Home Equity Loans: Borrowers Refuse To Pay Billions

nytimes.com:

During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

Read the whole story: nytimes.com

Comments

[angry expat]

01:00 PM on 08/15/2010

Don't pay the banks. Pull out your money and put it in credit unions. The US banking system is the world's most massive pyramid scheme.

[EinChicago]

10:56 AM on 08/15/2010

There is going to be a huge bubble in debt collecting in about 5 years when the economy has recovered and these folks have almost forgotten about these loans and moved on and have rebuilt their lives to the point that they now have something to lose (i.e., need to rebuild credit to get college loans for kids, etc) then ...BLAM... court summons appears for the balance of these loans ands bankruptcy looks a lot less viable.

This is just creating a massive sword of damocles for these folks that will hang by a thread for the next 6 years before falling.

[amaycatbaker]

01:49 PM on 08/15/2010

That isn't how debt collection or foreclosure works.

http://www.debtworkout.com/forefaq.html

Those are facts on foreclosure.

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf

The above in the fair debt collection practices act. Every collection agency has to abide by these rules, and if they don't there are things the consumer can do.

Lastly,

Bankruptcy law was changed in 2005, here is a good site to explain the changes.

http://www.nolo.com/legal-encyclopedia/article-30040.html

I've never heard of a collection bubble, yes collection goes up with recessions as a job opportunity, but there are always people in debt. Just a fact of life. I was a former collection agent, if I want to go back I have to know the law.

[EinChicago]

12:30 PM on 08/17/2010

And yet you apparently don't know the law. The majority of states allow the lender to seek recovery of the remainder for as much as seven years afterwards unless it is expressly waived in the forecloure documents. The vast majority of foreclosure documents expressly reserve the right to sue to recover any difference between the proceeds of any subsequent sale by the lender and the outstanding loan balance. It is a very dangerous and uneducated myth that foreclosure means total forgiveness of the debt.

[DebtNavigation]

01:19 PM on 08/17/2010

People out there are going to need help, no doubt.

I've provided some. You can read every other page of my book for free: http://www.scribd.com/doc/25443175/Debt-Hope-Down-and-Dirty-Survival-Strategies-Evaluation-Version-Complete

[who38]

11:26 AM on 08/14/2010

And Arizona folk compain that illegals cost the public too much money. What a state!

[Tiggy]

01:57 AM on 08/14/2010

Banks aren't lending, banks aren't refinancing, houses are underwater, no job to pay mortgage...only option for many...Walk away. What's else is a person to do?

[xfc619]

08:55 PM on 08/13/2010

Its the greediest telling the greedier to get the money back from the greedy!

[Main Street Blues]

10:58 AM on 08/13/2010

Gee...I really hope this doesn't hurt Wall Street and / or the Banks. After all, they were so gracious to help over-inflate the values of homes and offer zero down financing and then take all their millions and billions in bonuses. Does anyone know how screwed up this whole mess is? Washington has done nothing less than allow the Housing Criis to esculate to this point where it continues to drag down the entire economy. There was / there are effective measures that could have and should have been implemented to curtail this crisis...and yet today as we continue to spiral out of control ...we simply watch the American Dream shred apart. Where is the leadership, where is the plan. Sorry, Washington's gone fishing!

[flashblitzen]

11:29 AM on 08/13/2010

I'm not sure if you are begging for more government regulation and bureaucracy or trying to blame the pitfalls of free market capitalism on a political party you don't support. Can you clear this up for me?

[maninal]

06:17 AM on 08/14/2010

Just another example of the consequences of unregulated unbridled capitalism. The banks took a risk and lost. End of story.

[who38]

11:29 AM on 08/14/2010

The American Dream has turned into the American Nightmare because Wall Street and the Banks over-inflated the values of homes while the people borrowing the money thought that the bubble would never end and they could continue to re-fi forever. Doesn't seem to me that the attitude of the homeowners in this article is any different from that of Wall Street and the Banks.

[release the hounds]

12:28 PM on 08/16/2010

Banks and credit rating agencies colluded to perpetrate fraud. People legally walking away from those fraudulent mortgages is an outcome the banks should have anticipated and accounted for. When the mark realizes that he's been conned, it's pretty naive to think he'll hang around to continue getting fleeced.

[Adartist777]

10:18 AM on 08/13/2010

At this point, many people could care less about their credit scores. When the economy has taken everything from you, you are powerless to do anything. Even bankruptcy is expensive.

[Hank10303]

10:05 AM on 08/13/2010

I have to wonder.

If I loaned $10,000 to a neighbor that had a minimum wage salary and she defaulted my next step wold be to seek legal recourse. Do you think a judge to force her to repay the loan or chastise me for being stupid and force me to eat the loss?

In the true concept of capitalism if you make an investment and it goes south you suffer with that loss. When Bush signed the TARP bill and gave billions to the financial industry that was a get out of jail card. Now the sentence is they must do community service; either eat the losses or reduce the mortgages back to the levels they were before they kicked in the adjustable rates.

The fact is the only reason these mortgages were granted or approved was because they knew that the intention was to package them and sell them to some unknowing entity as secured investments. That seems to be a dereliction of duty during the approval process on the part of the lender. Add to that the zeal to implement the "adjustable rate" products into the market and its all one very profitable scam that fit within the loopholes of legality.

[From the Raft]

10:13 AM on 08/13/2010

True. There were multiple scams going on, scammers scamming scamers!

Fanned for the explanation.

[E4B32787]

09:01 PM on 08/13/2010

It could be the borrower that has the last laugh. It depends on whether the lender can come after the borrower for any deficiency between what is owed on the mortgaged and the proceeds from the foreclosure.
http://www.mortgagereliefformula.com/recourse/

If there is no recourse available to the lender, and the borrower is faced with years of payments without attaining any owner's equity, it may be the best move to walk, and let the property be foreclosed. Remember, at the onset of the transaction, it was strictly business for the lender, and it should be strictly business for the borrower.

If recourse is available, but a bankruptcy is viable to get rid of a deficiency, then I'd be considering that also. Of course, I wouldn't do a thing without consulting a lawyer.

But, the whole consideration is paying for years without anything to show for it, whereas, hopefully starting a new purchase from scratch, maybe paying into a mortgage would result in the accumulation of owner's equity.

[release the hounds]

12:13 PM on 08/16/2010

It's interesting to note that those finding fault with the rational business decision of walking away, are generally the most vocal champions of market forces and business in general.

[Jced]

09:50 AM on 08/13/2010

If you took out the loan and you can pay your payments...it's wrong not to. Deal with the devil is still a deal.

[Hank10303]

10:00 AM on 08/13/2010

I have to wonder though.

If I loaned $10,000 to a neighbor that had a minimum wage salary and she defaulted my next step wold be to seek legal recourse. Do you think a judge to force her to repay the loan (she shojuld never have been granted) or chastise me for being stupid and force me to eat the loss?

In the true concept of capitalism if you make an investment and it goes south you suffer with that loss. When Bush signed the TARP bill and gave billions to the financial industry that was a get out of jail card. Now the sentence is they must do community service; either eat the losses or reduce the mortgage payments back to the levels they were before they kicked in the adjustable rates.

[who38]

06:20 PM on 08/16/2010

I am sure that the judge would give you the right to lien or garnishee (sp) the neighbor's assets. At least you would get a judgment which you could then sell to a collection agency so you would get some money and your neighbor would be aggressively pursued for payment of the funds.

[IfIonlyknew]

10:53 AM on 08/13/2010

The deal says if i don't pay you take the house back, So they got what they wanted.

[who38]

06:22 PM on 08/16/2010

Remember Farm Relief in the 70s? Maybe you are too young. At any rate, many farms were foreclosed on and there was a big hew and cry from them. Ten years later, many of them had re-purchased their land at lower prices and have lived happyily ever after due to the government's continuing subsidizing of Big Farma.

[Mafdet]

09:31 AM on 08/13/2010

The consumer banks rapid fire ginned out loans for bigger and bigger amounts simply because Lloyd Blankfein and Jamie Dimon wanted them and were willing to pay for them. While the banks were creating loans that were basically just stuffing for bogus securities, and understood by all to be that, they they were sending a powerful signal to builders everywhere: The banks are loaning big money for big houses so you better build big houses and nothing else. The banks knew they were perpetuating this unhealthy dynamic.

The troubling thing here is that all the vacant houses sitting around losing value...and driving down the value of owned houses...really are intrinsically valuable. But they aren't scarce, so even though you can't build a new home for less, you can viurtually steal a house built just a couple years ago. If you're a builder now, you have to figure out how to build a new house for half what it normally costs to do so. THAT is a seriously bad dynamic in this economy, because it gives rise to substandard construction and homes that are NOT intriniscally valuale. So home equity loans issued on homes built in THIS environment are based on bogus values, just like the home equity loans issued on the homes whose value has been driven down by a saturated market.


The banks engineered this rock and hard place intentionally. Consumers should not be caught in this. Lewis, Pandit, Kovacevich, Blankfein, Dimon, Fuld and their ilk should.

[From the Raft]

10:19 AM on 08/13/2010

As a side note to your comment about the builder's present day cost, with the scarity of illegal labor in places like Arizona due to the crackdown, the labor cost to builders have in many cases doubled or tripled making it even more likely a new home will be a dud.

[IndyFem]

11:39 PM on 08/13/2010

They can build homes without illegal labor....they did it for years. They would pay a few dollars over minimum wage to carpenters..and many of these guys took classes at night to get their journeyman's license...then with that...they were paid more. The quality of work was much better than it is now and these workers actually were able to make decent lives for themselves and their families...it became a career. I know this for a fact. I was married to a guy that did this and many of our friends did the same.
My ex father-in-law started out as a carpenter and worked his way up to become the field supervisor for one of the largest department stores in the country...wearing slacks to work and no longer carrying tools. Those builders that replaced all of these workers with ILLEGALS so they could increase their profits...totally ruined what was a viable future for a lot of people.
They need to quit building McMansions and begin building regular homes and pay a decent wage and this field could open up once again

[simplify]

08:51 AM on 08/13/2010

To hell w/credit scores is what a lot of people are saying

[maninal]

06:21 AM on 08/14/2010

Credit scores are yet another bank scam to justify arbitrary interest rates

[Skeptical Patriot]

08:30 AM on 08/13/2010

There is a difference between unwillingness and inability. Home owners that are gaming the system having received hundreds of thousands of $ that they have used or wasted and still have the financial resources should not be able to walk away. Similarly, an inability to pay is remedied through bankruptcy. The truth north in this issue is that banks lent to freely to home owners more than willing to risk their life savings. In the USA today, 1/3 of all homes still have NO home mortgages. Not everyone made the same mistakes.

[MyResponsibility]

08:52 AM on 08/13/2010

Inability and unwillingness is a distinction without a difference. For somebody who lost their job, has no savings and can no longer afford their home, walking away is obvious. But even where somebody CAN pay, but can no longer justify paying $300K for a home that today is worth only $200K is a bad deal, walking away is not immoral, it's little different than short-selling a stock, except you need the banks approval to short sell THEIR asset, you don't need their permission to walk away.

Bankruptcy does not clean secured debt, it only clears unsecured debt. Car loans, mortgages, boats, collection of debt secured by property is delayed through BK's automatic stay until bankruptcy is discharged. In BK, the petitioner must file a "Statement of Intent" regarding these debts - they're going to keep it (in which case debtor will have to enter into a reaffirmation agreement with the creditor, and must be approved by the BK judge) or they're going to relinquish the property.

The reality is when somebody gets a loan to buy property, they don't own it; the bank does until the borrower makes the final payment. The borrower only gets the beneficial use and enjoyment of the fruits of the banks loan. The bank owns it, lets you use it (hmm, sounds like money, the government owns it all, but lets you keep a little bit of it).

[Skeptical Patriot]

11:25 AM on 08/13/2010

Your approach is exactly what is wrong with the country. The idea that people think that is a victim-less crime to simply walk away from obligations with no consequences is corrupting to both the economy and to the ethical foundations of relationships.

[who38]

11:42 AM on 08/14/2010

Maybe we did. Think how far ahead we might be in real dollar if we had over-extended ourselves? If all of your neighbors walk away, what will your neighborhood look like next year? Your home will be equally devalued and you will have none of the yachts, Porsches or trips to Paris that were enjoyed by those who left.

[nbb]

06:40 AM on 08/13/2010

Why would this appointment go to anyone except the best possible candidate? Doing otherwise smacks of the previous administration. I thought the George W. Bush way of doing things had been voted out decisively.

[MyResponsibility]

08:54 AM on 08/13/2010

Really, you thought that a Democrat wouldn't be political? Your post MUST have been a tongue-in-cheek comment.

[Seafarer61]

06:37 AM on 08/13/2010

So what do we have here...a contest to see who can be more irresponsible?

Thanks Barney and friends for the Pandora's Box you opened. It serves you right when you chest-thump that home ownership is a right, not a privilege.

[maninal]

06:45 AM on 08/14/2010

Bush put forward the "Ownership Society"... he term appears to have been used originally by President Bush (for example in a speech February 20, 2003 in Kennesaw, Georgia) as a phrase to rally support for his tax-cut proposals (Pittsburgh Post - Gazette, Bush OKs Funding Bill for Fiscal '03, Feb 21, 2003 Scott Lindlaw). From 2004 Bush supporters described the ownership society in much broader and more ambitious terms, including specific policy proposals concerning medicine, education and savings.

[jcaunter]

03:19 AM on 08/13/2010

The borrowers can not and should not ever pay back the bubble loans they got--they borrowers did not benefit from this so much as the lenders are being justifiably punished for abandoning their due diligence responsibilities. So teach those lenders a lesson and refuse to pay back your loans. It is the correct and more action to take, despite the screechings of the amoral (for themselves anyway) financial elite that were featured in this article.

[MyResponsibility]

09:02 AM on 08/13/2010

I agree that the borrower can decide to not pay it back. But their home was used as collateral. They cannot walk away from the debt AND keep their property.

Your assertion that borrowers did not benefit from an equity loan is completely wrong. What do you think a borrower did with the proceeds of such a loan? My neighbors likely bought that spankin' new BMW 7 series or that Mercedes 560, or that ski boat, or camper, for cash. Or they paid for their kids college, or they paid for that great trip to Rome. Or they paid off credit card debt. The ones who got nothing in return are the ones who used it to put a new roof on the house that the bank owns. Don't kid yourself that borrowers didn't get a benefit from the loan, most received a great benefit.

I agree that walking away is not immoral, not even required. If one wants to "stick it to the 'man'", be prepared to lose the collateral that secured the loan. In this case, it's the house. If you're OK with moving and renting one of the MILLIONS of vacant, now low-value homes, with low-value rent, go for it. Can't have it both ways.

[who38]

11:46 AM on 08/14/2010

Right. And since your job situation isn't working out so well, don't pay back your student loans eithers. Have an unpaid hospital bill; forget it. And your VISA; why those merchants have just been shafting you; shaft them back. Soon, no one, including China, will want to lend money to anyone in the US and who can blame them.