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2008-07-07 Home Front Economy

Mortgage ruling could shock U.S. banking industry

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Posted by Nimble Spemble 2008-07-07 10:23|| || Front Page|| [6 views ] Top

#1 Well, if the banks violated a term of the contract, they contract is void. I think a lot of shady deals were cut during the boom and the bad lenders are scrambling to make up their losses.
The mortgage industry is badly needing of oversight and consistent laws for going over state lines. There are several companies that have offices in states with lax lending laws and loan to other states. The point being, the state where the money goes is what laws are enforced. This is one time where federal regulation needs to be clamped down, since it is interstate commerce and funds cross state lines.

Posted by DarthVader">DarthVader 2008-07-07 10:54|| 2008-07-07 10:54|| Front Page Top

#2 Well, if the banks violated a term of the contract, they contract is void.

Rarely will violating one term negate an entire contract.

Second, it appears that what we are looking at here is a violation of law, not of the contract itself.

If cancelling a loan means not paying back the principal, then that seems to be a pretty harsh penalty. Broadly applied, and left to juries to decide, then a lot of banks will be going under and the entire economy will suffer, not just the banking industry.

Posted by DoDo 2008-07-07 12:00|| 2008-07-07 12:00|| Front Page Top

#3 Remember when people used to complain "To get a loan, you have to prove you don't need a loan..."

Posted by M. Murcek">M. Murcek 2008-07-07 12:21|| 2008-07-07 12:21|| Front Page Top

#4 I ran across an article a few months ago that told about how some folks being repoed were holding the banks at bay by saying that the lenders they'd signed the contract with were no longer in existence (buyouts, mergers, etc.) and had not followed state laws in notifying the debtor and 'renegotiating' the contract. The lenders interviewed (tho not for attribution) said that if those cases were decided in favor of the debtors, you could kiss about 50% of ALL home mortages in the US goodbye.

Mike

Posted by Mike Kozlowski 2008-07-07 13:14|| 2008-07-07 13:14|| Front Page Top

#5 gone are the days when a handshake meant something. Or giving your word to do something meant just that. That's what I grew up with, how did we ever get to this point.

Even with agreements in writing a person can get screwed, or companies be lied to. Part of this evolution in principles that I witnessed were while at a car dealership, the salesman leaving to let the buyers 'talk privately', all the while they had the listening devices on learning what their negotiating price would be. This done in America, not being a spy for protecting America but information used against our selves here to make that all important buck. This trend has really rotted America to it's core. Looking at money as the motivator instead of what's really important.

Breaks my heart that some of America has stooped to this type of unscrupulous behavior.

I hope we're able to weed out these unsavory characters and possibly get back some of our honor of negotiating among each other with honesty and integrity.

Without spending an arm and a leg to lawyers to argue the obvious.

Posted by Jan 2008-07-07 13:59|| 2008-07-07 13:59|| Front Page Top

#6 Mike,

Fannie May and Freddie Mac are on their way out(25%+ falls today), taking 80% of American Mortgages with them. This is the real START of the credit crunch.

Posted by Bright Pebbles 2008-07-07 14:24|| 2008-07-07 14:24|| Front Page Top

#7 If cancelling a loan means not paying back the principal, then that seems to be a pretty harsh penalty.

Nope - won't work that way. The lender OWNS that property until the principal is paid. What might be forced is a renegotiation of the terms of the loan, or the option for the bank to reposses the property and cancel the loan.

In which case some people might want to think twice about pushing this issue.

Posted by lotp 2008-07-07 14:39|| 2008-07-07 14:39|| Front Page Top

#8 The lender OWNS that property until the principal is paid.

The lender has a lien on the property. Ownership remains with the borrower.

If the court were to rule that there is no obligation to repay the principal then they would also have to rule that the lien is unenforceable to make it effective.

Posted by DoDo 2008-07-07 16:48|| 2008-07-07 16:48|| Front Page Top

#9 M. Murcek: there is a good chance that old saying could return with a vengeance in the future. The concept is now being bandied about that a universal credit collapse could happen, for governments as well as individuals.

In short this would mean an end to easy credit. Debit cards instead of credit cards, all around. 100% collateral for everybody.

Not as radical as it sounds, because low cost and easy to obtain credit with little or no collateral is a recent phenomenon, and its excesses may have ended its use for everyone.

Weirdly enough, a universal credit collapse may be managed to work somewhat like a currency devaluation. That is, just by knocking off the extra zeroes at the end, a lot if not all of the pain is avoided. Instead of 1000 Pesos, you have 1 New Peso, and it happens to everybody at the same time.

In this case, both credit and debt are shrunk to a fraction of their size, and are placed under strict rules. People still get hurt, just not as much as they would have been.

Posted by Anonymoose 2008-07-07 17:06|| 2008-07-07 17:06|| Front Page Top

#10 lotp and DoDo, correct me if I'm wrong, but that whole "ownership" issue is a real problem regarding some of these mortgages.

Sure, it's easy to find out who does the servicing, but the mortgage itself may have been sliced and diced into heaven-only-knows how many tranches to satisfy different mortgage backed securities. Many cities have been having a devil of a time determining who really owns a certain foreclosed home because of these derivative securities when they wish to condemn properties that aren't been kept up after foreclosure.

Posted by Swamp Blondie in the Cornfields 2008-07-07 17:59|| 2008-07-07 17:59|| Front Page Top

#11 Moose, the standard in banking is 200% collateral, ie value of the collateral is twice the value of the loan. Property loans are the main exception.

Property lending was a train wreck waiting to happen and it's very far from over.

Posted by phil_b 2008-07-07 18:22|| 2008-07-07 18:22|| Front Page Top

#12 Compare wid DRUDGEREPORT > FRIGHT OF THE FINANCIALS [espec FANNIE MAE, FREDDIE MAC].

Chalk up another one for 2008-2012.

How can the USA stop PAN-ISLAMIST NUCLEARIZATION, etc = future ISLAMIST CENTRAL ASIA iff it can't afford to, correct???

Posted by JosephMendiola 2008-07-07 19:43|| 2008-07-07 19:43|| Front Page Top

#13 Who do you bank with Phil? I'm a banker in Kansas and our terms are nowhere near that hard.

Posted by whitecollar redneck 2008-07-07 20:53|| 2008-07-07 20:53|| Front Page Top

#14 What kind of a kink does an interest only loan throw into the whole ownership issue?
I've always found these to be a curious lending tool, even before their disastrous effect.

Posted by bigjim-ky 2008-07-07 21:39|| 2008-07-07 21:39|| Front Page Top

#15 #11 Moose, the standard in banking is 200% collateral, ie value of the collateral is twice the value of the loan. Property loans are the main exception.

Property lending was a train wreck waiting to happen and it's very far from over. Posted by phil_b 2008-07-07 18:22|| Front Page|| ||Comments Top

I suspect the worst is yet to come as well. Lending institutions are not entirely to blame however. In Georgia, ~~carpetbaggers~~ big housing developers have linked arms with bankers and the gummit to make.... "home ownership possible for the disadvantaged."

Posted by Besoeker 2008-07-07 21:49|| 2008-07-07 21:49|| Front Page Top

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