Posted: 01 Mar 2011 02:30 AM PST
In what is erroneously being reported as a paid settlement, banks are offering to reduce mortgage principal if it helps them settle the lawsuits filed by attorneys general in all 50 states.
Irvine Home Address ... 28 BUTTERFIELD 14 Irvine, CA 92604
Attorneys general everywhere are trying to make a deal that makes them look good, allows banks to recognize losses on their hopeless loans, and provides additional false hope that keeps distressed borrowers hanging on.
Obama Proposal Seeks Multibillion-Dollar Settlement of Loan-Servicing Cases
When they use the word "pay" it sounds like they are talking about real money being transferred between parties, but that isn't what's happening.
So the banks can pay real money, or they can write down their worthless securities they are holding on their books at face value -- something that happens anyway when the borrower strategically defaults and the property goes through foreclosure.
The banks aren't being asked to part with anything of value. They have an illusion on their books that they are revealing as illusion. Whereas previously everyone agreed to pretend these loans were going to be repaid and the banks would recover their capital, now everyone is agreeing to see what is apparent. Banks will mark a few loans to market. In exchange for giving up billions in illusory assets, the banks get various lawsuits dismissed -- the ones started by pandering attorneys general around the country to appease delinquent loan owners.
In the end we have a large and largely bogus robo-signer scandal being wrapped up and put out with the trash accompanying a few severely underwater loan owners who were going to default anyway.
But the banks gain something much more. The remaining loan owners who are not going to see any principal reductions -- meaning 99.9% of them -- are going to cling to the false hope of a principal reduction windfall to keep them making those oversized payments.
All government bailout programs are a deception. The only purpose of these programs is to find stealth methods of funning money to banks or protecting banks assets. If a few loan owners benefit in the governments efforts to prop up our banks, it is an incidental byproduct of the government's real purpose which was to give money to banks. By bailing out a few hapless home debtors, lenders can dangle the principal reduction carrot in front of the masses. The masses will dutifully comply in hopes of getting that big payout. Its this same psychology that makes keeps people gambling or playing the lottery.
It is very clear that far fewer will actually benefit than the total number that needs debt reduction.
These servicers are motivated to get these lawsuits off their backs.
At least the banks are not directly transferring these losses to the US taxpayer.
Does this apply to purchase money mortgages only? Are we giving all the HELOC abusers a pass?
Regulators are concerned penalties could be too stiff? We wouldn't want banks to be penalized for their bad behavior, right?
On this issue, the banks are right. The charges of improper foreclosure are mostly bullshit being used by political operatives to stoke populist fires. The actual number of improperly foreclosed properties is very small, particularly considering the millions of properties going through foreclosure.
Let's ponder that one for a minute. Let's say you see your spendthrift neighbors HELOC their house, buy all the toys, take trips, and generally live a Ponzi. After pissing away several hundred thousand dollars, your neighbors are having a hard time paying their bloated mortgage. The apply for principal reduction and get it. They quickly start the Ponzi scheme all over again.
On the other hand, you have worked hard, saved your money and paid down your mortgage while the Ponzis were being Ponzis. Let's say you work in a real estate related field, and your income is down and you're having trouble making payments. Is the bank going to reduce your principal?
You have equity. Why would they simply give you more equity? You see, the first criteria for getting a principal reduction will be the need to be in a negative equity position. That eliminates most of the people worthy of debt relief and targets the benefit the most egregious Ponzi spenders and the most foolishly leveraged peak buyers. Indirectly through government bailouts and principal reductions, money was taken from your household and transferred to the Ponzis.
The attorneys general will spin this moral hazard laden garbage as a victory for the people. What people?
Lenders will selectively reduce principal on a few deeply underwater borrowers in hopes they won't default anyway. It seems to me that lenders get the better end of that deal, and they can try to dodge the moral hazard issue by saying the government made us do it.
The Irvine HELOC abuse lifestyle
When i looked through the mortgage records for today's featured property, I saw the same pattern of living off home equity. These people were renters who were paid to stay in their apartment for several years. Now that they are leaving, their credit is trashed, but its a small price to pay to live free for several years.
A generation learned during the 00s they could live with essentially no housing cost, and in good years, the house actually paid them to live in it. Why would anyone rent?
This is the surreal life of California real estate. And endless cycle of boom and bust that creates dependency and sloth.
Today's owners put nothing down and extracted $120K in three years. Do you want to forgive their principal so they can do it again?
Irvine Home Address ... 28 BUTTERFIELD 14 Irvine, CA 92604
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