How a financial pro lost his house

[Texas Proud]

Quote:

Originally Posted by EvrClrx311 Point made, but what we're talking about are two different things: 1) Why did a borrower get into the mess (who is to blame for the mortgage and borrowing); 2) Why did the borrower default, or choose to walk away (who is to blame for the bailouts and defaults); Then vs. Now The two are certainly linked but entirely different when it comes to analyzing the mess we're in as a country. People who default, strategically or not, tend to blame everyone but themselves - or they take responsibility, but then go on to justify why/how they got to where they are: "It wasn't entirely my fault, and this is why." I'm sure some of that resides in my post above, despite the fact that we never defaulted or received bailouts for our situation. We stuck it out. From the outside looking in, it is easy to point to them and say "you signed the papers, you deal with this mess!" (#1 above) What I'm trying to address is #2... As an investor and citizen, we should all be mad that these loans were created... mad that people signed for them... but IMO, more mad that the banks took unnecessary risk in lending the money (or that they were allowed to). After all... the people wouldn't be able to sign on the line if the banks weren't offering the ability to get the money. As evident from our society... when money is available people take it. Banks and regulation need to be held to a higher standard than people... after all, its the banks (and their investors) who lose when money is lent to an individual who is a high risk of default... and does. No one here would loan their own money to someone at a high risk of default that didn't put anything down... and if they did, would you blame the 'thief' or blame the poster who took on the risk of lending the money? Humans will take advantage of situations that present themselves to improve their lives in the short term... investors prove this often with their foolish investing habits. So why are we going so easy on the banks/lenders... while attacking the individual borrowers so vigorously? Because they are people... we can put ourselves in their shoes (or try to) and say "wow that was a bonehead decision, [I think] I never would have ever done that!" What really gets to me are the bailouts that now exist to reward that bad behavior (banks and individuals both benefit from their poor decisions). My wife and I choose to pay a lot for the house we live in... and we made it work. Others weren't fortunate enough to be given the opportunity to make it work. I fully understand that one small change in our situation could have lead us to be in the pool of defaulters... and that is why I don't carry apathy their way pointing a finger in judgement. Today we're being punished (relative to those receiving aid) because we refinanced on our own instead of modifying our mortgage... because we decided to stay in the house regardless of the fact that it was underwater (who cares, make the payment)... because we weren't backed by Freddie or Fannie and HARP wasn't available (tough luck)... because we stayed in our house while others walked away... because we were responsible and paid back our debt. The policy is the problem... it is teaching (I mean allowing/encouraging) people to walk away when life gets tough. If you're a bank and you give out some bad loans... we'll take care of you. If you bought a house you couldn't afford and missed your payments... help is on the way. One might ask... why didn't the building have a wall to prevent the option to jump in the first place? Policies to prevent people from making suicidal financial decisions would protect both the borrowers and the banks/investors... Seems what we have right now... are nets at the bottom of the building catching people who were advised to jump and made the decided to. "I noticed you made a horrible decision to jump... let me bail you out of that mess" who are you really more mad at... the ones jumping (gonna die regardless), or the ones who caught them giving a second chance to make the same mistakes again? Personally, I'm more mad at the system that allows this abuse... then I am at the people abusing it. That is a great lesson... and a very difficult one to teach. Too many parents today ignore it.

I can see by this post that I misunderstood your previous post a bit... IOW, it seemed like you were trying to (in my words) let off the people who took out the loan and bought the house.... I can now see you are not...

I do think that it is the right of a company to lend money, as long as it is their money, as they see fit... if the person does not pay it back, OPPS... you lose... but since most of the ones that were making these loans were doing it with insured deposits, we have to pay for the big losses... IOW, make the depositor whole up to the FDIC limit...

I think one of the biggest problems I had is that people who should have lost money in some banks did not... in your example, it was not the ones who took out the loan, but actually put money into a bank that was not insured... a different kind of net...

I really do not have a huge problem with strategic defaults... I am one who believes it is business... you weigh the costs of making the payments etc. vs the costs of walking... as long as the costs of walking are not that great more people will walk... maybe you are suggesting that these costs be increased... I think they should... not all states agree...

I guess that I have been lucky (I think it is more smarts, but who knows for sure)... but I have not been in a situation where I would have to make that kind of decision... I have only bought two houses and both were on the bad side of a real estate crash.... true, both markets continued to decline and I might have been able to eck out a bit more... but I am happy with what I bought (and the one I sold after the big crash I might add).... but if I were in Cal and was under water by $300,000.... I would be very tempted to walk... and live with the negative hit on credit etc... to heck with the bank or anybody else....

[EvrClrx311]

Quote:

Originally Posted by Texas Proud I guess that I have been lucky (I think it is more smarts, but who knows for sure)...

My guess is that anyone posting on this board is more smart than lucky

[pb4uski]

I actually blame the banks/finance companies/morgtage brokers more than borrowers. They were clearly putting people in mortgages that they knew or should have known the borrowers could hardly afford in order to collect their origination fee and profit on the services their subsidiaries provided in the process. They didn't care about the borrowers or the lenders/investors since they didn't have any skin in the game and only cared about collecting their fees.

While the borrowers knew or should have known that they couldn't afford these mortgages, in many cases they weren't sophisticated enough to know or perhaps expressed some reservations and the bank/finance company/mortgage broker convinced them that they could afford it.

[Texas Proud]

Quote:

Originally Posted by pb4uski I actually blame the banks/finance companies/morgtage brokers more than borrowers. They were clearly putting people in mortgages that they knew or should have known the borrowers could hardly afford in order to collect their origination fee and profit on the services their subsidiaries provided in the process. They didn't care about the borrowers or the lenders/investors since they didn't have any skin in the game and only cared about collecting their fees. While the borrowers knew or should have known that they couldn't afford these mortgages, in many cases they weren't sophisticated enough to know or perhaps expressed some reservations and the bank/finance company/mortgage broker convinced them that they could afford it.

The only problem I have with this thinking is... a salesman is a salesman is a salesman... would you think the same thing of someone who sold someone a car they could not afford? or a boat? how about a gym set? Where do we stop putting blame on the salesman and move it to blame on the purchaser

Don't get me wrong, I actually agree with you in theory.... the purchase of a house is larger than the things I listed... but it is the job of the lender to police the salesmen.... IOW, if you go to buy a car, the saleman will sell you the most expensive car you will agree to buy... and then you go to finance and get told 'sorry, you can not afford this car'.... with these home loans, there was no lender 'police' doing the job they should have.... but I really don't care until the gvmt decides to bail them all out and it is costing me....

[rodi]

Quote:

Originally Posted by Texas Proud The only problem I have with this thinking is... a salesman is a salesman is a salesman... would you think the same thing of someone who sold someone a car they could not afford? or a boat? how about a gym set? Where do we stop putting blame on the salesman and move it to blame on the purchaser Don't get me wrong, I actually agree with you in theory.... the purchase of a house is larger than the things I listed... but it is the job of the lender to police the salesmen.... IOW, if you go to buy a car, the saleman will sell you the most expensive car you will agree to buy... and then you go to finance and get told 'sorry, you can not afford this car'.... with these home loans, there was no lender 'police' doing the job they should have.... but I really don't care until the gvmt decides to bail them all out and it is costing me....

I agree that a salesman is a salesman, etc...
But the banks/underwriters are not salespersons (mortgage brokers are). And they failed to do due dilligence on the credit worthiness of the borrowers.
Why? Because they knew if they could keep the loan solvent long enough to sell it off on the secondary market, their bank would not be on the hook.
At the time of the bubble the secondary market was far bigger than fannie/freddie (the only game in town these days). The big investment banks were buying up mortgages as fast as they could to turn into derivitives.... and playing the odds that people would pay their mortgages long enough to dump sell these derivitives to investors.

The underwriters only had to make sure the loan stayed current for a year.
Even now the lookback is only 2 years, I believe.
The investment banks that were buying and repacking these "debt instruments" only was on the hook long enough to resell them in traunches.

My sisters housecleaner bought a house with a stated income loan. Here in San Diego where real estate is super pricy. No way someone making $10/hour should have qualified for a $450k mortgage... but she did somehow. And yes, she was foreclosed on. At the time my sister was asking her how she could afford the house... The housecleaner just kept saying the broker and realtor told her she qualified. This is a woman without a high school diploma who worked freelance doing house cleaning... so it's questionable whether she should have known better.

[thefinancebuff]

Quote:

Originally Posted by Texas Proud IOW, if you go to buy a car, the saleman will sell you the most expensive car you will agree to buy... and then you go to finance and get told 'sorry, you can not afford this car'....

Really? You don't show your household budget to the car finance guy. As long as you have a decent credit score you will be approved.

[haha]

Quote:

Originally Posted by EvrClrx311 My guess is that anyone posting on this board is more smart than lucky

And more diligent than either.

Ha

[gerntz]

Quote:

Originally Posted by EvrClrx311 My guess is that anyone posting on this board is more smart than lucky

I feel I'm pretty smart doing what I do with what I have; i.e., mainly avoiding stupidity. I think I was more lucky than smart to get what I got. Lots of things fell into place that I really wasn't focused on happening.

[pb4uski]

Quote:

Originally Posted by rodi .......My sisters housecleaner bought a house with a stated income loan. Here in San Diego where real estate is super pricy. No way someone making $10/hour should have qualified for a $450k mortgage... but she did somehow. And yes, she was foreclosed on. At the time my sister was asking her how she could afford the house... The housecleaner just kept saying the broker and realtor told her she qualified. This is a woman without a high school diploma who worked freelance doing house cleaning... so it's questionable whether she should have known better.

And this is why I have sympathy for some borrowers. The reality is that someone working for $10/hour isn't going to be able to afford to buy a home, no less a $450k home. But if someone comes along and says you can own a home, why wouldn't you take a chance of a lifetime to own your own home and potentially better your family's life especially if the "professionals" keep telling you that you qualify. If I was in their shoes and a once in a lifetime chance to own a home came along I could see someone taking a chance.

[Texas Proud]

Quote:

Originally Posted by thefinancebuff Really? You don't show your household budget to the car finance guy. As long as you have a decent credit score you will be approved.

Agree... but it in the finance dept where they check your credit score and tell you if you get your loan or not.... the salesman is trying to sell you as much car as you will buy.... I do not think I said you show them your household budget...

BTW, I do not think I showed my household budget to anyone when I bought my house.... they looked at my credit score, my current debts and my income.... they did not care how much investments I had...

[Texas Proud]

Quote:

Originally Posted by rodi I agree that a salesman is a salesman, etc... But the banks/underwriters are not salespersons (mortgage brokers are). And they failed to do due dilligence on the credit worthiness of the borrowers. Why? Because they knew if they could keep the loan solvent long enough to sell it off on the secondary market, their bank would not be on the hook. At the time of the bubble the secondary market was far bigger than fannie/freddie (the only game in town these days). The big investment banks were buying up mortgages as fast as they could to turn into derivitives.... and playing the odds that people would pay their mortgages long enough to dump sell these derivitives to investors. The underwriters only had to make sure the loan stayed current for a year. Even now the lookback is only 2 years, I believe. The investment banks that were buying and repacking these "debt instruments" only was on the hook long enough to resell them in traunches. My sisters housecleaner bought a house with a stated income loan. Here in San Diego where real estate is super pricy. No way someone making $10/hour should have qualified for a $450k mortgage... but she did somehow. And yes, she was foreclosed on. At the time my sister was asking her how she could afford the house... The housecleaner just kept saying the broker and realtor told her she qualified. This is a woman without a high school diploma who worked freelance doing house cleaning... so it's questionable whether she should have known better.

It has been many many years since I have read an asset backed document... so they might have changed since I had.... but IIRC, there was no time limit for lookback if the mortgage did not qualify in the first place... IOW, if the docs said that all loans have X, Y and Z.... and you find out that a loan does not have all three.... that loan could be sold back to the originator...

One of the problems there is today is that a number of those guys went out of business...

Also, I think I heard that fannie was going to require some buyback of loans even after many years.... I only read this once, so am a bit foggy on it...

[Texas Proud]

Quote:

Originally Posted by pb4uski And this is why I have sympathy for some borrowers. The reality is that someone working for $10/hour isn't going to be able to afford to buy a home, no less a $450k home. But if someone comes along and says you can own a home, why wouldn't you take a chance of a lifetime to own your own home and potentially better your family's life especially if the "professionals" keep telling you that you qualify. If I was in their shoes and a once in a lifetime chance to own a home came along I could see someone taking a chance.

This is where I have mixed feelings... because I would think that someone who makes $10 and hour would know they can not make the monthly payments when they are told the amount... you usually do not see these people driving new Cadillacs... because they know they can not afford one... (I would also think the lender would not lend to them, which is what a lot of people do bring up... which is why I have mixed feelings)....

I just do not think that someone who is poor is all that stupid to not know they can not afford $3,000 per month payment on a house... plus taxes, utilities etc. etc.... no matter who tells them they can...

[grasshopper]

Quote:

Originally Posted by Texas Proud I just do not think that someone who is poor is all that stupid to not know they can not afford $3,000 per month payment on a house... plus taxes, utilities etc. etc.... no matter who tells them they can...

This is the age of entitlement, they think they should have it all, because other folks do, or for some other not so obvious reason.

[Texas Proud]

Quote:

Originally Posted by grasshopper This is the age of entitlement, they think they should have it all, because other folks do, or for some other not so obvious reason.

I could be giving a lot more credit to some then they deserve...

And heck, I can not even figure out how my DW comes up with some of her thinking.... so I can say that the reason is not obvious to me..

[M Paquette]

Quote:

Originally Posted by Texas Proud I just do not think that someone who is poor is all that stupid to not know they can not afford $3,000 per month payment on a house... plus taxes, utilities etc. etc.... no matter who tells them they can...

Heh. When what they're being sold is a "pay option adjustable rate mortgage with deferred interest feature", with the full disclosure documents resembling an investment prospectus, written for 12th grade or higher reading level and a hundred pages long?

The high pressure salesman is going to focus on that initial payment, and the ability to skip payments. (yup! This loan allows that... For a price to be paid later...). All these folks are going to hear is that the monthly will be $600 (POARM replacing a 30 year fixed at $3000/month) and the reassurances of the salesman that it's real, and ain't high finance amazing?

I sat through one of these pitches in 2006 from a mortgage broker, a guy who wrote these loans and flipped them for a living. The crap he provided (sales literature "examples") would have brought tears to the eyes of a variable universal life salesman. Oh, I knew there was a catch and couldn't afford it, but it took a while, away from the broker with the loan documents in hand, to find the gotchas and the real long term costs. Other folks are more trusting than I, allowing the broker to make a pretty good living.

Oh, and that loan? Each $600 monthly payment put the sucker another $2800 or so in the hole, as I recall.

It's the borrowers fault for signing something they didn't understand, and trusting the broker. It's the brokers fault for pushing something so massively inappropriate on the buyer, and likely falsifying information on the loan documents, it's the lenders fault for accepting steaming heaps of falsified documents in exchange for funding the broker, it's the rating agencies fault for somehow deciding that if one piles enough grade C debt in a bucket that it smells like grade AAA, and it's the fault of all the suckers that bought the collateralized debt obligations for not understanding that there was nothing behind the rating on those obligations.

So it's clearly all the fault of some German bank...

[haha]

I really do not understand the issue being debated here. There is only one issue that is both important, and capable of being changed-(yes, good luck with the idea of bringing others "up" to the boards asserted level of "morality"). Change laws to make the originator of the loan responsible for its payback. Make it impossible for bankers to take out their profit a priori- make them wait for the residuals just like an insurance saleman waits for much of his profit.

Without this, salesmen which is what these prople currently are, will always take the money and run, and leave bystanders recently taxpayers) holding the bag. Only a moron would not do this.

Ha

[jazz4cash]

Quote:

Originally Posted by Texas Proud But let me throw out another thought on this... who made the final decision and signed the forms

This is the essence of the problem, IMO...BOTH the buyer and the bank agreed to the terms....BOTH bear responsibility. It is in the best interest of both parties (and the general public) to work out better terms but "the system" has no mechanism to fix problems when they are widespread.

[Nords]

Quote:

Originally Posted by EvrClrx311 My guess is that anyone posting on this board is more smart than lucky

And we're all above-average, too.