Strategic Defaults, Here we COME!

[jtabeb]

http://www.nytimes.com/2010/01/10/ma...OB-wwln-t.html

A Deluge commeth...

"White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value. White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis. No one says defaulting on a contract is pretty or that, in a perfectly functioning society, defaults would be the rule. But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth."

[doom&gloom]

Re: Strategic Defaults, Here we COME!

Wall Street does it to their own, why not the people as well?

[aaron]

Re: Strategic Defaults, Here we COME!

Somebody mentioned it in a different thread... some people are buying new houses and THEN ditching their old mortgage. Now THAT is a strategic default.

God, the whole industry is a cesspool. When will it end?

[Slimprofits]

Re: Strategic Defaults, Here we COME!

Somebody mentioned it in a different thread... some people are buying new houses and THEN ditching their old mortgage. Now THAT is a strategic default.

God, the whole industry is a cesspool. When will it end?

Isn't there something in Florida law, the homestead law perhaps, that makes this possible?

Before we left California last year, we met a few households in the process of walking from million+ mortgages and heading for South Florida.

[BiscayneSunrise]

Re: Strategic Defaults, Here we COME!

http://en.wikipedia.org/wiki/Homeste...ion_in_Florida

You are, indeed, referring to the Homestead Law, a depression era law, designed to protect the homes of Florida residents from various economic and market forces. Most commonly used by average citizens to reduce their annual property tax bill by reducing the assessed value of one's home by $50,000 ( negligible in high cost areas) and by capping their annual property tax bill at 3% yearly (similar to California's Prop 13)

But the big advantage in the law is that it prevents forced sale of one's "homestead" in bankruptcy regardless of the value of the property. The common trick is for someone planning a strategic bankruptcy is to liquidate all assets and use all the proceeds to buy the biggest property possible (Boca Raton and Orlando seem to be favorite spots) Then file bankruptcy, shed one's debts and obligations, while the lions share of one's assets, now in the form of a home in Florida, are protected from creditors.

A very neat trick that worked especially well in an appreciating market. The law does not apply, though, to someone who just wants to default on the mortgage on their homesteaded property.

[Camtender]

Re: Strategic Defaults, Here we COME!

Somebody mentioned it in a different thread... some people are buying new houses and THEN ditching their old mortgage. Now THAT is a strategic default.

God, the whole industry is a cesspool. When will it end?

In order to do this, some people are actually committing mortgage fraud by creating a fake lease on their current house and submitting the fraudulent lease to the lender - which allows them to qualify on a second house.

Once the second house is purchased, the renter stops renting and the first house is foreclosed. This has been occuring in AZ for several years now, since many homes in Scottsdale and other areas of AZ have gone in half in less than three years.

[vinoveri]

Re: Strategic Defaults, Here we COME!

In order to do this, some people are actually committing mortgage fraud by creating a fake lease on their current house and submitting the fraudulent lease to the lender - which allows them to qualify on a second house.

Once the second house is purchased, the renter stops renting and the first house is foreclosed. This has been occuring in AZ for several years now, since many homes in Scottsdale and other areas of AZ have gone in half in less than three years.

Fraud. I'm shocked, just shocked!:rolleyes:

What occurred in the last decade and what transparent to all, transpired in the last 18 months, has unfortunately written moral hazard, fraud, and the breakdown of the rule of law into our future for as far as the eye can see. I can see nothing but corruption increasingly seeping into every level of society in any way connected with law, gov and finance. The government is corrupt and been co-opted by oligarchs, basic fraud and other criminality is not being enforced on those apparently in the "protected professions". Without equal justice and the rule of law, a society will fragment and devolve rapidly and as it does more and more people will rationalize their own corrupt behavior.

[thriftyandboringinohio]

Re: Strategic Defaults, Here we COME!

http://en.wikipedia.org/wiki/Homeste...ion_in_Florida

You are, indeed, referring to the Homestead Law, a depression era law, designed to protect the homes of Florida residents from various economic and market forces. Most commonly used by average citizens to reduce their annual property tax bill by reducing the assessed value of one's home by $50,000 ( negligible in high cost areas) and by capping their annual property tax bill at 3% yearly (similar to California's Prop 13)

But the big advantage in the law is that it prevents forced sale of one's "homestead" in bankruptcy regardless of the value of the property. The common trick is for someone planning a strategic bankruptcy is to liquidate all assets and use all the proceeds to buy the biggest property possible (Boca Raton and Orlando seem to be favorite spots) Then file bankruptcy, shed one's debts and obligations, while the lions share of one's assets, now in the form of a home in Florida, are protected from creditors.

A very neat trick that worked especially well in an appreciating market. The law does not apply, though, to someone who just wants to default on the mortgage on their homesteaded property.

The Homestead law works well to protect banksters also. Remember the savings and loan crisis of the 1980's? A key collapse was Home State Savings in Ohio, the governor actually closed banks in Ohio for a brief time. A fella named Marvin Warner ran Home State and was convicted. From Wikipedia:

Warner was ultimately convicted on six counts of fraud for making investments without board approval and three counts of securities violations. He was sentenced to 10 years, with all but 3 1/2 years suspended. After a series of failed appeals, he ended up serving less than 3 years (April 1991 to August 1993) at the Madison Correctional Center in Lebanon, Ohio. He also paid out $16 million in a settlement, down from the $22 million initially ordered by the court.
After his release from prison, Warner retired to a 150 acre farm in Ocala, Florida, living off money sheltered under Florida's homestead law, and was finally released from probation in 1997.

[Verdred]

Re: Strategic Defaults, Here we COME!

Fraud. I'm shocked, just shocked!:rolleyes:

What occurred in the last decade and what transparent to all, transpired in the last 18 months, has unfortunately written moral hazard, fraud, and the breakdown of the rule of law into our future for as far as the eye can see. I can see nothing but corruption increasingly seeping into every level of society in any way connected with law, gov and finance. The government is corrupt and been co-opted by oligarchs, basic fraud and other criminality is not being enforced on those apparently in the "protected professions". Without equal justice and the rule of law, a society will fragment and devolve rapidly and as it does more and more people will rationalize their own corrupt behavior.

It's called "tone at the top". There has been corruption throughout US history both corporate and government, but there was, I believe a strong moral inclination esp. among the middle-bureacracy. I think this "belief in moral superiority" has now faded and people see no reason to not take advantage if they have the opportunity esp. in a time of impunity (i.e. less chance of getting caught) amongst leaders of men.

Also, once the "great big wonderful tomorrow shining at the light of every day [disney]" is no longer so big and... shiny... well, at some point you've got to atleast "survive" (even if survival is couched in maintaining current lifestyle for yourself and children).