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I've heard about a situation here in Toronto where a family had a double mortgage on their overvalued mansion. The bank would never get their money back on a po

I've heard about a situation here in Toronto where a family had a double mortgage on their overvalued mansion. The bank would never get their money back on a power of sale, so instead of calling in loans, they just extended them more credit, and connected them with an investment manager to help them manage the money the bank was throwing at them. Wouldn't be nice to fail upward like that?

xyst 2y ago
This is how we end up in another 2008 crash. Regulators asleep at the wheel, again
- ToucanLoucan 2y ago
  Not at all. They're not asleep, they knew about it. A few isolated people had reported exactly how 2008 was going to go down. The banks know the economy is underpinned by their assets, Uncle Sam is NEVER going to let them actually die, not in a million years. It would be the end-toll of the U.S. dollar as the defacto world currency, it would shred trillions of dollars in assets, far beyond the actual homes, I don't think Wall Street could ever actually recover from that. And like, I don't even think that's necessarily wrong? Like I don't know how you would let some of these banks actually die in such a way that wasn't immensely worse for everyone. My only real issue with it is that these are for-profit businesses that funnel absolutely stressful amounts of money up the proverbial chain. If we just as a society want to say that we're comfortable with the notion of supporting banks with public money because ultimately letting them fail is worse for everyone, that's fine. I get that. I just don't think anyone at the top of those banks should be ripping millions of dollars a year out of that institution. At that point, that's not a business, it's more analogous to a utility and it should be owned and operated by the state.
  - AnimalMuppet 2y ago
    I saw at least once in 2008 that it was done right. I don't remember which institution, but it got taken over, the depositors were protected, the stockholders lost everything, and the management was replaced. And that's just about what you want, right? You want the depositors protected, both because they didn't make the bad loans, and because wiping them out is going to cause ripple effects that spread the damage. But the stockholders, the ones that profited (temporarily) from the bad loans? Wipe them out. The management? Wipe them out.
duxup 2y ago
It happened to a lot of every day people during the mortgage crisis in the US. Bank would foreclose, let the family stay there until the house sold again, and some even PAID people to take care of the property / not damage it on the way out. My neighbors refinanced at a terrible time, they quit paying, foreclosure happened, then they actually worked out a new mortgage with the bank to stay.
jordanb 2y ago
This is called "extend and pretend." It's what's happening now with office loans. Conversely during the GFC the Obama administration put a plan together to allow people to get their loan terms adjusted (write down). The plan was very long, bureaucratic, and difficult to follow. Nearly everyone who attempted to use the scheme failed to successfully complete it and receive the write down. When asked about this, an administration official explained that the plan was never designed to give homeowners relief. Instead the purpose was to dangle a carrot in front of their nose to get them to struggle and sacrifice to continue to make full payments as long as possible so that the banks didn't have to take losses as quickly.
- arghwhat 2y ago
  citation needed
  - Mathnerd314 2y ago
    "Bailout: How Washington Abandoned Main Street While Rescuing Wall Street", Neil Barofsky, page 157 Note though that he is only quoting "off the record" conversations with Treasury Secretary Tim Geithner
  - miketery 2y ago
    reality is stranger than fiction. yes citation needed. but this seems banal compared to what things go down.
  - jordanb 2y ago
    You can google "Home Affordable Modification Program" and "foam the runway" [for the banks]. But here's one of many articles: https://prospect.org/economy/needless-default/ https://prospect.org/economy/needless-default/ "The cynical view is that HAMP worked exactly to the Treasury's liking. Both Senator Elizabeth Warren and former Special Inspector General for TARP Neil Barofsky revealed that then-Secretary Geithner told them HAMP's purpose was to "foam the runway" for the banks. In other words, it allowed banks to spread out eventual foreclosures and absorb them more slowly. Homeowners are the foam being steamrolled by a jumbo jet in that analogy, squeezed for as many payments as they can manage before losing their homes."
ta1243 2y ago
My understanding in the US is you can simply walk away from a house in negative equity and not lose anything? In the UK, if you owe 200k, the bank takes over your house, sells it for say 150k and has 20k of costs you still owe them 70k, and you have to go bankrupt and spend the next decade in financial misery
- sddsdd 2y ago
  This is called a non-recourse loan and the exact rules depend on the state. 12 states are non-recourse, including CA and TX. Credit standards and interest rates will be different on non-recourse loans, and cancelled debt typically has to be reported as income and taxed.
  - actionfromafar 2y ago
    Ha! That explains those weird videos of houses in neighbourhoods which looks like a neutron bomb or the Rapture. Cars left, coffe cups on the tables, sometimes facilities still working, TV on. Nobody there.
    - newfocogi 2y ago
      Could you share some links? I’m not familiar with this.
      - RevEng 2y ago
        I don't have links, but look at Detroit during the crash of 2008. There were a lot of photos at the time of entire neighborhoods abandoned by people whose mortgages were underwater.
  - happyopossum 2y ago
    > 12 states are non-recourse, including CA and TX. This wording makes it sound like mortgages are required to be non-recourse loans in the 12 states, but that's not the case. 12 states allow non-recourse loans, however they are not common for mortgages, with many lenders not even offering them.
ToucanLoucan 2y ago
> Wouldn't be nice to fail upward like that? It's almost like the banking system was designed by rich people to suit the needs of rich people or something. And to tax the poor but that's a more recent component.
- notavalleyman 2y ago
  And if the banking system were actually designed by poor people to suit the needs of poor people. How would this scenario play out differently? A bank is underwater on loans to a certain house. If they pull the plug now, the bank takes a loss. If they work with the household to raise the household wealth, then they can recoup their loan amount from the new wealth. So what's your alternative solution, in the world where banks are designed for the poor? I ask because I don't see how the personal assets of the people who designed this system come into play, at all
  - carlosjobim 2y ago
    The alternative would be the removal of the banking system, not to re-make it.
  - ToucanLoucan 2y ago
    I think you would end up with a lot more institutions designed in the vein of Credit Unions rather than banks. The differences are subtle but noticeable. They still generate profit but they're non-profits, and so the profits they do generate are invested immediately back into the institution, by way of expanding their branch offices, providing lower rates or relief to members who are struggling, and other misc. community-focused projects.
- troyvit 2y ago
  Wow apparently a lot of rich people and/or bankers are here judging by the downvotes.
- diab0lic 2y ago
  > It's almost like the banking system was designed by rich people to suit the needs of rich people or something. Food for thought: If they didn’t have an investment manager before this, and their primary asset was a big house they couldn’t afford… these people weren’t rich. They were working class, over extended themselves into a house, and got lucky. Your premise may have some validity but the story in this thread may be an example of a bank making a working class family rich.
deleted 2y ago
[deleted]

xyst 2y ago

This is how we end up in another 2008 crash. Regulators asleep at the wheel, again

ToucanLoucan 2y ago
Not at all. They're not asleep, they knew about it. A few isolated people had reported exactly how 2008 was going to go down. The banks know the economy is underpinned by their assets, Uncle Sam is NEVER going to let them actually die, not in a million years. It would be the end-toll of the U.S. dollar as the defacto world currency, it would shred trillions of dollars in assets, far beyond the actual homes, I don't think Wall Street could ever actually recover from that. And like, I don't even think that's necessarily wrong? Like I don't know how you would let some of these banks actually die in such a way that wasn't immensely worse for everyone. My only real issue with it is that these are for-profit businesses that funnel absolutely stressful amounts of money up the proverbial chain. If we just as a society want to say that we're comfortable with the notion of supporting banks with public money because ultimately letting them fail is worse for everyone, that's fine. I get that. I just don't think anyone at the top of those banks should be ripping millions of dollars a year out of that institution. At that point, that's not a business, it's more analogous to a utility and it should be owned and operated by the state.
- AnimalMuppet 2y ago
  I saw at least once in 2008 that it was done right. I don't remember which institution, but it got taken over, the depositors were protected, the stockholders lost everything, and the management was replaced. And that's just about what you want, right? You want the depositors protected, both because they didn't make the bad loans, and because wiping them out is going to cause ripple effects that spread the damage. But the stockholders, the ones that profited (temporarily) from the bad loans? Wipe them out. The management? Wipe them out.

duxup 2y ago

It happened to a lot of every day people during the mortgage crisis in the US. Bank would foreclose, let the family stay there until the house sold again, and some even PAID people to take care of the property / not damage it on the way out. My neighbors refinanced at a terrible time, they quit paying, foreclosure happened, then they actually worked out a new mortgage with the bank to stay.

jordanb 2y ago

This is called "extend and pretend." It's what's happening now with office loans. Conversely during the GFC the Obama administration put a plan together to allow people to get their loan terms adjusted (write down). The plan was very long, bureaucratic, and difficult to follow. Nearly everyone who attempted to use the scheme failed to successfully complete it and receive the write down. When asked about this, an administration official explained that the plan was never designed to give homeowners relief. Instead the purpose was to dangle a carrot in front of their nose to get them to struggle and sacrifice to continue to make full payments as long as possible so that the banks didn't have to take losses as quickly.

arghwhat 2y ago
citation needed
- Mathnerd314 2y ago
  "Bailout: How Washington Abandoned Main Street While Rescuing Wall Street", Neil Barofsky, page 157 Note though that he is only quoting "off the record" conversations with Treasury Secretary Tim Geithner
- miketery 2y ago
  reality is stranger than fiction. yes citation needed. but this seems banal compared to what things go down.
- jordanb 2y ago
  You can google "Home Affordable Modification Program" and "foam the runway" [for the banks]. But here's one of many articles: https://prospect.org/economy/needless-default/ https://prospect.org/economy/needless-default/ "The cynical view is that HAMP worked exactly to the Treasury's liking. Both Senator Elizabeth Warren and former Special Inspector General for TARP Neil Barofsky revealed that then-Secretary Geithner told them HAMP's purpose was to "foam the runway" for the banks. In other words, it allowed banks to spread out eventual foreclosures and absorb them more slowly. Homeowners are the foam being steamrolled by a jumbo jet in that analogy, squeezed for as many payments as they can manage before losing their homes."

ta1243 2y ago

My understanding in the US is you can simply walk away from a house in negative equity and not lose anything? In the UK, if you owe 200k, the bank takes over your house, sells it for say 150k and has 20k of costs you still owe them 70k, and you have to go bankrupt and spend the next decade in financial misery

sddsdd 2y ago
This is called a non-recourse loan and the exact rules depend on the state. 12 states are non-recourse, including CA and TX. Credit standards and interest rates will be different on non-recourse loans, and cancelled debt typically has to be reported as income and taxed.
- actionfromafar 2y ago
  Ha! That explains those weird videos of houses in neighbourhoods which looks like a neutron bomb or the Rapture. Cars left, coffe cups on the tables, sometimes facilities still working, TV on. Nobody there.
  - newfocogi 2y ago
    Could you share some links? I’m not familiar with this.
    - RevEng 2y ago
      I don't have links, but look at Detroit during the crash of 2008. There were a lot of photos at the time of entire neighborhoods abandoned by people whose mortgages were underwater.
- happyopossum 2y ago
  > 12 states are non-recourse, including CA and TX. This wording makes it sound like mortgages are required to be non-recourse loans in the 12 states, but that's not the case. 12 states allow non-recourse loans, however they are not common for mortgages, with many lenders not even offering them.

ToucanLoucan 2y ago

> Wouldn't be nice to fail upward like that? It's almost like the banking system was designed by rich people to suit the needs of rich people or something. And to tax the poor but that's a more recent component.

notavalleyman 2y ago
And if the banking system were actually designed by poor people to suit the needs of poor people. How would this scenario play out differently? A bank is underwater on loans to a certain house. If they pull the plug now, the bank takes a loss. If they work with the household to raise the household wealth, then they can recoup their loan amount from the new wealth. So what's your alternative solution, in the world where banks are designed for the poor? I ask because I don't see how the personal assets of the people who designed this system come into play, at all
- carlosjobim 2y ago
  The alternative would be the removal of the banking system, not to re-make it.
- ToucanLoucan 2y ago
  I think you would end up with a lot more institutions designed in the vein of Credit Unions rather than banks. The differences are subtle but noticeable. They still generate profit but they're non-profits, and so the profits they do generate are invested immediately back into the institution, by way of expanding their branch offices, providing lower rates or relief to members who are struggling, and other misc. community-focused projects.
troyvit 2y ago
Wow apparently a lot of rich people and/or bankers are here judging by the downvotes.
diab0lic 2y ago
> It's almost like the banking system was designed by rich people to suit the needs of rich people or something. Food for thought: If they didn’t have an investment manager before this, and their primary asset was a big house they couldn’t afford… these people weren’t rich. They were working class, over extended themselves into a house, and got lucky. Your premise may have some validity but the story in this thread may be an example of a bank making a working class family rich.

deleted 2y ago

[deleted]