Before we kill all the lawyers...

[Apple of Eris]

This makes me smile:
http://www.msnbc.msn.com/id/29242063/

Not all of us are heartless you know.

[Paradox]

Not all of us are heartless you know.

Lies! There must be a catch.

Actually, that story is uplifting. Thanks for posting it, Apple. It's good to see a pebble of goodness in the avalanche of recent crap.

[Oniya]

For every Nancy Grace, there's a Jamie Floyd. ;)

[Mathim]

Of course you know what this means. From now on every single mortgage company isn't going to make that same mistake, so they're saving themselves and screwing people like me, future homeowners. Of course, I won't have any money problems with the career field I'm entering, but still...

[Apple of Eris]

if you won't have any problems, they're hardly screwing you over.

And Maybe they won't make that mistake anymore. Then again, maybe they won't use deceptive lending tactics to try and get people into mortgages they really can't afford either. *shrug*

[consortium11]

The majority of the sub-prime and other troublesome mortgages weren't particularly deceptive... the clauses and the like which jumped out to bite those who suffered were all spelt out even if only in the small-print. Likewise, when you're getting a £290k mortgage when you're earning £22k a year, common sense should say you're living beyond your means.

I have no sympathy for either side in this, especially the lenders, but the fact is a lot of people will happily criticise the lenders without looking at those who took the offers up. It takes two to tango, and people signing up for deals that were completely unrealistic (which is pretty much what both lenders and borrowers did) were the issue. The lenders offered a service and the borrowers took them up on it. It was a woeful bargain for both sides.

On topic I'm not sure quite how I feel about it. Someone getting to keep their house should be a good thing, and if it means that further negotiations and a decent repayment schedule can be found then its all good... many companies are panicing and trying to regain some liquidity by foreclosing on everything they could find... good example in the UK is Northen Rock which has made up a vast amount of its debt by forclosing left right and centre. But this is clearly against the spirit of the law and the basic concept of res ipsa loquitur: the thing speaks for itself. If a company bought toxic debt off another company which included the mortgages in question and the purchase is clearly recorded, then voiding it because a distinct record of that one mortgage is missing sets a dangerous precedent in a far wider context. Off the top of my head medical insurance could be a real issue if a company could argue "well we don't have to pay out because you are missing one very specific form", and I'm sure with more time I could think of others. It's also makes it even less likely for banks and other companies to offer loans, although that's more of a business to business issue than business to public.

[Trieste]

consortium, the major problem (from what I understand, mind) for most of the homeowners who are losing their houses now is that the common practice was to agree to an outrageous home loan - especially if you had bad credit - then renegotiate the terms once you had paid it down a little. This is what my parents did... this is what your parents did if they were average home owners. Buying a home is not just a transaction in itself, but also a way to improve credit. You do the same with a car loan. When the banks tightened down on credit, they tightened the restrictions on refinancing home loans... and then people started getting in trouble.

I'm not saying that it wasn't a mistake, and I'm not clearing those who signed the paperwork of blame. They knew they were getting into a bad deal; they just didn't necessarily know that they would then be caught with no way out. The whole situation is an absolute pageant of bad decisions.

Thanks for posting that, Apple. I enjoyed reading that.

[consortium11]

But the tightening on credit was a product of the foreclosing on homes, not a cause. Credit was still readily avaliable for home loans and the like until the bad debt that had been sold from mortgage lenders to other banks and the extent of the trouble became apparent.

As you say people took adjustable rate mortgages, which had a very good interest rate to begin with, but then shot up in later years. Taking that out was gambling on the housing market continuing to go up in value, as this meant you could refinance. However, as the housing market had been so profitable it was at saturation point: there was an excess of housing which meant that the market began to slow and then stagnate. Once this happened people with the most outrageous loans could no longer refinance, and thus were foreclosed on. Because of that there became even more free property on the market and thus the value fell, so more foreclosures as people couldn't meet the payments or refinance, so more foreclosures... and the cycle continues.

It spread out of sub-prime due to the lenders selling their debtors to other larger companies and the rating agencies such as Lloyds and Standard and Poors being shown to be incompetant and failing in their job. Thus the traditional high-risk sub-prime market almost merged into lesser risk areas. Thus the credit crunch etc etc and also less risky home loans failing... the combination of companies desperately trying to realise their assets and even more housing on the market.

Because I'm from the UK we didn't have as large or as common a subprime or adjustable-rate mortgages, with most of ours being fixed-rate interest or repayment mortgages. Personally my parents paid theirs off during the middle of the dot-com bubble, so there are no charges over our house.

The main point is this: it seems everyone is critical of the "buisness" side of the coin because they gambled with the money. That ranges from Hedge Funds that made a killing by going short (and notably also got killed by Porsche when they attempted to short on Volkswagen) to the big institutions. The fact is the home-owners who were the first victims/cause of the crunch were also gambling on the housing market continuing to increase in value andare just as guilty as the suited and booted who are taking a kicking at the moment. They could have got a smaller home, got a fixed rate mortgage or saved rather than get into consumer debt (from 2005 roughly 99.5% of US disposable income went to either consumption or interest payments).

[Apple of Eris]

Consortium: Have you actually ever read a mortgage agreement? Honestly they're written in such confusing language that most homeowners don't really know what they'e getting into. Couple that with what could best be described as deceptive lending practices in which people writing out these mortgages assured homebuyers that yeah, they could keep refinancing cuz the rates would just 'stay low forever' and I feel that most of the blame lay with the lenders. You can't expect homeowners to be experts in the housing market, but you should expect lending institutions to play smart with their money.

I think also some of the blame lies with the government. The 'every american in a home' plan only served to exacerbate the housing bubble which everyone knew couldn't last forever, but kept hoping it would.

Anyway you look at it, it's a big goddamn mess.

Also, I don't see why these banks would forclose, they're going to get stuck with all this property with lowering value. If they would bend and let homeownersalter their payments to be manageable, they banks will still make money (not as much) the people will still keep their homes (overpaid for) and there would be a lot less pain and suffering all around. Personally, I'd like to see something like a government arbitration committee to look at cases and rewrite mortgages for banks that are taking bailout money so that people will keep homes, and help to ease the crisis.
*shrug*

But I'm no financial expert.

[consortium11]

Consortium: Have you actually ever read a mortgage agreement? Honestly they're written in such confusing language that most homeowners don't really know what they'e getting into. Couple that with what could best be described as deceptive lending practices in which people writing out these mortgages assured homebuyers that yeah, they could keep refinancing cuz the rates would just 'stay low forever' and I feel that most of the blame lay with the lenders. You can't expect homeowners to be experts in the housing market, but you should expect lending institutions to play smart with their money.

Quite a few actually, and while they're by no means absolutely and utterly clear with a little logic and time it's not hard to work out what's going on. If you don't want to do it yourself there are groups like the citizens advice bueau who can give it a look over for free, or you could hire a lawyer to look over the contract. I'm not sure what the rates for a bsic high street US lawyer are, but probably around the $100 p/h mark (?). It wouldn't take more than a couple f hours, so we're talking $400? Now, that's a fairly large amount, but on something like a house purchase it's a small amount and very, very worth it. Even on a common sense ground, if you're earning $30k a year, but you're about to get a mortgage for a $500k house... or even a $300k house, it must seem too good to be true... which means it is.

If lenders either lied or broke the law then they should be prosecuted and possibly the home-owner given specific performance, in in that case I have no sympathy for them. However that's not what happened in the majority of cases. People wanted to live beyond their means and took a gamble that didn't pay off. Now they're suffering the consequences. On the last point, on the lenders playing smart with their money, what they were doing is basic and common buisness practice. There was a reason this was known as "subprime" lending... no-one else wanted to loan anything to these people because they were such risky clients. In the case of risky clients the two buisness basics to protect your risk are to have large security and high interest rates. Now, as its a mortgage the security will always be a charge on the house, so the interest rates had to be high (eventually). The issue was that basic buisness practice is dangerous when applied to a mortgage, but its only becoming apparent now quite how dangerous.

I think also some of the blame lies with the government. The 'every american in a home' plan only served to exacerbate the housing bubble which everyone knew couldn't last forever, but kept hoping it would.

Anyway you look at it, it's a big goddamn mess.

Agreed: pretty much any time the government attempts to intefere with the market things get worse. The buisness cycle doesn't move in convenient 4/5 year phases like politics does and no sensible politician is really going to go "listen, we need to let things suck for you for 15 years, but then everything will be sweet"... because people want improvements now.

Also, I don't see why these banks would forclose, they're going to get stuck with all this property with lowering value. If they would bend and let homeownersalter their payments to be manageable, they banks will still make money (not as much) the people will still keep their homes (overpaid for) and there would be a lot less pain and suffering all around. Personally, I'd like to see something like a government arbitration committee to look at cases and rewrite mortgages for banks that are taking bailout money so that people will keep homes, and help to ease the crisis.
*shrug*

But I'm no financial expert.

The issue here is that those banks are also in debt and have to pay that. Previously they either had the liquidity to do that or could sell on their debt (which is how this issue got so big to begin with). Now however, as people have been failing to make their payments they have no liquidity and no-one is going to buy toxic debt, these companies find themselves deeply in the red. If they didn't foreclose and instead lowered the repayment rates then they simply wouldn't have the money to meet these debts and would go bankrupt. So what they're desperately trying to do is foreclose and sell the houses to get some money to stay afloat. To give a very simplified example, if a bank owed 2 million, normally it would cover it through the mortgage interest payments it recieved. Now however, with those payments drying up, it no longer can. If it doesn't get some cash than it will go insolvent and be wound up by its debtors (as most companies don't have vast savings due to shareholder pressure). The only real assets it has are the charges on the home, and while they're selling them at undervalue (say 150k as opposed to 200k), it at least brings some money in quickly, where as changing repayment rates would mean it would get the money in, but over such a long time-frame that it would be wothless... a bird in the hand etc etc. Now, the cycle continues, in that the company that the bank owes also needs cash and so it demanding the bank pay it immediately... etc etc.