how is the economy effecting you?

[HaRuMaN]

I've never bought a house, but I'm under the impression that a non-recourse loan is typically way overcollateralized where the property securing the debt is worth like twice as much as the loan.  There doesn't seem to be much business sense in handing out a non-recourse loan secured by property that is or likely will be worth significantly less than the amount owed.  I'm just going on gut here, but I'd be surprised to see many typical mortgages that were of the non-recourse variety.

You did notice the little economic blip we had recently, right?

Bwahaha

[Endaar]

This applies to loans other than mortgages, but it seems rare to see anything but a mortgage of the "non-recourse" type.

I think you mean most mortgages these days are "recourse" loans, right?

Endaar

[shmokes]

You did notice the little economic blip we had recently, right?

Sure . . . but I don't see how that is necessarily related.  I know that banks were handing out loans to people who weren't remotely qualified, but I don't see why that automatically means they'd be handing out non-recourse loans.  I mean, maybe they were . . . but . . . were they?

[Blanka]

You did notice the little economic blip we had recently, right?

Blip?
What is a blip?

[MonMotha]

This applies to loans other than mortgages, but it seems rare to see anything but a mortgage of the "non-recourse" type.

I think you mean most mortgages these days are "recourse" loans, right?

Endaar

No, I was saying that I've really only ever heard of mortgages being non-recourse loans.  It's very rare for other types of loans (auto, personal, etc.) to be non-recourse.  Many mortages ARE of the recourse type, but some are non-recourse, especially older ones where the down payment was large.

[saint]

You did notice the little economic blip we had recently, right?

Sure . . . but I don't see how that is necessarily related.  I know that banks were handing out loans to people who weren't remotely qualified, but I don't see why that automatically means they'd be handing out non-recourse loans.  I mean, maybe they were . . . but . . . were they?

I was going off the "There doesn't seem to be much business sense" statement -- not sure there was much business sense being used for a while

[Dartful Dodger]

Maybe in neck/back injury law school there isn't any difference in a mortgage or a credit card loan.

I'm going by what the lawyer told me.  If the bank forecloses on me I'll owe nothing(on the mortgage). He said my credit would be shot and it’ll take a long time to get it back.  If I can work out a deal with them and do a short sale, my credit will be shot, but I'll be able to make a comeback sooner.

[polaris]

Maybe in neck/back injury law school there isn't any difference in a mortgage or a credit card loan.

I'm going by what the lawyer told me.  If the bank forecloses on me I'll owe nothing(on the mortgage). He said my credit would be shot and it’ll take a long time to get it back.  If I can work out a deal with them and do a short sale, my credit will be shot, but I'll be able to make a comeback sooner.

does a foreclosure go to court there? over here the court will look at your other assets and bank account and see youve chosen to stop paying as you're in negative equity but you can afford to pay, i don't think a judge would let you keep your assets and write off a debt to the bank when you display the ability to pay the debt.

i think you should ask another lawyer to be sure cos i doubt our banking systems are that different

[danny_galaga]

You're wrong.  If you borrow $400,000 from the bank you owe them $400,000 plus interest.  Your loan is secured by your house (or any other security you give them), but that is just to reduce the bank's risk so they'll give you the loan.  You owe them $400,000 period, because that's the amount of money they gave you.  If the Bank forecloses and only gets $200k for the house (so long as they weren't negligent in conducting the sale) you still owe the bank the difference between what the house brought and what you owe them.  Think about it . . . of course this is the way it works.  People get mortgages all the time for way more than the house is worth so they can buy furniture and appliances or put in a swimming pool or renovate.  What would stop you from just walking away with the extra couple hundred thousand and say, "Sorry bank . . . sell the house."

Now . . . banks may frequently ignore the deficiency since it will cost them more money to pursue and since you've already shown that you can't pay for the mortgage they'd likely not get anything, but that doesn't mean that taking your house settles the loan.  It doesn't.  You owe the deficiency and if the house sells for more than your mortgage the bank owes you any surplus.

And thus the sub prime crisis was born. The value of the defaulted mortgages is worth more than the value of the houses the banks suddenly have a bucketload of...

[Endaar]

The value of the defaulted mortgages is worth more than the value of the houses the banks suddenly have a bucketload of...

True, but let's not forget something...IF someone bought a house they could afford, it wouldn't matter to them if it was upside-down. The value of the house doesn't impact your ability to pay since it doesn't change the payments - IF you took a conventional mortgage. It's no different than buying a new car; most new car buyers are upside-down on their loans the second they pull off the lot, but this doesn't lead to huge numbers of repos.

Yes, the lenders got VERY loose with credit, although there are some complicated political reasons that somewhat forced their hands in this area. But many buyers who are now in or at risk of default are there because they took an interest-only or other short term loan with the expectation they could either sell at a profit a few years down the road or refinance with a conventional mortgage at favorable terms because of the equity in the house. Without that equity, both options disappeared, and when a lot of these ARMS adjusted or principal started to be owed, the buyers couldn't afford the payments.

Maybe it makes me cold hearted, but I don't have a lot of sympathy for those who did so.

Endaar

[danny_galaga]

The value of the defaulted mortgages is worth more than the value of the houses the banks suddenly have a bucketload of...

True, but let's not forget something...IF someone bought a house they could afford, it wouldn't matter to them if it was upside-down.

Very obviously. A simpler example is getting a loan for a car. The moment you buy it it's losing value, approximately 50%/5 years. That doesn't stop a person from continuing to pay for it. I was pointing out the problem the BANKS now have, not the problem the borrower has. Which was probably not worth pointing out, since everyone knows this. I was just being glib...

[Endaar]

Which was probably not worth pointing out, since everyone knows this. I was just being glib...

Sorry, I wasn't trying to jump on you. I just wanted to explicitly point out the buyers' role in this mess. I actually think a lot of people don't understand or don't want to acknowledge that it takes two to tango. It's easier just to blame the banks.

Endaar

[saint]

Which was probably not worth pointing out, since everyone knows this. I was just being glib...

Sorry, I wasn't trying to jump on you. I just wanted to explicitly point out the buyers' role in this mess. I actually think a lot of people don't understand or don't want to acknowledge that it takes two to tango. It's easier just to blame the banks.

Endaar

The banks deserve a much bigger share of the blame from a societal perspective. When I make a bad financial decisions, I affect me (and my family).

When the bank makes bad financial decisions, they effect... well, the entire economy as we saw.

I have whatever financial skills I have gained and use those to the best of my ability. If I screw up, well that's as likely to be me just screwing up as it is deliberately doing something stupid.

The banks are supposed to be professionals at financial matters with expert skills and decisions making standards. When they screw that up, there's a higher level of responsibility than "oops my bad" imho. Banks making one or two mistakes is an "oops." Banks systematically making a series of unwise loans sufficient to cause an economic crisis is at best a demonstration that the decision makers were unqualified, and at worst a demonstration that their decisions were just short of criminal.

If I'm drunk, a competent bartender will cut me off. If I have a bad driving record, a competent judge will take away my license. If I'm a bad credit risk, a competent banker will.... give me a loan?

I don't believe the end-consumers deserve a pass by any means, we certainly live in a society of "I want it now and will pay for it later" but the banks deserve to be beaten with a much bigger stick.

[divemaster127]

The 1.1 trillion dollars stimulus was a flop I was listening to Hanitty & he stated if the government had just split this money up to all Americans it would have come to $55,000.00 this would have been a far better stimulus than the joke we had
dm

[saint]

The 1.1 trillion dollars stimulus was a flop I was listening to Hanitty & he stated if the government had just split this money up to all Americans it would have come to $55,000.00 this would have been a far better stimulus than the joke we had
dm

Don't believe everything anything much of what you hear from Hannity.

1.1 trillion, divided by 305 million (http://politics.usnews.com/opinion/articles/2008/12/31/us-population-2009-305-million-and-counting.html), works out to about $3600 per person. Near as I can tell from searching online, actual amount spent from the stimulus is $800 billion, making the per person amount roughly $2600 per person.

So, would we have been better off giving $2600 to each American? Dunno. Debate that if you will, but $2600 sure isn't as sensational as $55,000 per person. Factor in on top of that that much of the stimulus is expected to be repaid and not just given away. Now how much is left per American?

Whether or not the stimulus is effective, and if there are shennanigans going on in the repayments, and so forth are excellent and important topics of debate. They were good topics of debate when Bush put out the first stimulus as well. Depicting Obama as burning $55,000 per American is questionable, at best.

(Yes, it's a given that liberal spin jockies aren't immune from this either)

--- saint

[divemaster127]

Sorry Saint, I should have done the math,  some what Hannity says is good, but he is also full of it a lot of the time.  Doing supply for the military I see so much waste.  Year end is coming up for the goverment in september if the goverment departments do not spend there money then they loose the funds for the next fiscal year.  For example last year a military base in Alaska had a ton of money & told me just to ship them 5,000 4 prong dryer cords at 20.00 each we will never use them but that way we will not get our budget cut.  With waste like this how is the economy every going to recover.
dm

[ark_ader]

Sorry Saint, I should have done the math,  some what Hannity says is good, but he is also full of it a lot of the time.  Doing supply for the military I see so much waste.  Year end is coming up for the goverment in september if the goverment departments do not spend there money then they loose the funds for the next fiscal year.  For example last year a military base in Alaska had a ton of money & told me just to ship them 5,000 4 prong dryer cords at 20.00 each we will never use them but that way we will not get our budget cut.  With waste like this how is the economy every going to recover.
dm

I won't not for a very long time.  The good time days are over.  The USA needs to look at new avenues of self sustainability like freeing ones self from gasoline consumption.  Using my analogy about cheap labor, to get products that are made in China, back into US factories.  Regulated Union laws, so that these products do not end up being made back in China again.  Ship building, electric car manufacturing, greener military armaments, unrestricted wheat and other food production for exporting.  More arcade games built, etc.

Make people financially responsible for their debts.  I remember in the 1990s in So.Cal when those who did not pay child support were treated to TV airtime before the news.  Name and shame.  Make people think twice before borrowing.

Bring back debtors' work/poor houses.  It worked in the Victorian days, why not now?  So you would have to change some laws.  Big deal. 

Time for America to dig deep and find itself again.  Oh and stop spending on pointless wars. 

[danny_galaga]

Bring back debtors' work/poor houses.  It worked in the Victorian days, why not now?  So you would have to change some laws.  Big deal. 

Time for America to dig deep and find itself again.  Oh and stop spending on pointless wars. 

That is a very bad idea. Poor houses were exactly that. places where people who were flat broke (and in those times, born into it and destined to always be) could at least be some value to society. Misguided because a better value to society (which they started to realise around Victorian times in England, earlier in the US) is to raise the standards for people. Better education, opportunities etc.

I digress. If you are referring to people who have recently declared bankruptcy working in a 'poor house', then this is a step backwards for society. In Victorian times, a poorhouse worker had no skills. They were put to work making pins or bricks or what have you. Modern american bankrupts for the most part have many and varied skills. You really want mechanics, bakers, truck drivers, sales people, pilots etc making plastic bags instead? Is that how your economy will recover?

[pinballwizard79]

Dont blame the banks guys...

Blame the consumer for leveraging themselves & not planning ahead
Blame the agencies that fibbed regarding the AAA bond rating
Blame the government for pushing Fannie & Freddie to extend credit
Blame the person who was given a subprime lifeline & a chance to turn it all around but then blew it just to cry for help
Blame yourselves for having 401ks & mutual funds packed with mortgage securities to keep the wheels turning for everyone
Blame people who financed more than 25% of their monthly income

ARM loan increasing? Well you must have been a real POS before that ARM because anyone with good credit has had a 3.25% rate on their adjusted mortgage for the last 2+ years & will continue to do so for several more years since the LIBOR is so weak. America lost its 2nd chances when subprime died. The person with that subprime ARM is subprime because they already defaulted before even applying for the new mortgage, years ago. So do we blame the banks from back in the day who gave this person money back when they had good credit? I mean they created this monster thats now asking for subprime money right?

Think about this.. bad credit = difficulties with acquiring a good job (which makes the repair process take longer), higher insurance costs (which makes the repair process take longer),  bad places to rent at best & no traditional ways to borrow means you get payday or title loans only (which makes the repair process take longer). Also dont think its only 7 years of bad luck either because it could take you 7 more years just to get in a position where that defaulted debt thats stacking with fees (which makes the repair process take longer) is finally PAID off & reporting as positive. So now we lost some serious ---steaming pile of meadow muffin---, a slew of people who will be unable to buy anything for a long time with no 2nd chances to fall back on.

Banks offering too much credit? Um no, banks dont lend their own money guys. Its all about agencies & investors buying paper, thats where all the money came from not the banks & thats why lenders lost their liquidity, not due to regulation but to to investors fearing the investment of buying paper.

The government blasted the banks for stated loans & 125%'s. Now the government has the HARP program that "helps people with income troubles refi up to 125%" which sure sounds a lot like the loans they regulated away wow. Let me correct myself, they mentioned regulation which scared the investors & over the course of 72 hours subprime crashed because investors didnt want to dump money into endangered species, then we lost our liquiduty & the bottom finally fell out with no 2nd chances for I dunno half our country

[Endaar]

The banks deserve a much bigger share of the blame from a societal perspective. When I make a bad financial decisions, I affect me (and my family).

When the bank makes bad financial decisions, they effect... well, the entire economy as we saw.

Lenders aren't stupid; they have models which are certainly well established enough to know pretty accurately who is and isn't a good credit risk. Yes banks want to make as much money as possible, but far from that being an incentive to make bad loans, it's an incentive only to make loans where the expected reward is worth the risk.

So what happened? The problem is that the banks were essentially coerced into making many of these loans. The Community Reinvestment Act first enacted during the Carter administration and then strengthened under President Clinton encouraged banks to make loans more readily available to less than ideal borrowers. Many of these loans were then repackaged and sold to Fannie and Freddie, which investors (correctly, as it turns out) considered safe because their status as government sponsored entities would preclude them from defaulting.

I'm deliberately trying to avoid placing blame on any one individual or party (not that I don't have my opinions), but the argument is pretty compelling that the federal government's involvement in housing and mortgages intefered with the free operation of the credit market. And to reiterate something I said earlier, banks have zero financial motive to make loans that are unlikely to be repaid.

I spent a lot of years in the retail auto industry, working in areas where we dealt with a ton of subprime auto loans. And while default rates were certainly higher on submprime loans than more conventional loans, they were not excessive. Why? Because subprime auto lenders demanded a tremendous amount of information from potential borrowers. Proof of income, extended proof of employment, lots of references, proof of address via a utlity bill or rental agreement, etc. Show up to buy a car with an 800 credit score and you could finance 110% with little more than a signature. Those with 550 credit scores needed 20% or more down and all the docs mentioned earlier. Were the auto lenders smarter than mortgage companies in making sure they knew the risk they were assuming? I don't see why they would be. They just operated in a less regulated market, and thus were better able to accurately assess risk and turn down loans where that risk was excessive.

So yes, banks have much more effect on the economy as a whole than any individual borrower. But the government can screw things up far more than any number of banks. And this financial mess is a direct result of too much government inteference rather than too little government oversight.

Endaar

[danny_galaga]

And to reiterate something I said earlier, banks have zero financial motive to make loans that are unlikely to be repaid.

The incentive was that a bank could repackage those risks as another form of investment and sell it on, and on, and on. A game of musical chairs, but no prize at the end. Well, not in the US anyway 

I bet there was no such repackaging of risks with car loans...

[shmokes]

Banks deserve to be blamed because they were making sound financial decisions and it was despicable.  when banks were handing out loans to people whose credit and income didn't begin to justify lending such a large amount it wasn't cos the banks had gone delusional and decided to ignore their formulas and just hope that somehow these people would think of some way to pay back the bank.  The banks are professionals.  They lended to these people because it wasn't a risk.  The real estate market was booming.  The bank knew they'd be foreclosing on a ton of these properties, but they'd be able to recoup their losses at foreclosure. 

And this is why they deserve blame.  The average person was looking at the market and getting caught up in the hysteria and making stupid decisions.  The banks were just making evil ones.  People were selling their houses for an upgrade and sinking all the equity they'd been building into their new house--a house that the bank, with their sophisticated formulas, planned from the beginning to eventually foreclose on.  They were just stealing the life's work of people who were, of course, less financially sophisticated.  It was a ---smurfing--- scam and people who want to let the banks off the hook are nuts.  Those loans weren't just reckless.  They were disgusting. 

Those bankers were nothing more than Nigerian princes with means.  Maybe their marks should have been more careful, but you don't just absolve the crook because his victims were gullible enough to fall for his scam.

[AtomSmasher]

Shortly before the market crash, I knew a mortgage broker who specialized in sub-prime loans.  She was making a ton of money at the time, but quit her job because she also hated that her job was to give loans to people who she knew wouldn't be able to afford the loans. 

The banks and the brokers knew exactly what they were doing, but the money was so good that most of them didn't care.

[shmokes]

The money was great.  It took many of those people decades to build all that equity and the banks were able to take it from them like candy.

[danny_galaga]

  The average person was looking at the market and getting caught up in the hysteria and making stupid decisions. 

 The banks were just making evil ones. 

In a nutshell.

[pinballwizard79]

http://www.google.com/#hl=en&q=dutch+tulip+collapse&aq=f&aqi=&aql=&oq=&gs_rfai=&fp=d9804d37b84b33a1

Dutch tulip speculative bubble, simply some organic material selling for more than the salary of average working mans wages for an entire year. Then after the most expensive bulb failed to sell at an auction people's prized bulbs were worth the same as a common onion. History repeats itself: stock market crash 1929, savings & loans crisis of the 80's & now this government subsidized lending& stimilus garbage.

Dont buy gold, buy lead.....you cant reload with gold 

[Blanka]

Having no money is always the best. And then I mean, no huge money, and no loans. Just hover around 0. That is always safe. Just a little cash to keep things going, but never serious savings nor serious debts. A good realationship, access to good food and some cabs, that's all we need.

[ark_ader]

Bring back debtors' work/poor houses.  It worked in the Victorian days, why not now?  So you would have to change some laws.  Big deal. 

Time for America to dig deep and find itself again.  Oh and stop spending on pointless wars. 

That is a very bad idea. Poor houses were exactly that. places where people who were flat broke (and in those times, born into it and destined to always be) could at least be some value to society. Misguided because a better value to society (which they started to realise around Victorian times in England, earlier in the US) is to raise the standards for people. Better education, opportunities etc.

I digress. If you are referring to people who have recently declared bankruptcy working in a 'poor house', then this is a step backwards for society. In Victorian times, a poorhouse worker had no skills. They were put to work making pins or bricks or what have you. Modern american bankrupts for the most part have many and varied skills. You really want mechanics, bakers, truck drivers, sales people, pilots etc making plastic bags instead? Is that how your economy will recover?

It is the way forward.  You need a deterrent against borderline fraudulent borrowing and the general stupid.  You need to teach the consumer right from wrong.  I'm not saying poor houses like in Dickens' time, but a community enterprise where skilled workers pay off their debt by working for the local government.  In turn they are rewarded with good food, adequate shelter and on schedule to rebuilding their lives and credit score.  Why does hard work always envision slave labor and pitiless environments?  Why not make the unemployed work for their handouts?  Would you not think that would be a good thing to teach the young?

If you are going to live by government handouts, why not get the jobless to repay the government back by giving services in return.  Throwing more money at the problem isn't going to teach anyone anything.  While I am on the same subject, why not bring back conscription?  Giving the 18-21 year old a trade, instead of putting through college.  Life college is more enduring.  That doesn't mean sending them to Iraq, but home defense, fixing roads and again helping the community.  Is the American Dream not a good ideal to fight for?

Let the weekend National Guard go to Iraq. 

[Endaar]

The incentive was that a bank could repackage those risks as another form of investment and sell it on, and on, and on.

I agree, and I think I said as much. But that gets back to the government interfering with the free operation of the market. Without the ability to sell those loans to an entity that investors considered completely safe - Fannie and Freddie - the risk would have been excessive and wouldn't have been taken.

The bank knew they'd be foreclosing on a ton of these properties, but they'd be able to recoup their losses at foreclosure.

I've never heard that theory before. Generally, lenders don't want to have to reposess and resell collateral, and even with the market increasing as it was I'm hard pressed to believe all of their costs would be recouped let alone a profit made. Point me in the right direction and I'll read up about this.

It was a ---smurfing--- scam and people who want to let the banks off the hook are nuts.

I'm not letting them off the hook, but likewise I will not put 100% of the blame on them. The government and the borrowers are both culpable here, and honestly I don't think you need to be financially sophisticated to figure out if you can afford a monthly payment or not. Actually, those buyers who purchased thinking they could refinance after a few years or flip the house for an easy profit got themselves into trouble specifically because they were trying to be sophisticated; the average 'unsophisticated' buyer who just looked at the payment on a 30-year fixed mortgage and determined they could afford it isn't the one who got burned.

Unfortunately, like in many aspects of society lately, those of us who made responsible decisions are paying the price for those who didn't. And that goes back to the government, not the banks. Were it up to me I'd have let banks fail instead of bailing them out. That would have been the easiest way to reset everyone's tolerance for excessive risk.

Endaar

[shmokes]

I know some of you have spent upwards of 10, maybe 15, minutes wikiing this topic, but I'd just like to lay out

Cos unlike the rest of us you're a professional.  None of us could be speaking from education or experience.  Seriously . . . sometimes . . . stfu

[pinballwizard79]

PBJ Ive been in the industry for 8 years.

Carter...pft

[amendonz]

I haven't really got much to say on the issue as the company I work for, foodstuffs is making more than ever, over 2 billion nz last financial year I think about 6 percent increase. And since we have such a wonderful union I stand to get about an 7.3 percent increase in feb.   
 
I would like to say lol at the guy who thinks the market can fairly decide how much labour is worth, ask chinese/vietnam workers if they think the're on a reasonable wage. 

[Endaar]

Perhaps you should look into exactly how much of a free-market economy Vietnam, China or any other number of third world countries have before you use them as examples for the failures of the free market. Even given that, every time a country has moved further away from a centrally-planned model, the standard of living has increased for its citizens.

Meanwhile, why do you need a union? Is the quality of your work such that you wouldn't receive that kind of raise without one? If so, then you are overpaid. If not, can you say the same for all of your coworkers, or are there some who don't lift their weight? Do those people deserve the same raise?

The irony here is that the high cost of labor, which has been driven through the roof by unions among other things, is exactly what sends jobs to third world countries.

And just for the record, I received my own 7%+ raise recently...as one of seven non-union employees out of nearly 500. I guess either I earned it, or I'm just lucky. Must be the later...

Endaar

[Gorotsuki]

Can we put an End..aar to your insanity?

[amendonz]

I'm no expert but I do understand a bit about export processing zones with horrible work practises.and I find it funny you can defend it. I know there has been progress, especially in china but nothing to write home about. 
 
As for the union yes it is very important where I work. Wish I could explain further but it's hard posting from my phone, I would possibly say i'm over paid but the massive ever increasing profit margins could explain different, technically I earn under industry standard, our main competitor pays a couple dollars an hour more. Also cpi is pretty big this year and theres no way they would be keeping up with that without a union.

[amendonz]

ps. Maybe you have been watching too much glenn beck.

[LLUncoolJ]

Picking up and moving isnt always the answer and not really the easiest either. Moving to another city and leaving behind your home isnt a 1 day thought process and poof its done.

I have to drive almost 300 miles from Cincinnati, Ohio to Dearborn, Michigan to work each week. It was the only work Ford had for me at the time. In Cincy, I have my home, where the market is really depressed right now, and no sale of my home is imminent. Several homes in my neighborhood are up for sale and at 40% less than market value and no one is buying and not so much a look-see.

As for those that complain about those on unemployment benefits, does it make sense to drive 75 miles for a minimum wage job, just to eat any wages up with fuel cost, wear and tear on your vehicle? After you put the time in for driving and fuel cost, you may have enough left over to maybe but groceries but where is the rent going to come from? I know, work 2-3 jobs if need be, but 75 miles one way to work, then 75 miles back home, then maybe 20 miles to the next job, your killing yourself with miles and fuel. Cheaper to stay home!

Fordman

Hey Fordman, PM me when you get a second....thanks.

[Endaar]

Can we put an End..aar to your insanity?

Sure you can, don't read my posts.

[Gorotsuki]

Ha, ha.
Ah, I'm interested in what you have to say Endaar,
sometimes it just bugs me a bit and I lose my cool.
That be my problem.