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Thread: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

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    Default 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    The gist of this report is that, in light of MERS / US court rulings / bureaucratic delays, it is now routinely possible for a homeowner who is delinquent on their mortgage payments to literally live in their home for YEARS without making another mortgage payment before foreclosure proceedings can be concluded to evict them.

    Banks holding these delinquent mortgages are realizing that, between the high legal costs of foreclosure, and the typical damage / lack of maintenance that accumulates over the years required to evict the former homeowner and resell the property, they are 'losing' a fortune. To accelerate the process, and reduce the legal fees and repair costs, banks have now started paying LARGE BONUSES to delinquent homeowners in an attempt to pursuade them to voluntarily leave the property and permit a 'short sale'. We're talking about $20k-$50k-$90k cash bonuses being paid to delinquent homeowners, in exchange for cleaning up the house, mowing the lawn, and leaving !!!

    The ultimate 'moral hazard' situation now appears to exist ... where delinquent homeowners must decide to either continue living rent-free for years in the same property while awaiting foreclosure, or to accept a $20k-$50k-$90k cash incentive payment to immediately move into a rental property ( where the cash payment represents several years worth of rent payments ). Or put another way, they must now decide between living rent-free where they are, or living rent-free in a new apartment, for the next few years !

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    Part of the problem may be due to the antiquated statutes in some jurisdictions that tend to delay foreclosures.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    If the Masters of the Universe (thieves) had recorded the deeds properly, and had not resorted to signing fruad in the first place...... Things wouldn't be working out like this for them...... MERS gotta love it.
    The country has been looted.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    Quote Originally Posted by mikef View Post
    If the Masters of the Universe (thieves) had recorded the deeds properly, and had not resorted to signing fruad in the first place...... Things wouldn't be working out like this for them...... MERS gotta love it.
    True, but I do not think anyone's bad behavior should be rewarded.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    The problem, Eric, is we don't know who behaved badly first. Did the bank? Or, did the home owner? Given how sloppy MERS and the banks have been we don't know if payments made were accurately credited. We don't know if they even went to the right note holder. Further, we now know that a large percentage of notes "held" by Fannie Mae are in fact not in their possession and cannot be located. So even if the payments have been applied properly, we don't know if the note is paid off or not and even who has the right to be paid.

    If we view this mess as we would a large business, such as American Airlines, we would probably applaud them if they cut a deal to say give up gate space that they owed money on to the Port Authority of New York in return for cash. That would not be viewed by you as an example of a moral hazard, but as a good business decision. Well, the same is true of homeowners who hold over or are accused of not paying their mortgages. They take money to clean up the place and leave, that's no different than AA taking money to leave some gates.

    Z

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    The banks sure knew they were securitizing junk (AAA rated no less.... Imagine that) They were called Liar loans..... Ninja loans..... Hello they might as well have been called Never gonna get the money on this one loans. (Mozilo Loan?)

    But they made their money and bonuses..... None has been put on trial..... Imagine all the cash that is being put into the economy, instead of paying down that mortage debt..... Hey great way to boost GDP..... If only student loans could be handled this way.
    The country has been looted.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    Imagine all the cash that is being put into the economy, instead of paying down that mortage debt..... Hey great way to boost GDP
    Yes, this little known but highly significant observation is arguably the only reason that retail sales aren't falling off a cliff. It sure helps the 'family budget' if the monthly mortgage / rent payment can be 'ignored', with that money spent on consumer items instead.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    A big part of the problem is the makers of those loans are in no way responsible for their performance, and the present owners have the political influence to push the losses to the taxpayers. We bailed these people out in ’86, and now they want us to do it again, or more properly we have done it again.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    I agree with Zofia's observation that, in and of itself, the 'business decision' made by mortgage lenders offering these cash bonuses is undoubtedly a sound one under the circumstances ... or perhaps better stated as the 'least of the evils' alternative. It is the circumstances which have been allowed to develop that is the real issue. Delinquent homeowners have been allowed to position themselves such that they have 'nothing more to lose' ... and now have 'something more to gain' ... due to their financial irresponsibility. Mortgage lenders have had legal obstacles erected in front of them that makes 'reclaiming their collateral' an exceedingly slow and expensive process.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    As a landlord I have bribed more than one deadbeat tenant to move. Easier and cheaper than the court alternative. They're never payin anyway

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    Today they announced the $25 billion settlement between BOA, Wells Fargo, JP Morgan Chase, Citigroup , Ally Financial and 49 states. Oklahoma is the only state not participating. This deal does NOT affect Fannie or Freddie.

    The affected banks will contribute $10 billion to reduce principal on loans for borrowers who are delinquent and whose homes are "underwater" i.e. they owe more than their homes are worth. $3 billion will provide relief to borrowers who are current with their payments but whose homes are underwater. Another $7 billion has been earmarked for other relief like short sales , aid to Military borrowers etc. There is also $1.5 billion in "foreclosure compensation" = 750,000 borrowers will get $2000 each.

    Question : Where is the other $3.5 billion ? Who gets it ? For what ?

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    Where is the other $3.5 billion ? Who gets it ? For what ?
    The 'gold foil hat' crowd would probably tell you that this will be used to actually 'pay' former GMAC = Ally Bank's share of the settlement money due. After all, former GMAC = Ally Bank hasn't paid back any of the 12 billion dollars in federal taxpayer money they received as part of the GM bailout !

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    Quote Originally Posted by Melonie View Post
    The 'gold foil hat' crowd would probably tell you that this will be used to actually 'pay' former GMAC = Ally Bank's share of the settlement money due. After all, former GMAC = Ally Bank hasn't paid back any of the 12 billion dollars in federal taxpayer money they received as part of the GM bailout !
    Hmmmm. My guesses were legal fees for the respective states OR money for additional loans to people who can't pay them back.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    My guess is that it is going to pay for this damn short sale program.

    If you read the fine print ... this only happening for a very short time under very specific terms. The short sale has to have been initiated last fall and closed no later then this coming august. The terms are long and specific.

    Lets face it.. Banks do nothing out the kindness of their hearts. They do EVERYTHING for a gain of some kind. They are getting incentives from the government in the back door or running scared. Chances are it is the former and not the later.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    ^^^ agreed that while the details are still pretty sketchy, the banks are indeed getting incentives from the gov't ... with a HUGE one being immunity from potential lawsuits brought by homeowners who were actually 'wronged' by the robo-signing / lack of documentary discipline. The poster child examples of course are people who were evicted from their FULLY PAID FOR non-mortgaged homes due to mistaken identity ... and who under the settlement will now receive a few thousand dollars as compensation for being wrongfully forced to vacate their property.

    It would also appear to be the case that the banks will really only be putting up 6 billion in 'new money' towards the settlement. The balance of the 25 billion in settlement funds can be transferred from existing bank loan loss reserve accounts etc. i.e. a change in accounting entries !
    Last edited by Melonie; 02-11-2012 at 09:22 AM.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    What still burns me...besides people who took loans they couldn't afford (everyone knows what tey can afford) is the logic of these programs

    If I have a house and the value goes up, I win. If the value goes down and/or I can't pay, the govt bails me out or forces the restructuring.

    If I make a loan as a bank and. It makes money, I keep it. If it loses money, the government saves me from myself

    But, as a business owner, if I make a bad business decision (what bad loan isn't a bad decision)no one is there to save me..

    Life is a risk. Take your time, make good choices and do well, fuck up and yoou may fail or go under. O welll, the taste of freedom
    Last edited by pinups4; 02-11-2012 at 11:25 AM.

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    Default Re: 'Moral Hazard' at it's best ... delinquent homeowners being paid bonuses !

    Quote Originally Posted by pinups4 View Post
    What still burns me...besides people who took loans they couldn't afford (everyone knows what tey can afford) is the logic of these programs

    If I have a house and the value goes up, I win. If the value goes down and/or I can't pay, the govt bails me out or forces the restructuring.

    If I make a loan as a bank and. It makes money, I keep it. If it loses money, the government saves me from myself

    But, as a business oowner, if I make a bad business decision (what bas loan isn't a bad decision)no one is there to save me..

    Life is a risk. Take your time, make good choices and do well, fuck up and yoou may fail or go under. O welll, the taste of freedom

    In this country we socialize losses...... Not to mention keep the TBTF banks...... TBTF.
    The country has been looted.

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