http://www.huffingtonpost.com/2009/04/30/cramdown-vote-banks-bough_n_193674.html

 

This bill has the potential to help a lot of people keep thier homes. I also do not understand why the banks are resisting this. If you can refi a mortage and lose a couple thousand over the life of a loan it is much better than going through the foreclosure process, racking up all kinds of legal fees to ultimately get pennies on the dollar for the property. Even if they do a write down on a portion of the principal balance they are still going to be better off than going through the foreclosure process. I don't understand..

http://www.huffingtonpost.com/2009/04/30/cramdown-vote-banks-bough_n_193674.html

 

This bill has the potential to help a lot of people keep thier homes. I also do not understand why the banks are resisting this. If you can refi a mortage and lose a couple thousand over the life of a loan it is much better than going through the foreclosure process, racking up all kinds of legal fees to ultimately get pennies on the dollar for the property. Even if they do a write down on a portion of the principal balance they are still going to be better off than going through the foreclosure process. I don't understand..

 

In general, banks do not always just get pennies on the dollar when they foreclose on properties. I've seen banks not only get the full amount of their loans repaid and their legal fees recovered, but when a loan goes into default, it triggers a default rate of interest which is generally much higher than the regular interest rate (in commercial loan docs I prepare, the default rate is 4% higher than the regular rate). I've seen numerous situations where the bank has recovered all its principal, all its costs and expenses and all its interest (even the default rate portion). It is a gross misstatement that banks only get pennies on the dollar when they foreclose. Which is why banks are probably resisting the bill.

In general, banks do not always just get pennies on the dollar when they foreclose on properties. I've seen banks not only get the full amount of their loans repaid and their legal fees recovered, but when a loan goes into default, it triggers a default rate of interest which is generally much higher than the regular interest rate (in commercial loan docs I prepare, the default rate is 4% higher than the regular rate). I've seen numerous situations where the bank has recovered all its principal, all its costs and expenses and all its interest (even the default rate portion). It is a gross misstatement that banks only get pennies on the dollar when they foreclose. Which is why banks are probably resisting the bill.

 

I guess I should have put an "in general" in my comments because banks do not always only get pennies on the dollar. However, it is not a gross misstatement to say because I work for a financial institution and I am familiar with the process. You have to hire someone like yourself to handle the foreclosure action, hire property managers to maintain the property or do any repairs that need to be performed due to inattention or intentional destruction, realtors, etc. In other words the banks cost increase dramatically in taking back a property and the sale of the property more times than not doesn't cover the cost. Also the value of properties are set by appraisers before the loan is made, appraisals from as little as 2 years ago aren't even close to reflecting home values in some areas. A home worth 150k in 06 depending on the community is going to appraise for less than that now. Throw in property damage, legal cost, property upkeep and it becomes very easy to see how they get pennies on the dollar. Thats why to me it makes a lot of sense to allow people to refi from both parties.

I guess I should have put an "in general" in my comments because banks do not always only get pennies on the dollar. However, it is not a gross misstatement to say because I work for a financial institution and I am familiar with the process. You have to hire someone like yourself to handle the foreclosure action, hire property managers to maintain the property or do any repairs that need to be performed due to inattention or intentional destruction, realtors, etc. In other words the banks cost increase dramatically in taking back a property and the sale of the property more times than not doesn't cover the cost. Also the value of properties are set by appraisers before the loan is made, appraisals from as little as 2 years ago aren't even close to reflecting home values in some areas. A home worth 150k in 06 depending on the community is going to appraise for less than that now. Throw in property damage, legal cost, property upkeep and it becomes very easy to see how they get pennies on the dollar. Thats why to me it makes a lot of sense to allow people to refi from both parties.

 

 

But if it makes economic sense for a bank to do just that, why don't we allow the bank to make that call as opposed to passing a law that forces them to do it?

But if it makes economic sense for a bank to do just that, why don't we allow the bank to make that call as opposed to passing a law that forces them to do it?

 

There you go, LN, trying to insert logic again.:thumb:

 

The appraiser comment is interesting. Real estate constitutes a decent part of my practice, as do the weekly master commissioner sales. At least around here, and I suspect everywhere, the banks are blaming the appraisers for this mess, when I have first hand knowledge that the appraisers were advised, and some cases even paid, to inflate the appraisal in order to make room for the loan.

There you go, LN, trying to insert logic again.:thumb:

 

The appraiser comment is interesting. Real estate constitutes a decent part of my practice, as do the weekly master commissioner sales. At least around here, and I suspect everywhere, the banks are blaming the appraisers for this mess, when I have first hand knowledge that the appraisers were advised, and some cases even paid, to inflate the appraisal in order to make room for the loan.

 

The Appraiser's first question used to be "What is the Contract price?" Then, they set out to justify that price.

 

That's not the case now. Being an Appraiser is a tough job right now.

The Appraiser's first question used to be "What is the Contract price?" Then, they set out to justify that price.

 

That's not the case now. Being an Appraiser is a tough job right now.

I have two friends who are Appraisers and it is pretty rough on them. There are a lot of cases before the board as well right now.

But if it makes economic sense for a bank to do just that, why don't we allow the bank to make that call as opposed to passing a law that forces them to do it?

 

Because most won't do it, not every bank operates in the manner of small community banks. It requires more resources and therefore cost. I can't answer your question because I do not understand it either but because the bigger banks can better absorb the loss they tend to not be as willing to work with the borrower. So if they aren't willing why not pass a law that requires them to? If you believe its a strict case of contract law then the current set up is fine. I think we should take a slightly more forgiving approach and be willing to help folks keep their homes thats all, and if that requires legislation so be it IMO.

There you go, LN, trying to insert logic again.:thumb:

 

The appraiser comment is interesting. Real estate constitutes a decent part of my practice, as do the weekly master commissioner sales. At least around here, and I suspect everywhere, the banks are blaming the appraisers for this mess, when I have first hand knowledge that the appraisers were advised, and some cases even paid, to inflate the appraisal in order to make room for the loan.

 

The Appraiser's first question used to be "What is the Contract price?" Then, they set out to justify that price.

 

That's not the case now. Being an Appraiser is a tough job right now.

 

I hope you didn't take the suggestion from my post that I was blaming appraisers for this, because that was not my intent. Property values have fallen due to market conditions not appraisers IMO. The things that are referenced here are against the law and unethical by both parties if they happened. Which I'm sure is the case.

Because most won't do it, not every bank operates in the manner of small community banks. It requires more resources and therefore cost. I can't answer your question because I do not understand it either but because the bigger banks can better absorb the loss they tend to not be as willing to work with the borrower. So if they aren't willing why not pass a law that requires them to? If you believe its a strict case of contract law then the current set up is fine. I think we should take a slightly more forgiving approach and be willing to help folks keep their homes thats all, and if that requires legislation so be it IMO.

 

 

And there is the big difference between you and me. You would forcibly, through legislation, take someone's property (the banks' contract rights) just because you didn't agree with how they were handling the matter. I would never in a million years do that. I may ask them to be more "forgiving", but if they refused, I'd accept it. Just what good is a contract if legislation can be enacted post execution destroying those contract rights? How can commerce efficiently occur if contracts mean nothing? How would you like it if the tables were reversed? You borrow money to acquire a house and agree to repay it over 20 years. Your lender has problems and gets Congress to enact a law that permits the lender to accelerate your loan even though you are not in default, which you are unable to pay. You lose your house. The new law is passed by Congress to help out the shareholders and employees of the lender, whose investments and jobs will be wiped out if the lender does not have the right to accelerate. I seriously doubt that you would be a little more forgiving in order to help the shareholders not lose their investments and the lender employees their jobs in that situation.

 

Seriously, this proposed law is another step towards socialism. As I stated in another post, I initially was skeptical of the claims of the hard core conservatives that under Obama this country was going to become socialistic. Based on what I've observed from his administration and certain members of Congress, I'm afraid those claims may be right. I can't believe that people would think it is okay to forcibly take someone's contract rights in the name of wanting to help someone else.

And there is the big difference between you and me. You would forcibly, through legislation, take someone's property (the banks' contract rights) just because you didn't agree with how they were handling the matter. I would never in a million years do that. I may ask them to be more "forgiving", but if they refused, I'd accept it. Just what good is a contract if legislation can be enacted post execution destroying those contract rights? How can commerce efficiently occur if contracts mean nothing? How would you like it if the tables were reversed? You borrow money to acquire a house and agree to repay it over 20 years. Your lender has problems and gets Congress to enact a law that permits the lender to accelerate your loan even though you are not in default, which you are unable to pay. You lose your house. The new law is passed by Congress to help out the shareholders and employees of the lender, whose investments and jobs will be wiped out if the lender does not have the right to accelerate. I seriously doubt that you would be a little more forgiving in order to help the shareholders not lose their investments and the lender employees their jobs in that situation.

 

Seriously, this proposed law is another step towards socialism. As I stated in another post, I initially was skeptical of the claims of the hard core conservatives that under Obama this country was going to become socialistic. Based on what I've observed from his administration and certain members of Congress, I'm afraid those claims may be right. I can't believe that people would think it is okay to forcibly take someone's contract rights in the name of wanting to help someone else.

 

Because of pressure being applied to credit card companies, it will be harder for people to qualify for credit cards. If legislation is passed to make banks refinance (write down) defaulting loans, the mortgage industry will be destroyed. It will be impossible for the majority of people to qualify for a loan if this happens.

And there is the big difference between you and me. You would forcibly, through legislation, take someone's property (the banks' contract rights) just because you didn't agree with how they were handling the matter. I would never in a million years do that. I may ask them to be more "forgiving", but if they refused, I'd accept it. Just what good is a contract if legislation can be enacted post execution destroying those contract rights? How can commerce efficiently occur if contracts mean nothing? How would you like it if the tables were reversed? You borrow money to acquire a house and agree to repay it over 20 years. Your lender has problems and gets Congress to enact a law that permits the lender to accelerate your loan even though you are not in default, which you are unable to pay. You lose your house. The new law is passed by Congress to help out the shareholders and employees of the lender, whose investments and jobs will be wiped out if the lender does not have the right to accelerate. I seriously doubt that you would be a little more forgiving in order to help the shareholders not lose their investments and the lender employees their jobs in that situation.

 

Seriously, this proposed law is another step towards socialism. As I stated in another post, I initially was skeptical of the claims of the hard core conservatives that under Obama this country was going to become socialistic. Based on what I've observed from his administration and certain members of Congress, I'm afraid those claims may be right. I can't believe that people would think it is okay to forcibly take someone's contract rights in the name of wanting to help someone else.

 

You have just described, precisely, what is occurring with the government and GM. The reason GM is in bankruptcy is because the 39% of bondholders, who have legal, valid, contract claims, refused to acquiesce to the government's efforts to get them to privately "release" their contracts. So, GM goes into bankruptcy where the government will effectuate dissolution of those bond contracts, and yet place the UAW in control of a company they only held a 10% ownership stake in.

 

It is highway robbery.

Hearsay and Mr. Network "get it". The ramifications of the tactics being used/proposed by the administration and some members of Congress go way beyond the specific matters involved. The ramifications will materially and adversely effect commerce and capitalism for a long, long time in the U.S. and the average citizen will be dramatically harmed. Folks think that the cram down of banks in the proposed bill will just affect the banks. Wrong. If this happens the cost of borrowing for individuals and businesses will go up dramatically, because interest rates are based on risk. If a bank thinks that through legislation it will be forced to make loan concessions that it would not on its own make, it will increase risk to the banks and thus the banks will increase interest rates. If Obama is able to cram down the rights of the secured creditors of Chrysler, the next time some business tries to place secured debt, the lenders will price the risk of getting pennies on the dollar when they should get a dollar on the dollar into the interest rate of the deal. Increased interest rates make it harder to borrow (which I shouldn't even have to type it's so fundamental). Less borrowing, less home ownership, less ability to use credit cards, less ability for businesses to start, grow and expand, which means less jobs. God, this really is becoming scary. Seriously.

And there is the big difference between you and me. You would forcibly, through legislation, take someone's property (the banks' contract rights) just because you didn't agree with how they were handling the matter. I would never in a million years do that. I may ask them to be more "forgiving", but if they refused, I'd accept it. Just what good is a contract if legislation can be enacted post execution destroying those contract rights? How can commerce efficiently occur if contracts mean nothing? How would you like it if the tables were reversed? You borrow money to acquire a house and agree to repay it over 20 years. Your lender has problems and gets Congress to enact a law that permits the lender to accelerate your loan even though you are not in default, which you are unable to pay. You lose your house. The new law is passed by Congress to help out the shareholders and employees of the lender, whose investments and jobs will be wiped out if the lender does not have the right to accelerate. I seriously doubt that you would be a little more forgiving in order to help the shareholders not lose their investments and the lender employees their jobs in that situation.

 

Seriously, this proposed law is another step towards socialism. As I stated in another post, I initially was skeptical of the claims of the hard core conservatives that under Obama this country was going to become socialistic. Based on what I've observed from his administration and certain members of Congress, I'm afraid those claims may be right. I can't believe that people would think it is okay to forcibly take someone's contract rights in the name of wanting to help someone else.

 

Believe me I understand your point, but I may be more willing to accept accelerated payment terms if the government had "bailed" me out. I guess my question becomes if the banks are to big to fail and are worth saving by the government then why aren't home owners? If you say the banks weren't worth bailing out then I accept that, fair enough. However for representatives to support the bailout and then turn thier backs on constituants is ultra hypocritical IMO. Which leads back to the original point of this thread, there is a reason FI's are the biggest campaign contributors in this country.

Hearsay and Mr. Network "get it". The ramifications of the tactics being used/proposed by the administration and some members of Congress go way beyond the specific matters involved. The ramifications will materially and adversely effect commerce and capitalism for a long, long time in the U.S. and the average citizen will be dramatically harmed. Folks think that the cram down of banks in the proposed bill will just affect the banks. Wrong. If this happens the cost of borrowing for individuals and businesses will go up dramatically, because interest rates are based on risk. If a bank thinks that through legislation it will be forced to make loan concessions that it would not on its own make, it will increase risk to the banks and thus the banks will increase interest rates. If Obama is able to cram down the rights of the secured creditors of Chrysler, the next time some business tries to place secured debt, the lenders will price the risk of getting pennies on the dollar when they should get a dollar on the dollar into the interest rate of the deal. Increased interest rates make it harder to borrow (which I shouldn't even have to type it's so fundamental). Less borrowing, less home ownership, less ability to use credit cards, less ability for businesses to start, grow and expand, which means less jobs. God, this really is becoming scary. Seriously.

 

I disagree with this post because I disagree with the premise that interest rates are set soley on risk, while someone can or may be charged a higher interest rate based on risk(credit history, liabilities, etc) interest rates in general are set based upon liquidity calculations, fed fund rates, prime rate, cost of funds, etc. For instance if a FI advertises a 4.5% fixed rate and you meet the debt to income ratio's, collateral is of necessary value you will be charged 4.5%, and that rate has little to do with risk. Now if a FI decides to make an exception loan which are outside the 80/20 LTV standards then you can see an increased rate based on risk or an exception loan based on poor credit history, collections, poor debt to income ratio, etc then you will see that also. These loans are somewhat rare and are well "exceptions" at least at the smaller bank where I work.