From the New York Times:
As millions of Americans struggle in foreclosure with little hope of relief, big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked.
Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk…
Which is just swell for you if you’re at risk…if your risk has already come crashing down and you’ve lost your house (as millions of Americans have), then it is a bit late.
I figured as early as October of 2008 that we needed to do something to bring home mortgages in to line with home prices. This isn’t rocket science – home prices ran up way too high and the crash instantly wiped out a gigantic amount of paper wealth but left tens of millions of Americans owing not just more than their house was worth, but likely more than it would ever be worth, again. It was in 2009 that I figured we needed a program of “cramming down” home loans – which is essentially what the banks are doing in the linked article. Trouble is, I think it is too late; prices have fallen so far and so fast – and look to continue declining – that even taking a “cram down” makes no sense. By 2010 I was arguing we needed some means of just keeping people in their homes, even after they default…anything to keep houses off the market. That is where I still stand.
The trouble with our banks – the reason they have got it so wrong both in the run up and in the crash down – is that they are run by people who haven’t the foggiest notion of economics. Bankers think that government borrowing and printing can be a good thing – it is why they backed Bernanke’s “quantiative easing” (ie, money printing) and Obama’s “stimulus”. If they knew anything about economics their would have first allowed “too big to fail” to fail, and then would have called for balanced budgets and sound money – counting on the native energy and drive of the American people to dig us out of the mess while they stood ready to lend money to solid enterprises. In a real sense, we don’t have bankers…we have corporate, Ruling Class bosses who rose to the top based on connections rather than knowledge or skill.
They are even less schooled in morality (they teach “ethics” these days…which really works out to learning how to stay out of trouble with the EEOC and SEC). The mix – people who don’t know what to do and are weak at identifying what is right and what is wrong – prove a strong poison…and let to things like Mortgage Backed Securities and the whole “sub prime” trigger of the collapse. It doesn’t surprise me at all that the banks are now picking up on cram down, years late and after it is already clear it can’t solve the problem.
My advice right now, if anyone is interested, is: don’t buy a house. Wait a couple years. It might be down 20% lower than now…and if I’m wrong, it won’t be more than 1 or 2% higher. Housing should, also, not be seen as an investment bringing a monetary return – it might again, some day, have that quality (though, honestly, I hope it never does) – but, instead, as a home. If you think of it that way, then it doesn’t matter what the market does – provided you’ve bought a house within your budget, if its worth a million dollars or one, it is all good for you.
My bank, Wells Fargo, has offered to renegotiate my mortgage, and I am not an at-risk borrower. They seem to be courting the solid, no-risk clientele with nice offers of lower interest rates.
On the other hand, a friend who is an officer at WF and who tried to help me get a business loan there finally admitted that they are simply not loaning money. To anyone. He had to go to Chase, and I got my loan through US Bank—which will, BTW, also be getting all my other business including my mortgage.
I think I prefer a bank which has a solid enough grasp on the concept of banking to understand that you make more money charging interest than you do paying it.
I bought a “new” van a year ago, I wanted to borrow 1/2 the blue book value, they refused to loan me the money.
I bought it on my corporate (platinum) CC….problem solved.
It is ridiculous, what these morons thinking?
July 5, 2011
Blowing Smoke with Moneyspeak
American budgets and American debt are couched in unfathomable terms of magnitude that obfuscate their gravity. I suggest the expression “trillion” is so large as to be meaningless. Every conservative public figure should use the expression “thousand billion” instead. It is far less catchy and far more serious. A debt of 14.5 thousand billion dollars sounds more appropriately ominous than 14.5 trillion dollars. For one thing, it speaks in the same general unit of measure as the puny cuts being discussed.
Eliminating private jet tax breaks would mean 3 billion over 10 years-compare that to 14.5 thousand billion and the picture is more clear. Compare that to the request to increase the debt limit by two thousand billion for one year and you see how use of these superlatives have been used to conceal governmental financial shenanigans for a long time.
The previous congress passed, as part of ObamaCare, a requirement to spend 100 billion per year on implementing this health care debacle. If we didn’t spend this, a thousand billion will be saved over the next 10 years. Now you’re talking.