Big Shitpile, you'll recall, is the term affectionately given to the shitload of mortgage CDOs (collateralized debt obligations) that were sold to various pension funds, institutional investors, and other gullible types.
A real estate CDO is created when an issuer waves a magic wand over a
bunch of mortgage loans and turns them into a security, usually a
really shitty security, shares of which can be sold just like stock.
The latest wrinkle in the mortgage crisis is lender concerns about borrower "morality". In many cases, it's in a buyer's interest to walk away from a property if the loan is much bigger than the value - the buyer can save their other credit and probably buy a new home in 3 or 4 years. But will delinquent borrowers feel remorse as they walk away from a bad investment and reconsider, or will they do the smart thing?
Sayeth Countrywide:
... 2008 is forecasted to be a challenging year for the mortgage industry, characterized by a declining Housing Price Index in a wide variety of metropolitan markets. In the context of the prominent threat to our industry of collateral values falling below outstanding loan balances, mortgage professionals must strive to ensure that borrowers do not take on loans that they do not have the ability or economic interest to repay. [emphasis supplied]
Of course, if the buyer was a corporation, they would walk away. In fact, if they didn't, their shareholders could sue them. Maximize shareholder value and all that. But if a homebuyer acts in her own interest, like a corporation? Shame on you!
Last time I checked, people who got foreclosed on didn't get to take the house with them, so it isn't exactly stealing, is it? It isn't only that the buyer took a loan they couldn't afford, it's that the mortgagor gave them too much money and TOLD THEM THEY COULD AFFORD IT!
The mortgagors got themselves into this mess. They thought they could control home prices forever, but that's backfiring on them now. They seem to lack a sense of morality for screwing over EVERYBODY who overpaid for their home over the last 15-20 years, who are now trapped in their mortgage because it's only going to get harder to sell.
Posted by: Montag | January 30, 2008 at 04:54 AM
Freude,
Understand that this is one example of how the tax code is skewed against us and for the wealthy (read: resource-laden...this goes against rich individuals, as well)
A corporation can abandon a building, take a tax write off (beyond what they've depreciated already) and socialize their losses.
You, me, even Donald Trump, unless it's a casualty loss, we eat it. And even then, we have to jump through hoops proving to the IRS our loss.
George Will has said at least one smart thing in his life: The trouble with America is that corporations are allowed to privatize profit but socialize losses.
Posted by: actor212 | January 30, 2008 at 02:21 PM