Did any of you see the guy on 60 minutes on Sunday (I think) that was walking away from his house because it dropped about 43% in value. He could afford the payments, but his rationale was "I'll just leave this house/mortgage, rent a house for cheaper for a few years, and buy a bigger house." Am I the only one that is completely fucking disgusted by this piece of shit? The statistic that was cited was something like 1 million Americans are walking away from mortgages they CAN afford but don't WANT to pay.
The amount of entitlement and lack of character was pretty fucking nauseating. This guy went to his lender to try to get his principal amount reduced, essentially asking the bank to GIVE him money. The funny thing is, banks ARE doing this to people who cannot afford to stay in the house at the current mortgage terms. Its a win-win for the homeowner and lender. Homeowner keeps his house, lender re-works the mortgage so he doesn't have to deal with expensive foreclosure and trying to sell this house in such a shitty housing market. This fucking cock rag was asked "don't you feel any guilt?" and his response was "No. Not at all. Not after dealing with my lender." So your lender refused to GIVE you a fucking handout that you don't need and that makes them some ugly corrupt despicable corporate monster?
What a complete fucking piece of shit. I blame politicians. Its these pieces of shit that pander to the worthless public and tell them how innocent they are and how they've been exploited by greedy corporations. Thats why these people have no sense of right and wrong and no moral compass when it comes to things like this. I assure you if a group of friends had pooled money together and loaned it to this jizz mopper to buy that house, he wouldn't go tell them to eff off cuz he made a bad deal... he'd bear the consequences of his decisions instead of trying to get someone else to own his poor decision. And its not because of perception, because hes obviously not ashamed of what he's doing if he's going on national TV and talking about it. If the value of the house sky rocketed, was he going to pay the bank principal above and beyond what he owed? No fucking way. In fact, he would have thought "wow, I'm so fucking smart." and taken out a second mortgage on his current house and bought another fucking house... because if he loses money, who fucking cares, its not his money.
You're a grown fucking man. You made a decision. It ended up not being a good decision. Well you made a commitment and be a man of your word. That journalist was completely fucking soft too. I would have asked him why anyone should trust him at all and if he's going to teach his kid to only have integrity or his he going to teach him to be a gutless piece of shit like him and walk away from his obligations and commitments when it works in his favor.
The American people are NOT bailing out Wall Street. They are bailing out maggots like this.
While i didnt see the 60 min report, i've read a few articles regarding this. While i dont agree with people doing this, i can see their point. the only difference between this guy and someone else who made a "bad decision" is he can afford to make his payments and others cant...why should it only be the ones who cant be the ones getting all the help?
Because the banks are not a welfare institution. They are doing this as a last resort to salvage whatever value they can. As I said above, its a win-win for both parties. They are doing it for their OWN purposes, not to help people... nor are they obligated to.
This guy is not in that boat. He's not losing his house. He made a bad decision, tough shit. Thats what being a big boy is all about. This guy is clearly a fucking idiot as demonstrated by "...its almost like its the 'IN' thing to do..."
Your example above... criminals are in jail getting a roof over their head and 3 meals a day... so is it fair for a homeless man to break into your house every night and sleep in your guest room and eat food out of your pantry? Why should it only be the bad ones getting the free ride?
nicely put. and i do agree with you completely on this issue. I think the people who have the "what about me" mentality just need to man up and deal with the cards that have been dealt.
Marcus,
Congratulations. You just made the perfect argument against TARP and the Wall Street Bailout.
Your synthetic CDO is underwater by 90% and now you just want to walk away? The credit default swap you signed in the name of the bank blew up and now you can't pay? Sure. We'll cover that for you.
I'm by no means excusing the despicable behavior of the homeowner you mentioned. It makes me sick too. But not as sick as the bailout makes me.
60 minutes had a previous segment just over a year ago. This bassethound in Florida was a physical therapist, lied about her income to get 6 different mortgages for investment properties and decided to bolt. Im with you 200%. Nobody is talking about Main Street and their champagne taste with ginger ale pockets. Your debt should be your debt. I don't care if you're still paying your mortgage at 90; waltzing away from your responsibilities shouldn't even be legal. When parents don't pay for their kids their cars get booted and deductions are adjusted to their income. It should be the same with debt.
We should go medieval and bring back debtors prisons! I work in mortgages...have been doing it for 9 yrs. We did our share of NINA/NIVA type loans. and more often than not, the borrowers knew exactly what they were doing. At one point, we were doing 0 down investment properties on a NINA doc type...and people who knew they could never qualify for a loan specifically asked for this type of a loan.
The most infuriating part of that report was near the end when the ex-homeowner was asked if he considered the fact that trends like this could send the country into further economic crisis. To which he replied: "I'll let the professionals handle that."
I wish there was a way we could brand these people, because I for one, would never want this man working for me. Here's hoping the university he does auditing for gave him the boot Monday morning.
Give me a break. You're saying that if you had a mortgage for 300k in principal, but your property is only worth 200k now, that you wouldn't walk away? Anyone who decides to keep paying that mortgage is plain dumb. You think this guy planned this in advance? Like he said, gosh I really hope that home prices go down 50% in the next year.
And no, the guy doesn't get away scotch free. His credit's going to be shot, that will stay with him. He weighed the benefits against the costs, and it made sense for him. I would've done the exact same thing.
and everyone who walks away just perpetuats the problem. of course no one planned on their home prices plummeting. he, just like a ton of homeowners in the last few yrs, jumped on the whole "home values will keep going up and up and i will be a realestate millionnaire" band wagon and when things turned sour, he's bailing.
It's a pure cost-benefit assessment. I'm less angry at the behaviour than I am at the system that creates these incentives.
Personally my issue is this:
1- This pole smoker is acting as if he's on some fucking moral high ground... "...after having to deal with the lender I feel no guilt doing this..."
2- You made a fucking decision. You bought something for X dollars, and now you're trying to go back on that. My above example stands, if this douche bag made out like a bandit on this house... was he going to repay his lender above and beyond the principal he owed? Absolutely not. So if he's benefactor to the upside, than he should take the brunt of the consequences on the downside.
This is becoming all to common in America. Its just this kind of entitlement and "what about me" that is causing these types of problems. They are fucking crooks.
Edmundo, bankers that got their ass handed to them by CDO's did what many other Americans did, they got in over their heads. There is something to be said for this too and I'm not making light of it, but its beyond the scope of what I'm talking about. They played a leading role in this crisis. This is a different issue. These people are fucking crooks. This fucktard's situation is the equivalent of Goldman Sachs writing CDS protection on bonds -- as they are in the business of doing -- and when the bond defaults, they decide that "well we're just not going to pay; not because we can't but because we don't want to. When we wrote protection on this issuance, we didn't think it was going to default, we thought CDS spreads would narrow further, and now that the market has moved against us, we'll just won't honor our commitment."
You know I agree with you, bro. It is an increasingly pervasive problem in the US. Until the country is willing to swallow some bitter medicine and start taking some personal responsibility, things are only going to get worse.
Would it not be better to fix the system by aligning incentives (as much as possible) rather than hope and wait for America to get responsible? Easier said than done, I know, but ultimately incentives matter.
Here's the video, by the way:
Watch CBS News Videos Online
"So if he's benefactor to the upside, then he should take the brunt of the consequences on the downside."
This has been lost on both Wall St. and Main St., and it's a shame.
Yeah, I hadn't seen the video until I just posted it. I laughed out loud when they pointed out that JP Morgan did this very thing on 5 office buildings. And then there's the whole Stuyvesant mess. Another billionaire walkaway. Hard to fault an older couple who paid $400,000 for a place now worth $85,000 for walking away when Jamie Dimon didn't bat an eye at it.
Sorry guys. I meant Morgan Stanley and John Mack.
Just trying to keep things accurate.
The difference IMO is that these corporations purchased these properties for business reasons. They agreed to pay $5.4 billion and due to recent developments StuyTown can no longer sustain this mortgage. It would be the equivalent of this 60 minutes guy getting laid off or getting a significant salary reduction resulting in cash flows which were insufficient to sustain his mortgage. That's not whats happening here.
On X date he agreed to pay Y dollars for his home. Tichman Speyers didn't walk away from StuyTown because the price they paid 4 or 5 years ago paid is waaay above what today's market would support, they walked away because it would have ended up costing them MORE than the price they agreed to pay for it. The cash flows StuyTown generated in light of the housing crisis were not sufficient to support its the complex's financial obligations. They would have had to pump more money into it (obviously there are debt/equity issues here, but essentially this is the reason they walked away). Its a bad money after good decision. This was NOT the case for the douche on 60 minutes.
I have been reading these threads for over two years now, but finally got riled up enough to make a comment. Based on your argument, don't you think you are comparing the two situations unfairly?
Sounds like you are using double standards to compare the two. Why should the homeowner have to pump more money into a bad investment than any corporate buyer?
If Tichman wanted to, couldn't he afford to support his Stuy investment by supplementing (from outside sources) the insufficient rent cash flow that the property generates? Essentially, that would be pumping in more equity into an investment that is so far underwater that he would just be throwing away money.
The problem is that stuy does not generate enough cash on a standalone basis to support the debt service on the investment.
If the homeowner rented the house out, it would probably not generate enough cash on a standalone basis to support the mortgage. By him continuing to pay the mortgage he is basically doing two things - i) paying market rent for the house as the renter (to himself as the owner), and ii) supplementing the shortfall of the market rent with additional equity into an underwater investment (as the owner).
If that shortfall gets larger and larger so that the incremental contribution (between what fair rent is and what his mortgage payment is) gets too large, then continuing to pay the mortgage is not worth the call option on the property anymore (or the guys credit score).
How is that any different from a corporate buyer walking away? If you dont expect tichman, or any other sponsor to inject more equity into bad investments to honor their purchase price, then saying a person should do that is hypocritical.
I can't accept this argument. This man's walking away from his house may not be good for the economy, but that does not make him a "fucking cock rag." He made a rational choice, given the incentives in front of him; arguing he should have done otherwise is a rejection of capitalism; if everyone makes suboptimal choices because you think it will make them better people, do you imagine that will be better for the economy? This is, in fact, the exact equivalent of StuyTown - the implicit rental payments plus capital appreciation from the property no longer equalled what he had promised to pay. He certainly could have paid, but was under no obligation to do so. If you want to eliminate misaligned incentives, eliminate non-recourse financing on mortgages; don't cast moral judgements.
Drexealum, he borrowed money from someone to buy something. That something is no longer worth what he thought it was, so he has the right to not pay that person back?
If your brother asks to borrow 20 grand from you to go to culinary school thinking it will get him a job in a 5-star restaurant, goes to culinary school and decides the education is not as valuable as he thought it was... he has the right to refuse to pay you what he BORROWED from you?
There is a difference between this guy and StuyTown. Each agreed to pay a price for an asset. Reality has dictated that Tishman Speyer now needs to pay more than they had agreed to pay in order to keep that asset. This is not what this guy is facing.
This guy isn't faced with the choice to put in more money than he initially deemed agreeable. He gave his word he would execute the terms of an agreement and he has since decided he will not do what he said he would. Not because his financial situation has changed. Not because he planned on spending a certain amount on a home and now he's faced with an expense well above what he agreed to. But because he sees an opportunity to take money from someone and he's there with his hand out saying "what about me? where's my hand out?" He's doing this so he can live a few months rent free, then live for a few years for a lower cost than he's currently paying and buy a BIGGER house (that he likely will do the same thing with if real estate plunges shortly thereafter)... i.e. greed.
What would happen if this is what people did every time they got into an asset class at the top of the market? If everyone who bought X company's stock DK'ed the trades because the stock nosedived?
Banks have historically assessed the property's likelihood of retaining its value, the borrowers ability to pay the mortgage, foreclosure costs, prevailing market rates, etc... when pricing a mortgage. Now they will have to factor in this component: borrower's willingness (not ability) to pay what they promised they would pay... so in a word its risks associated with truthfulness/honesty/integrity they will price into loans. Which will increase borrowing costs. There's no shortage of people pointing their fingers at Wall Street.
I did not say his not repaying was right. I simply said it was rational, and said the problem is not his being a bad person, but mortgages being bad contracts. This was, presumably, a non-recourse loan, and that is the problem; if someone wants to abandon their house, they should have to go through bankruptcy, not simply walk away.
To build out your analogy, if you buy a stock from someone, and they throw on a put option for free, are you going to refuse to exercise it because it's be "morally" wrong?
Legally, yes, he has that right. Why should he throw good money after bad? It sucks for the depositers whose money was used to borrow the house but the bank made the loan. Now you're arguing that the bank should be made whole, even though this guy won't be? Why? It isn't like this guy is getting away with anything - he's losing all of his investment and taking a huge hit to his credit score.
The people who made him the loan- and securitized it- probably had the same attitude.
There ought to be an attitude about stewardship and responsibility- and I'm willing to say that that guy's attitude is a shame. I can't go any further than that, because I- and everyone else I've worked with- struggled to say anything more to people who seemed to be engaging in the same behavior.
I would like to see the following questions on a mortgage, credit card, checking account, or savings account application going forward, however:
"Have you EVER defaulted on a mortgage while clearly having the income and financial resources to pay it?"
"Have you EVER lent money on behalf of a bank or external financial entity that you knew (or should have known) could not be repaid?"
The guy made a business decision. Emotions do not belong in business. Why should the homeowner be bound by ethics when businesses routinely walk away or renegotiate.
To the person who said we should bring back debtors prison, I hope you were joking. Bankruptcy protection promotes and stimulates innovation and growth. Would you open a business or try and invent something if your entire life would be ruined if it failed? Going bankrupt and cleaning the slate so to speak is very American and very entrepreneurial.
That was me and I was being facetious. But at the same time, i think we need stiffer laws. While in theory BK protection indirectly can promote and stimulate innovation, it also promotes ppl to live way above their means, not save any money, etc...b/c if the bills get too high, it gives them an out. And with respect to your example of opening a business/inventing something...you cant just enjoy the potential upside and not have the option with dealing with the down side. I think it has to go both ways.
Back in 1980, there were a lot fewer bankruptcies. Part of that had to do with the fact that a credit card was really hard to get; part of that also had to do with the fact that paying cash for something was a sign of responsibility and prestige rather than redneck behavior. In fact, bankruptcy filings have quadrupled since 1980:
http://www.bankruptcyaction.com/USbankstats.htm
The problem is that banks are dumb enough to lend and consumers are dumb enough to borrow. Meanwhile, everyone makes money- at least in the short term on paper.
Correct me if I'm wrong here but if you stop paying your mortgage, wouldn't you lose the house?
Yes (1) - the point is that your house is all you will lose, and they can not go after your other assets.
(1) At least until 2009: see http://www.philadelphiafed.org/bank-resources/publications/consumer-com… and http://ftalphaville.ft.com/blog/2009/10/28/80011/more-than-you-probably…
The majority of personal bankruptcy is not from overspending, but from medical expenses.
http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States
http://www.cbsnews.com/stories/2009/06/05/earlyshow/health/main5064981…
The study was done by the American Journal of Medicine.
To say individuals who go through personal bankruptcy get all the upside without risking downside is to ignore the substantial side effects of having credit ruined, negative stigma, fees and costs.
Listen, you make your bed you have to lie in it. I am not advocating shirking a persons responsibilities. All I am saying is for the first time you have individuals acting like businesses. If banks had ethics, personal responsibility, morals, whatever, they would of never let the home market get so over heater. They were driven by greed, plain and simple. Is this wrong? No, of course not, but when you participate in running the market up and a guy goes out and buys a house at the height of the market and then all of a sudden that house is worth half when he paid for I can understand him just walking away. We are not talking about walking out on a dinner bill.
If your lender screwed you and you walk away from the house, I understand.
If you are having trouble providing for your family and paying your mortgage, I understand.
If you entered into a legitimate mortgage, however, and you and your lender understood it was a loan that you needed to repay no matter what regardless of whether you live in a non-recourse state, and you have $500K in the bank but are defaulting on a mortgage to save $100K, I've got a problem with that.
Banks should just be able to go after assets and garnish wages. Plain and simple. A great example is if you knock some bitty up, then just say "Oh, I'm done with this" she'll be like "Oh, hell no" and sue your ass for child support.
Oh, and their credit should be fucked beyond belief, it should be worse than bankruptcy.
Even though such assets weren't part of the security package of the loan?
Yes. They have an obligation to pay, and if they don't but have the means to do so, the organization that lent the money should have some recourse. You better believe that if a trade goes against you, and you're just like, "Nah, I could pay you for that swap that I entered into the wrong side of, but I'm just not gonna pay on that one," the bank would go after what its owed.
That way, those who really can't pay can have their house foreclosed on, but it will prevent dickheads like that guy from strategic foreclosures.
Also, wouldn't they technically have a gain, and if so, is it taxable?
Certain states (Cali comes to mind) don't allow this. Others do. Walking away from a home isn't a universal process. For other consumer debt they can garnish wages, freeze accounts, etc.
One article shows a guy who walks away from his house and can afford it and now everyone is a scumbag. I am sure he is the exception to the rule, the majority of people walking away from homes simply cannot afford this. Making home ownership essentially Russian roulette is a great way to discourage people from taking the chance at owning a home. I am sure that would be just great for the economy.
If credit is tighter and down payments are raised back to levels where they used to be, it won't be a game of Russian roulette where you're making a significant gamble on the price of your house because a significant amount of the value of the house is payed off at the beginning (i.e. lowering the duration of the payment of the value of the house).
And this kind of logic is what got us into the problem in the first place. It seems that you're kind of hinting that people are owed the chance to own a home, when in fact, a mortgage is a huge decision and people should have to think about it long and hard whether or not this is a sound investment for you.
They are individuals maximizing their utility functions. It's a bad thing on a macro level, absolutely... but this just goes to show that markets aren't efficient. Individual utility maximization does not lead to a market optimum equilibrium.
It sucks, but I'm not surprised.
I did not say people are owed anything. People do not know when a market has peaked, some people are unsophisticated, etc. I absolutely agree with you that credit standards should be tighter, down payments should be 20%, work history should be validated and so forth.
Low lending standards bring with it borrowers who will do shit like this. Banks are not stupid and knew this. You reap what you sow.
Well, if banks can't go after assets, they should just go in with the Gotti family and purchase a little "insurance" on the assets.
Or we could just send the people who strategically default to Afghanistan or Iraq. And when / if they make it back, they can even have their credit restored!
I see zero problem in what he did.
"Big business" - banks, corporations, whatever have shown numerous times that they can and will act according to the letter of the law but not the spirit, nor will they try to be moral.
If he can contractually walk away,and pays the appropriate fines and penalties, I have zero problem with what he's doing. The "market justification" can be that his premium over risk-free represents the likelihood that he will pay i.e. some combination of his income and the trend in housing prices in that area. The bank made a bad bet, it lost.
This guy would be a great trader; he knows how to take losses and walk away.
Bingo
Guys, guys, ... a few words for you:
Mortgage Contract Security Interest Event of Default Enforcement Remedies Non-Recourse
Translation: Banker: "If you don't pay me, I get to have the house." Borrower: "OK."
It's all in the contract. It's all legal. Contracts exist for a reason. A contract is an exchange of promises with a specific remedy for breach. Should we set the precedent that contracts shouldn't be followed? Throw contract law out the window?? (And guess who drafted the mortgage? Of course, the bank did...)
And the bank takes underwriting risk on the house value just as the homeowner does. There's a reason that TRADITIONALLY, banks only lent 70-80% LTV. It's called asset coverage cushion. 100%+ LTV against an asset bubble??? Wah, wah... cry me a river. They were dumb too.
Don't hate the player hate the game.
I don't know why people are so upset at these individuals. It's a completely logical and rational decision. If my house was 100k+ underwater, I'd consider walking away too. You would have to be a moron not to do so.
Yes they signed a contract but under their contract if they don't pay the mortgage they lose the house. It's not like all these people are walking away scot-free. Their credit will be ruined for 5-10 years, not to mention they will be losing their down payment (assuming they had one) and their previous mortgage investment. While consumers may have lied and/or put no money down on their loan applications, the duty is on the bank to due their due diligence and not offer such ridiculous loan packages. I do not feel sympathy for lenders that were greedily making some of the dumbest lending decisions in history just so they could make a fortune in fees.
Since when did everyone on this board get so ethical.
Read a great academic paper a few months ago about valuing the put that the borrower effectively has on their house/mortgage (ie - their option to walk away). I'm all for anything that makes borrowing to buy a home more arduous - props to this guy for waking up the lending world.
The guy signed a contract with a 'walk-away' option and he is a fucking maggot? What is wrong with you, so a company going bust turning control to the debt-holders is also a cock rag? Both parties agreed to the deal terms and now they need to live with the consequences. BOTH OF THEM - this guy will lose his credibility and he probably is well aware of it.
Agreed. It's kind of douchey to walk away but someone else will buy the house closer to what it's really worth. This is how economies and markets work, through the voluntary exchanges of maggots and cock rags trying to allocate their resources.
It's kind of like a callable bond. When a company realizes it doesn't need to pay such a high cost for borrowing, it calls in the bonds and gets a better "price" or interest rate.
A house is an investment. Who here wants to pay $100 for Enron shares? Any takers?
I see absolutely zero wrong with what this guy did. The bank made a shitty deal and have no one to blame but themselves. To those saying the bank should be able to claim his other assets - nonsense. If they wanted to have security over his other assets they should have put it in the damn contract. Or altenatively they could've kept LTV at prudent levels.
Surely the smartest thing would be to close on another house first (taking out a new mortgage with his still-decent credit) and then default on the other house? I have heard of this happening on a relatively widespread scale on the Gold Coast in Australia. Not sure if it would be possible in the States.
I don't know how you don't see anything wrong with this?? I fall in the line of thought that its a shitty situation for this guy, but fuking deal with it and man up! How did the bank make a shitty deal? They made a loan based on the market value of a property at a certain point in time and actually performed good due diligence as this guy does show to be credit worthy in his "ableness" to repay although not necessarily "willingness". Although the behavior does make me angry, my biggest problem is the flip side of the scenario. Had housing prices appreciated 150%, you would not here shit from this guy, but its just when shit hits the fan that all this ignorant common folk think that the government and other people OWE them something.
This is brings me to why I'm opposed to liberal movements and initiatives. The majority of them strip away personal accountability! Take away accountability and your left with a society filled with entitled cowards who fail to perceive how their own actions effect the greater community/economic system.
SHHH!!!! You just described Wall Street....
My view is that there was an assumption by the bank- recourse mortgage or not- that the mortgage doesn't have a built-in put if you are doing just fine financially. Otherwise, a foreclosure wouldn't hurt your credit score in non-recourse states any more than exercising a put option would hurt your credit score.
The point of the non-recourse mortgage laws is to keep lenders from screwing borrowers or letting a bad decision on a mortgage force you into BK.
I think that deep down, everyone knows what's right and wrong when it comes to defaulting on a mortgage. If the mortgage isn't moving you into financial ruin and your lender didn't screw you, you shouldn't walk away from the mortgage.
To switch gears slightly I would contend that if mortgage lending wasn't non-recourse the sub-prime crisis would never have happened (at least not to anywhere near the degree it did). That Mexican gardener on $500 p/w ain't gonna want a mortgage on a $1m home if he knows the bank can put him into bankruptcy if he doesn't pay.
FYI its in the lender's best interest to seek terms which permit recourse in the event of default. It is the state government which sets these limits... i.e. politicians.
On a side note, its predominately white Americans defaulting on their mortgages as they are the ones mindlessly keeping up with the joneses and trying to signal to their social circles how successful they are.
And if banks aren't in desperate need of cash, they SHOULDN'T foreclose on defaulting borrowers. But they do.
The bank didn't know you were going to stop paying the mortgage simply because the house dropped in value. It (mistakenly) believed that your good name, good credit, and sense of responsibility meant that you'd keep paying the loan if you had the ability to do so.
If a non-recourse mortgage should be treated as a put, mortgage rates would have to be higher.
Another heartwarming story:
http://www.wbaltv.com/news/23520317/detail.html
[quote=Edmundo Braverman]Another heartwarming story:
http://www.wbaltv.com/news/23520317/detail.html[/quote]
Fuckin deadbeats.
You mean like Goldman and SocGen blowing up AIG just because they could?
After everything we've been through, I'm starting to become convinced that every bank needs a bunch of grandmas to wander around and give people dirty looks when they're about to do something unethical.
It is tough though if you don't make that much $$ and you keep dumping your $$ into an underwater mortgage. In the guys defense he did try to renegotiate his mortgage, as the market had changed. The bank was interested so he bolted.
I guess its similar to companies with distressed debt. It may be more beneficial to a company to default even if they could raise equity.
In conclusion, the guy was thinking rationally from an economic perspective. The problem is that he has no shame about his decision. This reminds me of the older generations who said that being on welfare was very shameful and embarrassing. Now its "acceptable".
The bank's were drunk off the ridiculous fees (generated by quantity) they were generating for making asinine loan structures. It's time for them to sober up.
I mean 0% down, no-proof income, negative am structures, teaser rates, etc. what did they think was gonna happen.
In some ways you can say they were "loaning to own". Sometimes you reap what you sow.
I agree that the "entitlement" mentality is totally off; but I can't blame people for wanting to stick it to their banks and lenders so that they can make a couple bucks, or in this case, buy a bigger house, because the banks, in general, did the same things just on macro scale. And what happened to them? They got their bail-outs. So, to be fair, there's a lot of blame that deserves to go around: from "maggots" like the guy in the video to the big-whigs at big banks.
I feel like I live in France more and more every day
yo man, the homeowner is not faced with the choice of either pumping in more money than he AGREED AND PROMISED to pay or losing his asset. Tishman is. Thats the difference.
2 years ago this fucktard agreed that $230K was a fair price for this house and he asked a bank to loan him the money so he could buy it. He agreed that a $1,800 monthyl mortgage payment for this house was a fair price. Now he decides that the market went against me so hes no longer going to honor that promise/commitment. The rental income is complete BS. Because he DIDN"T purchase this asset to be self-sustained on the cash flows it generates.
Your Tishman rebut doesn't make any sense. Tishman agreed to purchase StuyTown for X dollars. They are now forced to either inject more capital (i.e. pay more than they initially agreed to pay) or lose their asset. Are you suggesting that by bringing in an outside investor to inject the capital they are not forced to pay a difference price for the asset? In 2001 they pay $1B for 100%. Now they bring in someone who will inject $100M for 50% of the company.... after the transaction takes effect... they paid $1B for 50% of the company (i.e. at an implied valuation of $2B). So they're being forced to either lose their asset or pay more than they initially agreed to pay for the asset.
How is that in any way what this guy is facing? Bottom line: Tishman is forced to either pay more than they initially agreed or lose their asset. This guy is not only not faced with that type of ultimatum, but rather he is CHOOSING to lose his asset so he can pay LESS THAN he initially agreed to pay.
I am not too familiar with the Tishman deal. But if he wanted to put in the extra $100M himself, would he not retain 100% ownership?
And if he did put up $100M himself, would that not be used to pay down debt, essentially leaving his purchase price for the equity the same as when he purchased it at the peak?
You're missing the point. TIshman is faced with an ultimatum, invest more or lose your asset. Thats not the case for the homeowner. Equity invested by Tishman is what they agreed to pay, the debt is a liability of the asset.
It would be the equivalent of the bank going to this guy and saying you put 10% down on your home when it was worth $230K, the markets have turned and now its only worth $140K so your equity is underwater... you need to pay an additional $81K by X date order to bring this loan back within a range of a 10% equity cushion or lose your home. Thats a case where the guy can say... I agreed to pay $1800 for the next 30 years for this house. I didnt plan on paying 1800 for 2 years, then forking up an additional 80 grand and then continuing to pay 1800 for the remainder of the term. I don't have $80 grand, or I have it but I'd rather leave it in investments in my kid's college fund or my 401K, or I'd rather use it for that investment idea I had... etc.... I never agreed to pay 23K down and an additional 80K 2 years down the line. This isn't what you agreed to and isn't what I promised to do.
Did the bank screw him on anything? Did it screw other customers on anything? If the bank has chosen to behave perfectly fairly, you can't really come along and say that.
If I were that guy's bank, I would randomly exercise the 30-day rule on him when he needed money REALLY badly to demonstrate that screwing people on the technicalities isn't playing nice. When he said it wasn't fair, I'd be able to say, "That's what YOU think", too- and then give my evil banker laugh. You're right- screwing people on the technicalities is acting like a petulant teenage girl. I'd imagine that if she bought a house and it lost value, she would also default on the mortgage. But what's good for the goose is good for the gander. If you screw me, you have no right to complain when I screw you using the same set of ethics you used to justify screwing me.I really think it is easy to condemn someone from walking away from a horrible investment until the coin is flipped. Real easy to blame this guy for whats wrong in America when the case could easily be made that the banks caused this mess and now want to shame people into footing the bill for it.
Pretty funny how this is a board made up of supposedly super capitalists and now we are condemning a guy who made a logical decision.
These logical decisions is why lawyers are so loathed. Because everyone is trying to find loopholes and ways to fuck everyone else. So they hire laywers to find legal loopholes and ways to fuck the other guy. And that guy hires lawyers to create a contract that will protect him from getting fucked.
People end up perceiving all the count-my-fingers-after-I-shake-your-hand shadiness coming from the lawyers.
There' s no subjectivity to integrity. You either have it or you don't.
I'm sure most of the people that agree with me that it's wrong to walk away from a mortgage you can afford to repay will also agree that it was wrong for Exxon to walk away from the Valdez and that the "Universal Default" and double-cycle billing clauses in credit card agreements are just as bad.
Wouldn't your logic make it ok to haplessly have kids out of your double wide trailer to increase your welfare income? It should be a simple formula right? Every time you have 4 kids you need an additional trailer extension, if per child welfare x 4 kids > PV(addition trailer + food until 18) then have another kid? You can have the 15+ year old kids help out in taking care of the younger ones. Depending on what state you live in, you could get some of them after school jobs. Not a bad setup. If they're 18+ and still sticking around, make them pay rent. Maybe sell their sperm to sperm banks. Sell the girls eggs to fertility clinics. Whats the going rate of human hair these days?
Or how about not getting medical insurance because vital treatment cant be refused in a hospital?
How about poking holes in your boyfriend's condoms to sink your hooks into him? You're a community college drop out, he's a college graduate. You'll likely have a very hard time getting him to stick around for much longer, just get knocked up and you've got him for good.
Or your homeless, so you do something to go to jail. You have no skills, no education, no discipline or dependability. You can't hold a job to save your life. At best your various 3 week stints at menial jobs will yield X dollars in income, less food, shelter and cost of finding/keeping jobs, your at a net loss. So just take responsibility for an unsolved crime, or if you're capable do it yourself, and spend the next 10-20 years in prison where you get a free ride.
Integrity is in the eye of the beholder and it also wont pay for kids to go to college or the doctors. You buy at the height of a bubble and then your house is worth a 1/3 of the value. Might never recoup. Does this guy get a gold star after working his whole life to pay off something that isne't going to be worth anything? People always hate lawyers until they want to sue or need help.
Bank made a risky bet, it gets to keep the down payment and gets the house back. Dude loses his down payment and has his credit ruined. Seems like a fair trade.
What the hell do banks think will happen when you do not require people to put a down payment or have work history. Its like running around sleeping with whores and then crying how it was the girls fault for giving you herpes. Get real. Don't lend to scumbags or people without enough cash to put a 20% down payment and you will be fine.
I will happily sign on and call this guy a scumbag if the bank who lent him the money is also a scumbag. Where is the responsibility of the lender to perform due diligence. You need some skin in the game or else things like this are going to happen.
Life is real short and sometimes people make mistakes no matter how much research you do. He made a bad decision and now he will pay for it. Walking away from a home is not a laughing matter or a simple affair either. I think this guys attitude makes him a scumbag as I said and felt the same thing as you do Marcus when I say a similar show about a guy who got rid of his house and kept his M3 BMW. That shit makes me sick. My comments and posts are directed to the people who are making a simple life decision, no frills.
Anthony, are you implying that your moral compass is subject to the repute and intent of your counterpart?
So its wrong to rape your mailman but its ok to rape another rapist?
Given what NY Post commenters are wont to say, it's fair to argue that this is a popular belief.
As for your hypotheticals above, I assume they were directed at me. I don't think it's "ok" to do any of those things - again, I don't think the moral issues involved in making a bank whole on its mortgage are the same as toying with human life for economic gain.
Marcus, I like your posts and generally agree with you, but I am done with this topic. Morals and ethics are different between people. Something can be wrong and still be ethical and visa versa. If a starving mother steals food from a store I think it is very different than someone who steals a plasma tv even though the act is still the same. You can call him a scumbag, people can condemn him, but the guy made the economically intelligent decision for him and his family.
Rape is wrong in all instances. I personally could careless if someone gets a taste of their own medicine. I see many shades of gray. Some people see black and white.
I may do the same, I've got work that actually needs to get done.
It is nice to have an intelligent debate on this forum every so often. But I think we've hit our quota until Rosh Hashanah 2011.
Who's toying? Raise them within the confines of the law. Thats the standard we live by, right?
Economic gain so long as its within the confines of the law.
Wait a minute, are you saying there are some sort of standards and values that should be adhered to regardless of whether the law permits otherwise and it yields an economic gain?
You really drank the kool-aid big guy.
"2 years ago this fucktard agreed that $230K was a fair price for this house and he asked a bank to loan him the money so he could buy it. He agreed that a $1,800 monthyl mortgage payment for this house was a fair price. Now he decides that the market went against me so hes no longer going to honor that promise/commitment."
This also assumes the bank believes that the price of the house is fair, and is believes that in the event of default, the bank would be willing to accept the house as collateral. What is not fair about that? It's the same rules of finance, debt-holders get first crack at the collateral/assets and equity holders are wiped out.
What's different in this situation?
"Tishman agreed to purchase StuyTown for X dollars. They are now forced to either inject more capital (i.e. pay more than they initially agreed to pay) or lose their asset."
The injection of capital is required because of the leverage they took on to purchase the property. Doesn't matter where they planned to get the cash flow from, whether it's rental income or from existing cash reserves. It's exactly the same action as the homeowner. Tishman wouldn't have been paying more than what they agreed to, e.g. $X debt at X% interest rate for X periods.
Just to clear up a popular misconception:
A friend of mine filed for bankruptcy about 5 years ago after racking up almost $100,000 in credit card bills from cash advances to play video poker (not online poker like PokerStars, but slot machine-type video poker). He had good credit before, and his credit score took about a 100-point hit from the bankruptcy. Basically means you go from a 750 credit score to a 650 credit score. And foreclosure doesn't drop your score as much as a bankruptcy.
In other words, a lot of people think the credit hit from a foreclosure is catastrophic and it is anything but. With responsible credit management post-foreclosure, somebody could probably qualify for a decent mortgage as soon as a year later.
homeowners aren't the only ones doing this
Illini - it's not a put. It would be a put if he got something back. It's a default.
Only in this case, it's not really a put, since exercising a put and cashing out your margin account shouldn't affect your credit.
Except the bank isn't making a margin call.
I don't think this is a particularly useful way of explaining the situation.
Remember that generally loans have a "promise to pay" clause. That is, in signing the mortgage, the borrower implicitly promised to pay the loan to the best of his ability. This clause does not have any legal ramifications, only moral ones
So on ethical principles, the guy should pay (he promised to).
On economic principles, he should walk away (its in his best financial interest).
This is simply a case of a guy picking economics over ethics. It makes him a jackass, nothing more, nothing less, and certainly nothing unique in this country.
Lots of the analogies are confusing the point by going past the bounds of legality. Killing your children to claim a life insurance payment is illegal; poking holes in a condom is (I believe, I'm not a lawyer), illegal; defaulting on your mortgage is not. I'm not saying we should have debtors' prison, but we should do away with non-recourse mortgages. The problem with doing so is that houses have been treated for so long as part of the American dream that they remain grossly overvalued, and forcing people to face forfeiture of other assets when they enter foreclosure will increase the real cost of a home, depressing the housing market, and generally screwing things up.
The problem with the bank example is that it is an infinitely repeated transaction, to put it in game theory terms; if the bank exercises their 30 day hold option, they gain the spread on interest for 30 days, but they lose that customer, and likely everyone else he tells about it. If this gentleman defaults on his mortgage, he may, at most, lose the ability to get another mortgage for seven years - Edmundo seems to indicate it won't even go that far.
As for the idea that he should do the "honourable" thing and repay it, I'm inclined to agree. Unfortunately, this is the result of making home purchases faceless transactions, in which a mortgage broker gets a fee for selling a contract to put in to a MBS. If this loan were from his local bank, and was held by his local bank, and he had to walk in to the grocery store every day and look the bank owner in the eye, do you really think he'd be so quick to default? Likely not; reputation is a powerful mechanism.
So, the way I see it, we made a normative judgement that owning a house is a good thing, rather than renting. We wrote non-recourse mortgage contract laws and created GSE's and MBS's to facilitate the flow of credit. We hired high school graduates on a commission basis to sell people on the American dream. Thus, we inflated a housing bubble, but in the process, we took human interaction out of the equation. Home loans are no longer something you get from the banker you've known for years; they became political favours, and then toys for banks. To, at the end of that process, blame the home-owner for reacting to the incentives set in front of him is, firstly, incorrect, or at the very least, incomplete. Secondly, doing so represents an explicit repudiation of basic economics and capitalism. If such is your intent, then by all means, do so, but please do not try to use rhetoric to obfuscate your point.
At dolores consectetur inventore rerum. Doloremque maxime quia culpa nihil possimus voluptates.
Ipsam rerum corporis iure minus ducimus consectetur. Vero ut dolor non sed aliquam accusamus atque.
Porro ut occaecati modi architecto. Ullam exercitationem quo aut beatae nam. Laboriosam aliquid ullam necessitatibus.
Officia aut eveniet asperiores quo quo provident beatae. Earum enim debitis omnis amet ut numquam ut. Officiis laboriosam ducimus dolorum rerum consequatur dicta sequi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Ut animi perferendis odit non autem dolor tenetur. Quaerat tenetur nihil nesciunt voluptatem voluptatum maiores.
Id facilis exercitationem ducimus quo omnis aut. Dolorem numquam cum voluptatum sit.
Ullam ex voluptatibus qui totam eius unde possimus. Corporis culpa adipisci quaerat quis officiis. Consequuntur dolorum tenetur ipsam accusantium architecto.
Esse perferendis ea soluta aut eaque commodi. Corrupti inventore consequuntur vel ut. Odio eveniet in delectus recusandae. Dicta et qui aut deserunt optio. Ex dolorem facilis dolores qui culpa consequuntur non.
Sed consequatur quibusdam recusandae iusto. Est repellat ab dolor alias. Aut sed fuga fuga quia velit.
Repudiandae cupiditate dicta modi libero. Laudantium dolores qui magnam unde ex.
Et praesentium neque molestiae enim quia. Omnis odit quibusdam tenetur ut ea adipisci. Ut ut laudantium ea deleniti fuga dolorem. Aut vel quas similique eligendi. Ratione in perspiciatis temporibus odio. Ut distinctio ut quo quia sint est impedit.
Placeat et enim natus nostrum esse rerum sunt. Occaecati veniam autem maiores id dolores. Accusamus voluptate temporibus sapiente ut mollitia laborum ut. Dolorem dolorum a sunt voluptas eos reprehenderit eaque. Explicabo eum ab hic et accusamus. Illo laudantium non et dolorem veritatis quis.
Quae ea quia placeat quod explicabo sint omnis. Eum unde nulla repellat blanditiis. Est id officia placeat in sapiente eveniet rerum. Sunt recusandae corrupti et tempore et.