NEGATIVE EQUITY - A FORMULA FOR ECONOMIC DISASTER - BUT NO RELIEF FROM CONGRESS!

By
Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372

Here come the judgeTHE BIG BANKS WIN AGAIN.  Through the lobbying efforts of Bank of America, J.P. Morgan Chase and Wells Fargo, the "people"'s representatives in Congress again exhibited their skill in:

Keeping home owners with negative equity safely imprisoned in their real property for the foreseeable future. 

SENDING THIS BILL FOR RELIEF FOR HOME OWNERS, MANY WHOM ARE CURRENT WITH MORTGAGE PAYMENTS, erffectively removed about 15,000,000 home owners from the retail, real estate, education, travel, consumer markets.  Again, Congress can't see beyond their last political contribution.

Rewarding the big banks for their perfidy in the mortgage mess by denying consumers the ability to remove the heel of the mortgage industry from the necks of home owners who cannot sell, move up, move away, sell their property, or do much of anything except pay about 50% or more of their monthly gross, and in many cases, net income to their mortgage company.

The more things change, the more they stay the same.  Big bank wins again.  American home owners lose again.

Mortgage Bill Fails in Senate

Legislation that would have allowed bankruptcy judges to modify mortgages died in the Senate yesterday, handing the Obama administration a significant defeat in its plans to mitigate the foreclosure crisis

 

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-mail.

 

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Re-Blogged 7 times:

Re-Blogged By Re-Blogged At
  1. Linda Lipscomb 05/01/2009 04:38 PM
  2. Brian Gibbons 05/01/2009 08:59 PM
  3. Charles Fischer 05/02/2009 06:02 AM
  4. Andy Rogers 05/05/2009 10:59 AM
  5. Diana Brunner 05/13/2009 08:41 PM
  6. Jim McCormack 01/05/2010 11:45 AM
  7. Marty & Laurie Gale 06/04/2010 11:41 AM
Topic:
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Anonymous
Anonymous

Lenn, I'm mystified.  Why do you believe that every homeowner should be guaranteed that his investment in real estate will not decline?

May 03, 2009 11:29 AM #132
Rainer
69,222
Michael Ford
EncinitasHomes.com - Encinitas, CA
California+Oregon

ood lord, i cannot believe that we are debating the sanctity of a contract.  to allow a BK judge to stomp on a lenders security is ludicrous.  let's remember many judges are elected...can you see the opportunity for abuse?  in a trade that relies on contracts entirely we need to remind ourselves that we are all responsible for the documents we sign and obligate ourselves to.  the underlying theme here is that property values never go down and if they do then we need to assure that no one ever suffers that loss personally.  HUH??

i am certainly sympathetic to someone (a homeowner or investor) who has lost a pile of money on an investment but i'm NOT willing to backstop their losses regardless of the source or cause of the loss.

homeowners are not the only ones being held accountable...the phantom income on debt forgiveness has been eliminated through the end of the year and i guarantee it will be extended.   many homeowners are getting hundreds of thousands of $$ of income TAX FREE.  anyone who financed with 100% structure is losing NOTHING.  and "whipping boys"...not hardly.

and let's be clear...bailing people out the Obama way means MY KIDS and theirs will be paying for this.  let's ask them, shall we?  that's the beauty of this...those who will be paying cannot vote.  so we need to do it for them.  

the whining must stop and the property owners AND banks AND investment houses/brokerages must be allowed to lose all money that the market says they must...it is the essence of free market.  interference will only prolong the torment as the market returns to equilibrium.  the very largest percentage of homes in the U.S. are not in foreclosure and to force all who kept their financial affairs in order to subsidize those who did not is unconscionable.


May 03, 2009 11:35 AM #133
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Catherine.  If you can show where I ever wrote that, kindly point me to it.  Then your comment would make some sense.

 

May 03, 2009 12:00 PM #134
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Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate
Realtor / Owner - RE/MAX Access - Philadelphia, PA

Lenn - You have set off a great discussion here.  You are right, it is a big problem that is not going to get better for those folks that are trapped for years to come due to negative equity... with basically their only option now besides making mortgage payments and praying is to walk away and we have another foreclosure or our lovely short sale option.  They basically cannot move anywhere at all as they are too jammed up, especially if their loan was only 5 or 10 percent down, or worse yet, 100 percent financing.

 

May 03, 2009 05:26 PM #135
Rainmaker
836,567
Lyn Sims
RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago - Schaumburg, IL
Schaumburg Homes

Who ever said the politicians were for the 'little guy'.

May 03, 2009 08:47 PM #136
Anonymous
John Sansaricq

What a mess this really is. Home owners owe more than thier homes are worth. Homes are being foreclosed on in record numbers, loan modifications are a joke and congress doesn't really want to give any relief to anybody but the banks.

 Sure, there is a lot of blame to go around. But pointing fingers isn't going to solve the problem. Homeowners who put a large chunk of cash down to buy there home have pretty much lost their investment. People have stopped paying thier mortgage payments and we have to negotiate with banks to short sale homes at record low prices. Sounds like everyone has lost something, even the guy next door who paid off his house and it's now worth half what they paid.

By re-negotiating the note to current market values, it will keep home owners in their home paying a mortgage payment. Although a reduced payments, banks will continue to receive some interest payments and over the next 30 years will most definitely make a profit. The alternative is to let then stop paying any sort of payment for a year or so, foreclose and take the inevitable loss at that time. Either way the bank is going to have to take it. 

Maybe it's not fair to those who have continued to pay their mortgage on time and are current. But would you rather see home values continue to fall or would you rather see the market stabilize.

May 03, 2009 10:31 PM #139
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Christopher and Stephanie.  Indeed.  It will be years before many home owners will be back in the consumer market for much of anything.  The cascading affect of this fact is totally lost on the politicians. 

Lyn.  HA!  I believe that most politicians say that, for public consumption.  Then they meet privately with a lobby or two and act according to their instruction.

Catherine.  Your view of the real estate market is, IMO, far too myopic for you to understand the ramifications of the perfidy of Congress and the financial industry on the American populace. 

May 04, 2009 05:55 AM #141
Anonymous
David Glasier

Len, I haven't been able to get anyone qualifeid for any of these so called "bailout programs". I recently read an article that said that of the 1.4 million people that had applied for one of the programs, less than 10% qualified???? The big banks are hoarding the money and not using it for the reasons that they said they needed it for.

May 04, 2009 08:59 AM #142
Rainer
22,945
Tamara Heyward
Self-Help - Durham, NC

I'm interested to see how the bigger picture plays out on this. Banks fought this legislation, but MORTGAGES WERE NOT THEIR REAL FOCUS. Mortgage cramdowns in bankruptcy court are a drop in bucket compared to their potential losses through CREDIT CARD DEFAULTS - if more people go through the courts seeking mortgage relief, they will also take their credit card debt with them into bankruptcy. That was the banks' real focus in fighting this legislation - to head off the much bigger problem of credit card defaults.

It looks like as the bill we are discussing went down in flames, tougher legislation on credit card issuers moved forward. So there may be a bigger picture here that we're not seeing just yet. I'm curious to see how the Senators that sunk this bill will vote on the credit card legislation. I think that will tell the tale of whether this is part of a bigger strategy, or if these Senators are truly in the pockets of the banks.

May 04, 2009 09:03 AM #143
Rainer
18,538
Michael Loeb
TGC Financial - Port St Lucie, FL

A mortgage is a contract.  To be able to have a judge arbitrarily adjust the terms of that contract, and do so on a broad basis might sound great to those currently in houses but what does it do for the overall market? And the future of that market?

The idea is that if you lower the principal the payment becomes more affordable.  This sounds great, but remember that a contract has two parties.  How does the party that lent the money in good faith value their assets (loan portfolio), remember if you reduce the banks assets they will have to raise capital to stay afloat.  You're setting up a need for another bail out.  If we don't bail out the banks then, the banks will fail.  So you're basically saying that a judge or group of judges can force banks into bankruptcy / receivership.  I know I know .. we've already bailed out the banks to no benefit of those upside down in their homes.  It is better to get something (if you're a bank) than nothing.  

But if the majority of the people in this country are suddenly upside down in their homes who is to say that the judges won't cram down all those mortgages.  A problem that would be is significantly greater than the current problem.  

Also what does this do to the next generation of house buyers?  Will any lender trust a borrower not to turn around and ask a judge to lower the principal?  In every business model there are set asides for bad debt, uncollectable accounts, but this would be insurmountable.  A program like this would make it impossible to do business.  It would set up a atmosphere where you can render a contract, ANY contract meaningless.  This would make the housing market worse off than it currently is.  Do you think the gov't would allow FHA to lend 95% if they were only going to get back 60%.  You'd be looking at lenders requring not only 20% down but 30% and better.

What happens in 7 years when the housing market is in a bull run again and the owners of these homes with crammed down mortgages sell and make a profit?  Do the banks who had their assets reduced by some anti-big business judge get to take that profit up to the amount of the mortgage that was reduced plus back interest on that mortgage?  I would hope so, but I doubt many will see it the way I see it.   

 

 

 

 

May 04, 2009 10:42 AM #145
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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David.  Every so called "mod" program that I've seen is designed to meet the needs of only a few.  However, that's all the lender/government needs for their soundbites.

Tamara.  The modifications to the bankruptcy code in 2003 were designed to limit credit card or consumer credit relief under the code.  The credit card companies got everything they wanted then.  I suppose they will again.

Michael.  Sadly, the horse has left the barn.  The relief that I sought for the victims of the mortgage mess, meaning home owners who lost their equity/life estate/retirement, etc., was for the government to buy the negative equity.  The banks wouldn't have lost a dime.  The bill would have been about $2Trillion. 

Sadly, the government elected to just hand the money to the banks and throw the home owners under the bus. 

It doesn't matter now, the money is gone.  The relief under the bankruptcy code would have benefitted a few, but not all.  No matter.  That's gone too.

 

May 04, 2009 12:37 PM #147
Rainer
18,538
Michael Loeb
TGC Financial - Port St Lucie, FL

Lenn,

$2 Billion?  I think you're grossly underestimating the problem as it was back in October when TARP was first rolled out.  If you recall.. it was $700 billion, $350 of it immediately.  But you are correct in saying that this money completely disappeared without any benefit to anyone.  

But even if it were $10 Billion today to solve the ills of the housing market and keep people in their houses, I think it would be done in a heartbeat in the shadows of the trillion dollar plans they toss around in Washington now.  I just don't think it is that small.

But this should all be a warning of what happens when gov't rushes into things without proper thought and debate.  TARP under Bush, Stimulus and Univ Healthcare and Cap and Trade under Obama, no one is really sure what the true costs are; benefits are; and how it will operate.  We are told that without it the world will end as we know it.  No one really reads it or understands it yet it gets voted upon, almost in secret.   Very dangerous and very scary.

 

 

May 04, 2009 12:59 PM #148
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Michael.

THANK YOU, THANK YOU, THANK YOU. 

I MEANT TO WRITE $2Trillion. 

My mistake.  I've corrected it. 

Predicting a cost of $2B would have been nieve.  I am not at all nieve about the cost of such a program.  I simply believed that the money would have been better spent bailing out home owners who are the driving force in our economy.

The long run damage to our domestic economy is not understood by many. 

Sooner or later, they'll understand that throwing about 15,000,000 home owners under the bus will cost them far more than the failure of a few "to big to fail" bank cronies would have been.

THANKS AGAIN.  Mmmmmm.   At least I know you're reading my modest offerings.

May 04, 2009 01:14 PM #149
Rainmaker
134,415
Paul Francis
Prudential Americana Group - REALTORS - Las Vegas, NV
Las Vegas Real Estate - Summerlin Homes - 702.592.

Paul.  If everything that you say is correct, and that's a big IF, making home owners with negative equity the whipping boy for the population suffering is not, in my mind, a good solution.

It may make some like yourself feel good to see folks lose their home and denied any relief, but it will, IMO, hurt all of us in the long run for a lot longer than most can comprehend.

Suggesting that it makes me feel good or that home owners with negative equity should be the whipping boy for the population is an absolutely ridiculous statement. I'm going to say with a high degree of probability that I've probably seen far more grief out here in Las Vegas then you've seen in Rockville, Maryland. I would certainly bet you I've personally seen more bank repos with children's toys, etc.. left behind then you. And you want to make a statement that it makes me feel good to see people lose their homes? Ridiculous...

The problem with your argument is you give ZERO benefits of how Cram Downs are really going to help in the BIG picture of correcting a big social experiment that was created and got us here in the first place. Sounds good... but at what long term cost?

Do you honestly think the banks will not adjust to the increased risk imposed on them?

And what do we do for the Millions of homeowners who have already moved on, downsized or are now renting?

Perhaps I just have more contacts in the banks and have more of an understanding of what is really going on behind the scenes that you won't hear about in the mainstream media baaahing away like Napolean's sheep...

But it certainly sounds good to get some votes...

May 04, 2009 01:51 PM #150
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Perhaps.  However, I was a bankruptcy trustee under the DOJ for some years and I bet I have a deeper understanding of the bankruptcy code. 

IMO, this exemption to modification should have been corrected under the code in 2003, but the banks lobbied it out.  Fine.  Now we have a country in distress due to the failure of the financial markets and the concomitant crash of the real estate industry and housing value. 

I suspect that most folks losing their homes today to foreclosure or short sale would welcome a higher interest rate to total financial ruin for many years to come.

When our country moves from a percentage of home ownership of about 68-69% to one of 61-63%, the banks are going to know then that modification would have been preferable to a contracted real estate industry. 

Nevertheless, the bank lobbies won and the American home owner lost again. 

How's that working out????

 

 

May 04, 2009 01:59 PM #151
Rainmaker
134,415
Paul Francis
Prudential Americana Group - REALTORS - Las Vegas, NV
Las Vegas Real Estate - Summerlin Homes - 702.592.

Lenn,

And the historical home ownership % in the United States is?

Let's add to the problem of all the new home permits issued / new homes built between 2002 and 2006..

No doubt we certainly agree about the problems with bank lobbyists and the mess that was created.... but the mess was actually created several years ago.

So called solutions today are nothing but reactive responses to problems that were created several years ago. Do we need EVEN more problems to deal with in the future or do we get it over with now?

(Amazing how little discussion there is about the Commercial real estate problems now taking shape... I guess we'll be dealing with that AFTER the problems happen just like residential real estate.)

Let's face it.. we just came to the end of one big Ponzi scheme and the people who got in at the end are the ones suffering the most. Unfortunately... nobody is going to call it that due to the entities involved...

Trust me... I'm certainly not for big banks and their financial lobbyists... and I'm certainly against a Government that can come back and retroactively modify what were perfectly legal contracts/documents (if they were not... then get an Attorney and sue the lender) when they were created... and agreed upon by all parties.

Because once you go down that slippery slope... there will be no end to what the Government will be telling us what we can... and can't do.

Hence my reference to Napoleans Sheep from the George Orwell classic, "Animal Farm".

By the way... do Bankruptcy Trustees collect a percentage of the worked out payment modifications?

May 04, 2009 03:00 PM #152
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Paul.   You make some good points. 

You're right, the commercial defaults and problems are just starting and will probably get pretty bad.

Of course, a commercial group, corp., owner, partnership, etc. CAN go into bankruptcy court and have the loans modified. 

Residential real estate owners are the EXCEPTION to mortgage modification under the bankruptcy code.

 

May 04, 2009 03:53 PM #154
Rainmaker
134,415
Paul Francis
Prudential Americana Group - REALTORS - Las Vegas, NV
Las Vegas Real Estate - Summerlin Homes - 702.592.

Lenn,

I think we can both agree that Congress has been little help for anything...

Personally, I think the Short Sale mess is a far bigger issue that needs to be dealed with. The WSJ just did an article on it for unsuspecting homeowners and their agents that don't pay attention to contracts..

http://online.wsj.com/article_email/SB124104990739271023-lMyQjAxMDI5NDMxMDAzNDA5Wj.html

I think there are going to be a lot of former homeowners out there that are going to have some unpleasant surprises when the banks catch up with the mess they've created and start trying to collect on the deficiencies where they can.

So in one respect... BK may eventually be the final solution for homeowners caught in the mess to move forward and get back on track anyways...

 

 

May 04, 2009 06:10 PM #155
Rainer
178,939
Mark MacKenzie
Phoenix, AZ

Lenn, what is ironic about all of this cram down talk is that it appears that this precedent is already available for those that own vacation homes.

May 05, 2009 05:07 PM #157
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Spencer Darlin',

Kindly refrain from advertising your blog on my blog. 

Thanks. 

Did you think you'd catch me napping???

May 06, 2009 07:42 AM #160
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