State's highest court lets state block foreclosure on irresponsible sub-prime mortgages

I agree with neilvandyke and I think AG Coakley is on the same page.

“In affirming the ruling of the Superior Court earlier this year, the SJC today confirmed what we have alleged for some time: that we have a likelihood of proving that it is illegal for subprime lenders to issue loans that they knew borrowers likely could not pay and, therefore, would predictably lead to foreclosure,” said Attorney General Coakley. “The SJC held that type of lending—without meaningful regard for a borrower’s ability to repay—is unfair and deceptive in violation of the Consumer Protection Act. A lender like Fremont who made those unsustainable loans should be required to achieve reasonable workouts and avoid foreclosures. Our office will continue to apply those standards and seek accountability from lenders who engaged in this unfair, deceptive, and illegal conduct and we will continue to seek significant relief from lenders that violate the Consumer Protection Act.”

The lender loaned the money and made a big transaction fee. If the borrower can't possibly pay the loan (and it was clear the lender knew it when they wrote it) then the borrower can stay in the home and work out terms with the lender, and the lender cannot foreclose.

Loans like these are what fueled the housing bubble, in combination with enormous gobs of wealth worldwide in search of safe lucrative investment. Its not just people who bought bigger homes than they should have, or mortgage companies that loaned money to underqualified borrowers, it was also the worldwide appetite for what investors thought was investment grade bonds - US mortgage-backed securities and derivatives.

When foreclosures and home abandonment began to rise, mortgage-backed securities started taking big hits in valuation because mortgage backed securities count on borrowers making their payments.

Housing prices began to drop. A lot of the bonds were not only worth less, they were of unknown value, which fueled the financial system collapse, which in turn caused credit markets to freeze up, which crippled businesses and consumer spending.

There is plenty of blame (responsibility) to go around. Good for AG Coakley to use the law of the Commonwealth to protect residents of the Commonwealth from predatory lenders who had no skin in the game. The injunction requires lenders to work out terms without putting the borrower in the street.

how easy it is to forget.

When your take-home is $2,000 a month and your expenses including a brand new house payment are more than $2,000 a month, that's pretty damn speculative in my book.

actually, that's a "hail mary"

The state only sought protection for people who actually lived in their houses, not speculators.

What makes you think people who live in a unit are not speculators? You buy, move in and fix it up and then sell. Rinse, lather, repeat. If you assume that you'll be able to sell at a profit before the rate increase comes due, then the mortagage is no problem. As long as property valuse increase, that is. It's textbook behavior for a financial bubble. If banks and mortagage companies have to pay for speculator's losses, then the people who will pay are future borrowers. Like you. There's no bag of money somewhere that does good deeds - the money comes out of the market place, not the rich people or the greedy businesses.

If we had just stayed with standard mortgage practices, we wouldn't be in this mess. The federal government forced banks to "help" people get mortgages - in other words, to give loans to people who were not good risks. There's no magic here - either you have the facility to pay back a loan or you don't.

It was also irresponsible for state and local officials to claim these programs would solve the affordable housing crisis without requiring anybody - from cities and towns to large builders - to actually create much if any affordable housing stock (particularly for families).

If we hadn't bought in 1998, when rents started suddenly accelerating as our family was growing, we wouldn't have been able to find a place to rent for 1.5 times what our mortgage cost. People who were less able to make the leap that early got caught in an up-spiraling rental market. The only way out that they could see was to become "responsible homeowners", like every institution urged them to anyway.

I'm just glad that when we refinanced to a 5/1 arm during an income-challenged period, we were very careful about how much we financed and what the terms were. I grew up in a state where teens are required to have a year of personal financial education, so I knew what to look for (my parents were not home owners). I was lucky for that. We close on a new fixed-rate mortgage this week, as the 5 years of 5% is up.