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John Galt2
My life is my own...
01:18 PM on 12/26/2009
Mr. Taylor, suppose a bank loans consumer A $500k to buy a house. At closing, the bank transfers $500k to either a builder, or the reseller of the home, and consumer A signs a mortgage for $500k.

Now, months/years later, consumer A's house drops in value to $300k. Consumer A balks at repaying the bank the $200k in lost value and stops paying back his mortgage. Why must the bank allow A to remain in his house (not foreclose to minimize their losses)?

In a second scenario, given the same facts, A loses his job and falls behind in his payments. Why cannot the bank foreclose?

In either situation, what compels the bank to simply absorb the loss and allow A to stay in the house he cannot afford?

Given the write down of the loan (to market value, however determined) you are proposing, suppose A stays in his house another 10 years, and the value then exceeeds the value at the write down - who gets the increase in value, A or the bank?
Self Sustainability is the Future
08:16 PM on 12/26/2009
C - the taxpayers who bailed out the bank, therefore saving the bank's a$$ to live another day and allow A to keep the house.

Regardless, in most cases, the homes are going to auction after foreclosure for a fraction of A's note.
John Galt2
My life is my own...
12:19 PM on 12/27/2009
Suppose the bank in question received no bailouts - why must they let a non-paying customer stay in their home, rather than mitigate their losses via foreclosure?

If the "fraction" of A's note received via foreclosure is estimated to be more than the fraction they expect to receive in the future, why can't the bank work to mitigate their loss?
09:08 PM on 12/26/2009
Consumer A is a real person, fellow Americans that probably have family’s to support. Scenario 1 Consumer A was duped into buying a house with an overvalued price in an artificially inflated market, created by Wall Street and the banks. Millions of consumer A’s were enticed into taking out huge loans to buy these over priced homes that they couldn’t afford.
The bankers and Wall Street knew this would blow up in our faces. When it did finally explode, our government stated that to prevent the sky from falling, the American taxpayers would need to immediately bailout Wall Street and the too big to fail banks. The millions of victims of this con lose everything and the con artist walk away with everything.
Scenario 2, millions of consumer A’s losing their jobs through no fault of their own but because the economy has come to a screeching halt, they fall behind in their payments. They have the nerve to ask the banks to give them a helping hand until they can get back on their feet, just like the American tax payers did for them.
We continue to allow the banks to ignore their responsibility for their part in creating this nightmare. If we allow this to happen, it would reflect a society that rewards having no empathy for its fellow citizens. Evil is the absence of empathy, I choose not to sit back idly and live in a world where evil is embraced and allowed to run rampant.
Self Sustainability is the Future
03:24 PM on 12/27/2009
the people fail, the nation fails.
06:40 PM on 12/23/2009
As some one who has been working as a foreclosure counselor, I think that something like this is needed to clean up the mess created by the regulators failure to use their authority to prevent unsafe and deceptive practices during the decade long run up to 2007. I applaud Mr. Taylor for his foresight and persistence on this issue. But it's primary value is for the high housing cost parts of the country that were saturated with "innovative" loans. There also has to be another and different set of tools for the people with prime loans that are struggling because of reductions or loss of income, but whose home value has only dropped modestly -that group is the majority of foreclosure victims in many parts of the country.
Don't believe it until it's officially denied
05:59 PM on 12/23/2009
The foreclosure process works fine. The only role government should play is enforcing the rule of law around the contract between bank and borrower. Anything else only makes the situation worse. In fact, getting the government involved artificially props up prices making property expensive for everyone and creates a moral hazard ie irresponsible banks and borrowers. Let the borrowers go through the foreclosure process. The properties get auctioned off or returned to the bank. When we see a huge glut of property on the market, the prices will drop. More people will then be able to afford a house.
08:39 PM on 12/23/2009
I couldn't agree more. Free-market principles need to be applied more than ever today if the U.S want a healthy recovery.
09:27 PM on 12/26/2009
The old rules don’t apply anymore. The banks and Wall Street decided to bribe our politicians to change the financial regulations that allowed them to grow to be too big to fail. They gambled with our money and lost, did we foreclose on them? No we did not, we refinanced their balance with a near zero interest loan until they got back on their feet. They apparently can pay back the tarp money back so they must be back on their feet. We deserve the same consideration.
01:50 PM on 12/23/2009
A novel approach to eminent domain. But it raises questions about the Constitutional status of the facts involved in the taking. Just see my book, The Eminent Domain Revolt. It would be HIGHLY anomalous to suggest that policy regarding bonds is subject only to minimum scrutiny, when that policy--reducing their value--is in pursuit of a policy which looks like raising the level of scrutiny for housing.

Housing is now at minimum scrutiny. Is Mr. Jackson saying that Lindsey v. Normet is overruled and that housing now enjoys a higher level of scrutiny? If that is the case, then why are bonds at a lower level of scrutiny?

Mr. Jackson may teach at Harvard, but he doesn't know his Constitution very well.
We need a Reset
01:35 PM on 12/23/2009
Eminent domain sounds like a good idea so long as the government is paying the investors what the home is ACTUALLY worth, not the inflated amount on the note. That's probably the only way we'll see any real action to help homeowners facing foreclosure; the pretender lenders don't have the authority to lower the principal since the money is actually owed to the owners of the security, and if a default occurs it triggers payment of the PMI and any credit default swaps (bets) against the note. So the REAL payday occurs on default, plus they get the property back. Not much incentive to take a haircut if you don't have to. Congress also needs to revise the payback on the $7,500 homebuyers incentive from 08; why should these people be forced to pay back their incentive when the $8,000 gang can just take it as a credit with no payback?
Mike Elk
01:11 PM on 12/23/2009
heck most of these bankers wouldnt even come to washington to hear him give a stern speech. so there is no doubt that words wont help
12:51 PM on 12/23/2009
It's clear that the banks are not cooperating with HAMP, or any other plan to reduce foreclosures. Break them up, or force them to modify loans -- as Mr. Taylor suggests.