $1 trillion dollar output gap.

    people who have jobs pay their mortgages. stimulus would spark a virtuous circle.

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  19. pfft

    By Jonness @ 14:

    By Kary L. Krismer @ 4:
    RE: Scotsman @ 2 – That’s one of your best answers ever!

    Had you never smoked the crack in the first place, you would vote to put the dealer in jail. But since you got yourself addicted, it makes sense that the crack dealer continue to supply you with what you need.

    I never smoked any of the government crack. Thus, my answer is, of course the government shouldn’t be borrowing money from China in an attempt to prop up house prices above what the free market can support.

    we own about 70% of government debt. china only owns about 7% of our debt. when you here china and debt in the same sentence it’s more a political statement than anything else.

    Japan own just the same amount of our debt as China but you never hear anyone moan we’re borrowing money from Japan.

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  20. David Losh

    RE: pfft @ 16

    Well, you beat me to that.

    The foreclosure system is broken.

    Banks created this mess, and banks need to fix it. Bush gifted banks money, and Obama is in the process of propping up Fannie Mae, and Freddie Mac. Enough is enough.

    The government should stop playing with these criminals and prosecute.

    As to the home owners, some deals need to be cut the same as banks would do with commercial properties. If you can make the payments the bank should offer you the best deal they can to get the loan to amortize, or be paid in full.

    If you can’t afford the home then some one who can should have the ability to take over the loan to get it to amortize. The market place can fix this if the banks play ball.

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  21. pfft

    By whatsmyname @ 15:

    RE: Jonness @ 14
    Johness, Why do you want to jail the crack dealer? He’s just participating in the free market. Isn’t this just a lot of regulation and government intervention? At least, thank God, the government’s not taxing these people.

    outstanding!

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  22. whatsmyname

    RE: pfft @ 21
    Thanks, bro.

    I should have also pointed out that-
    The crack industry are job creators,
    They don’t cotton to no socialist security and medicare payments.
    And they are strong, no b.s. supporters of 2nd amendment rights,

    True patriots for our time.

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  23. Ira Sacharoff

    RE: Dirty Renter @ 12
    I guess the brokerages that went under were slightly more ethical? Goldman’s folks were selling short the very CDOs they were promoting.

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  24. Azucar

    By David Losh @ 20:

    RE: pfft @ 16
    If you can’t afford the home then some one who can should have the ability to take over the loan to get it to amortize. The market place can fix this if the banks play ball.

    But no one wants to take over the loan because it’s more than what the place is worth (i.e. rather than take over the loan and take the place, they could buy an identical place down the street for less than the amount remaining on the loan).

    The bank needs to foreclose, then they can sell it and get what they can for it… but the bank will take the loss, not the guy buying the place out of foreclosure (or “taking over the loan to get it to amortize”).

    The other option would be to adjust the terms of the mortgage (either the amount or the interest rate or even the number of years) so the guy who is behind on his payments would be able to (or willing to) make the payments. However, to me that (at least the principle reduction thing… lowering the rate to the current market rate or extending the number of years would be ok) doesn’t seem like a good idea because it rewards him for getting behind on his mortgage, and it penalizes the guys who never took the large mortgage. If the house and mortgage is being “revalued”, shouldn’t everyone get an equal shot at the house at the new lower price? Why just give it to the guy who made the bad decision to buy it at the higher price and then stopped paying for it?

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  25. Kary L. Krismer

    By Jonness @ 14:

    By Kary L. Krismer @ 4:
    RE: Scotsman @ 2 – That’s one of your best answers ever!

    Had you never smoked the crack in the first place, you would vote to put the dealer in jail. But since you got yourself addicted, it makes sense that the crack dealer continue to supply you with what you need.

    I never smoked any of the government crack. Thus, my answer is, of course the government shouldn’t be borrowing money from China in an attempt to prop up house prices above what the free market can support.

    In that case the government is protecting you from your own beliefs. A complete crash would hardly be the cakewalk that some people here think, and the recovery from it would not necessarily be fast. That it would be is a theory based on nothing.

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  26. Kary L. Krismer

    By whatsmyname @ 15:

    RE: Jonness @ 14
    Johness, Why do you want to jail the crack dealer? He’s just participating in the free market. Isn’t this just a lot of regulation and government intervention? At least, thank God, the government’s not taxing these people.

    Even using a crack dealer isn’t a good analogy. But for the government’s stupid drug policies, crack probably wouldn’t even be popular. So it’s another case of government intervention making things worse.

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  27. Kary L. Krismer

    By pfft @ 16:

    By Kary L. Krismer @ 4:
    RE: Scotsman @ 2 – That’s one of your best answers ever!

    that’s the best he’s got?

    the housing market crashed when the banks went in and lent about as recklessly as possible.
    they caused the crisis not the government.

    In denial much? Government encouraged higher and higher percentages of home ownership, and riskier and riskier loans. Even state and local governments were involved, unless you consider giving someone a second position mortgage that they can’t afford to repay, and therefore doesn’t require any payments for years after the loan is made somehow not risky.

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  28. Kary L. Krismer

    By Ira Sacharoff @ 23:

    RE: Dirty Renter @ 12
    I guess the brokerages that went under were slightly more ethical? Goldman’s folks were selling short the very CDOs they were promoting.

    I’m not sure this is true in the instance you’re referencing, but firms typically do that to make a market in a security. It’s not like they actually match up buyers and sellers.

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  29. Kary L. Krismer

    By Azucar @ 24:

    By David Losh @ 20:
    RE: pfft @ 16
    If you can’t afford the home then some one who can should have the ability to take over the loan to get it to amortize. The market place can fix this if the banks play ball.

    But no one wants to take over the loan because it’s more than what the place is worth (i.e. rather than take over the loan and take the place, they could buy an identical place down the street for less than the amount remaining on the loan).

    At some point that is true, but being able to control a property for zero down would be attractive to many investors, so they’d be willing to take over payments on an underwater property as long as it wasn’t too underwater. That’s part of the reason I was calling for a repeal of the Garn Act back in 2008.

    http://www.trulia.com/blog/kary_l_krismer/2008/09/is_it_time_to_repeal_the

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  30. David Losh

    RE: Azucar @ 24

    Every loan is amortized over time. Taking over a 30 year loan with 25 years left has an over all cost that is less. Also if the person who buys applies the “down payment” directly to the principle balance rather than generate a new loan the current loan will amortize the loan that much quicker.

    Being underwater is a function of time. Over a 25 to 30 year span lots of things will happen.

    Banks would be a lot of dollars ahead by forgiving arrears rather than pusue foreclosure or short sale.

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  31. Kary L. Krismer

    By David Losh @ 30:

    Every loan is amortized over time. .

    There are interest only loans and even negative amortization loans.

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  32. Oliver

    Regardless of where the responsibility is (and it’s in several places IMO), the matter of the fact is that there are honest families (drank the coolaid, really thought they could get a home of their own, had a change of situation, layoff or whatever, etc…) at risk of losing what they thought was the American dream, and who’s going to do something for them? The banks? Realtors? Brokers?

    I look at the first option (Should the federal government be trying to prevent foreclosures? Absolutely) not looking at the solution or what it means (bailout, taxpayers on the hook, going after the banks), but more looking at the intent, and who’s going to defend these families.

    Then if you ask me for my take on the solution, I’m with Ira on #7 (http://seattlebubble.com/blog/2012/01/29/poll-should-the-federal-government-be-trying-to-prevent-foreclosures/comment-page-1/#comment-155384) :)

    Call me a dreamer now.

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  33. Jonness

    By whatsmyname @ 15:

    RE: Jonness @ 14
    Johness, Why do you want to jail the crack dealer? He’s just participating in the free market.

    Last time I checked, Fannie, Freddie, and FHA weren’t exactly what I considered the free market. Then again, neither was the Greenspan Fed that held interest rates down too low for too long. And then there’s the rating agencies who bundled the most toxic crack and convinced your grandmother to buy it for an astonishingly high price by telling her it was vitamins.

    Yes, smoking all that crack was a blast while it lasted. And that’s why most people don’t want to jail the dealer. On the contrary. They want the dealer to borrow more money from China so he can bring in a fresh supply of super crack that’s even better than the last stuff.

    But I agree with you about the free market. Get the government out of the crack business and let the small dealers flourish again. I also agree that jail is too costly and would involve too much ongoing regulation. Piano wire would be a much better solution. Unfortunately, it’s not politically palatable. :)

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  34. Jonness

    By pfft @ 19:

    we own about 70% of government debt. china only owns about 7% of our debt. when you here china and debt in the same sentence it’s more a political statement than anything else.

    Japan own just the same amount of our debt as China but you never hear anyone moan we’re borrowing money from Japan.

    pffft, have you not figured out that “borrowing money from China” is a commonly used figure of speech that is not meant verbatim? The reason people use “China” is because it’s the largest “foreign” holder of our debt.

    Of course we own more of our debt than China. China doesn’t have nearly enough money to buy all our debt. In fact, the Fed (magic money) alone owns more of our debt than China. Add in all the poor old gray haired people in the U.S. that bought the debt in hopes of funding their retirement, and China holds relatively little of our debt. But that’s relative to the size of our debt. From just a straight owning standpoint, China has loaded itself to the gills with U.S. paper.

    http://www.usdebtclock.org/

    http://exclusiveeconomy.com/wp-content/uploads/2011/01/saupload_who_owns_us_national_debt_30_sept_2010.png

    http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

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  35. Jonness

    By Kary L. Krismer @ 25:

    That it would be is a theory based on nothing.

    As is the theory that more government crack will fix a problem that was caused by too much government crack in the first place.

    Then again, I didn’t smoke the crack, so I’m sitting on cash as opposed to debt. Thus, if the government stopped dealing the crack, I’d win.

    From a purely numbers standpoint, it’s commonly believed it’s best I continue to shoot up my neighbors whenever they start to to get the shivers.

    But from a logical standpoint, it’s better to check them into Betty Ford and teach them how to be responsible and upstanding citizens who work hard to pull their own weight within the system and stop taking unnecessary risks like driving drunk at night while wearing a blindfold.

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  36. Jonness

    By Oliver @ 32:

    Regardless of where the responsibility is (and it’s in several places IMO), the matter of the fact is that there are honest families (drank the coolaid, really thought they could get a home of their own, had a change of situation, layoff or whatever, etc…) at risk of losing what they thought was the American dream, and who’s going to do something for them? The banks? Realtors? Brokers?

    The problem is, as soon as someone does something, these people go from formerly financially illiterate risk takers to almost foreclosed upon to right back to being financially illiterate risk takers.

    Investing is tricky. It would be much better to educate people about it from an early age than to leave them financially ignorant and have them expect a bailout every time they go on another coke binge while simultaneously dreaming of becoming millionaires.

    At some point, adults need to reach a point of psychological maturity where they are expected to be responsible for their thoughts, decisions, and actions. Denying them this privilege is nothing more than enabling them into a pattern of learned helplessness for the remainder of their lives.

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  37. Kary L. Krismer

    By Jonness @ 35:

    By Kary L. Krismer @ 25:
    That it would be is a theory based on nothing.

    As is the theory that more government crack will fix a problem that was caused by too much government crack in the first place.

    Then again, I didn’t smoke the crack, so I’m sitting on cash as opposed to debt. Thus, if the government stopped dealing the crack, I’d win.

    From a purely numbers standpoint, it’s commonly believed it’s best I continue to shoot up my neighbors whenever they start to to get the shivers.

    But from a logical standpoint, it’s better to check them into Betty Ford and teach them how to be responsible and upstanding citizens who work hard to pull their own weight within the system and stop taking unnecessary risks like driving drunk at night while wearing a blindfold.

    If you want to use the highlighted analogy, fine. But what I was arguing was that the theory of doing nothing to save the economy would be better is based on nothing. So if you want to use that analogy, then you would have to argue that giving a drug addict treatment for their addition is worse than just locking them in a room by themselves. They’ll get better faster in the room with no treatment!

    Thank you for coming up with an analogy that demonstrates what I was trying to say.

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  38. whatsmyname

    By Jonness @ 35:

    By Kary L. Krismer @ 25:
    That it would be is a theory based on nothing.

    As is the theory that more government crack will fix a problem that was caused by too much government crack in the first place.

    Analogy is often called the poorest form of argument, but that’s because metaphor does not qualify as argument.

    “again, I didn’t smoke the crack, so I’m sitting on cash as opposed to debt. Thus, if the government stopped dealing the crack, I’d win. ”
    This is your actual argument. Simply put, you made a bet, and now you want society to change so that you can win.

    “from a logical standpoint, it’s better to check them into Betty Ford and teach them how to be responsible and upstanding citizens who work hard to pull their own weight within the system and stop taking unnecessary risks like driving drunk at night while wearing a blindfold”
    Hyperbole aside, this may be the better solution – but Betty Ford is not the solution you propose.

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