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tomandlu

Making Lenders Responsible For Ne

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Questions:

  1. If mortgage lenders were made resposible for NE (i.e. a borrower could hand over the keys and not be responsible for any shortfall), wouldn't this strongly encourage lenders to be more sensible?
  2. Why didn't this work in the US?

Answers (I think):

  1. Yes
  2. Because the lenders sold the debt onwards, and knew they were going to do so at the time of making the loan

So, if answer 2 was prohibited, and question 1 was implemented, would we have a more healthy housing market?

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Fannie Mae

Did they not sell the debt onwards?

Not that it makes a huge difference - once one lender throws caution to the winds, you either join the madness or close up shop. Bit like the buyers really. Sigh...

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Because who worries about the long term when you can get fantastically rich in the short term.

You have also forgot to add in the fact that the banks have no moral hazard get in trouble get bailed out.

If the banks had real moral hazard, ie forced to go bust or the CEO's etc faced jail for failure and assets confiscated I doubt we would be in the same position.

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Questions:
  1. If mortgage lenders were made resposible for NE (i.e. a borrower could hand over the keys and not be responsible for any shortfall), wouldn't this strongly encourage lenders to be more sensible?

  2. Why didn't this work in the US?

Answers (I think):

  1. Yes

  2. Because the lenders sold the debt onwards, and knew they were going to do so at the time of making the loan

So, if answer 2 was prohibited, and question 1 was implemented, would we have a more healthy housing market?

Surely that just pushes the role of "lender" back one step -- the true lenders were the bondholders (either having bought the bank's own bonds, or its securitised mortgage products). Why weren't these lenders -- supposedly sophisticated financial players -- more sensible?

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Surely that just pushes the role of "lender" back one step -- the true lenders were the bondholders (either having bought the bank's own bonds, or its securitised mortgage products). Why weren't these lenders -- supposedly sophisticated financial players -- more sensible?

Because they were lied to about the quality of the loans? (will Eric now turn up - is it like Beetlejuice?)

I'm not letting them off the hook - they obviously should have asked more questions. But a bank that can't sell its mortgages and consumer loans onwards *MIGHT* be more limited in how large it can grow, and therefore would never get too big to fail, and therefore might actually care.

Actually, I don't really understand this "too big to be allowed to fail" thing. They were broke ffs - exactly what asset did they own, or role did they play, that we were protecting?

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Questions:
  1. If mortgage lenders were made resposible for NE (i.e. a borrower could hand over the keys and not be responsible for any shortfall), wouldn't this strongly encourage lenders to be more sensible?

  2. Why didn't this work in the US?

Answers (I think):

  1. Yes

  2. Because the lenders sold the debt onwards, and knew they were going to do so at the time of making the loan

So, if answer 2 was prohibited, and question 1 was implemented, would we have a more healthy housing market?

My god I wish it worked that way (for me at least, I'm sure it's not good to void individuals of responsibility).

Edited by IWantItNow

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Did they not sell the debt onwards?

Not that it makes a huge difference - once one lender throws caution to the winds, you either join the madness or close up shop. Bit like the buyers really. Sigh...

They did indeed, but with an implicit state guarantee...That's how you get rich people to lend money to poor people.

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Questions:
  1. If mortgage lenders were made resposible for NE (i.e. a borrower could hand over the keys and not be responsible for any shortfall), wouldn't this strongly encourage lenders to be more sensible?

  2. Why didn't this work in the US?

Answers (I think):

  1. Yes

  2. Because the lenders sold the debt onwards, and knew they were going to do so at the time of making the loan

So, if answer 2 was prohibited, and question 1 was implemented, would we have a more healthy housing market?

surely this gives an incentive for borrowers to borrow more, as there is no downside. so i think no, unless accompanied by lending restrictions.

re: the second point - even if the bank retains the risk of default it will not be the person making the judgement who will be penalised if the borrower defaults.

in some ways i agree with your premise - that lenders should be responsible for NE but this should be done via very conservative valuations such that a house can never be valued for mortgage purposes for more than 90% of its rental value. if someone wants to pay more then they need to have lots of equity.

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if the lenders not the borrowers are responsible for NE, then there is zero risk in buying lots of property and getting into BTL in a big way. When the crash comes you walk away debt free, the banks hold the keys and cant sell, the house is empty and this brings the price of the entire street down until you have a ghost town (no people and no jobs). IMHO it makes the boom bigger and the bust deeper.

Making lenders responsible for NE (which is the US mortgage system) doesn't stop dodgy lending, because the debt can be packaged up and sold on, and there are LOTS of competing lenders offering more and more money competing for customers. Making Lenders responsible sounds like a great idea but it makes it much much worse.

Bootnote : Perhaps a happy medium would be 50% responsibility? i would make the boom/busts 50% as bad?

Edited by moosetea

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My god I wish it worked that way (for me at least, I'm sure it's not good to void individuals of responsibility).

Well, the cunning plan is that there is never a responsibility to avoid. If the bank knows that it will take the hit if the bubble bursts and the borrower decides to leave some jingle-mail, then it won't lend on silly (bubble) valuations or silly (multiples) LTVs.

Consequently, the bubble never happens in the first place. Add in some decent land tax to prevent property becoming an asset and bobs your uncle!

My only worry is how do you stop landlords passing on the land tax costs as higher rents - but I suspect a lot of them have been dodgy on their income tax anyway.

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if the lenders not the borrowers are responsible for NE, then there is zero risk in buying lots of property and getting into BTL in a big way. When the crash comes you walk away debt free, the banks hold the keys and cant sell, the house is empty and this brings the price of the entire street down until you have a ghost town (no people and no jobs). IMHO it makes the boom bigger and the bust deeper.

Making lenders responsible for NE doesnt stop dodgy lending, because the debt can be packaged up and sold on, and there are LOTS of competing lenders offering more and more money competing for customers. Making Lenders responsible sounds like a great idea but it makes it much much worse.

Bootnote : Perhaps a happy medium would be 50% responsibility? i would make the boom/busts 50% as bad?

But the point is that lenders won't lend to the BTL-ers - at least not in the way they have done over the last decade... alternatively, make jingle-mail only allowed on a single nominated property (take that, holiday homes in remote villages).

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But the point is that lenders won't lend to the BTL-ers - at least not in the way they have done over the last decade... alternatively, make jingle-mail only allowed on a single nominated property (take that, holiday homes in remote villages).

But in the US they did lend to BTLers all last decade even with jingle mail.... The US shows that jingle mail on one property or multiple properties doesn't make things better, it just makes the boom and bust bigger.

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Surely that just pushes the role of "lender" back one step -- the true lenders were the bondholders (either having bought the bank's own bonds, or its securitised mortgage products). Why weren't these lenders -- supposedly sophisticated financial players -- more sensible?

Because it wasn't there money.

If I tell you to got to the casino with £1000 of my money as say you get to keep 10% of the winnings, but if you lose the money just come back and get some more, you're going to make some pretty stupid bets.

The people running the investments got paid bonuses on the deals they did, but weren't liable for any losses in any way.

The biggest scandal in this will come out when people find out the investment managers of their pension fund have lost all their money... exactly who did you think was buying all this sub-prime debt exactly?

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Well, the cunning plan is that there is never a responsibility to avoid. If the bank knows that it will take the hit if the bubble bursts and the borrower decides to leave some jingle-mail, then it won't lend on silly (bubble) valuations or silly (multiples) LTVs.

Consequently, the bubble never happens in the first place. Add in some decent land tax to prevent property becoming an asset and bobs your uncle!

My only worry is how do you stop landlords passing on the land tax costs as higher rents - but I suspect a lot of them have been dodgy on their income tax anyway.

I see what you're saying, it seems a bit idealistic and 'away with the faries' though I'm afraid. You could ask human beings not to be greedy t wats but that is equally idealistic.

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Consequently, the bubble never happens in the first place. Add in some decent land tax to prevent property becoming an asset and bobs your uncle!

My only worry is how do you stop landlords passing on the land tax costs as higher rents - but I suspect a lot of them have been dodgy on their income tax anyway.

A properly implemented land tax cannot be passed on by landlords because the tax itself places a downward pressure on market rents.

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The banking cartel have a loaded gun to the heads of each and every one of us. Negative Equity is not their concern. They always knew they would be bailed out.

We insist we want people to be paid privately for our right to be here and they give us the tools to compete each other out of the right to be here. We asked for it, they supplied.

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We insist we want people to be paid privately for our right to be here and they give us the tools to compete each other out of the right to be here. We asked for it, they supplied.

who are we, what is privately and where is here?

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who are we, what is privately and where is here?

We seem to insist that the ability to charge others for their right to be here is embedded in our land ownership institution and so we get our economy swallowed up by the rent seeking this ability causes.

If we could accept in principle, that people have a right to exist without paying a landowner, then this would untangle naturally ( if the principle were followed through).

Edited by Stars

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Actually, I don't really understand this "too big to be allowed to fail" thing. They were broke ffs - exactly what asset did they own, or role did they play, that we were protecting?

Those are good questions. My understanding:

The commercial banking system/cartel provides (almost) all our means of exchange, and (almost) all trade is conducted using the transient electronic money/credit numbers which exist inside the participating banks’ computers. The perceived overall integrity of the system is absolutely vital to our whole economy and society.

The cartel was almost certainly insolvent (liabilities exceeding any realistic value of assets), as were some (most?) of its individual component banks.

No single bank could be allowed to go bust, since then all would then be exposed to intense scrutiny, all confidence would disappear, and total systemic collapse would ensue.

I think it more accurate to say that the total malinvestment (bad loans) was too big to be looked at too closely. I suspect that behind the curtain the PTB are still working furiously to try to deflate the unprecedented credit bubble in an orderly manner, and will continue to do so for some time yet.

Will they succeed?

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