Everybody is taking a hit, the homewoner, the bank, and the local government.

This may not be your situation. What do you propose for those where this is a good description of their situation?

No thanks. No, and again No is No Plan. You need to get past the anger and denial.

"I'm debt-free, live simply, and didn't speculate on the house I own. There are a lot of people like me who simply have no interest whatsoever in "bailing out" these bad actors. Nobody is going to bail me out if I get in trouble, not the banks, not the Fed, not the SEC--they've all seen to that. No thanks. No, and again No."

So when a homeless angry mob shows up at your doorstep in the middle of the night and there is no police force (due to no property taxes) to respond, you'll just explain to them how it was their fault? Maybe brew them a nice cup of tea first?

This is a society and we either sink or swim together. Reinforcing the social fabric is more than just says hello in the store, sometimes we need to take a little hit for the benefit of all.

"we need to take a little hit for the benefit of all." And don't Bogart it.

http://mauberly.blogspot.com/

and have each side give a little.

So, you can apply for this program, but only if you can demonstrate that you can't make payments and this is your only residence. In addition, we allow lenders to seize personal assets to satisfy defaults, even in no-recourse states. This, after all, would be a Federal program which would trump any state laws. Third, the homestead exemption is eliminated--your home becomes fair game for creditors.

We can thus eliminate "walk aways" that are done solely for business reasons and the scandal of scoundrels living in multi-million dollar estates in "homestead exemption" states.

While we're at it, we might as well eliminate the mortgage interest deduction for second residences to pay for some of this.

To the mess that isn't a bailout do-over for the banks gussied up as "consumer advocacy," "homeowner protection," etc., etc., ad nauseum. I'm not aware of any personal, direct fallout for banking executives as a result of the S&L mess, except that the ones named Bush did pretty well for themselves.

Any proposal in Washington to protect homeowners will be nothing less than something that disproportionately benefits the banks, and by disproportionate I mean grossly so. CF: Clean Skies Initiative. UBS is already lobbying Washington to basically back their bad bets.

I'm not interested in compromising. What I'd propose is prosecution in federal courts for fraud, racketeering, and corruption. Of Mortgage underwriters, securitizers, bundlers, CEOs and CFOs, ratings agency chiefs. Seizing personal assets. Regulating and Nationalizing, yes, nationalizing bankrupt banks in a manner that ensures that the taxpayers do not foot the bill this time.

You've got middle-class families in CA and FL riding $500,000 adjustable mortgages and $100,000 more in HELOCs tacked on. Hey, I could use a miniaturized version of Taj Mahal on the waterfront with an extra $100,000! But now this has gone south, why the hell should I pay for someone else's preposterous, ludicrous lifestyle? Why should I have to pay to bail out their loan sharks?

You wanna talk subprime? I feel for the minority families who qualified for prime loans but who purchased homes with bad loans. That's clearly illegal and actionable. They should bring a class action lawsuit against their lenders and continue mortgage payments and stay in their homes until settlement. And the lenders should be prosecuted and thrown in Leavenworth.

Any borrower who was not and is clearly unable to make mortgage payments should not keep their home. Any lender who made those loans and didn't practice due diligence should be prosecuted, from the loan officer to the CEO.

But bail out Citibank, BofA, UBS, Wachovia, WaMu, HSBC, Dresdner, Societe Generale, and so forth? Hell no! They've held all the cards and still managed to screw up. This may be a chance to clamp down on them and severely restrict their access to political influence.

And please don't tell me what I "need to do." If this isn't a cause for righteous indignation, I don't know what is.

indignation is bad for blood pressure.

Here's a little sumpin for you:

http://www.nytimes.com/2008/02/24/business/24view.html?ref=business

http://mauberly.blogspot.com/

You are right. I would love to think that there could be a solution that would dispense justice and pain according to who acted in bad faith and truly protect the weaker players, but it will be a rich frat boy bail out sham just like the S&Ls.

I would never have cast myelf as Cassandra before Bush took the WH in '00, don't think I care for it much ;)

No. Zoning, bank regulation, lender regulation, Capital Ratios, Federal Reserve, there is no free market, none whatsoever.

The banking system is a government managed cartel.

The whole system is a testament to central planning.

There is, in practice, very little difference between government and organized crime.

Engels elucidates the concept of the “power” which is called the state, a power which arose from society but places itself above it and alienates itself more and more from it. What does this power mainly consist of? It consists of special bodies of armed men having prisons, etc., at their command.

-V.I. Lenin

In a nation where most, if not all, congressmen and senators are mere subsidiaries of mega corporations, "free" should be re-defined.

This is no more, nor less, of a free market solution than simple foreclosure, which, after all, is an act backed by force.

The first barrier to negotiation is that write downs have rippling effects on balance sheets, many of these caused by legal structures.

The second is the odious banking bill, because it means that borrowers have really ever incentive to sit it out until the bitter end.

The reason for do something are simple: deflationary spirals do damage. One of the causes of the Great Depression was a belief that people who had made bad choices should "get what is coming to them." Well some of them did.

Massive numbers of defaults have some pretty serious rippling effects. It would seem that saving some of the loans, even at a reduced return would be in the lenders' best interest.

What with ARMs running at rates much higher than the prime, why not renegotiate the rate--and the term?

The speculators won't stand for it, of course, but the people who actually want to live in their current homes might.

Regardless, you can't make a silk purse out of sow's ear. The borrowers who obtained NINJA mortgages or who didn't make enough in the first place to qualify for the loans to begin with--those people are lost--and the shysters who underwrote the loans need to be prosecuted.

The potential defaults you stand a chance of saving are those for whom defaulting is not a decision of necessity, but rather a financial decision. Keep 'em in the house paying something on the mortgage, offering a different term or rate that might hold out the possibility for real property values to appreciate to where the borrower's equity is positive.

Speculators are likewise lost--they're not living on the property; they're in the game for a profit (which has long flown out the window). But you might get some of that back by changing the no-recourse laws in some states.

the outright speculators, nor really should there be.

However, there are ways to save lenders, Freddie and Fannie, home owners, localities and the asset base.

It's going to be painful all the way around, however, the alternative is to have individuals and individual communities pulverized, and then dragging down large entities which everyone relies upon.

Sloppy bookkeeping.

sellers and RE agents first (since they'd be the ones pointed to first as having inflated the prices),

1. Buyers, in any market, set prices. A seller cannot make a buyer pay a value higher than the buyers opinion of value. Real Estate agents, in their fiduciary duties, MUST, get sellers the highest price they are able, or the are negligent and in breach of their fiduciary responsibility. (Doing their jobs).

2. Loose credit made buyers believe they could afford too much house. So, egged on by lenders, buyers put up the prices too much.

3. Who set the loose credit (underwriting standards)? I'd like to know.

Before blaming, please demonstrate a little understanding of markets....

...to point #1.... Sellers *can indeed* set prices, and yes, one *can indeed* sell something to somebody who didn't want it (I did many a time, when I was selling...takes a talent and an absence of ethics)

Points #2 and #3, are points that I don't argue, in that loose borrowing standards can lead to a false sense of what's possible, and I agree is a contributing factor in the bubble.

Who set the standards? Well, with a laissez-faire conservative administration, that responsibility (If you can call it such) would fall to the lending institutions themselves.

Lions and Tigers, and Bears......oh my.

Blaming has always been the easy part.....after the fact. Called 20-20 hindsight. Thing is, nobody's listening, who should be listening. You honestly think the right people are reading these blogs? Would that it were so....they'd probably learn something. At this point in time we're yelling into Echo Canyon....and your voice sounds wonderful, indeed. Slapping down what you consider incorrect thinking or conclusions, though, get you nowhere, unless you can provide the data or personal experience to back your bald statements.

If you have ideas to get past the problem, or have experiences that worked for you, we'd like to know. Telling me I need to understand more of what I experience....well, may or may not work (here, it appeals to my 'inner 5-year-old'....bleah.... :-P )

-5.75,-4.05
"We're all fucked. It helps to remember that." --George Carlin

Only $500 Billion? There are estimates out there of $2-5 Trillion.

Yes and No.

I'd start with the executives and regulators who approved the underwriting standards.

Seems fair and appropriate to their position.

a straight bail out.

Some kind of bailout is inevitable, and it will be very expensive. Better to act now to limit the scope of that bailout, which will be borrowed on the tax payer's dime.

http://www.informationclearinghouse.info/article19414.htm

...

But what does the poor taxpayer get out of the deal besides soaring inflation, bulging fiscal deficits, and the “warm and fuzzy” feeling that he's helped some tasseled-shoed charlatan keep his larder in the Hamptons full of Dom Perignon and crab cakes?

The reason we're in this mess is because financial innovation and deregulation have driven the markets off a cliff. And that started with the bankers. Financial innovation has nothing to do with the efficient deployment of capital for productive activity. No way. In fact, it is the exact opposite. The financial innovations of the last decade have primarily focused on transforming the liabilities of dubious mortgage applicants into complex debt-instruments which are enhanced with massive amounts of leverage and exotically-named derivatives. The investments banks and brokerage houses fought hard to establish the present system which they call “structured finance”. They spent over $100,000 million lobbying congress to remove the legislative firewall which kept investment and commercial banks separate. Those laws, particularly Glass Steagall, made sure that the public was protected from the Ponzi-scams which proliferated just prior to the Great Depression. But, now, 30 years later, the same scams are back with a vengeance. The cult of free market orthodoxy and Reagan-era flim-flam has put us on track for another stock market crash ala 1929. That's why Bank of America and their buddies in the industry have turned to the administration for a way out. Their flagging balance sheets can't take another year of rising foreclosures and dwindling assets. They need Big Brother to cover their debts and rebuild their capital-base. Otherwise its curtains.

Other versions of the so-called “Rescue Bill” have been floating around Washington for the last three weeks, but they all follow the same basic guidelines. Under one of the plans, 600,000 subprime mortgage-holders, many of whom are already delinquent on their payments or in some stage of foreclosure, would be able to refinance their loans under the Federal Housing Authority (FHA) which would federally guarantee the mortgage in the event of default.

Great idea, eh? So, now the taxpayer is going to have to pay for the people who lied on their applications (and who really can't afford the homes they're in) so the banks can recoup their losses. This plan doesn't make sense.

Why on earth would the taxpayer want to buy 600,000 subprime mortgages at “current value” when housing prices are falling, inventory is soaring, sales are sagging, foreclosures are at historic highs, and millions of homeowners are expected to simply “walkaway” from their loans?

No thanks. Let the banks go under. They created this mess. Besides, all we're doing is rewarding the people who deliberately destroyed the system. They can fend for themselves. The first order of business should be to restore public confidence; not bail out crooks. “Credibility” matters in a market-based system; especially one that relies so heavily on the hocus-pocus of fractional banking. When trust is lost; the system crashes. End of story. That means it's time to clean house at the SEC. Give everyone a pink slip, two weeks pay and send them home. Then scour the countryside like Diogenes for a few honest men.

...

I did inhale.

Foreclosure in place as a necessity for about two years now. The simple reality is that our money supply is based largely on real estate assets. Erosion of monetary base is a formula for contraction of money supply in the face of an economic downturn, which, in turn means a deflationary spiral.

is a big number. I don't dispute that there are that many bad loans, but what those loans are worth over time is anybody's guess, if they can stabilize the situation.

You knew of course that S&P would cave on Ambac and Mbia so as to save the banks and the insurers. There will be more of these "hope begetting" actions.

I don't think anybody who matters cares what went wrong with the system; they will just add some ad hoc equipment to it and carry on.

http://mauberly.blogspot.com/

I totally agree.

But I take a different view. Why should a homeowner feel under any 'moral' obligation to a banking and brokerage industry that basically cheated them. Most folks go into the process not knowing how the process works. They are TOLD they can afford the house and TOLD they qualify. They obviously want the house and want to believe they can afford the house. They are also TOLD the price is the properties market value by EXPERTS. The whole process defrauded these people.

I guarantee that if I had bought a house for $400,000 and then been told that in a six month period of time it lost 20% of its market value, which is the AVERAGE for the US coasts, I would put a royal FUCK YOU to the banks and walk. No way I would stay, no way I would feel any obligation to pay. This process was sick, sickening. So to turn it around and then say I have some kind of 'moral obligation' to these banks.

It's like I had a moral obligation to a murderer or a rapist.

I don't.

I am going to agree that there are serious systematic problems here, not the least of which was the sluttish accommodation by the Federal Reserve of the Iraq policy, and the complete failure of the government to couple sub-inflation interest rates with direct inflation control. This mess is a direct result of the unregulated market fundamentalism of this period of time.

All liberal economies rely on the idea that the government insures the economy at large, and therefore the public has an incentive to act before catastrophe because the public is on the hook for the bail out. Three times in a generation the public has failed to act until after it was far too late. Perhaps liberal theory, that the people will act, is wrong, and we therefore must accept much lower standards of living in the lower risk configurations of the economy.

As far as punishing institutions, I'm not big on punishing institutions per se. This is because the people who made many of these decisions are long gone - Ian's favorite Wall Streetism is IBGYBG, I'll be gone, you'll be gone - and have cashed out. Punishing Bush and company is "off the table," and must be done by history and politics, not by law.

For these same reasons however, I am going to almost guarantee that some kind of FiP will be instituted. Because the alternative is that these houses, which are now economically unviable in the current oil/economic situation, will stand empty, and be occupied by squatters and homeless. Generating homeless people and then leaving an empty house means no one is better off for very long.

If you want to deal with the concentration of wealth in this society there are exactly three problems: dependence on foreign energy, lack of investment supply, and how to tax the oilarchies, and really these are the same problem in different forms.

Spot on. And the three problems you name are BIG PROBLEMS.

The energy piece is off everyones radar, but I fear that in about two to three years it will absolutely be front and center. I am convinced that after the last great push to find oil supplies in 2008 and 2009, the fall off begins in earnest. The US will have European level gas prices (as in $8 to $10 per gallon). Diesel will be higher yet, food prices will be double, and electricity rates will be up three to four times as plug in hybrids make electricity the new fuel. I will not be surprised to see loadshedding as is occurring in about 30 countries today, as in the days of 24/7 electric power will be gone.

Serious, you better believe it is serious. The absence of energy is the hugest problem we have faced, probably ever.

http://money.cnn.com/2008/02/25/real_estate/Senate_mortgage_bankruptcy_reform/

Foreclosure bill faces Senate test

A vote Tuesday could indicate whether mortgage bankruptcy reform proposal will proceed.

By Les Christie, CNNMoney.com staff writer
February 25 2008: 5:39 PM EST

NEW YORK (CNNMoney.com) -- Foreclosure gets Congress' attention Tuesday when the Senate decides whether to end debate on a bill aimed at helping homeowners avoid losing their homes.

The Foreclosure Prevention Act of 2008's most important - and most controversial - provision would allow judges to reduce mortgage balances for at-risk borrowers to current market prices.

House prices have fallen sharply during the past year, taking many mortgage borrowers "underwater," meaning they owe more than their homes are worth.

Under the bill, a mortgage balance of, for example $200,000, could be reduced to what the home would sell for, say $160,000, on the open market. That would save the borrower hundreds of dollars a month in mortgage payments.

Senate Democrats will seek to force an immediate vote on the bill, according to Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm.

"They need 60 votes to prevail and, right now, they're short of that goal," Seiberg wrote in an e-mail. "That means they will need to compromise to pick up GOP support."

Solution for the crooks who foisted fake prices on a believing public.

The problem is that it will also reprice the entire market down about 20%, and there are folks that could not qualify for other reasons than price. We won't be growing out of this one for a while. We will look like Japan for about 10 years.

In bankruptcy, the fair market value figure is usually higher than what a mortgage lender will receive in foreclosure, plus the lender saves the costs of the foreclosure sale.

Not to say there isn't a downside to the lender, but not realizing the inflated loan "value" (often based on an original appraisal that was, shall we say, optimistic at the time it was made) isn't really one of them.

Foreclosures in most states require some sort of minimum bid - but that bid is usually a fraction of some type of fair market value estimate. Just as bad, from the bank's perspective, is that foreclosure often doesn't result in the lender getting any money. The lender is the only bidder at the foreclosure sale - and they "bid" their debt against their own debt. If a $200,000 house goes to foreclosure, and the minimum bid is $175,000, it is usually the mortgage company that bids the $175,000 - which it just uses to offset the $200,000 it is owed. Plus, the mortgage lender has to pay the attorney fees and court costs of the foreclosure sale.

For the mortgage lender, the upside is they get (in most states) a judgment for the deficiency against the mortgage borrower - the deficiency judgment being the difference between the selling price and the amount owed on the mortgage. Plus, they get the house, and if they can sell the house for its fair market value, the lender gets to pocket the difference between what they bought the house for at foreclosure, and what they sold it for on the retail housing market.

The downside, at least today, is that houses aren't moving very fast on the retail housing market. Plus, the houses bought in foreclosure are not in "after HGTV" condition. The cost of insuring and keeping up a vacant house is staggering. Real estate taxes continue to accrue, and those come ahead of the mortgage. If the lender actually takes ownership of the house (and the lenders have developed tricks to NOT take ownership) they get hit with the all the housing code violations - mowing the grass, peeling paint, etc.

Another downside for the mortgage lender is that in the vast majority of cases, the deficiency judgment isn't usually worth much. It is uncollectable. And state law often limits (more than most debts) the time the mortgage lender can attempt to collect that deficiency judgment.

In the past, the foreclosure system worked pretty good for lenders. In contrast, today mortgage lenders are getting ripped a new one because of the current housing market. Keeping up a stream of payments in a Chapter 13 bankruptcy, even reduced payments, may not be as bad, even for lenders, as continuing the massive glut of forced "sales".

On the other side of the coin is savvy borrowers who are "losing" their houses to foreclosure but aren't getting forced out into the streets as fast as people not familiar with the process imagine. (Of course, the foreclosure process varies from state to state.) Many people are living - rent and mortgage payment free - for many months in their same homes after foreclosure. The lender can't sell the house, doesn't want the property vacant and subject to vandalism, doesn't want to pay to either winterize the house or pay for utilities, doesn't want to have to pay for lawn care, etc. So, they don't take the final step to evict the former owners. It is a crappy and uncertain existence, not knowing when you will have to move out on short notice - but for many, it's allowing people time to put together some savings to finance a move.

But, the bottom line still is, if borrowers can't use Chapter 13 to save their homes, the downward spiral of price based on oversupply is going to remove billions more from the economy, and we'll all - including the banks and other mortgage lenders - suffer in the deeper housing bubble recession.

"Voluntary" programs aren't going to work on this scale. It is like herding cats - there are too many deals to analyze and no ground rules for loss mitigation negotiations. On the other hand, if a bankruptcy bill is passed, that bankruptcy result will quickly become the template for out-of-court workouts that mimic the bankruptcy result, with both sides benefiting by saving the transaction costs of an actual Chapter 13 bankruptcy.

So, clearly, it makes too much sense to actually pass.

... to keep your house. The rest is the consequence of living in a society.