OT: Deadbeat nation

It happens here in Australia too. Although the details are a little different, at the end of the day, people borrow more than they can possibly pay back and end up losing the house.

And quite freely whine about it too. They're *entitled* to the house because... Never mind the fact they've lost it because they flatly refuse to discuss any alternatives with their lenders, or some flatly refuse to talk to their lenders at all.

Nice gig if you can get it. Here, you're given enough of an opportunity to pay, you even get a call from the bank asking about alternative/changes to your current payments. But if you sit on your arse, and avoid phone calls, they WILL come after you.

Some are starting on longer term loans now.

Oh but it does. There are some countries where this is the norm. Your loan by default is so long that your *children* are expected to pick up where you leave off.

Though that said, it appears at this stage to only apply to the few stupid ones who think that 50 year loans are a good idea because your monthly payments are much smaller. After they die, heck who cares, they've only paid half a mortgage, and squandard the rest of the kid's inheritance on themselves. Their children will pick up the loan, but basically, not their problem anymore.

Some are even lending to 60+ year olds, knowing full well their 'estate' will cover the rest of the bill when they kick it in the next decade or so. Not bad for a quick buck, the market ONLY ever goes up, the crash they've said we were supposed to have didn't really happen, because no-one can still afford it anyway.

Some lenders refuse to do this stating they want to make sure their clients can actually pay the term before signing them on. Ethics in financial lenders? I'm not buying it.

The reality is that with inflation at a couple of percent per year, a

For any flat-rate mortage with a term that is longer than the inverse of the interest rate - say 20 years for a 5% interest rate - the flat- rate is pretty insensitive to the period of the mortgage, because you aren't formally paying off much of the mortgage in the early years.

Because of inflation, this isn't really true and the real cost of the flat payment declines with time as the currency inflates, as does the real value of the money owed.

Not if you have a steady job and a good chance of keeping it (or of moving up to something better). Lots of people - everybody I know - who have taken on this kind of loan eventually pay them off. The problem with the sub-prime mortgage market was that the banks took to making such loans to people who didn't have steady jobs. James Arthur claims that the US governemnt put the banks under pressure to make such loans, but he is being disingenuous - the banks were put under pressure to make such loans to people with low but steady incomes, living in areas where many of their neighbours didn't have steady jobs. Distinguishing the good credit risks living in poor neighbourhoods from their less responsible neighbours takes an effort

- more effort than the banks were used to making - and irresponsible bankers didn't bother.

The fact is that such loans are profitable, if the borrowers have good credit history. The sub-prime mortgage crisis was created by banks that lied about the credit status of their borrowers - implicitly claiming that all their borrowers had good credit histories when in fact they hadn't checked.

This was fraud perpetrated by some banks who'd lent to bad borrowers, rather than any structural defect in the nature of the loans being made.

The delusion is that the fault is in the 30-year term, rather than in the people to whom the loans are made.

And cutting off your leg would go a long way to reduce the risk of breaking it in the future. This is what mathematicians call a trivial solution - throwing the baby out with the bath-water.

-- Bill Sloman, Nijmegen

To hell with both the lender and the borrower. For lenders to lend people a million bucks to buy a home in CA when the family income is

Robert Baer wrote in news:v9- dneu4fMmWQJjRnZ2dnUVZ snipped-for-privacy@posted.localnet:

what's the point of borrowing money if you don't know what the rates are going to be for the duration of the loan? How can you know that you'll be able to meet future payments if the interest rates vary over the years?

It's like signing a contract that has no set terms;the contract holder can then do what they want,and you have no recourse.

I suspect the problem loans are those that are variable rate loans.

You don't. You could lose your job, get divorced, get involved in an expensive legal dispute, have a relative that requires full-time care, become incapacitated etc. Some, but not all, of those things will likely be covered at least partially by insurance, but even a 20% reduction in income could affect many people. If you have personal discipline you will most times be better off taking a variable rate mortgage for an AFFORDABLE amount that allows accelerated pay-downs, and putting extra money towards the principal. If rates go up, you can stop doing that and still be okay.

Hardly. It puts you at the mercy of the market, which is a different thing entirely.

The trend of long term rates has been _down_ for the past 10 years (may not be true in the future, of course). If you want to guarantee the rate, then that risk has to be paid for.

The government distortion of allowing mortage interest deductability on the first $1E6 is one of the main causes. That's why Canadians average 70% equity in their homes, vs. 45% in the US, with about the same percentage of the population owning homes. Of course if there was no personal income tax (just sales tax), then the distortion would disappear.

It would be a business decision if the person went bankrupt and had to liquidate basically all their assets, if necessary, in order to repay as much as possible of the money owed to the lender.

So-called non-recourse states have distort the market with legislation limiting or obstructing lender's rights to go after the deadbeat for ALL the money owed.

If we held businesses to the same standard I'd tend to agree... but it's very standard business practice that, if one of your divisions is underperforming, you close it down, defaulting on any outstanding loans, and keep on going -- even if strictly speaking the ovreall company is in generally good health and could have afforded to keep the company around with, e.g., one division propping up the other.

There's likely some reform needed there that I'd readily vote for, but as-is such laws have to be viewed just as the cost of doing business.

This sort of issue is very messy to deal with legally since pretty much any protection you give to people who had every intention of meeting their obligations can also be abused by people out to defraud others. (And of course it's very common that incomptence gives the appearance of malice and vice versa...)

---Joel

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The original article in the NYT said if you were underwater in your mortgage, you should bail so you could stick it to the bank. That's roughly a quarter of America.

It had a number of people explaining the best strategies, that you could count on about a year living rent-free before being evicted, and could save up all that money.

So, that's welching, then stealing.

The "Yes we can's" in the comment section were chilling. The taxpayers ultimately absorb it, since Freddie and Fannie have guaranteed so much of it.

-- Cheers, James Arthur

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Articles:

The Way We Live Now - Walk Away From Your Mortgage!

Owners Stop Paying Mortgages, and Stop Fretting

Yes, completely agreed there. If you want to strategically default on your mortgage and save up some money, at least have the fortitude to go find some roommates and get a cheap flat or something (go live in your car if you like!) rather than screwing over the bank.

I would like to see the return of boarding houses -- seems as though they were a "win" in many ways, with cheaper rent than regular apartments (due to the shared kitchen/bath facilities), easier upkeep (due to shared chores), etc. But these days some people seem to construe "rugged individualism" to mean that they ought to be able to play loud music at 3AM and not have to clean up after their dog, so perhaps the idea of a bit of shared sacrifice and responsibility for sake of living frugally is considered unacceptable.

I mean (and sorry for the topic drift here), how many young adults would actually sign up for something like the CCC if it were still available in the form from the '30s? -->

"The program targeted unemployed young men, veterans and American Indians hard hit by the Great Depression. The CCC boys, as they were called, were required to send a portion of their wages home to their parents. The boys also received free education, healthcare and job training.

Throughout its nine-year existence, the program put millions to work on federal and state land for the 'prevention of forest fires, floods, and soil erosion, plant, pest, and disease control.' Nationwide, enrollees planted three billion trees and came to be known as the Tree Army."

---Joel

Thanks, that's a good combination.

The lawyer in the second one, Mark Stopa, soliciting clients who want to default and still live in the home -- he's in the same class as ambulance chasers IMO.

I expect this will all prompt changes in the way mortgages are written, adding various penalties if you refuse to leave after you've been foreclosed upon (although it will also force the lenders to implement better tracking/re-sale policies to avoid the nonsense that Stopa is creating, which is good and something they should have already been doing). Kinda like hotels: My understanding is that if you refuse to leave a hotel room, while you often can't be physically forced out for a number of days/weeks/etc., you are liable for the full rack-rate room charge each and every day you decide to stick around. This makes it unattractive to abuse the system unless you really are bankrupt and hence have nothing to lose.

When you loan to people who aren't that horribly credit-worthy, is it any surprise they turn around and abuse the system?

The lenders also didn't do themselves any favors by initially being unwilling to work with borrowers who had missed payments or were already foreclosed upon, although the second article suggests this has now changed. (In fact, in certain situations, it might actually be in the lender's best interest to try to negogiate some "low rent" with the -- defaulted -- mortgage holder -- there's a real cost to having a vacant home sitting around and, in this economy, being very unlikely to sell for many months or years.)

As with the greater banking crisis, there's plenty of blame to go around -- lots of badly-behaving lenders, homeowners, brokers, executives, etc.

---Joel

It's not that complicated Joel. Badly-written mortgage terms aren't delaying evictions. Today's lenders can boot people immediately, they're just overwhelmed by the sheer numbers of defaulters, and being restrained by the government. Foreclosees are taking advantage of that, and dragging the courts into it as well. As one of the commentors pointed out, foreclose used to mean "Out!, Now!"

It's worse than that. The credit-worthy upside-down borrowers are watching the deadbeats get off scot-free and starting to emulate them. Which the NYT celebrates. Nationally, that's a disaster--a quarter of all mortgages.

Those are all euphemisms for forgiving part of peoples' loans, for a retroactive discount on something the bank did not sell them.

Renting to the former owner could make sense, yes.

It's the homebuyer's choice to steal the use of the home after they've already cheated the bank. Note that a lot of these people refinanced, got the bank's cash in their pocket, squandered it, then they defaulted.

I've been in hundreds and hundreds of foreclosed homes. Thrashed, generally. Not vindictive stuff mostly, but simple long, long term neglect. I was more sympathetic before that.

Even the President was playing that game, in his personal life. But, instead of defaulting he became a Senator.

It's a terrible thing to encourage. To understand the impact, consider this: 2 million defaults brought down the banks and our financial system in 2008. Currently, we've triple that many outstanding, in process.

-- Cheers, James Arthur

Hi James,

OK

For me "working with borrowers" means re-doing the loan to lower the rate (spreading out the term -- the lender may or may not decide to try to obtain the same overall profit on the loan as was done originally; that can be calculated based on the likelihood the homeowner otherwise will just default completely). I mean, I would think that you could find an awful lot of people who had ARMs and offer them a fixed-rate loan at what their ARM had been when they weren't behind in their payments and they'd be more than happy to sign on the dotted line -- even if it did turn, e.g., a 10-year loan into a 20-year loan; in many cases I think the people we're talking about here are the ones who primarily seem to care about, "what's my monthly payment going to be?" and don't even consider the term.

Yes, that certainly counts as bad behavior. :-) People rationalize it by noting how crooked they believe the bankers to be, but even when that's the case most people don't really believe that two wrongs make a right.

Thanks for the additional information...

---Joel

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For financial reasons that simply doesn't work. Mr. Obama has perpetuated the error in several different guises (mortgage "help" / "work with the borrower", etc.) and all have instantly failed. The 3- month re-default rate among hand-picked recipients is something like

The root problem is this: the houses are worth less, and someone has to take the loss. Terms or no, whether they can afford it or not, people don't want to continue paying $350K for a $270K house. They want us to make up the difference. And we have been, thus far.

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Yep.

You bet.

-- Cheers, James Arthur

I saw the tail end of an PBS special on the CCC, and was struck by a comment about how, when WW2 started, the CCC boys went into the army, and were already half trained! They were used to discipline, knew how to take care of themselves, and knew how to obey orders.

Charlie

age, you should bail so you could stick it to the bank. =A0That's

Hmm. Why not subscribe to the NYT, refuse to pay the bill and let them feel some pain. If they try to collect, you simply say that you never got the paper. Prove that it was delivered.

How is that any different than renting? The kids still have some equity in the home. An inheritence is not a right nor is it guaranteed. Maybe they squandered it raising their kids and providing an education.

I wonder what Mr. Pemberton's business is. Does he run it out of his home. If so, and he is squatting, can the bank take it along with the house? Who's paying the taxes on the house?

agepayments. But he prefers to save his cash... "I need another

Betcha they are running the business out of the house and claiming the mortgage payment (which they aren't making) as a business expense. Which now becomes tax fraud. Just guessing.