The Foreclosure Crisis Spells Disaster For The Economy - FDL

[WillyT]

The Foreclosure Crisis Spells Disaster For The Economy
By: masaccio - FDL
Sunday November 14, 2010 10:30 am

<snip>

Of all of the problems facing our economy, the biggest drain is the housing crisis. It forces too many of our people to spend money on houses that are worth less than is owed. Too many others fear that they will lose their jobs and then their houses. Too many counted on their houses as part of their retirement savings, and loss of home value forces them to save more cash to prepare for retirement. Too many others have been forced into bankruptcy, and have no choice but to try to rebuild their retirement savings.

At the same time, the idiots in Congress and the hyper-rich and their minions in the press call for austerity at every level of government. Businesses won’t invest in new equipment. Our trade balance is negative. We can’t export our way out of this problem, and there is no source of growth. How did this happen?

From the beginning of the Great Crash it was clear that the banks and the hyper-rich would not pay for the losses they caused in the world’s economy. The first plan was put forward by Henry Paulson, then Treasury Secretary and the de facto representative of the banksters. The federal government would buy up underwater collateralized debt obligations. Paulson changed course as soon as he got the authority to proceed, because too many serious people and noisy bloggers of every political persuasion said that it would only work if the government paid more than the garbage was worth. That would be a direct transfer of money to the banks and it was politically deadly.

It became clear that housing prices were going to fall for a long time. The banksters started a campaign to blame the problem on borrowers. The media began chanting in unison about irresponsible people who borrowed more than they could ever hope to repay, with not-so-subtle racist overtones. They preached their version of a commercial morality that only applies to human persons, not to Corporate Persons. Of course, the really irresponsible people were the banksters who owed to their shareholders the duty to invest other people’s money sensibly. But banksters had the ability to influence public debate, and the money to whisper into the ears of Congress and the President, and their lies were amplified in the media echo chamber.

<snip>

More: http://firedoglake.com/2010/11/14/the-foreclosure-crisis-spells-disaster-for-the-economy/

:shrug:

[laughingliberal]

1. K & R nt

[midnight]

2. The banks started a campaing to blame the borrowers...

I wonder how the people who are suppose to be overseeing this racket get away with turning their attention to entertainment instead of doing their jobs...

[TwilightGardener]

3. I know this probably wouldn't be a good idea for reasons that haven't occurred to me...

but why can't we have legislation to allow all homeowners with mortgages to have a 3 or 6 month period of mortgage deferment in the event of financial hardship, no additional interest owed because of the deferment? In other words, all homeowners get a one-time temporary break, during which the bank cannot penalize, assess fines or fees, report to credit bureaus, or initiate foreclosure proceedings? Property taxes and insurance must be kept current, though. Sort of like a FMLA for homeowners. Gives people a chance to find work, pay down a debt, get back on their feet, etc. and might keep a lot of foreclosures and short sales from swamping the market, which is good for banks that already have too much inventory to manage and unload. I've had deferments for my federal student loans, when I was not employed for a time--this would be the same thing.

[PSPS]

4. "It forces too many of our people to spend money on houses that are worth less than is owed."

Of all of the problems facing our economy, the biggest drain is the housing crisis. It forces too many of our people to spend money on houses that are worth less than is owed.

I'm sorry, but I don't buy into this attitude at all.

I could have gotten a liar's loan myself and moved into a big new house. "Everyone else is doing it." "No worries. I'll just flip the house before the balloon payment is due and still make a profit." I didn't fall for it. I knew it would be irresponsible to buy an overpriced house or one I couldn't really afford. So, instead, I decided to stay put.

Since the house of cards fell, we routinely see pieces like this, often authored by people stung by their own avarice in that they, themselves, did the very thing I knew not to do -- buy a house I couldn't afford. "But it's the banker's fault." "How was I supposed to, you know, like read the documents I was signing." "I'm having financial difficulties and can't make the payment. Please gift me my house, taxpayers."

Look, there's nothing wrong with renting. I did it for a good portion of my life. Many of my contemporaries, some of whom make a great deal of money, have opted to rent their entire lives. They're happy.

So, what to do if you're stuck? The same thing people have always done -- move. Rent a place and let the house you either never should have "purchased," or can no longer afford, go. You'll be better off in the long run anyway. Rental rates are still far lower per foot than buying and housing prices still have a long way to drop before they stabilize on their own, without being propped up by taxpayer-financed gimmicks that just prolong the agony.

[tridim]

5. I bought the cheapest house in town and 8 years later it is fully under water.

You don't know what you're talking about.

This affects every rich, poor, smart and dumb homeowner in America, including you.

[PSPS]

9. So what?

If a person can make their mortgage payment, there is no problem other than the loss of the house's value. That's just what happens to some investments.

In your case, does the loss of value of the house mean you suddenly can't make the mortgage payment anymore? It shouldn't unless you either lied about your ability to pay the mortgage, thinking you could "flip" the house before you got caught, or you have an interruption of your income available to pay the mortgage. In either of these cases, the solution is the same -- rent a place you can afford. That's what people have been doing for a long, long time.

[tridim]

10. I can't make payments because I lost my job..

And I can't find a job due to the economy created by the same bank that's foreclosing on me.

It was under water long before I lost my job.

Again, it sounds like you don't have a clue what is going on in the real world. Don't feel bad, most people don't.

[PSPS]

16. Do what I (and most) people do when you lose a job...

Move to a place you can afford. That's the way life is.

[tridim]

18. I can't sell the house.

When I lost my job I did what everyone does, look for a new job.

Again, you don't understand what's going on out here. If you did you wouldn't be saying these things.

[PSPS]

21. If you can't sell and you can't make the mortgage, let the house go.

Your repeated use of the "you don't know what's going on out here" canard makes no sense. of course I know. Your situation isn't uncommon and it's been faced by countless people for many years, long before either one of us was born. You bought a house, lost our job, can't sell, so you let it go and get a place you can afford and do the best you can. What are you proposing? That taxpayers gift you your house?

[Missy Vixen]

33. Do you know it's impossible to rent an apartment without a job and a positive credit rating?

Why don't you share with the class what happens when one can't secure a place to live?

Did you bother asking the poster in question whether he or she has kids or other family depending on him or her?

How did you find a place to live with no job and dinged credit due to that job loss? I'll be interested to hear the answer.

[PSPS]

36. So people without jobs should be given a free house now?

Believe me, I know how dreadful being without a job is. But are you saying that the taxpayer should be buying houses for people with no income at all?

[Missy Vixen]

39. This is not an argument

It's nothing more than a strawman that's about to burn the poster in question's house down.

The poster in question didn't ask for a "free house". What he or she asked for was a loan modification to get through the nightmare of a long-term job loss, get back on his or her feet, and hopefully save the roof over his or her and their family's heads. They asked for NOTHING for "free". Furthermore, the arguments against sound more and more like the arguments on the other side of the aisle re: "let them eat cake". The loan is repaid in full by the borrower. It's right in the paperwork. I should know. We're one of the 400,000+ families that managed to make it through final paperwork with MHA, with Senator Murray's help, after my husband was out of work for 10 months in 2008-2009.

If we could afford to bail out bankers to the tune of billions, who sat on MHA applications because they knew the legislation was toothless and they'd still collect the $1500 loan doc fee per house whether or not those involved got their final modification, we can certainly afford to offer blanket loan modifications for anyone that can prove they have a) been looking diligently for a job, b) are newly back at work and catching up that mortgage, and c) a positive record of mortgage payments before the job loss.

Those who "flipped" houses went under in the first wave of foreclosures. Those who are now suffering are the long-term unemployed. The lack of compassion and knowledge of simple math here is stunning. What's better - keeping a family in their home, or throwing them into the street, lowering the property values of everyone in the neighborhood due to another foreclosure, and ensuring they are unable to rent a dwelling because of negative credit remarks?

[Missy Vixen]

49. BTW, I'm still waiting for the explanation

of how you found a place to live with no job and bruised credit.

[xiamiam]

53. until those who think they did everything right GET IT and stop repeating the banks pr memo

that it is the victims fault, millions more and then millions more will be in the streets in the greatest land power and money grab ever. Turn off the tv, turn on your common sense and your heart.

[WillyT]

7. Spending Money On Houses That Are Worth Less Than Is Owed, Does NOT Equate To A "Liars Loan"

Yes there are many of those loans out there, but what the author is talking about, is people whose income and loans matched up at the time the home was appraised.

If a couple had the "proper" resources to qualify for a $275,000 mortgage before the meltdown, and now the house is appraised at let's say, $150,000 or $200,000...

You are spending money on a house that is worth less than is owed.

:shrug:

[PSPS]

8. You're contradicting yourself.

If one can afford to make the mortgage payment, what difference does it make, besides as an investment, what the house is appraised at? If your complaint is that the value of the (overpriced to begin with) house has gone down, that's just what happens to some investments, including a house.

This piece is just another not-so-thinly veiled attempt to shift the loss onto the taxpayer.

[WillyT]

11. Um... Most People Buy Houses Not Only To Live In, But AS An Investment For The Future

You ever hear of a "starter" house?

For decades, families starting out bought a small affordable house which they would then sell as they needed a bigger house for their expanding family. And for decades, the values of every house they bought went up in value. When the children left the house, they tended to cash it in for something smaller, or even a rental and take the "extra money", ie. their investment, and roll it into some other vehicle to serve as part of their retirement.

Apparently... somebody changed the rules of the game without telling the rest of us.

:shrug:

[tridim]

12. That's exactly how my house was sold to me.

Just 8 years ago. It's also what my parents taught me in the 70's.

Honestly I just wanted a place to live, I never dreamed it would sink me in less than a decade.

Now I know that it was all part of the fraud that was ramping up at the time. EVERYONE was involved.

[WillyT]

13. Yep... And Us Taxpayers Are Gonna Take It In The...

no matter what.

We always do.

:shrug:

:hi:

[PSPS]

19. Fraud? You lost your job.

In another post, you said you were stuck because you lost your job. While regrettable, that hardly constitutes fraud.

[tridim]

20. Fraud and I lost my job.

I didn't find out about the TBTF bank fraud until about 40 days ago.

[PSPS]

22. There is no fraud in what you're describing.

You lost your job, can't make the mortgage, but seem unwilling to face the simple fact that you'll have to move. "TBTF bank fraud," whatever that is, has nothing to do with your situation. You lost your job, have reduced income and, therefore, have to move to a less expensive place. Why is it so hard for you to face this simple fact? It's not unique. People have had to do this all the time, long before we were born.

[tridim]

26. Read Matt Taibi's RS article from yesterday.

[PSPS]

32. His article describes how "bank fraud" caused you to lose your job?

Did you work for a bank or a real estate-related industry?

[PSPS]

17. Sorry, you're wrong.

People didn't get "starter houses" and moved up "because the value of the house went up." They moved up because their incomes grew as they spent time in the workforce. The fault here is that incomes haven't gone up since saint reagan. Again, this doesn't mean the taxpayer owes you your house.

[WillyT]

29. Jesus Man... Both Happened For YEARS...

Income went up, value of house went up, value of investment went up, nest-egg/retirement went up.

As their income grew, so did the values of their houses. And with there increased income, coupled with increases equity in their homes, they could buy nicer homes in nicer neighborhoods. My parents did this several times.

Are you new to this country?

And what is this kick you are on about with the taxpayers? My parents paid taxes, I pay taxes, but the powers that be get away with economic murder.

You think the banks and the mortgage lenders have NO responsibility in this current mess???

:wtf:

[PSPS]

31. It may have "happened for years." But that was the bubble.

Housing values were going up for artificial reasons (easy credit, NINJA loans, etc.) But that phenomenon didn't start until the 90's. And, even in that climate, people continued to buy houses they couldn't afford thanks to no-doc loans, zero down, and other "funny" loan mechanisms. But that was a roulette game they were playing. "I'll resell or refinance before the balloon payment is due." "I'll flip the house because it will have increased in value 50% in a year and then I'll use that 'equity' to buy a house that's even more ridiculous given my income."

As we see now, many people who were playing this roulette game came up losers when the house of cards collapsed. So, they gambled and lost. The thing to do is live within your means.

I'm guessing it's you who must be "new to this country." The traditionalism rate for home appreciation is maybe 3% - 5% per year. That didn't get out of whack until the crazy no-doc no-down loans came along and people were buying more than they could afford.

Oh, I forgot. It's all "the bank's fault." They dragged people off the street and held a gun to their head, forcing them to sign a loan agreement that made no financial sense at all, such as PITI payments of $5,000/month while their income is $30K a year. Right?

[WillyT]

35. "The thing to do is live within your means."

First of all... you're full of shit.

This entire economy, since WWII and before, was built upon people of lesser means playing by the rules and getting a loan (mortgage) that allowed them to buy something beyond their means.

A 30 year loan was developed to allow EVERYBODY who had a decent job, and a decent income, to become homeowners. The GI Bill, funded by taxpayers, paid off in spades by allowing returning Vets to be able to do this. This is exactly what created the Middle-Class as we know it.

It built neighborhoods, schools for their children, and drove the engine of prosperity of this country for almost 50+ years.

Are you sure you are at the right website?

:evilfrown:

[PSPS]

38. You're way off base

And I'm not talking about the name calling.

Your description of "the entire economy, since WWII and before," is wrong. A mortgage was never intended as a vehicle for anyone to buy something they couldn't afford. the 35-40% PITI rule was designed to keep that from happening. It wasn't until that rule was ignored and the liar's loans came about that this all happened. And the house buyers were more than willing to sign a loan they knew they couldn't afford, yet they did anyway, thinking they could "get away with it" by flipping or refinancing before they had to really make any substantive payments.

[WillyT]

41. "Sign a loan they knew they couldn't afford."

Well hell Bucky... there it is.

If all you are talking about are speculators, ie. "House Flippers", I might tend to agree.

But you have lumped a WHOLE LOT OF HONEST HARD WORKING AMERICANS into this same Wall Street Cess Pool, and accused them of being irresponsible thieves.

I have NO PROBLEM with going back to the days where you had to put up at least 10% of the loan to show good faith, but unless you've been living under a rock for the last couple of years, you'd know that the REAL thieves make a HELL of a lot more money than me or you, and are taking this country down.

And it ain't home-owners.

[The2ndWheel]

40. Well that says it all there

"This entire economy, since WWII and before, was built upon people of lesser means playing by the rules and getting a loan (mortgage) that allowed them to buy something beyond their means."

Our entire economy is built beyond our means. At some point, that has to catch up. Not that the last few years is the first time it did. We've just made the tightrope thinner, longer, and higher up each time reality caught up to us.

[Name removed]

42. Deleted message

Message removed by moderator. Click here to review the message board rules.

[The2ndWheel]

45. And we can't keep doing that forever

Unfortunately for us, the human imagination, and its physical manifestation known as the economy, exist within the environment, and that environment is finite.

[WillyT]

46. Again, I Bow To Your Feng Shui...

Good luck with that.

:shrug:

:hi:

[pa28]

48. You keep assuming that a taxpayer gifted house is at the end of the argument.

The funny thing is that the taxpayer has, in many cases, already funded the loss through treasury and fed purchases of increasingly worthless MBS instruments. Instruments that are so worthless at this point they can't even pay financial institutions to take them back on even a temporary basis.

For some reason hostility is directed against people who fight the banks which seems to be based on the idea 'if they just paid what they owe everything would be OK'.

I'm not sure why that is. Maybe it's because getting is "free house" at "taxpayer expense" is something everybody can understand and be outraged about.

The fact is that even if every Freddy and Fannie backed loan was paid in full tomorrow the amount would be less than the total amount of money loaned, given and guaranteed by the government during the financial crisis. It's more abstract than "free houses for deadbeats on my dime" so if you want to direct your anger anywhere it would be there.

BTW: one of the posters you are debating with went through this firsthand and has been nice and open enough to post extensively about the experience here. The other is one of the most informed members on DU and tends to dive headfirst into controversial subject matter while remaining extremely restrained. If that guy says you are full of &^%* you might take a few seconds to consider the possibility you are on the wrong side of the argument.

[ljm2002]

24. Your post perfectly illustrates...

...how the little people have internalized the "personal responsibility" meme to excuse the excesses of the banksters which precipitated the bubble and ensuing housing crisis.

I did not get a "liar's loan". I did not buy more house than I could afford. I did not use my equity as an ATM. My house is not a McMansion. And yet. My house is worth about 35, 40% less than when I bought it. As are the majority of homes here in Las Vegas. Not only that, but the last outfit that bought my loan, right after I refinanced, went bankrupt before I could make the first payment to them. So the loan got bought by some other outfit, and you know they paid pennies on the dollar for that loan, yet I am still on the hook for the full price, without a chance in hell that I could sell it for anything approaching that.

And you are sitting there saying that it's the fault of the people in their homes that the prices are underwater like this. Which is really a load of bullcrap. My story is the norm in this city, as I'm sure it is in most cities. Easy to dwell on the people who did overbuy, because then you can paint us all with the same broad brush.

Finally: you advise people to just move, and rent instead. I guess I could strategically take out a loan on a second property at today's lower prices, and move out of this house, then just walk away from this mortgage after the other one is safely in hand. Of course it would shoot my credit all to hell, but what the heck. It's not like prospective employers check things like that or anything. Selling it, of course, is out of the question. Even short sales are hard to close on these days. So is that your advice to those of us stupid enough to play by the rules and buy homes -- we should just walk away and rent?

Since the whole thing was ARTIFICIALLY and FRAUDULENTLY and KNOWINGLY inflated by the banksters, why not let them use MARK-TO-MARKET on their assets, and while they're busy recording the REAL VALUE of those assets, maybe they could pass along some of the savings to those who owe on the assets that aren't worth what they were sold for and these assholes knew it.

[tridim]

27. Thanks for explaining this to him in more detail.

Frankly I'm getting sick of explaining it every time someone asks. It should be common knowledge by now.

[ljm2002]

28. You're welcome...

...I'm not even one of the homebuyers who are in trouble (knock on wood), but damned if I will sit here and pass judgment on those who are when such high percentages of people are being thrown out of their homes by outfits who don't even legally own the properties.

Of course they are going to try and make ex post facto laws to make their ownership legal in spite of not having the proper paperwork -- and often having provided fraudulent paperwork to the courts during foreclosure proceedings.

And now that millions are thrown out of their homes, and we have empty houses by the boatload, you get people telling us that's okay, all those people did it to themselves. It's the new normal, even more people without a place to live, decimated neighborhoods, banksters sitting on properties that they've never seen and don't give a damn about except as a line item in their electronic ledgers.

You know what? When you are looking at numbers like this, it is by and large NOT the fault of the individuals. It is systemic. Yet we roll merrily along, letting the bastards continue their practices, letting banks ignore people's attempts to deal with them and figure out a way they can stay in their homes.

See, it's all about the bottom line. Not the country's bottom line, certainly not the homebuyers' bottom lines. No, it's the banks. They can repossess the home and then claim it's still worth what they had it for on the books, keeping their bottom line looking artificially good.

The citizens of this country are being treated shabbily, and we're all looking for someone to blame. Unfortunately, too many of us are blaming our neighbors when we ought to be storming the castles of the real culprits and taking back their ill-gotten gains.

Personally, I have daydreams of flying low over Manhattan, Washington DC, Chicago, Los Angeles, San Francisco and other major cities with a very powerful magnet emitting signals that would destroy the data storage of all their damned computers. Once the bits and bytes are gone, who's got your money now, assholes? Who's going to cook your dinners, clean your homes, mow your lawns, and care for your children when you have nothing left to pay them with? Well then you can start liquidating your Rolls Royces, your diamonds, your fancy art. If you can get the rest of us to give a damn.

[Skittles]

30. worthy of its own thread

you know the score, ljm2002

I never brought a house when I could because I knew something was amiss, but I still feel for people who got trapped in that complete con game

[PSPS]

34. Again, what you're describing is an investment going bad

I'm sorry your house is worth less than you paid for it. But the question is this: can you afford to make the mortgage payment?

If yes, then you continue to do it and, if/when you sell, see how it turns out.

If no, why? Less income? Bought more than you could afford in the first place?

In either case, you always have the option of letting the house go and, if you can't afford to buy another house, you rent. It's a far better deal today anyway, especially in Las Vegas. There's no reason to "take out a loan on a second property."

[ljm2002]

43. Thanks for your sympathy...

...but no thanks.

I did not buy my home as an investment, and in my view, it is precisely that kind of thinking that has caused this mess in the first place.

Just for the record, I did rent for many years. That has its disadvantages too, notably if you find yourself in dire straits financially you can't use bankruptcy to protect the home you live in because you're a renter. Therefore your position in that situation is even more precarious than if you are a homeowner.

But back to your argument: if it were just my home, or my neighborhood, or hell, even just Las Vegas with this issue then I would be willing to think along the lines you are suggesting. However, it is not just my home or my neighborhood or my city or my state. It is all around this nation, why you could say it is Countrywide!

So maybe you missed the part where the company that owns my mortgage bought it for pennies on the dollar, but guess what? I'm still paying full price. Again, if it was just me, or just this location, then sure, just wait it out and hope for the best. But what we are really looking at is a speculative bubble that has burst and hurt lots of people, and the ONLY groups that did not take a bath are the banksters / fraudsters at the heart of the fiasco. And I think that's wrong.

[xiamiam]

54. Repeating the banks deflecting PR that it is the victims fault is a tiresome read

In a normal situation, that may have been true. Not now. Wake up and realize that we are one unit falling to our knees. I loathe hearing someone blame the victims...the tens of millions of people now in the streets. What a joke. What a ridiculous piece of brainwashing accomplished by the banks.

[xiamiam]

52. puh lease...nt

[lib2DaBone]

6. "Fraudclosures ... Mr. Obama could have stopped the practice in it's tracks..

.. but he chose not to. He sided with the Wall Street Banksters.

The Fraudclosures could have been stopped with a Presidential Order (especially Fanny and Freddie loans) and especially the electronic processing.. the "rocket dockets" and the summary judgments.

Fraud on a GRAND scale.. and Mr. Obama sanctions it. (not Obama bashing..too late for that.. just happens to be the facts)

[earth mom]

14. Good post and good question! WHERE is Obama in all this?! I don't see him doing anything to help

people save their homes!

Why aren't people screaming bloody blue murder about not getting any help?!

Maybe because they are spending every waking moment trying to keep shelter overhead and food on the table!

There is a new reality show called "Downsized" about a family in Arizona who are one paycheck away from being on the street. Of course, once they get paid for being on the show they might not have as many worries, but it is sad to see how they are hanging on by mere threads.

How many families in this country are in their shoes?!

[tridim]

15. HAMP was supposed to help, but the banks decided to turn it into..

a fraudulent program instead. That isn't anyone's fault but the banks.

But go ahead, blame Obama if you want. It's nothing new, you blame him for everything.

[TheKentuckian]

25. Thing is the banks are allowed to be fraudulent, get free money for doing so, and

if they manage to STILL screw the pooch the taxpayer still is on the hook.

I believe this shouldn't be sanctioned, rewarded, or ignored. Instead they have been treated at worst as full partners and usually more like masters.

[xiamiam]

55. the help for homeowners plan bears his name..99% ineffective..who should we blame?

[xchrom]

23. Recommend

[dkf]

37. What does being underwater have to do with affordability?

Either you had the ability to pay or not. Let's say your house stayed at the same value but you lost your job. You would still have to sell your house because you can't afford it. An underwater house that is a short sale leaves a person in the same situation as a person who had a house value that was even and sold.

[LoZoccolo]

44. Fire Dog Lake: automatic unrecommend. n/t

[WillyT]

47. ROFLMAO !!!

:rofl:

And hey man... thanks for the kick!

:hi:

[avaistheone1]

50. Your knee jerk reaction

displays no critical thinking. lol

[xiamiam]

51. no kidding..nt