Wouldn't be nice to fail upward like that?
Conversely during the GFC the Obama administration put a plan together to allow people to get their loan terms adjusted (write down). The plan was very long, bureaucratic, and difficult to follow. Nearly everyone who attempted to use the scheme failed to successfully complete it and receive the write down.
When asked about this, an administration official explained that the plan was never designed to give homeowners relief. Instead the purpose was to dangle a carrot in front of their nose to get them to struggle and sacrifice to continue to make full payments as long as possible so that the banks didn't have to take losses as quickly.
Note though that he is only quoting "off the record" conversations with Treasury Secretary Tim Geithner
https://prospect.org/economy/needless-default/
"The cynical view is that HAMP worked exactly to the Treasury's liking. Both Senator Elizabeth Warren and former Special Inspector General for TARP Neil Barofsky revealed that then-Secretary Geithner told them HAMP's purpose was to "foam the runway" for the banks. In other words, it allowed banks to spread out eventual foreclosures and absorb them more slowly. Homeowners are the foam being steamrolled by a jumbo jet in that analogy, squeezed for as many payments as they can manage before losing their homes."
I specified it because the comment very clearly lacked a citation due to touching controversial political subjects, and any future reader benefits from such citation if added.
I could have made a lengthy complaint and specified concerns about not attaching supporting references - such as unclear attribution that can obscure possible underlying political agendas - but that itself would add nothing not covered by: citation needed. With a citation, people can judge for themselves.
In the UK, if you owe 200k, the bank takes over your house, sells it for say 150k and has 20k of costs you still owe them 70k, and you have to go bankrupt and spend the next decade in financial misery
Credit standards and interest rates will be different on non-recourse loans, and cancelled debt typically has to be reported as income and taxed.
This wording makes it sound like mortgages are required to be non-recourse loans in the 12 states, but that's not the case. 12 states allow non-recourse loans, however they are not common for mortgages, with many lenders not even offering them.
"Importantly, recourse affects default only through lowering borrowers sensitivity to negative equity. Unconditionally, there is no difference between the default rates in recourse and non-recourse states."
"The effect of recourse is significant only for higher-appraised properties."
> Credit standards and interest rates will be different on non-recourse loans
"To the extent that borrowers in recourse states are less likely to default in response to negative equity, and are more likely to default in a lender-friendly way if they do default, lenders are likely to face smaller losses from default in recourse states. Thus, one might expect interest rates to be lower in recourse states. However, we find no evidence that they are; in fact, we find that loans are more expensive in recourse states."
You can read the paper for yourself: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1432437. Note that this paper (and many other sources) classify Texas as recourse but it is not. I'm not certain why that is.
Many recourse states require the bank to credit you the full appraised value, not the actual foreclosure sale value - because banks often bid against themselves at foreclosure auctions and control bid acceptance so they effectively set the foreclosure price. Various things (wages, personal property, retirement accounts) are often excluded from recourse for your primary home. In some states like Minnesota a jury must determine the fair market value of a foreclosed home. Other states have strict requirements (like short filing deadlines) or lengthy procedures (all attorney billable hours!).
This effectively makes non-foreclosure options way more popular - where a bank will ofter to take the deed and cancel the debt. In the end it is more cost-effective for the bank and better for the borrower.
Furthermore even if you get a deficiency judgement the old proverb "You can't squeeze blood from a stone" applies. Someone who can't pay their mortgage is unlikely to have significant assets to draw on. All you get for your trouble is a bankruptcy filing from the borrower. After all that time and trouble your deficiency judgement gets discharged anyway.
In the end recourse states mean more defaults happen through a voluntary non-foreclosure process but lending standards and interest rates are not that different and very few borrowers ever actually have a deficiency judgement let alone pay a dime toward one.
Bank would foreclose, let the family stay there until the house sold again, and some even PAID people to take care of the property / not damage it on the way out.
My neighbors refinanced at a terrible time, they quit paying, foreclosure happened, then they actually worked out a new mortgage with the bank to stay.
It's almost like the banking system was designed by rich people to suit the needs of rich people or something.
And to tax the poor but that's a more recent component.
How would this scenario play out differently?
A bank is underwater on loans to a certain house. If they pull the plug now, the bank takes a loss. If they work with the household to raise the household wealth, then they can recoup their loan amount from the new wealth.
So what's your alternative solution, in the world where banks are designed for the poor?
I ask because I don't see how the personal assets of the people who designed this system come into play, at all
Food for thought: If they didn’t have an investment manager before this, and their primary asset was a big house they couldn’t afford… these people weren’t rich. They were working class, over extended themselves into a house, and got lucky.
Your premise may have some validity but the story in this thread may be an example of a bank making a working class family rich.
Under that logic you get howlers of counter-factuals like "Kings were rich and therefore there was never a war between kings." It is up there with the abject stupidity of System of a Down accidentally going pro-monarchist by asking why don't presidents fight the war.
Apply some actual thought, please. The job of a bank is to accumulate idle money to put to use in investment to generate returns. "Why does money accumulate in the money accumulator that generates more the more money is put inside of it?"
Hold on: in what possible way, by what conceivable metric, are the wealthy a disfavored group? Name for me any way a wealthy person struggles. It is some mad "leave the billionaire alone" cope to try and say the literally most privileged, by definition, class of folks on the planet are somehow oppressed.
> and being literally unable to comprehend that groups are made up of different people.
Of course they are, but as a group of people who share commonalities of experience, priorities, and oftentimes physical location and interaction, they necessarily also have more in common with one another than with people who are far disconnected from them. That is why people like Ellen Degeneres are taking pictures with George Bush: George Bush has far more in common with Ellen than Ellen does to the vast, vast, vast majority of her audience.
This goes double for economic interest. A world that no longer privileges wealth, even putting aside bogeymen like taxation or confiscation, will be unappealing to every wealthy person, because their wealth currently makes the world bend over backwards for them, and that's pretty sweet and nobody apart from the most principled people on the planet would willingly give that up.
> Under that logic you get howlers of counter-factuals like "Kings were rich and therefore there was never a war between kings." It is up there with the abject stupidity of System of a Down accidentally going pro-monarchist by asking why don't presidents fight the war.
I mean if you don't think it makes politicians of any stripe, kingly or otherwise, more ready to declare war if they know full well they themselves will not be expected to take up arms, then you have far more faith in people than I do.
Though I don't know where you got that quote from, if it is indeed a quote. I'm a much bigger fan of "when the rich wage war, it's the poor who die." And I think you'd be hard pressed to find a conflict where, outside some strange exceptional occurrence, that wasn't quite true.
> The job of a bank is to accumulate idle money to put to use in investment to generate returns. "Why does money accumulate in the money accumulator that generates more the more money is put inside of it?"
I don't object to the money accumulator accumulating money, I object to the money accumulator, when it malfunctions, having it's money replenished with tax dollars it did not earn by performing it's function, from which the guy who owns the accumulator draws a substantial salary afterwards, despite overseeing when the accumulator stopped working.
And like, I don't even think that's necessarily wrong? Like I don't know how you would let some of these banks actually die in such a way that wasn't immensely worse for everyone. My only real issue with it is that these are for-profit businesses that funnel absolutely stressful amounts of money up the proverbial chain. If we just as a society want to say that we're comfortable with the notion of supporting banks with public money because ultimately letting them fail is worse for everyone, that's fine. I get that. I just don't think anyone at the top of those banks should be ripping millions of dollars a year out of that institution. At that point, that's not a business, it's more analogous to a utility and it should be owned and operated by the state.
And that's just about what you want, right? You want the depositors protected, both because they didn't make the bad loans, and because wiping them out is going to cause ripple effects that spread the damage. But the stockholders, the ones that profited (temporarily) from the bad loans? Wipe them out. The management? Wipe them out.