Cramdowns Rejected by Senate, Appraisals Insulated from Banks

Two good news stories on the national front that are worth sharing this morning.

Story 1: Senate Defeats Mortgage ‘Cram-Down’ as Democrats Balk

The U.S. Senate rejected a measure that would let bankruptcy judges cut mortgage terms to help borrowers avoid foreclosure, a victory for banks and credit unions that said the legislation would increase loan costs.

The proposed “cram-down” amendment to a housing bill was defeated today in a 51-45 vote, with 12 Democrats among the 51 opponents.

Banks that refused to negotiate a compromise were “greedy, stubborn and unreasonable,” said Senator Sheldon Whitehouse, a Rhode Island Democrat.

“The answer is not to incentivize bankruptcy by making it the means to save one’s home,” [Arizona Republican Senator Jon] Kyl said.

This is good news, in my opinion. Banks should be eating the losses on these homes in the open market, not by writing down the principal to help the home “owner” stay in a house they obviously simply cannot afford. So you lost “your” home—yeah it sucks, but go find a cheap rental and move on. Maybe next time you buy a house you’ll be more prudent.

Note, I am not saying that everyone who is being foreclosed on bought more house than they could afford, or used their home as an ATM. I figure that probably describes at least 70% of the current foreclosures, and such people are the primary reason for the “foreclosure crisis” we’re currently watching unfold.

[Update: As I mention in the comments below, I also believe we should be prosecuting the banks and the people at the banks for the massive fraud they willingly and knowingly perpetuated through these loans during the boom.]

Story 2: Realtors, Mtge Brokers Push For Delay In New Appraisal Rules

Realtors and mortgage brokers are in an 11th-hour push to delay by a year new Fannie Mae (FNM) and Freddie Mac (FRE) rules governing real-estate appraisals.

The rules, which take effect May 1, have sparked criticism from many corners of the real-estate industry.

The National Association of Realtors complained in a letter last week that the industry was given scant guidance and too little time to implement the rules. Appraisers worry the rules, which will put middlemen between loan originators and appraisers, will squeeze their fees. Meanwhile, mortgage brokers say the changes will make them uncompetitive.

“This is going to be devastating for everyone,” Marc Savitt, the president of the National Association of Mortgage Brokers, said Monday.

The rules arose from an investigation by New York Attorney General Andrew Cuomo into alleged collusion between mortgage lenders and appraisers to pump up home values. Fannie and Freddie, which became targets of probe, agreed in early 2008 to require all appraisers on mortgages they buy or guarantee to adhere to a new code of conduct.

The rules are intended to reduce collusion and fraud in the appraisal industry, which has been blamed for generating wildly inflated home values during the housing boom. The new code requires lenders to go through third-parties, known as appraisal management companies, to order appraisals. Lenders with in-house appraisal staff must set up safeguards to ensure loan officers don’t influence the home appraisal process.

Oh yeah, that sounds really “devastating,” doesn’t it? Shouldn’t safeguards like this have been in place from the start? I can think of one reason that banks and real estate agents would not be on board with this: they like being able to influence appraisals.

It’s nice to read some good news for a change when it comes to all the meddling the government has been doing in the housing market lately.

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About 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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

126 comments:

  1. 1
    b says:

    Personally I think the failure of the cram-down amendment is not good news, and I am no lover of dumbshits who overbought in the bubble. My reasoning is that while cram-downs will help those fools right now, it will also force banks in the future to be far more careful about who they loan money to. If there is no threat the bank will get screwed if the borrower goes bankrupt, the banks will loan over value and to bad borrowers. Anything which improves the behavior of banking in the long run is a win, even if it helps out people who overextended in the bubble. And in the future, after the bubble has passed, this will help most of the people who go bankrupt for more pedestrian reasons like illness and extended job loss.

  2. 2
    The Tim says:

    By b @ 1:

    My reasoning is that while cram-downs will help those fools right now, it will also force banks in the future to be far more careful about who they loan money to.

    Doesn’t the bank going through the expensive foreclosure process and then selling the home at a loss on the open market have the same effect?

    Also, you know what else would have that effect? If we actually enforced the existing laws on the books, and started prosecuting the people in these banks for the massive fraud that they merrily carried out during the boom.

  3. 3
    Hugh Dominic says:

    RE: The Tim @ 2
    I agree – we need to flush this “chocolate” out of our system – even if that means more foreclosures. Cram downs would just drag out what has to be a painful process. Kind of like peeling of a bandaid – just pull once and get it over with…

  4. 4
    b says:

    The Tim –

    No, cram downs will cost the banks more. The situation right now is that, in order to afford their primary residence, bankruptcy courts will have to weigh towards screwing over other creditors as they have no choice. This allows the borrower to keep their home and pay their mortgage at full value. In a cram down situation, the judge now has the discretion to give everyone a haircut. Why do you think the banking lobby is so opposed to it? It isn’t because it costs them less or the same overall.

  5. 5
    jon says:

    “If there is no threat the bank will get screwed if the borrower goes bankrupt, the banks will loan over value and to bad borrowers.”

    The banks get screwed anyway, because they get a house that is probably going to be damaged out of spite.

    The banks are opposed to this because it will cause borrowers to go into bankruptcy as a way to force a lower mortgage. Without it, the bank is in control of lowering the mortgage if they feel they are better off with the existing borrower instead of selling the house. But their main concern will be to make sure the bulk of their customers are paying in full. If there is an easy path for borrowers in general to lower their payments, the banks would be wiped out. That would cause mortgage rates to go through the roof to pay for the extra risk of that happening.

  6. 6
    The Tim says:

    RE: b @ 4 – Ok, that makes sense… but if the real goal is to punish the banks for making these stupid loans, why go through all these hoops of creating new bankruptcy laws? Why not just prosecute the fraud and throw people in jail? If we actually enforced the existing laws the banks would be experiencing a world of hurt anyway.

  7. 7
    Kary L. Krismer says:

    RE: b @ 1 – Exactly. It’s the fact that the banks had this special treatment only on residential houses made them less risk adverse. As I mentioned elsewhere, banks even offered 120% of equity loans, presumably because of this treatment–until they found out it wasn’t absolute.

  8. 8
    b says:

    RE: jon @ 5

    Sorry, but going through bankruptcy is hardly easy. And this just gives judges the ability to use it or not. Personally I would rather have an experienced bankruptcy judge making these decisions, rather than the banking lobby in Congress.

    RE: The Tim @ 6 –

    Why can’t we do both? Maybe its just me, but personally I would rather see judges have more tools to use than less. Its like mandatory minimum sentences, the more this stuff is regulated as “this is how it always is in every case” by Congress, removing the ability for judges to critically look at the picture for each case, the easier it is for lobbyists to craft the laws to always help themselves.

  9. 9
    Kary L. Krismer says:

    RE: b @ 4 – Interesting point on it costing other creditors by not allowing cram down. The way it works is the budget is set and disposable income has to be paid for 3-5 years. Now they might stretch things a little ( or a lot) more to pay a mortgage, but in theory any money that doesn’t go to mortgages will go to other creditors.

  10. 10
    Kary L. Krismer says:

    Tim, it’s not making a new bankruptcy law as removing a special exception. I’m not even 100% certain the exception was originally there in the 1978 bankruptcy code.

    Elsewhere I also suggested that Congress allow Chapter 7 trustees greater powers to sell properties in Chapter 7 where it is underwater and the debtor cannot maintain the payments. The typical Chapter 7 trustee is better at selling properties than the typical bank. Technically the trustees have that power now, but there’s an entity called the U.S. Trustee that oversees them, and they frown on the trustees selling over-encumbered property. Also, even though they technically have the power, it would be useful if Congress set the compensation the estate and trustee would get for doing the task.

  11. 11
    Kary L. Krismer says:

    On the appraiser issue, the main problem I see is seemingly there’s a middleman entity that takes a good portion of the compensation for an appraisal, just for assigning the appraisal out. I don’t understand how appraisers can do the work they do as cheaply as they do as it is, so this will just reduce the quality of the product.

    I’d prefer something more along the lines of what Tim suggests there, and that is making it a felony for mortgage brokers to pressure appraisers, and severely limiting their ability to contact appraisers other than in writing. Also, any contact with an appraiswer should be logged by address, so that a mortgage broker shopping appraisers would be caught.

  12. 12

    I agree that we should do everything we can to prevent fraud and collusion in the mortgage and appraisal process. I’m not convinced that this is the best way to do it.

    In the past when I have seen appraisals assigned by big out of area banks through these 3rd parties it has always gone wrong. Usually it means the 3rd party doesn’t have a local appraiser on their list which means they bring someone from out of area who – doesn’t know the market, doesn’t have access to the data, doesn’t know how to get access to the data.

    They end up creating a worthless appraisal that gets rejected by the underwriter and then the process needs to start over from the beginning.

    In rural areas and small markets this is going to be a mess. But I guess we get what we ask for. As Pogo once tried to teach us. “We have met the enemy, and he is us.”

  13. 13
    Racket says:

    RE: b @ 8

    You have way to much faith in judges.

  14. 14
    patient says:

    I fully agree with The Tim ,excellent news. We don’t need more escape routes for poor decisions. I don’t worry about banks going back to reckless lending. Heck the government are twisting their arms to the point of breaking them to make the lend more. I think they have had sufficient proof of what reckless lending will cost them to last for decades. Market and losses punishment is efficient enough.

  15. 15
    patient says:

    And the “escrow” type of independent appraisal function is absolutely awesome. The current constellation has been like asking for fraud and unethical behaviour.

  16. 16
    One Eyed Man says:

    RE: patient @ 14

    Sadly it took less than 2 decades to f___ things up again after the Savings and Loan fiasco and the RTC. Never under estimate the ingenuity of the american finacial industry. They’ll figure out a new way to make vast short term fortunes that endanger the stability of the system.

  17. 17
    MortgagedAndLost says:

    If the bank doesn’t have to allow cramdowns they don’t have to write down the loss, they just carry the foreclosure on the books at ‘mark to model’ or whatever they can wiggle around with.

    At worst, the borrower would be given a mortgage at the currently appraised value of the house…which is probably more than the bank could get in foreclosing and selling. However, they’d have to write down that loss as real immediately. That’d be pretty rough on banks capital reserves.

    In general the price of the house is based on what people can afford, right? So even if the banks had to charge more fees, that’d just drive down the price people could pay for houses…which we all like right?

    I view cramdowns as just a piece a normal phase of bankruptcy, what happens in general bankruptcy right now? Do Chrysler’s creditors get to foreclose on all of Chrysler and sell it off themselves? Unlikely. The ‘cramdown’ on bondholders is going to be pretty big.

    If you are 100% againt bankruptcy ok, but I don’t think cramdowns for individuals should have a special clause that makes them get worse treatment than Chrysler is going to get. I’d say that’s particularly unfair.

    I don’t see bankruptcy going away, and see no reason not to allow the bankruptcy judge to have the power to alter all contracts the same, that’s the purpose of bankruptcy.

    Also since the judge can’t alter the mortgage, that debt could kill the rest of your life. Even if you need a bankruptcy for something out of your control (you get laid off and cannot find work, health etc.), you can probably get rid of a lot of creditors and restart, but my understanding is the banks can come after you forever, bankruptcy or not. This seems plainly to a huge favor to the banks. HUGE.

  18. 18
    One Eyed Man says:

    RE: The Tim @ 2

    “Also, you know what else would have that effect? If we actually enforced the existing laws on the books, and started prosecuting the people in these banks for the massive fraud that they merrily carried out during the boom. ”

    I don’t mean to imply that the banks were always innocent, but I’m a believer that many of the borrowers were also at fault and often criminally liable for signing false loan applications. Unfortunately, there will probably never be a way to statistically determine who was at fault more often and, if in any single case it was both, who was at fault to a greater degree.

  19. 19
    One Eyed Man says:

    RE: Kary L. Krismer @ 10

    Kary, I don’t remember the history of the cram down either and I assume not allowing it in residential transactions was the work of the banking lobby. But I also wonder if part of the reason was the complexity and cost. Commercial properties are probably on average more valuable than SFH’s and to go through a battle over value with hearings and appraisers seems like it might cost more than the value being fought over in a lot of residential cases. Obviously, at bubble prices it might make more sense than in the historic market place.

  20. 20
    TheHulk says:

    RE: One Eyed Man @ 18

    “statistically determine who was at fault more” or “who was at fault to a greater degree”

    We can look at 3 cases:

    1. Someone on the transaction side (loan originator / mortgage broker / realtor / bank) were at fault. They artificially inflated the value of the house thru an appraisal that they knew was incorrect OR knew that this was a NINJA loan that the borrower could not afford and still financed the purchase of the house. The “poor innocent” house owner signed all the docs that gave him the loan and now he is “trapped” in his/her house.

    Fallout: Houseowner has to declare bankruptcy and walk away from the house. This is a good thing. It will make this person more cautious the next time they buy a house. The bankruptcy will stay on his record and will make any kinds of loans more expensive. The bank has to take a huge hit of about 30% of the house value on it books at some point and they will be more cautious about such lending in the future. Some people on the transaction side made money, probably a lot in the bubble years but now they have no income and are in an industry in which both volumes and transaction costs are going down. Those times will never be back and those clients will never be back. Do you really think there are jobs for these people in todays economic times?

    2. The house owner willingly falsified documents and fooled the bank.

    Fallout: The owner walks away and has a foreclosure on his credit record. When it comes to any kind of credit scenario and/or credit check for the next 7 years they will be screwed. People will charge more. I wouldnt be surprised if some people like these were denied loans in the future. The bank still has to take the hit on its balance sheet and should make them more careful in the future.

    Compare this to a cramdown scenario where the judge gets to decide how much to cramdown the mortgage. The bank still has to write down the loan so it is of no use to the banking industry. The homeowner who was either fooled or deliberately misled the bank gets to stay in the house at a reduced mortgage.

    If he was a fool, the system effectively rewards making a bad decision, since the mortgage is now presumably affordable. What is the penalty to prevent this person from making foolish decisions in the future? None.

    If the homeowner misled the bank (he can always claim he was fooled), it turns out to be a complete win win for him. He misused the system and now gets to stay in the house.

    I would rather punish the banks AND punish a few “innocent” homeowners (they did sign a legal contract) by not having cramdowns than reward anyone in this situation.

  21. 21

    LOU DOBBS WOULD HAVE A BONE TO PICK WITH THE TIM

    He asserted last night that the cram down bill block was the banking interest lobbies swaying good Democrats from helping the poor disadvantaged homeowners.

    How about the truth Lou, you really want home forclosure government help to perhaps keep your million dollar mansion from devaluing even further and/or faster.

    I’m not blaming Lou, we all vote our pocket books.

  22. 22
    Nick says:

    Cram-downs are dumb, imho… a bad solution for a problem motivated by the desire to let people keep homes they can’t afford, to the disadvantage of everyone else who tried to live within their means. You can already clear your debts in bankruptcy; cram-downs would just allow more unfair and arbitrary contract manipulation by the government, and we have too much of that already (see: “pre-packaged bankruptcy” for Chrysler BS).

    If you want to force the banks to be more careful and considerate of the loans they make, there are much better solutions. For example, you could require banks to hold a percentage of any “unsafe” loans they make directly on their own balance sheet (where “unsafe” is any loan without at least 20% down from the buyer and documented annual income of at least 1/3 the purchase price). You could also require that the amount of “unsafe” loans on bank balance sheets be less than a fixed percentage of their total loan portfolio, or alternatively less than some percentage of held non-leveraged assets. Either way, that would be much more effective at solving the problem than cram-downs, with the added advantage of not increasing everyone’s lending costs to compensate for more legal costs and loss potential.

  23. 23
    Cheap South says:

    RE: patient @ 14

    “Sadly it took less than 2 decades to f___ things up again after the Savings and Loan fiasco and the RTC. Never under estimate the ingenuity of the american finacial industry. They’ll figure out a new way to make vast short term fortunes that endanger the stability of the system.”

    Amen.

  24. 24
    Kary L. Krismer says:

    By MortgagedAndLost @ 17:

    IAlso since the judge can’t alter the mortgage, that debt could kill the rest of your life. Even if you need a bankruptcy for something out of your control (you get laid off and cannot find work, health etc.), you can probably get rid of a lot of creditors and restart, but my understanding is the banks can come after you forever, bankruptcy or not. This seems plainly to a huge favor to the banks. HUGE.

    We’re only talking about the lien against the property. The personal liability would be wiped out, absent reaffirmation of the debt, which is very uncommon locally. So the bankruptcy even without cramdown essentially converts the debt into non-recourse debt.

  25. 25
    Kary L. Krismer says:

    RE: One Eyed Man @ 19 – But you can do cram down in Chapter 13 on a car, so that sort of removes the cost argument.

  26. 26
    Kary L. Krismer says:

    RE: TheHulk @ 20 – In my experience, well over half the cases we’re talking about are refinance situations, not purchase situations. So it’s really more of a lifestyle problem than a purchasing problem–or at least house purchasing problem.

    And when you think about it that way, by refinancing the banks are converting debt that could be discharged into debt that would retain a lien, so refinancing activity greatly benefits the banking industry, and harms consumers.

  27. 27
    biliruben says:

    Beginning with the general assumption the 30% of Americans are dumb as a stick, and some of those buy a house, i would rather see the Banks who made the dumb loan take more lumps than the dumbasses that took out a risky loan.

    This just lead to more incentive to write bad loans.

    Cram-downs, early, often and in perpetuity.

  28. 28
    One Eyed Man says:

    RE: TheHulk @ 20

    Hulk – I don’t necessarily disagree with what you say, but what I really wish we could determine is how many fraudulent loans fall in each category. For example, were there 500,000 fraudulent loans or 5 million and of those how many involved fraud by the borrower and how many involved fraud by the loan officer, and if both were at fault, who was the one more at fault, etc. Biliruben may be a little jaundiced but I think bili may be right, there probably are a lot of stupid people who were sucked in by scammers. But then again, there apparently were a lot of stupid people loaning money too. Take AIG for example, how dumb were they to write all those credit default swaps.

  29. 29
    PhinneyDawg says:

    Here’s the problem I see with voting-down “cramdowns”: Most people who bought houses they couldn’t afford had no idea they were overpaying (they didn’t understand that it was a bubble). Whereas the banks KNEW they were financing a property that had no possibility of being held for a long period of time, but gave the homeowner a loan anyway in order to realize the profit of financing a new mortgage immediately.

    I can also see that cramdowns only delay the inevitable and thus are only another way to peel off the band aid even slower. Either way, the market will eventually expose the losers and reward the winners, and life goes on.

  30. 30
    patient says:

    RE: biliruben @ 27
    Is there really any incentive left to write bad loans that leads to foreclosure? Is it a viable business model for lenders? I think not and bankers and their owners must know it by now as well. There is of course incentive to write as large of a loan as the buyer can carry without going bankrupt but that’s kind of another story all together.

    btw, did you buy a home yet bili?

  31. 31
    Kary L. Krismer says:

    RE: patient @ 30 – The thing is, that was a viable business model for years. The loans that would be crammed down would be older loans. In fact, I think the legislation only applied to loans written before a certain date.

  32. 32
    patient says:

    RE: Kary L. Krismer @ 31

    Ok, so that make it even less likely to discourage lenders to make bad loans going forward since it do not apply to new loans. So that makes this a mute point and the question becomes if the borrower should get his prinicpal reduced at bancrupcy by law instead of by the bankers will. I say that would be a very bad law. The lender will take the hit they signed up when they wrote the loan without this law i.e whatever the colleteral do not cover and the borrower will still have the relative luxuary of not having to pay back what they borrowed, isn’t that gracious enough?

  33. 33
    EconE says:

    If I was a toxic loan-owner, I wouldn’t want a cramdown. Total suckers bet.

    Think about it.

    Prior to cramdown: Homeowner will definitely lose home (for whatever reason)

    During cramdown: Homeowner will think that a colonoscopy is less “invasive”.

    After cramdown : Due to the thorough nature of the “financial colonoscopy”, loanowner learns that you can actually squeeze blood from a turnip…and he, the loanowner, is that turnip…for the next 30 years…maybe more.

    Without cramdown: Foreclosure…Homeowner is FREE!!! (provided it is a non-recourse purchase loan)

    I’d rather start out from ZERO (with foreclosure) than have the government and banks “calculate” just how much of a debt slave I should/will be for the next 3 decades. Then I could come back and repurchase a house when the prices come back to reality.

  34. 34
    Kary L. Krismer says:

    By EconE @ 33:

    Then I could come back and repurchase a house when the prices come back to reality.

    You’re making a pretty big assumption as to what the availability of financing will be down the road after a foreclosure. In the past the premium has been relatively slight. I suspect the banks will discover that’s one of the mistakes they made.

  35. 35
    b says:

    I think a lot of people are missing the point. These people are not “walking away” from their homes, they are going into bankruptcy. The current protection of the primary residence means that the homeowner can get their other debts slashed enough such that they can continue to afford their overpriced home. A bankruptcy judge is going to be hesitant to force a person to be foreclosed on their only residence. Now, some may decide to foreclose anyways, but that is besides the point. With a cramdown, the lenders will now know their loan is not protected if the buyer decides to stop paying and also if the buyer goes into bankruptcy. This will force lenders to more carefully consider the buyers total debt amounts and income. If a buyer has a bunch of other debt or unsteady income, the lender would still be more likely to give them a home loan because if the buyer goes bankrupt the lender will get special treatment in court. If there is no such special treatment, the banks will be more careful about loaning because they can now get screwed in both the case of foreclosure and bankruptcy.

  36. 36
    patient says:

    RE: b @ 35

    “A bankruptcy judge is going to be hesitant to force a person to be foreclosed on their only residence. ” I say this is the problem in that case. This is the first thing they should do to sanitize the debt burden of someone in bancrupcy, foreclose on the home which is likely in 99% of the cases the biggest burden. So the solution should not be cram downs but to remove the primary residence protection in a bancrupcy.

  37. 37
    calvis says:

    I want to say that I have been a responsible homeowner for the past 17 years who is trying to take advantage of the current market condition. My target price is between 1.6 to 2.2 million. While I have great credit and sufficient down payment i cant find any lenders willing to work with me.

    I need a qualification letter just to make an offer on a short sale and no one is returning phone calls or responding to emails after I fill out their application. What gives?

  38. 38
    patient says:

    RE: calvis @ 37

    I would guess lenders are skittish about handing over 2m even with a 20% down payment in today’s market, i know I would. That price range could be 30% or more down, two years from now. Could be expensive. If you have 30% or more to put down it sounds strange.

  39. 39
    biliruben says:

    “Btw, did you buy a home yet bili?”

    Yup. Moved in last month.

  40. 40
    David Losh says:

    We are again talking about the effectiveness of band aids on a gushing wound. It is a global economic credit crisis. A person holding onto the family home in bankruptcy is a good thing. It is a secured debt. In time that debt may become a stepping stone to financial responsibility.

    Unsecured debt is a drain on the entire economy. We should know that by now, but the truth is economic conditions of the last ten years have forced more people to use credit. Business uses credit.

    Business relies on credit so much that without credit businesses are failing. As businesses fail they lay people off. The economy is shrinking.

    So a person with good intention, even good income, is now faced with a debt structure that was comfortable in better economic times. I see it at least once a week now. People who are hard working with savings are being laid off. They are hoping to make it until things get better.

    Bankruptcy is an option for those people who are in a time of unprecedented economic hardship. You are saying it won’t happen to you, but you need to get out of the house more.

    The cram down was a good tool. Banks won’t allow it because it costs them money. Foreclosure is a complicated issue, but banks wanted it, got it, and are making profit from it. Foreclosure leaves the banks in control of the market place.

  41. 41
    patient says:

    RE: David Losh @ 40

    “A person holding onto the family home in bankruptcy is a good thing. It is a secured debt. ” Huh? Isn’t that the whole problem that is recking havoc in the world economy? That this debt is not so secure as they thought?

  42. 42
    patient says:

    RE: biliruben @ 39

    Congrats, as I understood it your family could not stand waiting any longer and you had more than sufficient funds and common sense to keep a secure financial position after the purchase. Did you find your “dream home” or did you settle for “good enough”?

  43. 43
    Kary L. Krismer says:

    By patient @ 36:

    RE: b @ 35

    “A bankruptcy judge is going to be hesitant to force a person to be foreclosed on their only residence. ” I say this is the problem in that case. This is the first thing they should do to sanitize the debt burden of someone in bancrupcy, foreclose on the home which is likely in 99% of the cases the biggest burden. So the solution should not be cram downs but to remove the primary residence protection in a bancrupcy.

    Well first, I’ve always said the number one cause of bankruptcies are car loans. It’s really more a straw breaking a camel’s back sort of thing though, because #1 is probably credit cards. But what tips people over more than almost anything is a car loan.

    Second, most chapter 13s are done to save the home, so if you removed the protection entirely, the point would be moot.

  44. 44
    Scotsman says:

    What a bunch of cry-babies. Everyone was happy to earn the fees, take the commission, spend the appreciation on the way up. Now that the bubble has popped, even thought most completely understand the situation, no one is willing to do the right thing.. Everyone is looking for the way out that comes at the other guy’s expense. Spineless, pandering politicians aid the dysfunction by trying to help everyone pretend wonderland will return. It isn’t going to happen. I’m glad this didn’t pass- it leaves at least the premise of contract law intact, speeds the cleansing, and shows everyone that they are indeed responsible for the consequences of their actions. Maybe they’ll put a little more effort into issues affecting the rest of their lives.

  45. 45
    Jonness says:

    I got to go with Scotsman @44 on this one. What ever happened to being held accountable for your actions? These people signed a contract to pay a certain amount per month to buy the house. If they can’t do that, then they lose the house. End of story.

    Some people complain that the buyers didn’t know the details of the loans when they signed the contract. What are we dealing with here, adults or babies? If people are too lazy and irresponsible to read a contract that accounts for half of their earnings for the rest of their lives, then they’re too lazy and irresponisble to own homes. RTFC!

    Foreclosures drive down house prices, and that’s a good thing. You guys seriously need to stop trying to bubble up house prices to unaffordable levels. That’s what created this mess in the first place. You don’t solve a problem by doing what caused the problem in the first place. This is not rocket science; it’s common sense.

  46. 46
    The Dude Abides says:

    The S&L crisis of the late 80s and early 90s had another element, other than bad loans. The gov. deregulated rates paid to depositors and made them ‘floating’, and with the S&Ls holding 30 year fixed rate mortgage loans, it was their death knell. In fact many S&Ls had few bad loans, but the ‘negative gap’ caused the interest earned from their loans to be less than the interest they paid their depositors, thus forcing them into liquidation.

    I’ve lurked on this forum for years and since I moved to Bellevue a year ago, I’ll open the pie-hole once in a while. Alas, I’m a lowly renter.
    My name is Tim, so I had to use a moniker from one of my favorite movies, The Big Lebowski.

  47. 47
    wreckingbull says:

    RE: patient @ 38 – Bingo.

    That 20% down has a near certainty of going ‘poof’ in the next few years when you are talking ridiculous price ranges like that. Banks know this and their refusal to lend is refreshing.

    My question for the OP: why are you borrowing to live in a home in that price range?

  48. 48
    calvis says:

    By wreckingbull @ 47:

    RE: patient @ 38 – Bingo.

    That 20% down has a near certainty of going ‘poof’ in the next few years when you are talking ridiculous price ranges like that. Banks know this and their refusal to lend is refreshing.

    My question for the OP: why are you borrowing to live in a home in that price range?

    I am really not following your question here. Most people borrow money for their house whether is it under 1 million or over 1 million. I think with my yearly income of 480,000 that I am more than capable of handling such a mortgage. If my short sale does goes through the bank and/or builder would eat $700,000. That would give me a tremendous head start with accumulating equity.

    I have many friends that accumulated many properties during the boom and now they are hurting. I choose a different strategy of waiting for the bubble to burst and then make my move. Just because the price of properties have dropped significantly doesn’t mean that people don’t still get mortgages.

  49. 49
    Scotsman says:

    EconE @ #33 makes a great point- why fight for the cram-down when it will invariably be cheaper to just walk? Why try to save an asset with zero equity when it’s only going to fall further? While we’re enjoying a little seasonal and cyclical bear market rally, no one with a rational hold on economic fundamentals is thinking of it as anything more than a chance to take one last breath on the way down.

    People forget that even without the housing bubble- yes, WITHOUT the housing bubble, the country likely would have been heading into a period of flat to negative growth based solely on the burden of federal obligations such as social security, Medicare, etc. This country was technically insolvent before the housing crisis hit. The current mess only adds to our existing financial burdens.

    Think about this: With a national debt exceeding $10 trillion and headed for $17 trillion, the only reason the U.S. is still solvent is because interest rates for short term t-bills have been at nearly zero, and the debt load is supported by short term debt. Should rates shoot up to a more normal 8-10% and the yield curve flatten, interest payments alone would consume between a quarter and a third of the entire federal budget. The required increase in taxes when this eventually happens will be the final nail in the economy’s coffin.

    I hate sounding like a broken record, but there are too many short term thinkers out there who are going to get hurt by listening to deceitful, self-serving political and financial interests. If you buy a house now, or stocks, or likely soon even t-bills, you will lose a large percentage of your money. Don’t let taking advantage of a “good deal,” as seen against the distorted past, lock you out of a future great deal based on a sustainable reality.

  50. 50
    Kary L. Krismer says:

    RE: calvis @ 48 – Most people who buy $1,000,000 plus properties don’t get big loans. A lot of them are even cash or they’ll only get a conventional loan under $500,000. That’s probably why you’re having a hard time finding financing–it’s not that typical.

  51. 51
    Kary L. Krismer says:

    By Scotsman @ 49:

    EconE @ #33 makes a great point- why fight for the cram-down when it will invariably be cheaper to just walk? Why try to save an asset with zero equity when it’s only going to fall further?

    I hate sounding like a broken record too, but walking is an incredibly stupid decision. One that should only be made if you have no other choice.choice. In the order of things there’s short sale, bankruptcy and walking, with walking being the worst thing you could do.

    Also, it’s far from certain that prices will decline in the future. I agree the slight upturn we’re having might be just a blip, but that doesn’t mean that 2-3 years from now prices might not be significantly higher, at least in nominal terms (ignoring inflation).

  52. 52
    Scotsman says:

    RE: calvis @ 48

    I have a number of acquaintances with your level of income or more. The vast majority are living well below their means, getting as liquid as possible, completely out of debt, and waiting. Today you can buy a $2.0MM home for $1.4MM. In three years there’s a great chance you’ll be able to buy several of them for that, along with all other manner of assets and productive capacity for pennies on the dollar. Depressions make many people very, very, wealthy at the expense of the majority- who do what the majority do. You can’t live with the upper 1% by doing what the other 99% do. This is win-win. Those who live simply and save now will at worst end up with a pile of cash, freedom. and additional security in 3-4 years. They may have the opportunity to take advantage of once in a lifetime deals and become very wealthy. Those who buy declining assets, financed, will suffer healthy losses, or at best hold even. Is life about the house you live in? Who are you impressing? What’s the rush?

    Status: buying things you don’t really want and can’t afford to impress people you probably wouldn’t even like if you actually met them. Cheers.

  53. 53
    Scotsman says:

    RE: Kary L. Krismer @ 51

    Kary- I’m betting my substantial entire life’s savings that prices, real and nominal, will fall much further not only for housing, but for all asset classes. All of my own money is on the line, walking the walk. I’m semi-retired, far from 65, and spend a great deal of time and money researching and studying what is likely to happen in the future. I have been right about everything from 2005 on when it became obvious to me that we were entering an unsustainable phase of economic history. The only thing I’ve been wrong about is the timing, having been consistently early in my calls. What can I say, it’s hard to factor in the stupidity and willful deceit of the federal government and national media. But being early doesn’t cost much in this environment, especially when the conclusion, despite your protestations, is locked in. But even now, I have some well educated, very smart friends who can’t see the inevitable… because they don’t want to. I fight on a daily basis to forget personal pride, ego, and desire, and to focus only on reliable data and known relationships. The data leads- not my desires, beliefs, or hopes and dreams. Can you claim thew same? And as I said in the prior post, if I’m wrong, I win- little to nothing has been lost. If I’m right, I win big. What’s three years from an 80- 90 year life when there is so much potential gain? Seems simple to me.

  54. 54
    Jonness says:

    “And as I said in the prior post, if I’m wrong, I win- little to nothing has been lost. If I’m right, I win big. What’s three years from an 80- 90 year life when there is so much potential gain? Seems simple to me.”

    I think you are smart to develop a theory of the future. However, one must be extremely careful to not get attached to that theory to the point of ignoring incoming evidence to the contrary. Visions of the future must be constantly evolving, and the predicting person must remain attached to nothing other than facts, data, and truth.

    There is a danger of becoming attached to the idea of falling asset prices bringing much personal wealth in the future. I say the above because I’m doing pretty much what you are doing and holding as much cash as possible. However, I find myself attached to the idea of getting a great deal in the future, and I recognize this could bias my viewpoint as the downturn continues to unfold. For instance, if I don’t remain astute, run-away inflation could eat up my cash pile. I’m pretty certain I’d be smart enough to get out of cash if the climate starts to change, but you never know.

    I’m not criticizing you. I’m just recognizing the danger and wondering what steps you are taking to lesson your attachment to the desire of lower prices in the future and strengthen your position as an ubiased observer?

    Like you, I am (so far) all in on lower prices in the future. However, the first lesson in investing is diversification. Hence, I percieve potential danger if I fail to remain astute and unbiased.

  55. 55
    Herman says:

    RE: calvis @ 48 – How secure does a bank think your annual income of 480,000 is? Where’s it coming from? The numbers might make sense today but the bank is holding the bag if your income drops to zero.

  56. 56
    Herman says:

    RE: Scotsman @ 53 – Don’t you think you should develop a set of scenarios, and hedge for multiple possible futures? The guys who work in strategy seem to like that approach. Building a single model and then betting everything on it — not many have the risk tolerance for that.

  57. 57
    Herman says:

    RE: b @ 35 – I have to say, b, you’re doing a good job swaying my opinions on the cramdowns.

    Like probably everyone else, I imagined this scenario: A guy has no debt other than his home loan, decides he doesn’t want to pay it anymore, and declares bankruptcy to see if he can get a cramdown out of it. Jerk.

    In reality, for the scenarios where a cramdown comes into play the guy probably has a heap of medical bills and credit card debt, and under all that accumulation he decides to go under.

    Now consider, the price of all debt is influenced by the risk of the lender. If home loans become more risky due to bankruptcy scenarios, then this risk will get priced into the cost of the debt. It may all fall to the “low end” borrowers, with less impact up the credit scale, but probably everyone will pay a little more for their home loans.

    Meanwhile, the costs of bankruptcy risk are already priced into your medical coverage and other forms of credit or deferred collection. If they are at LESS risk because the mortgage lender will have to absorb NEW risk, then the prices of those things other would be in theory be lowered.

    So, the cramdown rule in the long term would increase the cost to secure home debt, and reduce the costs of more useful things like medical care. And that is the right direction.

  58. 58
    ElPolloLoco says:

    By The Dude Abides @ 46:

    I’ve lurked on this forum for years and since I moved to Bellevue a year ago, I’ll open the pie-hole once in a while. Alas, I’m a lowly renter.
    My name is Tim, so I had to use a moniker from one of my favorite movies, The Big Lebowski.

    Well, that’s just, like, your opinion.

  59. 59
    Mike2 says:

    Cramdowns in bankruptcy help separate the “ruthless defaulters” hoping to score a loan mod from the people who are truly insolvent. I believe most people that simply can’t or don’t want to pay their mortgage will still walk away. Bankrupty show’s you’re serious.

    Part of my desire to see the bankrupcy cramdown bill go into law was a direct reaction to the Bankruptcy Reform Act passed in late 2005. Banks were able to push legislation making it harder for individuals to get debt relief right at the time when lending criteria were hitting new levels of stupidity. To me that’s predatory, even if the borrowers should have known better. Clearly they did not.

    Finally, banks made it far too easy for people to roll consumer debt into mortgages. The line between secured and unsecured credit became blurred. Let’s stop pretending these home equity lines and cash out re-fi’s were actually secured by the value of a home and start treating them as regular consumer debt that should be eligible for discharge.

  60. 60
    Kary L. Krismer says:

    RE: Scotsman @ 53 – Whatever. Go to any period of time, find a board discussing any stock, and you’ll find people in the same boat as you, sure that the direction of the stock will go a certain way, and putting all their money behind it.

    We’ve had the inflation/deflation debate a lot here, and I’m still on the fence on that. I would just warn people to get financial advice from a professional prior to making any decisions. I really don’t think the walk-away decision is likely to be high on many advisors’ lists.

  61. 61
    Kary L. Krismer says:

    RE: Herman @ 57 – That’s actually a pretty good analysis, but I’d again point out I don’t think the cramdown legislation would apply to new loans, so I’m not sure how much it would affect lending.

    Also, as you point out, they’re likely to have a lot of credit card debt, so the decision is more likely to be between Chapter 7 and Chapter 13. Chapter 13 not only gives the other creditors a chance to be paid something, but also it forces the debtor to live on a budget for 3-5 years, and that’s not only difficult, but a good thing for them in the long run. So anything that makes Chapter 13 more attractive than Chapter 7 is a good thing.

  62. 62
    Scott Weitz says:

    Scotsman @ 53…

    When you say you put it all on the line, what does that entail given your dire predictions? I ask because I tend to agree with you.

    For what its worth: the only plays I make in the stock market is trading the SRS (2x short commercial real estate), and long commodities as I see it as a win win right now: if the economy improves, demand increases and commodities rise; 2) if the economy continues to falter, the dollar will collapsed and dollar based commodities will rise.

    Kary-

    I enjoy your posts, but I have to disagree with you about ‘walking away’. For some, its the right thing to do (especially in states where home loans are non-recourse). Even in Washington, most loans are non-recourse unless the bank files for a ‘judicial foreclosure’. In my experience, the consumer can threaten BK in this situation, and the bank will save the extra time/ expense and continue in a trusee sale where most are protected from a deficiency. The BK ‘trump card’ can only be played every 8 years, so I think its best to save that for last.

  63. 63
    David Losh says:

    RE: Kary L. Krismer @ 61

    Thank you Kary for making the only argument that makes sense.

    Paying off the home gives the borrower something. Paying off credit cards give the borrower nothing. Chapter 13 gives a choice. Anything that can be done to make the choice for Chapter 13 rather than Chapter 7 is best for the economy.

    Home prices are secondary to paying off debt. The only way I see to make homes more affordable is to trade them as free and clear. No more mortgages would reduce the price of housing.

    My original premise way back when is that credit is what has driven up the price of all goods. Bankruptcy gets rid of debt. Anything and everything that can be done to get rid of all debt is a good thing.

  64. 64
    Jonness says:

    “So, the cramdown rule in the long term would increase the cost to secure home debt, and reduce the costs of more useful things like medical care. And that is the right direction.”

    And allow people to not have to pay a real downpayment because now all the people who live within their means will shoulder the burden of risk and expense for the mistakes of those who don’t choose to live within their means.

    I never thought I would hear myself saying this, but many of you are commies. I tend to think of it as you were over-parented and never had to learn the price of making poor decisions. You were taught from an early age that you never really have to be an adult because if you mess up, your parents will always be there to pick you up and make you whole again. Now that you’ve aged, and your parents can’t do this for you anymore, you want government to take over the role. You want to pay for everyone else’s mistakes because you fear in the future you will make your own brand of mistakes, and there might not be anyone to pick you up and make you whole again. Thus, you believe in creating laws to force those of us who no longer have a need to have our hands held to pay for the mistakes of those who do. One law leads to another, and that in turn leads to another until the issue is so confused that nobody can figure out what to do. The end results is, we don’t have to be responsible for our decisions, and nobody can figure out or even cares as to why.

    Please convince me I’m wrong, because I can see no other explanation at the moment for your desire to burden the responsible with the risk and costs of the irresponsible. It’s really rather simple. You sign a contract. You default on that contract. The terms of default written in the contract are executed. It appears this goes against the methodology by which many of you have been raised, so it is difficult for you to accept. Thus, you need more laws and complexity to bury the underlying reason for you actions.

    Flame suit on and ready for my the well-deserved massive scorching :)

  65. 65
    Kary L. Krismer says:

    RE: Scott Weitz @ 62 – Scott, I view it just the opposite. I’m not sure what the repeat filing limitations are under the new act, it used to be 7 years for Ch 7 and basically none for Ch 13. Whereas for a foreclosure–that’s forever.

    As a practical matter, both should be avoided if possible. Back when I was doing bankruptcy law I’d turn down most people who had less than $20,000 of unsecured debt. I just didn’t feel right filing them into bankruptcy, absent special circumstances. So it’s not as if I’m a big fan of bankruptcy. Also, most people who would need to walk away would also likely need a bankruptcy. There are very few people delinquent on their homes that don’t also have a lot of other debt.

  66. 66
    Kary L. Krismer says:

    RE: Jonness @ 64 – I think you’re personalizing it too much. We’re dealing with this from a third party point of view, not from the point of view of each of us managing our own affairs. We’re assuming someone is in financial trouble, for whatever reason, and determining what the best solution is in general. Part of that goes to what would again make them a productive member of society. I think that forcing them to live on a budget for 3-5 years is better for them, and society, than having them be foreclosed and/or filing Ch 7. Also, while a lot of you think lower real estate prices is a good thing, I don’t think that’s a good thing if the lower prices are simply the result of banks being incompetent managing their holdings.

  67. 67
    Marc says:

    Kary & Scott,

    Don’t forget that people who walk away from a home with a first and a second have the added risk that the second lienholder will come after them personally based on the promissory note. Just yesterday I advised a new client on this very issue. They were considering selling their home to a company that buys homes in distress and then going out and finding a 3rd party buyer and then arranging the short sale. The contract they’d been presented was probably the worst I’ve ever seen in terms of being extraordinarily one-sided.

    The balance on the client’s second mortgage will likely be in the $150,000 range when the first gets foreclosed. I cannot imagine that the second lienholder will simply write off that debt after the first lienholder forecloses so I explained that the 2nd lienholder has every right to sue for breach of contract and seek to collect and will likely do so.

    The client has other assets and the second lienholder need only pull the original loan app to see where they’re at. Bankruptcy isn’t a good option for this client because he has no unsecured debt. So my advice is, whatever you do, do not walk away. The house at issue and the total debt have an extremely good chance for a short sale and they don’t need a third party short sale company to do it for them.

  68. 68
    Kary L. Krismer says:

    RE: Marc @ 67 – Right. People with 80/20 loans are in a much worse situation than people who went with a single loan with PMI. I was never a fan of 80/20 loans, except perhaps where the buyer was selling something else and the 20 was more of a bridge loan.

    When people make their decisions they seldom think of the worst case scenario. But when you get a second loan, you should always assume the worst and that you’ll have personal liability on that loan because even in good markets there’s no guarantee that the second position creditor will protect their interest if the first forecloses.

  69. 69
    calvis says:

    By Scotsman @ 52:

    RE: calvis @ 48

    I have a number of acquaintances with your level of income or more. The vast majority are living well below their means, getting as liquid as possible, completely out of debt, and waiting. Today you can buy a $2.0MM home for $1.4MM. In three years there’s a great chance you’ll be able to buy several of them for that, along with all other manner of assets and productive capacity for pennies on the dollar. .

    The problem with your analysis is I don’t see labor and material costs used to build luxury type of homes going down greatly in the state of Washington. Land prices – yes. Labor and materials – no. In addition I don’t see land going down greatly in good areas that I am targeting. Washington is a big union state and the unions will resist any kind of deflation of wages. My wife and I want a new home so I won’t have to go though upgrade hell like I did in our current home so that is what I am targeting right now.

  70. 70
    calvis says:

    By Kary L. Krismer @ 50:

    RE: calvis @ 48 – Most people who buy $1,000,000 plus properties don’t get big loans. A lot of them are even cash or they’ll only get a conventional loan under $500,000. That’s probably why you’re having a hard time finding financing–it’s not that typical.

    Lots of foreigners are coming in and paying cash to purchase multi million properties therefore bypassing the traditional loan process because citizenship requirements.

  71. 71
    SeattleMoose says:

    “This is good news, in my opinion. Banks should be eating the losses on these homes in the open market, not by writing down the principal to help the home “owner” stay in a house they obviously simply cannot afford. So you lost “your” home—yeah it sucks, but go find a cheap rental and move on. Maybe next time you buy a house you’ll be more prudent.”

    That pretty much sums it up……now I pray that we all don’t die from….PORKULOSIS!!!! What a big todo about nothing.

  72. 72
    EconE says:

    By calvis @ 70:

    By Kary L. Krismer @ 50:

    RE: calvis @ 48 – Most people who buy $1,000,000 plus properties don’t get big loans. A lot of them are even cash or they’ll only get a conventional loan under $500,000. That’s probably why you’re having a hard time finding financing–it’s not that typical.

    Lots of foreigners are coming in and paying cash to purchase multi million properties therefore bypassing the traditional loan process because citizenship requirements.

    That’s not what I’m seeing down here in Cali. I’m seeing LOTS of giant mortgages.

    The Irvine Housing blog is starting to step outside of Irvine to document some of it.

    Have you ever seen a Fifty Million Dollar refinance?

    I have.

  73. 73
    Herman says:

    RE: Jonness @ 64 – So there’s this get-out-of-debt rule called “bankruptcy” and it makes us all commies. The discussion is taking for granted that this rule exists, and we’re talking about how best to implement it wrt mortgage debt. Bankruptcy itself is not on trial here.

    If you’d like to take the conversation in another direction, you should start by making the argument that debtors prisons are superior to bankruptcy laws, or something like that. In any case what you are saying has no bearing on what has been said in this thread, and you shouldn’t judge the past comments against your new argument.

  74. 74
    wreckingbull says:

    RE: calvis @ 69 – Unions can resist all they want, but it will not do any good in a deflationary environment. They don’t set the prices of their goods and services – the market does. The UAW put up plenty of resistance and we can all see how that ended. I am with Scotsman on this one. High-end homes are the most vulnerable to future deflationary forces.

  75. 75
    b says:

    RE: Jonness @ 64

    I think its important to two remember two points. First, bankruptcy in non-bubble times is just as often caused by terrible circumstance as it is by irresponsibility. Second, people in every society are a bell curve of intelligence. Most people have a fundamentally terrible understanding of both money and math. And really, once they are adults there is not much that is going to change that, even if they get punished for poor decisions studies have shown adult brains are amazingly resilient to change. The fact that many people are really terrible at these things is very sad, as a scientist myself I hope that some day the level of general mathematical knowledge will increase considerably.

    Now, you consider much of this “big government is your mommy”, but in reality its that most people you meet on the street are rubes just waiting for someone slightly more sophisticated to take their wallet. That is why I think its good to have judges and the court look at the merits of a persons situation and make some of these decisions, on if the lender or debtor was more in the wrong and how to best remedy the situation. Nothing is ever cut and dry, and I think you are letting your silly political brainwashing (commies? really?) and hatred of bubble times cloud your judgement. These are changes that will last well beyond the correction, and may help you down the road if you have a catastrophic illness in your family ruin your currently responsible finances.

  76. 76
    Kary L. Krismer says:

    RE: calvis @ 70 – That may be true, but it would be impossible for me to determine since the records only show the name and that would require making assumptions I don’t want to make. BTW, the last time I did the analysis of financing on higher priced homes was here:

    https://seattlebubble.com/blog/2009/02/25/case-shiller-tiers-low-tier-falls-over-15-in-a-year/#comment-67108

  77. 77
    Kary L. Krismer says:

    By wreckingbull @ 74:

    RE: calvis @ 69 – Unions can resist all they want, but it will not do any good in a deflationary environment. They don’t set the prices of their goods and services – the market does. The UAW put up plenty of resistance and we can all see how that ended. I am with Scotsman on this one. High-end homes are the most vulnerable to future deflationary forces.

    I think the main reason the high end homes are hurting is the stock market. That’s where a lot of people held their wealth, and a lot of that wealth evaporated.

  78. 78
    Kary L. Krismer says:

    RE: b @ 75 – The average American is sadly undereducated. The best example of that was perhaps the outrage at California utilities during their energy crisis. Consumers thought they were getting overcharged when the prices hadn’t even gone up. They were mad at the utility even though the utilities were losing money on every kilowatt sold to the consumer. They didn’t understand basic economics enough to understand that it was basically price controls leading to the outages.

    Or more recently the profits of oil companies. When you own a lot of a commodity, and that commodity triples or quadruples in value, you’re going to make a lot of money. It doesn’t mean they’re overcharging, unless somehow you expect a corporation to sell assets at less than market value.

  79. 79
    David Losh says:

    RE: Jonness @ 64

    As long as we are going to extremes I’m going to say that banks and financial institutions are engaged in unAmerican activity. Anti American terrorists have an ally in our banking and financial markets.

    Banks can fix the mess they made. They don’t want to. Banks are more concerned with generating fees than collecting debt.

    Banks want our tax dollars. Banks want all the free money they can get. Why is it when we give money to multi billion dollar global corporations it’s a bail out while people who take a fraction of tax dollars in order to eat are welfare recipients?

    Banks are liars, cheats, and thieves hiding behind small print in fifty page documents. Financial Institutions have destroyed massive amounts of wealth with paper profit products, but hey, the people they swindled should just pay up.

  80. 80
    Mikal says:

    RE: Kary L. Krismer @ 78 – California power rates were being manipulated by Enron.

  81. 81
    Mikal says:

    RE: Jonness @ 64 – Agreed. My new favorite in all this is the Teachers Association of Minnesota wants their pension fund losses to be bailed out by the Minnesota State government. What a bunch of nimrods.

  82. 82

    RE: Kary L. Krismer @ 78
    I don’t think it’s so cut and dried. Those poor oil companies, why does everyone hate them so much? All they did was make trillions of dollars of profit because of the rising commodity market.
    But its not so simple. The major oil companies have wielded a lot of political power, so much so that our government has intervened on their behalf to militarily overthrow democratically elected governments ( See Iran, 1953, etc).
    If they were just simply running a business trying to sell chewing gum I’d have no problem with them, but if oil is such a vital part of our national interest and our national security to the extent that we will make sure that their oil is not nationalized by another country, then shouldn’t they in turn have some responsibility to the people of the country which has bailed them out via military means?

  83. 83
    Tim McB says:

    Jonness @ 64:

    “It’s really rather simple. You sign a contract. You default on that contract. The terms of default written in the contract are executed.”

    In defense of Jonness I agree for the most part (the commie callout was a bit harsh.) It seems that most people defending cramdowns seem to have the mindset that one’s house is everything and depriving them of their property is a violation of their rights. It isn’t everything and property is not a right. While people go to extraordinary measures to save their homes while under financial stress (sometimes foolishly), life does not end with the loss of property. It isn’t the 1800’s where only landholders could vote. And being (or becoming) a renter isn’t second-class citizenship. And I believe contracts need to be honored: if someone’s word is no good what value is it? Have we no honor left in our society?

    b @ 75 said:

    “These are changes that will last well beyond the correction, and may help you down the road if you have a catastrophic illness in your family ruin your currently responsible finances. ”

    Its hard to think what as a person would think or do in that situation but if my wife was diagnosed with cancer and we spent $200,000 fighting it and she got better but it forced us to declare bankruptcy, the last thing I’d be thinking about is my house, because my home (wife, family, you know the actual important stuff) just got better. I imagine losing a home’s a sad endeavor but that coupled with bankruptcy I would think actually gives people a true fresh start with no mortgage around their neck. We place wayyy too much value on a SFR, and not enough on what’s inside (and I’m not talking about the Pottery Barn funiture and the granite contertops.)

  84. 84
    Kary L. Krismer says:

    RE: Mikal @ 80 – That was only a very tiny portion of the problem, and a problem that standard economic theory would predict when you implement such a stupid pricing scheme. Enron was mainly a scapegoat for the stupid decisions made by California politicians. If Enron was a major part of the problem, they wouldn’t have gone broke, they would have been very profitable.

  85. 85
    Kary L. Krismer says:

    RE: Ira sacharoff @ 82 – I would not disagree with any of that, except perhaps the Iran comment. Arguably that didn’t work out to well for them, while arguably it did since perhaps it helped create the legal cartel that did benefit the oil companies indirectly.

    But my point wasn’t to say that oil companies are run by a bunch of great guys, but simply to point out the average American doesn’t understand why the oil companies were making so much money. They thought it was simply because they decided to screw us all over by raising the price of gas.

  86. 86
    Kary L. Krismer says:

    RE: Tim McB @ 83 – Good points, but I think you could go further.

    1. For a lot of these situations the bank is going to take a loss anyway, perhaps even a greater loss in foreclosure. Also, I believe the legislation had some pre-qualifiers, including possibly requiring that the debtor tried to negotiate with the bank. Allowing this legislation would thus give the banks greater motivation to at least be responsive in those mortgage modification situations.

    2. There seem to be two sides to this type of issue. Some people say ignore your contract obligations and walk away if the value of your house declined, even if your contract payments didn’t increase. Some here are saying you shouldn’t be able to alter that obligation through bankruptcy.

  87. 87
    David Losh says:

    What is bothering me is the concern people have for banks, and now the oil companies.

    Why would anyone think that these bad product providers will do anything good?

    We might as well protect tobacco companies. They are a huge industry engaged in stress reduction.

    There are alternatives to both loans and oil. The sooner we get to that point the more chance we have for survival.

  88. 88
    Kary L. Krismer says:

    I was just using oil companies as an example of an industry that the average consumer doesn’t understand. I don’t think anyone is to the point of proposing a bailout for them just yet! ;-)

    As to the concern for the banks, I don’t think it’s that. I think it’s more the jealousy, for want of a better term, that people have when certain people are getting breaks that they are not also eligible for. It doesn’t seem fair, and to some extent it isn’t. But unlike some of the refinance plans, at least this one requires the filing of a bankruptcy, which is a significant negative. It’s not like you’re going to have two neighbors who bought at the same time, one delinquent and gets a cramdown, and the other saying: “It’s unfair that I can’t file a Chapter 13 too!”

  89. 89
    David Losh says:

    It took me a while to appreciate the oil company example. It is similar to banks.

  90. 90
    Vincenzo says:

    I admit, I have a love/hate relationship with this site. Mostly, I think very good information is put up for the public to consider. However, on regular occasions, The Tim gets too full of himself and makes an off the cuff jive comment that has no basis in reality, but rather, just present his own unfounded opinions.

    This post is one of those. Tim, you make an erroneous assumption that people in trouble with buying high in an emotional market somehow bought houses they could not afford. What about people that bought and then lost 25 to 35 percent of the purchase price. Now they are paying on a house that makes no sense.
    Why not let the courts force the lenders into being civil and real? What possible sense could it make to beat the homeowners and the lenders because the lenders are stuck in being idiots? That is what government and the courts are for; to make sense when none of the parties are meeting in a real way.
    The market is correcting from total greed, we need all the help we can get to help it return to reality with all parties forced to the middle with the least damage possible.

    Seattle is the only market in the country that has not YET corrected to the extent that the rest of the country has.

    JUST WAIT. The Seattle job market drop has caused the rental market to tank. That is because in the recession/depression people can’t afford to pay their RENT, much less a overvalued mortgage.

    Stop being so smug and start looking at the reality of the current situation. Telling your readers that it is good that homeowners & lenders deserve to be homeless and stiffed for the money is just plain stupid.
    Apparently, you have one of those boring and stable jobs that is not currently threatened. Not everyone is in that position.

    Open your eyes to what is going on.

    Seattle is very likely going to go down much further. It is a snowball effect. Developers can’t sell, homeowners can’t pay, lenders can’t lend, business can’t sell…..
    We need to pull together as a society and fix this with compassion and forward thinking. Try helping out at a homeless center or feeding all the people that can’t feed themselves.

    Vincenzo

  91. 91
    Jonness says:

    He he. Sorry about the “commie” bit you guys. I’m way freaking liberal and get called “commie” all the time. Since some of this comes from good friends, it doesn’t seem like much of an insult. At any rate, I apologize if it came off that way.

    b said:

    “These are changes that will last well beyond the correction, and may help you down the road if you have a catastrophic illness in your family ruin your currently responsible finances. ”

    I’ve already been there b. I spent ten years on my death bed thrown away by the medical establishment and left to die. I lived in abstract poverty during that period, free from government assistance, and tackled an impossible task–figure out what was wrong with me and how to treat it with $0. Actually, I’m quite surprised I made it out the other side because the illness seriously whacked out my ability to think, concentrate, and remember. Fortunately, I had been somewhat of a musical pioneer prior to getting ill, so I had some idea of how to create a way out of the dilemna (walk away from mainstream thought and work my own ground). As my health improved, my ability to think improved somewhat as well. So that was a big help. It was a freaky time of indescribable suffering mixed with whacky health theories and pinching every penny I could get my hands on in order to experiment on myself. I could have just as easily lost the battle and died. Fortunately, after ten years of intense battle, I felt I had won.

    It’s not necessarily that I don’t feel sympathy for the people losing their homes. I found out the hard way, if you’re serious and want to get your hands dirty, you can start all over again and build a decent life. In fact, if you have your health, you have everything there is in life that’s important. I really don’t think intellect matters when it comes to losing all your worldly assets. If you experience it once, it teaches you to prioritize your life and become prepared for a potential downslide in the future. Suffering is the best teacher around.

    In nature, the strong survive. New cars, boats, planes, houses, clothes, tv sets, etc. really don’t matter so much in the grand scheme of things. When you are deathly ill, you realize what a sham most mainstream life really is. It’s like a silly game people play because they don’t know any better. We as a society can’t stand to see a single family go on living without all of this worthless BS, because we ourselves cannot imagine our own lives without it. Unbelievable to me, we equate going without materials as suffering. I have a difficult time understanding that mindset, but I do acknowledge it exists for others. I think it can better be thought of as travelling light and getting one’s priorities straight. And that’s really the great thing about our country, it allows you to learn from your mistakes and start again from scratch.

    I fully agree with what you said about some people walking around without even knowing they’re alive while being led by a pruning hook from the nose (the walking dead). And I fully agree with your humanitarian premise of becoming their stewards. However, I’m more for teaching them how to take care of themselves than I am for teaching them how to mortgage their souls for a new TV set. And as I said previously, the best teacher is to suffer. The opposite of good teaching is too enable mal-behavior.

  92. 92
    b says:

    RE: Jonness @ 90

    I think you and I are on the same page in general. My feeling is that its better to let someone look at the facts, case by case, and have the power to decide if it was malbehavior or not. I am generally against any legislative action which removes judges discretion and gives it to lobbyists or other special interest groups instead. Maybe that puts too much faith in the judicial system, but I think it is much better placed there than with Congress these days.

  93. 93
    One Eyed Man says:

    When Tim started a thread on cramdowns, my first reaction was that in the big economic picture I think they”re close to irrelevant. I thought the thread would die a quick and quiet death. It amazes me that all this came from the topic. I’m pretty sure that no one with the possible exceptions of Scott Weitz and Kary have read any of the proposed cramdown legislation, or legislative summaries of the proposals. At first I thought that would make most comments of little value. But in the end, the broad based philosophical comments illicited were probably far more interesting and just as relevant to the overall issues of economy and residential real estate. Jonness and b and everybody else, thanks for humanizing some of the issues in what I originally saw as being a dry, technical legal topic. If economics is defined by at least some as the allocation of resources, it’s underlying philosophical pinnings are every bit as relevant as the numbers and systems.

  94. 94
    Kary L. Krismer says:

    I’ve only read the summaries, not the actual legislation. I have started reading some state legislation before it’s enacted, but typically that’s a waste of time because of changes or things not getting passed at all.

    I’ve been in favor of this change for years and years, long before there was a downturn in the housing market or my being a real estate agent. That’s related to my repeated comments that refinance appraisals have historically been high. That means that people owing more money on their homes than what they are worth is not a new thing. And it’s also related to the fact that typically the last refinance a debtor did (if not more than that) was likely a bad idea. If they’d had better financial advice earlier, they would have been in a better situation, and the no cramdown rule prevented helping them.

  95. 95
    biliruben says:

    RE: patient @ 42

    Thanks for asking, Patient.

    Pretty close to our dream house. We weren’t bargain hunting.

    We were looking for in-city, good neighborhood, either a big yard or a view, and 2000 sq ft. We got in-city, a big yard AND a 180-degree view, and 1900 sq ft. We sacrificed a bit on space, as 600 sq ft was basement, albeit basement with a view of the lake. We are really, really happy. We were very lucky to have found more house than we could have imagined we would get even a year ago. Very expandable if we have more kids, to boot.

    I figure if the same house were to come on the market a year from now, it might come in 5-10% lower than we paid, but I think we got 10-15% discount off peak, so I won’t complain about the price. A bit more patience and home-limbo might have save us a few bucks, but then again, we might not have seen a house this nice a year from now. I’ve watched the housing market religiously for 2 years, and in our price range, this is the most perfect house for us I have seen in the time period.

  96. 96
    patient says:

    RE: biliruben @ 95 – Thanks for sharing biliruben, I read your comments on the sale of your old home as well which I thought you handled cleverly. I won’t comment on the timing and value aspect of your new purchase since it doesn’t matter at this point. Once again, congrats and enjoy!

  97. 97
    Kary L. Krismer says:

    I periodically review chapter 7 bankruptcy filings, and the ones I’m seeing for mid-April have a more normal level of debtors that own real property. Earlier in the year the number of property owners was very high.

    I’m not sure the cause, but one possible explanation would be that perhaps back in mid-April they were waiting/hoping for this cramdown legislation to pass.

  98. 98
    jon says:

    We can get a foretaste of the court battles that would ensure if cram-down were passed from a recent filing by Chyrsler creditors:

    The Supreme Court long ago recognized, however, that a secured creditor’s interest in specific property is protected in bankruptcy under the Fifth Amendment. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 594 (1935). That case involved a Depression-era statute that was intended to help bankrupt farmers avoid losing their land in mortgage foreclosure. The statute in Radford provided that the bankrupt debtor could achieve a release of the security interests either (i) with the lender’s consent, purchasing the property at its then appraised value by making deferred payments for two to six years at statutorily-set interest rates; or (ii) by seeking from the bankruptcy court a stay of the proceedings for up to five years during which time the debtor could use the property by paying a rent set by the court, which payments would be for the benefit of all creditors, with a purchase option at the end of that period. Id. at 856-57.

    14. Justice Brandeis noted that the “essence of a mortgage” is the right of the secured party “to insist upon full payment before giving up his security [i.e., the property pledged].” Radford, 295 U.S. at 580. In invalidating the statute, the Court stated that “[t]he bankruptcy power . . . is subject to the Fifth Amendment,” and that the pernicious aspect of this law was its “taking of substantive rights in specific property acquired by the bank prior to the act.”

    from http://hotair.com/archives/2009/05/04/senior-creditors-chrysler-deal-violates-5th-amendment/

  99. 99
    Kary L. Krismer says:

    RE: jon @ 98 – I don’t find that argument very compelling. They’re trying to claim that TARP was enacted after the loans were made, but the loans are being made under 363 of the bankruptcy act, which has been around a lot longer than the loans. TARP is merely the lender. So it would be like arguing that someone loaning money to a Chapter 11 debtor could only get priority if they had been incorporated prior to the existing loans being made. That’s rather absurd, IMHO.

    As to whether Congress could remove the special protection against cramdown retroactively, that’s another issue entirely. I know I’ve researched that sort of issue in the past, but I don’t recall the answer.

  100. 100
    Kary L. Krismer says:

    Not entirely clear, but it appears the bankruptcy court rejected those Constitutional arguments.

    http://www.msnbc.msn.com/id/30565403/

  101. 101
    biliruben says:

    The hedgies played a game of chicken with Obama and got their ass handed to them. Nice pre-curser to the real fight with GMs creditors.

  102. 102

    RE: biliruben @ 95
    Sounds like a great house, Bili….where is it?

  103. 103
    biliruben says:

    Cedar Park.

  104. 104
    Angie says:

    Bili, sounds like a terrific house! Congrats again!

    By Vincenzo @ 90, to Tim:

    Stop being so smug and start looking at the reality of the current situation. Telling your readers that it is good that homeowners & lenders deserve to be homeless and stiffed for the money is just plain stupid.
    Apparently, you have one of those boring and stable jobs that is not currently threatened. Not everyone is in that position.

    If my recollection is right, Tim doesn’t have a day job. Undoubtedly if he had to actually pay for the roof over his head like the rest of us he would, but he doesn’t. I have suspected for a long time that the latter fact in itself plays no small role in his attitude–he doesn’t have a dog in this fight. (Before you come out with your self-righteous schtick, Tim, planning to eventually buy a house is just Is.Not. The.Same as having to make a monthly nut to keep your family out of the rain. Thanks.)

  105. 105

    “If my recollection is right, Tim doesn’t have a day job. Undoubtedly if he had to actually pay for the roof over his head like the rest of us he would, but he doesn’t. I have suspected for a long time that the latter fact in itself plays no small role in his attitude–he doesn’t have a dog in this fight. (Before you come out with your self-righteous schtick, Tim, planning to eventually buy a house is just Is.Not. The.Same as having to make a monthly nut to keep your family out of the rain. Thanks.) ”

    Every once in a while there are posts that hint that the Tim is coming off as lacking compassion. But I don’t think it has anything at all to do with his housing situation. I think it might more have to do with his background as an engineer. You never do hear the phrase “overly emotional engineer” bandied about.
    Also- blog posts are just snippets, and thankfully the Tim is not overly verbose, otherwise he might be posting his romantic poetry :)

  106. 106
    The Tim says:

    RE: Angie @ 104 – It is funny to me how hung up you seem to be on my personal financial situation. I still fail to see how it is relevant at all, and rather than explaining why you think it has such a large bearing on the issues at hand, you just like to drag it out once in a while and beat me over the head with it. But at least it’s good for a laugh.

  107. 107
    patient says:

    RE: The Tim @ 106
    If you don’t know how to attack the message, attack the messenger. Politics 101.

  108. 108
    The Tim says:

    By Vincenzo @ 90:

    Stop being so smug and start looking at the reality of the current situation. Telling your readers that it is good that homeowners & lenders deserve to be homeless and stiffed for the money is just plain stupid.

    Apparently you missed the “in my opinion” part of the post above. I’m telling my readers what my opinion is. I don’t see what’s “smug” about that. Also, I still don’t buy the implication that someone who goes through foreclosure suddenly becomes homeless. There are tons of rentals available out there, most of which are going to be cheaper than what they were paying on their huge mortgage prior to foreclosure.

    Apparently, you have one of those boring and stable jobs that is not currently threatened. Not everyone is in that position.

    I’m working for myself, trying my best to make a business out of this site and a handful of others, I’m also doing contract writing and contract web design, and working a part-time job in the field I was actually trained in—electrical engineering. Sorry if that’s too “boring” for you.

  109. 109
    Kary L. Krismer says:

    RE: The Tim @ 108 – At least you’re hands on with this site, something I noticed after a David Losh rant about some other sites. That’s appreciated.

  110. 110
    Angie says:

    Oh, I appreciate Tim all right, and obviously I keep coming back to the Bubble, so I value what he’s got going on here. And Ira, I for one think Tim gets his creative rocks off with all those charts. Have you been noticing those parti-colored ones lately? Outrageous.

    and rather than explaining why you think it has such a large bearing on the issues at hand, you just like to drag it out once in a while and beat me over the head with it.

    Oh, bull shit. I’ve explained it before, but since you seem to forget every time I do, I will gladly remind you.

    It is clear that one’s perspective is often influenced by having to, you know, fully shoulder the kinds of adult responsibilities that the vast majority of the population deal with day in and day out.

    Typically I bring up this small, relevant fact on occasions when you get snide and superior about people who don’t share the luxury that you enjoy–because YOU don’t have to make the choices that they face.

    On this occasion, for the new reader who was perplexed by your perspective, being aware of where you are coming from might also be illuminating.

    Heck, it’s Cinco de Mayo, a holiday–maybe next time you get your unders in a bunch we can remember the date and I’ll refer you back to this exchange.

    Also, I still don’t buy the implication that someone who goes through foreclosure suddenly becomes homeless. There are tons of rentals available out there, most of which are going to be cheaper than what they were paying on their huge mortgage prior to foreclosure.

    See, if you’d actually put in a rental application lately, you might know that many/most landlords these days pull credit reports–or, failing that, subscribe to (cheaper, less cumbersome) evaluation services that spit out Thumbs Up/Thumbs Down answers about whether a landlord should rent to a prospective tenant, which are largely based on credit history. Other possible consequences for a prospective tenant with a crappy credit history include increased rent, requirements for more prepaid rent, or larger security deposits–effectively making renting more expensive than it would otherwise be. So: Foreclosure on someone’s record can absolutely make it harder to find rental housing.

  111. 111
  112. 112
    Angie says:

    Further BS. It’s not like I wave this flag to discredit everything you say and do–I only bring it up when it’s relevant, which is sometimes is.

  113. 113
    cheepseats says:

    Umm, I have a job, I pay rent, can my opinon count? I would like to buy a house some day, but I guess I dont really have a dog in this fight either. I am happy about that btw.

    So is the argument that you must own a house and have a certain type of job to be a legitimate poster on here? I really dont get your point Angie?

  114. 114
    The Tim says:

    By Angie @ 104:

    If my recollection is right, Tim doesn’t have a day job. Undoubtedly if he had to actually pay for the roof over his head like the rest of us he would, but he doesn’t. I have suspected for a long time that the latter fact in itself plays no small role in his attitude–he doesn’t have a dog in this fight.

    By Angie @ 110:

    It is clear that one’s perspective is often influenced by having to, you know, fully shoulder the kinds of adult responsibilities that the vast majority of the population deal with day in and day out.

    Typically I bring up this small, relevant fact on occasions when you get snide and superior about people who don’t share the luxury that you enjoy–because YOU don’t have to make the choices that they face.

    RE: Angie @ 112http://en.wikipedia.org/wiki/Ad_hominem

    An ad hominem argument, also known as argumentum ad hominem (Latin: “argument to the person”, “argument against the person”) consists of replying to an argument or factual claim by attacking or appealing to a characteristic or belief of the source making the argument or claim, rather than by addressing the substance of the argument or producing evidence against the claim.

    The process of proving or disproving the claim is thereby subverted, and the argumentum ad hominem works to change the subject.

    The fact that you have apparently convinced yourself that the above-quoted comments are not shining examples of ad hominem is quite amusing.

    This will be the last time I dignify your ad hominem attacks with a response.

  115. 115
    David Losh says:

    RE: The Tim @ 108

    You’re out of touch.

    The guy who posted the comment is runnig a bed and breakfast by the web site attached. Hotel, travel, and business trips are down. His Real Estate nut must be massive. His business depends on the economy being fluid.

    Banks have held the economy hostage now for almost two years. It is a global economic fiasco. Banks have acted in a way that goes far beyond greed. It is a willful act of demanding excessive profits at the expense of, not just American tax payers, but of all governments in the world.

    Literally people will starve to death so that a guy like Warren Buffet can make a couple of billion dollars.

    I know that poor Warren and Bill Gates have lost so much paper profit that they need our charity, but let’s have some perspective.

    Banks lent and people borrowed with the idea that the expanding economy was based on global cooperation. We were to all rise together, sort of thing. No one, I mean no one would expect the Financial Markets to trade paper and count it as profit. I’ll repeat, no one saw it.

    The Ponzi Scheme was never the Real Estate, it was the paper. It was never mortgages, it was the promise of equity. It was never the home owners at risk it was the people who bought stocks.

    We see it already, Bank of America buys whoever, and Warren Buffet buys Wells Fargo. Citi buys whoever and the price of the stock goes up. That’s the money. Those are the players and we all pay for them to make a profit.

    Some bodies home loan means nothing to anybody, but you. The money’s already made. Nobody cares about 30 year money. Today is all that matters.

  116. 116
    Mikal says:

    RE: The Tim @ 114 – Amen, Angie. You are spot on. Tim, some of your comments of what is going on at times are a bit smug. To suggest they aren’t is foolhardy. The points she makes in this are valid. The economic indicators are starting to show that a bottom is at least occuring in the economy. Not sure what this will do to house prices, but Bernanke is pretty confident that unemployment won’t reach double digits. One eyed man, your posts are very informative.

  117. 117
    b says:

    RE: Mikal @ 116

    Bernanke was also “confident” about a lot of things, for example sub-prime is the only set of problem loans and they are contained. You shouldn’t listen to folks like him because their job is to lie in public, much like a Realtor.

    What is happening right now is the rate of freefall is slowing. This is good, but it hardly means we are at a bottom unless you think this is a V shaped recession and the slowing will turn into immediate growth soon.

  118. 118
    The Tim says:

    RE: Mikal @ 116 – Examples of stupid and pointless comments that drag down the level of discourse: “Your comment is smug.” “You are smug.”

    Examples of interesting and informative comments that lift up the level of discourse: “Your argument is wrong, because of X, Y, and Z.” “I disagree, here’s why…”

    This thread has mostly consisted of the latter type of comment, and I appreciate that (thank you b, MortgagedAndLost, One Eyed Man, PhinneyDawg, patient, and others…).

    The former type of comment seems designed to do nothing but instigate a mud-slinging fight, and will be either totally ignored, disemvoweled, or simply deleted per the comment policy in the future.

  119. 119
    Mikal says:

    So we either agree with you or are deleted.

  120. 120
    The Tim says:

    By Mikal @ 119:

    So we either agree with you or are deleted.

    Go back and read the comments of the people I specifically thanked @118. Most of them were disagreeing with me.

  121. 121
    Mikal says:

    RE: b @ 117 – I left it pretty open. I think it will probably level off and take some time to improve. If the US doesn’t start making things here again it won’t matter what happens as the growth will be built on more debt.

  122. 122
    b says:

    You guys should go easy on Angie, I believe she said the other day she owns more than one home and was trying to add to that portfolio. I know that if I owned several hugely leveraged depreciating assets, I would take some anger out on anonymous internet people after a glass or two of cheap wine.

  123. 123
    b says:

    RE: Mikal @ 121

    I think we tried the ‘grow out of recession via debt’ in 2002 and it didn’t work out great. Our main creditors won’t stick around to pony up again. I think we are looking at a nice L shaped recession, and I doubt we will be bottoming until next year. Still too much overhang of supply all around the economy and too much bleeding in employment. We are now seeing widespread wage decreases, which bodes very poorly for any asset (like a home) which greatly depends on income rising for its price support.

  124. 124
    Mikal says:

    RE: b @ 123RE: b @ 122 – Some of what is going on is directly related to the Chinese and their unwillingness to value the yuan properly. They need to change how they do that, but are unwilling to make hard choices. It is looking like we are close to the bottom of that drop and inflation is right around the corner. Angies depreciating assets are about to appreciate some.

  125. 125
    Mikal says:

    RE: b @ 123 – What happened in 2002 is quite different in what is happening now. The debt then was in housing. Now it is in government more so than before. We could guess six ways to sunday, but none of us really know. Could we be at the bottom? Maybe. Could it be a lull in the fall? Maybe. Either way we should expect inflation based on the lower value of the dollar from government borrowing. The question here is will the inflation affect the value of homes.

  126. 126
    b says:

    RE: Mikal @ 125

    I think wage deflation, and continued asset/price/commodity deflation, is showing that Fed sponsored inflation is not here yet and is not really close. It will be eventually though, we agree on that, especially if they lollygag in taking away their various acronym programs which is very likely to happen. But that cannot happen until deflation ends, which would mean we have bottomed and the recovery has begun already. On that front, I do not see the value of homes increasing from such inflation unless it is coincident with wage inflation as well. Right now it looks like we will again get some form of stagflation, wage gains are depressed by globalization and have been for almost a decade now. Bad times to be a middle class salaryman like myself.

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