L.A. Land on ABC's "Nightline"

Good morning. If you have a spare 4 minutes and 36 seconds, check out this video from last night's "Nightline" on ABC, featuring your friendly blogger, and a homeowner who's thinking of mailing the keys back to the bank.

Turns out a "Nightline" producer in New York is a fan of the blog and was particularly interested in the discussion here in recent days about "jingle mail" and the ethical questions raised by walking away from a mortgage. So, to those of you who participated, thanks.

Comments

[tew]

It used to be that a typical interested citizen would "follow the news". Now the news follows the interested citizens.

The "news media" have hit new lows in their non-coverage of the real estate bubble. They've added "negative value" to the public. Now they sow fear and indignation.

Outside of the blogs, where has the responsible journalism been? Other than the Economist or Harper's "The New Road to Serfdom" in May 2006 does anyone know of "mainstream" media attempts to critically evaluate this mega bubble before it burst (as if the Economist or Harper's are widely read)? And I don't mean a newspaper in which 9 out of 10 articles were rah rah real estate with 1 in 10 containing a one sentence cautionary quote from Thornberg.

[TakeFive]

Hey Pete - you scrub up pretty good.

Congratulations on your new fame. Don't forget about us little people.

[CD]

Looking good ! You are the man of the people now, you are our guy, our representative, go tell them all : we are mad as hell and we can't take it anymore !!!!!

[xtine]

TEW- I guess you wouldn't count the Atlantic Monthly (I believe 4/06?) which predicted the bubble would burst when ARMs reset and people would REFUSE to leave their homes.

It was a little dramatic I admit.

[Ace]

Errrr.... what a terrible piece. Are we supposed to feel sorry for this clown because he says 'how can they expect me to pay $4500 a month and feed my babies?'

Give me a frigging break. He should have thought about that before he bought a house on an ARM. How about take some personal responsiblity for yourself and the poor decisions that YOU made!

I do have compassion towards people who make bad decisions. I completely understand that you are at a huge disadvantage when buying a home. It is not a level playing field. It is like walking onto a used car lot. You are going to get screwed. But, come one, this guy took an ARM to buy more house than he could afford because he thought that values would continue rise and he would get rich.

Now he is sitting around like a loser waiting for the bank to foreclose on him and fix his problem for him. How about put the house up for sale today and start working a short sale? How about getting a second job so you can honor your committments in the meantime? Nah, just do nothing. Someone else will fix your mess.

[TakeFive]

Pete - I think you put things in context quite nicely by pointing out that the borrower made one bad decision, while the lenders made hundreds.

A comment Steve Kroft made on the 60 minutes clip was also an interesting take. He said that banks, by giving 110% loans to unqualified buyers, were essentially paying people to buy houses.

[mark g]

Nice job Pete, although I was dissapointed that you weren't wearing a bow tie with an NRA pin as a humurous "wink wink"...

[caliguy2699]

Nice job. IMO the reporter totally blew it because he didn't ask one vital question to the homeowner: "Why did you get this type of loan, since there was a possibility it was going to reset higher?" Considering the guy said he has steady, predicable income, it's obvious the only way they would have been able to keep the house was if it increased enough in value for them to re-fi. In reality, he never should have been able to get into the house in the first place.

Hard to feel that bad about them losing it.

[dontmatta]

Nice! Isn't it a conflict of interest though for you to be on a non-Fox station?

[Uncle Billy]

Viles for Secretary of Housing and Urban Development in 2008! No, seriously.

Stray interesting news: SRM, a hedge fund that holds just over 5% of countrywide is seeking to block purchase by BofA. They're also calling for investigation of stock manipulation (remember all those rumours flying around ahead of the announcement?)

The state of California has been advertising bonds on the radio lately. BuyCaliforniaBonds.com

With what are we supposed to be able to buy bonds? Maybe we'll be seeing something along the lines of "War Bonds" at the city and national levels soon as well?

[kat]

These borrowers are like junkies blaming their dealers.

I wonder if it's really going to be as easy as these people think it is. The way they act it's just sort of an "ooops" thing . . "I'll deal with the consequences later. . . " The fact is, the banking and lending industry is a pretty powerful lobby. The credit card companies got toether and had the bankruptcy laws completely overhauled (although that was federal and this might be a state issue). It's very likely that the B&L industry will do something similar. I doubt they will just eat this without a fight. Especially since these deadbeats are not very sympathetic to the general public (or probably to your Governor).

The overwhelming majority of Americans live responsibly in homes we can afford. Even though the default rate has trippled or quadrupled it is still very, very low in most of the country. To most of us, losing our home would not only be a personal failure and tragedy but humiliating. In CA it's beginning to look like a badge of honor.

I also wonder what is going to happen to the rental market in California when it is flooded by these dead beats. To all of you renters who aren't deadbeats, I have a feeling you will feel the effect in one way or the other.

[are they crazy]

I'm disgusted with the switch to the banks blame game. So what they offered exotic loans - how does that excuse all the stupid greedy people that signed on? No one forced anyone to buy a house or take a loan. And you can bet that Mr. "I have to feed my babies" wouldn't be crying the blues and saying he can't make the payments if the house we going up in value - he'd be grabbing every minute of overtime in order to keep that house hoping to cash out and grab some extra $ tax free.

[CD]

Please check out the article by Tantra on Calculatedrisk.blogspot.com
BRISTOL-MEYERS $275 Millions in mortgage related write-downs.
A lot of very funny comments from her readers. Not to miss.
I could use some of that aspirin about now....
Peter get your own reality show on TV: the subprime meltdown show, count down to moving out, and who gets to stay in their NOD house and who has to go.....

[MyLessThanPrimeBeef]

I would like to see a 'Housing Bubble Memorial' built in Washington DC one day with the names of all the 'victims' on it.

Children will visit it and hopefully learn from this tragedy..

[Kat]

Mr. Viles here seems to be very sympathetic to the dead beats. I wonder why.

[Patrick Duffy, HousingChronicles.com]

Great job, Peter! From blog start-up to Nightline in less than a year -- very impressive. I thought you covered the salient points quite well -- people may not agree with borrowers walking away by choice, but that seems to be a new reality, like it or not.

[TakeFive]

Ace wrote:

“But, come one, this guy took an ARM to buy more house than he could afford because he thought that values would continue rise and he would get rich.”

Really? How do you know this?

A co-worker came to me about 3 months ago to ask what I thought of a loan she was going to take out. The broker had pitched her an ARM with a crappy rate and loaded with junk fees. The best part was that he was going to do a refi for her in 30 days because (somehow) he was going to get a better rate. I kid you not, this guy was serious.

You can guess what my advice was, and when she told him to take a hike, he started screaming at her on the phone. Now this gal is not financially sophisticated (she inherited the property, but with some encumbrances) and almost took the deal. I think a lot of borrowers fell into similar traps.

The guy in this story probably believed the loan agent was going to work some financial magic to fix his payment – and he may have, had RE values not tumbled.

[Bubblewatcher]

At this point, it's not about whether these people are "deadbeats" or "victims". Face facts, people...they are what they are, and they're walking away from their houses because, as the guy said, at this point -- so long as his lender refuses his phone calls -- it's either dump the house or starve his kids. I'm sure if he could go back and un-make the decision to make a bad loan on an overpriced house, he probably would.

So at this point, we need to be wondering what the titantic consequences of this shift in attitude will be -- whether the banks, the media or the borrowers are ultimately to blame. Something tells me we'll all be in terrible trouble, regardless of our circumstances.

And Peter -- you look way better on TV than you do on your blog picture!

[jaded]

We've been watching a lot of "The Sopranos" lately, and I don't see much difference between the schmucks who get beaten for not paying their gambling debts, and the homeowners who can't pay their loans back. They placed a bet, and lost, and now they want to wiggle out of it.

And I don't think Tony's just gonna let 'em just walk away.

[m]

"To all of you renters who aren't deadbeats, I have a feeling you will feel the effect in one way or the other."

I'm already feeling it in some ways. The interest on my savings account where I put the money that I didn't put into a house is steadily dropping.

[godless]

People make the banks out to be victims, but they don't talk about the "immorality" of the lending institutions. Banks lent money to people who made less than 60k for a 600k house knowing full well these borrowers could not continue making payments after a rate increase. They did this out of greed because subprime loans and ARMs have higher returns than the standard 30 yr fixed. Lending institutions saw their stock prices soar and people earned big bonuses pushing ARMs and subprimes to consumers. Financial institution execs knew the good times weren't going to last forever but took advantage of a lack of government oversight and are laughing all the way to the bank or should I say all the way to their mansion on the French Riveria while the tax payers bail out banks and consumers.

The people who make this moral argument are so blinded about "righteousness" their vision is obscured. You should not loan money to people who you KNOW will be unable to continue making payments. On the outside this does not appear to be a lapse in morality but in common sense. Not paying back your best friend is immoral because he's not profiting from your loan. Not paying back a "foolish" bank because they wanted to pad their balance sheets is simply a business decision based on economic reason-not morality.

It's hilarious how these moral crusaders align themselves with the GOP and big business but don't understand a single thing about basic market forces and fail to realize how they're being gamed by the people they're supporting.

[FM71]

I could not help but laugh when I saw that piece. A friend of mine from college bought there in 1999 and lives on that same street in Chino Hills. We spoke just a little while ago and he said the guy's in RE alright. Gave me the address on Zillow and it says the value is about $492,000 now. A good drop from the $520k he claimed it was worth and a far cry from what he paid. Also says the purchase was around the peak in Nov of 2005. He of all people should have known the type of loan he had would go from 2,800 to 4,400. It's hard to feel sorry for a guy who was in the business and believed his own lies.

[Laker]

Posted by: m: "The interest on my savings account where I put the money that I didn't put into a house is steadily dropping."
Hold on m, interest might be dropping but i don't see it going negative (like stocks soon will show).
Also inflation is booming and will force the FED to raise rates very soon. You'll see.

[mattress man]

Hey, Peter. I'm proud to call you a fellow renter.
Keep up the good work.

[kat]

. . people may not agree with borrowers walking away by choice, but that seems to be a new reality, like it or not."

Wow, what insight. Getting horse f*&ed by deadbeats is just here to stay so we might as well get used to it. I feel so much better.

As far as being a "moral crusader" because I hate deadbeats who cost me money, these particular deadbeats are/were living in half million dollar homes. Overpriced half million dollar homes but still. Everyone on this board knows what it's like to be in over your head financially. There was a time when I found myself alone with two children that I considered it an accomplishement not to be on welfare. I only just finished paying off my student loans a few years ago. But I can tell you, I didn't have a credit card until I was 40 years old. That was because I knew I could not raise two children alone with credit card debt. I drove a jolopy, I rented, I had no debt. That was the only way I could survive.

I eventually finished school, married well and rode off into the sunset but if anything, my own exprience made me more fearful of being in debt. Even now, with a primary home and a second home in the mountains I have less than $60,000 in debt and that includes my car and credit cards.

My household income is middle class at $115,000 and I could afford a bigger nicer house than I have. But my home/main house, is paid for. It might just be 1500 square feet and be next to an old lady who has birthday parties for her cats but it's paid for. I put $30,000 into my log home in the mountains and financed $60,000 for fifteen years and I pay extra on the principal (do you know $100 a month extra will save me $12,000 in interes!). It had $75,000 in equity as soon as it was under roof.

I'm not saying I'm the arbiter of financial responsibility because I'm not. But I do live within my means and it's really not rocket science.

[dealer]

"These borrowers are like junkies blaming their dealers."
wrote Kat.

"I'm disgusted with the switch to the banks blame game. So what they offered exotic loans - how does that excuse all the stupid greedy people that signed on? No one forced anyone to buy a house or take a loan" wrote are they crazy

The analogy and borrower blame are full of holes.

If lenders are junkies their dealers (banks) aren't running their business on market principals. Simple business sense is you don't loan money to people who cannot pay it back. That's why dealers in the real world don't loan drugs to junkies. But let's take the drug analogy further, the dealers gave a huge amount of "fix"to junkies up front in order to increase profit. For a few years the dealers allowed the junkies low monthly payments for their big up front fix. Somehow the dealers expected their junkies to come up with two to three times the amount of their previous monthly payment despite knowing their junkies had no ability to make these higher payments. Now the dealer is on the hook for a bunch of money he floated to his junkies. A dealer like this wouldn't last very long.

No one forced banks to loan money to these people. People, however foolish they were, secured these loans because of banks! In the past credit scores and the ability to pay for a loan mattered. If you made 40k and wanted a 400k loan eight years ago, banks would have laughed you out the door. But short term greed enabled the proliferation of ARMs and subprimes. People in the banking industry saw their bank's stock and personal bonuses skyrocket through this creative lending. These industry insiders knew that eventually the piper had to be paid but it didn't matter because you don't have to give back a bonus unlike a house for poor performance.

Seriously, would you loan a bum in downtown money and expect to get it back? Now if you loaned 100 bums money and came back and told your wife, husband, or partner of your lending practices, would they take you out to dinner or divorce you? In the banking industry you earned the dinner.

[Rory Hester]

One comment about the point that Peter made at the end of the clip about homeowners having to live with a foreclosure on their credit records.

Isn't the relative severity of a foreclosure mitigated by the sheer number of people.

For instance, in 2 to 3 years might a mortgage company say "well its one of those 2008 subprime foreclosures that everyone has" and give it less weight than a foreclosure from another period?

[sid]

TV does add 10 lbs.

[Tim in Venice]

Let's see - here's the plan:

I'll go with five kids.
I'll buy a house in the hills right next to chino (worked for snoop).
I have a steady income.
I have a plan.
My beautiful (albeit strangely remodeled) house will help me out.
Wait a minute:
My beautiful (albeit strangely remodeled) house will not help me out. Plus it's actually ugly and a house in the hills right next to chino isn't all it's cracked up to be.
I'll save 3k per month until they kick me out which is less than 50% of what they told me what I'd make on the deal but it's better than a sharp stick in the eye.

Nice work if you can get it.

[Kaye Thomas]

Sorry I don't think you can blame the banks for this one.. the guy said he was in the mortgage business.. he knew exactly what he was doing..

[somebody]

Rory, that's what i tell my brother. he lost his house by no fault of his own (nothing to do with speculation or an ARM, just one of the old-fashioned and tragic ways to lose one's home) and is deeply ashamed. mom and i told him "look, in a couple of years there will be so many people with a foreclosure on their record that nobody's going to blink when they find out it happened to you."

[kat]

"For instance, in 2 to 3 years might a mortgage company say 'well its one of those 2008 subprime foreclosures that everyone has' and give it less weight than a foreclosure from another period?"

Uh . . . no, it will not work that way. Wishful thinking?

A credit score is a credit score. It is not mitigated by the sheer number of stupid and greedy people who did the same thing nor do financial institutions have a lot of discretion in granting credit. The credit and lending industry came up with the credit score systm partly to combat accusations of discrimination - i.e. they use the score over a handshake or personal judgment because it's absolute and applied equally across the board.

Plus, what you all don't understand, is that this is not going on anywhere else in the country the way it is in California. Foreclosure is very rare in the real world. Most people find foreclosure to be a down right tragedy as opposed to the folks in California who seem to think it's a fashion statement or a California financial rite of passage. In the real world when a person loses their home, it is usually part and parcel of some other catastrophic life event. The loss of a home is the loss of memories, a lifestyle and dignity. It's not taken lightly,

I have never in my life known anyone who lost their home or even heard of someone losing their home. If you look at actual foreclosure statistics on a state by sate basis, you will be suprised to learn that some states only report a few dozen foreclosures a year.

So you should not comfort yourself that foreclosure is becoming universally socially acceptable. In fact, a lot of people caught up in this walk-away fad because everyone else is doing it, will probably find that it's not nearly as cool as they think it's going to be.

[silverfern]

Both the borrower and the lenders are to blame.

The borrowers because they failed to do simple math and think through the consequences of what they signed up for. And because they seemed to think houses are like stocks, and that the value could just keep going up. I.e., ignored the law of supply and demand.

The lenders are to blame because they were too eager to make $500-600k loans on overvalued properties with adjustable interest rates to people who couldn't afford even 10%, much less 20%, down on the property they wished to purchase, nor afford the new payments once the rate resets. That is on top of ignoring a borrower's debt ratio vs. income at the time of the loan request.

Both parties are guilty of bad judgment, greed, and failure to be diligent. I don't feel sorry for either group. I'm sure some people were hoodwinked by banks and mortgage companies; others just didn't pay attention to the financial details, and will pay the price for that.

Sometimes you make bad decisions and then have to focus on solving it, once the initial blame has been identified. With the guy with the 5 kids, he made a bad decision to buy at Peak, even w/his RE knowledge. I also hold the lending agency equally responsible for making the loan to him. Now, he has to make the best decision he can. In this case, while I don't agree with it, the best decision may be to just simply walk away. Live in the house, save the payment money, and then walk away at the end of the year w/the bad credit rating and the future price to pay for that, but some money in the bank and a hard lesson learned.

As for what the lending agency will do, I have no answer for that.

[Anon5150]

kat, your Cali bashing is painful to read and reeks of desperation.

I think the poster was simply referring to the fact that FICO scores are subjective measures that yes – exist partly to create a more equitable system. And it is precisely because of that that causes people to reason, perhaps if there are widespread changes in credit dynamics, the FICO may wish to adjust its system of scoring to increase credit availability. Also, nothing stops individual lenders from lowering their own standards (they did it to start this bubble.)

FICO already adjusted its scoring recently, weighing certain types of accounts more heavily than others and giving less weight to certain types of delinquencies. http://tinyurl.com/332fz2

What makes such a bailout so much more of "wishful thinking" than the other horrible bailout plans being booted around?

[Tombstone Realty]

As long as the government continues to treat these homeowners as "victims", then yes, it will become socially acceptable universally.

Cleveland isn't close to being Los Angeles. Neither is Detroit. Doesn't stop the same thing happening there.

Since the government is so keen on setting up "Homeowner Preservation Funds", they'll probably also lean on the credit score companies like Transunion to make "exceptions" for "certain economic circumstances" - OR they'll have the banks not report the foreclosure on the consumer's file. I bet nary a drop on the record will register.

If people can't get credit, they won't buy. The government seems to be willing to do anything it can to make sure people keep spending. It's all about the banking system. Screw the rest of us.

BTW, Peter probably looks better now that he's gotten that famous California glow thang going on, as opposed to that "Fresh from Iglooville" look in the photo.

[kat]

Annon150

Where have you been all my life? You're the only one who really sees me. And thanks so much for explaining FICO to me. I feel a day that I've learned something is a day worth living.

Sure, the people with sh**y FICOs scores will still be able to get credit - at about 60% interest. A lender can hand money to a homeless person if they want. But no credible, legitimate, respectable financial institution is going to lend a dime to a deadbeat who paid $750,000 for a three bedroom house then walked away. That person is clearly stupid and irresponsible and if they screwed the last lender they will screw the next one.

The people who walk away from their homes will have to get used to a life where they sweat waiting out approval for a cell phone (which they won't get). They will have to get used to living under the financial equivalent of a felony conviction or a dishonorable discharge. A job application will take on new meaning. Even finding an apartment to spend all that money saved by not paying their mortgage will be an adventure. They will assume they have a free pass because the banks are meanies but financially responsible people will still look down on them. They will spend a lot of time explaining and no one will believe a damn thing they have to say except other deadbeats and the other deadbeats will not be sitting on the other side of a loan application.

The credit industry is pretty tight and they support FICO. For all you deadbeats know, FICO could come up with an extra, special black mark for you - the financial mark of the beast.

If calling a spade a spade makes me desperate then, like I said, you really, really understand me.

[kat]

Tombstone,

Congress can't tell Equifax or Transunion squat and they're not going to. And you might also want to read up on the agency that oversees the credit card industry - the Office of the Comptroller of the Currency (also known as the fox watching the henhouse) for an indication of what you might expect from the government.

Politicians will talk a lot of talk this election year but if you think the government Easter Bunny is going order the credit reporting agencies to exempt deadbeat home owners from disclosing a foreclosure I would recommend that you not hold your breath.

If you conceal a deadbeat, you put honest people at risk and that's just not going to happen - ever.

[Keith]

"Sure, the people with sh**y FICOs scores will still be able to get credit - at about 60% interest. A lender can hand money to a homeless person if they want. But no credible, legitimate, respectable financial institution is going to lend a dime to a deadbeat who paid $750,000 for a three bedroom house then walked away."

Sorry Kat, but that's not how it works. The consumer credit industry takes a different view - by walking away from that loan, the consumer just freed up a considerable amount of cash flow that will allow them to finance new stuff. And a consumer credit institution will want a piece of that. The people who would get screwed would be the cash strapped people that stay in an upside down mortgage, that's the real risk. The walkers who just cut their housing expense to $2k renting from $5k paying a mortgage are swimming in new cash flow.