Wall Street Journal - When It's OK to Walk Away From Your Home

[backtoschool]

I disagree with your conclusion. Standards will remain strict for quite awhile, but not due to banks having any sort of "bad blood" with borrowers - that's completely non-sensical - but rather because it will take quite a while for confidence in asset valuations to return. Risk models will maintain a significantly larger buffer around both default and devaluation for several years, at least.

But you have to remember that banks are in the business of lending. If they don't lend, they don't exist. So lending will resume, and from their perspective, the sooner the better. Right now banks are dealing with some serious conflicting pressures, not least because of government intervention. This, too, shall pass.

With all that said, I do believe that exotic products like negative equity interest only pick a payment plans will for all intents and purposes disappear.



*sigh*

Why is it that folks have a tendency to think of a company (be it a bank or any other) or the government as a person?

Banks don't give a flying frick about you, me, or anyone else. Banks are not people. Banks have people working in them which are you and me. Banks won't get more or less ruthless because they get hurt; they will remain just as ruthless as always in pursuing profitability. That means that in an environment where it is profitable to chase delinquent borrowers, they will do so, and where it is not, they won't. That's it. No emotion involved.

That seems to be the crux of morality arguments, but it is completely false. Banks don't have morals, because they are not people. They don't have emotions, because they are not people. The PEOPLE inside banks have these, which is why you can sometimes have great experiences and sometimes lousy experiences with the same bank - or company, or government - but it has nothing to do with the entity itself.



If asset valuations rise enough to justify pursuing delinquencies "ruthlessly", then yes, you are correct; and indeed, it will take many years for this to happen. However, by that time the market will have "flushed", both because many of these loans will have been written off, and the ones that remain will no longer be underwater and people will be paying them. So I simply don't see it. The only way your scenario will work is if the rise in valuation will occur rapidly, "catching" many delinquencies while "in progress" but not yet fully dealt with (written off, settled, and so on).



Why? because doom scenarios are comforting in these times to think about? 1934 was very different, because the economy was far less sophisticated, risk could not be spread or resold, reach was local or regional at best, tools and technology in banking were not available, policies were harsher, money was tied to gold... shoot, there is no way on earth you are going back then. It's like saying the US will go back to relying on agriculture. That's silly.

This is a well written and thoughtful post onwards. I agree with some of what you posted but disagree with some of it as well. I do not think that banks will pull back on lending for the forseeable future because of "bad blood". I think that the risk will be too much for their modeling to accommodate for more than just several years. I think it will be more like several decades.

And as for banks making non-emotional decisions because they are separate from the humans in them, well that is just wishful thinking. Many a banker builds predjudices, ignorance, and personal vendettas into their models and their practices. These hidden emotions may be buried in assumptions and not immediately evident, but they are there, and there is no reason to believe that bankers, once burned by defaulters, won't design their future models to keep such defaulters from burning them again.

Do I think we will eventually come out of this mess? Yes of course. But lending standards will be stricter, and the mortgage economy will be smaller for a long time to come as a result of what is happening now in my opinion.

[albacore44]

wishful thinking. this is all temporary. once this is all behind us it will slowly come back to business as usual. banks need to lend money to make money. So they will need people in the future to lend the money to. as you can see what is going on in the forclosure market, the banks are not losing. what makes sense to you, does not make money for them They have created a new business model, you see. foreclose, add lots of fee's, then pass the loss to their insurance company and collect. Then resell the home, and start collecting interest all over again. They know that these people who are foreclosed on will recover in 5 years, and need another loan for a house. and they will be happy to give them one. this is what drives the American economy. in 10 years this will all be forgotten, and they will have another scheme. that much is certain.

[OhioFiler]

Yes. Send a Qualified Written Request (QWR) to the servicer. In your case, send two: one for the first and one for the second, even if it is the same servicer it is unlikely that you have the same lender. Here is a great QWR sample to send: http://debt-consolidation-credit-rep...ght=QWR+letter

Thank you kindly!