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View Diary: Spiegel:"Wall Street's Central Values: Avarice and Greed." The next bailout, Wall Str. vs Main Str. (105 comments)

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  •  I just don't see this happening. (4+ / 0-)

    With respect to mortgages, while I think that the American people fully support renegotiating the terms of a mortgage (like lowering interests rates, and/or extending payments, and/or suspending payments on the unemployed) I don't see a huge support for either forgiving principal or righting down principal amounts.  Here's why.  

    The only way to do this, supposedly, is for the United States government to pass some law saying that mortgage holders are limited to the present value as the mortgage principle.  And doing that -- changing the basic terms of the contract forcing the mortgage holder to take a financial loss that was not bargained for -- would be an unconstitutional "taking' without just compensation (see the 5th Amendment) by taking property rights of the mortgage holder.  The government would have to compensate the mortgage holder for the amount of loss the government forces the mortgage holder to take -- i.e., another bailout of the banks.  I don't see that happening.

    And I think a lot of people would see a "fairness" issue in here.  The people you would be "bailing out" are only those who borrowed up to the then-existing full value of their homes.  Many, many others who made larger down payments, or who have paid down principal, have suffered equal losses in the value of their homes -- and an loss in equity in your house is a real financial loss, especially when they go to sell it.  Yet all these people, who have suffered real financial loss, would not get a bailout because, and only because, the amount of principal remaining on their mortgage is less than the now-lowered value of the home.  Not only do they not get financial relief because their either were more financially conservative in the first place or have paid longer on their mortgages, but they would, in essence, be paying others who suffered the exact same loss but had a more aggressive borrowing strategy and/or bought their house more recently, at the top of the "bubble."  

    It seems to me that, unpleasant as it is, there are not a lot of options to letting the legal structure stay in place.  People who are "underwater" can look to see if their loans are no recourse or not, and make decisions as to what is in their best interests.  

    I think the same applies to student loan debt, frankly.  There are a lot of people who couldn't afford to go to college, or couldn't afford to go full time, or couldn't afford to go to a "name" university.  Should they be paying so that someone who racked up $100,000 in debt for tuition, room and board at a top tier university -- and who will keep all the benefits of that education -- can now be free from debt?  I think there's a fairness issue that will not play well with the American public.  (And this is from a parent who knows full well how outrageous the cost of a college education can be.)  

    •  But the issue is that all this talk of fairness (3+ / 0-)
      Recommended by:
      corvo, mkor7, Sunspots

      that you bring up was never considered during the big bank bailouts of 2008 and 2009.  And it's still happening today.  This year the Rajoy government in Spain bailed out the big banks and did zilch for Spanish homeowners.  And the way things work in Spain, you can't walk away from an underwater mortgage.  You owe forever.

      •  You can't justify (2+ / 0-)
        Recommended by:
        VClib, nextstep

        this unfairness by saying "the big bank bailout was unfair, so I should get to profit unfairly, too!"  That doesn't work with someone who bought a house for $300,000, has been paying on a mortgage for 15 years, now owes $200,000 on a house worth $225,000.  They've lost $75,000 and they have to pay for someone else's mortgage, all because they bought their house a while back and paid their mortgage regularly?  And what about the person who had $100,000 equity in their first home, and used it to by a second, $300,000 home?  Say that second home is now worth $225,000 -- they've clearly lost $75,000, but since they had a lot of equity in the house, and didn't borrow as much, they not only get no relief, but they have to subsidize someone else's loss.  

        And saying, "well you got screwed in the bank bailout so we're entitled to screw you again" doesn't help.

        As for the "walk away" thing, here that depends on the documents you signed when you agreed to borrow the money to buy the house, and state law.  In some instances, it's "non-recourse," which means that the only thing the mortgage holder can do if you don't pay is take the house.  But that also means that the mortgage was probably a bit more expensive in terms of points or interest rate, because it's a bit riskier for the bank.  If it's a recourse loan, where the bank can not only take the house but you still owe the difference between what they get when they sell the house and what you have left on the loan, that's worse for the homeowner who defaults, but on the other hand, the loan was probably a little bit cheaper and easier to get in the first place.  

      •  Miggles - the bank bailouts are loans (0+ / 0-)

        that the banks are expected to repay. I don't see how that is the same as debt forgiveness for individual borrowers.  

        "let's talk about that"

        by VClib on Wed Dec 12, 2012 at 11:15:45 AM PST

        [ Parent ]

    •  the banks inflated the market with easy credit (0+ / 0-)

      in the first place which ballooned housing prices far beyond what was safe. So they actively colluded in deceptive lending which directly overheated the housing market. Their actions are directly to blame... they covered up, lied and generally acted corruptly... and it only ended when the bubble popped and the recession started. Citizens relied on the Govt and public and private entities to act with the wider long term interest of the whole country... mortgage holders and everyone else too. I don't know if there is any way to tie recourse to the causes but in a higher state of justice there would be some sort of relief for those who bore the brunt of the results of greed and corruption.

      Pogo & Murphy's Law, every time. Also "Trust but verify" - St. Ronnie (hah...)

      by IreGyre on Wed Dec 12, 2012 at 12:24:54 PM PST

      [ Parent ]

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