Reactions to story from http://online.wsj.com
Foreclosed Buyers' Revenge: Trash the House
http://online.barrons.com/ article/ SB120665586676569881.html?mod=rss_most_emailed...
In Las Vegas, which is caught up in the foreclosure crisis, bankers and mortgage companies are often finding that by the time they get the keys back, embittered owners have trashed the house. They're finding the best way to deter home rage is to pay
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Cash for Keys in Vegas, Foreign Buyers in Detroit
http://mjperry.blogspot.com/2008/03/cash-for-keys-in-vegas-f...A few interesting real estate stories: 1. Wall Street Journal--These days, bankers and mortgage companies often find that by the time they get the keys back from foreclosed homes, embittered homeowners have stripped out appliances, punched holes in
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links for 2008-04-22
http://janilope.com/2008/04/22/links-for-2008-04-22/KINKY NEWS NETWORK - New York Post “…the officer at the scene was able to ID the drug because of “his prior experience as a police officer in drug arrests, observation of packaging which is characteristic of this type of drug, and defendant’s statements that . . . ‘I’ve got some meth in (tags: Weird Sex News) 24 Hours on the ‘Big Stick’ “They’re not just running against the hero John McCain, they’re running against heroism itself and against almost everything about America that ought to be conserved.” –PJ O’Rourke on real Americans vs. Hilllary and Obama (tags: Election Hillary Obama) Buyers’ Revenge: Trash the House After Foreclosure Nasty bastards. What did they think an adjustable loan meant? Hint: It never goes down. (tags: Assholes)
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Foreclosure: What happens when people can’t pay their mortgages
http://understandingthemarket.com/?p=31How much does a lender lose when a homeowner stops paying a mortgage? Approximately half the value of the mortgage, assuming there was no fraud. This essay will sketch out how the foreclosure process works in the normal case and in the less common case of fraud. The argument presented below is a simplification of the actual process that I believe captures the important aspects; if you have any questions or find any errors please contact me here. The typical story (at least in the popular media, see here or just google for foreclosure) of a homeowner who cannot pay his mortgage goes something like this: an otherwise model citizen (let us call him Mr. Smith) goes to the bank to borrow money to buy a house. Mr. Smith does not carefully examine the paperwork that he signs when he gets the mortgage. Perhaps someone at the closing told Mr. Smith what a mortgage lender once told me when I was examining mortgage documents, about the “Golden Rule”: he who has the gold makes the rule. In other words, sign the papers now or cancel the mortgage and come back on another day. (When one reads a bit more about Mr. Smith it might occur that he has just bought several new cars and taken an exotic vacation, or that he was “persuaded” by his banker to exaggerate his income in order to qualify for a mortgage on a much more expensive house than he might have otherwise been able to afford; in many cases, the blame for the poor choice of mortgage can be apportioned across a number of actors.) In any event, Mr. Smith finds that after a year or two of low, affordable payments, his payments are now much higher. Mr. Smith apparently agreed to an option ARM (such as this one) that allowed him to make small payments but now demands a payment that he is unable to make. Mr. Smith has very little equity in his house (perhaps he took out a 95% mortgage or even more, and his first few payments were interest-only). After Mr. Smith misses each payment the bank sends him a letter, and after three or four missed payments the bank gets a court to declare that Mr. Smith is in default and the bank now has the right to evict Mr. Smith and sell the house. Mr. Smith may try to sell his house, but finds that the amount that he would net from a sale is somewhat less than he would owe the bank; part of this gap may be due to an inflated price paid by Mr. Smith, part due to a drop in prices since Mr. Smith purchased his home). (Years ago, a local banker might have visited Mr. Smith and tried to work out a program to help him; today, Mr. Smith’s loan might have been sold several times and he may be paying a servicing agent in another state with whom he had no previous relation. Again, a personal anecdote; once I had a mortgage that was resold once or twice; the eventual owner of my loan called up to offer to refinance my loan at a lower rate. But after a few questions is turned out that this lender did not make the kind of loan that I had. I eventually refinanced with another lender, but if I had been having financial difficulties it may have been impossible for that lender, who had bought my loan, to renegotiate the conditions of my loan.) One possibility (before the bank forecloses) is for Mr. Smith to arrange a “short-sale”, in which he sells the house to a buyer for less than he owes the bank. The bank must establish that Mr. Smith has made a good faith effort to sell his home and that he actually is in a difficult financial position not as a result of his own excessive behavior. A short-sale is difficult if Mr. Smith has multiple mortgages against the house, because the holder of the subordinate claim (the “second” or junior mortgage) will not receive anything until the first mortgage is paid off. If both mortgages were from the same lender, then there is no conflict. But if multiple lenders are involved it is hard to solve this problem. The advantage (for the bank) of a short-sale is that the home is likely to remain in good condition and the bank will likely recover something like 70% or more of the mortgage. However, if a short-sale is not possible, the bank must take ownership of the property (foreclosure) and sell it. Once the bank owns the house it must pay the relevant expenses (taxes, condo fees, lawn care fees and so forth), but it may take some time for the bank to remove Mr. Smith from the house. If Mr. Smith does not leave voluntarily, the bank can offer him (through an intermediary) “cash for keys” (see a Wall St. Journal article here) a modest payment (perhaps $1000 or so) in return for voluntarily leaving the property in good condition. The property often must be cleaned up (and sometimes be repaired or have certain fixtures replaced) in order to be sold. There will be additional time to market the property and complete the transaction. Depending upon the local market conditions and the nature of the home the bank should receive around 50 to 60% of the mortgage around a year after the first missed payment. As noted above, the case of fraud can further reduce the return for the bank. In a typical fraud case the property will be flipped several times between buyers, often with the cooperation of an appraiser, a bank loan officer or an underwriter. Mr. Jones may buy a house for $100,000, sell it to Ms. Johnson for $200,000, who in turn sells it again to Mr. Jones for $300,000 (without much in the way of involvement of outside parties). Mr. Jones will then go to the bank finance this purchase and borrow $250,000 which would appear to be a conservative loan against a $300,000 house. The money will be divided between Jones, Johnson and their confederates. No payment on the mortgage is ever made. The bank forecloses and winds up with a $100,000 home (if even that price was a fair value) that must be sold and will not be sufficient to cover the 250,000 mortgage, so the bank’s return could be as low as 10% or 20% of the mortgage amount. Post from: Understanding the Market
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Doom and gloom update
http://www.mikeshaw.net/?p=1280First, this haunting video of the destruction of those chocolatey, pagan delights…. Then…the bad news. The baby boomer lifestyle and value system isn’t working out so well for some. (No offense to decent baby boomers…I wish a Harley and hang-gliding retirement to you all.) Some people are trashing foreclosed houses before they leave. Equity loans are looking ugly. And the people who ran this show? They’re getting millions. Meanwhile, we seem to be papering over this economy by giving giving a big ol’ credit card to anyone who needs it. By “anyone” I mean anyone who mismanaged a minimum of several billion dollars. By “needing it” I mean they can show that revealing what doofuses (doofii?) they are would cause “perception” problems for one of the markets. Crisis of confidence? How about a crisis of abandoning anything that resembles an economic system of any kind? How about a crisis of making this junk up as we watch the futures? All this paints a picture of a very dysfunctional rehab clinic. Have you wrecked your life by smoking crack? Here’s a big credit card that will keep you propped up…you know…until you get back on your feet. Just make sure you dress up nice and don’t look like you’re on crack. By the way, skim all the personal money you want off that puppy, you incredibly competent bonus worthy executives. How do you think this is going to work out? Sooner or later all this oh-so-important debt is gonna come due. Do we really think the people controlling all this money know what they’re doing? Do we really think they have our best interest at heart? The thing about capitalism is that it tends to turn our selfish nature into a material advantage for us all. But it doesn’t make us care about each other. Now that they’re quietly throwing capitalism out the window, isn’t it a bit scary to think that underneath it all “they” really don’t give a rip about “us”?
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Cash For Keys: Banks Paying Delinquent Borrowers So They Don’t Trash The House
http://mortgage-buy-home.com/2008/03/28/cash-for-keys-banks-...Article and video from the WSJ, Buyers Revenge: Trash the House After Foreclosure. These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. This can obviously cost thousands of dollars to fix before re-sale. The solution? Payola. The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly. The moral: Never underestimate the goodwill engendered by a fat stack of cash.
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Cash For Keys: Banks Paying Delinquent Borrowers So They Don't Trash The House
http://www.behindthemortgage.com/behind_the_mortgage/2008/03...Article and video from the WSJ, Buyers Revenge: Trash the House After Foreclosure. These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. This can obviously cost thousands of dollars to fix before re-sale. The solution? Payola. The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly. The moral: Never underestimate the goodwill engendered by a fat stack of cash.
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Cash For Keys: Banks Paying Delinquent Borrowers So They Don’t Trash The House
http://mywaylending.com/2008/03/28/cash-for-keys-banks-payin...Cash For Keys: Banks Paying Delinquent Borrowers So They Don’t Trash The House March 28, 2008 By: Alex Stenback Category: Uncategorized Article and video from the WSJ, Buyers Revenge: Trash the House After Foreclosure. These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. This can obviously cost thousands of dollars to fix before re-sale. The solution? Payola. The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly. The moral: Never underestimate the goodwill engendered by a fat stack of cash.
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