Responsible and upside down anyway... (lawsuit, property, lawyers, rental)

[Austin-Willy]

Originally Posted by ccmusica

I know you are going to bring up various scenarios and circumstances that COULD affect the outcome, but I am just saying that in this simple scenario, the result is obvious, regardless. Simple math.

I'm sorry, but you've worn me out. I concede. It is a terrific idea and is sure to be incorporated by all major lending institutions.

[ccmusica]

London Girl

Banks will have losses on their REOs anyhow, my plan is a way for them to REDUCE their losses.

According to the people in the lending industry such as HUD and the Federal Reserve (to whom I have written many letters and received many positive responses), no one has thought of it before. Beuracracies tend to think in limited and narrow perameters. However, they like the plan and are testing its viability as we speak. I am not a lender or a lawyer, so I am sure there is a possibility that any or all of this plan would not fly, but that's ok with me if it gets people thinking outside of the box. :-)

[le roi]

Originally Posted by ccmusica

-Secondly, the banks are fire-saling REOs and forcing market values down. This has been catastrophic for homeowners and has done nothing but continue to create more foreclosures, but they don't know what else to do.

Keep in mind that this program would be geographically inequitable. The market dynamics you describe just don't exist everywhere, certainly not where I live. I have a difficult time accepting a program that would benefit a small subset of relatively wealthy people in Arizona, California and Florida at the cost of everyone else. I don't see your program offering a "net benefit" to banks, or to the U.S. Economy at large. It appears to be a way of redistributing wealth to people who made risky decisions.

[ccmusica]

Austin-Willy, you are too kind. :-)

[ccmusica]

rubber-factory, I did in fact speak to a HUD field officer in North Carolina, and he did say that out there the housing crisis is more about lost jobs than plummeting housing values. I agree, it may not work everywhere, but even if it works in just some places, isn't that some relief for the lending industry? We can't have all the answers for all the people, this is just one idea geared for a specific dynamic.

[le roi]

Originally Posted by ccmusica

I agree, it may not work everywhere, but even if it works in just some places, isn't that some relief for the lending industry? We can't have all the answers for all the people, this is just one idea geared for a specific dynamic.

It looks to me like this program takes from creditors and gives to debtors. I don't understand how that is relief to creditors.

Regarding 'answers for all the people', I support programs targeted at increasing the median income of Americans, because I believe that is how we will get out of this crisis: by earning. I am not an advocate of programs targeted at supporting asset prices, increasing debt burdens, or forcibly redistributing wealth from one group of Americans to another (especially when it is regressive and distributed toward existing homeowners who are already relatively wealthy).

[ccmusica]

rubber_factory, I don't know if you read this post I made to Austin-Willy, but it explains how it helps lenders to lose less than if nothing was done at all:

"Question:

A.) Let's say I'm not doing a "trade-up" but I am just a consumer. I want to buy an REO. I want to offer $375,000 and I want that particular bank to carry the loan. Another buyer comes along and offers the asking price of $300,000 and wants that same bank to carry the loan. All other things being equal, who do you think the bank would choose?

Now let's change this a bit. Try to keep your emotions out of this because this is only for the sake of example and its not something I would do.

B.) Say I was a homeowner with a $375,000 loan on my house with a market value of $350,000. I decide that I don't want to continue making the payments and I default. The bank gets back my collateral (a house now worth $350,000).

Now say that I have a sugar daddy who will buy the REO in example A for me and makes the bank 2 offers, one for $300,000 and one for $375,000. Everything else being equal, which one do you think the bank will take?

Say these two houses were the only properties this particular lender was dealing with, how do you think they would consider their bottom line and make an objective decision as to what would be the better for them? Would they take the $300,000 offer, carry the loan, and own a house worth $350,000 or would they take the $375,000 offer, carry the loan, and own a house worth $350,000?

...I am just saying that in this simple scenario, the result is obvious, regardless. Simple math."

Bottom line, on my plan, the banks make out better than doing it the way they are doing it now, regardless of the other people who may benefit along the way, no matter what you call it, or how you feel about it. Numbers are numbers. It is win-win.

[le roi]

Originally Posted by ccmusica

Bottom line, on my plan, the banks make out better than doing it the way they are doing it now, regardless of the other people who may benefit along the way, no matter what you call it, or how you feel about it. Numbers are numbers. It is win-win.

I don't feel like you addressed Austin's concerns regarding the "magic" change in market value of a foreclosure vs. a non-foreclosure.

I skimmed through the scenario you provided, but it is hard for me to take that as a serious representation of reality when it requires so many conditions be met, and so many assumptions be true.

i.e., "If this were the case, and that were the case, and then this happened, and then if that happened, and then if this happened.. etc.. then X would be the result."

[ccmusica]

rubber_factory,

Foreclosures typically sell for a minimum of 20% under current market value. Even if the bank sold the defaulted house at REO prices, they would still come out ahead or at worst break even. They wouldn't have to accept the deal if this wasn't the case.

The scenarios were to provide context for what is simple math:

$300,000 - $350,000 = -$50,000
$375,000 - $350,000 = +$25,000

Which would you choose?

[London Girl]

Originally Posted by ccmusica

Austin-Willy, let me give a different example:

Say I owe $375,000 on my mortgage and my house has a market value today of $350,000. (So you perceive that you have "lost" $25,000). I find a bank-owned home (by the same bank as my home) in foreclosure that the bank has priced to sell, and are willing to accept $300,000. (Which presumably you think is worth more than $300,000 -maybe much more than the $375,000 you're going to offer - I can only assume that you are now eyeing a nicer pad/future profit for yourself???) I would "offer" through the trade-up $375,000 for their house, and they would get my house valued at $350,000. They would get from me an additional $75,000 above what they were willing to accept, and they would take my house valued at $350,000. (So effectively, your $25,000 paper loss is now the bank's $25,000 crystalised loss). Since my house was not a foreclosure issue, it could be sold at market value (You, meanwhile having skipped from your original $25,000 paper loss) or also offered for trade-up. This would net the bank $50,000 plus any fees and points they want to incur upon me. Additionally, they would be able to keep an A+ borrower. (So, you now have a $25K mortgage instead of a $375K mortgage And the bank is still "out" by your original $25K loss )

Granted, originally I was pondering how we could get out of this situation, but the more I thought about it, the more I realized that many upside-down home owners are stable borrowers. As they say, necessity is the mother of invention.

How do the banks lose if 1.) they can maintain A+ borrowers rather than allowing them to default, (but an A+ borrower borrowing $25K, not the original A+ borrower borrowing $375K) 2.) they can get current market value for their foreclosures rather than the substantially discounted foreclosure prices, 3.) they will end up holding a house that has a market value less than their original, thus lowering property taxes and insurance costs for them, as well as most likely these houses will have been well maintained, (Fair point) 4.) they could probably charge fees and points for borrowers to participate, 5.) they could get foreclosures off their books rather quickly. Need I go on? On a C-Span program where the Federal Reserve was discussing the housing crisis, they were predicting that the next round of foreclosures were going to be from people who are upside-down, but not necessarily financially distressed. Why wouldn't it be in the best interest of all to head off this situation before it happens? What is wrong with a win-win situation? I am as much a victim of the antics of the lending institution as those who have defaulted on their loans, and I have been making my house payments as I have promised. We relied on these lenders to be experts and not do business in the underhanded way that brought about this crisis. We relied on them to lend on valid housing prices as verified by their appraisers. We are not at fault here, but we are still having to pay the price for their corruption, just as much as those who have defaulted. By the way, either way, we will not default on our house loan, we can afford it, but many other people cannot justify making payments on basically a portion of their house value that is simply "air", and I don't hold that against them. Sure this plan would benefit me, but it would also benefit banks and help resolve the housing crisis, which is the bigger issue. (So, what happens if the bank still can't sell your original house for fair market value??? Let's face it, it might take an even bigger loss at sale a year down the line and in the meantime this property is still going to be forming part of their REO inventory.)

I understand that the government is trying to keep the bond markets alive and banks from collapsing, the problem is, there has been no accountability as to how this bailout money is being used. My proposal is one way that banks can be subsidized for implementing this plan that would not only stabilize market values, but it would ultimately reduce costs to the banks and stem the next round of foreclosures. It is an economic fact that falling market values cause more foreclosures, and more foreclosures cause falling prices. The goal here is to mitigate falling prices, foreclosures, and allow banks to conduct business in a more profitable way than they are now.

I don't believe that upside-down home owners are the "original" issue, but they certainly can be part of the solution. Most of the Bank/Gov't programs right now for borrowers are geared to people who have defaulted on their loans. These people, unfortunately, are no longer creditworthy and represent huge risks as borrowers now. People who are financially solvent and are able to make payments obviously are borrowers the lenders would like to keep. Defaulted borrowers cannot resolve the housing crisis, but they cost lenders and the government money through programs designed to help them. I'm not saying they shouldn't be helped, I am just saying that they have nothing to offer toward resolving the larger issue.

To be honest, this just seems to me like a way for you to avoid ever crystalising your original "on paper" $25,000 loss, and to make yourself a nice profit when the market recovers (whenever that might be )

Maybe I'm missing something but that's how it appears!!!!!