The Belvedere – Scheduled for the courthouse steps next Tuesday at 11 AM. Estimated due at sales date is $28,858,616.34, and there is another default behind this one for $15,900,000. This may be the South Tower only – there are so many players involved that it is hard to keep them all straight. The vacant lot just west of the project went back to the bank in December, and there are at least 20 units in some stage of foreclosure.
89595 – Did you know that the Grand Sierra Resort has it’s own zip code? Sales of units stopped during the summer, Nikki Beach does not seem to be associated with the hotel portion anymore, about 15 units have already gone TD with about the same number in the pipeline. There have been ZERO resales at the GSR since the project opened. 1714, originally $630,000, now listed at $280,000. 1720, originally $292,658, listed at $99,900. Would you take a unit here if they were giving them away? That’s a serious question.
Montage – No closings as of end of business Friday, so it doesn’t look like the promised February 16 move-ins are going to happen. A cabal of "owners" that want to get out of their contracts and get their 10% deposits back met with an attorney yesterday. I have mixed feelings about this. Montage has certainly delivered the product they promised, but not in the time frame and ownership that the buyers anticipated. Stay tuned.
Waterstone at Kiley Ranch – Originally designed to be condos, this 203 unit apartment complex received an NOD Friday for $40,632,000.
Hope for Homeowners – Remember the program that was supposed to save 400,000 homeowners from default? A total of 25 have received modified loans under the program. This and more interesting reading at How the Banks are Worsening the Foreclosure Crisis from Business Week.
Short Sales and Foreclosures – The Irvine Housing Blog is always a fun read. They had a guest letter from a real estate attorney detailing the Financial Implications of Short Sales and Foreclosures. It is must reading. The implications here in Nevada are very similar.
I’m really an "up" person – I swear!
Reno Ignoramus
Remember when I posted about the Smithridge condo that I sold in 1979 for $61,500? And then I followed up a few days later that a Smithridge condo had hit the MLS for $67,000? Well, I see that a Smithridge condo has just been listed at $59,000. Yes, that’s $2,500 less than I sold for 30 YEARS ago.
So it appears that one can either buy a Belvedere condo for $564 a sq. ft. or a Smithridge for about $55 a sq. ft. My prediction is that the Belvedere may never sell, ever, and the Smithridge condos will continue to deteriorate in price. We are headed back to 1975 in Smithridge.
Casa de Dolor
I just had dinner with a Chase agent, a carpenter and a motor home salesman… geez, sounds like the beginning of a bad joke. Anyway, they all about tore my head off and told me that there was no way prices would ever go back to median income buys a median home. The Chase agent told me that he and his office were really getting busy; the carpenter told me he’s building new homes out by border-town, and they are selling; and the MH salesman said the “money’s never been better. Three guys in different trades all doing fine… God, it was all very depressing… So Mike, from my perspective your post was very uplifting. Thanks
Casa
downtownjunkie
I guarantee you they are full of it.
Martin
The money’s never been better in the motor home business? Is that why Mountain Family RV, a company that had been selling motor homes in Reno for 20 years, went out of business last month? Just got tired of making all that money? Had to let go of one-half of its employees in the prior months before it finally caved because it was making too much money?
New homes out by border town? Really? Who is the builder, and where, exactly, are these new homes? All of last month, a total of 43 new homes sold in all of Washoe County.
If you want spincrap from a Chase agent, you don’t have to go out to dinner. You can go to Chase Nation. Every real estate office is busier today than they were a year ago. Selling and buying foreclosures and short sales in the under $200K price range. It’s becoming realtor drivel to quote the increase in sales activity as evidence of the improving market. They don’t say anything about the dropping prices.
Half the sales are now under $200K. The 6% commission is $12K, or less. Divide that between the listing agent and the buyer’s agent, and you are down to $ 6,000 for each. Then take half of that away for the broker. Yea, I’m sure making all of $ 3,000 on a deal just has the realtors lining up to buy those RVs.
What a bunch of crap.
promus1
RI,
Right now there are opportunities to buy Smithridge units – cash outfows of about $500 mth, rent out for $850 mth. Not a ton of cash, but a good enough return for a hobby on an hour’s worth of work a month. (Not enough to buy a brand new RV or a Chase property, I’m obviously in another world from those guys). So, sit on unit for 15 years, owner is happy, tenants are happy, banks not so happy. Private enterprise solving a problem with no need for govt intervention. Remember, vultures don’t usually kill anything-they are put on earth to clean up the mess.
I see no such solution right now with the downtown condos-not quite so sure that we are dealing with a different crowd or class of tenant after all. If dowtown condo’s come down enough, the same vultures will swope in and pick the bones-or take one last puff on a cigar butt as one famous investor likes to say.
Reno Ignoramus
Hi Promus,
The point of my post was that perhaps we can put to rest the nonsense of the notion that real estate always goes up, especially in “the long run.” I find the fact that Smithridge condos are now selling, in NOMINAL dollars, for less today that they were 30 years ago to be a very insightful fact in mythbusting.
As far as Smithrige condos as an investment, you are probably right. I didn’t comment on the attractiveness of these places as an investment. Apparently there must not be such a rush of investors there as the floor keeps falling. But yes, once the price falls to to $65,000, there probably isn’t a whole lot of difference when the price drops to $60,000, and then $55,000, etc. When the amount at risk is only a difference of $5,000, it’s fairly uneventful.
The second point of my post was to point out the absurdity of the pricing of the Belvedere condo. Is the Belvedere condo really worth 10 times the Smithridge? When it is less than half the size? Is it just the ‘Magic of Downtown’ the justifies the pricing?
Reno Ignoramus
I need to clarify: The Belvedere condo is 10 times the Smithridge on a per sq. ft. basis.
Gary
@Casa de Dolor…
After having dinner with three such prosperous people, I don’t suppose you somehow got stuck with the check, did you? After all, carpentering emergencies come up all the time, so it would be perfectly understandable if he was called away after the main course. And certainly, if an RV crisis arose just as you were finishing dessert, who could blame the salesman for rushing off and forgetting to pay? But surely the Chase agent must have stuck around to kick in for the meal (and fight you to the death for the receipt).
It’s always fun to kid the Chase agents on their own blog.
promus1
RI,
Yes, excellent post and point well taken. I must have been (not very well) trying to tie in the excellent post in Montage? saying how the Belvedere owners could have made a little money by selling these units by about $60K. It’s interesting, but probably not concidental that we both think that $60K is a decent investment price for a condo. Smithridge gets twice the foot print, Belvedere gets the location. To each their own.
So, yes, the market has already established a price point for one complex, another individual has theorized on the same price for another. Some markets take longer to adjust than others, but yes, the Belvedere will have to come down to $60-$75K. The absurdity of today’s prices is not lost on most of us out here.
Now let’s get the SFR median down to $150K for our friend BB and the condo median down to 60K and all get busy making a little money.
WaitingTooLong
I found a nice property with beautiful views that could make a nice condo alternative, a little out of my price range at 529 K. I thought I would pass it along in case some others were still looking for a home. http://marketing.remaxdesigncenter.com/87/32387/751228
Raymond
Hey Waiting,
There’s an interesting aspect to that place. Looks like it sold in 9/91 for $291,542. Then it sold 4 years later in 8/95 for $290,000. This was back in the pre-bubble days of a “normal market” when, it appears, property did not always go up in value.
Sully
…..and thats just about what its worth today!
Raymond
Here’s the final version of the tax credit for homebuyers in the stimulus bill.
The credit is equal to 10% of the purchase price, but only up to $ 8,000.
It is available only to first time buyers.
The house must be purchased no later than November of this year.
It phases out for couples with income over $150K and individuals with income over $75K.
It has to be paid back if the house is sold within 3 years.
Just my opinion, but I don’t see where this is going to do much.
MKchick
It is the same “first time homebuyer credit” that was passed last year, except now you get an extra $500 to pay back the gov’t interest free.
SkrapGuy
Would I take a GSR condo-hotel unit if they were giving them away? Only if the gift came with a waiver of any and all fees, costs, expenses associated with the unit. The condo-hotel concept had to be the most idiotic, foolish, stupid, thing to come out of the bubble. You find me one of these GSR units that wasn’t financed with some easy money crapola bubble hype flipper trash loan and I’ll eat my hat.
On second thought, no, I wouldn’t take one of these warmed over former hotel rooms if they were giving them away.
Paul
Hey waiting, you would really pay 529k for that? Thats a stucco tract-box on a tiny lot. 300k ?
DowntownMakeoverDude
My question would be, what would someone do with the Belvedere if they bought it at auction? Obviously no one is going to plop down money on the courthouse steps for that sad project anyway, but just hypothesizing for a moment….It’s half finished..half of it (the lower tower) was converted to condos with no balconies…the other half is still a former hotel, I’m not entirely sure if the 2 top floors they added to the lower tower are finished and the larger tower now has a burnt out hole in it. The retail isn’t constructed or leased, I doubt the pool area was finished as advertised. Given the controversy that nearly all of the buyers are from the same area in California, I wonder if it even has one legitimate resident.
Yeah, that’s a real sexy property to snap up at auction.
DowntownMakeoverDude
As far as GSR is concerned, it’s just as SOL. There was a swirl of activity from multiple buyers to snap up GSR from JP Morgan…but all of that activity died along with the credit market last year. Now, not a peep from my sources. I think several people are interested in purchasing it but can’t find the credit/funding. I know JP Morgan wants to unload it…obviously. Tom Schrade really tried to unload the property before his time ran out. I heard JP gave him 60 days to sell the property ‘or else’. We’re obviously not getting our indoor water park, Bellagio style fountains, exotic car museum or anything else they promised. They did improve the property a bit at least.
Right now a subsidiary of JP Morgan is running it.
Reno Ignoramus
Remember when BB posted about houses selling in Detroit for $25K, and people said well, that would never happen here. It’s different here, they said.
Well, MLS # 80014632. A house in Stead, asking price $49,500. Now, this is one of the old officers houses that was built there when Stead was an AFB, and surely nothing any of the regal readers of the RRB would be interested in.
But there it is folks: the first house in Reno asking less than $50K. It will be probably sell for around $45K I imagine. We are now within 25 grand of Detroit, and closing.
Raymond
RI,
I see that that property is an REO. The bank may take $40K to unload it. We may be closer to Detroit than we all imagine.
CommercialLender
Anyone:
If Belvedere went to to the courthouse steps today, did anyone attend or know what happened?
Also, curious if anyone on this blog attended the “get out of Montgage contract” meeting. Was it an ambulance-chasing lawyers’ sales pitch or legit info coming from concerned citizens?
montagereno
I attended the meeting. The lawyers told us not to say anything about what happened or was discussed to anyone else. They said everything said between a client and a lawyer was protected by the attorney client privilege. Once what was said is told to someone else, that protection is lost.
MR
Perry
Was it just me or was that virtual tour on Mountain Springs just a little spooky? Everything had a sort of dingy look and that creepy music. I kept expecting Jason to pop out or something. ka, ka, ka, ka, kill, kill, kill, kill…… No way man, no way!
SkrapGuy
So President Obama announced his $75 billion plan to stem the foreclosure tsunami today. It seems the plan is aimed at lowering the payments for those on the brink of foreclosure. Our govt. will subsidize lenders who agree to make the mortgage payments more affordable.
So I guess it works like this: Congratulations Mr. Upside Down. Here is your shiny new revised $300K mortgage at 4.5% amortized over 60 years so your payment is now equal to about 31% of your income. Boy you should feel a great relief now.
Oh, you say your house is only worth $150K? Oh well, surely the value will start to increase any day now that your govt. has come to your rescue. Please be patient.
Martin
RealtyTrac now estimates that the total loss in real estate value due to the market meltdown is around $3.3 trillion. It doesn’t seem like $75 billion is going to be a big enough bullet to turn this around.
I think this latest plan is no more than cover for the politicians to say they “did something”. I am getting the sense that everybody knows that the foreclosure mess is a full steem freight train that maybe at best might be slowed down a bit, but cannot be stopped.
Transplant
Obama’s plan will help homeowners facing mortgages more costly than the price of their homes, along with those on the verge of foreclosure. That would allow 4-5 million Americans currently under water to refinance their mortgages, and another 4 million people to avoid foreclosure. The plan should also bolster confidence in Fannie Mae and Freddie Mac. When 9,000,000 American families are able to stay in their homes because President Obama “did something,” in my opinion that’s a pretty good thing. It won’t cure the Bush Depression, but it’s a start at stabilization.
jessy
Actually, the plan will not help homeowners severely underwater, only those who owe 80-105% of the current value. I’m pretty sure most of the people in trouble are much further under than this.
CommercialLender
Transplant,
your delusional idealogy gave me a good laugh! Thanks for that. Now back to reality.
billddrummer
On the Belvedere–
I haven’t found out the final disposition on the sale yet, but here are a few stats to chew on:
NOS is only on the North Tower and a portion of the lobby in the South Tower. There are 176 units in the North Tower, of which 29 have been sold. The last closing took place in July 2008.
If there is $44,758,616.34 owed against the North Tower, that’s an average/unit of $254,310. Not to mention other liens that exist.
Belvedere LLC is in receivership, according to a notice recorded shortly before the NOS.
billddrummer
On Obama–
Why is the guy still campaigning? Didn’t he win the election, or is he not sure the votes counted?
inclinejj
Sale was moved to 3-17-2009
same time same place
Transplant
“A key provision in President Obama’s $75 billion foreclosure prevention plan would allow bankruptcy judges to modify home mortgages — a measure supported by bankruptcy attorneys and consumer groups but opposed by lenders.”
I suppose that opposition includes CommercialLenders?
Tom
Transplant, that type of mortgage modification provision, referred to by bankers as the cram-down power, has a flip side to it. For the homeowner in difficulty, understandably it is helpful and a potential way out of a bad situation. For loan officers looking at new business, however, adding the existence of this power to the underwriting task makes the marginal, grey-area applicant a problematic borrower to approve. Why lend to an applicant who is likely to seek a haircut on the debt later? The result I am told by bankers is that while helpful to particular individuals in the short term, on the longer term, this provision will make it harder to get loans by those other than the low risk, high down-payment, high credit score applicants. Some may respond, “Good, then.” However, it is not so good if the middle segment of America is the group this very program is supposedly seeking to help. It amounts to a quick shot-in-the arm for a fraction of that group, but makes it harder for the majority of that group to get loans in the long run.
Transplant
Sounds like your banker friends are issuing a threat. Besides, I thought that’s what competition’s for. Any bank that won’t lend will shrivel up and blow away.
The banks themselves are inviting a massive re-regulation of their industry, as well. Their latest scumbag twist is to apply sneaky fees to the processing of unemployment payments. Sounds unbelievable, right? I really have no interest in what the banking industry says they will do if they don’t get their way.
Tom
It isn’t a threat by them, Transplant, it is only an economic truism that if you are in the business of lending, you need to be able to rely upon the sanctity of your Note and Deed of Trust. Once the bridge is crossed where the security is impaired by governmental intervention, or the principal marked down to subsequent market, then it is always a guess as to whether any particular future loan should be written. And the banks WILL lend, they won’t shrivel up and blow away, but they will be even more picky about to whom they will lend. So in the end, this type of program tends to hurt that group it was conceived to help. It isn’t about letting the banks get their way, it is about avoiding well-intentioned governmental intervention which while helping some in the short term, is also going to negatively impact future extension of real estate secured purchase money credit to mid-level borrowers.
billddrummer
I have to agree with Tom. If there’s a chance that any loan documents are subject to change by a court, then the likelihood that a lending institution will extend credit to a ‘potentially marginal’ borrower will vanish like the first $50 billion of TARP money.
smarten
Transplant. I’ll issue the threat, and I’m not a banker.
IMO the people in Washington are STUPID. They’ve been stupid with the bailout; their mortgage assistance plan is stupid; their pork barrel spending is stupid; and this bankruptcy court cram down proposal you’ve addressed is stupid. And here’s why.
As some on this board know, I invest in hard money deeds of trust [and I’m not the only one]. Basically a licensed mortgage broker arranges loans secured by deeds of trust to little guy borrowers. So people like me become the source of funding for these loans or the equivalent of the “bank” [expect UNLIKE your local bank, no one offered me a $25B bailout]. For the last 9 or more months, people like me have become essentially the only source of lending for many, many homeowners.
When I as an investor evaluate my risk as a lender, I’m looking at basically one thing – the equity in a borrower’s property. If you take that away from me [which is what happens when a bankruptcy judge or anyone else unilaterally prevents me from exercising my remedy under my contract to foreclose in the event of default], you’ve taken away everything.
Thus a provisions like this WILL result in two very, very adverse consequences to the very group of people who are allegedly clammering for help. First, people like me will never again invest in deeds of trust because the risk will be too great. Thus this will take away a source of funding to the very people who need it [and who can’t get it from your traditional bank].
Second, the cost of lending across the board will go way, way up to cover the added risk. To those few brokers still in the hard money second deed of trust business, they will have to increase the interest rates borrowers pay to cover the added risks. I could easily see rates top 18% or more [even in a world of now 4% mortgages].
I also have a question for Tom [don’t know if he knows]. I am assuming this proposal re: cram-downs could not legally be applied retroactively to loans which originated prior to passage of such a proposal [otherwise being an ex post facto law]; do you agree? And if you do, what good would such legislation do for the millions of current mortgagors in default?
So you see my opposition has nothing directly to do with the banking industry transplant. Yet it is very, very real.
Tom
“I am assuming this proposal re: cram-downs could not legally be applied retroactively to loans which originated prior to passage of such a proposal [otherwise being an ex post facto law]; do you agree? And if you do, what good would such legislation do for the millions of current mortgagors in default?”
I believe that it COULD be made to apply retroactively IF coupled with a taxpayer-funded buy-down to market, so that the hair-cut portion written down would not amount to a `condemnation without just compensation’ of the secured lender’s property, that property being his unpaid balance in the Note. Without such a provision, it would seem to me to be a taking or condemnation, if applied retroactively. A test case might be required, if it is written to apply to existing Notes, without a provision for compensation from the government to the affected lenders.
If buy-downs are included, then in a nutshell, the program would essentially shift wealth from people who have paid-in taxes to the Treasury, to those in foreclosure, by virtue of the government’s buy-downs to market of the Notes of defaulting borrowers. Yes, I think this would be an ex post facto law, but technically without damages to the secured lender on those old loans. The future damage, however, would be exactly what Smarten describes: the destruction of the market for hard money loans in the future, because once the cram-down is empowered in the law, there would not necessarily have to be a concomitant Treasury-funded buy-down in the future, since the lender would have known going in that this could happen.
BanteringBear
Tom posted:
“It isn’t a threat by them, Transplant, it is only an economic truism that if you are in the business of lending, you need to be able to rely upon the sanctity of your Note and Deed of Trust. Once the bridge is crossed where the security is impaired by governmental intervention, or the principal marked down to subsequent market, then it is always a guess as to whether any particular future loan should be written. And the banks WILL lend, they won’t shrivel up and blow away, but they will be even more picky about to whom they will lend. So in the end, this type of program tends to hurt that group it was conceived to help. It isn’t about letting the banks get their way, it is about avoiding well-intentioned governmental intervention which while helping some in the short term, is also going to negatively impact future extension of real estate secured purchase money credit to mid-level borrowers.”
You know what? I don’t give a r@ts @ss what the banks will or won’t do as a result of this latest bailout. We, the citizens of this country, have been screwed by these greedy, corrupt b@st@rds more than we could have ever imagined. Our taxpayer funds have been shoveled into the accounts of the most irresponsible, predatory institutions, but now we’re supposed to worry about a few cramdowns because they might precipitate a tightening of standards resulting in fewer buyers qualifying for their rip-off products? Sounds f***ing good to me! Let’s cram down every last loan that these son of a b!tches made. In turn, they can STOP lending period, maybe even go out of business, and house prices will return to what CASH buyers can afford. The banks ARE the problem. Play with fire, get burned.
PS- I am for ZERO bailouts, whether it’s for banks or their customers. But, what’s good for the goose is good for the gander.
Tom
I also am against all bailouts, BB; I am commenting only on what will happen to the lending market for future home loan applicants of less than stellar marks as a result of this program. As to limiting transactions to cash buyers, if only cash buyers could buy houses, everything will come to a grinding halt, and the only first-time buyers would be the trust babies with inherited wealth. Anyway, I feel your anger.
Reno Ignoramus
I remember well, Smarten, all the conversations we had on this blog about hard money lending. You are correct that the hard money lenders have always played a role in providing money to people who are otherwise unable to borrow from traditional sources. And I agree with you that if the Bankruptcy Code is amended to give bk judges the ability to rewrite the terms of loans, it will be the end of the hard money business. The rapid pace of the deterioration of house values over the past two years has already created risk enough for hard money lenders. Add to that the risk that your contract might be rewritten in a chapter proceeding, and I don’t see how the hard money industry remains viable.
And to SkrapGuy:
You seem to be right on in your analysis of why the Obama plan will ultimnately have little impact. I do not see where the plan comtemplates requiring lenders to reduce principal balances, but only contemplates making monthly payments more affordable. You are correct: what real consolation is it to a homeowner to have his payments drop if the principal balance on his mortgage is still twice the value if his house?
Reno Ignoramus
There is little doubt that there are the votes in the House of Representatives to amend the BK Code. But I am not sure there are 60 votes in the Senate. I do not think the 3 Republicans senators who crossed over to approve the stimulus bill will be there on a vote to amend the BK Code. And I think, perhaps, there may even one or two Democratic senators who might not go along.
DonC
All this talk about the sky falling if bankruptcy courts can order cram downs of mortgages is downright silly. Until the Supreme Court’s decision in Nobleman in 1993 bankruptcy courts did this all time, and it was no big deal. AFAIK real estate lending prior to 1993 was perfectly healthy.
Generally speaking cram downs (or cram ups) are just a standard part of bankruptcy. I fail to see why mortgage lending is so fundamentally different than any other type of lending. Much ado about nothing. On a scale of 1-10 this is around a .3.
Actually, as a lender I’d prefer the cram down, which is probably why the bigger banks aren’t losing any sleep over this. Since the loan amount is never reduced below the current value of the property, you’re no worse off than you would be if you took the property back. And the overage, while now unsecured (but recourse), becomes a court ordered payment. Assuming that the loan is recourse, which it is not in the vast majority of states (not NV), you could actually collect that if need be, unlike having to complete a judicial proceeding to get a judgment which is going to be impossible to collect on. What’s not to like?
Mosten
Smarten, I hope all of your hard money deeds of trust are first liens, and not second liens, or you could be subject to having your lien stripped in a bankruptcy proceeding under existing law should the value of the house securing the first lien fall below the amount of the first lien.
Martin
In a position paper promulgated by the Mortgage Bankers Association, the result of allowing bankrupcty judges to modify the principal balance of a mortgage would be to increase mortgage rates by 150 basis points, for lenders to demand a higher down payment, and for lenders to increase closing costs.
I’m not making this up. You can go to the Mortgage Bankers Assoc. website and see for yourself.
smarten
DonC –
Help me with the U.S. Supreme Court “Nobleman” case you refer to. I did a quick search and couldn’t find such a case. To you have a cite I can refer to?
And I disagree w/you re mortgage cram downs. Your rational appears to be what’s the big deal; if there’s no equity in a mortgaged property then what’s the problem with reducing a secured creditor’s underlying obligation to equity? I say if there’s no equity and the mortgagee would rather have the security versus a smaller underlying obligation, what’s the problem with transferring the security to the creditor? Why does the debtor benefit to the secured creditor’s detriment?
Stated differently, your version sounds to me like another way of “spreading the [lack of] wealth around.”
DonC
Smarten
The case is Nobleman v. American Savings Bank, 508 US 324 (1993. I just checked and you can find the complete opinion here (probably other places as well): http://www.law.cornell.edu/supct/html/92-641.ZS.html
Keep in mind that this decision was rendered before the 2005 changes in the bankruptcy laws. These moot some of the background of Nobleman.
Just as a FYI, the 2005 changes made it far more difficult to go Chapter 7 and more or less force individuals into Chapter 13 reorganization. As to your question about getting the property back, in Chapter 13 you don’t have that option really.
You’re right about spreading it around. It’s really a grab by the credit card companies.
CommercialLender
Transplant,
FYI, I don’t at all speak from the actual lender’s perspective, I speak as a deal guy on the front end of the loan business, but in the commercial – not single family – business. I do very conservative loans for my clients and am personally very conservative. In my years doing commercial lending, I’ve only ever had one loan go bad, and that due to a contractor-developer dispute turned into a court mess, not due to overleveraging. (its still only 2009 – my loans still have time!! 🙂 )
I am personally opposed to expanding BK courts’ authorities to allow lawyers and judges to re-write what are contractual obligations, mortgages. The only people worse than politicians for fixing this mess will be lawyers/judges. I’m a common sense idealist with not that much sympathy for the vast majority of those upside down in this mortgage mess. I’m all for personal responsibility, as cold as that sounds, and that includes having to take the good with the bad. No one stopped to thank the lenders for giving them easy access to money so they could try the ‘American Dream’ and for many to live larger than they should. Well, that didn’t turn out so well, did it. Neither then should we all blame the lenders for the mess we are all in, for that, too, will not end well.
If we expand the powers of a 3rd party – be it a politician or judge – to break or alter contracts unilaterally, then our whole system is one step closer to Big Government, one step away from market capitalism, and a huge step away from personal responsibility.
Idealistic? Sure. But my pastor when I was growing up would always say “when you point your finger at someone else, you have 3 pointing back at you”.
DonC
CL – The problem with your position is that it proves to much, namely, that bankruptcy courts shouldn’t exist.
You say that it’s unreasonable for bankruptcy judges to “break or alter contracts unilaterally.” Well, that may be true, but that’s what bankruptcy judges are supposed to do. Every day bankruptcy courts change contracts, union agreements, and every other type of agreement you can think of. It’s the heart of bankruptcy.
Since the Constitution establishes federal bankruptcy, what you’re really saying is that the Constitution got it wrong. That may be true but it’s downright silly to argue on the one hand that it’s perfectly fine for a bankruptcy court to alter union agreements but to argue on the other that it’s unreasonable for a bankruptcy court to alter a residential mortgage.
As in most cases, inconsistent and self-contradictory arguments are invariably morally and intellectually “bankrupt”. 😉
CommercialLender
DonC,
You are putting words in my mouth. Note that I said my beef is “if we expand the powers of…” but certainly not that BK courts are illigitimate and certainly not that our Constitution is flawed. Those are huge jumps on your part for an otherwise well reasoned poster, and that lead to a tongue-in-cheek insult of my being “morally and intellectually ‘bankrupt'”.
My issue is simple in today’s current context: the courts don’t have this power now and for the most part didn’t when these deals were penned, excepting older mortgages, therefore this risk was not known to the market when these mortgages were written. So, having a politician or judge come in ex post facto and unilaterally change these existing agreements is problematic.
I don’t assume, however, that this power should ever have been taken away by the change in the law, only that changing such powers back again after the fact is not right if applied to contracts made under the former law.
In a way, one might say this concept actually contributed to the bubble since lenders knew the act of lending had incrementally less risk at the time. Then that same person would conversely have to say that changing the law again would immediately cause more risk to the lenders, and therefore increase the loans’ risk-mitigants (higher rate, lower LTV, whatever). That’s all fine if changed by matter of public policy, but then wouldn’t everyone complain the lenders were then being unfair?
So, in the end, I argue that as a method for us to get out of this mess, retroactively changing the BK laws to cover mortgages will have significant unintended consequences and might indeed end itself in failure.