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Liberal_in_LA Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Aug-11-10 08:33 PM
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borrowers forcing lenders to accept 10 cents on the dollar
Bad Debts Rise as Bust Erodes Home Equity
By DAVID STREITFELD
Published: August 11, 2010
.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and the collateral in the homes backing the loans has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats, said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. Their chances are pretty good of walking away and not having the bank collect.

Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. People got 90 cents for free, Mr. Combs said. It rewards immorality, to some extent.

Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.

Anything over $15,000 to $20,000 is not collectible, Mr. Terry said. Americans seem to believe that anything they can get away with is O.K.

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

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People want to have some green pastures in front of them, said Mr. McCain, who recently negotiated a couples $75,000 home equity debt into a $3,500 settlement. Its come to the point where morality is no longer an issue.





http://www.nytimes.com/2010/08/12/business/12debt.html?...
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SoCalDem Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Aug-11-10 08:36 PM
Response to Original message
1. Look who's talking about morality
:rofl:

equity loans are evil....unless it's a very limited amount (percentage-wise) and specifically tied to home improvement.

It makes a LOT of sense to use an equity loan to put on a new roof or to replace HVAC systems..but NOT necessarily for a pool or a vacation or a car..




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RandomThoughts Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Aug-11-10 08:37 PM
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2. Morality is the issue, at least for some.
Although we all fail at some things. Nobody is perfect.
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rox63 Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Aug-11-10 08:51 PM
Response to Original message
3. The banks took the risk by lending the money
If they didn't want to take that risk, they shouldn't have made the loans.
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The Magistrate Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Aug-11-10 09:41 PM
Response to Reply #3
4. Exactly, Ma'am: Lending Mony Is Supposed To Be A Risky Business....
The idea something is horribly wrong if a lender loses money is modern, and laughable.
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ibegurpard Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Aug-11-10 09:44 PM
Response to Reply #3
5. I was always taught to expect you may not ever see the money again
when you loan money to someone.
Certainly not excusable to walk away from your obligations but how do you squeeze blood from a turnip?
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