DEFICIENCY JUDGMENTS: They took your house/job, got bailed out, now they're SUING you

[nashville_brook]

You know why the bank took your house? Because by eliminating Glass-Steagall, our government enabled a massive speculative bubble which burst and sent the world into financial chaos. Which is why you lost your job. Which led to you losing your house that was massively overvalued.

Instead of the government putting an end to bank speculation, they gave the banks $6 trillion of our tax money -- paying 100 cents on the dollar for FAKE VALUE created in the speculative bubble.

This made the banks whole while working families took the haircut as ALL of our homes lost value, and our tax base eroded leaving our cities and schools without any means of support.

Enter the latest outrage:

Now they're coming back for more, using DEFICIENCY JUDGMENTS to extract money from the families who were already robbed in the speculative bubble, and then lost their homes. A deficiency judgment says that if you borrowed $250,000 for a home worth only $100,000 in today's market, the bank can sue you for the other $150,000 of FAKE VALUE, despite the fact that you've given back the house, despite the fact the banks where made whole in the bail out, and despite the fact that the property has been re-sold.

Why is the government allowing these same criminals to sue the broken foreclosed homeowner for the exact amount that the banks created and stole twice already? Why is no one is stopping them?

What's even more sinister is the banks are now selling these "deficiency judgments" as debt packages that investors are buying as a quick money-maker. They buy a portfolio of thousands of underwater foreclosures (for pennies on the dollar) and on paper they've got more than a $100,000 owed to them from each and every defendant. They'll harass these people until any amount is paid and all that money is profit.

Blood from our dying middle class.

And no one in Washington is doing anything about this. It's beyond outrageous. It's why people are fighting back, occupying parks and being hit with rubber bullets and tear gas. We've got nothing left to lose and we're making our stand right here. Right now.




Here's some reading on deficiency judgments:

http://online.wsj.com/article/SB10001424053111904060604576572532029526792.html
House Is Gone but Debt Lives On

LEHIGH ACRES, Fla.— (snip) Ray Falero, a truck driver whose Orlando home was foreclosed on and sold in August 2010, says he thought he was hallucinating when, months later, he opened the door and saw a sheriff's deputy. The visitor handed him a notice saying he was being sued for $78,500 by the lender on the home purchase, EverBank Financial Corp., of Jacksonville, Fla.

"I thought I was done with this whole mess," he says.

Mr. Falero, 37, says he was about nine months behind on his loan when the bank foreclosed. Before it did, he bought another home in Minneola, Fla., where he now lives and where he says he is up to date on mortgage payments. Like Mr. Reilly, Mr. Falero says he didn't swell the foreclosed-on loan through refinancing or home-equity borrowing.

EverBank won a deficiency judgment on Mr. Falero's Orlando loan. Mr. Falero and his lawyer are fighting to reduce the amount owed. EverBank declined to comment on his case.

(snip)

[ixion]

1. this was the REAL reason for the so-called 'ownership society'

lure people in with exotic mortgage vehicles sporting easy terms (to start with), then turn them into an indentured servant when the loan goes south, which is what your average 80/20 ARM loan is designed to do.

They needed this in order to implement the Neo-Feudal Age.

[nashville_brook]

3. precisely -- it's all very clear now.

[woo me with science]

15. +100000

It was planned theft of America. These fuckers need to fry.

[Enthusiast]

146. Obviously it was planned or

they wouldn't have been so anxious to change the bankruptcy rules. The first step was to enact Gramm-Leach-Bliley. http://en.wikipedia.org/wiki/Gramm-Leach-Bliley

[Enthusiast]

147. "These fuckers need to fry."

No punishment would be too severe. I'm thinking they need to be subjected to poverty.

[CoffeeCat]

151. PLANNED is right...

...and I wish more people would make this point.

All of this garbage that happened with the housing implosion--it was a scheme cooked up and executed with GREAT planning and with the knowledge that it was a house of cards that would
come tubing down. These banksters weren't shocked nor surprised when the crash happened.

First off, it was the banks who bribed our politicians in order to relax lending regulations. Poof--thank you bribed politicians--now ANYONE can get a mortgage with no money down! That was
essential to the banks and their financial scheme. They needed as many mortgages as possible--to complete the first leg of the scheme. So everyone got a mortgage--people with no money, people
with little incomes, people who put nothing down--even people with terrible credit. THIS WAS NOT A MISTAKE! The banks PAID our politicians for the legislation that made this happen!

Next, was rolling those mortgages into mortgage-backed securities. These were sold on the secondary markets. The banks swapped these securities (that contained many soon-to-bust mortgages) back
and forth and made billions.

Anyone seriously think that financial experts didn't know that those securities were worthless piles of junk? Anyone seriously think that they didn't know it would implode?

When it did--they got your money and my money---to bail them out and make them whole.

Oh please. They're laughing their assess off.

Thank you for pointing out that this was PLANNED. Because it was.

[nc4bo]

2. Motherf8ckers...

We all must make our stand now, later may be too late.

:cry:

[RKP5637]

4. At some point you just say F it, fine, sue me. I don't give a F. n/t

[nc4bo]

13. How can they possibly get blood out of a turnip?

What else is left when you have nothing left to lose? Good God the position so many of us find ourselves in is just horrifying. We have no one to hear our cries and certainly no one who wants to change it.

If this keeps up new prisons will have to be built especially for the foreclosed upon.

[RKP5637]

24. It's a horrific situation and frankly TPTB don't give a damn IMO. This is a country in

crisis. No pep talk, some money moved here and there, or some new jobs are going to fix this. Very bold action is required and frankly I see or hear of none by anyone. Countries have failed when the core of the country is hollowed out, but we churn on business as usual.

I hope the OWS numbers increase by millions upon millions upon millions. It seems the only thing that will get any attention will be major protests. But then the bright idea will probably be to mow people down, like at Kent State. Never in my lifetime did I think I would see this country deteriorate in so many directions at once. It's hard to find anything anymore where it's not failing or falling apart.

[Marazinia]

129. Exactly

Too many people are one layoff from the street. Do they think we're going to sit there quietly and starve?

I know I won't. If I'm ever on the street, I will fight to live.

[nashville_brook]

49. they're garnishing the wages of these families. literally taking food from their mouths.

[Lionessa]

117. Most likely they are targeting those that just walked away as opposed to actually

being indigent. Even so, if the collateral was a house, then a house is all they should get.

[socialindependocrat]

127. I agree - The bank agreed this was the contract...

The house is what they should get and the deal is closed!!!

[CoffeeCat]

152. They'll certainly garnish wages...

If these banks sue these people and win--their wages can be garnished. A hefty chunk can be taken out
of every paycheck.

If this happens, most likely these people will lose the lives that they have worked hard to rebuild. They could
lose their new homes.

Student loans are notorious for doing this. They'll come and take it if you don't hand it over. Doesn't matter
to them if the economy is in the toilet or if you can't afford to make payments, because you're working three
minimum-wage jobs. They'll take it from you.

[rdking647]

5. file bankrupcy

the deficiency judgement gets tossed out with all other unsecured debt..

[DirkGently]

9. This may cause a new explosion of bankruptcy filings. More lives wrecked.

[nashville_brook]

wrecked after being wrecked and being wrecked again. we deserve better from our govt.

[RKP5637]

28. I don't think we even have a gov. anymore. We have a crooked corporation. n/t

[nashville_brook]

48. amen.

[Beavker]

154. +1

[tridim]

12. Bankruptcy costs $2000.

Broke people don't have $2000.

[Ed Suspicious]

55. Just so awesome how this matches up with the relatively new

bankruptcy reform making absolution of one's debt next to impossible now. It's like critters in congress saw this coming and worked tirelessly to secure their banker friends a future revenue stream.

[CoffeeCat]

155. Exactly...that's exactly right...

The web that will ensnare us all--has all ready been spun.

Bankruptcy laws are a good example. It is not coincidence that bankruptcy laws were reformed. They all knew the housing situation was a house of cards that would implode and bring down the economy. They knew that outsourcing and globalization would bleed the US economy of jobs and cause high unemployment. They had to make it difficult for people to start over and for people to walk away.

Their corporate pals wouldn't have it.

[Missy Vixen]

59. $20 says that there will be a rider to a bill passed in Congress that "deficiency judgments" cannot

be discharged in bankruptcy before the end of the year. It'll either be voted on Thanksgiving or Christmas Eve, too.

Who'd like to bet with me?

[nashville_brook]

79. i'd say that's a good bet -- and you pegged it as being a "rider" rather than a light-of-day bill

[sarcasmo]

102. I am with you, they will make them just like student loans.

[ixion]

81. Remember the (Dem Majority Passed) so-called Consumer Protection Act?

It made both filing bankruptcy and what you types of debt you can cover in the filing more difficult.

They knew this was coming, and they were preparing.

[meow2u3]

93. It was the Republicans who passed the "Bankruptcy Abuse" act in 2005

That was the law that made it harder to declare bankruptcy and screwed the middle class.

http://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_and_Consumer_Protection_Act_%28US%29

[DirkGently]

6. Yep. Another way to convert middle-class assets into gambling chits for monied investors.

"Wealth creators" my ass. The only thing the investor class creates anymore is misery. It's too much work to even invent a product, have it manufactured overseas, and sell it back to us. Now they spend their time thinking of new ways to simply gamble with other people's lives and money.

They can't lose, because they make the rules. If they break them, the government will broker a deal or pass legislation to make it okay. If they still lose, Washington will hand over a few trillion to bail them out, then sadly explain how, what with saving those too big to fail and the endless, totally necessary web of wars and assassinations in the Middle East, we can't afford things like paying people the Social Security benefits thy already paid for.

[coalition_unwilling]

7. I understand the larger issue and am deeply sympathetic, but

are we suppposed to feel sorry for Joseph Reilly (cited in the WSJ article) who lost his 'vacation home'???? I mean, really, there are some 20,000 homeless veterans on the sreets of Los Angeles and I'm supposed to give a shit about someone with the wherewithal to have a 'vacation home'?

Maybe I've got an empathy gap this morning but this specific case sort of sticks in my craw.

More coffee should help :)

[DirkGently]

14. Scroll down to read about the truck driver facing the same situation.

[FarCenter]

16. Even though FL is a non-recourse mortgage state, a mortgage on a vaction home is not non-recourse

Mr. Reilly should have let them foreclose on his primary residence, assuming that he had a home-purchase first mortgage on it. Then he could have moved into his vacation home.

But it begs the question of why anyone would have a mortgage on a vacation home. Sounds like a bad idea.

[dkf]

22. Well they say it is the more affluent who are walking away.

[FarCenter]

27. In the non-recourse states, they can walk away if they do it with the right legal advice

The lender cannot attack their other assets.

On the other hand, if they have done refinancings, have second mortgages, HELOCs, or multiple properties and have falsely claimed primary residence, then things can become complicated for them.

[DirkGently]

25. Wrong. FL is not non-recourse. Lenders can & do seek deficiencies on 1st mortgages in Florida

They have to make a separate motion or file a new suit after the foreclosure sale, but can come back to collect the difference. There's a lot of confusion on the web regarding this, but Florida is not a "non-rcourse state." It all depends on the terms of the mortgage itself, which usually provides for recourse.

[FarCenter]

36. I stand corrected; its one of our problems that mortgages vary by states

The attempt to create a market for mortgages by securitizing them was a very bad idea, since bundling together mortgages from multiple states involved glossing over the legal differences between states and among how the mortgages were written.

MERS was a very bad idea.

[DirkGently]

44. Agreed. MERS muddied the waters the horribly & contributes to consumer confusion.

The banks will say that was not the intention; they were just speeding up the flow of capital as God intended. They ended up commoditzing middle-class people's lives, then carelessly speculating as with any other commodity. Then they expect everyone to just shrug off the resulting bubble burst, despite the fact it took people's homes and jobs with it.

Somehow, we're all expected to pay the price for the wonderful world of investments, because ... why, again?

[ixion]

86. It's not necessarily about 'feeling sorry' for an individual

it's the idea of banks suing practically anyone they feel like suing to claim their owed fake debts.

[FarCenter]

8. State laws vary depending own whether mortgages are "recourse" or "non-recourse" mortgages

In some states a first mortgage used to purchase a house you live in is a "non-recourse" mortgage, which is secured only by the deed to the house. The lender cannot sue you for a deficiency. On the other hand, if you re-finance the mortgage, the new mortgage may not be a non-recourse mortgage, and the lender can sue you for a deficiency.

In other states, (the majority, I think), the mortgages are secured not only by the mortgaged property, but also by the assets of the borrower. In these states, the lender can sue for the amount of the deficiencey. On the other hand, the borrower can get the deficiency discharged in a bankruptcy proceeding if he has no significant assets.

This is why people need a lawyer when doing real estate transactions.

[RB TexLa]

20. There are only 12 non-recourse states.

[FarCenter]

23. And some of those state are the ones with the biggest foreclosure problems

CA, AZ, NV, and FL have a high incidence of borrowers "walking away" from their homes when the home value is less than the remaining balance on the mortgage. This depresses prices even more, making more homes in the neighborhood "underwater", incenting more borrowers to "walk away".

The recourse states have had less foreclosures, since in many cases foreclosure must be followed by bankruptcy in order to discharge the deficiency, and the borrower will either have to pay the deficiency or give up any remaining assets.

[RB TexLa]

29. You can still go after the delinquency in those states, it's just harder.

[Recursion]

72. That's a very important point: non-recourse doesn't mean no chance of reclamation

It just puts up a shitload of hurdles in front of the lender.

I'll add, non-recourse states also usually make it harder to attach a mechanic's lien, which leaves a lot of small contractors in trouble.

[sendero]

10. It is my understanding.

... that deficiency judgements are only possible in states with recourse loans. Unfortunately that includes most states.

Go here to see the complete story.

http://www.forecloseddreams.com/recourse_states

[L0oniX]

11. File for bankruptcy.

[DirkGently]

19. Sure. Pay a lawyer a few thousand more you don't have, and give up your non-exempt assets.

Easy peasy. As long as the bank that overvalued your house in the first place can make a few more bucks bundling deficiencies, all's well.

[Sal Minella]

17. National Public Radio just ran an excellent segment on this.

The homeowner lets the bank take his house and then (perhaps FIVE YEARS later) can find out the bank (who has already been bailed out and has already sold the house again for current market value) is after him/her for the difference between the inflated value (which the bank originally treated as real) and the amount the house sold for after foreclosure.

Talk about kicking people when they're down. Talk about trying to get blood out of a turnip. The family in the NPR story has negotiated paying $75 a month for years, to someone who has a few pennies invested in buying the paperwork.

This is financial cannibalism of the worst sort, imo.

[FarCenter]

21. When the borrower signed the mortgage, he agreed to pay the money, not give them the house

So if the lender can't get their money back by selling the house, they come after the borrower for the remaining money.

It is the deal the borrower made.

It is not hard to understand.

[Meshuga]

51. The fact that the bank got bailed out for the loss

And that it is now coming back for seconds is also not hard to understand.

The fact that these banks did all they could to lure these people to sign the mortgage and hid the ugly stuff in mountains of paper is also not so hard to understand.

But the simplest form without going beyond the surface is easier to understand so let's stay there and blame the victim instead.

[chervilant]

94. hmm...

I am concerned by your rather cavalier assertion that 'it is a deal the borrower made.' Having been in the mortgage industry for years (I left because I refused to sell sub-primes), I can assure you that most homebuyers are NOT savvy about reading the massive contracts that the lenders and title companies have created lo these many years.

In fact, banks KNOW that most borrowers are financially illiterate (moreover, better than 40% of this nation's adult population is functionally illiterate), and they USE this information when developing their marketing strategies.

AND, I challenge you to find me a single title officer who adjures their homebuyers to 'take your time and read every page of this 80+ page contract, especially the fine print...we'll wait for you to finish...' I have attended countless closings where the title officer pre-flagged every space where initials or signatures were required and moved fluidly from post-it flag to post-it flag, as clients signed their lives away into thirty-year servitude. After all, a twenty-minute closing means much more business by the end of each day...

I am certain the big lenders are using their well honed marketing strategies to determine how best to hit us with "deficiency judgments" even as our global economy grinds to a halt. I believe this will be a Phyrric victory for those vile hedonists.

[Sal Minella]

96. Banks trying to wring the last dime out of people

who are broken, bankrupt, broken-hearted and homeless is also not hard to understand -- they haven't the financial or emotional resources to fight the juggernaut.

Soulless greed is actually a pretty simple concept.

The lender DID get his money back already -- that's the point, that's why this deficiency payment thing is so contemptible and immoral.

There must be a One-Percenter's Message Board somewhere that would welcome sentiments such as yours.
I think you'll find the DU people mostly think your attitude is reprehensible, if not criminal.

[nashville_brook]

43. here's a link to that NPR segment -->> and btw...

http://www.npr.org/2011/10/30/141837922/in-idaho-banks-sue-hard-hit-homeowners

"financial cannibalism" is a great metaphor!

[RB TexLa]

18. Regardless of what one thinks of the accuracy of the value at signing. That is the amount of money

that was loaned. The borrower did sign a binding contact that they would pay that back.

[dkf]

26. People take debt so lightly. Crazy.

[DirkGently]

32. Banks took underwriting so lightly. Then we paid them for their mistake. Now they want more. Crazy.

[dkf]

35. How did we pay them for their mistake? We loaned them money and they paid us back with interest.

[DirkGently]

46. Oh. Did they give everyone their jobs & homes back? When did that occur?

[dkf]

53. A bubble is a bubble. It has to be contained at a system wide level.

When bubbles burst there is always pain but there were good times to be had while it happened. Jobs were created by that bubble and now they are taken away with collateral damage due to a drive for efficiency.

If anything we should be pissed that the need to conserve cash made businesses realize they were pretty inefficient. We are back to 2007 GDP but with 8 million less workers.

[DirkGently]

66. Except the "good times" were limited to the 1%. The "eat shit times" are all on the middle class.

They got paid bonuses even after they caused this mess. No one let the free market dictate what happened to the top of the food chain. Not only are harsh economic "realities" left to those unable to afford lobbyists and Washington clout to save them, this time they actually socialized the risk and privatized the gain. Quite convenient.

We are in an upside down version of socialism, where the many are shaken down to pay the few. There's now no balances or cautions in place to prevent wild speculative bubbles, because we now know that when the wealthy REALLY blow it, we all pay to save them. Then the same people turn around and shrug mournfully that there's just nothing to be done for the very people's whose earnings were gobbled up. THEY -- the ordinary consumers -- should just have made better decisions.

[dkf]

98. The good times came for Real Estate agents, Mortgage Brokers, Appraisers,

Home Construction workers, Title officers, Municipal governments, etc. Without the bubble, there were no jobs, bonuses, raises, commissions, etc.

A lot of people in tech did pretty well for a time before their companies went bust after their initial promise was snuffed out too.

What people are really upset about is that we couldn't keep that bubble going.

[nashville_brook]

106. sounds like all YOU'RE concerned about is that the bubble couldn't keep going

the rest of us would like to live in a world where speculation and fraud aren't prime economic movers.

[dkf]

141. I'm concerned that the Fed feeds the bubble with interest rates that are too low.

It was systemic.

[rpannier]

122. According to economists like Keiser and Stiglich

They paid it back using other loans they got from the government
So, I disagree that they paid it back.
They just shifted money around and we're still getting screwed

[chill_wind]

How many times are you going to keep repeating that fallacy?

[Exilednight]

30. You're missing the point. The money was paid back to the banks - BY THE GOVERNEMNT. n/t

[dkf]

38. What money was paid to the banks by the government? Are you talking about the loans they paid back?

[DirkGently]

70. That's a tired ruse. The economy's still in flames, & no one bailed out consumers.

[chervilant]

95. Gosh...

I wish I could see the remark(s) that prompted your response. Ah, well... Probably more of the same blaming and shaming, sarcastic, or vitriolic drivel that motivated me to add them to my ignore list...

[nashville_brook]

99. :) pretty much...esp downthread

[chervilant]

101. Yes, I was past all those

and I scrolled back up.

I have to commend your efforts, though. I have opted for a longer ignore list I tell myself it's because I'm too old to tolerate fools lightly, but I remain hopeful it's NOT because I'm becoming intolerant...

[nashville_brook]

107. i'm too curious about who's winning the biggest asshole contest of the day

:evilgrin:

[Exilednight]

85. The government purchased up all the bad loans. This is the reason why the government owns

large stakes in our largest banks.

[Recursion]

41. No. That's not what happened

That would have been a better form of bailout, probably (albeit a logistical nightmare), but mortgages were not redeemed at any point in the bailout process.

[Exilednight]

83. It's exactly what happened. Who took over the "bad" loans from the failing banks? n/t

[Recursion]

103. The treasury assumed counterparty risk; they did not actually buy out the instruments

Like I said, that would have been a better way to do it, but that's not what they did.

[Exilednight]

109. actually, the treasury did buy bad mortgages. They created a bad bank and bought huge stakes by

buying mortgages a 100 cents on the dollar. The government actually owns good size percentages of our largest banks along with tons of mortgages that were purchased to allow the banks to remain solvent.

[chill_wind]

134. Money Still Owed In Federal Bailout: $1.5 Trillion

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=439&topic_id=2092292&mesg_id=2092799

Tons in toxic mortgage support.

Money Still Owed In Federal Bailout: $1.5 Trillion Still Owed to Treasury, Federal Reserve

http://www.prwatch.org/news/2011/08/10924/money-still-owed-federal-bailout-15-trillion-still-owed-treasury-federal-reserve+

And not even the Tarp and Fannie and Freddie bailouts are paid back yet according to ProPublica's data:

"The Treasury has been earning a return on most of the money invested or loaned. So far, it has earned $67 billion. When those revenues are taken into account, $235 billion is the net still outstanding as of Oct. 26, 2011."

http://projects.propublica.org/bailout/main/summary

[Exilednight]

145. Thank you, but links with facts will only make people bury their head further in the

sand. This is what I've stating all along, the government bought up all these toxic mortgages and the banks get all their money back.

We should have allowed the banks to fail and then nonexistent banks wouldn't be able to sue former home owners.

[DirkGently]

31. The lenders, however, created lack of value themselves. Why should they profit from it?

Lenders caused the explosion in real estate value by first falsely positing that home values always go up, commoditizing mortgages by chopping them up and selling them as high-rated securities, and then tossing away their own underwriting requirements. Values shot up BECAUSE anyone could by any house, for any price.

Then they and their brokers made things even worse by selling 100% loan to value loans, and telling people things like interest-only loans made sense because, again, "prices always go up." Bernanke was a big fan of this facile fantasy, and jeered at people suggesting otherwise.

Banks through away their own underwriting guidelines, at times allegedly circumventing even their own underwriting software, because under this crazy logic, any mortgage was a good mortgage. Flagrantly false application? No problem? House in crappy condition? No worries.

The result was that even qualified buyers shopping in the market paid ridiculous prices. Then the bubble popped, the world economy collapsed, and people started losing their jobs. The result is that even "responsible" good-faith borrowers are stuck with huge debts based on lender-created false values.

The lenders ought to have to eat the dog's breakfast they made of things themselves, but instead, they first had us bail out their investors, and NOW plan to sell off the "deficiencies" they caused between their own inflated appraisals and loan amounts and the actual value of the homes they are taking from people.

It's grotesque. They created false value, got paid for it by American tax payers, and now plan to now only foreclose on millions, but to kick them again by commoditizing deficiencies and selling them to more investors.

[dkf]

39. If you want to blame anyone for a bubble you have to go to the Fed.

[nashville_brook]

you and Ron Paul can work on that project -- the rest of us will be re-regulating the banks.

[dkf]

61. Regulation is also the Feds baby: Central banks may need to burst bubbles: Bernanke

http://www.reuters.com/article/2011/10/18/us-usa-fed-bernanke-idUSTRE79H5IR20111018

Central banks may need to burst bubbles: Bernanke

BOSTON (Reuters) - Federal Reserve Chairman Ben Bernanke said on Tuesday central banks may need to use monetary policy to combat asset bubbles, although regulation should be a first line of defense.

"The possibility that monetary policy could be used directly to support financial stability goals, at least on the margin, should not be ruled out," he said at a conference at the Boston Fed.

Bernanke did not directly discuss the outlook for the U.S. economy or monetary policy in a speech in which he offered thoughts about how central banks will formulate policy.

He said it was unlikely central banks would shift away from the current focus on so-called flexible inflation targeting, in which they make clear their inflation goals as a way of ensuring the public's expectations of inflation remain low.



THE FED Archives | Email alerts
Oct. 18, 2011, 2:02 p.m. EDT
Fed might use rate hikes to pop bubbles: Bernanke

http://www.marketwatch.com/story/fed-might-use-rate-hikes-to-pop-bubbles-bernanke-2011-10-18

WASHINGTON (MarketWatch) — The Federal Reserve might one day have to hike interest rates to pop an emerging bubble, Federal Reserve Board Chairman Ben Bernanke said Tuesday.

The comment by Bernanke, restrained as it was, goes against past proclamations. Before the 2008 financial crisis, Fed officials — notably Alan Greenspan, the former chairman — argued that monetary policy was too blunt a tool to combat possible bubbles.

Today, many analysts said the Fed could use new bank supervisory powers to dampen excess speculation or credit growth as foreign central banks employ, like caps on loan-to-value ratios on mortgages in Korea and Hong Kong, or dynamic loss provisioning by banks in Spain.

[DirkGently]

52. I think we'll blame elimination of bank regs that would have made this impossible, thanks.

[dkf]

65. We still saved the investment banks you know.

Too much of our debt capacity was in shadow banking. Exactly what are the regulations that would have saved us? I still don't see any.

If anything we needed better supervision.

[DirkGently]

77. Lenders didn't used to be in the securities business. The cataclysm you're standing in is why.

[dkf]

88. They still would have sold those loans.

You don't need to be on both sides to have done that. My credit union now sells ALL their mortgages where before they used to keep them. That is why they don't give dividends based on the mortgages. They used to return that to shareholders when they did.

[DirkGently]

89. But combine that with the fraud of "A-rated "mortgage-backed securities, & BOOM.

Not the same thing at all.

[dkf]

97. The fraud was committed on the investors and tax payers, not on the homeowners.

If its a fraud to loan more than people can afford, then there is a whole lot of fraud going on to this day and a lot of people should be cut off from their credit cards.

If its a fraud to sell things at outrageous prices, then many of today's home sales are also fraudulent. Look at home prices in NY, San Francisco or Honolulu.

Or is the fraud in allowing over leveraged home sales? If so, FHA loans at 3% down are a fraud.

[DirkGently]

108. They created an entire fraudulent market of imaginary housing values.

[Exilednight]

110. There is some value in that remark, but not a lot. The only thing the fed really did wrong was keep

interest rates too low for too long.

I still believe the interest rate is either too low, or not low enough.

[NNN0LHI]

33. This is not something new

I was aware my entire life that if I purchased a home and lost it I would later receive a bill for the difference in what it was sold for and what I owed on it. I knew they would charge me any costs associated with that also. They taught us this in high school. That is one of the reasons I waited until I was well into my 30's before I purchased my first home.

What changed where this seems like a big surprise to people now?

Don

[FarCenter]

40. Do high schools teach anything about personal finance?

Or commercial law?

To the general population, not just in specific elective courses.

[dkf]

45. At my high school we had a semester in "economics".

We had to carry around an egg and pretend it was a baby.

I do remember a one day lesson on stocks, another day on interest and loans, but we never got so far as to talk about foreclosures much less recourse.

That teacher was the one who told me Social Security might not be there for me when I get older.

[haele]

60. The kidlet just graduated - they don't teach basic economics.

They'll teach a form of macro-economics with history, but they don't teach anything about basic home and consumer/business economics or basic accounting any more that I can see, except in a very few school districts. Most of that is taught in college.

I was taught basic consumer economics and accounting in high school - in 1975/1976. In the early 1990's, I would talk with recruits just out of boot camp and certified trade school techs (AS level)who were never taught how to balance their own bank accounts, much less analyze loan papers.

Haele

[dkf]

63. And we wonder how people get into financial messes...

[haele]

69. It's easier to take advantage of the ignorant.

If you cut civics and basic home/consumer economics out of the education system, you have a population that is easy to sell to and manipulate.
After all, St. Ronnie declared the best governance model was a business model...

(Edited for spelling)

Haele

[DirkGently]

74. It doesn't matter how "ignorant" you are, if lenders conspire to inflate the market itself.

[nashville_brook]

80. the ignorant and the "educated" are paying the price equally.

[DirkGently]

73. No we don't. Not when lenders & investors create a false reality & force everyone to live in it.

It wasn't the people with the least knowledge that created this mess. Any market allowed to go to hell in speculation will do so. People taking out loans in good faith on property banks said was worth the selling price didn't have any opportunity to apply economic common sense. They were living in a false market deliberately created by the people who knew better.

[nashville_brook]

84. no amount of consumer economic education would have stopped the mortgage fiasco

this was actually happening on the macro level with derivatives and CDOs and exotic instruments that no one, not even the bankers, understood.

victim blaming won't change this -- nor would any amount of high school level econ protected the average homeowner.

[haele]

111. Not blaming the victim - just pointing out part of the set-up.

The writing was on the wall on the way "Business" decided it was going to take over back in the Reagan years. And I'm pretty sure that in a sane government that actually works for the people, there would be a lot of "wealthy" people up on RICO charges and a lot more "too big to fail" corporations broken up to disappeare.

Haele

[nashville_brook]

47. actually it is new b/c the devaluation of property is new -- there was no deficiency in the past

and therefore, no deficiency judgement.

[NNN0LHI]

54. The local banker would always sell the house to a friend or relative for less than what was owed

And then the person who was foreclosed on would still get a bill to pay that difference or deficiency as it is called. Plus any costs involved.

Everyone knew how that worked.

Don

[nashville_brook]

58. nope -- that's not how it's worked. deficiency judgments were as rare as the ivory billed woodpecker

until this year.

[FarCenter]

91. I didn't go back and look for references, but there was big crash in LA property values

And then there was also the Savings and Loan crisis.

So the notion that housing prices always go up and that lenders do not pursue deficiency judgements is not correct.

Maybe house prices always went up in the '90s until '07, but it is not generally true.

[DirkGently]

75. When banks weren't in the securities business, they did a thing called "underwriting."

They wouldn't loan more money than property was worth. First it was 30% down. Then 20%. Then they didn't care at all, because all mortgages were magically worth money as mortgage-backed securities. Lenders wouldn't be there when the speculative bomb went off, so they didn't care. They were in the gambling business, not the banking business.

Now they want to turn around sue consumers for the imaginary equity the banks created themselves by deliberately pretending property had infinite value.

Or, more likely, they want to sell the right to sue for pennies on the dollar, or commoditize THAT into yet another securities scheme. And again, the people will bear the brunt. After overpaying in a bank-inflated market, losing their job and their home in a bank-destroyed economy, they'll get calls from sleazy bottom feeders telling them what worthless bums they are for not somehow paying banks money they don't have on value banks knew didn't exist.

[nashville_brook]

87. [phone]

[DirkGently]

50. What changed is that banks deliberately pumped up values, & want borrowers to pay for it.

Commoditizing mortgages and pretending real estate always went in value was a scam. Anyone buying property during the bubble paid grossly inflated prices because lenders were deliberately lending money no one could have reasonably thought could be paid back. Unqualified borrowers, grossly overvalued property. Any loan was a good loan, because it would just be chopped and sold.

The general public should not have to "buyer beware" that America's lending and financial institutions would lure them into a giant speculative bubble, then come running to taxpayers and borrowers to eat the cost when it burst.

[treestar]

135. It is true that it is always a gamble to buy a house

or stocks (i.e. 401k plans). People seem to think they have a right to an increase in value, not that they are gambling on it.

[Edweird]

34. Then I file bankruptcy.

[lonestarnot]

37. LOL. They have become laughing stocks.

[Recursion]

42. If I borrow $250K and have paid back $100K by liquidating the house...

...why shouldn't the bank try to come after me for the rest it lent me?

[nashville_brook]

56. b/c your taxes already made them whole on value that fake in the first place.

[DirkGently]

57. Because banks created a false $150k value in the first place by selling mortgages as poker chips?

Consumers didn't create the bubble. Lenders and investors did. After securing de-regulation to allow lending institutions to create whatever crazy instruments they wanted, mortgages were no longer given based on the value of the collateral property or the ability of the borrower to pay. It didn't matter anymore, because any mortgage could be chopped and sold as part of a highly-rated security.

The result was that, since anyone could borrow any amount of money for any property, people just looking for a house to buy bought in a fraudulently created market. Because everyone else could borrow more money than houses were worth, anyone looking to buy had to pay the inflated price. Banks loved it, because they were minting money selling off the crap mortgages, which they knew were crap.

No consumer stood a chance. In 2006, if you wanted to buy a house, you paid market-bubble prices. Then the bubble burst, the world economy tanked, and people lost their jobs.

We bailed out the investment firms and banks because they were "too big to fail" despite having caused the whole mess. Out of all the players, why is it that ONLY ordinary consumers should have to bear the cost of a situation they had no say in?

[Recursion]

64. Well, call me Cassandra, but that's why I turned down chances to buy a house in 2005 and 2006

Because I knew taking a mortgage was a risk.

Look, I don't think anybody's hands are clean here, and consumer behavior is part of the problem.

[DirkGently]

68. What changed? Did consumers suddenly become more irresponsible? Who was in the position to prevent

this? When banks make money available on a "no questions asked" basis, it doesn't matter whether consumers actively participate in it or not. They're living in the bubble. Prices went up for everyone. Lenders filled the airwaves and the Internet with dancing mannequins telling everyone they could afford a $400,000 house on a fraction of the income you'd really need to pay that. "Creative" 80/20 mortgages became the norm.

Who was supposed to be on guard against this? Consumers? How were they supposed to control or time a market created exclusively by banks and financial institutions?

[Recursion]

71. People with 401Ks thought the current single-day liquidation price of their portfolio was money

They also thought the current appraisal value of their home was money.

Now, there are all kinds of reasons normal people were led in to that error, but it's still an error normal people made, and it led to novel and pretty much entirely bad behavior.

[DirkGently]

76. So, you discount the "novel behavior" of banks pretending all mortgages had value, and imagine

consumers suddenly, en masse, changed their behavior?

Sorry, but that's not what happened. What happened was that mortgages stopped being mortgages, and lenders stopped making any attempt to connect the actual value of the loan to the loan itself. They didn't care, because every loan could be sold. With all the "free money" floating around, the values exploded.

Trying to blame a systemic collapse caused by gigantic institutions on a handful of consumers supposedly exercising bad judgment is a like blaming a hurricane on someone watering the lawn.

[Recursion]

78. Where did you get the idea I thought that?

Were you intending to respond to a different post? I wasn't talking about how the banks fucked up, I was talking about how consumers fucked up. Which we did.

[DirkGently]

82. Consumers were not in a position to not fuck up. They simply existed in the false reality

created by lenders. You can always loan people more money than collateral is worth. By simply offering it, prices go up. That's the way any market will work. No consumer base in the world would be immune to speculation-driven inflation like what we saw during the bubble.

No amount of wisdom or savvy would have prevented prices from skyrocketing once lenders started assuming any mortgage on any property was worth any amount.

Anyone buying property, at market prices, even with an intelligent, traditional loan and money down, lost their ass when the market imploded, which never would have happened if lenders had acted like lenders, and not like casino gamblers.

Only different lender behavior could have prevented what occurred.

[FarCenter]

90. Most of the really outrageous mortgages didn't involve bank

Realtors and mortgage agents were writing the mortgages for mortgage lending companies. These would sell the mortgages on to mortgage wholesaling companies that bundled them together, created mortgage backed securities, and sold the securities on to pension funds, insurance companies, endowments, mutual funds, foreign investors, etc.

Banks, especially commercial banks regulated by the Federal Reserve and the Office of the Comptroller of the Currency, were not involved in most of this. Quite a few mortgages were originated by "thifts", which were a reincarnation of the Savings and Loans, overseen by the Office of Thrift Supervision. With all the same political connections and political corruptions since the S&L mortgage crisis in the late '80s.

[DirkGently]

92. Big banks did plenty. And they ignored or assisted outright fraud. I've seen institutionally

originated loans that, for example, loaned a retired lady in Miami $1.2 million on two separate residential purchases, within nine months. Took five seconds to find her actual modest residence in an apartment in a poor part of town on the property appraiser's website.

I believe lenders, including the big ones, circumvented their own underwriting software deliberately. They made no effort to validate appraisals. It was known that ridiculous loan applications would not be verified.

They. Didn't. Care.

[nashville_brook]

100. they didn't care b/c they profitted from the deal regardless of the outcome

[Hestia]

138. Isn't that what Mortage Insurance does? Pay off the entire loan, which is why banks aren't working

with the borrowers in the first place? If they are getting paid off by insurance, how in the world do they have any recourse to come after the borrowers?

[valerief]

62. this blows my mind! nt

[bhikkhu]

67. "Volker Rule Ends Speculation"

http://www.publicradio.org/columns/marketplace/david-brancaccio-economy-blog/2011/10/volcker_rule_ends_speculation.html

...actually the article is skeptical about what the result will be, as there is always some way to slide around most rules, but the basic thing is that this rule prohibits speculation on the stock market by banks. As a complement to the comprehensive banking reform act that Obama pushed through congress last year, I think its fair to say there has been real progress, and things are on the right track as far as preventing a repeat of 2007/2008.

Which is all beside the point of the OP, except that it says "Instead of the government putting an end to bank speculation, they gave the banks $6 trillion of our tax money -- paying 100 cents on the dollar for FAKE VALUE created in the speculative bubble." - not true in fact or in intent.

[Samantha]

104. I don't understand this -- buyers do not affix the selling price of a home

The real estate agents and appraisals assess the market value. Additionally, for purposes of State property taxes the States themselves issue tax bills which state the value of the home. Buyers often offer less than what is being asked, but that asking price is established by two many other involved influences for any rational person to assert the buyer, or the person seeking the mortgage, establishes the market value. I just don't even understand how anyone could win a suit of this nature. I do understand that practically anything goes in Florida on any given subject but this article said this practice has been allowed by a number of states. It just doesn't make any sense.

Conversely, can a homeowner NOT going through the foreclosure process now, or having done so in the past, sue ANY of these other involved parties for misrepresenting the proper value of the transaction? I have not heard of any, but if the one is legal, why doesn't that street run both ways?

Sam

[DeSwiss]

105. ''....by eliminating Glass-Steagall....''

- And whose http://crooksandliars.com/susie-madrak/president-clinton-i-was-wrong-listen">idea was that??? Oh yeah. Right. Another one of those "new" Democrats....


K&R

[lib2DaBone]

112. Not only that... your loss will be taxed as TAXABLE INCOME!

The way I understand it.. if you default on a $100K house.. and they sell it for $50K.. they come after you for $50K as "taxable income" or capital gain.

How's that for total humiliation boys and girls? A TeaBag Wet Dream.

BOHICA (bend over.. here it comes again)

[nashville_brook]

113. the hits keep on coming.

[Mimosa]

119. IS THAT FOR REAL? LINKS PLEASE. n/t

[tammywammy]

128. Well, of course

I settled credit card debt many years ago for half of what I owed. The credit card company wrote off, let's say $5000, and I had to pay taxes on it. Of course I did, I received $5000 worth of "free" money, that I had spent.

I would assume the same thing would apply if a bank had to write off part of a mortgage loan. It's money the customer received.

BTW, if someone purchased a car and it was repo'ed and made less at auction than what's owed the customer would owe that difference as well.

[Hestia]

139. Congress did away with requirement that for the years 2005-2013.

[Ilsa]

143. I think they have to write it off for that to happen. They have to claim the

loss to force you to claim the income.
I can't imagine the writedown being treated as income for tax purposes until they've exhausted their recovery.
But I could be wrong.

[Initech]

114. We're not robbing the banks - they're robbing us!!

:mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad: :mad:

[w0nderer]

115. kickety kick and reccity rec n/t

[Lionessa]

116. This is why it was suggested to me to file bankruptcy, not just get foreclosed on.

So I did. Of course, it probably added to the issue that I quite literally only had $13.49 left in the bank for trying to hold on till Obama did something to either stop the foreclosure fiascos or stimulate jobs. He did neither, I held out too long. Really if only he'd have been honest from the start about how much he hates us all, all us 99%ers, ... oh, well.

[Mimosa]

118. Ohhh Myy God. I didn't know about this.

YIKES.

The mortgage lenders HIRED THEIR OWN APPRAISERS before approving the loans. Homeowners have no say in the appraisal valuations.

So how could they be culpable for fraud, if there was any????

[abelenkpe]

120. K&R nt

[pariss3]

121. Corporations control the US

We no longer have a government. The DNC/GOP "war" is a ploy, perpetrated by the Government owned media, to keep us divided as a people; while the corporations fka the Federal Government. the DNC the GOP rape each of us and our families.

[Marazinia]

130. Not for much longer

[OwnedByFerrets]

123. If ANYONE thinks they give a damn in Washington, I have some

Fake Valued land to see ya.

[orbitalman]

124. K & R

[glowing]

125. The man is in FL, he should have bankrupted. He would keep the house owns now.

Just rid himself of the old shit. Hope he does fight it. This is ridiculous.

[blackspade]

126. What a bunch of assholes.

This should not be allowed.
It sounds like the judicial system has been bought as well.

[Marazinia]

131. It was bought off long ago

Time to add housing and debt to two things the wealthy should no longer be able to profit from. So now my list is: Energy, communications, factory farming (leave the few remaining independent family farmers alone and in fact help them), healthcare, war, prisons, and now debt and housing. But they can invest and grow wealthy from entertainment all they want to. Except they can't have the internet. They're already trying to rip us off on bandwidth, so internet will count as essential communications. But they're welcome to invest in games and silly Facebook apps for us if they want to.

In other words, if we need it for a decent daily life or if it's highly exploitable (like war and debt), investors can't profit from it anymore.

[treestar]

136. You are seriously lacking in knowledge

Seriously.

[Marazinia]

137. Your opinion is noted

However incorrect it happens to be.

[blackspade]

149. In what way?

Are you seriously arguing that the judicial system has not been in the hip pocket of the rich and corporations for the last 20-30 years?

Thae fact that there was even a judgment against even one foreclosed homeowner in this manner is a travesty of justice.

If you can't see that then perhaps you are the one that lacks in knowledge.

Seriously.

[chill_wind]

132. Absolutely no limits to their outrageous heavy-handed greed and treachery.

K & R.

[syberlion]

133. The Title should be Deficient Judgment

Funny, I was reading my "The Writer's Almanac" email I get from PBS each day and the one from October 30th had John Adams, since he was born on that day. What got me was the quote they used and how it fits with everything going on today. Mind you, this is from a man that was the second president of these United States.

John Adams said, "Democracy never lasts long. It soon wastes, exhausts and murders itself. There was never a democracy that did not commit suicide."

Not much to add to that...

[McCamy Taylor]

140. What kind of retarded investor is buying these bundles? The same ones who bought the bad mortgages?

[LastLiberal in PalmSprings]

142. Recourse vs. non-recourse loans

In some states foreclosure on the mortgage is all the bank can do. These are called "non-recourse" states, and here's a list of them:

Non-recourse and recourse states

Here are some things to know:

First, in order to fit with the non-recourse protective umbrella the loan has to be a "purchase money loan" -- i.e., the first loan you got to buy the house. If you refinanced the entire first mortgage to get a better rate, or took out a second loan secured by another mortgage, guess what? Neither of those loans are non-recourse and the bank can go after you.

Secondly, some states are called "one action states." Lenders are only permitted a single lawsuit to collect mortgage debt. This plays out differently depending on the state’s laws. In New York, for example, a lender must choose between the actions of foreclosing on the property or suing to collect the debt. The following states have some type of a one action statute.

One last thing: the bank isn't the only one after your money; the IRS is also looking to get its cut. If you walk away from a loan or sell short the IRS considers the forgiveness of debt to be income, and is treating it as such. IRS Home Foreclosure and Debt Cancellation Q&A

[PuraVidaDreamin]

144. Banks are Unpatriotic

They want America to fail

[cyberpj]

148. Well, if that's the case, how about a huge class action suit to get the bailout $$ back for any

'deficiency judgment' that gets paid?

[guitar man]

150. I wish someone could explain to me

why we aren't marching these assholes to the guillotine already.... how much will we tolerate? :(

[cui bono]

153. And they wonder why people are upset???

How can there be ONE politician or judge that won't get behind stopping this?

I dare them.

[Beavker]

156. If you think things can't get any worse...you have a limited imigination

This is the most incredible part:


"...banks are now selling these "deficiency judgments" as debt packages...".

It's like the 4th layer of bullshit on the mortgage.

First is the Mortgage itself, then the creation of the Mortgage Backed Asset, then the CDS covering these time bombs, and now you can securitize the judgement payments made from the people that are the only ones that really have taken the fall for the whole crises, the Homeowners with ruined credit, no house, and don't forget the other costs and money that was spent to this point that when down the drain. In some cases tens of thousands of dollars just to get forclosed on, and owe more!

USA! USA!

[Dont call me Shirley]

157. Tar and Feathers