October 18, 2010

The Fury of the J. Crew Anarchists

I've read some truly dour news story and blog entries concerning our economy during this recession. Much of it (it seems to me) has been superficial, in that though the impact to individuals and companies can indeed be traumatic, the underlying pillars of the economy was relatively solid.

The central pillar, of course, is the aggregate middle class.

But when the recent news came out that banks had been "robo-signing" mortgages and in many instances didn't even know where the physical paperwork was to the loans for many homes, it scared the crap out of me. As a result, banks have (temporarily) lost the power to foreclose and evict. This makes a bad situation worse.

It suddenly hit home that it was becoming increasingly possible that my fellow citizens in the middle class could simply say "screw it," stop paying their underwater mortgages, and essentially dare the banks to do anything about it.

The empty shell of a home across the street from me is a stark reminder of the impact that can have on the micro level. My neighbor—I should say, former neighbor—ignored payments on his home, neglected his yard to the point where erosion was washing topsoil into the street when it rained. He was the bum, and his house was the eyesore on our block. For years.

And at some point in the foreclosure process, he moved to a nicer home that cost less in the neighboring town, and in a more upscale neighborhood.

Think about that for a second. This family skirted the edges of neighborly decency, constantly ran afoul of HOA standards for minimal home and yard maintenance standards, refused to pay their mortgage, depressed property values for the rest of us who live here and their apparent "punishment" was a nicer home somewhere else.

What kind of message does that send to those of us that play by the rules, who pay our mortgages on time, and invest money into our homes, making improvements and enhancements? What good does out work do to our own homes, if our neighbors have no regard for the rest of the neighborhood and leave us with an eyesore that is now listed on the market for $40,000 less than it was worth when it was built 5 years ago?

Thanks Gerald, you asshole.

It sends a message that we don't have to play by the rules, or pay our bills. It tells me that I don't have to pay my mortgage or sell my home if I find a better one; I can abandon my current home and leave my neighbors to deal with what follows. And far better people than Gerald are considering it (via Instapundit).

It is a recipe for anarchy, and an economic collapse.

I've worried about individuals and individual families before, and in broad terms, thought the wider economy would take some hits but weather the storm.

Now I am not so certain, and I have no idea whatsoever what to do to prepare for it should the worst occur.

Posted by Confederate Yankee at October 18, 2010 07:58 AM

I agree with you. Still. Our leaders, stars, sports figures, hell even the local cops are here... oh man. All we see is them flaunting the cornerstones of our society while getting richer and richer...

I'm thankful I was smart enough to not get into a situation where I owed the bank for my roof. I saw this coming and said "no way". But I'd be very tempted if I was in the situation to not just walk away.

Posted by: Bill at October 18, 2010 01:01 PM

I commented on that article as well. It really does burn my hide that folks like me that conduct our affairs with honor and discipline consistently get the shaft while the looters get the spoils.

My house isn't underwater (yet!) because I put down 25%. If it gets any worse I have to say I will be sorely tempted to "strategically default".

Of course, I wont because I'm a complete sap...

Posted by: Sinner at October 18, 2010 01:42 PM

Here's what worries me... If the banks can't find the paperwork in order to legally foreclose on my property, how will they be able to find the paperwork in order to legally give me the title when I get done paying off my 30 year loan?

Posted by: scp at October 18, 2010 02:50 PM

You already have the title, assuming you got one properly transferred to you when you bought the place. What the Bank owes you is a release of the lein once you finish making payments. But if they never registerd that lien, then they have no hold on you. Of course, if they had any documentation at all, they could sue you instead of foreclosure.

The real thorn in this paw is that the properties so encumbered with no legal owner cannot be sold to someone new with a proper title transfer. The banks cannot sell what they do not own. If they cannot foreclose, they cannot gain title. So they stay empty and a drain on the neighborhod property values.

Anyone who recently bought a foreclosed home should be shitting bricks right now wondering if they have clear title to their property.

Posted by: Professor Hale at October 18, 2010 03:53 PM

This is an obvious problem in your system, as this observer views it from the UK.

The buyer (in many US states) seems to have a put option at the bank, and that cannot be a healthy risk for a financial system to run. When that is combined with no-money-down mortgages, that financial system seems absurdly vulnerable, especially when viewed in the light of a country which views a bad cheque as a criminal offence.

One way of reducing this risk would be ruthless checks for false statements on mortgage docs after foreclosure, but I don't see the political will to do that.

Posted by: slowjoe at October 18, 2010 04:23 PM

You know, I was thinking about this as I was tooling down the freeway at 75 today, when I got a text that I just had to answer. My doctor was telling me that he could do botox for me if I would just claim migraines, which was no problem as I had already been hitting the nice Hawaiian kush for that anyway. So I answered to him to set it up after I got done talking to the tax attorney about finding a few more deductions.

/irony off

The problem is the middle class is already used to lying and cheating to get ahead. I mean how many rules of the road did you violate today on your way to work and home again? Make no mistake, I am far from blameless, the problem isn't that Gerald is doing it, it is that he is flaunting it.

The worst part is not the default. The worst part is people feel no remorse or guilt about doing wrong.

Posted by: MunDane68 at October 18, 2010 08:24 PM

MunDane68 nailed it: The worst part of this whole mess is that people have lost the ability to feel remorse or guilt about doing wrong. That is at the core of much of our problems in the US. We've become a society where having a conscience is passe, where people simply don't have a sense of individual responsibility.

Posted by: Random Thoughts at October 19, 2010 12:14 AM

The problem with comparing it to breaking laws like traffic violations is that quite often these are worded in such a way that it's impossible to not break a law.

Take a prime example we have here in the Netherlands:
There's a clause in traffic law that says you must at all times stay in the right lane if possible (so you're only supposed to be in the fast lane while overtaking, and go into the slow lane immediately after even if it's only for a few seconds before moving left again to overtake the next car).
There's an equally powerful clause (so similar level, strength) that states you must stay in your current lane as much as possible so as not to interrupt the flow of traffic.
There's a clause at the same level again that makes overtaking on the right (so through the slow lane) illegal.

So if I overtake and move to the slow lane because there's room there, then keep at the speed limit and as a result overtake a car going less than the limit that's driving in the fast lane, I'm breaking the law.
Were I to go into the fast lane to try to signal that car to move aside, I'm leaving my lane unnecessarilly, as well as showing "agressive behaviour" which is also illegal.
If I stay in the slow lane without doing anything, they can still get me for blocking traffic.

And then there's a nice blanket clause they can use to arrest you whenever they feel like it for "causing a potentially dangerous situation on the roads", of course driving a motor vehicle at 80mph (the legal limit here) is in itself a potentially dangerous activity so they can always use that.

In Atlas Shrugged, Ayn Rand has her antagonist proclaim that laws are created not to punish those who break them but to make sure the State always has something to use against you, so they are created in such a way that it's impossible not to break them.

In an environment like that, is it any surprise if people don't care about the law?

Posted by: JTW at October 19, 2010 05:48 AM

I'm of the opposite opinion than the majority of posters.

You're house is probably the biggest asset you'll make in your life. If the value of that asset is such that it is doubtfull that you will recover your investment, the correct business decision is to stop throwing good money after bad.

The banks are playing on the moral aspect rather than the business/investment aspect of owning a home. They want you to keep paying irrespective of whether you'll be able to recover your initial investment.

However, were the situations reversed you can rest assured that the same bank would not continue making payments because it makes economic sense not to.

This economic factor of owning property is what is truely missing from the home ownership/mortgage debacle conversation. If all parties viewed the home mortgage as strictly a business decision, you can bet normal, free market forces, would impact both ends of the transaction.

Right now the lien holders are HOPING mortgage payors are swayed by emotion rather than economics.

Posted by: DFG at October 19, 2010 08:37 AM

So DFG, let me get this straight. You bought a new Buick for say $35,000 with a low down payment. You took it off the showroom floor and 6 months later the car is worth less than the balance due on your car loan. So you give it back to the bank/GMAC/credit union that financed the purchase? After all, it's just a business decision isn't it? Good luck buster on getting your next car financed. And if there are enough people like you, good luck on any of us getting car loans in the future.

Posted by: MJM at October 19, 2010 11:55 AM

This from and anonymous mortage broker quoted in a Vox Populi post: "there are blatant efforts by several of the giant mortage security selling institutions to intentionally fail to find "the relevant loan documentation. We have seen multiple clients in September and October who either face foreclosure or had been foreclosed and were not even late on their mortage payments". From what I've read about this situation

My concern is that when you take away a person's ability sustain their livelihood, it will result [eventually] in a violent outcome. This is very disturbing.

Posted by: harrison at October 19, 2010 12:16 PM

Better the J. Crew Anarchists than the shirtless Abercrombie & Fitch Anarchists - or is it?
I'll go with the Tommy Bahama Anarchists and fix a drink.

Posted by: DirtCrashr at October 19, 2010 03:02 PM


Homes have been sold/marketed as an investment asset (note: most cars have not been so marketed).

If you had a stock or bond or other investment asset where you had to pay a monthly payment AND THE VALUE OF THAT ASSET CONTINUED TO DECLINE TO THE POINT THAT THE ASSET WAS WORTH LESS THAN YOU COULD SELL IF FOR THE FORESEEABLE FUTURE, you'd be a financial idiot to keep paying.

Why is a house any different?

Now, if we want to assume homes are no different than cars (ie they depreciate in value) that's fine. But good luck changing that perception.

I'm not saying the non payment should not result in the lien holder taking appropriate action: that's what our courts are order to decidfe who has the valid claim to the property.

As an INVESTMENT, however, if both sides of the equation (buyers/sellers, brokers, banks, home builders etc) equally viewed the home as an asset and investment, the natural market forces would take hold and quickly solve this issue.

However, the banks, etc want to play on the morale aspect of this transaction, not the correct business economic view of the transaction.

So, if you currently pay for something that you need as an investment, AND THE VALUE OF THAT INVESTMENT IS LESS THAN THE UNDERLYING PRINCIPLE YOU WILL OWN, the correct finanical decision is to stop paying.

THe old sunk cost rule: don't throw good money after bad.

Posted by: DFG at October 19, 2010 03:04 PM

So, DFG, let me get this straight.

You sign a 20-year contract with a widget supplier to purchase $2,000 worth of widgets each month. This is a good deal, because you resell those widgets for $3,000, making a nice profit.

However, at some point the value of widgets plummet, and suddenly you are losing $1,000 per month. Do you now have the right to walk away from that contract? Is the commitment void because the market has suddenly turned against you?

I'm no fan of the banks, but they agreed to loan the mortgagee the money to allow him to live in the home of his choice. If the home appreciates in value, that's great. But if the home stops appreciating (and in fact loses value) how is that the lender's fault? Did the lender guarantee you would be able to sell your home for more than you paid for it?

Just because in our lifetime homes have continually appreciated in value does not mean they always will do so. In reality, purchasing a home is akin to buying stock on the stock market. If you purchase stock on credit and the stock tanks, should you refuse to pay your creditor for allowing you to make the purchase?

Moral aspect? Absolutely! For when you turn your back on morality, there is no longer any honor nor honesty in any transaction. This is the definition of anarchy.

Posted by: Just Sayin' at October 20, 2010 08:49 PM

"You sign a 20-year contract with a widget supplier to purchase $2,000 worth of widgets each month. This is a good deal, because you resell those widgets for $3,000, making a nice profit.

However, at some point the value of widgets plummet, and suddenly you are losing $1,000 per month. Do you now have the right to walk away from that contract? Is the commitment void because the market has suddenly turned against you?"

Welcome to the real world. The above happens constantly.

If I can only sell for $1000 and it costs me $2000 to secure what I sell, golly, I sense something bad coming.

Posted by: DFG at October 21, 2010 08:07 AM

Ремонт и отделка офисов, квартир или дач – это самая распространенная на сегодняшний день проблема большинства людей, решившихся, наконец, привести в порядок свое жилище. Мало того, что ремонт – это занятие трудоемкое и напряженное, еще и найти достойную компанию, занимающуюся отделкой квартир или офисов сегодня практически невозможно. Дело в том, что все меньше и меньше в нашей стране остается фирм, делающих свою работу качественно, эффективно и недорого.
Однако наша компания является приятным исключением из этого неприятного правила. Мы вот уже долгое время занимается отделкой и ремонтом квартир и в г. Зеленоград и еще ни разу нам не приходило от наших клиентов ни неприятных отзывов, ни каких-либо жалоб. Богатый опыт наших специалистов, а также высокий профессионализм всех без исключения наших работников, поможет сделать хорошо, качественно и – главное - доступно как косметический, так и капитальный ремонт. Современное оборудование, новые технологии планировки и дизайна, а также индивидуальный подход к каждому клиенту и гибкая система скидок сделали нашу компанию самой успешной на сегодня фирмой, оказывающей услуги по ремонту и отделке квартир и офисов в г. Зеленоград.
Список услуг: ремонт квартир ремонт квартир в Москве ремонт квартир в Московской области косметический ремонт квартир капитальный ремонт квартир евроремонт кватрир ремонт магазинов ремонт ресторатов ремонт офисных помещений отделка квартир ремонт ресторанов ремонт квартир под ключ строительство коттеджей VIP ремонт квартир отделка квартир в новых домах

Posted by: remroom at October 22, 2010 05:14 AM