Financial fuckery thread

[Mesozoic Mister Nigel]

1 in 7 mortgages delinquent or in foreclosure.

So housing prices drop FURTHER, and anyone with a new (5 years or less) mortgage will go upside down, even if they're making their payments.  Their loans will be called, making housing prices drop even further.  Rinse, repeat.

Ho ho!  The ship is capsizing!  Strike up the band!

wait...
why would a loan get called simply because the property is upside down?
that doesn't make sense at all...  why would they put a clause in for that scenario?

They don't.

[The Good Reverend Roger]

1 in 7 mortgages delinquent or in foreclosure.

So housing prices drop FURTHER, and anyone with a new (5 years or less) mortgage will go upside down, even if they're making their payments.  Their loans will be called, making housing prices drop even further.  Rinse, repeat.

Ho ho!  The ship is capsizing!  Strike up the band!

wait...
why would a loan get called simply because the property is upside down?
that doesn't make sense at all...  why would they put a clause in for that scenario?

They don't.

They can and do call loans for that reason.  At the moment, all I have is anecdotes, but tonight I will do a little digging, when I'm not on a computer loaded with Websense filtering garbage.

[Mesozoic Mister Nigel]

1 in 7 mortgages delinquent or in foreclosure.

So housing prices drop FURTHER, and anyone with a new (5 years or less) mortgage will go upside down, even if they're making their payments.  Their loans will be called, making housing prices drop even further.  Rinse, repeat.

Ho ho!  The ship is capsizing!  Strike up the band!

wait...
why would a loan get called simply because the property is upside down?
that doesn't make sense at all...  why would they put a clause in for that scenario?

They don't.

They can and do call loans for that reason.  At the moment, all I have is anecdotes, but tonight I will do a little digging, when I'm not on a computer loaded with Websense filtering garbage.

You'll find you're mistaken. If the borrower continues to make payments on time, the lender cannot recall the mortgage.

[The Good Reverend Roger]

1 in 7 mortgages delinquent or in foreclosure.

So housing prices drop FURTHER, and anyone with a new (5 years or less) mortgage will go upside down, even if they're making their payments.  Their loans will be called, making housing prices drop even further.  Rinse, repeat.

Ho ho!  The ship is capsizing!  Strike up the band!

wait...
why would a loan get called simply because the property is upside down?
that doesn't make sense at all...  why would they put a clause in for that scenario?

They don't.

They can and do call loans for that reason.  At the moment, all I have is anecdotes, but tonight I will do a little digging, when I'm not on a computer loaded with Websense filtering garbage.

You'll find you're mistaken. If the borrower continues to make payments on time, the lender cannot recall the mortgage.

I may very well be mistaken.  I will look when I get to my home computer, one that doesn't filter out the entire friggin' interbutts.  Grumble, grumble, fucking Websense, grumble.

[Elder Iptuous]

yea. we've got 'eSafe' and it sucks ass too.... i feel your pain.

it seems to me that it would be self defeating to put an 'under water' statement in the acceleration clause....
if the person is making payments on a loan that is more than the value of the house, the lender is getting mo money than they would if they called the loan and likely forced the person into foreclosure...  then they would be able to get, at most, the market value of the house, which is already established to be less than the loan amount that they are currently raking in.  The only motivation i can think of is that, being underwater, they may be likely to start screwing up and eventually won't be able to make payments and go into tits up anyways, so the lender can call the loan and hopefully force them to refi (rather than foreclose), but that doesn't reflect the reality of the situation we are in where there aren't lenders raining from the sky anymore...
TGRR, what are you hearing is the motivation for the lenders to do this?

[Mesozoic Mister Nigel]

yea. we've got 'eSafe' and it sucks ass too.... i feel your pain.

it seems to me that it would be self defeating to put an 'under water' statement in the acceleration clause....
if the person is making payments on a loan that is more than the value of the house, the lender is getting mo money than they would if they called the loan and likely forced the person into foreclosure...  then they would be able to get, at most, the market value of the house, which is already established to be less than the loan amount that they are currently raking in.  The only motivation i can think of is that, being underwater, they may be likely to start screwing up and eventually won't be able to make payments and go into tits up anyways, so the lender can call the loan and hopefully force them to refi (rather than foreclose), but that doesn't reflect the reality of the situation we are in where there aren't lenders raining from the sky anymore...
TGRR, what are you hearing is the motivation for the lenders to do this?

You can't refinance an upside down loan unless you go through the Home Affordable program.

[The Good Reverend Roger]

yea. we've got 'eSafe' and it sucks ass too.... i feel your pain.

it seems to me that it would be self defeating to put an 'under water' statement in the acceleration clause....
if the person is making payments on a loan that is more than the value of the house, the lender is getting mo money than they would if they called the loan and likely forced the person into foreclosure...  then they would be able to get, at most, the market value of the house, which is already established to be less than the loan amount that they are currently raking in.  The only motivation i can think of is that, being underwater, they may be likely to start screwing up and eventually won't be able to make payments and go into tits up anyways, so the lender can call the loan and hopefully force them to refi (rather than foreclose), but that doesn't reflect the reality of the situation we are in where there aren't lenders raining from the sky anymore...
TGRR, what are you hearing is the motivation for the lenders to do this?

You can't refinance an upside down loan unless you go through the Home Affordable program.

Fuck.  I got distracted by bewbs and never looked that shit up.

Tonight.  If I am not assaulted.

[The Good Reverend Roger]

yea. we've got 'eSafe' and it sucks ass too.... i feel your pain.

it seems to me that it would be self defeating to put an 'under water' statement in the acceleration clause....
if the person is making payments on a loan that is more than the value of the house, the lender is getting mo money than they would if they called the loan and likely forced the person into foreclosure...  then they would be able to get, at most, the market value of the house, which is already established to be less than the loan amount that they are currently raking in.  The only motivation i can think of is that, being underwater, they may be likely to start screwing up and eventually won't be able to make payments and go into tits up anyways, so the lender can call the loan and hopefully force them to refi (rather than foreclose), but that doesn't reflect the reality of the situation we are in where there aren't lenders raining from the sky anymore...
TGRR, what are you hearing is the motivation for the lenders to do this?

In the (very) short term, foreclosures make perfect sense, if you're a bank CEO out to make a BIG increase on the books, then leave for a better job before reality sets in.

[Elder Iptuous]

In the (very) short term, foreclosures make perfect sense, if you're a bank CEO out to make a BIG increase on the books, then leave for a better job before reality sets in.

why would that increase the books?
if you own the debt that shows on the books as the value of the debt, plus interest.  if you foreclose on them you have a house that you have to mark to the market, right?

[Requia ☣]

Because you have a credit default swap with AIG, so if you call in the loan (or more commonly, raise the interest rate), forcing a foreclosure,  AIG pays out the balance lost on the auction of the house.  So you get all that money today instead of over the next 30 years (plus the added value from the unpayably high interest rate).

Also, they changed the rules so that banks can sit on foreclosed property indefinitely, which means the bank can keep the value on the books of the house the last time it was appraised.

[The Good Reverend Roger]

Because you have a credit default swap with AIG, so if you call in the loan (or more commonly, raise the interest rate), forcing a foreclosure,  AIG pays out the balance lost on the auction of the house.  So you get all that money today instead of over the next 30 years (plus the added value from the unpayably high interest rate).

Also, they changed the rules so that banks can sit on foreclosed property indefinitely, which means the bank can keep the value on the books of the house the last time it was appraised.

This.

[The Good Reverend Roger]

Okay, Nigel, I looked it up and here's the facts as far as I can tell:

1.  A bank cannot call a loan simply because the property is upside down.  They could in the 20s, but the Glass-Steagal Act ended that.  It is one of the few things NOT repealed by the Gramm/Leech/Bliley Act of 1998.

2.  However, the bank CAN call a "balloon loan" if the mortgage is structured as a shorter loan (ie, amortized over 30 years, but due in 20), they are not required to renew the loan (this used to be common practice, now they seem to foreclose immediately).

3.  The big fear seems to be that, rather than the bank foreclosing, masses will walk on their upside down loans.

[Mesozoic Mister Nigel]

Okay, Nigel, I looked it up and here's the facts as far as I can tell:

1.  A bank cannot call a loan simply because the property is upside down.  They could in the 20s, but the Glass-Steagal Act ended that.  It is one of the few things NOT repealed by the Gramm/Leech/Bliley Act of 1998.

2.  However, the bank CAN call a "balloon loan" if the mortgage is structured as a shorter loan (ie, amortized over 30 years, but due in 20), they are not required to renew the loan (this used to be common practice, now they seem to foreclose immediately).

3.  The big fear seems to be that, rather than the bank foreclosing, masses will walk on their upside down loans.

The balloon loan thing happened with my sister. My sister was an idiot from the get-go and made things vastly worse for herself by ruining the house, though.

People are, indeed, walking away from their loans, and it's amazing. AMAZING. It will be sheer disaster. I intend to keep paying mine as long as I can, even if it goes upside-down.

[Mesozoic Mister Nigel]

It cracks me up that my house was, at one point, "worth" nearly half a million dollars. I'm really glad we didn't try to cash out equity.

[Elder Iptuous]

Because you have a credit default swap with AIG, so if you call in the loan (or more commonly, raise the interest rate), forcing a foreclosure,  AIG pays out the balance lost on the auction of the house.  So you get all that money today instead of over the next 30 years (plus the added value from the unpayably high interest rate).

Also, they changed the rules so that banks can sit on foreclosed property indefinitely, which means the bank can keep the value on the books of the house the last time it was appraised.

hm. interesting...
so under what clause do they call the loan?  Do you know what the status of AIG is after it's bailout in regards to it's ability to honor all the CDS derivatives?  are they likely to require more bailout?

as far as sitting on foreclosed property just so they can keep the artificially high appraisal on the books, that would just be a biding time strategy, right? since the value of the house is lower, and probably going to continue going south? (esp. after the next wave of rate resets hits next year on the option arms...)  They would presumably only do that if they didn't have a CDS on the mortgage asset that would payout immediately, right?