Recycling Our Mortgage Problems

By Rod Dreher • August 4, 2012, 12:21 AM

Tonight I was out of town, and had dinner with my friend N., who works for a very successful firm that restructures bad mortgages.

“You wouldn’t believe the re-default rate on these things,” he said. “It’s just like before.”

“Wait a minute,” I said. “You remember a few years back, when you were working for [major mortgage lender] during the crash, and you told me you knew it was going to happen because the whole system was a game of hot potato? How everybody was throwing money at people who had no business getting loans, but it didn’t matter, because the whole point was to make sure that somebody else was holding the bag when it all came down?”

“Yeah?”

“So how is the system different now?”

“It’s not. People like us are screwed. You do everything right, you don’t buy more than you can afford, you pay your bills, it doesn’t matter. The government is going to use the money we pay in taxes to bail out people who acted like idiots. I’m telling you, the whole thing comes down to culture. These people, they’re all about, ‘What’s the government going to do for me?’ Until that culture changes, until people start facing consequences for their decisions, we are screwed.”

For what that’s worth, the view from a guy on the inside.

Posted in Culture, Economics. Tagged debt, mortgages.

20 Responses to Recycling Our Mortgage Problems

Charles Curtis says:

August 4, 2012 at 12:50 am

So, your friend is saying that the banks are like welfare queens? That all that Ayn Rand Beast Master of the Universe schict is just a hypocritical pose, and that if we actually were to throw them all in jail for fraud that they’d start bawling like spanked five year olds and crap their collective pants? Men enough to defraud the ignorant poor and the US Treasury, not man enough to face minimum security federal lock up for forty years or thereabouts? What a shock.

I fail to see how the government is the ultimate problem here, Rod. The government is only the problem as long as it fails to do its job of regulating commerce.

If they melt us down again we need the sole government solution that so called conservatives love to apply to everything but white collar crime: massive prosecutions and a significant increase in federal prison population. Time to speak the only language they understand.
Mercer says:

August 4, 2012 at 1:09 am

“The government is going to use the money we pay in taxes to bail out people who acted like idiots. ”

Far more government money was given to Wall Street than was used to help homeowners. It was not just TARP. The Fed gave huge amounts of money to the big banks. Foreign banks received more money than US homeowners.

“disclosures show the Federal Reserve rushed trillions of dollars in emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009.”

http://www.washingtonpost.com/wp-dyn/content/article/2010/12/01/AR2010120106870.html
Fatherpep@gmail.com says:

August 4, 2012 at 7:46 am

Also sounds a bit like Greece. Culture of entitlement. I want what I want. Except that we are stuck in the “dollar zone.”
Mont D. Law says:

August 4, 2012 at 9:10 am

“The government is going to use the money we pay in taxes to bail out people who acted like idiots. ”

Better they give it to idiots then crooks.

http://tinyurl.com/d3omuxl

[People can and do go to jail in America for smoking marijuana or selling food stamps for rent money, but apparently it reeks of Stalinism to even suggest that even one person should go to jail for manipulating an $800 trillion market.]
Tyro says:

August 4, 2012 at 9:21 am

Honestly, I don’t “get it.” what exactly is going on that your friend is complaining about? There is a small program that a few people have been eligible for to restructure mortgages. They either have the money to pay the mortgage, or they don’t. If they don’t pay, they get foreclosed on. I find it hard to believe that all the beneficiaries of these programs (which are few people) have a strong overlap wit h those who simply DON’T KNOW that they have to pay each month, like deadbeat tenants.

If anything, one thing that HAS changed in the culture is that people are more willing to accept defaulting on their mortgages if they have lost way too much money on their house to make it worth it, leaving it for the bank to deal with. But that just means they have become more rational over time, rather than paying their mortgage “on principle” (no pun intended)
mk says:

August 4, 2012 at 9:39 am

“It’s not. People like us are screwed. You do everything right, you don’t buy more than you can afford, you pay your bills, it doesn’t matter.”

Correct, it doesn’t matter, because people who aren’t satisfied with being just millionaires are going to take those loans, corrupt the ratings agencies, place bets on those loans in 100s of different ways (and then insurance on those bets, and then bets on the insurance on those bets) and when that all collapses they’ll blame it on the lower middle class family that wanted an extra bedroom while they — the super rich — get bailed out to the tune of 100s of billions of dollars.

. . . funny how nobody talks about that “culture.”
Floridan says:

August 4, 2012 at 9:52 am

So, Rob, do you think your friend has any culpability in this (assuming that it’s true)? Is he not assisting the fraud that is being perpetrated?
sklein11 says:

August 4, 2012 at 10:15 am

Rod — what is your point? In 1995 I bought a house that was a stretch for me financially. But I was at a stage of my life where I could expect my income to increase, and I could expect the house to be a good investment, and the neighborhood school was one we wanted, so I did it. And it worked out, just like that same decision had worked out for the American middle class for 45 years. If I were 10 years younger making that same decision in 2005, I would be in a pit that I could never escape. Instead, I am buying distressed homes as investment properties. The difference isn’t that they were all naughty and I was virtuous, or that I am brilliant and they fools.

To be clear, I was frugal. I drove an 8 year old domestic car that probably cost 1/3 of the cars my neighbors drove. My kids resented that they could not go on as nice of vacations as their peers. And the difference in lifestyles was financed by “home equity.” So I will feel some resentment if they are “bailed out.” But when the neighborhood is ablaze, firemen can’t just put out the flames in the homes of the virtuous. And that is what we are facing.
JonF says:

August 4, 2012 at 10:50 am

Re: The government is going to use the money we pay in taxes to bail out people who acted like idiots

What tax money has been used in any bailout?
thomas tucker says:

August 4, 2012 at 11:24 am

That’s the most depressing thing I have read in a long time.
Church Lady says:

August 4, 2012 at 12:14 pm

These homeowners aren’t being bailed out because the government feels sorry for them, or is giving into their demands to be taken care of by the nanny state. It’s the banks that are being bailed out, because if they let all these homeowners default, a whole lot of banks will go out of business, for having made so many bad loans.

It’s incredibly dishonest for your friend to be blaming the homeowners he and his cronies made bad loans to, knowing they were bad, just to make more money. It’s your friend who belongs in jail, and you should tell him so.
KateLE says:

August 4, 2012 at 12:32 pm

sklein11

That is just about the most accurate assessment of this mess that I have read in the last 4 years.
Lord Karth says:

August 4, 2012 at 12:59 pm

Mr. Dreher quotes his friend N., as follows:

“These people, they’re all about, ‘What’s the government going to do for me?’ Until that culture changes, until people start facing consequences for their decisions, we are screwed.”

We all know the major banks are insolvent. I seriously doubt any of them could “pass” anything like a real and serious “stress test”. Between you and I and the ceiling fan, I strongly suspect that one of the reasons why the major banks have so much in reserve at the Fed is because if much of that was released into the system, they’d be blown apart from the overleveraging. And don’t get me started about Europe. They’re all in Banking La-La Land; not one of their banking systems outside of (possibly) Germany is in survivable shape.

BUT…..they’re just the warm-up act.

I give you four words:

Medicare. Medicaid. Social Security.

Wait until those have to get “bailed out.” Medicare is already insolvent, Medicaid is not far behind, and SocSec has insolvency rapidly approaching. What’s going to happen when that day comes is going to make 1933 look like a pleasant summer day with kittens and rainbows.

The concept is called “two hundred TRILLION dollars in unfunded liabilities”. Which no one—NO ONE–is doing anything about.

Nine years, people. Nine years until the Fit Hits The Shan. Nine years until people start talking about 2008 as “The Good Old Days”.

And the countdown continues !

Your servant,

Lord Karth
Lord Karth says:

August 4, 2012 at 1:03 pm

By the way, let’s not spare the homeowners, either. After all, they’re the ones who hired the money.

Nobody that got mixed up in this—neither banks, nor mortgage companies, nor homeowners who overleveraged themselves (which, after 2005, was just about everyone who didn’t put 20 % down), deserves any sympathy.

Nor does the central government that encouraged all this irresponsibility.

Nobody.

Your servant,

Lord Karth
pinkjohn says:

August 4, 2012 at 2:49 pm

I agree with the other posters, or at least share the question of who is really the bad guy here? The borrowers who can’t afford these mortgages, the bankers and brokers who tell them “Sure you can!”, the gov’t who is forced to act to keep the entire economy from melting down, or us chumps who end up footing the bill? Really, I want to know who to blame for all this.
stef says:

August 4, 2012 at 5:17 pm

Better a bailout now and then to individual mortgage-holders, rather than to banks.
Angela Y Crane says:

August 4, 2012 at 9:20 pm

If your friend who is on the inside has so little understanding of the housing crash, that is scary!
steve says:

August 4, 2012 at 11:21 pm

“The government is going to use the money we pay in taxes to bail out people who acted like idiots.”

What program is going to do this? I read this stuff pretty obsessively and dont know oof any such program.

Steve
JonF says:

August 6, 2012 at 8:10 am

Re: The concept is called “two hundred TRILLION dollars in unfunded liabilities”.

Subtended out to eternity, yes. But on a yearly basis the shortfall is much, much smaller than that. And that’s how things work after all. Unless someone is independently wealthy, all of us here have “unfunded liabilities”: the total cost of our necessary living expenses out to the point we are likely to shuffle off this mortal coil. Add up all your current non-discretionary bills, multiply by your remaining life expectancy, and you will get a scary number too, well in excess of your savings. But of course you will be paying those bills as they gradually come due out of your future income, so it’s really no big deal. 200 trillion in unfunded liabilities over an infinite time span? Sure– but what’s the probable GDP of the United States subtended out to eternity?
Charles_Atlanta says:

August 7, 2012 at 11:44 am

I think sklein11 is mostly correct.

It was only a few years ago that I felt irresponsible for not having purchased a home. Everyone told me I was!

I also suspect that responsible citizens are getting screwed over much less than is thought. We weren’t as rich as we thought we were but we (in aggregate) acted as though we were.

That means that sales, profits and salaries were much higher than they otherwise would have been.

Your personal wealth was likely boosted by the boom and if you didn’t squander it, you are probably ahead of where you would have otherwise been.