"Our Children and Grandchildren are not merely statistics towards which we can be indifferent" JFK

Thursday, August 12, 2010

“I am not going to be a slave to the bank" nor am I going to assume any responsibility for my decisions and actions

Debts Rise, and Go Unpaid,
as Bust Erodes Home Equity

David Streitfeld
New York Times
8/11/10


PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”

Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”

Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.

“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.”

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”

Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.” Link to complete article

Grandpa
“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan.

A slave to the bank! You take out a $95,000 home equity loan...and bought what Mr. Schlegel?
Now your silly bank wants to be repaid and you deem this slavery. Are we to believe your banker plucked you from your family, bound you in shackles, transported you via ship and sold you to the highest bidder for a lifetime of hard labor?

Generations have made significant sacrifices in order to provide a roof over their children's heads, food on the table and shoes on their feet. They assumed responsibility for their decisions and actions and when life knocked then down, they got up and scratched out a new game plan in order to continue providing for their family. This is not an uncommon practice for those with integrity, accept the fact that life is not always fair and do not shirk their obligations and expect someone else to pay when one hits a bump in the road.

Conversely, you possess some perverse "I'm entitled" perspective that signing off on a $95,000 note should be assumed by someone else because you got an owie. 

Grandpa wonders how you respond when one of your client's opts not to pay your full commission as they are "not going to be a slave to the real estate agent".

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