July 10, 2009

Note to Short Sellers (And Their Agents): Read The Fine Print

From the San Francisco Business Times:

The rising tide of “short sales” by troubled home owners facing foreclosure is prompting lenders to become more aggressive in their attempts to pursue former homeowners for their loan losses in a short sale. In a short sale, a house is sold, with a lender’s approval, for an amount that won’t pay off the mortgages on the property.
Often, the troubled home owner assumes the loss will be eaten by the lender. But Bank of America and Chase have quietly added language in their short-sale agreements that require the borrower to sign a promissory notefor the shortfall.
A spokesman for the American Bankers Association said this week that he wasn’t aware of the practice, suggesting how little attention has been paid so far to collection of these notes from troubled borrowers.
BofA says its intention is to protect investors holding the mortgages.

Damn those greedy lenders.

Sellers owe balances after short sales [San Francisco Business Times]

First Published: July 10, 2009 12:30 PM

Comments from "Plugged In" Readers

If a bank was stupid enough to value a house at $x bucks and then grant a loan based, and secured by, that value, I don't see how this is legal.

Posted by: marinaista at July 10, 2009 12:43 PM

Ostensibly good news for taxpayers, but this may simply be another zombie mechanism.

The bank now does not have to write down any loss, and carries yet another smaller crap asset on its books (the new promissory note), which it will eventually write off later, or sell it to the fed, of course.

whee!

Posted by: dub dub at July 10, 2009 12:51 PM

I had no idea that people assumed the bank would eat your loss -- I had always assumed this was the standard practice.

Why would a bank eat a short-sale? Crazy!

Posted by: Marc at July 10, 2009 12:58 PM

I don't really get this. New language in a short sale agreement which obligates the signer to make the lender whole? Just toss the agreement out the window and mail in the keys - by definition you've got $0 equity so why sign anything?

Hey, wait a minute. People who are upside down have already made a series of mistakes. They might just be dumb enough to fall for this latest scam. Hmm, I can support this effort to sucker them again!

Posted by: LMRiM at July 10, 2009 1:01 PM

if the loan wasn't a "purchase money" loan (so not a 2nd or a re-fi), banks in CA already have the right to pursue collection actions. often, the point of a short sale is to get banks to waive that right. that is why demonstrating hardship and a lack of other assets is part of the short sale process.

with promissory note language, I don't know why any owner would bother with a short sale. the credit advantage over a foreclosure is minimal and you miss out on 6-12 months of free rent.

Posted by: steve at July 10, 2009 1:20 PM

What is the tax liability for the shortfall $ in a short sale? From what I understand you are liable for income tax unless you are insolvent or file bankruptcy. What is the upside to signing this IOU for the seller? I agree with dub dub - next thing you know B of A will be bundling these promissory notes into AAA rated bonds and selling them.

Posted by: OneEyedMan at July 10, 2009 1:22 PM

"If a bank was stupid enough to value a house at $x bucks and then grant a loan based, and secured by, that value, I don't see how this is legal."

Huh? Okay, loan me $100 to buy ten shares of $10 stock, and charge me interest to pay for the time value of this money. If the price of the stock goes up to $12, I'll keep the $20 profit and pay you back the $100 plus interest. If the price of the stock goes down to $8, YOU take the $20 hit?

Interest pays for the time value of money, not the principal. Yes there is an illegal act here, its called theft, and the home owner just stole money from the bank.

Its mentalities like the quoted that artificially inflated the prices of housing to start with. No risk in loss of capital = making stupid investment decisions to start with.

Posted by: Tall Guy at July 10, 2009 1:24 PM

WOW! There is absolutely no incentive for anyone to short sell - just like LMRiM said, mail the bank the keys or just stop paying till they take it away!

Marc, it makes sense for a bank to eat the loss in a short sale so they don't have to carry the costs of a further depreciating asset (ie. Tax, insurance, etc).

I wonder how BK courts look at this newly unsecured debt?

Posted by: BK in SF at July 10, 2009 1:32 PM

What is the tax liability for the shortfall $ in a short sale?

Generally, for a purchase money loan used to acquire a personal residence, there is no tax liability with regard to the forgiven debt (technically, "Discharged Debt Income" or DDI). There are exceptions and limitations (DDI above $2M is taxable, for instance), but for most first mortgage situations there are essentially no tax consequences. Google "Mortgage Forgiveness Debt Relief Act of 2007" for more info.

Posted by: LMRiM at July 10, 2009 1:33 PM

Sounds like a bonanza for debt collectors! You could get stupid people on a $50/mo payment plan and milk them for life with this!!

Posted by: Jimmy (No Longer Bitter) at July 10, 2009 1:35 PM

You could also take the view that the bank knowingly took a calculated risk, and bet on future interest payments. When these things come down to litigation there are going to be a whole lot of miswritten notes called into question I would think. This is going to be a legal cottage industry all by itself.

Posted by: anonn at July 10, 2009 1:36 PM

Maybe I am digressing, but what is a Pizza Delivery Boy doing with a 648,000 Mortgage anyways ?

Isn't it responsible residents like this, that caused the collapse in the first place ?

Sorry, I have no sympathy for this man

Posted by: Chad at July 10, 2009 1:43 PM

Maybe I am digressing, but what is a Pizza Delivery Boy doing with a 648,000 Mortgage** anyways ?

Isn't it "responsible residents like this, that caused the collapse in the first place ?

Sorry, I have no sympathy for this man.

** = As noted in the San Francisco Business Times article linked to this post, the seller is delivering Pizza and driving Trucks.

Posted by: Chad at July 10, 2009 1:44 PM

>>what is a Pizza Delivery Boy doing with a 648,000 Mortgage

I always wondered who could afford those huge mortgages...now I know. Thank you.

Posted by: dkzody at July 10, 2009 1:48 PM

He used to be a contractor. The bubble that fed on itself...

Posted by: San FronziScheme at July 10, 2009 1:51 PM

@chad:
it appears the person was a former contractor. it is unclear if he was a contractor or a delivery person when he bought the house (I don't have full access).
===
@dub dub:
The bank now does not have to write down any loss, and carries yet another smaller crap asset on its books (the new promissory note), which it will eventually write off later, or sell it to the fed, of course.

great thinking. you clearly see how the dark side works young Jedi. I agree.

===
@LMRIM:
Hey, wait a minute. People who are upside down have already made a series of mistakes. They might just be dumb enough to fall for this latest scam

undoubtedly. they're just throwing crap to the wall to see what sticks.

=====
@ Tall Guy
Interest pays for the time value of money, not the principal. Yes there is an illegal act here, its called theft, and the home owner just stole money from the bank.

I disagree. Although I don't necessarily agree with some of the more extreme pro-"ruthless defaulter" ideologies of late, I disagree that this is theft.

The contract was very clear. The borrower gets the money in order to purchase a house. if the borrower does not hold up his/her end of the bargain (i.e. make payments) then the lender gets the HOUSE. The lender IS MADE WHOLE by getting the house. There is and never was anything in the contract about the borrower giving the lender extra principal payments if the house depreciated in value.

the lender clearly understood this point when they made the loan. after all, that's what "secured" loan means. the loan is secured by the asset (in this case the house).

the lender could have originally asked for MORE than the house as collateral on the loan. For instance, Bill Macklowe had to make personal guarantees when he borrowed for his New York "empire" (that later fell apart).

Posted by: ex SF-er at July 10, 2009 1:57 PM

Exactly, ex-SFer. And let's not forget that often it was the bank who appointed the appraiser in the first place. I know Wells would from time to time insist upon using their own valuation people, for one. Good luck sending the defaulting buyer an additional note if the purchase process went that route. "Oh, you mean the property is worth less than your own hand-picked appraiser valued it to be. And you want me to make up the difference? well why didn't you tell me it was worth less in the first place, then?"

Posted by: anonn at July 10, 2009 2:03 PM

I get a kick out of the consensus that pizza delivery boys brought down the entire global economy due to overleveraged condo purchases.

4 out of the last 5 recessions were caused by oil price spikes ('73, '79, '82-83 and '91) but this recession, which featured the mother of all king-kong global oil price spikes, was caused by pizza delivery boys buying overpriced SOMA condos.

And the price spike itself was caused by a rogue trader at Goldman Sachs, and had nothing at all to do with supply fundamentals. Say, the depletion rate of existing global oilfields exceeding the pace of new oil fields coming online... for the first time in history.

So here's an interesting riddle. When prices spiked up to $150/bbl, why didn't the Saudis, nay, the entire world, just turn on the taps and flood the globe with oil? Economic theory would dictate that supply should increase to meet demand, and clearly the demand was astronomical at the time.

And then, in the depths of the worst recession the world has seen in decades, the price of oil is still somewhere north of $60/barrel, which by any historical measure, is still extremely high. It should be around $20, which would be appropriate for a recession.

But, yeah, it was the pizza guy.

Posted by: Jimmy (No Longer Bitter) at July 10, 2009 2:05 PM

I know of a case where the lender approved a short sale to a "ready, willing, and able buyer" only to have the property auctioned at the steps not 3 days after it approved the short sale. The foreclosure buyer essentially stepped into the shoes of the foreclosed seller and made the same deal with the buyer.

Posted by: whatever at July 10, 2009 2:08 PM

"And the price spike itself was caused by a rogue trader at Goldman Sachs, and had nothing at all to do with supply fundamentals. Say, the depletion rate of existing global oilfields exceeding the pace of new oil fields coming online... for the first time in history."

By 0.2%. Oh noez! We're running out of oilz!

Posted by: scurvy at July 10, 2009 2:20 PM

The reason why purchase-money loans are non-recourse in California is lost to the mists of time, but some previous generation apparently learned that the banks had to be kept honest in their underwriting otherwise RE bubbles would boom and inevitably bust, and the best way to to that was them to require the lender to eat any loan loss.

Those who cannot remember the past are condemned to repeat it, as the wise man said.

Posted by: Troy at July 10, 2009 2:26 PM

But, yeah, it was the pizza guy.

Actually this recession should be considered a continuation of the 2001-2002 recession. The intermediate boom was driven at the end by hundreds of billions of dollars of home equity withdrawals, 2004-2006. Here's the chart.

$400B/yr in free money may not sound like much, but divided by $50,000 it is EIGHT MILLION McJOBS.

Posted by: Troy at July 10, 2009 2:34 PM

@ Tall Guy
Interest pays for the time value of money, not the principal. Yes there is an illegal act here, its called theft, and the home owner just stole money from the bank.

I disagree. Although I don't necessarily agree with some of the more extreme pro-"ruthless defaulter" ideologies of late, I disagree that this is theft.

The contract was very clear. The borrower gets the money in order to purchase a house. if the borrower does not hold up his/her end of the bargain (i.e. make payments) then the lender gets the HOUSE. The lender IS MADE WHOLE by getting the house. There is and never was anything in the contract about the borrower giving the lender extra principal payments if the house depreciated in value.

the lender clearly understood this point when they made the loan. after all, that's what "secured" loan means. the loan is secured by the asset (in this case the house).

the lender could have originally asked for MORE than the house as collateral on the loan. For instance, Bill Macklowe had to make personal guarantees when he borrowed for his New York "empire" (that later fell apart).


well said xsfr. I'm still baffled when people argue this seemingly obvious point.
theft? no.
immoral/unethical - well that is open for debate.

Posted by: polip at July 10, 2009 2:41 PM

I heard of these lenders doing po\romissory notes about a year ago. The scam goes like this:

You sign an unsecured promissory note, but the promissory note does not require payments: just a balloon payment in several years. They tell you that there is a very low probability that they will make any effort to collect such an unsecured debt.

BUT, because they converted the original mortgage into a short sale plus a promissory note, the bank doesn't take any hit to earnings until the note is due because they have their money back, plus a "performing" loan for the balance. So the banks earnings are protected for many years.

When the note is due, you default on the note, which is much smaller than the mortgage, so it doesn't look as bad on your credit report, or at least that's what they were telling people. And then the bank delays the hit to earnings when they have had a chance to get back on their feet on their own.

So everyone wins. Except the stockholders, but they've been a source of the money for this fraud the whole time.

Posted by: tipster at July 10, 2009 2:49 PM

Tall Guy as ex-sfer said much better than me:

"if the borrower does not hold up his/her end of the bargain (i.e. make payments) then the lender gets the HOUSE. The lender IS MADE WHOLE by getting the house."

I have no sympathy whatsoever for the "pizza-boys" of the world but this new practice by the banksters seems questionable to say the least.

Posted by: marinaista at July 10, 2009 2:57 PM

"And the price spike itself was caused by a rogue trader at Goldman Sachs, and had nothing at all to do with supply fundamentals. Say, the depletion rate of existing global oilfields exceeding the pace of new oil fields coming online... for the first time in history.

So here's an interesting riddle. When prices spiked up to $150/bbl, why didn't the Saudis, nay, the entire world, just turn on the taps and flood the globe with oil? Economic theory would dictate that supply should increase to meet demand, and clearly the demand was astronomical at the time.

And then, in the depths of the worst recession the world has seen in decades, the price of oil is still somewhere north of $60/barrel, which by any historical measure, is still extremely high. It should be around $20, which would be appropriate for a recession."

Never let facts get in the way of a good conspiracy theory

Posted by: James at July 10, 2009 3:03 PM

Troy....I was unaware that realestate loans were non recourse. Perhaps, to special friends of the banks who wanted to unload a problem property?

IF, what you wrote is true, why would anyone in their right mind continue to pay on a property which is under water.

I would expect the money grubbing banks to sells their bad debts to the highest bidding collection agency.

Posted by: luc at July 10, 2009 3:12 PM

Its not impossible that the world's remaining oil reserves require oil prices upwards of $90/bbl to make increased production economically viable. (For a variety of reasons, relating to extraction technologies and energy requirements). An example is northern Alberta, 160 billion proven barrels of oil that are uneconomical below $90/bbl.

Even the Saudis claimed that prices had to be over $75/bbl for additional production to be economical for them. That would be astonishing if true because their cost of production was assumed to be around $8/bbl.

Posted by: Jimmy (No Longer Bitter) at July 10, 2009 3:13 PM

But this is way off topic. Sorry. Let's go back to how the pizza guy's reckless borrowing caused the economies of the US, Japan and Western Europe to simultaneously collapse ... and now he owes the bank.

Posted by: Jimmy (No Longer Bitter) at July 10, 2009 3:29 PM

in CA, purchase money loans are secured only by the house itself. for non-purchase money loans, banks can go through judicial foreclosure to get a judgement, but they rarely do. perhaps this will change.

Posted by: steve at July 10, 2009 3:40 PM

The pizza dude took a flier in the real estate market. He bet wrong. Got sold out and now has to pay the difference.

Had his bet turned out to be profitable.....was he planning to share the profits with the lender.

Heck, I´m going to ask the firm that clears my commodity trades for one of these non recourse accounts.

Posted by: jon at July 10, 2009 3:40 PM

I think I posted that earlier, but the guy was a contractor. Maybe his salary made him think he could afford this house.

What's this fixation with him doing pizza delivery? He is currently delivering pizzas AND driving a truck. 2 jobs to makes ends meet after probably losing his good paying contractor job.

Posted by: San FronziScheme at July 10, 2009 3:56 PM

This is going to cause a lot of pain. Check out Trulia and search for foreclosures/defaults in the checkbox on the left. I count nearly 200 foreclosures in high end bay area suburbs (link below). Given what I know about these sorts of owners, they will go to whatever lengths necessary to make their house payment, including borrowing from friends/relatives. It looks like even the (soon to be formerly) wealthy are tapped out! Amazing people are defaulting on mortgages below $1 million - which means they can't even afford a $3-5k monthly payment. When you lose a job, you lose both the income AND the fat tax deduction. I guess people didn't think about that when they bought these places.

I hope to be living in a 3000 sqft manse in Hillsborough that I buy for sub 600k in the next 5 years...

Burlingame, CA
Hillsborough, CA
Mill Valley, CA
Portola Valley, CA
Sausalito, CA
Tiburon, CA

Foreclosures/defaults:
http://www.trulia.com/for_sale/Hillsborough,CA;Portola_Valley,CA/650000-5000000_price/foreclosure_lt/ppsqft;a_sort/3_p/#for_sale/Hillsborough,CA;Portola_Valley,CA;Sausalito,CA;Mill_Valley,CA;Burlingame,CA/650000-5000000_price/foreclosure_lt/ppsqft;a_sort/


Posted by: SF Banker at July 10, 2009 4:01 PM

Sub $600k in Hillsborough? That hasn't happened since the early 80's. Dream on.

And 3000 sq.ft. and 1/2 acre lots are the minimum size allowed in Hillsborough.

I doubt you're even a banker. A banker would know that.

Posted by: Jimmy (No Longer Bitter) at July 10, 2009 4:04 PM

The collection industry must be hot right now.

Posted by: tjg at July 10, 2009 4:38 PM

Wake me the first signs we see of a lender doing a judicial foreclosure. I think its offical; the soonest we bottom out is the end of 2012 (when "mortgage forgiveness" by the IRS expires.)

Posted by: EBGuy at July 10, 2009 4:42 PM

Good point -- Deed in Lieu makes more sense.

Posted by: Mark at July 10, 2009 6:34 PM

Chad has it completely right. Frankly, the "client" in the article is exactly the kind of guy that should, if there were any justice in the local real estate market, be getting spanked with a sub 600 FICO score right in addition to having to pay taxes on the short amount as punishment for his part in pumping up the local real estate bubble.

Despite the fact that the author of the article tries to make him appear sympathetic.

He was just a flipper, people! I doubt he was really a contractor, I think he was just some guy who had enough knowledge of residential/light construction that he thought he could "Fix it, then Flip it!".

A contractor who knows what he's doing and has a modicum of experience does not accidentally "severe three fingers" while on a job site. That's a rookie mistake that hackers make when they are in over their head. Just kicking back and watching flip this house" on A&E, getting someone to loan you a lot of money and then buying a circular saw does not make one a contractor.


This guy would make an excellent poster boy for everything that's gone wrong with the local real estate market since 2005 and he should count himself lucky that he got away with just being reduced to running pizzas.

Posted by: Brahma (incensed renter) at July 10, 2009 8:14 PM

More bedwetters:

http://www.nytimes.com/2009/07/11/business/11housing.html

Not quite as bad as the apalling sfgate story, but then again, it's the NYT :)

--------------

"Her mortgage broker told her she ran afoul of new rules requiring two years of tax returns from some home buyers, instead of only one.

"Everyone says this is a buyer’s market, but they wouldn’t let me buy,” said Dr. Komarovskaya, 30. “It’s not fair.”"

Posted by: dub dub at July 10, 2009 8:40 PM

Jimmy:

there is typically no "one" person to blame when you have a mania, as we did with the worldwide credit bubble. in general manias come about due to the collective actions of millions (billions) of people.

Although the pizza guy/contractor surely is not fully to blame, he played his role (over-indebting himself for RE). As did the lenders, the central bankers, the media, the government, you and me, and most people around the world.

Simply put, the bubble would not have grown as large as it did if the pizza boys in the world would have thought "hmm, maybe I can't afford this even though the bank will give me the money" or if they would have challenged ideas like "RE can't lose value" and "they're not making any more land" and "the Bay Area is special" etc.

As for oil: oil prices are very difficult to analyze. There is clearly a supply/demand problem, and clearly a speculation problem. As we speak, there are hordes of stored oil in tankers across the globe and yet oil prices stayed persistently high until last week. and there is no question that oil is part of an oil-dollar-gold trade.

that said: much of the price variability IS clearly due to supply issues. We may have seen the peak in global oil production last year. They could not pump enough to satisfy 2008 demand. Oil behaves like other assets when it comes to price elasticity. Oil prices are very elastic if there is significant available supply. However, when supply is constrained oil becomes extremely price inelastic. we've seen this several times (last year, oil shock of the 70's, etc).

oil will clearly become a major problem, and is being ignored by the populace/govt again now that oil prices have fallen. FWIW: I think that oil prices will continue to plummet as the recession continues and as the various world governments crack down on oil trading (for better and worse).

but we'll have problems again when the nascent recovery begins. Global GDP is too reliant on oil which will cripple future recoveries unless we change the equation (which we will not by the way... people have forgotten gas/oil prices).

Posted by: ex SF-er at July 11, 2009 3:59 AM

Although the pizza guy/contractor surely is not fully to blame

How soon people forget the "strawberry picker" meme! Just for old times' sake, it's worth reading the classic tale again:

"How did a strawberry picker earning $15,000 a year qualify for a loan of $720,000?"

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2007/04/13/carollloyd.DTL

Posted by: LMRiM at July 11, 2009 7:55 AM

"there is typically no "one" person to blame when you have a mania"

Yup, like a Cecil B. DeMille picture there's a cast of thousands, each doing their part.

Posted by: diemos at July 11, 2009 8:45 AM

Carol Lloyd, a plant by the NAR. Carol Lloyd, a firebrand downslope media opportunist. Unfortunately she really was often actually the one or the other and nothing in between. Entertaining column, tho. Wonder what she's doing now.

Posted by: anonn at July 11, 2009 9:29 AM


Jimmy (No Longer Bitter)wrote:

> Sub $600k in Hillsborough? That hasn't
> happened since the early 80's. Dream on.

I’m not sure that 3,000 sf homes will be under $600K in Hillsborough any time soon, but in the mid 90's I'm guessing that at least a quarter of the homes in Hillsborough sold for under $600K.

I graduated from GSB the summer of '95 and my parents (who still live in the same Hillsborough home they bought '68) were trying to talk me in to buying an amazing 1920's Mediterranean Hillsborough home (a couple blocks from the Crosby Estate) for around $625K. I ended up buying a much smaller home in Burlingame since I couldn't afford the Hillsborough home without a roommate or two (my parents have not given me a dime since I turned 18 and I don't even think it would have crossed their minds to help me buy a home near them). I had many friends buying in the crappy/foggy/windy part of Hillsborough for under $600K up until at least 1997.

Posted by: FormerAptBroker at July 11, 2009 9:57 AM

I stand corrected, then. There's a foggy part of Hillsborough?

Posted by: Jimmy (No Longer Bitter) at July 11, 2009 11:11 AM

The “Lakeview” are of Hillsborough at the top of the hill south of Black Mtn. Road gets a ton of fog and wind (it is just north of the San Mateo Highlands neighborhood known for the almost nightly fog blast that comes through “Belmont Gap”. I’ve never heard anyone except a Real Estate agent use the term “Lakeview” to describe that area of Hillsborough. Most people that live there say “Off Crystal Springs Road” and people that don’t live there call it the “Flintstone House Neighborhood”:
http://www.roadsideamerica.com/tip/16925

We had weird weather this weekend with heavy rain clearing the patio at my in laws house in Portola Valley on Saturday night we had a rare (for July) warm fog free drive back to the city (with the top down) on 280 tonight (I commented that it was weird not to hit fog in July on 280 at the Belmont Gap and it was really weird to pass the San Bruno Gap at 380 and still not have any fog)…

Posted by: FormerAptBroker at July 12, 2009 11:43 PM

Its mentalities like the quoted that artificially inflated the prices of housing to start with. No risk in loss of capital = making stupid investment decisions to start with.

Actaully Tall Guy, no risk in loss of capital makes for brilliant investment decisions...

Posted by: mac at July 13, 2009 1:23 PM

i love how the little guy loses his shirt, and now has to work two jobs, and is shit all over by you holier than thou types.

free money was dangled in front of so many people... the free money was the problem. sure this guy, along with millions of other people, could have been smarter... but if they weren't offered free money to buy a home, they wouldn't have.

wall street concocted this mess... and those jackasses, like many of you, are blaming the little guy who they suckered, and who is completely ruined with virtually no way to climb out of their now miserable world. and Wall St types take free bailout money and bonuses and make fun of and/or their victims for the mess

as for banks - they hired appraisers for the entire purpose of making sure they were making a wise investment. so now that it turns out it wasn't a wise investment, they have no right to blame the borrower. the good news is 10% of those people are also now laid off employees, most of whom also bought homes with free money and are ruined too.

yeah for you holy than thou commenters... more people to blame

Posted by: hangemhi at July 13, 2009 2:58 PM

i love how the little guy loses his shirt, and now has to work two jobs, and is shit all over by you holier than thou types.

I didn't really get this sense from the comments. Sure, the guy was a chump for overpaying for a SSF house in 2006, but I assume it was a 100% no money down sort of deal (I can't see the whole article, so if I'm wrong and there's additional info in the article, please correct me.)

But I don't see what the big deal is - I think he's in the catbird's seat. Just stop paying, and let the process go on. Maybe he'll get a bailout, maybe he won't. There's always bk at the last minute, which would delay the foreclosure (be sure to gift out any identifiable assets ASAP, of course). If he plays his cards right, he'll get to live rent and tax free for a year or more. Pretty sweet deal if you ask me.

Sure, there are some downsides to bk, but let's not get all weepy eyed about it. Dumb decisions result in bad outcomes, and in the overall scheme of things a credit ding isn't the worst thing in the world.

I've got a family member who is underwater on a house. Fortunately, it's as a result of a massive cash out right at the top of the market - 2006, and his loan won't reset for another 7 years (and it's i/o for the first ten years). He cashed out more than the entire cost of the house that was purchased only 4 years prior. He's just laughing about it now, figuring that he's got a free option. With more than $500K cleared after paying off the initial purchase loan, he says he could not care less about a potential credit ding. ($500K is a lot of after tax cash for him, as it would be of course for more than 99% of Americans - and I suspect even 99% of SFers :)) See, little guys can win - they just need to play the game like the big boys.

And let's not bad mouth Wall Street anymore, hangemhi (calling them "jackasses"). Some of these guys are struggling too. It's tough out there, and projected average bonuses of only $700K for Goldman Sachs employees in 2009 doesn't go as far as you might think....

Posted by: LMRiM at July 13, 2009 3:33 PM

>And let's not bad mouth Wall Street anymore, hangemhi (calling them "jackasses").

Yeah, save the insults for the meat robots working for minimum wage.

Posted by: Rillion at July 14, 2009 8:40 AM

Continuing with the cheap ad hominems I see, Rillion, but it's all in good fun.

I'd never call the guys at Goldman meat robots. I only know a few people there these days, but back ten years ago when I was trading I knew a whole bunch (many ex-Goldman prop desk people at my fund, as well). Probably the greatest maximization of smarts and ruthlessness that you could find anywhere in the US economy on any scale. Definitely not meat robots, they see the whole picture of what the US economy has become and they exploit it magnificently.

Did you see their earnings this morning? Total blowout, and they look set to mint at least another 1-2K "millionaires" this year. You've really got to take your hat off to them - even the big government libs have to! Here's a company that should have gone out of business last fall - and of course would have absent the taxpayer/government backstop - and now they have the sheer audacity to contemplate record bonuses for 2009/10. Absolutely genius.

Remember when we used to get all those posts about how "Obama was going to change things" - even a crocodile tears post from NVJ that I recall very well about how badly he felt for people in finance. LOL.

(BTW, same story at BlackRock - where I have some close friends pretty high up - and a number of other firms. As I've argued a million times on SS, once the bailouts start, there's no way to contain the smartest and most ruthless from seizing all the goodies.)

Posted by: LMRiM at July 14, 2009 9:07 AM

>Continuing with the cheap ad hominems I see, Rillion, but it's all in good fun.

Sorry, in order for my statements to be ad hominems I would have to be arguing against your broader point. Which I am not. I'm arguing that your point is getting lost among the insults you include in your posts. Pointing out the insults you casually include in your posts is not an ad hominem.

>I'd never call the guys at Goldman meat robots.

Right, that's what I'm saying. You only call the guys at McDonalds meat robots yet you ask another poster to not insult the guys at Goldman.

It seems to me that you are entirely too comfortable insulting poor people behind their backs on this board, I assume you would call the guy at McDonald's a meat robot to his face. How did insulting him here help argue your point that the ACLU board member was a loser? It didn't.

Posted by: Rillion at July 14, 2009 11:18 AM

Argh, while I don't argee with many of Anonn's posts either, I will agree that this board needs a decent bbs software that includes the ability to edit/preview our posts so we can fix our typos.

That should have been "I assume you did not call the guy at McDonald's a meat robot to his face."

Posted by: Rillion at July 14, 2009 11:21 AM

Ah come on, lighten up, Rillion. I come from a poor background myself.

(I actually grew up in circumstances a lot worse than Sonia Sotomayor - and the only reason I point that out is because the MSM commentary today is getting nauseating about her "underprivileged" background and her "life in the projects". LOL, she grew up in a much nicer place than I did (she was in Co-op City from 1968 when it opened - which we would have loved to be able to afford and which I walked by when I had to hike out to Orchard Beach), and went to the same high school as my brother (Cardinal Spellman). Of course, since she's more than 10 years older, the effects of the Great Society hadn't had the chance to destroy the neighborhoods as they had by the time I was growing up, and the early 1960s Bronx she grew up in was a cakewalk compared to what it would get to be by the mid-1970s.)

Unrelated perhaps to your concern for the McEmployee I note that just about no one on SS ever seems to get their panties up in a bunch when any number of posters dismissively refer to people in "flyover country", "rednecks", "gun nuts", or any of the gratuitous abuse heaped on people who believe in God (I'd be happy to link to a few particularly insulting comments), or oppose causes celebre in SF like gay marriage or abortion, etc. Typical liberal nonsense - at least I'm an equal opportunity abuser, lol.

Posted by: LMRiM at July 14, 2009 11:34 AM

Well since the editor just referenced this old discussion, I re-read. I'd have to say the alternative viewpoints to my 'theft' viewpoint are excellent. I'm glad I used the word to shake out the core of the argument, however I agree with many of the alternative points. I think this is all about behavior now. Both the borrowers and the banks need better behavior if you will. I still have no sorrow for the borrowers however, if you borrow that much $ you should be aware of the risks (of say a bank interpreting the original agreement where it was perhaps not clear enough); otherwise I'll call you ignorant. The banks (investors of the banks), no sorrow their either, understand the underlying value of your investments before you make them. Anyhow, a nice discussion here folks, thanks for the thoughts.

Posted by: Tall Guy at November 17, 2009 6:48 AM

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