Congresswoman stands up to the banks (dept. of utter joy)

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Raccoon

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Saw this on Lou Dobbs tonight (Thursday Jan 29) - the strangest ep of his show I have seen in that I agreed with everything he had to say!!

Basically, Congresswoman Representative Marci Kaptur of Ohio (democrat, of course) is telling foreclosed homeowners to stay put, and exercize squatters' rights - while availing themselves of competent legal representation. Her premise is roughly this:

The banks got into trouble in 2 main ways:

1. foisting mortgages (with bad terms, usurous interest rates and complex, cryptic structures and language) on people that couldn't possibly afford them or understand them who inevitably defaulted on those mortgages; this we call the subprime mess.

2. In the old days, a lender held a loan; you owed the bank you borrowed from until it was repaid. Over the last 10 ys or so, banks have been bundling mortgages together, and selling the debts they originally created on to other parties, in the form of securities. Sometimes they chopped up various mortgages (even other loans) and created strange securities to sell.

So when a person defaults on their mortgage payment, they are not defaulting against the originator of the loan, but against whichever party or parties holds the weird securities containing the person's mortgage.

And it is often the case that it is not clear exactly who in fact owns the debt; it may be multiple parties! Foreign parties! No longer-existing parties, like hedge funds or bankrupt or bought out institutions!

The point being that, under real estate law and banking law, unless the debt holder can 1/ be located, 2/ produce the note the defaulter defaulted against, the foreclosure can't go through!!! Hee hee!

See Representative Marci Kaptur of Ohio tells foreclosed homeowners to stay put

Here is part of the Lou Dobbs transcript:

GRIFFIN: Elected officials are saying Toledo is not in a recession, it is a depression. It is this bleak backdrop that inspired Toledo Congresswoman Marcy Kaptur to take the floor of the House earlier this month to tell her constituents to stay put.

REP. MARCY KAPTUR, (D) OHIO: So I say to the American people, you be squatters in your own homes; don't you leave.

GRIFFIN: Kaptur says she has had it with government bailouts for Wall Street banks, but nothing for homeowners. She is advocating for a legal revolution, a demand that not one of her constituents leaves their home without an attorney and a fight.

(on camera) Even if they've been foreclosed on, don't leave?

KAPTUR: If they've had no legal representation of a high quality, I tell them stay in their homes.
from: CNN.com - Transcripts
 
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Now that's what I call good news for a lot of unfortunate people. I'm glad to see that someone in congress is finally pulling their head out of their, well, you get the picture.
 

Peachy

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The point being that, under real estate law and banking law, unless the debt holder can 1/ be located, 2/ produce the note the defaulter defaulted against, the foreclosure can't go through!!! Hee hee!
I don't think it's quite that easy to wait until someone shows up with a printed and sealed document claiming ownership of the mortgage.
Usually, when those "weird securities" (Asset Backed Securities) are engineered, the original creditor remains responsible for the administrative handling of the loan. I.e. the bank still has the written mortgage document in their files, and by our definition the bank can not only demand payment, but must even do so under the contract they signed when selling the loan to some other party. Usually, the bank gets a fee for handling the admin stuff.

I'm no expert in those 'weird securities' (as you call them), but the way I understand their construction, the banks sold the risk of the loan. Which means they still, technically, own the loan, but the party who bought those securities has to pay the bank money if the original debtor defaults. Sure, some securities may call for the entire loan to be transferred to the new owner, but I still doubt the bank would send the original credit documents to the new owners (who may be located some place in India and wouldn't have a clue where to find the debtor in some small town in America). So the actual structure of the security would be a loan from the new owner to the bank plus the risk going to the new owner. The original loan/mortgage contract between the bank and the home ownder still stands.
It's no different than getting a loan from the bank to buy a house, but not for you to live in, but to rent to other people. You still have to pay off the loan even if your tenants don't pay their rent. Two separate contracts. At least in my legal system...dunno about yours.

Peachy
 

Raccoon

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Many good points there, Peachy. (And congrats on your 3000th post.) I was trying to keep things simplified: these situations are very complicated, as as are the underlying securities, derivatives created against those loans, etc. etc. I was paraphrasing the congresswoman. BTW I saw her and others speak a bit more, who point out that many foreclosures, if brought into litigation, can take a year to resolve, during which time a house's occupants can't be evicted.

She isn't saying don't pay your mortgage; in fact she says to do so. But if you do fall behind in payments, the remedies are not cut and dried. She cited the case of a woman who was put into a subprime mortgage that ballooned (doubled) from $800 to $1500. The woman had a credit rating that should have qualified her for a more regular mortgage: she had even put $40 000 down on her $180 000 house.

The wiggle room that is in fact there though people don't know about it empowers debtors somewhat to face down the banks and negotiate a more reasonable contract. That is: 1. lower interest rates based upon today's low fed rates, 2. longer terms than the usual 20-25 years, 3. eliminating pre-payment penalties/payout penalties involved in remortgaging, 4. restructuring mortgages away from "interest only" and other risky types.
 
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Fire2box

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So only a democrat would be willing to say break the law?
 

NEJay

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So only a democrat would be willing to say break the law?
When it comes to disregarding personal responsibility, definitely.

Look... Nobody held a gun to these people's heads and told them they had to buy a house. It sucks that people are "losing" (I prefer "banks taking back what people aren't paying for") their homes, but if that is the case, it wasn't prudent to buy it in the first place. These foreclosees are the ones that knew how much money they take in, and how much they can afford to spend. It was their choice to purchase a home that they couldn't comfortably afford (which includes an emergency fund to cover payments in the event of a crisis).

If someone screws up, they need to be responsible for their actions (I know... crazy idea eh?), which in this case means relinquishing the property to it's rightful owner... The bank.

It is NOT my responsibility to cover their ass, nor is it the responsibility of any other taxpayer, or our government. On top of all the bailout bullshit coming out of my pocket, we now have this Congresswoman advocating breaking the law by withholding property from it's rightful owners. Nice.

Mr. "department of utter joy"... If you sold someone a PS3 and they agreed to pay you $20/month for 20 months, and only made one payment... Wouldn't you want the PS3 back, or would you say "sure, just keep it and don't pay anything"?
 

Raccoon

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I am not for people not paying mortgages, or rent for that matter. As to guns held to heads, there is no question naive homeowners should not have bought things they couldn't afford. But the government encouraged home ownership, and allowed mortgages at terms that should not have existed, as well as other failures of regulation.

The question is what to do now. Nobody likes the idea of abnegating personal responsibility, certainly not me. But much of the solution to the present crisis is in the hands of the banks; widespread foreclosures hurts them as much as homeowners; restructuring mortgages to make them affordable, assuming people continue to pay them, is a better option than the present situation.

There are questions of whether outright fraud was perpetrated in many cases of subprime mortgages. If there are people who were defrauded into contracts the contracts (or certain of their terms) are unenforceable. If the contract contains illegal provisions, like breaking usury laws, then likewise.

Renegotiating terms for the ultimate good of all parties concerned happens all the time between businesses, nations, and others. The idea that one has some strength to renegotiate with one's bank is a good thing. We are no longer in 2005; times have changed so drastically that many contracts no longer are feasible.

Oh - and nobody is advocating law-breaking. Read carefully. This is why squatting in a house also requires legal representation: to make sure laws are not being broken. States' governors don't tell people to break laws; they occasionally point out where the law is murky, and where assumptions of one's options aren't necessarily as limited as one thought.
 

NEJay

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The question is what to do now.
Let the people who bit off more than they could chew lose their properties and go back to renting, and let the banks that were stupid enough to lend money to people unable to pay them back fail and be liquidated. The people with poor money management skills and lack of financial foresight will learn a lesson, and new banks (hopefully with more sound business practices) will emerge.

The biggest issue with the topic you presented with glee is that this Congresswoman is presenting an idea that will not only do nothing about stopping a home from being foreclosed on, but will ultimately land the (former) homeowner in jail for criminal trespass.

How someone so dumb got elected to public office... Wait... That's status quo.
 

IncompleteDude

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NEJay, if you got a mortgage knowing fully how the payment structure would pan out and what you were getting into, then I agree with you. However, many of the sub-prime lending institutions the banks contracted to make loans for them were run in the same spirit as Madoff's Ponzi scheme. They were con artists, using confusing language and contracts, high pressure sales tactics and misleading marketing to get people to get mortgages they could never afford. For example, some firms had an explicit policy of never telling clients that their rates would reset at a much higher level. Even the bank executives overseeing these loan makers said their sales tactics were likely unethical, and if they weren't illegal now, they would likely be in due time.

Just read what the FTC had to say about Associates First Capital, one of the pioneering subprime lenders, now part of the ever money losing Citibank.
FTC Charges One of Nation's Largest Subprime Lenders with Abusive Lending Practices
It's from this spirit of scams and cons that the majority of subprime lenders began. Remember, these are clients of the banks, and their interest is not making good loans, but rather lots of loans. If you read any of the histories of the current credit crisis or subprime (or multiple as I have), the widespread corruption amongst subprime lenders is evident.

Or would you suggest that it's the homeowner's fault for being fooled? While I can often have contempt for stupidity myself, I do not believe a great and free country can be created by exploiting people's weaknesses. As a general rule, the law reflects that.

Therefore, the affected homeowners should squat and fight for their homes, because many of them will win. It is only sane to renegotiate, for both the home owner and the bank. In the terrible housing market, a mortgage being paid at interest rates so low the banks lose a little money is better than a house that still cannot be sold at a price much less than the value of that mortgage and will depreciate even further as it's not maintained.

Although, I should address the people on the other side of the equation that were conned. You know, the people who were fooled into buying the exotic asset backed securities these mortgages were bundled into. However, these people ran banks and pension funds, they managed millions if not billions. They had the resources (and supposedly the expertise) to see through these type of cons, yet failed to do so. For them I have less pity.

As a final note, I don't believe that subprime lending is necessarily bad, but it is quite risky. If you respect and understand that, and more importantly respect your clients, then there is modest money to be made. Moreover, when no one else is doing that, there is an extreme amount of money to be made shorting them.
FT.com / UK - US hedge fund makes 1,000% return betting against subprime
 
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Let the people who bit off more than they could chew lose their properties and go back to renting, and let the banks that were stupid enough to lend money to people unable to pay them back fail and be liquidated. The people with poor money management skills and lack of financial foresight will learn a lesson, and new banks (hopefully with more sound business practices) will emerge.
Incomplete Dude beat me to it, but the short version of my own opinion is this:

  1. I agree with you that a single parent with 3 kids making $7/hour who went in on a $500K mortgage should be out. It is unrealistic to think that this income/debt ratio is sustainable unless they put down 80% or something strange like that.
  2. There was a lot of money to be made. So, if I as the realtor can doctor the paperwork and arrange for our waitress to make $60K/year, or $100K/year after she leaves my office, then the loan will be approved, I'll take my cut, run, and I'll be off to the next cash cow.
  3. People who only found out the terms of their mortgage after the fact due to fraud on the part of the realtor/middleman/middlemen are in a really bad position. Here's the tricky part: it's simpler if someone's been in a place a few weeks and realizes they've been snookered. However, what if no one pays attention until the first jump in mortgage payments? Furthermore, what if the new homeowners have invested labor and made significant upgrades to the property in this time? It gets stickier and more difficult to resolve appropriately as time moves along.
  4. Loans and terms weren't spelled out for people, but I don't have sympathy for these folks. It's a CONTRACT, read it! I've been known to line-item leases and gym membership contracts when it suited myself and the other party - not because I'm odd, but because I want us to have an agreement in accord with the contract.

I also think that we'd be better off going back to a gold standard (or at least a hybrid system), but I am pretty sure that we can't put the toothpaste back in the tube. So we will have to muddle through with our fiat currency.
 

Fire2box

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NEJay, if you got a mortgage knowing fully how the payment structure would pan out and what you were getting into, then I agree with you. However, many of the sub-prime lending institutions the banks contracted to make loans for them were run in the same spirit as Madoff's Ponzi scheme. They were con artists, using confusing language and contracts, high pressure sales tactics and misleading marketing to get people to get mortgages they could never afford.
At one time they most likely could afford them, but at another time the banks raised their interest rates. that's why most of them were doing ADJUSTABLE rates. Of course the banks were going to raise the interest rate on them, wouldn't anyone?

Anyways mortgages aren't at all like the Ponzi scheme, no one got ripped off and people could have and SHOULD have read over the fine print. But I am guessing most did not. So in the end they have as much blame if not more then the banks.
 

NEJay

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NEJay, if you got a mortgage knowing fully how the payment structure would pan out and what you were getting into, then I agree with you. However, many of the sub-prime lending institutions the banks contracted to make loans for them were run in the same spirit as Madoff's Ponzi scheme. They were con artists, using confusing language and contracts, high pressure sales tactics and misleading marketing to get people to get mortgages they could never afford.
Hence why anyone with a brain hires a real estate attorney when buying property. This isn't like buying a car... It's hundreds of thousands of dollars. Anyone with any prudence would read every single line of the mortgage contract, and understand it (or hire someone that can). It isn't my, or anyone else's problem if someone is dumb enough to jump blindly into a multi-hundred-thousand contract.

At one time they most likely could afford them, but at another time the banks raised their interest rates. that's why most of them were doing ADJUSTABLE rates.
And if one signs for an adjustable rate mortgage, they should be financially prepared if the rate goes up. Otherwise, you either...

1. Can't afford the mortgage.

Or

2. Sign on a fixed rate note.

It all boils down to the fact that people shouldn't be forced via taxation to compensate for others' ignorance or stupidity... These bailouts, combined with the current administration, are doing the exact opposite.
 

Fire2box

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It all boils down to the fact that people shouldn't be forced via taxation to compensate for others' ignorance or stupidity... These bailouts, combined with the current administration, are doing the exact opposite.
Too true, now if anyone never got one of these shitty loans they still get to pay for it via taxation.
 

IncompleteDude

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Hence why anyone with a brain hires a real estate attorney when buying property. This isn't like buying a car... It's hundreds of thousands of dollars. Anyone with any prudence would read every single line of the mortgage contract, and understand it (or hire someone that can). It isn't my, or anyone else's problem if someone is dumb enough to jump blindly into a multi-hundred-thousand contract.

And if one signs for an adjustable rate mortgage, they should be financially prepared if the rate goes up. Otherwise, you either...

1. Can't afford the mortgage.

Or

2. Sign on a fixed rate note.
The banks also have a responsibility to their investors and other clients not to give out loans that are sure to default. Investors and clients have a responsibility to make sure the bank's do this. The people reliant on those investors and clients have a responsibility to make sure they do this. Etc... In short, if you lost any money or suffered in any way due to the crisis, you were exposed to it and invested in it somehow. You were either "foolishly" unaware of it, complacent or complicit. You didn't invest your money better, work for a company that you knew would be ok or lobby your government, and if you did, you didn't do it enough. You are at fault, large or small, and according to some definitions, stupid.

I'm fortunate enough to say I have not been affected. I live the exact same lifestyle I always have. I could say I am smarter than everyone else, but I think would be foolish. The fact is, people have limitations. They cannot do all the research, or have all the information. Most are very busy. Some are very smart, but have issues that make them easy to con. I'm just lucky.

It all boils down to the fact that people shouldn't be forced via taxation to compensate for others' ignorance or stupidity... These bailouts, combined with the current administration, are doing the exact opposite.
The prision system is full of ignorent and stupid people, but I don't think even you would suggest letting them all wander the steet destitute and desperate. Traffic signs and laws exist even though the vast majority work only to prevent stupidity. We educate children even though it is fully possible for them to learn on their own.

The fact is smart people share society with the stupid ones. Even in your own mind, smart thoughts run along side stupid ones. If the smart people didn't make huge investments in compensate for the generally stupid and the smart doing stupid things, they'll screw themselves over eventually. By having a large organization like the government do this, you get tremendous economies of scale. Without it, you'd have to run your own personal security force and government anyways to keep out the throngs of desperate people trying to steal your wealth. Naturally, only the extremely rich could even consider it. With some reflection, it becomes clear that it's a rather stupid thing to let the damage done by stupid actions persist and erode society, and even stupider to entice people to do this damage. When put this way, I think its truth is quite obvious.

I repeat: You do not build a great and free country by exploiting people's weaknesses.

I find too many people do not understand their relationship with and responsibilities to society at large. From the moment you are born, unless you are a hermit, society is investing in you. It's providing family, education, safety, freedom, opportunity and more. Even if your parent's were rich, their wealth was created by someone society raised from the dirt, and is still maintained by society through banks, investments, legal structure and so on.

But society doesn't do this because it is nice. It expects a return on its investment, and considering how large that investment is, it has every right to enforce payment (e.g. taxation, jury duty, fines). When something goes wrong in society, it has every right to demand support from its stronger members. Most of the time, that means supporting the failing individuals; the people who didn't become productive for whatever reason. But it especially applies when those stronger members are the ones making many of the mistakes in a moment of stupidity. This is the social contract, and it stands so long as you enjoy society's support and anything created within it.

Personally, I think people that wish to deny this responsibility or the right to enforce it are more irritating than the ones who trying and failing to fulfill it due to stupidity. Those people clearly have little interest in maintaining the collective investment that is society. We are lucky enough to live in a society that by and large respects people's opinions. But if said opinions fall outside reasonable parameters, it doesn't have any obligation to be so nice. For example, I take comfort that we have tax laws to make such social denial a non-option.

But I'm not the only person who feels this way. Take this statement you may have heard of:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
Union, justice, common, general, posterity, united. Notice a theme? It is not the American government's duty to protect your individual interests or wealth, but to create a better society as a whole. Protecting individual interest is certainly a major part of this, but it is not the point, and ceases to apply when it interferes with the general welfare and liberty of the union and its posterity.

If you think letting tens of millions of American's go bankrupt and trillions in American banking assets disappear (much into foreign hands) regardless of the cause is going to improve the general welfare of the US... Well, I don't know what to say.
 
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NEJay

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The fact is, people have limitations. They cannot do all the research, or have all the information. Most are very busy. Some are very smart, but have issues that make them easy to con. I'm just lucky.
Busy people hire mortgage attorneys. If one is too busy to deal with finding a property, securing financing, going through the closing process, etc., they hire someone to do it for them. In most people's cases though, they at least have some attorney look over all the papers, run a search on the property to be sure there isn't any liens (and deal with any if there is), etc.

The prision system is full of ignorent and stupid people, but I don't think even you would suggest letting them all wander the steet destitute and desperate.
Don't get me started about how I think the US could privatize the prison system, change it back to an actual rehabilitation program, and make it profitable. Another thread for another time. :)

I appreciate the passion in your post, but I guess I have to agree to disagree. I'm all for social welfare and community help for people that actually need it... I contribute myself with donations and community service all the time. I won't however compensate for the people that knew better than to buy a house they couldn't afford and did so anyways, and that is the majority of people losing their homes currently.

"I repeat: You do not build a great and free country by exploiting people's weaknesses."

I'd say you build a great country by people learning from their mistakes instead of being bailed out of poor financial decisions.

While I think it sucks that the mortgage companies were fine with turning a blind eye on people's income and ability to pay back a loan, the onus is on the person requesting the money. They're the one that ultimately know if they're able to sign the check every month. If they can't, the collateral (the property) goes back to the lender, and they find different housing.

I'd love to see them pump a decent sum into Habitat programs and other public housing projects than bailing out poor spenders.
 

IncompleteDude

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In the end, I wouldn't complain that much if they didn't bail out these people. The way these mortgages were being sold off, the majority of them were actually owned by foreigners. On top of that, many foriegn banks are worth multiples of the greatest American ones. In Canada, RBC alone has a market capitalization more than double that of Citigroup, for example. So not only would foriegners own vast swaths of America, they will be able to buy the rest at a discount. It'll be just like the old colonial days.

But I don't think allowing this to happen is the right thing for the American government to do, and indeed they agree. However, if they had your opinion instead, and insisted the world own the US depite the warnings, I would gladly do my part to facilitate that. I do believe the US is a good thing to own, and that it will rebound in time.

Still, I suppose it is a moot arguement. Even with this bailout, much of the debt created will be again owned by foriegners. So either way, we will reap what you sow. Your hard work will line our pockets. It's just like the taxes the British unilaterally imposed years ago, but this time you chose to pay it. Thanks for making my country rich America! :D (Oh and Britian too, the other country that sold themselves out.)

Although, Canada will not benefit from this transaction nearly as much as Europe and China. However, we still own tons of oil the US needs, and our banks so well captialized they can afford to buy almost any US financial institution they please. On top of that, our bailout is only 1% of GDP while your's is 7%. With the "Buy American" provision being effectively nullified for Canadian products, much of that bailout money will end up in our pockets, and we won't pay a dime of debt for it. America will bail out our country, despite the fact Canada doesn't need bailing out, haha! We'll get our fair share of American booty, of that I'm sure.

You are right in saying America deserves this treatment, as it was America's corruption, greed and foolishness that created this mess. I just don't think it's the right for your government to just stand by and let it happen, even if some of it cannot be avoided. Either way, now is a good time to not be American.
 
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