When a Penny is Overpayment?

At the request of a friend a video and some truth:

When paying is Penny is still getting Ripped off.

Picture ten houses all with $100,000, 30yr mortgages on $200,000 houses. They each pay $1000 per month into a pool of payments equaling $10,000 per month.

Now in the olden days, the bank received all these payments. If one homeowner completely defaults through bankruptcy, the bank would only receive $9,000 per month going forward and one house. Pretty Simple

Today it’s all different.

Instead of the bank owning all the future payments or the house after a default, individual investors own either a portion of the future payments or the right to a house after foreclosure.

Someone might own the right to the first two checks mailed in by homeowners each month. Another investor gets monthly payments two through five mailed in by homeowners each month.

Now who would want to own the last payment each month after just one homeowner defaults, sends jingle mail, walks away, etc.?

Homeowner = Smoker

Is it really appropriate to use the same “should have known” language for people with negative equity or too high a mortgage payment that is has been used for a smoker with emphysema?

If so, should we also blame victims of medical malpractice for failing to understand their own medical procedures?

Of course we can blame any lay person for mis-applied trust, but what is the end result?

The regulatory environment that arose during the Great Depression (Securities Exchange Act of 1934, Securities Act of 1933,) came about to restore trust in stocks and the stock market.  It’s a testament to their effectiveness that it took over seventy years for Wall Street to subvert them.  There will always be people willing to break the law, the problem arises when you can commit fraud without technically breaking the law; as evidenced by stock brokers in the 1920’s and mortgage brokers in this decade.

Hopefully, we will have the same political will, as in the 1930’s, to close this loophole without the financial upheaval of yesteryear.

Housing Hell…for the Lenders

Web Blog Calculated Risk has been breaking great stories on the housing market for quite some time.   My favorites posts are the ingenious ways that savvy deadbeat borrowers are putting the screws to the lenders. Disregarding the poor schmo who naively bought a bigger house then he/she should have, there are great anecdotes about the lender getting the short-end.

A) Jingle Mail is just one hurdle for any mortgage lender. The technical name is Ruthless Foreclosure; it’s when a homeowner with large negative equity simple mails their house key to the lender and walks away. A neat wrinkle involves a borrower who first buys a second house, on the new cheap, prior to destroying their credit score for a few years by walking away.