How to Fix Mortgage Mess in Three Steps

[BMT (RIP)]

http://www.moneynews.com/StreetTalk/...1/14/id/382845




BMT

[Team Sergeant]

There was an article I just read that stated the banks foreclosed on 1 million homes in 2010 and that they are now poised to foreclose on an estimated FIVE million homes in 2011.

This is going to get a whole lot worse before it gets any better.

[Sohei]

The part that I don't understand the most about all of this is the fact that the banks will generally lose money on repossessions. In the past, the financial institutions would actually wait until the last minute before repossessing property because they knew they would have to sell it at a loss. Now their losses are even greater due to the market being flooded with so many properties.

One would think the banks would rather re-adjust the mortgage and keep an owner paying a smaller note for a longer time rather than seize the property and just let it sit there.

[The Reaper]

Originally Posted by The Sheepdog

The part that I don't understand the most about all of this is the fact that the banks will generally lose money on repossessions. In the past, the financial institutions would actually wait until the last minute before repossessing property because they knew they would have to sell it at a loss. Now their losses are even greater due to the market being flooded with so many properties.

One would think the banks would rather re-adjust the mortgage and keep an owner paying a smaller note for a longer time rather than seize the property and just let it sit there.

There are people who were given mortgages (by government pressure) who had no jobs and no income, or who falsified income for the mortgage docs.

There are also people who are so far upside down that they have no hope of ever recouping their investments who just want to walk away.

The majority of the people who have gotten mortgage concessions have failed to make those payments as well. I would not count on them suddenly catching up and making those payments for the future. How long should you be able to live rent free in a home before the owner can take action?

Unless you think they are entitled to continue living in homes and making no payments on them, the system has got to purge these people and their mortgages out of the system to restore balance and confidence.

Furthermore, we need to ensure that the government no longer tampers with lending to provide home ownership experience to otherwise unqualified individuals. A 20% down payment, steady, adequate income, and a decent LTV ratio is not unreasonable for homebuyers. Lending institutions and investment firms also need to take action to fix their problems as well.

TR

[Sohei]

Originally Posted by The Reaper

There are people who were given mortgages (by government pressure) who had no jobs and no income, or who falsified income for the mortgage docs.

There are also people who are so far upside down that they have no hope of ever recouping their investments who just want to walk away.

The majority of the people who have gotten mortgage concessions have failed to make those payments as well. I would not count on them suddenly catching up and making those payments for the future. How long should you be able to live rent free in a home before the owner can take action?

Unless you think they are entitled to continue living in homes and making no payments on them, the system has got to purge these people and their mortgages out of the system to restore balance and confidence.

Furthermore, we need to ensure that the government no longer tampers with lending to provide home ownership experience to otherwise unqualified individuals. A 20% down payment, steady, adequate income, and a decent LTV ratio is not unreasonable for homebuyers. Lending institutions and investment firms also need to take action to fix their problems as well.

TR

Yes sir. I agree with you 100%. Several of these loans should not have been made in the first place. I believe that there is a percentage of them (probably low) that lost their homes due to other reasons such as lost employment, etc., rather than a bad loan approved by the bank. I think back to the "Smart Buys" that were offered by car manufactures that allowed people to have "10 times the car" they could actually afford and when the time came for the car to either be purchased or turned in, many of them were turned in because they couldn't afford to actually "buy" the car.

I'm not really sure if this will actually restore my confidence in the banking industry. To me, that remains to be seen in the way in which the system is changed. I hope they make the changes you referred to. That would certainly help to restore my confidence in them.

I recently saw on FOX News where they mentioned that one of the options the financial institutions are thinking about is raising the required down payment to 30% which would probably eliminate conventional loans for a lot of people.

[greenberetTFS]

Originally Posted by Team Sergeant

There was an article I just read that stated the banks foreclosed on 1 million homes in 2010 and that they are now poised to foreclose on an estimated FIVE million homes in 2011.

This is going to get a whole lot worse before it gets any better.

If this does develop as you've recently read,our country may not be able to recover from such a blow............

Big Teddy

[Surf n Turf]

Originally Posted by greenberetTFS

If this does develop as you've recently read,our country may not be able to recover from such a blow............

Big Teddy

Big Teddy,
It has to happen. It’s “creative destruction”, and will re-set the housing market to its true value. It is going to be VERY painful, and not all the players are the “bad guys”.

I know a local banker, who successfully resisted the Barney Frank / Chris Dodd pressure tactics to approve NINJA (No income, no job or assets) loans – He required 20% down payment to obtain a house loan.-- yet he still has bad loans in his portfolio. As TR said, “There are also people who are so far upside down that they have no hope of ever recouping their investments who just want to walk away.”
It is not only the mortgage payers or Banks that get hurt. So do those who hold a title free and clear. I am OLD – so my current house has been paid for a long time ago (actually it’s house #5 – should be #6 - but I haven’t talked my wife into moving to Tennessee yet.) – Over the years I have remodeled, added, and “fixed” the whole place, adding a lot of cost / value – yet today it is worth less than I paid for it 17 years ago.
I can take the “hit” if we can get to the actual value of Real Estate, so that families can dream of buying house #1.
In the meantime – as the article says - Get the Government the hell out of Real Estate.
SnT

[Lanyard]

"Get the Government the hell out of Real Estate."

Just curious, does this also mean getting rid of the mortgage interest tax break for homeowners?

[Dusty]

Originally Posted by Lanyard

"Get the Government the hell out of Real Estate."

Just curious, does this also mean getting rid of the mortgage interest tax break for homeowners?

If the government stayed out of the way, and we had a fair tax, there'd be no need for a mortgage break in the first place, IMO.

[olhamada]

Originally Posted by The Sheepdog

The part that I don't understand the most about all of this is the fact that the banks will generally lose money on repossessions. In the past, the financial institutions would actually wait until the last minute before repossessing property because they knew they would have to sell it at a loss. Now their losses are even greater due to the market being flooded with so many properties.

One would think the banks would rather re-adjust the mortgage and keep an owner paying a smaller note for a longer time rather than seize the property and just let it sit there.

In Economics, those are considered sunk costs. You should not consider them in making future business decisions.

Losses can be deducted from corporate taxes so are at least partially recoverable. In addition, banks now make most of their money from reinvesting the free money given them by the Federal Government and making 2-3% on bonds and T-bills. The money was given to encourage private lending, but they have no need to lend and risk the money if they can simply invest it in a "sure thing" (until the dollar collapses and becomes worthless). Have you tried to borrow from a bank lately? They've got absolutely no incentive to lend you a nickel.

We're in trouble.

[Lanyard]

"and we had a fair tax"

On this note, I read a book 20 yrs ago that recommended that all Congressmen be required to prepare and file all their own taxes without outside help. The authors thought we could get a much simpler tax law within 2 yrs.

[Team Sergeant]

Originally Posted by Lanyard

"Get the Government the hell out of Real Estate."

Just curious, does this also mean getting rid of the mortgage interest tax break for homeowners?

And while we're at it lets get the goberment the hell out of the sale of alcoholic beverages.

If you had any idea why the prices of alcoholic beverages are so high you can thank uncle sam and the "mafia" alcoholic beverages wholesalers.

Did you know that in all states anyone that serves alcohol "MUST" purchase that alcohol from "Government" "STATE" sponsered "wholesalers", who in turn can set their price as high as they like. Monopoly, as the retailers CANNOT purchase from out of state.................

We really do need much less goberment.

[echoes]

Originally Posted by Team Sergeant

We really do need much less goberment.

Very well said, TS Sir!!!

FWIW,

The ABLE Commission around here is a GOD to any of those in the Restaurant business...be it Country Clubs, or Strip Clubs....the Government wants a piece...

Cannot forsee any future decline in their interest any time soon...

Holly

[lindy]

Originally Posted by Team Sergeant

And while we're at it lets get the goberment the hell out of the sale of alcoholic beverages.

If you had any idea why the prices of alcoholic beverages are so high you can thank uncle sam and the "mafia" alcoholic beverages wholesalers.

Did you know that in all states anyone that serves alcohol "MUST" purchase that alcohol from "Government" "STATE" sponsered "wholesalers", who in turn can set their price as high as they like. Monopoly, as the retailers CANNOT purchase from out of state.................

We really do need much less goberment.

But TS, it's set up that way so the gub'ment can regulate the quality and consistency of the booze. Imagine how many variations of Keystone Light from MD to AZ!!! It would be chaos!

Now that the feds have regulated Wall Street and the big banks, things are much better. Well, that's what they keep telling me on MSNBC.

[GratefulCitizen]

These bubbles keep happening when there is a system which pretends it is insurance, but doesn't take the associated precautions.
Credit default swaps, some pensions, social security; they don't work without proper loss reserves and incentives.

Insurance companies have loss reserves which are carefully calculated using well-developed actuarial science.
Insured parties normally have skin in the game.

When those two aspects are removed and the system pretends to be insurance, the results are predictable:
A Ponzi bubble and bust.

All those mortgages were backed with nothing; those who were profiting had no skin in the game.
For those playing, there was every incentive to take the money and run (or walk on obligations if they lost).

Our lawmakers simply have no clue what they are doing.

I'm supporting Herman Cain's run for president.
At least he'll have a clue how the finances/economics work.