Tuesday, March 10, 2009

Conversation or Gibberish?

The message board conversation is funny but completely irrelevant...let's go with irreverant.

"Investors: Ok, per our agreement, I am going to foreclose on the propertyand you will be clear. I may take a loss, but at least this albatross will beoff from about my neck."

How many investors do you know who want to foreclose today? I don't know any. They want a bailout as much as the lendees. In fact, if lendees could be assured of being free and clear (check your HELOC terms closely), most would likely jump at it. The lenders would be crying foul as they incur significant transactional costs to then put the property on the market and maybe get 0.50 on the dollar. They would also simply go bankrupt at that point; the trustee could then incur further transactional costs and sell the property at 0.25 on the dollar.

Let's be realistic. The lenders need and want the current lendees to keep paying whatever they can. They will not get the "contracted" for rates, but they will be happy getting anything. And yes, they are to blame as much as the idiot who signed the loan. (Assuming the idiot is the bus driver trying to buy a million dollar home, and not the poor Bear Stearns manager who clearly is not facing this problem and deserves better.)

1 comment:

GammaBoy said...

You make a good point, and I didn't mean to imply that the banks are innocent parties here. The ones that made stupid loans and are essentially insolvent should be nationalized, broken up, and all of their mgmt fired.

You also make a good point about banks wanting to do whatever it takes to keep people paying, even if it takes 40 years. The term "debt slave" is starting to pop up I've noticed.

The more salient point for me was the question of why anyone would loan money going forward when any time the loan goes bad it is being labeled as "predatory" lending. The Obama administration is focusing on the short-term pain of families losing their houses and neglecting the long-term costs of undermining the integrity of contracts.