It's tough to have much respect for attorney generals these days.
I'm referring to the 20 plus state attorney generals who are pressuring banks to reduce principal not simply on the loans of people who are upside down but specifically for those who knowingly bought homes when prices were high with initially artificially low rates and/or used their "equity" to take money out of their home to buy everything from cars and toys to paying for vacations they couldn't really afford.
There is no litmus test to determine who - if any - of the borrowers were victims of true fraud. At the same time banks rarely make direct mortgage loans for buyers. Instead they go through brokers whose ranks at one time were full of opportunistic people who committed fraud to profit. Yes, the banks when they bought the loans should have been more diligent but guess what? The buyers of the homes should have been more diligent too.
And while it is true some unscrupulous banks and investment firms knowingly packaged toxic loans with good loans to unload them on the secondary market, there is no indication that banks as a whole were much different than the home buyers.
Either they were too trustworthy, failed to verify documents, or were simply hoping against hope that housing prices would keep going up. Those actions either makes banks and borrowers both victims, both gamblers, or both idiots. Take your pick.
Price is - and always has - been determined by what both a buyer and seller agree upon. Some buyers buy high, some buy low. Some sellers sell high, some sellers sell low. It depends upon their needs and wants as it pertains to a potential transaction.
The litmus test for a loan - unless a borrower is lending for altruistic reasons - is the borrower's credit worthiness or ability to repay.
If the attorney generals cannot establish that borrowers somehow had fraud committed against them by the mortgage holder that currently holds their loan they have no business interceding. If the mortgage broker or the first purchaser of the loan committed fraud, that is a different story.
There are tons of people upside down. Yes, some have lost their jobs and, yes, some got in over their heads to begin with.
Should the ones that lost their jobs be helped? It would make sense for banks to work with them if they can on reducing interest. But reduce the principal and you undermine confidence in the dynamics of the market. Why would someone want to loan money to someone to buy a house if the legal system down the road may decide to take away part of the obligation to repay the principal? And why would someone want to keep making payments or only buy what they can afford when the government might intercede to hammer the lender to make concessions after the loan is made?
As for the "social" concerns of someone losing their jobs and then their house, why is it different than people in the same situation who lose their cars for the same reason? Or, more importantly, why wasn't it a concern during previous economic downturns or just when someone loses their job and can't secure employment at the same level again even in good times?
As for homes simply dropping in value, what makes buying a home any different than a new car you drive off the dealer's lot?
New cars literally drop thousands of dollars almost instantaneously on the resale market. In most cases, car buyers are then upside down on their auto loans or underwater. That hasn't been a concern of Congress nor attorney generals before.
Yes, times are tough. But why should someone who gambled, made stupid decisions, or didn't bother to think out the consequences of their actions be bailed out with taxes taken from people who had the discipline of an endangered concept known as "delayed gratification", honor their commitments, and view a contract as a legally binding obligation with an agreed upon price and an agreed upon interest rate?
I'm referring to the 20 plus state attorney generals who are pressuring banks to reduce principal not simply on the loans of people who are upside down but specifically for those who knowingly bought homes when prices were high with initially artificially low rates and/or used their "equity" to take money out of their home to buy everything from cars and toys to paying for vacations they couldn't really afford.
There is no litmus test to determine who - if any - of the borrowers were victims of true fraud. At the same time banks rarely make direct mortgage loans for buyers. Instead they go through brokers whose ranks at one time were full of opportunistic people who committed fraud to profit. Yes, the banks when they bought the loans should have been more diligent but guess what? The buyers of the homes should have been more diligent too.
And while it is true some unscrupulous banks and investment firms knowingly packaged toxic loans with good loans to unload them on the secondary market, there is no indication that banks as a whole were much different than the home buyers.
Either they were too trustworthy, failed to verify documents, or were simply hoping against hope that housing prices would keep going up. Those actions either makes banks and borrowers both victims, both gamblers, or both idiots. Take your pick.
Price is - and always has - been determined by what both a buyer and seller agree upon. Some buyers buy high, some buy low. Some sellers sell high, some sellers sell low. It depends upon their needs and wants as it pertains to a potential transaction.
The litmus test for a loan - unless a borrower is lending for altruistic reasons - is the borrower's credit worthiness or ability to repay.
If the attorney generals cannot establish that borrowers somehow had fraud committed against them by the mortgage holder that currently holds their loan they have no business interceding. If the mortgage broker or the first purchaser of the loan committed fraud, that is a different story.
There are tons of people upside down. Yes, some have lost their jobs and, yes, some got in over their heads to begin with.
Should the ones that lost their jobs be helped? It would make sense for banks to work with them if they can on reducing interest. But reduce the principal and you undermine confidence in the dynamics of the market. Why would someone want to loan money to someone to buy a house if the legal system down the road may decide to take away part of the obligation to repay the principal? And why would someone want to keep making payments or only buy what they can afford when the government might intercede to hammer the lender to make concessions after the loan is made?
As for the "social" concerns of someone losing their jobs and then their house, why is it different than people in the same situation who lose their cars for the same reason? Or, more importantly, why wasn't it a concern during previous economic downturns or just when someone loses their job and can't secure employment at the same level again even in good times?
As for homes simply dropping in value, what makes buying a home any different than a new car you drive off the dealer's lot?
New cars literally drop thousands of dollars almost instantaneously on the resale market. In most cases, car buyers are then upside down on their auto loans or underwater. That hasn't been a concern of Congress nor attorney generals before.
Yes, times are tough. But why should someone who gambled, made stupid decisions, or didn't bother to think out the consequences of their actions be bailed out with taxes taken from people who had the discipline of an endangered concept known as "delayed gratification", honor their commitments, and view a contract as a legally binding obligation with an agreed upon price and an agreed upon interest rate?
