Economics

Bad Credit, Missed Payments, Imminent Foreclosure? No Problem!

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How sympathetic should you be to people who took advantage of bargain variable-rate mortgages and are having trouble making their payments now that their rates have risen? That depends, in part, on how much of a hard-ass you are when it comes to expecting people to read the fine print and understand what they're getting into before they sign a contract. (Leave aside, for the moment, the possibility of outright fraud by lenders, for which there should be some sort of legal remedy.) But even if you feel bad for families facing foreclosure now that the prospect they didn't want to think about has come to pass, does it seem like a good idea to encourage such carelessness? That's what the state of Massachusetts is about to do, by refinancing the mortgages of families who might otherwise lose their homes. Under the $250 million plan, variable mortgages would be converted into 30-year loans at a fixed rate of 7.75 percent. When the value of a home has declined since it was purchased, the state will force lenders to take the loss, covering an amount equal to the current market price. Unless I'm missing something, such strong-arming probably won't leave lenders worse off than they would otherwise be, since if they foreclosed they would have to take a loss too. But the state will be putting taxpayers on the hook for defaults by homeowners who are disproportionately bad credit risks and have already shown they have trouble making payments. Worse, it will be encouraging other would-be home buyers not to worry much about the fine print, since if worse comes to worse the state will bail them out.

[Thanks to Michael Graham for the tip.]

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  1. I want to make sure I understand the stock liberal position on lending. When money is tight and creditors more selective about who they lend to it is redlining. When credit is loose and financing vehicles are created for people to finance a house who previously would not have been able to (who then demonstrate exactly why they were bad credit risks in the first place) it is predatory. Does that about cover it?

  2. You got it exactly right.

    Some people are too stupid to get in out of the rain, much less take care of their personal finances. But don’t worry, the Dems will pass legislation to bail out all of the people that bought a house they couldn’t afford.

  3. As long as we’re addressing all the ills of the world, why not punish the real estate agents who artificially raised the market values, ‘flip this house’ investors and the one-eyed tabby cats that prowl the back alleys.

  4. And of course first time home buyers will be screwed because the state will be artificially holding the bubble in place while making it harder for new time home buyers to get loans from banks that now believe that buyers will screw them over anyway with little reward.

    Remember kids, financial responsibility is someone else’s problem, not yours.

  5. swillfredo,

    What the hell does that have to do with liberal or otherwise?
    It’s people on the dole, politicians pandering to them and those with any sense of responsibility left footing the bill. Hey, money is free, no problem.
    Those that giveth are going to take control over you.

    Somehow feels like deja vu, someone remember the S&L fiasco?

  6. Actually, the MA program is a sham.

    First of all, they openly concede they have no real ability to force lenders to accept a lower payoff. They’re merely going to be trying to do a loan workout. Foreclosing lenders accept low payoffs all the time – there are instances where it is better than going to auction.

    Second of all, the program doesn’t actually help borrowers facing foreclosure. Foreclosure in Massachusetts only begins when a borrower is 120 days late on their mortgage. People who are 60 days late are plain old subprime borrowers and not foreclosure victims. The typical foreclosure bailout borrower doesn’t even really perceive themselves as in significant difficulty until they’re at least 90 days late. When they’re just 60 days late, they generally have plenty of financing options still available in the existing subprime market. If you make it to foreclosure in Massachusetts, it’s because when you were at the 60 day late mark you put your head in the sand and hoped the problem would go away. A borrower with their head in the sand probably will not take advantage of a government program, either.

    Third, although it doesn’t indicate this in this blurb, you’re not eligible for this program if your last loan was a cashout refinance. The vast majority of borrowers who dealt with truly “predatory” lenders were sold debt consolidation products that qualify as cashout refinances. None of those people qualify for this bailout. Pretty much the only people who do qualify are people whose last loan was a purchase loan – and those people are likely in trouble not because of “predation”, but because they chose to get a loan they couldn’t afford because of MA’s rapidly rising real estate values. The “victims” of predatory lending are supposed to be minority and elderly customers who were cold-called to refi into option ARM’s, not suburban professionals who bought at the top of the real estate market and used exotic financing to do it – but the MA program helps the latter and not the former.

    All in all, a junk program and a waste of money.

  7. Sorry, my second reason the program is bad makes more sense if I point out that you’re only eligible for it if you’re 60 days late or less.

  8. martin,

    You are absolutely right, neither liberals nor conservatives have demonstrated the slightest interest in letting the financial markets operate untrammeled. Liberals, however, are the first to cry redlining when people with poor credit are declined for home loans and the first to suggest government interference as a response. Once these same people begin to default in large numbers the knee-jerk liberal response is to bail them out.

  9. Is it necessary for the government to enforce ALL agreements amongst its citizens? The model now seems to be that agreements are either sanctioned, or sanctioned and regulated (fairness in lending laws), or prohibited (prostitution.) Would it be appropriate/feasible to fashion contract laws to read that all agreements between adults are permitted, but the government will only sanction those that follow certain guidelines?

    What if we fashioned a general lending law that said: 1) Lenders and borrowers can enter any agreement they see fit. 2) Lenders can appeal to the government for recovery of the principal plus x% per year plus $1000 for any loan they issue that’s defaulted on.

    If the lenders are stupid enough to loan money to people using these dubious variable-rate instruments, fine, but the gov isn’t going to collect all of it for them when the loans go belly up (lender beware.)

  10. Damn damn damn damn damn I should’ve bought inflated property in Mass with an ARM. Would’ve appreciated the bailout.

  11. Law to be titled, “Yuppie in Trendy Condo That’s Obviously Just Cheesy and Worth Nothing Now Bailout Measure”

  12. Roger,

    That isnt far off of a Lysander Spooner proposal, IIRC (its been a while). He basically wanted all loans to be defaultable at any time, lender beware! But, a person who defaulted on a loan probably wouldnt be able to get another one in the future.

  13. Wow, Jacob. Though I can’t disagree in theory — I’m something of a reader of fine print myself — you and must have been sitting at the closing table for hours the last time you took out a mortgage, what with all the paperwork borrowers often see for the first time that day.

    One problem is that so many borrowers trust the mortgage broker or loan rep — a commission-only salesperson! — for opinions on the wisdom of taking out one of these loan products. And as a recovering real estate agent and onetime holder of a mostly unused mortgage broker’s license (I didn’t have the stomach to do much with it), I can say with confidence that even beyond the obvious self-interest, many mortgage brokers didn’t understand the mechanics of the exotic loans they were selling.

    And in states where title companies are the norm and hiring one’s own real estate attorney is not, bringing both one’s own lawyer and a CPA into the transaction isn’t easy when you’ve barely got the money for the closing costs and down payment. Whether this should be taken as a sign that you shouldn’t be buying real estate on credit is an obvious question.

  14. Oh, cripes. I wanted to keep editing that. Ah well.

  15. I’d rather my TAX money be spent on the holocust being waged on Muslims irregardless their involvment with terror. My Tax money is better spent on TANKS, BOMBS, PLANES, and TOILET SEATs costing $700 than spending it on some poor family.

    LONG LIVE DICK CHENEY and the WAR MACHINE and HIGH SPENDING on Military.

    STOP all that welfare, food stamps, financial aid for the POOR. The poor should b used for FRONT LINE WAR FARE !!!

  16. robc,

    I have enormous respect for Spooner, but I don’t know if I’d go that far. Thanks for bringing it up, I’ll check it out.

  17. Once again, libertarians gnash their teeth over the idea that the government is out there helping people who had the gall not to be as perfect as they are, complete with the old rationalization that helping people with problems actually encourages them to seek out more problems.

  18. They knew what they were getting into.

    I say, let ’em crash.

  19. You don’t need the fine print to get the concept of you don’t get something for nothing. Zero down payment and low monthly payments = high probability your payments and rates will jump up exponentially at some point.

    This “predatory lending” crap comes from the same place as the “generation debt” crap. Student loans are a bitch. But when the 20-30 something bitching about how their loan payments are holding them back has an iPod dangling from their ears and a leased Audi in their overpriced, hip zipcode apartment garage I don’t have a lot of sympathy.

    I’m a financial retard myself, but even I understand the principle of don’t borrow money you can’t pay back.

  20. Is it necessary for the government to enforce ALL agreements amongst its citizens? The model now seems to be that agreements are either sanctioned, or sanctioned and regulated (fairness in lending laws), or prohibited (prostitution.) Would it be appropriate/feasible to fashion contract laws to read that all agreements between adults are permitted, but the government will only sanction those that follow certain guidelines?

    Actually, the true libertarian position would be that government has no place enforcing private contracts. If a lender gives a borrower money and the borrower does not pay it back, why is that my problem and why should taxes be taken from me at gunpoint to help the lender recover their funds?

  21. Roger,

    Oh, I dont agree with him on that. I thought it interesting when I read it though. I have a tough time justifying bankruptcy laws and Spooner was just pushing a form or EZ Bankruptcy basically.

  22. Now, swillfredo, that’s not what redlining means.

    No, swill, the fact that lenders “created vehicles” for poorer people to get loans is not the complaint, either.

    Why don’t you look up the issue, and try again?

  23. Once again, libertarians gnash their teeth over the idea that the government is out there helping people who had the gall not to be as perfect as they are, complete with the old rationalization that helping people with problems actually encourages them to seek out more problems.

    Old but correct rationalization?

  24. Actually, Dan, whether one agrees with the idea of bailing out people facing foreclosure or not, the fact remains that this plan does not bail out people who are facing foreclosure, despite the fact that it is being trumpeted to the press that way.

  25. Once again, libertarians gnash their teeth over the idea that the government is out there helping people who had the gall not to be as perfect as they are, complete with the old rationalization that helping people with problems actually encourages them to seek out more problems.

    Dan, given that I live in a modest condominium that I can afford, how much sympathy should I have for someone who bought a huge house and can’t afford it?

  26. Wow, if you think the home-loan-default problem is Massachusetts consists of people who bought huge houses, you really are talking through your hat.

    Yup, those sub-prime, no-credit home loans all went into 3000 square foot McMansions. That’s exactly the issue.

  27. Once again, libertarians gnash their teeth over the idea that the government is out there helping people who had the gall not to be as perfect as they are, complete with the old rationalization that helping people with problems actually encourages them to seek out more problems.

    Conditioned response Dan. Why should anybody learn to watch out for themselves when they know that the gov will bail them out of any mess they make.

    Plus, we’re not talking about complex financial concepts here. Sure the loans themselves are complicated, but what is so hard to grasp about you don’t get something for nothing and you have to pay what you owe. That’s hardly demanding perfection, just common sense.

  28. robc,

    Actually, as I’ve started to consider the idea, it might not be that far-fetched if the lender gets the property from secured loans. Well, gotta go change my handle to lsfanboy 🙂

  29. Pardon my pre-coffee punctuation.

  30. One more problem I have with the program:

    It’s specifically being directed at borrowers who have no equity in their property.

    These borrowers, frankly, have nothing to lose other than the inconvenience of moving and a little personal humiliation.

    The real people who are losing out in the current wave of foreclosures are people with 10% to 30% equity in their properties. These people actually lose something of value when they are foreclosed upon, but generally can’t obtain foreclosure bailout financing, which almost never goes above 70% loan to value if you aren’t in California or Florida. Those people aren’t the object of this bailout plan, specifically because their equity position usually indicates they’ve had the property for a while and their last loan wasn’t a purchase. So again, the people who are really losing something here aren’t helped, and the people with no equity in their property [and thus nothing really at stake, other than the psychology of the words “my home”] are helped. It doesn’t make any sense.

  31. Joe, the foreclosure problem in Massachusetts isn’t limited to such borrowers [not by a long shot] but I’ve gone into some detail here regarding why those are the only people with a real chance to benefit from the program in question.

  32. I regard myself (perhaps erroeously) as a libertarian. I believe that government has 3 limited, legitimate functions: operating the military, administering public property 9of which there should be little), and settling private property conflicts. Perhaps you’re confusing libertarians with anarchists, Dan.

    Apparently you disagree with Spencer: “The ultimate result of shielding men from the effects of folly is to fill the world with fools.”

  33. Fluffy,

    I’m not sure you’re correct, but your criticisms stand out for their thoughtfulness and substance.

    You’ve lapped the field. Tip o’ the cap.

  34. Roger,

    I think LS opposed secured loans too. But, he wasnt dealing with 100k mortgages either. I dont think anyone would have given me an unsecured mortgage on my condo that I could walk away from (the loan, not the condo) at any time. 🙂

    The essay was referring to loans more along the lines of small business loans. The “loan a man the money to buy a hammer and anvil so he can become a blacksmith” type loan. The primary point of the essay was his opposition to usury laws. He was in favor of sub-prime loans. 🙂

  35. I love it when I spell erroneously incorrectly.

  36. Yup, those sub-prime, no-credit home loans all went into 3000 square foot McMansions. That’s exactly the issue.

    I phrased that poorly, replace “huge house” with nice house or “any house that person can’t afford” and I think the point still holds.

    joe,

    I’m sympathetic to say, bailing out a family thats been decimated by medical bills, or some other situation beyond their control. Why should people who are deliberately living above their means deserve a bailout?

  37. I once had to deal with a guy – his English wasn’t very good, but was getting better – who bought an apartment house, and was told by the attorney at the closing that he owned half the paved area between his house and a nearby store. Of course he didn’t have his own attorney present, or hire one to look at the deed. The paved area turned out to be a right-of-way.

    But hey, there were so many nice, helpful people from the bank, and the whole process was so much more complicated than buying land back in Puerto Rico, so he assumed everything was on the up and up.

    Social darwinism went out with the Charleston, fellas. Even if you can’t stir yourself to feel sympathy for people who’ve been taken advantage of by sneaks, you should at least recognize that it’s wise to protect the overall economy from the violent shocks that accrue when too many of these schemes collapse.

  38. David,

    Most of these people have not been “deliberately living above their means.”

    Their lenders went to great trouble to convince them that these loans were within their means.

  39. Conditioned response Dan. Why should anybody learn to watch out for themselves when they know that the gov will bail them out of any mess they make.

    Okay, you tell me then. Why isn’t everybody on the dole?

  40. I’m all for the sneaks, that’s why I said that the government shouldn’t sanction every agreement between lender and borrower.

  41. Plus, we’re not talking about complex financial concepts here. Sure the loans themselves are complicated, but what is so hard to grasp about you don’t get something for nothing and you have to pay what you owe. That’s hardly demanding perfection, just common sense.

    So in other words, anybody who defaults on a loan decided to take out the loan knowing good and well that they were going to default on it?

    In addtion to the lack of libertarian mothers, we’re getting a nice lesson in why there are few libertarians among the poor, either.

  42. joe,

    some of us (or at least me) think that violent shocks are good for the economy. At least in the long run.

    Their lenders went to great trouble to convince them that these loans were within their means.

    When I bought my condo 9 years ago, I got a mortgage preapproval. When the bank told me how much they would loan me, I laughed at them. It was more than twice my self-proscribed limit.

    There is a well known national radio show in which the host tells people to never get more than a 15-yr fixed mortgage thats 25% of their take home pay. While I dont agree with everything he suggests, a good piece of (overly)sound advice exists that is easy to hear.

    Hmmm…should I listen to the bank, common sense, or some radio guy? Well, 2 out of 3 will keep you from buying too much house.

  43. Regarding Spooner, don’t foget that back in his day it was unheard of to buy residential non-rental property (aka dead or mort) with borrowed money without at least 50% down, unless you were part of a mutual company.

  44. robc,

    Enjoy the Early New Deal, did you? That’s what the most recent violent shock of note brought to our economy.

    As interesting as it is to read you brag about how much more worldly you are in financial affairs that people in danger of losing their homes, I’d still prefer not to live in a “devil take the hindmost” society.

  45. joe,

    Huh, I thought the most recent shock of note was the tech market crash.

    Bad politicians brought us the early new deal. The shock wasnt responsible for that.

  46. Okay, you tell me then. Why isn’t everybody on the dole?

    Good question. Might have something to do with character and work ethic. You don’t have to be a financial whiz to find handouts demeaning, earning your own way personally rewarding or to grasp the concept of no free lunch.

  47. robc,

    Bad politicians brought us the early new deal. The shock wasnt responsible for that.

    In libertopia, the public does not demand the government does not deliver responses to severe threats when Big Giant Heads who took a semester of economics say it’s a bad idea.

    In America, they do.

    You don’t have to be a financial whiz to find handouts demeaning, earning your own way personally rewarding or to grasp the concept of no free lunch.

    Nor do you have to be a moron or a leech to be set up for a fall by an irresponsible mortgage broker.

  48. I’m all for the sneaks, that’s why I said that the government shouldn’t sanction every agreement between lender and borrower.

  49. Fluffy hit upon one of the least discussed aspects of the subprime/foreclosure problem: bill consolidation. Here in Ohio, there have been lots of people who were sold refinances in order to pay bills, and many people didn’t consider the huge risk involved in doing so.

    The huge risk is that they converted unsecured debt into secured debt. So now, falling behind, instead of being bugged on the phone, these folks are losing their house.

    FWIW, Ohio has a similar bailout program in place, using state bonds.

  50. In libertopia, the public does not demand the government does not deliver responses to severe threats when Big Giant Heads who took a semester of economics say it’s a bad idea.

    Apart from the fact that this sentence makes little sense even when I add “that” where it seems to belong, I should have stopped reading at the weak-assed use of the word “libertopia.”

    joe,
    You’ve been around long enough to know that no serious libertarian is a utopian.

    And this thing that Massachusetts is doing is C-A-T dumb. I have the feeling that this may be helping to bail out the lenders as much as the borrowers.

  51. Good question. Might have something to do with character and work ethic. You don’t have to be a financial whiz to find handouts demeaning, earning your own way personally rewarding or to grasp the concept of no free lunch.

    Sure. But that contradicts completely with your previously mentioned idea that people won’t do anything for themselves if the government is there to help them or bail them out.

  52. So in other words, anybody who defaults on a loan decided to take out the loan knowing good and well that they were going to default on it?

    Ah, the patented Dan T word twist. Not even close to what I said. Anyone who takes out a loan that requires ridiculous financial back-flips to secure should realize they are not in a position to take out a loan.

    In addtion to the lack of libertarian mothers, we’re getting a nice lesson in why there are few libertarians among the poor, either.

    Maybe they aren’t many libertarians among the poor. I’ve never done a census. But I’m pretty sure there are people of all political stripes and income levels that get that you shouldn’t live above your means and don’t think you should reward people who do.

  53. i am interested in seeing exactly what kind of schenanigans (shenanigans? bennigans? hoolihans?) lenders were up to, beyond those situations where people were bad at math and took off more than they could chew. (i live next door to someone who did just that.)

  54. Why isn’t everybody on the dole?

    Everybody is on the dole. We are just arguing extent.

  55. Please. The average subprime borrower isn’t someone with no income. If that were the case, they wouldn’t get a loan from most lenders, subprime or otherwise. No, the average subprime borrower is someone who has done something to trash his credit. That can be due to erratic income, but it’s more often due to overextended credit.

    Lenders–especially brokers–can pull some nasty tricks, but at what point do we hold borrowers accountable? The legalese in the disclosures can be daunting, but the APR and some of the basic disclosures are prominent and relatively easy to understand.

    People of any credit level or income who are bitching about ARMs deserve little sympathy. No one with an operating brain thinks that ARMs are a permanent low rate. People either hope that rates won’t go up or just gamble that their situations will change. Also, a lot of investors gambled on ARMs to extend their ability to gobble up real estate. Oops.

    Incidentally, this is probably being done at the behest of the lenders, who do not want a bunch of real estate in their portfolios, let me assure you.

  56. Safety nets are one thing; bail-outs are another.

    If people made bad decisions, they need to live with the consequences.

    If lenders intetionally mislead borrowers, they should be punished.

    Other than ivestigating and prosecuting dishonest lenders, the government should stay out of this problem.

  57. Sure. But that contradicts completely with your previously mentioned idea that people won’t do anything for themselves if the government is there to help them or bail them out.

    Oh, I forgot. You’re the only one allowed to make generalizations in arguments. My pardon.

  58. The ultimate result of shielding men from the effects of folly, is to fill the world with fools. — Herbert Spencer

  59. dhex,
    I recently left the mortgage business (for good – yay!). There are few examples of truly predatory lending out there, but they definitely exist. Usually it’s committed by brokers, who are screwing the lenders even more than the borrowers. They switch closing documents out so that it appears that borrowers are closing fixed loans rather than ARMs or that the terms of the ARM are different than they actually are. Sometimes they juice the appraised value to give the borrower more cash out or put less money down. While these all come back to bite the borrower, they hurt the lender even more, because they lead to more defaults. The borrower “loses their home” (which was never really theirs in the first place), but the lenders, as we’ve seen, go out of business when enough of these shenanigans hit them at once.

    ProGLib,
    That is exactly what I was alluding to earlier, about the benefit to the lenders. This smells like corporate welfare to me.

  60. What I wrote sounds a little harsh to the borrowers. I should add in there that in the case of juicing the appraised values and some other fraud that takes place in the mortgage business (like juicing income on stated loans), often the borrower is aware of the fraud and is even an active participant. I was thinking of these people when I wrote that. Borrowers would actually shop around until they found a broker who assured them that they could get them the value they needed. When it came time to sell, or when their sleazy broker closed up shop, the borrower could easily be upside down. Then, it comes back to bite them, but they are not taking as big a loss as the lender if they default.

  61. gotcha. thanks highnumber.

  62. highnumber,

    The missing word was “and.” The public does not demand and the govenrment does not deliver…

    And while thinking that the public and their representatives will not take steps to mitigate people’s severe economic harm may not quite reach the level of “utopian,” it is still well beyond realistic.

    I have the feeling that this may be helping to bail out the lenders as much as the borrowers.

    Quite likely. A collapsing mortage industry, severely tightened markets for capital, and banks calling in their loans have proven to be extremely dangerous phenomena.

  63. Anyone who takes out a loan that requires ridiculous financial back-flips to secure should realize they are not in a position to take out a loan.

    Try to put yourself in someone else’s shoes.

    How is someone who’s never bought a home before supposed to know the different between ridiculous backflips and normal backflips?

    How is someone who isn’t terribly sophisticated in financial matters supposed to know what questions to ask, or what information they aren’t being given?

    Let’s be realistic here – there are all sorts of “don’t worry about that, just initial here” and “short version – you’re saying you can afford the loan, which you can” that goes on at every mortgage closing.

  64. When I bought my home a few years ago I was given a bunch of pamphlets about ARMs and had to sign papers at closing acknowledging that I knew I was getting an ARM and realized that my payments would increase in the future. It was all very transparent and easy to follow.

    There are going to be shady characters out there, but that’s the case in just about every aspect of life. The government can justify any intrusion on the grounds that they are protecting us from bad people. How about going after the people who are violating laws rather than making it impossible to live our lives?

  65. joe,
    The mortgage industry is not on the verge of collapsing. It is going through a necessary contraction.

    And, no, I do not have sympathy for people who sign paperwork they do not understand without consulting an attorney, or believe everything a salesman tells them.

    Buying a used car? Ask a mechanic you trust to look at it first.
    Closing on a mortgage? Have your attorney review the paperwork before signing. If you can’t afford that minor expense, why the hell do you think can afford a house?

  66. Agreed, no collapse in sight. The business always has some companies that go too far in boom times–they usually die a horrid death or get bought up.

    However, due to the insanely high cost of housing in many more markets than we’re accustomed to, along with increasing interest rates and all of the nastiness that will come with the aforementioned ARM and subprime borrowers, I do expect some hard times ahead. And a serious drop in housing prices to continue.

  67. “How is someone who isn’t terribly sophisticated in financial matters supposed to know what questions to ask, or what information they aren’t being given?”

    you do research beforehand? at a public library that’s free? etc.

    or as others have mentioned you hire a professional unconnected to the people you’re going to give money to.

    i mean, what the fuck, joe? you’re usually not this retarded. life is hard, but it’s harder if you’re stupid.

  68. Actually, the true libertarian position would be that government has no place enforcing private contracts. If a lender gives a borrower money and the borrower does not pay it back, why is that my problem and why should taxes be taken from me at gunpoint to help the lender recover their funds?

    I agree 100% Dan T. When a bank gives a loan, that the state should not act on behalf of the bank to get the property back for the bank. There is no reason that the state should subsidize the risk of the banks investment.

    However, most people (probably yourself) think that all people should own homes, and would be pissed off if it was difficult and/or expensive to get a loan.

    Nor do you have to be a moron or a leech to be set up for a fall by an irresponsible mortgage broker.

    The trouble is joe, liberals want their cake and to eat it too. They want the banks to lend money to poor people with no credit (if they don’t, it is “red lining”), and at the same time they don’t want banks to lend money to poor people with no credit (that is “preditory lending”). That is a paradox, and when government steps in to enforce a paradox, it always fails.

    If you are claiming “preditory” lending policies are bad, and the government shouldn’t respect those contracts, then I might actually agree with you. So long as you realize that banning “preditory” lending practices will mean that it will be more difficult for poor people and people with bad credit to get a loan… and a few years down the line you aren’t going to call it “market failure” when banks are reluctant to give out loans lest they be accused of “preditory” lending practices.

  69. robc,

    I had a similar experience a few years ago. My wife and I were shopping for our first house and had a combined income of about 75k. We were approved for a 600k loan. The monthly payment would have easily exceeded our entire take home pay. Luckily, we put our Mensa-level intellects to use and concluded maybe that wasn’t the best route to take. But remember, the same people who realize what a scam extended warranties and credit card insurance are can’t be expected to resist the razzle-dazzle of smooth talking lenders and thus must be protected.

  70. joe,

    In libertopia, the public does not demand the government does not deliver responses to severe threats when Big Giant Heads who took a semester of economics say it’s a bad idea.

    You can call me a libertopian all you want, but dont ever accuse me of having gone to a semester school. I would challenge you to a duel over that, but I cant run for statewide office if I do. I had THREE quarters of economics. (Although 1 was engineering econ taught by the Industrial Engineering dept)

    As an aside, my alma mater is now on the semester system, but they fought it. Every other state school voted to change, they were the only opponent. I was in favor of them going private to avoid the change.

    As far as your greater point:
    “A representative owes the People not only his industry, but his judgment, and he betrays them if he sacrifices it to their opinion.” — Edmund Burke

  71. Ah, I see.

    Everybody who gets taken advantage of is stupid, and brought it on themselves.

    Why have fraud laws at all, if research you didn’t know you should conduct would have protected you?

    Life must be so much easier without empathy.

  72. Rex,

    You don’t know what the term “redlining” means, so you keep misstating the argument against it. Please stop using it, until you look it up and can do so correctly.

    Ditto with the term “predatory lending.” You are defining them inproperly, so as to make opposition to them both appear contradictory, then smugly noting the imagined contradition.

    As long as keep making up straw man positions and definitions, I’m going to ignore you.

  73. So, there isn’t a threat to the economy from large numbers of foreclosures happening at the same time. However, if people who got into shady mortgages are allowed to refinance them, we need to hide under our beds.

    Cracking down on sleazy lenders who engage in deception is going to deny thirty seven billion families the American Dream, because no one will ever off anyone below median income a loan, but if there are so many foreclosures that the overall mortage industry contracts, hey, that’s just a correction, don’t worry be happy.

    It must be nice not to have to know anything about a problem to know what the ideal solution to it is.

  74. I agree 100% Dan T. When a bank gives a loan, that the state should not act on behalf of the bank to get the property back for the bank. There is no reason that the state should subsidize the risk of the banks investment.

    After foreclosure(which is just enforcing a security agreement), the only action the state takes is evicting a trespasser (the defaulting borrower) from private property owned by the bank. Would it be better if we left it up to the banks to do self-help evictions, instead of reasonably neutral sheriff’s deputies? I doubt most people equating the foreclosure process with corporate welfare would like the results.

  75. So, there isn’t a threat to the economy from large numbers of foreclosures happening at the same time.

    Since Im currently house shopping, I have found the large number of foreclosures (and even larger number of people trying to short sale) to be beneficial to MY economy. I do have the problem of finding a buyer though? Anyone want to buy a ~1400 sq ft condo in the Louisville suburbs? For $138k, it can be yours today (subject to giving me time to close on my new house and move). I have until 8/15 or my contingency contract falls thru.

  76. joe,
    Fraud is wrong. The law should and does protect you against it. Stupidity is a different issue. And screw you for that empathy crack. Really, joe, that was just a mean spirited, unfounded attack. I care a lot, but that doesn’t mean that every time somebody doesn’t act in their own self-interest I have to cry. Help people to help themselves, don’t just keep on encouraging their self-destructive behavior.

    So, there isn’t a threat to the economy from large numbers of foreclosures happening at the same time. However, if people who got into shady mortgages are allowed to refinance them, we need to hide under our beds.

    You’re just twisting what was said. Anyway, that’s where you broke off into a rant, which was appropriately followed by Scooby’s…I can’t figure out what Scooby’s point was.

  77. You don’t know what the term “redlining” means, so you keep misstating the argument against it. Please stop using it, until you look it up and can do so correctly.

    I am using the term “redlining” in the same way politicians and media use the term “redlining”. Where I grew up, any time it was difficult for poor people in Detroit to get a loan, people would scream “redlining”. I am using the term “redlining” as it is popularly used. If it doesn’t conform strictly to the legal definition of redlining, it is because the government isn’t going to stick to the legal definition of redlining when it goes after people.

    Ditto with the term “predatory lending.” You are defining them inproperly, so as to make opposition to them both appear contradictory, then smugly noting the imagined contradition.

    Once again, I am using the term how it is popularly used. When poor people can’t afford their mortage, they are the politicians are going to call it “preditory lending”. That is because people who can’t afford their mortage elect the politicians, not the banks – So the politician isn’t going to tell a bunch of poor people to look up the legal definition of “preditory lending”.

    You know damn well that people will use definitions of “redline” and “preditory lending” that banks will never be able to live up to the law as interpreted by politicians and demagogs.

    As long as keep making up straw man positions and definitions, I’m going to ignore you.

    Actually, you just realize that your position is a paradox, and it is very hard to defend a paradox… but you aren’t willing to abandon your paradoxical political ideals. So instead you will ignore me.

    Which means I win.

  78. highnumber,

    If you don’t wish to be accused of lacking empathy, don’t write, “And, no, I do not have sympathy for people who sign paperwork they do not understand without consulting an attorney, or believe everything a salesman tells them.”

    You want a definition of “meanspirited?” How about looking at people who were targetted because of their naivete by predators, who were sold a bill of goods, who are losing their home, and yelling “Suckers! Shoulda read the fine print!” That’s meanspirited.

    Carefully constructing your con to stay just this side of the consumer laws doesn’t make you a legitimate businessman.

    Rex,

    Thank you for describing how you came to your misunderstandings. A better man would be interested in clearing them up.

  79. I’m all for the sneaks, that’s why I said that the government shouldn’t sanction every agreement between lender and borrower.

  80. If you don’t wish to be accused of lacking empathy, don’t write, “And, no, I do not have sympathy for people who sign paperwork they do not understand without consulting an attorney, or believe everything a salesman tells them.”

    joe, my wife and I donate between $2K and $3K each year to a local charity that focusses on young unwed mothers. My wife also puts in 100 hours a year in volunteer work through her church.

    And I do not have sympathy for people who sign paperwork they do not understand or believe everything a salesman tells them.

    I chewed my daughter’s ass royally for signing a contract to buy a used car without reading it first.

    I fully expect adults to pay attentition to the details when making major life decisions and then take responsibility for their actions at a later date.

    If that means that I am emotionally damaged and lacking in empathy, so be it.

  81. joe,

    The difficulty in understanding all the paperwork lies at the feet of the crazy patchwork of consumer protection laws.

    Most lenders are not trying to defraud their borrowers, sophisticated or otherwise. Brokers and various salespeople will shade the truth somewhat, and I think there are some inherently risky moves that the lenders have made (like drive-by appraisals and no-doc loans), but that’s not the same as screaming fraud and crying for the little guy.

    Buying a house is a major purchase for most anyone, and going into it without any attempt at due caution is foolish. People can rent if they can’t handle the obligations of owning a home.

    There are bad actors in lending, and they should be punished accordingly. But they aren’t the industry, and suggesting that people who screw up need to be bailed out is foolish. What do you think will happen the next time these same people are looking for a loan? Why worry about taking a risk when someone will get you out of it, no questions asked?

    Consumer fraud is a huge problem, too, and is one of the reasons the default rate can never be eliminated. Lenders take a loss when they foreclose, too, which you’d never know if you just believe what consumer advocates say.

  82. That’s very thoughtful of u carrick

  83. joe,
    Do you cry for the kids in this video?

    You probably don’t, because they made stupid decisions all on their own. It’s the same damn thing. Yes, read the f*cking fine print. Consult an attorney. You are making one of the biggest financial commitments of your life. Do your goddamn homework.

    I feel bad for the people who are lied to. I feel bad for the people who were tricked. I do not feel bad for the people who who take no responsibility for their own decisions. The people who signed a Truth in Lending disclosure and an ARM disclosure that spelled out exactly, in the worst case, could happen to their payments. Do I like the LO who tells them “no, that won’t happen, but sign it anyway”? No, I think he’s a sleazy salesman, but that’s no f*cking excuse for you to sign it and claim you didn’t understand. Why the f*ck did you sign it if you didn’t f*cking understand it? Then you’re going to make the rest of us pay for your stupidity? And that goes for the lenders who were funding these loans left and right, too. They knew the brokers were unscrupulous and that the brokers and borrowers and appraisers were lying, but they didn’t care. As my former colleague was quoted in the WSJ, they were all in a race to the bottom. Everyone should have known better.

    That’s my rant.
    Good day, gentlemen.

  84. “You want a definition of “meanspirited?” How about looking at people who were targetted because of their naivete by predators, who were sold a bill of goods, who are losing their home, and yelling “Suckers! Shoulda read the fine print!” That’s meanspirited.”

    no joe, meanspirited is walking up to a mother with a developmentally disabled child and saying “nice puppy!”

    that’s meanspirited.

    saying people should be responsible for what they sign is something else entirely.

  85. About 15 years ago (before space aliens abducted my wife and left my ex-wife in her place), we watched a “60 minutes” (or clone) about a family “giving up their dream house.”

    The house was worth about $1.2 million, and they were giving it up after the husband lost his $750,000/year job. They had been in the house for most of a decade, but had been playing the mortgage payment game with their taxes . . .until they got snakebit.

    Neither Kyla nor myself had any pity for these people. Where the heck did all of their money go??? We had 5 kids and were living in the latest of a series of rental homes — if we had been bringing in that kind of money, paying off the “dream house” would have been just behind buying food on the priority list.

    When it comes to getting bit by your adjustable-rate mortgage, the same rule applies. Only an idiot or a straight-ticket voter (sorry, that’s redundant, isn’t it?) would think that the rates will always adjust in their favor! So what you do is, while the rates are low, pay the thing off! Or at least pay it down as much as you can!

    Lamar:

    The real estate agents can’t do ANYTHING to the market. They can’t tell someone what to sell the house for, they can’t force someone else to pay the higher price. All they do is run a matchmaking service, trying to find the right house for their buyers, trying to find the right buyers for their sellers. In each case, it’s the principal who makes the money decision.

    I bought a chunk of land a couple of months ago from someone who bought it for investment, then needed to cash out quickly. The people who own the lot next to mine bought it (sight unseen) years ago, expecting the value to go way up . . .it never has. They have paid far more in payments, interest and property taxes than the land would be worth if it were buildable (which, unfortunately, it is not). They offered it to me then were upset that I wasn’t willing to pay what they had in the land.

    And no, they won’t call it “Yuppie in Trendy Condo That’s Obviously Just Cheesy and Worth Nothing Now Bailout Measure” — it’s chic these days to name a law after a high-profile victim who may or may not have been helped by it.

    They’ll call it “Biff’s Law” . . .

  86. Also: even if you make the super-conservative assumption that the average mortgage in Massachusetts is for $100,000 (likely much, much higher than that), this program only has enough money to help 2,500 defaulters. In reality, I wouldn’t be surprised if the actual number comes out to less than a thousand defaulters. Watch the program expand on the grounds that it’s not big enough.

  87. We should just add a few hundred basis points to the loans of ‘A’ borrowers to subsidize the loans of subprime and irrational borrowers. That seems fair.

  88. That seems very fair…for you.

  89. I think that politicians who pitch these bailout programs for the reckless (e.g. Chris Dodd) are going to experience some blowback of their own from the well-organized and disgusted housing bubble watcher types.

    Seriously, how is a bailout a positive for politicians? Most people did not buy a house in the past three years, and don’t want to pay for people who signed up for a loan they obviously couldn’t afford, hoping prices would go up forever and they would make a bundle.

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