These Loans Were Made for Walking: The End of the Subprime Crisis

Kellen, I am afraid to say that here in the UK, a sacked CEO will still get a "golden handshake", which normally amounts to more than I could make in a lifetime. If I mess up at work, it would be instant dismissal, escorted from the premises and then an almost impossible task, trying to find another job.

Yes, Kellen, and our group is working hard to spread this particular disease globally.
The outcome is the intention. Improverish ordinary people in every way that you can. Do nothing about global warming because at somepoint there will be an incredible natural disaster and you can take over the world while its in SHOCK.

Yes the present credit crisis is moving upscale, and over the next serveral years will grow to encompass all manner of consumer and corporate debt. Banks belatedly have begun to assess the risk of unsecured credit card debt and now are scrambling to reduce credit limits on multiple cards issued to the same customer.

With all the consolidation in the industry over the last decade (FUSA,Bank One now all part of Chase and MBIA acquired by Bank of America), the top banks now are realizing that many individual customers hold 3 or 4 or more cards with huge credit limits, and huge outstandings, and the banks now are beginning to send "amendment of terms" letters, where possible, to notify a cardholder the credit limit is being reduced.

If maxed out, the banks are "offering" to let the customer close the account (no new charges) and continue making payments at the current interest rate, or accept a "default rate" of 30% or more to keep the account open.

This may be another reason cardholders are keeping their credit cards current, but letting the house payment or car payment slip: Home foreclosure or auto repossession can take weeks or months, and often can be forestalled with partial payments, whereas the punsihment for paying late, or not enough, or both, is an instantaneous application of the default rate, and people still believe they "need" their credit cards in case of emergency if nothing else.

As credit card limit availability contracts, overall spending gets reduced, further accelerating the recession. This is a process, wherein a recession becomes that period of time necessary to correct the imbalances that have occurred, and the imbalances are legion this time around (unlike 1990-1991 and 2001-2002).

The 2000 stock market crash took two and a half years to bottom out, then was supplanted by the residential mortgage bubble, now popping. This will take far longer to unwind becuase of the massive extent of the bubble - at least 2011 to reach bottom - and a much long time on the way back up, if ever, as many aging "boomers" will just throw in the homeownership towel and rent.

In the future, if two out of three consumers have "damaged" credit reports as a result of this era (and many, many twenty-somethings already do), other means will be derived to assess credit risk on the part of lenders, such as job and tax return information, and credit "scores" based on previous credit history may become less useful and universal as a "predictor" of default risk.

On another note, regarding our disgraced CEOs "retiring" with millions: In China, they'd be executed; in Japan, disgraced and likely commit suicide; in Europe, criminally charged and convicted, and in the U.S., rewarded.

I am with "Rebel Farmer".

I live in earthquake prone California and I am asked to buy Earthquake insurance on my property. This comes with a 15 or 20 percent deductable on the value of my property.

That means that I have to be able to plunk down $15,000.00 or $20,000.00 to get the attention of my insurance company to "repair" my property after a major earthquake. HA! I have lived here for twenty-three years and they will not cover anything minor that happens to my property.

I have always envisioned myself sitting on "my" pile of rubble after an earthquake and daring anyone to "take" my pile of rubble from me.

What does this mean when there will be thousands and thousands of us here doing the same thing? Do they send in the National Guard to remove us so that the banks can repo the property? Let the revolution begin.

Paul Bramscher: It would seem that there are a whole lot of people, here on Common Dreams, who can see what is happening to the failing Capitalist model. I just cannot see why more people out in the real World, are unable to work out what the system is doing to them. There is a genuine case for real action, for everyone (US and UK), to contact their elected representatives, and tell them that this wanton greed has to stop.
Daniel David: you are so right to call this usury, this is exactly what it is, and targets the poorest 70% in society.
Strangely enough, my first home cost roughly 3 times my salary, back in 1992. To buy my house today would require nearly 7 times my current salary, but nearly 10 times if I were a first time buyer, earning a comparable amount to my 1992 figure. These figures show just how the financial institutions have manipulated the allowance figure, in order to enable people to buy, and in turn enable sellers to falsely inflate the prices.
I know that I keep banging on about this, but only because, if enough people hear about it, and see the proof for themselves, then pressure can be brought to bear where it matters.
Paul, I think we both see the kind of regulations which should be in place:
Maximum 30 year term.
Interest levels capped at 2% (I know you advocate 1%, but I can't see that happening).
No more than 50% of the purchase price to be mortgaged.
No more than 2 times a single salary to be lent. If the banks fail to check proof of earnings, then there is no liability on the borrower's side.
One more point, do you have endowment (interest only) mortgages in the US? These were very popular in the UK, and they worked, by making you take out a sort of pension plan, which matured at the same time as the end of the mortgage. You would therefore pay the bank the interest only on the mortgage, and pay an independent life assurance company the sum estimated to pay off the capital borrowed. These failed miserably, because in a climate of low interest rates, the pension plan could not hope to accrue enough funds to pay off the mortgage. Quite a lot of people (myself included) got into financial trouble, when the pension companies sent out letters to their customers, warning them that there was going to be a shortfall. I, like many others, was forced to sell my pension plan back to the company, and swap over to a straight repayment mortgage. There was a huge outcry in the UK, as the mortgage industry was found guilty of misleading customers.
I would have thought that the time is right, to target the banks again, and accuse them of deliberately selling products which are not suitable for the customer, and of failing to check if customers have the ability to pay. They are as Paul points out, running a "racket".

I'm sure all the CEO's that were paid 50's and 100s of Millions will be able to afford to buy up these houses by at a fraction.

And I bet Bush before(if?) he leaves office will give them some kind of tax break so they can hang on to them that lesser people will not get. Then they can charge exorbitant rents.

"...they will have eventually paid $400,000 (plus interest) for a home that is worth $300,000. That's not a very good deal."
No, it's not.
And that plus interest? At 8% over thirty years, you pay 1.2 million approx.
This is right in line with Daniel David's comment:
" A lot of what is wrong is nothing more than what used to be called usury."
It also used to be called Greeed.
The marriage of the Real Estate business with the Financial Markets, the "slicing and dicing" these things as if they were commodities, made lots of speculative money available, pushing prices, in some places out of the stratosphere and raised them everywhere, drove sprawl to new heights and ultimately, by relieving everyone but the homeowner of responsibility, became a predatory criminal enterprise.
Jacking up the rates on the sub-prime loans past the ability of the holder to keep current. What were the lenders thinking? That wages would go up significantly? That good paying jobs were getting easier to find?
Now it's crashing and the investors are crying, they're taking a bath. Their promised profits are not going to be realized, WAAAA!
So The pResident and Congress cook up some non-sequitor feelgood taxbreakgiveawaysubsidytochina and over a million people, who had been building credit and trying to participate in that consumer economy, are forced to default and watch their entire financial situation crash and burn in their face, completely destroyed credit for the next 5 to 7 years.
The pile of houses on the market punctured the bubble and the prime market is coming down as a result. Baker's point about the Sub-Prime fiasco being over is that it's about to be eclipsed, both in the media and in terms of dollar value, by the crash of the McMansion in Sprawlville.
The poor bas+ards that bought the sub-prime ARMs are the worst hit (so far) but they needn't be. Reinstate or renegotiate those mortgages back to what the holder CAN pay and prevent them from being ejected from the economy. As it is, the loans as securities are dead loss. By selling the mortgages back to the holder at dimes on the dollar, they at least salvage some return and since they are also invested in other aspects of the economy, they benefit by not disenfranchising those consumers.
And as far as squatting goes, there are neighborhoods where most of the houses are foreclosed and vacated. Sqatters in Holland formed a perimeter areound several abandoned buildings and squatted there long enough to end up with right to the property. It might be rough here, but with so many empty houses and a wave of corresponding homeless people, it might not be something the police want to keep after.

To MiMiCcs,

Thanks for good and detailed post above on subprime.

To shakker,

Thanks for observation on the two rescues of Donald Trump. Too bad this isn't told on "The Apprentice."
Instead we just get pablum there, only suitable for (us) mental babies.

AndyUK,

"If they stop selling sub prime, then the property market will slump, because people will not be able to afford the falsely inflated prices."

That's one of their classic frames, which defies basic supply/demand curve economics.

If they stop selling sub-prime, indeed if they make it illegal to mortgage more than perhaps 50% the value of a property, or more than twice one's annual salary, then the "market" must drop closer to actual buying power of the working-class.

From a financier/banker/lender/speculator perspective it is in their interests to keep the market inflated beyond reason, keep people always on the edge of of homelessness, forbid them from ever getting on top of the equity game in realistic time, dangle that carrot of ownership out there, keep them running -- in-place -- on the economic treadmill.

From the perspective of the bottom 75% or so, we desperately need that "market" to come back down to our levels. A market from one perspective, a racket from another.

I am a man of some 60 years and I remember my mother telling me about the days of the great deppression. She said when some family needed a place to live, they would look around and find an empty house and just move in. When the owner of this house found someone living in his house he would stop by and ask the occupant how much rent they could pay. I think we are headed in that direction today. Good luck to all and God bless.

Apparently the rapacious companies who were "kind" enough to extend the loans, bundle the loans, and turn the whole home ownership thing into a kind of casino, have a term for those who can pay but choose to walk away.

They call them "ruthless."

That would be funny if it weren't so evil.

Do you assume that the Sheriff has no mortgage of his own to deal with?

dlnelson: It sure doesn't make any sense to me that a company making a loss, can give out huge bonuses. This just proves how corrupt the system is, and highlights the need for truly independent regulators.
Here in the UK, we recently had a bank go bust - Northern Rock (who specialised in sub prime mortgages). The Government have bailed them out, given them funds to keep trading until a buyer comes along. With the news that the share prices of this bankrupt bank are now rising (?), presumably because of interest from some big name investors (notably the Virgin group run by Richard Branson), we will shortly be hearing of shareholders being paid out, and then bonuses will follow.
So, to follow in strict order:
Bank goes bust, and customers rush to withdraw funds (the first time in over a hundred years that there has been a "run" on a UK bank).
Staff will have to be cut.
Government arrives with millions of pounds to save the bank.
Government considers nationalising the bank (with more taxpayers money).
Outrage at above idea forces sale to highest bidder (£500 million to £1 billion).
Share prices go up, driven by new optimism.
The Government "hope" to recover the money which they have "lent" to the bank.
Directors will probably be paid bonuses at the end of the mess.
The bank meanwhile is continuing to sell sub prime mortgages, because that is what is making the banks rich at the moment.
If they stop selling sub prime, then the property market will slump, because people will not be able to afford the falsely inflated prices.

The mistake the people made when they took out the sub prime loans is that they didn't borrow enough.

When Donald Trump couldn't make the payments on his hundreds of millions in loans the banks and investors gave him an allowance, restructured and managed his business until he could afford to pay. THIS HAPPENED TWICE.

He is now held up as a massive business success with TV shows and all highlighting his great genius. Those who are so hard on the people who can't pay predatory loans wouldn't think of Trump arrangements to help these people keep their homes.

That money the bank loaned out for the mortgage did not exist until they made the loan, they created it out of thin air thanks to our fractional reserve system. So losing the interest on a certain percentage of loans does not hurt them much. Since the default rate on sub-primes was 10- 20% at the time, they broke even or slightly better on the defaults, and made money they would not have made on the 80%-90% who did not default. They had to make sub-prime loans because real wages were declining and not enough people were eligible for prime loans. They make their money from loans, and bad loans were preferred to no loans.

Of course, the banks gambled that housing prices would not fall. Before sub-primes, they never had fallen significantly before. When Greenspan started jacking up interest rates, the bubble started to deflate, and so we have the current problem.

The problem gets worse though for the banks. Many borrowers are finding out they can go to court and file A FRAUD IN THE INDUCEMENT against the lender for selling adjustable mortgage arrangements without income verification and other checks. The lenders and mortgage brokers possessed information on their prospective borrowers that the mortgage loan would be unserviceable by the prospective borrower (meaning the could not afford it), that they did not share with the borrower (who was led to believe they were told housing prices will always go up and they could borrow against the equity in their homes once interest rates increased). So a meeting of minds did not take place and accordingly, no lawful contract ever existed.

Loaning money to people who can not afford to pay it back is a tactic the bankers used in the 1920's to bankrupt farmers and take over their property. It is fraud.

There are a number of cases now where judges have ruled in favour of the borrower.

This one is the killer though. In such instances, the borrower will have to vacate the premises, which were never theirs anyway, but will not be responsible for making any payments on the property to anyone. The borrower is also awarded repayment of any and all mortgage payments they may have made on the property, inclusive of all origination fees, property taxes, recording fees, mandatory insurance premiums, plus multiple damages from both the lender and the mortgage broker. There would also be NO negative impact upon the borrower's credit file and rating.

This is the worst nightmare of those holding these sub-primes which are in danger of not being paid. And the SOB's deserve it. Unfortunately, most of the borrowers do not know enough to get legal help and that they can walk away, and get paid for doing it, legally.

Whatever happens, the big boys know they will be rescued as they are too big to fail. Those allowed to fail get bought out by the big boys, or at least allow the big boys to to get a bigger market share for when the next bubble comes.

Unfortunately for the rest of us, our banking system is in a big mess. For the first time since the depression, financial depository institutions have borrowed 100% or more of their minimum reserve requirements from the Fed. What this means is the reserves they have, which allow them to make loans, is all borrowed money. In Dec 2006 it was 36%, and in 1933 when FDR declared a bank holiday, it was 46%. (see www.shadowstats.com)

The banks in turn are providing as collateral to the Fed assets that are, shall we say "damaged goods". Meaning the Fed is simply using Bens helicopter to dump money into the banks and not into the hands of the greedy debt slave known as the consumer and taxpayer. They won't spend the 6 cents to actually print each 100 dollar note, they just type in a bunch of numbers, and mumble, "let their be money", and so the banks have money, so long as they have collateral to offer, even if the collateral is worth only 20 cents on the dollar. Europe is doing the same if it makes you feel any better.

The short term interest rate cuts make it cheap for the banks to borrow from the Fed and result in HIGHER long term rates like mortgages, increasing default rates among prime borrowers, especially those with ARM's, and higher rates for those who will take out new loans, assuming the banks are willing to loan to them, which will help housing prices drop even further.

Meanwhile, 5 US financial institutions have 180 trillion dollars in unregulated derivatives floating around and off the books, over 15 times our annual GDP. How many future writedowns lurk beneath the surface? No wonder they call them financial weapons of mass destructions.

At the end of the day, the big boys will still be big boys and be bailed out by Big Brother, but the middle class will be wiped out.

I am simply amazed at those people who see the banks who loan money to people without verifying they can pay them back as victims of the borrowers. LOL

I know a guy that had a loan for $450k on a $500k house that rose to a peak market value of $650k. The mortgage company made him a loan for $600k and he walked away with $150k when the house went back down to $500k. No income tax nor capital gains, just legal bank robbery.

While the hypothetical "purchase of the comparable home across the street" is interesting, it's also essentially moot. Very few if any families who owned a home they paid $400k for (even if it was with no money down) could then qualify to buy another one across the street for #300k. In addition, most families who could afford to keep making their payments on the first house are not going to voluntarily give up the roof over their head and trash their credit for the 10 years a foreclosure would remain on their credit report.

Well, the corporate media seems to pick the time when fleecing as usual becomes a crisis. It's a time boom/bust cycle apparently, seems to coincide with the election cycles also -- eerily reminiscent of the internet implosion in the late 90's.

I'm surprised none of the bloggers or authors on CD have picked up on what started this "crisis." Don't you find it weird that, although educated people realized this was going to happen, one day in July the MSM started talking "the credit crisis."

Well it turns out that 14 people who were getting foreclosed on sued the american subsidary of Duetch Bank and won because they could not show the judge the actual mortgage because the bank had broken them up and packaged them as securities and sold them all over the world. The bank couldn't foreclose on the homes and that is what freaked everyone out. If they take a home, they may take a hit and it may be a headache, but it wont be devastating.

However, if these banks can't get the homes, then they're f'ed, and rightfully so. But the MSM media isn't even mentioning this case, I'm assuming it's because the last thing the banks want is for an educated populus to stick it to them. I'm surprised more people don't mention this. I found out about it on a website called financialsense.com, which I recommend.

www.patrick.net the Best Housing Bubble Blogger out there and I also recommend www.housingpanic.com for laughs. Anyways these guys saved me from a toxic mortgage and thank God people were blogging about the crisis during the past 6 years.

When considering the pros and cons of 'walking' a mortgage, one should find out whether the property is located in a 'deficiency judgement' or 'non-deficiency judgement' state. In deficiency judgement states, the lender can sell the property at auction and then assess a 'deficiency judgement' against the defaulter for the difference between the sale results and the mortgage. This judgement follows one anywhere within the United States. In 'non' states, one can simply put the keys in the mailbox and drive away -- as has happened en mass in past housing busts in states such as Colorado.

dave lines,

Looks like the modern land-grabbers didn't do their paperwork. But would it matter anyway?

But consider this also: maybe they damned well have the paperwork, but someone here in the US said, "Lose it." Might start dangerous radicalization if Americans began to get evicted by foreign banks, eh? Even the sheriff might scratch his head at that one.

As you say, "Nothin' to see here folks. Move along…"

dave lines,
Thanks for that reminder. I'm not so sure the bank will win on appeal -- it's just basic bar exam law on assignment of commercial paper, you have to show you owned the piece of paper before you can collect or enforce the debt. It's like proving the chain of custody in drug cases.

There are also the judges in Cleveland (? I think) and other rust belt cities insisting that banks do the maintenance and pay the taxes on houses they have foreclosed on. That may convince banks that they really don't want to own any more real estate, opening the way for more really short sales or loan modifications.

And finally, some signs of movement toward cities or nonprofit land trusts taking over abandoned properties and using them for -- gasp! -- affordable housing.

As long as people don't get sucked into expecting the government to solve the problem (we know whose bread they will butter first), I can see all manner of creative moves. Let the hundred flowers bloom. Do what you can in your own neighborhood, see what works elsewhere and reinvent it to fit the situation.

>You'll need Dem House, filibuster-proof Dem Senate and Dem President. Once those are in place, you'll need the public SCREAMING to remind them why they were voted into power. Elect first, DEMAND second.<

That should be "reform electoral system first, elect second, demand third." Otherwise all the Dems will do is say, "And what are you gonna do if we don't? Vote for a Republican?" Until our system offers actual choices on both ends of the political spectrum, we're always gonna be stuck with the two-party lie.

Of course, there's other, non-electoral and more effective ways to get their attention:

http://bloggingpoet.squarespace.com/spudkat/time-for-consumers-to-go-on-...

During the Depression era, neighbors would band together to block the sherrif siezing property. This worked better in rural areas where the number of deputies the sherriff could bring would be limited, while the number of neighbors who might join forces to block such a seizure could far outnumber them.

In more urban areas today, where the sherriff's dept might be able to call in highly militarized SWAT type units for assistence, this might not work so well. But even then it could come down to the age old calculation as to whether the worker-class people who are in the army or police are willing to use violence on their friends and neighbors when they are sympathetic to what's going on. Just how brainwashed all the sheriff deputies are might be the determining factor.

This goes all the way back to the Revolution. What happened in Mass during 1775 was largely concerned with the King appointing judges who might then foreclose on depts. The popular rebellion that started the American revolution in Mass was largely based on hundreds or thousands of citizens showing up armed to block these officials. That was really the shot heard round the world, and happened the year before Paul Revere's ride and Lexington and Concord. Of course, today's history books try not to teach citizens the basics of the popular rebellion that founded America.

It's a sad comment on our society when unethical behavior is seen as normal good business. Who are the citizens emulating other than corporate crooks. We live in a society that almost idolizes those who get away with ripping off others. As long as they get away with it they're seen as successful. I long for the day when lying, cheating, and stealing, were seen as repulsive and shameful. Because, that is what they are.

Just try walking away from your credit card debt, some of which might be at 30% interest. What, that doesn't p__s you off to no end?

COMarc,

The only way it'll work today is if you know the sheriff, he attends your church, he's your cousin, your neighbor's friend, etc. and people work with him (and the deputies) on a person-to-person basis. No hostility -- it will serve nothing. They'll pass on the cost of policing to us as well. Appeal to him as a human being. The problem isn't bad enough now. If foreclosure rates ever reach something like the 20-30% range, new social dynamics might emerge. But it will be with an olive branch extended to the sheriff.

I believe this is totally possible, because most of them -- including cops -- are in the same boat as us. Most of them aren't making that much money. They're making less than me, so I put them into the same plight of the middle- and working-class, whether or not they even see themselves that way.

andersdl,

Of course! The Bush family was there during the deregulation of the S&L's and that deliberate fleecing as well. The failure of the Democrats in really going after these people suggests that they got a piece of the pie as well.

4 out of the 5 Keating Five were Democrats:
http://en.wikipedia.org/wiki/Keating_Five

The lone Republican was none other than McCain. Draw your own conclusions.

Sorry to tell you Dean that we are not near the end of this crisis. It is affecting many sectors of the economy and its grip will broaden and tighten before its over.

The $600,000 of taxpayer money that St. Paul, Minn. is spending to react to the problem is just the beginning. St. Paul and every other government agency will be reamed by this crisis. With the combined money that St. Paul and Minneapolis alone will spend on this, they could rebuild that bridge that collapsed last summer...and then some.

The saddest thing is that nobody has mentioned the only thing that will provide a long term cure...heavy regulation of the banking and real estate industries. Any other alleged solution will only make the problem worse.

Banking deregulation caused the savings and loan debacle of the Bush 41 administration. The solution to that was ever increasing bank deregulation, thereby creating the current "crisis" that is far worse than the savings and loan debacle. The next crisis 10 years from now will be even worse than this one unless industry is re-regulated.

Mr. Baker and most of the above posters are living in Fantasy Land. To even talk about the "market price" of real estate is ludicrous since the dollar is in free fall with no end in sight. The Euro was worth 89 cents when it was introduced. It is now worth $1.47 and it's going to go up from there. What do you think the Bush crime family is doing in Iraq and was intending to do in Iran anyway? Oil prices are pegged to the increasingly worthless dollar and the producers are making noises about switching to the Euro. This would effectively be the end of the U.S. economy.

Don't worry. This will all be solved by giving us all $600 to take to Walmart who will send it to China. If times get too tough, Walmart will just lay off some people.

Paul Bramscher

Most states require a public auction for a foreclosure with the bank acting as just another bidder. So, it was a little confusing for me to say that the bank "will get the house" because they "get" it by either (1) buying it at the auction or (2) if someone else buys it at the auction, the bank gets will get some or all of the proceeds because of its status as a creditor. More often than not, the bank is the creditor that is first in line to get that money (after the "admin" expenses, which include the auctioneer's fees and attorney fees).

It will sell for a market price. I don't believe the bank has any say in determining the opening bid or any bid beyond its status as a normal bidder.

Preforeclosure Short Sales are possible on just about every type of mortgage loan, including conventional, HUD insured, junior mortgages, etc.

A preforeclosure short sale enables a Seller who owes more on the home than can be realized from a sale - to sell the property at fair market value. The mortgage holder agrees to accept less than the full amount due to avoid the costs of foreclosure which have been estimated at somewhere between $30,000 to $50,000 each. The sellers are permitted to receive zero proceeds from the sale, and with growing frequency are required to agree to continue paying on the loan after the sale.

"Alternatively, suppose the homeowner decides to buy the comparable home across the street for $300,000, and stops sending the mortgage check to the bank each month. The bank will presumably foreclose on the first house, but the homeowner has effectively pocketed $100,000 on the day he moves across the street. That would be a good payday even for the Wall Street crowd. Of course, the bank will take a big hit, since it will not be able to recover anything close to its original $400,000 loan, but that is not the homeowner's problem.
Is it moral to just walk away from a loan and leave the bank holding the bag? That's an interesting question."

Considering that the Banks did not put-up even one-dollar of that 'loan' it made to a chump, "screw-them". The answer to this "interesting question" is simple...
Smart-people already 'sold' their homes to Bank-sharks two-years back without signing "mortgage insurance" (at 'Peak'), and are only Defaulting-now [certainly, I did and will-soon -- after some rental-income and a bit of 'Personalty-stripping'].
Bankers all so-love their 'put-bets' and "hedge-funds" yielding especially low-taxation on 'Unearned-Income due to another's-grief' that we should all be thanking-them for their Fine Examples...
They also _should_ be held to their new-Love -- 'no-bankruptcy' Laws -- themselves...(but don't 'hold your breath' -- Wall-Street now owns most the Banks [and is eying SocSec], and the CIA IS Wall-Street...ask the DEA!).
'Smart People' are also going to 'keep assets Liquid' and growing faster than the 'Inflation That Isn't', and keep them Close through the coming/long 'Recessionary-Shakeout' -- so that they, too, will enjoy 'having Cash' when the Depression-Firesales arrive soon-afterwards...[I know I-will!]
You?

So in a short sale does the bank then put up the property for public auction, with a minimum bid to keep prices high? Is there a loss eaten, or do property values remain artificially inflated?

The borrower can't just walk away with clean hands. All mortgages today are "recourse" where the borrower is personally liable for the mortgage debt (it wasn't always like this). Therefore, if you walk away, you can be sued for the remaining balance. There are a couple ways to avoid this, including making a deal for a "short sale" with the bank (bank and borrower agree the bank will get the house and they'll call it even), and if that doesn't work, personal bankruptcy. The former option is much better for the borrower but not easy to get.

The most telling result of the sub-prime crisis is that little or no assistance is given to homeowners in crisis. Instead they are demonized as "irresponsible" people. Once demonized government funds can then be given to large financial institutions who are "of course" near "guiltless." I'm wondering what ever happened to the Republican commitment to the FAMILY? Was it just another Republican public relations stunt? It appears so.

Nice idea Rebel Farmer. Economic disobedience. I like the way you think. There is only one problem. The police! They are there to protect private property. The banks are the big boys who will use the courts and the cops to evict your ass! The game has been well thought out by the criminals who are running things. Now, if the cops come to evict you and your neighbors are armed it would be a different story. That's why they keep us isolated. Everyone thinks they are all alone. They are not! It just looks that way due to the propaganda spewed by the press and by the whores in Washington and your State House. We have a long way to go, however. Would I stand up and block a neighbors eviction? Yes! Would I shoot at the police to stop it? No!

NJDave,

Your website suggests that you can only assist HUD borrowers with Short Sales. Is this correct?

One of the MSM evening news programs recently had a piece on a couple back east with a 9% "introductory" rate on a $172,000 house. Then the rate was reset to 14%. Then, after being exposed in a national news story, the lender offered to re-finance the loan at 7.6% fixed. A lot of what is wrong is nothing more than what used to be called usury.

Since the "Family Values" (Republican) crowd could not find the compass to define corporate sin, it's time for the amoral liberals to pick up the ball and just do it.
You'll need Dem House, filibuster-proof Dem Senate and Dem President. Once those are in place, you'll need the public SCREAMING to remind them why they were voted into power. Elect first, DEMAND second.

NJDave,

St. Paul, MN, has had to budget $600,000 of TAXPAYER MONEY (http://www.startribune.com/local/stpaul/15126506.html) to monitor foreclosed/boarded up homes. The banker/government tag-team relationship never ends, does it?

There's an interesting concept called "Adverse possession" on the wikipedia:
http://en.wikipedia.org/wiki/Adverse_possession

We may be going back to a period of squatter's rights. If the owners are distant banks, they don't homestead their property, and the cities are stuck with the bill (and lost taxes), it is sensible to allow squatters to simply move in, take possession, pay utilities and taxes. The alternative is falling apart property, crime, lower values on nearby properties, lost taxes, the whole shebang. The banks are the only thing gumming up the works on foreclosed properties. Would be nice if sheriffs weren't required to take so many orders from distant banks.

Of course unless one is rich and able to pay cash for this "house across the street" there is no way a bank is going to float a loan for it while one is still saddled with the mortgage of 400K on the house worth 300K so all this is B.S. speculation. Most people who can afford to make their house payment will continue to do so as they know that credit rating is important and that markets that go down don't go down forever. I don't see where this subprime mess is going to end as every month there are hundreds if not thousands of these arms-loans coming up for reset of the interest rates.

It seems that many people on the left are choosing to ignore one key point about the current housing debacle: the dramatic rise in housing prices, as well as the current fall, was fueled, in large part, by irresponsible people taking out loans for houses they couldn't afford.

That $400K house the author talks about--likely it was purchased by a family that only made $40-$50K/year.

Many of these financial decisions were made by greedy people who worked under the unthinkable assumptions that: a) housing prices would always rise; and b) interest rates would never go up.

If they chose to walk away, fine. But let's do away with all the bleeding-heart sad-sob stories about how these people will lose their homes. If they had acted rationally and responsibly (instead of greedily), they would've remained in the much more affordable and much less risky rental market.

Housing is a right. Homeownership is not. But somehow many of my fellow progressives are working under the mistaken notion that homeownership is a right--that is, if you are a current homeowner.

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Most evictions are court ordered and conducted by the Sheriff. Disobeying a court order to vacate or interfering with a Sheriff can get ugly.

Homeowners have options and alternatives to foreclosure.
www.SPOCH.org

Walk away!!! But stay as a squatter? What would happen if every household that was foreclosed refused to leave? And when the banks tried to evict, all the neighbors got together and said NO?

Just wondering....

I've been choerographing preforeclosure short sales for more than 20 years during which time I've never before witnessed so many homes at risk of foreclosure.

While the lack of equity is certainly proximate cause to foreclosure, simply having equity doesn't automatically allow the financially distressed homeowner to refinance the at-risk mortgage loan.

My Blog, ForeclosureFocusUSA, discusses short sales.

"A Perfect Storm" from 2/07: There looms a perfect storm on the horizon, a storm that will highlight the need for realty professionals to fully understand the construct of successful preforeclosure short sale transactions.

1. Scheduled expoding ARM resets (subprime 80/20s, ARMs, interest only, etc.)
2.The increase in minimum monthly credit card payments, and not so coincidentally, changes in bankruptcy law, and
3. A correcting/deteriorating real estate market

UBS (one of the largest Swiss Banks) lost 4 billion because of the subprime. They gave 2 billion in bonuses...The world makes no sense.

Why do you think congress inflicted the Bankruptcy Bill on the muddled crass? The working-for-little are to replace the deported working-for-nada. We're all serfs now, tied to the loan, in a manor of speaking.

Economists have been telling us for a long time how "small" a problem this is, and how the bottom is just a "few weeks" ahead. This calls for a new verb.

sub-prime (verb, transitive)
Defn. To minimize, deny, shove into a smaller box, or neutralize something. Especially with regard to negative economic trends, usury, etc.

I've not seen prices dramatically falling here in the midwest. Nor have my property assessments gone down (we'll see about next year). What will the municipalities do if they have to lower assessed values on properties? Accustomed to the higher revenue, they'll likely want to raise the tax rate to compensate for lower assessed values? I'm sure we'll continue to be hosed, until there is a fundamental shake-up in government/banker tag-team antagonistic relationship to the former middle-class and poor.

Interested readers should check out the following link

http://www.globalresearch.ca/index.php?context=va&aid=7413

for information about a case in which Duetsche Bank prohibited from foreclosing on a number of properties because it was unable to demonstrate that it held the mortgages as a part of the junk that it had purchased called a CDO. I'm sure the case will be appealed, but it's such an important precedent that the networks wouldn't dare tell 50 million people over the 6 o'clock news.

Nothin' to see here folks. Move along...