I Love the Central Coast!

Hi Tni - The numbers and the impacts vary from place to place, but the story is essentially the same, and demonizing the people who were caught out trusting the system and buying into what was sold to them as the American Dream really misses the point. Yeah, some people were gullible or misguided or just plain dumb, but I never met many that were purposely trying to cheat theit way into a new home (at least not individuals or families - I did see a fair amount of fraudulent owner-occupancy claims by "investors"). It all seems pretty lame when compared to the purposeful gutting of the economy perpretrated by the financial industry, which to date has gotten off very lightly indeed compared to the widespread misery caused by first their causing of, and the their response to, the housing crisis. Thanks for keeping a focus on the human side of this mess.

Tni - this is really a multi-faceted complicated issue. I understand Judi, and I also think that if it went the way it should nave - foreclosure and moving, on, we wouldhave forgotten about it and the housing market could be out of the dumpster with all these crazy measures

Tni, if nothing else, this post shows the complexity of the problems.  And the answers are no simpler. 

Tni, this is my favorite post of 2012!    Your analysis is great stuff!    Brian

*Suggest* *Suggest* *Suggest*

Dick - I agree.  And I think there has to be some solution other than displacing families from their homes and neighborhoods.  People with more means are suing lenders with the results pending.  Not everyone can afford to do that.  What is the solution for them?  I think people are forgetting that there are many legal issues at play here.  It is not as simple as people not paying their mortgage.

Jon - I don't think the government measures currently in effect have helped people stay in their homes.  And, it doesn't take a brain surgeon to figure out a solution -- or at least it doesn't take a brain surgeon this long!  So there is a hesitancy to implement a real solution.  They are waiting for the banks to impose it on themselves and they never will.  So, I'm not sure about letting everything wash out with foreclosures.  In fact, the lenders are choosing not to foreclose and strategically timing their losses.  Folks have been screaming about the "shadow inventory" for years and still there it sits.

Pat - Very true.  It is complicated. 

Hi Brian - Wow!  That's a cool compliment!  Thank you for the suggest(s)!  Very cool!  I appreciate it.

Tni, it's a matter of self education in all facets of the transaction.  I sure had most asked what the shortfall was they would've chosen differently.  Great Post!

Tni as usual, very well stated and justification for your opinion.  I'll have to go and read Judi's post and then  come back.  Personally, I don't perceive the benefits of a short sale as handouts and as with anything, there are some that will try to milk the system for everything it's worth.  Our job as short sale agents is to qualify the seller as best we can and move forward.  We don't make the rules, we just try to work within the guidelines that are in place.  I'll let you know when I've read the other post.  Good job on this one.

Tni, I applaud you to putting it so well and 'nicely' here on the underwater mortgages and many of the fine people who have lost their lives in debt due to the lenders all around who were greedy...it was the 'trust' that all good AMericans expect to exist in their financial structure that did nothing to protect them...Excellent post.

Tni-Excellent analysis of the situation.  Only those who feel unaffected by the current crisis would think to speak out of hand about being rewarded with programs.  These folks were defrauded and having the gall to say that some of these borrowers should have known better, rather than placing the blame on the actual criminal is ludicrous at best.  I haven't ready Judi's post, but am headed over there next.  

Terrific post and congrats on the well deserved feature :)!

Great article Tni. Folks that haven't gone through what we have in our States basically have no clue how bad it really is. Your example is perfect. 50% dow npayment and she's still update down!! I see that everyday since values in my micro market of Poinciana have dropped over 80% since mid 2006. 80%. Chew on that figure for awhile.

Folks are doing what they MUST do to survive. People that are not stuggling with their housing situation shoiuld be thankful not judgmental. At least thats my opinion. 

We went from owning 6 homes to owning none from 2008-mid 2010. We lost everything and had to start over. Not good when I was 52 at the time. Luckily we persevered and are homeowners again.

Tni: Your post lays out the issues very well. I applaud Judi. She and her husband made a conscious decision to purchase a property cash. Your client also made an excellent decision, puttting a substantial down payment on their home and they are still in danger of losing their home, proving the complexities and the tragedies of this situation. Many financial insitututions received huge financial bailouts at the expense of the American taxpayer. If short sales can help right this situation, and ease the plight of homeowners and reduce bank losses, I see that as as good thing.

Very well put post.  The housing crises has many different aspects that got us here.  I don't think loosing your house to a foreclosure or short sale is a reward.  However, there are a few people taking advantage of the system and those are the stories that people here about.

You stated "The lenders, in essence, introduced a bunch of straw buyers into the real estate marketplace" The lenders introduced nothing. They followed the requirements established by the federal government. As a matter of fact, the lenders had to follw government guidlines or risk being shut down for discrimination against low income and questionable risk buyers.

You seem to believe that no one is responsible for their actions and the government should bail them out, because they made a bad decision or the economy went south. I personally believe that this is a major problem in our society. No personal responsibility.

"I married to young/old/poor, so I want a divorce."

"I was just partying and I/she got pregnant! Not my fault!"

"I spent 5-10 yrs in college and got a degree that no one is willing to pay for! I demand a 6 figure job and my loan paid off!"

"I spent 5-10 yrs in college and didn't work at all, cause I got loans or mommy and daddy paid. I have a POhD or Doctorate and they want me to start at a mid-level or entry level position! The nerve!"

Why not blame the greedy Realtors that sold the homes to these "poor people"? Why not blame the appraisers that appraised them for these "inflated prices"? (Sure fraud was committed, but not on a grand scale like you are implying.)

While you are busy robbing the lenders (and their shareholders) of previous profits why not go back and take 100% of the profit every seller made during this "lender induced" price increase? That sounds 'fair'.

Are they going to check everyone that applies for a loan reduction to see whether they made profit(s) on previous transactions before buying the home they are now underwater in?

But lets not blame the government for guaranteeing these loans (and requiring that high risk loans be made) and lets not blame the buyer for maximizing their debt with the belief that the housing market would never go down and they would sell their home for a profit in 3-5 years.

While you are bailing everyone out could you get the government to refund me the money I lost in the stock market bubble? The greedy bankers and stock brokers ran the prices up and I believed I could make a profit too. Let me know when and where I can sign up for that bailout!

There was no bailout for energy sector, banks or home owners in the energy/housing/banking bust of the 70s and 80s. That hit the world wide economy and clobbered Oklahoma. But we didn't run to the government. We sucked it up and got back to work. It took 20 years but we got things going again.

But it all goes back to personal responsibility, IMO.

Tni,

A lot of people are crying foul since they have paid cash for their house or paid a sizable down payment .

They are the fortunate in my opinion. .but creating obstacles for the government to help those less fortunate makes them a tad egoists. .

Is like saying I have money to buy food . . . why are you using my tax dollars for food stamps to help hungry children?

We all have our own opinion based on our experiences. . and mine is about the hundreds of families I assisted or consulted with. .they are the immigrants that were used with trickery  to raise the value of real estate all around by convincing them to buy and signing documents that couldn't even read it in English.

They came to this country with hopes and a lot of them had their dreams crushed . . .from having some money were they were contemplating retirement and perhaps college for their kids. . now they are old, broke and working pay check to pay check living in a rental apartment. . there is no help from Government for them. . in some instances, I was the only help they had.

There is no easy solution to this problem.. . 

My philosophy is  .. never judge a person until you've lived in their shoes for one year. .I don't know their fears, I don't know their dreams, I don't know what they love and I don't know  what they hate. .

. .but that is what makes a human being, and the least they need right now. . is someone breathing down their neck judging them for the (implied)losers they are.

A little more compassion from the Government for the 99% please. .its a small thing to ask, and it will go a long way keeping the future of our country intact. .

Those people being helped now are the ones that will work passionately to keep us as the best place on earth to raise our children.

Tni,

I read the other blog.

She's really not talking about short sales or REOs. She's talking about principal reductions for people who have a mortgage. Her point is that although she paid cash and her home is now worth less, nobody is offering her the difference. The "bail outs" only applies to those with mortgages.

Tom

Tni...

Here's where your logic breaks down. The treasury is bankrupt. Not only do current taxpayers have to bear the burden of this debacle, but future generations will pay for the next 50 years.

There is no such thing as "government" money for bailouts.

It's real money from real people, and many will suffer the consequences well into the future.

Tni...so glad to see this featured.  As your analysis and the comments suggest, it is not as simple as some will suggest.  But I do think the entire thing needs to be fixed before housing will recover and just letting everything go to foreclosure or abandoning the problem will not work, IMHO.  I could go on & on...but I refrain from discussing politics & unfortunately that is where the conversation heads when we get too far into this.

Thanks for the post. Homeowners should talk to honest agents who will guide them. They should also talk  to HUD counselors .

Great Analysis.  One thing the cash buyer did not think about.  Those buyers who had loans, and fell on hard times most likely decimated their 401Ks and retirement savings, attempting to make the payments, while the cash buyer watched the value go down on paper.  I don't think that the few loan modifications that have been done are a reward in any way for bad behavior.  Those that have actually defrauded investors:  the Banks and analyists who deemed these loans AAA, when in fact they were junk bonds, are the ones who are to blame.  If the loans were rated correctly, no one would have bought them, and the lenders would have stopped loaning to unqualified buyers long before the values skyrocketed to the 2006 levels. 

Excellent discussion post...the enemy has been sighted. It is us....shocking but true

Tni,

I think we lost an opportunity when the bailout happened. Instead of handing over billions of dollars to the banks with virtually no strings attached, the bailout monies could have been used to write down  pay down to the bank a portion of the principal balances of those who bought during that period in time with similar amounts being paid "stimulus style" to those that paid cash directly being paid directly to the homeowner. The property must be a primary residence, bought before 2009 and after Jan 2004. The amount would be a portion of the difference between the FMV today and the amount paid then. The banks would get their money and not have to foreclose on so many homes (sorry banks - no free money for you).

This would be a very tedious process but it is a tedious task already so what's the difference?

Best,
Brian

Short sales are the bulk of my business these days.

In none of the short sales that I have closed have the sellers been gaming the system. They have all been victims of a change of rules in the expectation of how life was supposed to unfold. Job loss, reduction in work hours, divorce, death of a member combined with a crashing real estate market has put these people in a bad situation. If they had equity, they would have sold their homes but they were underwater. They were led into the game and then the rules were changed.

Of course, with no loan mods, no short sales and no government programs to help those in financial distress because for the real estate debacle they could just let their houses go back to the bank as foreclosures. No government bail-outs there, right.

Wow I'm waking up to see this post featured!  Pretty unexpected!

Hi Ron - Not quite sure what you mean in your comment.  Feel free to come back and explain.

Thanks Charita - No I don't think the relief that people are requesting are hand outs.  Not at this point.  I think it is more like settlements. 

Hi Ginny - I agree.  This was a misuse of trust.  And we should have a system that people can trust.  In fact, I think that was the strength of the housing market.  It was pretty solid and people trusted home values and the standards in place.  People were unaware and the trust has been broken.  It is sad for everyone.

Thanks Brenda - The rule I try to follow for comments is that when I disagree and I get to three paragraphs, I write my own post.  LOL.  Obviously this one got long fast!  Cash buyers and debtors are taking a bath in this economy.  Renters are paying higher rents and people have lost jobs.  I don't see many people getting rewarded by the housing bust.  If people are compensated for the bad equity that was created by fraud... what have they gained?  A gift or is this more like an effort to make people whole.  Don't get me wrong I don't think this should be handled by a government program... but how else will it be handled?  Should we wait on the lenders to wake up and do the right thing?  Route it into the already overburdened court system?  I'm open to suggestions.  Some people think that the solution is that everyone has to lose their home, credit, investments... wow!  Is that the solution to THIS crisis?  I think if they want out, they should be able to get out relatively unscathed, if they want to stay in they should be offered a fair deal.

I can see a lot of resentments and jealousies swirling everywhere.

The people who have struggled but been able to maintain payments are /will be jealous of those who get help now.They probably won't be eligible for assistance because the aren't in arrears.

The people who have already lost their homes will be jealous of those who get help now.

The people who over-paid with cash are just plain angry.

The banks (and Congress) deserve whatever grief they get for causing this mess.

I see the effects of Short Sales in home owners who can afford their homes hiding money and doing strategic defaults.  I think there is a tipping point where folks, like me who put a boatload of money down and are still upside down, but making the payments are starting to see the proposals coming out of DC as setting up a welfare nation.  I can't tell you how many home owners I have met with who didn't have the motivation to get a second job (gasp) or did whatever else our parents' generation would have done to make ends meet until things got better.

Should the government help these folks get into fixed rate loans, the ones that got bamboozled into doing interest only, yes.  But they should be the principal amount of the loan.  If they need to amortize it over 50 or 60 years, so be it.  But at the end of the day, most of these folks can't afford the homes they are in.  It's a sad fact and the market is sorting it out.

Short sales continue to be one big mess, requiring the patience of a saint.

Good post, thanks for sharing it.

Tni, excellent post ! It's difficult for me to have sympathy for those who paid cash for their homes and are now crying about the loss of equity. They are in a much better position than those who gave mortgages. When a cash buyer bought their home they agreed to the purchase price. Although real estate traditionally is not considered a high risk investment, the value of any property is subject to market conditions, and those conditions can change. 

I am fed up with reading blogs from professionals who talk about personal responsibility when this housing debacle was all set up for planned failure by the government and the banking industry. Yes, planned failure because we are a nation of debtors. Our government has been in debt since its inception. The real estate industry has been used as a tool and we the people, as mere pawns.

It's so easy to point the finger at the homeowners as the ones to blame--that they should have known better, they are gaming the system, they bought more than they could afford, and the list goes on ad nauseum. They were as you say essentially the straw buyers--I agree with that statement. As in your area it is the same in my county in California. 

If agents have so much contempt for homeowners who are in the plight they are in through no fault of their own, then I don't understand why these professionals are in the business of real estate.

A few of the buyers caught in this mess are scoundrels, but not many. Most were simply hoping for the best. It's like when too many people hoping for a shot at freedom jump onto a boat, knowing the boat is overloaded. If the current gets too strong, they all drown, but, if they are willling to take that chance, well.... things might also turn out well. In this case, they all drowned. The banks and Fannie Mae are the guilty parties. Many agents, too.

No one is coming out of this perfect. If we don't help salvage values, those homeowners who paid cash will suffer even more.

Write downs, short sales, etc. are tools to help protect values as much as possible.

Bryant - 80% that is just unbelievable.  I am seeing 60% in some pockets of the markets I serve, and it is excruciating what the drop from 50% - 60% does to people.  That last whammy I think is due to the fact that it's been more than 3 years and no real solution has been hammered out.  I can't even imagine what 80% feels like.   

Anne - I think there are some people that just want out at this point which is why I'm seeing an increase in short sale consults.  They don't care what the government comes up with next and don't expect it to be adequate.  Most of the initiatives only help Fannie and Freddie backed loans anyway.  Others are hanging on with both hands to their homes.  They have already gutted retirements and run up their credit cards before they get to my office.  You'd be amazed at how far people will go trying to save their home.  Frankly, I wish there was more relief and I also wish that relief didn't come at the expense of tax payers.  However, the consequences of this bust are so dramatic -- every aspect of the economy is affected -- we are all suffering whether we paid cash or not.

Keith - There will always be bad actors.  However, as many people as I see trying to game this current system and save their house -- I don't see many winning that game.  Maybe they get to stay in their home without paying the mortgage for 3 years.  WOOOHOOO!  And they have the bad credit to prove it.  Every month they take a hit to their credit and they jump every time the door bell rings.  If you call that a reward, well.... and after all that they get to lose their investment in the home and start over.

Than - See here is where I may depart from many.  I don't think that they had to write the worst possible loans imaginable to get people into the housing market.  No they did that because they wanted those loans to be more profitable at the outset and on the open market.  Clearly there were people who didn't meet past standards who deserved a chance to get in the housing market as owners and there were some who didn't.  Because you are not going to ask for traditional proof of income (profit and loss) does that mean you don't look at a tax return?  Why did so many of these borrowers end up in ARMs and toxic (neg am) loans?  Many of the people from the first wave of foreclosures and shorts would have been able to stay put if they had been put in a 30 year fixed loan.  They weren't put in those loans.  Why would you give the most challenging loans to those least able to make them work?  It was a disingenuous effort for sure and they took that initiative and turned it into one designed only to enrich the banks and use the uneducated as pawns.  During the boom, I worked with a couple who had almost 50% to put down on the home.  But because of the lending environment, the only loan anyone would sell them was neg am.  WHY?  50% down and all they can receive is a neg am loan?  Is that an opportunity?  Well giving people like this a real opportunity was not a part of the scheme.  They could make more money on that type of loan and re-sell it (fraudulently).  You're right there is an issue of personal responsibility -- but personal responsibility is not a one way street down a hill.  What are the consequences for the bad behavior at the top?  I know we would all like to think that we are masters and mistresses of our own destiny, but there is a point where there are forces greater than individual people can control.  And if this isn't it, I don't know what would be.

Fernando - Yes, those who are able to weather this crisis without filling out a loan mod application and short sale application, waiting on hold, and turning on the news hoping that the next initiative will save their house are fortunate in my opinion.  I know my opinion is colored by where I live.  In CA, some of the losses are just plain ridiculous.  Bryant has me beat though in FL.  There was a lot of that here too as well with people not understanding loan documents.  People who trusted and did not understand the loan paperwork at all.  They thought they were buying a house and instead it was more like rent to own.

Hi Tni,  Great post and comment thread.  At least we should all be able to agree that their is enough blame to go around !  Notice that the lenders are still dragging their collective feet when it comes to helping distressed owners !

Hi Tom - I understood her point.  That people who are getting principal forgiveness are getting a reward.  Are they?  I do take issue with that.  That was part of the point of my blog.  Being made whole is not getting a "reward."  And, they are not being made whole anyway, and they have been drug through the mud and lived with a tremendous amount of uncertainty about where they live and where their kids sleep at night.  Waiting on the government to save you is no gift.

Christine - I agree the solution is not just forcing everyone into foreclosure.  That does not work for everyone.  Short sales are a great solution for those who want them.  How about we start with giving everyone who wants a short sale a short sale that is approved in a week?  How about some lender accountability for timelines on response?  There are a lot of legal issues in this mess and I think people are taking that for granted when they try to make it a simple issue of personal responsibility.  That I think is an oversimplification of a complicated issue.

Gita - Yes, that's good advice.

Geoff - Bingo!  That was a huge part of the fraud that helped to inflate values.  The lenders made out like bandits with those practices and by charging fees on larger and larger loans. 

Richie - Well I think we can do a lot more by keeping the goal in mind of resolving these legal issues as a country, patching things up and moving on.  We need to work out fair resolutions, and it is difficult I'll give you that.  The biggest issue, and I'm sure Judi and I would agree here is that all the solutions proposed seem to be funded by tax payers.  Why?  I think that is ridiculous as well.  But there have to be solutions that's for sure.

Tni,

Yes, as Pat (#4) says a complex, multi-faceted and tragic issue.  A well-intentioned, "compassionate" government has no business interfering with a legal contract--that's a Deed of Trust. That's what happens in Venezuela & Cuba.  If lenders and borrowers voluntarily agree to modify the loan terms or reduce the principal, that's fine as long as taxpayers don't pay.  Many taxpayers are already struggling with their own finances (not to mention all of our children) and they must not be further burdened with the debt entered into voluntarily by others.  Cold hearted? Not really.  If we don't face our day of reckoning, our national debt will swallow us all.  There is no money tree (except for the Fed's quantitative easing).

Regarding government interference with contracts--wait until the compassionate politicians decide our commissions are too high for struggling upside-down homeowners and change the terms of existing listing contracts.

Some sort of equity-sharing might work. I do think reducing interest rates for underwater but current borrowers is a reasonable compromise.

The opinions on this subject will vary depending (I think) on one's experience in the matter.  Without a doubt in my mind unqualified buyers were buying homes by the masses and drove prices upward.  The thought of making money, so much money on the homes rising equity and the ease to get approved for a loan far out of reach of the true income needed to "qualify" has affected every one of us in one way or another.

Its amazing how easy it is to point fingers.  Most of the commentators talk about "them" - could be banks, government, greedy buyers and sellers.

Fact is, we were just too close to the experience to see the forest from the trees. We liked that every time we bought a piece of real estate it went up in value, and usually quickly.  We forgot that what goes up must come down, and that over the long term single family home prices must generally stay within a reasonable relationship to earning power.

And we just did not pay attention to the warning signs. We - all or most of us, anyway. And it will take a huge effort to fix the mess, and we will have to create some national consensus.

Thanks for your part is shedding light on the conversation.

Tri I enjoy your posts because they always have some bite in them. I think we are missing a very important point. The Pres is aying BANKS should allow refis for current paying folks who cannot refi becuase they have negative equity. So as the Tax payer bailed out the banks , so should the banks be mad to bail out the tax payer. the Pres program is not a give away or a DC thing  it is a sensible program aimed at stabilizing the market. The folks who made the mess are still getting paid just at the rates they should be.

Tni - I agree that most of these people are good people caught in a bad situation not entirely of their own making.  We can argue about what they should have know or what they could have or should have afforded, but that's for another time.

I think Judi made some interesting points, and I can undertstand her frustrations.  However, like you, I live and work in California and have been mired in this mess for several years now.  I don't think most of my sellers feel like they have been rewarded in the whole process.

I agree that there are good people who were talked into taking toxic loans. I also believe that the government was in bed with the banks and it was a scheme like Pamela states. It was intended. Yes, homeowners were the pawns. 

I also believe that regulations started all of this and way before the government allowed the banks to buy and sell their notes through the Glass Steigal act. Again, government in bed with banks and Goldman Sachs and the Federal Reserve. It is way more involved than any of us can even write in a book. 

Nevertheless a really good book on this subject is " The real estate boom and bust" by Thomas Sowell. He is a genius at Stanford and is well worth reading. He talks about how this all goes back to the Carter days and laws that were enacted back then that you would truly surprised about.

Whenever the government and large banks and corporations sleep in bed together- that leads to demise of good governments and they become totalitarian. This is intereference with free markets and supply and demand which then leads to more problems and then the blame is put on free markets because there was not enough regulation when it was precisely the regulations that got us to where we are today in the first place. 

Greed is a natural human condition and you can not legislate morals very well. To call one party greedy but not the other is being one sided. While we know of many innocent homeowners who were caught in this mess and we are among those who lost equity- there were others we know personally, a lot of real estate agents as a matter of fact, that camped overnight at developer openings in order to put $1000 on lots and buying 5 to 6 of them at a time betting on flipping them before they are closed on and they got caught at the peak and now are bankrupt. Many of them were agents who went and started their own brokerages during this time and now are working for other brokers because they lost their businesses too. 

But I don't really feel sorry for them because that is betting. That is a risk we take. If the market had not busted they would have become very wealthy- but it did bust. If they had become very wealthy and the boom was on instead of off- they certainly would not be complaining would they! 

We also know landscapers who bought homes that were priced at a million dollars but only made 35K a year. There was no way they could afford to buy a house like that and we were never a party to any type of transaction like that.  But even a landscaper has common sense. Common sense dictates that you can not afford to live in a million dollar house and when it comes time to pay the piper you will not be able to pay. Was that ALL the banks' fault? That landscaper had NO obligation or responsibility? 

Government programs rarely work. They have helped far too few people. The government can not make income. The only money they can get is from us. The government is a big part of the problem but the only part of the solution they can really be is to get out of the business. Their programs create more problems than they solve. We are in Florida, the ground zero of the real estate bust. Homeowners here many are 60% underwater in homes and we help as many as we possibly can.  That does not change the facts. Katerina 

It's a complicated issue, and your views are awesome brain food. I know Judi's point and don't think you disagree on everything, and as John Juarez said it so well, none of my short sale clients are gaming anything either. 

You're on a different subject altogether.  My post was NOT about short sales, REOs, or any seller.. at all.  I read your post and read through the comments with many agents etc talking about the sellers that they are working with.. My post had nothing to do with sellers.  

There recently was discussion of partial mortgage forgiveness for those that owe more on their home than they paid for it.  The discussion amongst politicians was not even about homeowers that were behind on thier mortgage or having difficulty making their payments.  It was a discussion about people owing more than their home was worth and possibly coming up with a program to forgive part of that mortgage debt with the criteria for that being, again, simply that they owed more than it was worth.

This is in effect turning back the clock and reducing the cost of their home because they have a mortgage..    

My point was and continues to be that no one wants to talk about  returning part of the purchase price to someone that paid cash for their home.  

I believe that at some point politicians need to use commons sense in their proposals and stop trying to buy votes.  

My point was not what you discussed in your post.  

Early on in my comments on 2/3/12, I stated that I was not talking about short sales but homeowners that were keeping their homes but having their mortgage reduced.  

In fact, when it became clear that the discussion was on REOs and Foreclosures instead of what I was talking about, I put the post into Members Only because I did not want the public to misunderstand also or read something into the post that was not there.    

So much for that....  Thank you very much.  

Well, the current buyers or future buyers will be rewarded.  Why?  Because they CAN buy a home drastically lower in fair market value and get a really good interest rate.  The interest that many of these underwater home owners have paid to the banksters disturbs me. Everyone knows that the principle isn't reduced much at all for many, many years. 

I'm paying my mortgage, on time every month.  I put down 20% in 2002 and have paid extra principal every month.  I now owe about what my house is worth.  And am I reading that you not only want me to pay my mortgage but someone in California's too?  You see I am in the 51% of people who DO pay taxes.  The government needs to get OUT of the mortgage business.  They shouldn't demand private banks make loans, modify loans, ect... And if the banks fail, let 'em fail.  We're never gonna get the housing industry straightened out if the government doesn't stop poking their nose in private industry.  Crysler made 51 Billion dollars profit in 2011.  The American tax payers invested by force 31 billion dollars in trade for stock now worth 16 billion.  we'll never get that money back, and you're suggesting we bail out how many million homeowners? 

Tni, long long ago, banks were part of the communities they served. Bankers often knew personally the clients to whom they loaned money for a mortgage. If a mortgagor had a catastrophe in their life, the bank knew about it, understood, and worked with the person so that they could keep their home. Of course, there were some pirates amongst banksters then; there just seems to be a higher percentage of pirates in banking today. Rather than pay the banksters more money to not help more people, perhaps our government representatives should do their job and protect the people from corporate greed. While I am not a proponent of government regulation and unnecessary laws, I do believe that part of the role of the government in a capitalist society must be to protect its' citizens from corporate greed.

Tni you have linked to an AR Member's Only post in your public post. While I don't think that Member's Only is all that private, the purpose of Member's Only is to allow real estate people to discuss issues internally. Judi produces a wide range of posts for her community and if she wanted this public she would have made it so. You need to either break the link and remove the reference or make your post Member's Only.

Tni, great post.  I agree with Brian, comment # 23 that principal reduction is and would have been, a quicker, less costly solution.  I also totally agree with Pamel's comment #29....I am sooooo tired of listening to crap about this burst in the boom being the fault of people who just wanted to buy a house!  Excuse me, but they weren't the ones who did the underwriting on these loans....they simply saw it as a time to get in the homeownership game....based on approvals provided by banks.

David - I agree it was an opportunity lost.  If you look at how the HAP program works for military personnel caught up in this storm I think it has some very important characteristics.  It only addresses people that bought during a certain period, it makes them share in 10% of the amount lost.  I agree we need the better ideas to take hold.  The way they have gone about things has been very expensive, with all the money spent the situation could be fixed already.  Freeing people from debt caused by a mass fraud in mortgage market is not giving them a freebie or a bonus.

John - It is interesting to hear the position that foreclosures will wipe the slate clean.  Last I checked the lenders continue to manipulate the market by keeping these properties on the sidelines.  How about getting these properties out of the hands of the lenders altogether.

Marte - Yes you won't make everyone happy no matter what type of plan you come up with.  But, hopefully you will fix the economy which will eventually make everyone happy.

Chris Ann - I think if the loans were re-structured so that people made payments for 5 years without any interest -- you wouldn't have to call it principal reduction and it would have a great stabilizing effect for those who want to stay in their homes.  But something has to be done about the equity position people are in.  Most people aren't going to sign up for a 60 year loan solution when they can declare BK instead and put this behind them -- plus they still can't sell until they catch up equity wise.   It's very difficult for me to tell someone who makes $15 an hour to stomach $150,000 in bad debt caused by fraud in the market.  That's what's going on here in CA.  The banks could implement these programs on their own, they don't need the government to tell them to do it, but they haven't. 

Anthony - Very true!

 There will always be people who try and take advantage of anything offered....Relief is exactly what a short sale offers to people thru no fault of their own are unable to provide that to themselves...great post....!

Pam - I agree.  And in my area as well, personal responsibility is not the primary issue.  That was why I felt obligated to throw out a very typical scenario with new home tracts built during the boom and also to illustrate how deeply people are underwater in my area.  We all counted on there being a certain level of integrity in the system and it just wasn't there at the time.  Having debt canceled due to the fraud in the marketplace is not a "reward."  Free and clear owners and those with equity are afraid that someone might be given something that they won't get. 

However, if your mortgage debt is reduced to what the home is actually worth -- you still have to pay for the home (with interest!).  If the prices were fake, what have they gained?  In addition, let's not forget that cash buyers benefit heavily from the existence of loans in the market, it drives prices up (so we see!) and they are counting on it driving up prices (eventually) again when financing loosens up.  I wrote this in part because I just can't believe that when you look at what is going on in the Sand States that you can think that people are gaining with principal reduction.  It is an attempt to make people whole.

Jaime - Yes, there was a lot of bad advice out there from agents.  There was also a lot of good advice that was not taken.  I know I gave out plenty of good advice that was ignored because if the bank is handing out loans like lollipops not many people are going to listen.  You are right people took a chance.  Too bad the opportunities presented were wrapped in negative amortization loans.

Dawn - Exactly.  No one is coming out of this without being affected in one way or another.  We need a realistic and fair solution that will help us to pick up and move on.

Bill - Yes they are, and why?  There have been some improvements for sure.  But many servicers just don't think they have responsibility to even process short sales in a timely fashion.  They should be paying people who want short sales to do them and in some cases they are.  It's the folks that want to keep their homes that offer the biggest challenge.  For many of them, only something like principal reduction will work.

Lloyd - The banks voluntary programs thus far suck.  And the government programs do not ask or require enough of them.  It could all be done voluntarily by the banks, but it will take a rightful amount of pressure to accomplish it  -- probably from the courts.  I don't think this should be at tax payer expense.

Michael - You said it well.  I know my experience as a Californian puts me on the far edge of this issue.  People here aren't just underwater ... they are drowning.

Thanks Jeanne - Yes, we need a national consensus and national solution.  There were warning signs for sure.  And yes it felt good when prices went up.  I don't think this generation will ever forget this and we will all be wiser because of it.  And, we will all pay in the coming years for the trust that has been abused.

All Mountain - I do think getting the banks to "voluntarily" do principal reduction is a good proposal.  But, they haven't voluntarily done much....  I think people believe that the government will continue to pay and provide incentives.  Probably a realistic thought given the track record...

Christine - Yes, I think Judi's opinions reflect where she lives.  And, mine are definitely affected by living in CA. 

Hi Katerina -- How funny.  I just received two books from my amazon list written by Thomas Sowell!  They are sitting on my nightstand.  I'll have to add that one to my list.  I agree there were bets that were made by some.  However, in my area most of the bettors now just want out.  Doesn't matter if you offered them some principal reduction or modification or not.  However, people who want to keep their homes and have been able to hang on this long will probably want to and be able to keep them if they get some relief.  I think the $35,000 a year people who bought million dollar houses have pretty much been flushed out of my market -- their negative ARM loans probably already exploded on them.  Of course they have responsibility -- but the system already has consequences for that -- what about the people who were affected by that behavior who received a faulty appraisal based on that "comp?"  Did they know that house was sold to someone who could never pay for it?   I think now is the time for a solution to be implemented.  I think short sales during this time should be a one page application that is processed in a week.  Surely, what has gone on is not fair, and surely there has to be something we can do to make things better for the housing market and the economy overall.  Right now we have a false market, so many people being held on the sidelines.  I don't know what will fix it but I do have some ideas.  I also am quite certain that any relief for people still in this situation can not be categorized as a "reward."

Hi Phil - No I don't think we disagree on everything either and yes, it is complicated.

Hi Judi - After receiving your email about the post being member's only, I immediately took out the link and your name.  I was a bit mystified because I checked it before writing this post.  Now I see from this comment that the post was changed into a Member's Only post.  Well at least I know I'm not going crazy.  So, I must have read and linked to your post before it was Member's Only.   Indeed I was surprised it was public and because it was -- I thought it fair game.  

However, I do think we are speaking about the same subject matter because I do not think that principal forgiveness is problematic in these times for the reasons I articulated in my blog.  We just disagree.  Again, I know my views are heavily influenced by where I live and where the values are now.  So we do disagree.  All these issues do intertwine, foreclosures, short sales, owners with equity, free and clear owners. Short sales, loan mods and principal reductions.   Even free and clear owners will benefit from a stabilized housing market.  If all the people who can afford to pay or are hanging on by a thread in a tough economy throw in the towel and give their home back to the bank -- what does that do for any of us?  In some areas of the country, the losses are just too great to bear, and many of the folks that are left were more than others defrauded by all the straw buyer activity. 

Cash buyers benefit heavily from the existence of loans in the market, it drives prices up (so we see!) and they are counting on it driving it up prices (eventually) again.  We see this now in the condo market in my area where financing is almost gone for some complexes.  Nothing but cash buyers and the prices are very low.  When you speak with cash buyers around here about why they are gobbling up condos it is because they are waiting on the run up in prices when financing becomes available for these units again.  I also think the fact that someone can sit out these troubled times without being in danger of losing their home or ruining their credit is a pretty good reward and well worth the cash.

Carla - Yes the banksters have received A LOT of interest on these bad loans.  Not to mention the beauty of an interest only loan product.  They just keep paying and paying and the loan never goes down.  Now you have to give a bonus to the person that decided to make that loan widely available!

Hi Tammy - I pay taxes too.   And, I'd like to see the housing market rebound.  It does not benefit me to insist that there be no intervention so that things still appear fair in a simplistic way.  That view point ignores the legal issues and the fraud that occurred.  I don't have any problem with the banks being forced into giving principal reductions.  Whether that is through the existing Making Home Affordable Principal Reduction Alternative or a "voluntary" program instituted by the banks.  Government should be pressing on the banks to "voluntarily" do something to keep people in their homes or short sell -- whatever they prefer.  What have they voluntarily come up with so far?  Not much.  And it's a little late to say let the banks fail.  They did fail and they were propped back up by the government.  Now they control the housing market.

Maria - I also think that government could have done a better job here.  There should have been some sort of intervention at least once things got going.  Can't do anything about that now but we can try to clean up this mess.  I would love to see a lot of institutions return to a more local model.

Leslie - Well look here the AR police showed up!  LOL.  FYI - Judi acknowledges changing her post from public to "member's only."  See her comment #43 above.  She emailed me also that it was member's only so I took the link and her name out of the blog.  Then I read her comment that the post had been changed into a member's only post due to the comments she received on it.   I thought I had gone crazy because I did recall checking first and it WAS public. 

I don't think it is reasonable to ask someone to remove a link after you change a post to member's only.  Do you?  Nonetheless it was done.  Had I known that the post was changed, I would not have removed the link or attribution.  I do respect the "Member's Only" function -- however when you make a post public you can't really take it back by making it Member's Only.  I do appreciate you telling me in my public post (and not an email) what you think I need to do.  I will refrain from returning the favor. ;-)

Hi Marti - Yes, it would have wouldn't it?  Especially after all of this.  I also don't think that buying a house should have been turned into the single worst financial decision any one could have made, and many people that bought 2004-2007 in my area feel that way.

Sally & David - Very true.  And yes, short sales do offer much needed relief.

Tni,   The post was changed from public to members only, but was done early on, as soon as comments were going some place that the post was not directed at.  My post was posted on the 3rd and changed to members only on 4th.  It would have been members only when your post was written...

Tni- so how you would like if the government "forced" you into commission reductions because people are in need of them.  If the bank loaned someone 100,000 at X% interest that is what should be paid back.  As for loan officers who committed fraud they should be prosecuted. But little or none of them were bank fraud without knowing, willing participants in the buyers.

And I can only say, thank goodness my congressman did NOT vote for any of the bailouts, or I could never vote for him again.  My stupid Senators on the other hand, well, I'll see if I can't help replace those idiots.

Hey Tni- Great post & what a fire storm you started with this hot topic! 

It's scary to see some of the comments from people who still don't truly understand what took place and who's to blame. For anyone that still doesn't understand how this all fell apart, I suggest that they watch the documentary "House of Cards". It aired several years ago, and explains how the Wall Street "gurus" packed loans together & sold them as "A" paper, when they were actually riddled with sub prime, neg am garbage, and the ratings companies went right along with them. This is what started the meltdown, not people that couldn't afford their mortgages, or wanted a free ride.

Lest ye be judged people : ) I'm just sayin'...

Have a great week Tni!

Gina Lemos

Hi Tni

I agree with your analysis, and have long said that this mess is far from temporary. The impact has left tourist areas and subordinate communities surrounding them beleaguered.   What we are seeing in the aftermath of this event, is the re-emergence of cash buyers into the housing market. Many of whom are investing now for long term holdings (rather than quick flips also popular several years ago when the market artifiscially escalated.)    It is the clients such as the one you describe who still teeter precariously in the balance that are most affected and have little recourse.

Hi Judi - All I can say is that when I read and checked the post it was public.  It is very difficult to change a post to member's only once it is out there as public -- I guess now you know that.  I was surprised when I received your email about it being member's only wondering how I missed that.  But I didn't -- I did check. 

The issue is controversial so I can understand that you now want to jump out of the discussion.  However, the post was public at one time and when I viewed it that is how it came up.  And since it was the comments received that inspired you to switch it to member's only, I really don't understand the issue anyway.  You can always delete comments on your own post.  And you published your opinion and my post is about your opinion.  Had I known the blog had been switched into Member's Only I would not have honored your request to remove the link -- I don't think that is a fair request.   I do respect the Member's Only thing but you can't have it both ways.

Hi Tammy - Not many people like being forced into doing anything whether it be by the government or large  corporations or even an Homeowner's Association -- LOL.   From a short sale agents perspective, short sales with government involvement (Freddie, Fannie, HAFA) tend to go smoother because the lenders are forced to refrain from interfering with my listing contract.  On files without government involvement, I can spend hours and hours trying to protect my commission, because big banks rightly know that they have more power than an individual real estate broker.

Also, there is a concept in the law whereby if a contract is obtained through fraudulent means --  well that contract can be voided.  Many of these contracts were obtained through fraudulent means.  The introduction of a huge number of straw buyers who did not have the income or ability to pay back any portion of the loans they were given was fraud on the consumers who could afford (and did pay) those prices.  It is my contention that many/most of those straw buyers have been washed out of the market, and now is the time (in fact we are overdue) to provide real relief to underwater homeowners who were defrauded in this mess.

We agree that taxpayer bailout of the banks was not a good thing.  But I think the bailouts biggest flaw is that it did not exact any promises from the financial sector in exchange for playing hero.  There was no bang for our collective buck.   Pressure matters.  The market already pronounced its verdict on these practices and these folks should be out of business.  Government saved them.  I don't agree with that, but I don't have a problem with government making a similar effort to save individual homeowners by now putting pressure on the banks.  This could also be done through large lawsuits but I think that is an ineffective way to deal with it since the problem is so large and widespread.

Gina - It is scary to see.  And I suppose I can see people hanging on to those views in states where people are $20,000 underwater.  But in CA, I am routinely dealing with people who make average incomes and are $200,000 underwater.  The amount of fraud that was introduced in the market was unreal.  Although I do not in anyway throw out personal responsibility -- the issues presented also have legal implications.  I'm just watching the announcement on the $26 billion dollar settlement for (part of) the foreclosure fraud.  Some folks just don't get it.  They really don't understand the degree to which the industry was misused and the damage that it caused. 

Allison - I agree.  the ability to hold out and not have to make any decisions right now is a benefit.  Or to have to distress sale quickly just because you had a rash of foreclosures in your neighborhood.  This crisis in many ways is about how long people can or are willing to hold out.  There will be legal remedies, but who knows who will be left standing to benefit. 

Great post, you nailed it.  AZ like CA has been really hard hit, especially the newer subdivisions in the East and West valley area of Maricopa County.  It will be many, many years before any real recovery takes place here I am afraid.

This situation are massive throughout the country and government are offering something that only qualified homeowners can acquire. Your client who lost a job, in my opinion, should have qualified for any government assitance as she is a good payer and it is just unfortunate that she lost her job. Santa Maria Short Sale Agents are getting this issue and i know you are helping this clients overcome this difficult times in their life.