Posted: 30 Nov 2010 02:30 AM PST
Some housing advocates claime that foreclosures are a problem. In reality, they are essential to the economic recovery.
Irvine Home Address ... 13 SPRING BUCK Irvine, CA 92614
Well meaning people are often wrong. The foreclosure process -- essential to the cleansing of consumer debt and the recovery of the housing market -- is very painful for the families that must endure it. Many on the left of the political spectrum are pandering to the masses facing foreclosure and proposing policies that would remove the negative consequence of foreclosure for those who over borrowed. Unfortunately, removing these consequences is the essence of moral hazard: if people don't experience consequences of their foolish actions, they tend to repeat the mistake.
Lori Ann LaRocco -- Monday, 29 Nov 2010 -- (edited for brevity)
Obviously, I am in the group that favors rapidly clearing the market. As long as the debt on real estate is excessive and capital is tied up in non-performing assets, the economy will suffer. It's really that simple. The solution is equally simple: foreclose on delinquent borrowers wiping out the debt and extract the remaining capital value. With the excess debt removed, borrowers can use their wage income to buy goods and services rather than giving it to the bank. When the mis-allocated capital is returned to the market, new investment will be spurred in areas where capital is most needed. Right now, we don't need more real estate.
Despite the repeated failure of every loan modification program, people continue to advocate them. These programs are a complete failure. Even the worst government programs are usually touted as a qualified success among its advocates. Nobody thinks loan modification programs have been a success, yet we still have people clamoring for them. I suppose if it is the only solution available that suits an agenda, people will support it even when it is a proven failure.
How is the government supposed to solve the foreclosure crisis without injecting more money?
It will help the recovery because it will eliminate the excessive property debt of millions of over-extended borrowers. When borrowers have excessive home debt, the excess comes directly out of disposable income. Since consumer spending is such an important component of the economy, the excess interest payments are a direct financial drain.
This is the key point advocates of loan modifications fail to recognize. The banks don't want to see it because purging debt costs them money. Advocates on the left don't want to see it because purging debt requires foreclosure.
Yes, banks shouldn't have made stupid loans to begin with. Foreclosure and its associated losses are essential to provide consequences to the banks for their foolishness to ensure this doesn't happen again.
Yes, Lenders Are More Culpable than Borrowers, but so what? Both parties need to endure the consequences of their decisions. Just because one party is more to blame than another doesn't mean the less blameworthy participant gets a pass.
WFT? We have plenty of time for a debate. It isn't a debate this fool wants to have because he knows his position is weak and he doesn't want to face the stronger arguments on the other side. Interesting debating technique; win by claiming there is not time for debate.
Each word above is complete nonsense. First, foreclosures are not killing our economy, they are curing it. Second, foreclosures are not a hole at the bottom of the well. We are not leaking liquidity. Money is flowing in to the housing market at very low interest rates in an attempt to limit losses on the oversized loans of the bubble.
Since the program had no chance of success when it was initiated, and since its real purpose was to create a false hope among borrowers to induce them into making a few more payments, many banking and government interests consider this program a success.
Despite the exaggeration about the 100% payout, his observation is correct; second mortgage holders are holding up both loan modifications and short sales. The second has no value. The only strength they have in the negotiation for short sale or loan modification is the ability to say no. Therefore, they say no quite often. The cramdown of second mortgages this gentleman advocates is why we have foreclosure. Second mortgages are converted from debt secured by real estate to unsecured debt similar to a credit card in a foreclosure.
Halleluia! Not one penny of my tax dollars should go toward paying down the mortgage of a HELOC abuser.
Yes, we should have nationalized the banks back in 2008, wiped out the shareholders, given haircuts to the bondholders, and started over. If we had done that, we would be past this crisis today.
Wrong! The people he characterizes as "throwing up their arms" are really sitting on their hands and doing the right thing. Fix the Housing Market: Let Home Prices Fall
No, they can't all be stupid and greedy, but as I have pointed out day after day, many of them were stupid and greedy, and you can't bail out anyone without significant moral hazards. Why is it necessary for 100% of the people facing foreclosure to be stupid and greedy in order to resist loan modifications and principal reduction? If 50% were stupid and greedy, do we want to reward that 50%?
The old predatory lending justification: people were tricked and trapped. If they were, they were tricked and trapped by their greed and stupidity.
No, it is not too late to rehash a debate in which the author is clearly wrong. The reason we have those debates is because policy advocates like this guy push for the wrong solutions. People should have known better than to take out Option ARMs, and they bear some responsibility for their actions.
Bullshit, they want a handout. They want principal reduction to get through the crisis, and when house prices start going back up, they want the free money of mortgage equity withdrawal.
Why do homeowner losses need to be shared with the rest of us? As a renter who chose not to participate in the madness, I don't want to share in paying the bills of HELOC abusing Ponzis.
Why does it have to be either one position or the other? People should have known better, and if we bail them out, it does create moral hazard. This is the same for the individual or for the lending industry as a whole. Both parties need to feel the pain of their collective bad decisions.
Giving borrowers a pass is not the answer. No matter how you cloak it, any bailout that does not have the borrower endure the consequences of their mistakes is going to result in moral hazard and continued bad behavior among borrowers and bankers.
A bountiful harvest
Many people go to the home equity piggy bank each year. Some do this because they can't control their spending, so they must borrow more each year to pay off their credit cards. Some add to their mortgage debt because they believe it is free money they won't have to repay. A few likely knew it was a Ponzi Scheme and gamed the system because the banks were stupid enough to let them.
The owner of today's featured property went to the ATM machine periodically. I have no way of knowing what they did with the money, but it certainly appears as if this money was used to supplement their lifestyle spending. I wonder how well they are adjusting to a life without their own ATM machine?
Irvine Home Address ... 13 SPRING BUCK Irvine, CA 92614
Totally remodeled in 1995? That was 15 years ago. It probably needs updating again.
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