Jose Canseco walks away from his mortgage
Back in January, I noted the troubling trend of home borrowers in California simply walking away from their mortgages–abandoning their promise to pay their loans and undermining the stigma of default. As I wrote then, political rhetoric absolving borrowers of their responsibilities — and encouraging them to spend, spend, spend even more — has made it possible. And so has federal legislation intended to “help.” The omnibus spending bill passed last year prevents the IRS from taxing mortgage forgiveness as income up to $1 million for a two-year period. Some people are bailing because they’ve lost equity and value in their properties; some are bailing for cheaper homes in the same neighborhoods. There’s even a term that’s become popular over the last couple of years — “Jingle Mail” — that describes when homeowners cut loose and mail in the keys to the bank. Ho, ho, ho. The true victims in this “crisis” are those who paid for homes within their means and those who waited to enter the housing market.
As California goes, so goes the nation. The trend continues.
Now comes word from Los Angeles that beleaguered baseball player Jose Canseco has walked away from his mortgage. L.A. Land reports:
Former major league baseball player Jose Canseco…”said on Thursday he had lost his California mansion to foreclosure — one of the first celebrities to publicly admit being a statistic in the U.S. housing crisis,” the Associated Press said.
In comments to the TV show “Inside Edition,” Canseco says, “It didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else.”
More from the Associated Press: “Canseco, 43, one of the most flamboyant U.S. baseball players until his retirement from the major leagues in 2001, told the celebrity TV show ‘Inside Edition’ that it did not make financial sense to keep his 7,300-square-foot home in the Los Angeles suburb of Encino. ‘Inside Edition’ said it had foreclosure documents showing Canseco owed a bank more than $2.5 million on the house.
Note that he wasn’t forced to foreclose. He chose to foreclose. And many more will follow in his foosteps.
Commenter Patrick at L.A. Land sums it up well:
Steroids and stardom aside, Canseco is not unlike the rest of America: Chronically overspending, knee-deep in debt, lived beyond ample means, relative to the rest of the world. The mortgage mess is a symptom of this very same mindset. There will be more.
This is also right on:
In a Roman orgy, and no mistake abou[t] it, it has been one disgusting, wanton, gluttonous binge, rich folk take off their pants just like the the plebeians.
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Its about time the mortgage companies start going after these deadbeats-if a deadbeat father behind in child support can have his wages garnished and “tax refund” taken then certanily the banks can do something simuliar.
GSP
OT No wonder he’s not in the HOF
In comments to the TV show “Inside Edition,” Canseco says, “It didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else.”
Uh, isn’t that what a mortgage is???
Am I missing something here??
:-0
I think that the government should tax the windfall profits of celebrities and athletes because they are obviously too stupid to handle their money appropriately.
Saw this last night on the news. All I could think was “Whiskey Tango Foxtrot?!” This guy had millions and it still wasn’t enough.
This is what decades of liberal entitlement mentality governing has wrought.
This renter is beyond angry. She’s just depressed….
This guy is such an idiot for a host of reasons and this is another one.
For those of us who worked hard and played by the rules, it’s disgusting. Hey Jose, here is a clue-SunTrust owns a little less than 2/3 of my home but we dutifully pay them their money the first of every month. Of course we didn’t buy a home we couldn’t afford (even though the real estate agent showed us a few we technically qualified but could not really afford) and we weren’t buying steroids either.
When we got married I moved from my townhouse to a single wide trailer that my husband had purchased when he was a 19 y/o Pvt. He’d been hauling that thing all over the country for 10 years. We lived in that thing for two but when we sold it he did get about 8K out of it. It wasn’t much but with my first semester salary (that we saved) and borrowing some out of my IRA (which I wouldn’t recommend), we were able to get the HI house, a house that when I saw, I honestly cried it was so small. But we made huge improvements and doubled our money and were able to buy this house.
I wish I could feel sorry for you, Jose but I don’t nor the LTC we know who is going to lose a house he couldn’t afford either. I know, I’ll save you the trouble-I’m mean.
Money makes you happy?
I have to say, I don’t feel sorry for him. Nope, not one bit.
In this case, unlike Islamic Terrorism, the chickens HAVE come home to roost. It’s time to pay the piper and stop having the government, largely responsible for enabling this total financial disaster, attempt to ‘fix’ things. (Hey Alan Greenspan, where’d ya go. )
Disgusting! Whatever happened to personal responsibility???? Where are the adults in this country?
Canseco- always the poster boy for what anyone ought not do.
I can never forget that play, when Canseco was hit with a flyball off his cocoanut, then the ball bouncing over the wall for a home run.
my wife and i just spent the last 12 years makingup for going in over our heads on our first home, we took responsiblity and lived below our means to scrimp and save and payoff all things related to our forclosure that has held us in rentals since.
we are just now in a position to attempt to buy another home and now all these people just walk away?
and they will get a free walk?
wtf has happend to my country!
I thought the mortgage crisis was due to predatory lenders taking advantage of illegal immigrants who can’t speak English?
Reason # 1,323,654 why celebrities don’t make good role models.
Whatever happened to taking responsibility for ones actions? Whatever happened to “you made your bed, now go lay in it!”
Poor decisions are not only made by the common man it appears. Sorry to hear Canseco made some really bad personal financial decisions along with many other people. It appears California is getting the worst of it, but in our area Boise made the top 10 list in the nation for the housing crisis. Of course Boise has seen a huge influx of refugees from the People’s Republic of California and they have unfortunately brought the flawed values system with them.
I am less than pleased with the government’s manipulation of the market bailing out big business contributing to keeping housing prices artificially elevated to still keep them above what should be their real adjusted market value. Now renters will have to wait even longer to become first time buyers and those of use who have lived within our means will be bailing the irresponsible borrowers and greedy lenders out with our forced tribute to an ever expanding soulless federal government.
“Say it ain’t so Jo’se”
And another grifter takes his money and runs.
He’s an athlete, a parasite on society. What else should we expect?
(Yawn)
Waiting for a law that says his “walk away” cannot appear on any credit report in 4,3,……………
Boomer has it right, I think, when he says “Poor decisions are not only made by the common man it appears.” However, in Canseco’s case I think it goes way beyond poor decision making. He’s made a decision to walk away from personal responsibility (nothing new in his life, by all accounts). The sad part is, his decision will do nothing more than encourage others to follow his path.
I feel sorry for the majority of people in this country who are seeking to become first time home buyers. This mess will impact them in ways that even now might not be apparent.
On the other hand, I consider myself to be very fortunate. In my part of the country forclosures and defaults remain at their historic averages, and currently housing prices are down from a year ago, as are fixed interest rates on mortgages. Blame it on the values of “fly-over” country, I guess. My wife and I are looking to buy our first home, and where we live it couldn’t be a better time to do so.
How about a celebrity version of FLIP THAT HOUSE ?
How many celebs and jocks can ‘buy’ and ‘forclose’ the same insanely big mansion in a ratings season ?
A couple of years ago when the housing boom was at it’s height, my daughter and her husband looked into buying their first home, but decided that they were not going to pay more than twice what their current rent was for something about the the same size as their small apartment. It just did not make financial sense. They waited and saved. Now they have just bought their first house for $140,000, which cost $240,000 two years ago and was in foreclosure. Not only did they get a much bigger living space then their apartment, but they have payments at a fixed rate which they can afford. Why was everyone so stupid to buy more house than they needed with interest rates that would go up? Nobody was thinking, they just wanted what they wanted and this is a huge problem in this country. I just hope that people are learning a lesson from this fiasco, but I fear that they are not.
What does he want - pity?
You live way beyond your means in a house you cannot afford, and then make out like you’re some kind of martyr/victim of the economy.
No pity. Should not have been given any press either.
Personal What? What’s responsibility. I am a victim D*&N IT! /sarc off
To quote some of the more sensitive posters here:
Boo freakin hoo.
A fool and his
moneyhome are soon parted.Now way, Jose’. No, si’.
Lets face it, it is a business decision.
I actually agree….Jose doesnt deserve any sympathy. I say make him pay it back anyway.
These are the “poor” people who are loosing their homes? Nem. This is just one of the unintended consequences caused by Jimmy Carter and the SocialDemocrats of the 70s.
Why not he has (in spades) the main ingredient to the housing crisis…ego.
Um, it always makes sense to pay your debts because you promised to.
I can see kids on the playground now.
Kid 1: “Hey, where’s that dollar I loaned you?”
Kid 2: “I decided that it didn’t make sense for me to pay it back.”
Hey - No Problem!! The Democrats will bail him out just like all the others.
Which reminds me,Government bailing out rich folk seems to have become more of a trend lately. Shouldn’t government programs be used to assist those who are less fortunate?
The government shouldnt be bailing out anyone who made poor financial decisions like this subprime mess and now dont want to be responsible for their own choices.
I say take the money that would be given to these idiots, and put it back into the Social Security funds, so that seniors who had worked all their lives can at least reap some benefit.
I cannot believe I am going to say this:
Great post lgm. Keep that up!
Yet another reason reason why this guy has always been messed up and never should have been a role model for kids. First, the steroids and then walking away from his mortgage? C’mon… where are the adults? Then again, this guy was probably running through his multimillion sports deals and baseball contracts cash like there was no tomorrow.
Soap: You’re surely playing with fire. This is an anomaly in lgm’s overall posting history.
Soap,
i found myself on this thread agreeing with Bruce AND lgm….
There may be hope afterall LOL
Has he claimed racism yet?
I’m so tired of people making poor financial decisions and then turned into victims.
Saw a commercial yesterday…
“Do you have 5, 10, 15, 20 thousand dollars of credit card debt? Are creditors harassing you with phone calls? Don’t worry, we’ll bail you out…”
WTF?
Murder rate per 100,000 residents in counties won by: Democrats: 13.2 Republicans: 2.1
I bet you will find similar rates on welfare, burglary and yes defaulted mortgages.
Theres a part of this that folks are missing.
ANY loan company knows that there is risk involved in making a loan. Thats why they vet their customers, and ensure that the person puts down sufficient equity, or risk, to not just walk away. The loan company will take a bigger risk at time for a bigger profit (interest) but its an understood risk.
If the person defaults, the company gets ALL the equity in the house… ALL the money the person has already paid, AND gets the house…. IF they can sell it in a reasonable time, then that equity becomes PURE PROFIT.
Key here is that loan companies were making too many risky loans, and they were banking on an expanding economy to support those loans…
I mean, would any of YOU loan money to Conesco??? If you did? Its your own dam fault if you loose it.
I am thinking parallel universe this morning.
I can remember when Jose first came into baseball.
In his first season, he showed he could hit, run, catch, and throw the ball with the best of them…I thought, he’d turn out to be a hall-of-famer…He had that potential.
Then, the ego took over.
He’s turned out to be one of the biggest disappointments in the sport…A total jerk.
In response to post #2
I think what Canseco is referring to is that there was a legal judgment awarding the house to a 3rd party.
Sort of off topic, but goes with the slide of morals and personal responsiility.
Gee, is it because those in the counties with the low murder rate are to busy working, raising families, paying their taxes and being responsible, versus feeling they are owed and waiting for the next handout.
Another interesting stat:
Murder rate last year in Baltimore, Md with a population of approx. 600,000 was about 50 per 100,000. Last time Baltimore’s population was 600,000 was in 1904 and the murder rate was approx. 4 per 100,000, with much less gun control. Things that make you go HMMMMMM…
Jose decided he didn’t want to pay a mmortgage on a house that had a mortgage and a 2.5 million judgement attached to it. For him it was no equity no loss. But, we know Jose has been an upstanding role model….
I am sure the next loan he applies for he will get it because he is Jose Canseco. If it was one of us little people who had an issue well forget it.
On post #10, “trailortrash has it right on. My wife and I are in a similar situation because we refinanced our home a couple of years ago and took some bad advice on the type of loan we now have. As frustrating as it was, we also realized we were the final decision makers on accepting this loan; it is our signatures on the paperwork.
But unlike Mr. Canseco and other deadbeats(and I don’t use that term lightley), we have not just “walked away” from our responsibility; instead, we have been proactive, gone to the company that currently owns our loan, and are working with them to see what we can do to get us back on the right path. Do I wish I had gotten better advice from the people that sold us the loan? Of course. But it is wrong to just abdicate responsibility, and it is especially wrong for someone like Canseco who had the money to pay for it.
#22 Lgm
History has been made! For once we’re in total agreement!
Are we finally being a good influence on you?
What a POS. I don’t have the strength to say anything more.
WAY TAH GO LGM!!!!! I so proud of you!!
Thanks, supersean, I didn’t realize he had a judgment against his assets.
Well, if a guy who makes millions in the big leagues, writes a book and pockets a huge advance, stars in a D-list reality show and schtoops Janice Dickinson in the process can’t make it in this society, who can?
I guess we’re all doomed? I’m going to follow my role model and mail my keys (and my accountability, dignity and last name) to the bank post-haste.
This is such a friggin’ pile of garbage. I want to go fists of fury all over this crap.
LGM gets an “atta boy” from me too.
Romeo has it right. Putting all the moralizing and hand wringing aside, there’s a thing all good and committed capitalists should be familiar with…efficient breach (google it if you need to). Contracts contemplate defaults.
BTW, while Jose is generally speaking a tool, he was largely responsible for blowing the lid off the whole steroids controversy in baseball. He was obviously acting in a self serving way, but he was the lone voice in the wilderness when his first book came out, and his claims have for the most part been totally vindicated.
I better sell his Topps Rookie card.
Yep, I remember when he had a “40-40″ year: 42 home runs & 42 stolen bases (1988 - I looked it up to confirm).
He was heralded as the next great….
However, he couldn’t do things like that consistently.
Another of the greatest careers that never were.
Very sad….
Trivia
In his book, he says that he met his second wife at a Hooters restaurant in Cleveland.
Sorry…40 stolen bases.
Apologies.
I think he made the correct decision. If the bank was stupid enough to write the loan for an overpriced house THEY are the ones who should take the risk, not the home”owner” .
I bought a house for 400,000 and I put 80,000 down. Now, a year and four months later, it is worth only about $290,000. The developer is building new ones of the same model for even less than that. Why should I keep paying money that I will never see back in my lifetime? If I hadn’t sunk 100,000 into it I would have walked away long ago. My mistkae was to actually put money down because I planned to stay in it. I may yet regret not walking away. Maybe I’m really stupid to stay.
The spiral started in 1992 with the Clintons — It’s been downhill ever since. Irresponsibles and rights are locked together. Give up your responsibilities you forfeit your rights.
Healthcare is a responsibility.
I have to disagree. The more we can get government OUT of our pockets and our lives, the better off we will all be.
It would be less fortunate for them if the government only bailed out We The People instead of keeping the classes separated and as divided based on class as they have managed to accomplish with race issues.
I do not remember the studies, but as I recall, most of the agricultural “subsidies” paying people NOT to grow goods went to corporations like John Deere and to families like the Rockefellers. I am likely wrong in the exact names but the correct names and the reports are out there and do support this equally asinine government subsistence of the rich.
As I said, the more we can get government out of our pockets and essentially out of our lives (as far as this centralized federal system we have) the better off we will be.
IMHO
And okay, even though he did not respond to my comments on the other thread, I do have to agree with LGM and would like to thank him in hopes that he will use this historical moment to turn things around and actually begin contributing to conversations rather than “seagulling” us as has happened so often in the past. Debates based on facts really are much more rewarding than name calling or emotional arguments LGM.
Are we making progress with lgm? Am I dreaming? I’m doubtful this is real. This must be a teaser. Or perhaps he fell asleep at his computer and one of his children typed this. I refuse to believe it. This ruins my world view!
I know someone with double-wide for sale…cheap
skate
BECAUSE YOU BORROWED IT!
Wrong! The fact that a contract contemplates a default doesn’t ethically or morally excuse a defaulter.
A default is still a breach of the contract.
Someone that views a default (breach) as a mere option is scum.
This is beyond absurd. Jose Canseco is a loser on so many fronts but this takes the cake. Anyone who can afford to pay his mortgage and willfully walks away should be punished. Enough already!
corkie, buy a clue. Go google the term “efficient breach”, and then get back to me. Any party who continues to perform under a contract which no longer makes economic sense is an idiot. Renegotiate the business deal or efficiently breach the agreement and pay the resulting price as contemplated by the default provisions of the contract. In this case, the bank gets Jose’s house as the result of his breach. BTW, thanks for letting us all know that “default” = “breach”. You must be some kind of genius.
May 2nd, 2008 at 11:34 am, rogerbacon
So, its your opinion that the Loan agent and company hold no liability for making a risky loan?
And the FACT that they not only keep the house, but all the equity in said house when you default is not enough of a penalty if its a properly done loan?
THIS IS A BUSINESS TRANSACTION, with protections in place for BOTH sides.
Sometimes the circumstances under which a contract is first negotiated change to the point where it is not wise or possible to complete the contract… it happens… which is why a GOOD contract has provisions in it to mitigate loss on both sides.
You nailed it, Corkie!
Maybe he was too concerned with informing we baseball fans of “the truth” in his “Juiced” books.
/sarcasm tag off
As far as I am aware:
upon a property mortgage foreclosure and subsequent auction sale of the property;
if the property sells for less than the outstanding principal balance, the borrower is still responsible to pay any remaining, outstanding principal to the mortgagee.
Am I correct?
Romeo, yup. corkie and feebie, take a business class maybe. Free markets,capitalism? Do these terms mean anything to you guys? And here I was thinking only really left wing liberals did the “feelings” thing when it comes to business matters.
if you wiki Efficient Breach, you get this near the top:
In playing Devil’s Advocate:
Morally, corkie may be right. And personally, i think (based on Jose’s wealthy stature) he should be made to honor it.
However, the law doesn’t read it that way, and thus, dakine has a point. Romeo reiterates it, by virtue of:
Still playing Advocate, I believe that Jose is walking away from this, simply because he chooses not to honor the contract and is using this as a loophole for a poor decision. I still dont feel pity for him, but…legally, he has a right to pursue this course of action, whether we like it (or believe it to be just, fair, and moral) or not.
Depends on the state granite. In California, for example, loans on residential real estate are non-recourse to the borrower (with a few exceptions), and the lender is not permitted to sue for any deficiency resulting from the foreclosure sale. The opposite is true in other states.
Puleez. Google the term “Contract as Promise.”
which the other side might not want to do.
Bullxxxx. If the other side doesn’t want to renegotiate, then I can argue that your “idiot” is honorable.
It seemed that you needed to be told.
Don’t ever make the mistake of thinking that no ethics are breached simply because no laws are broken. I can think of hundreds of examples.
Dakine:
How can one be vindicated when accusations were derived from a self serving position? Materially, perhaps.
As far as your “efficient breach” nonsense…what some legal eagles fail to see sometimes is just because you CAN do something, doesnt mean you SHOULD do something.
Ummm. Sounds like another case of the Bad Excuses (ehh-heeem Michelle Oblahhhma)
Who cares about breach, efficient or not. He was not FORCED to forclose. He made a bad decision…he SHOULD not get an easy way out.
Figure it out, Canseco…just like everyone else has to regarding home purchasing decisions.
All the contractual language in the world will not save him from the fact that he is an absolute weasle rat fink that cuts and runs leaving everyone else in his wake and to pay for his big mouth and spending habits.
Karma is a B***H Canseco, and you got it coming….
Funny, how some think that the bank should encur a loss if the house value sinks.
Are they entitled to the profit when the house value goes up?
Stop it, all of you.
Don’t you know this conversation isn’t helping the kids?!
That’s what drugs will do to you…:)
#12, please tell me there’s a YouTube of this!
Take a class? I live in this world. I understand it perfectly.
“Feelings” thing? Many of us in business value our reputations (there are many ways to legally screw someone). I assume you do not value yours.
Sadly, too many want to overlook that little tidbit of information and cry that people are being left with no other option but to foreclose. Geez!
That would include our family. We try to exercise some personal responsiblity and have not purchased another home, until we know we are fully capable of meeting our mortgage obligations.
Perhaps it is time for us to act like the other irresponsible people shirking their obligations, because…
Welcome to the new world order - the gov will take care of everything; clean up everyone’s personal messes. Responsibility - Huh? Consequences - None! Reputation - who cares? Shame - What’s that? Hello nanny state!
For the record, I don’t have any sympathy for the party/parties that currently hold this loan.
How about this;
“I’m so busy that it didn’t make sense for me to spend time with my children, and I’m not legally obligated to do so.”
Thank you.
So, it appears that California (Why is this not a surprise?) in essence, with a few exceptions, makes it easier for bad behavior to be rewarded; and, with a few exceptions, makes it easier for folks to avoid the consequences of their bad decisons.
Gee:
Take out a mortgage;
Walk away from it if you feel like it;
And if the lender gets screwed because you still owe him part of what you borrowed…well, it’s just tough-sh#t, suck-it-up time for the lender.
What a gig for a borrower who doesn’t worry about his credit rating!
Whoa!
Perhaps I spoke too hastily - this is California, after all.
Does California law does allow, or prevent, a loan default from being entered into the defaulter’s credit history?
Again, thank you for the clarification.
Excellent.
This really seems to boil down to a question of what’s morally and ethically right vs. what’s “legally” acceptable (or right).
Unfortunately, a lot of the perception of what’s acceptable in a situation like this has been influenced by the sport that Canseco played (along with other major professional sports). The mindset was, and is, “I don’t like the contract I signed. I don’t care if I am contractually obligated to work for you for “X” number of years for “Y” dollars, I want to work for “A” number of years for “B” amount of dollars, and if I don’t get my way, I just won’t work for you.”
I’m still wondering why owners didn’t sue the first athlete that tried this for breach of contract.
P.S.
Don’t misunderstand me…I shed no tears for lenders, who most likely don’t care if they screw borrowers!
Hell has frozen, I actually agree with LGM’s post.
If you stopped paying, they took it back and sold it, yes.
Actually, this isn’t true. If a lender sells an asset via foreclosure for a value which is greater than the debt (plus interest and penalties - which is often limited by law) then the lender must pay the borrower the remaining portion of the proceeds.
#70 - Dakine….
Perhaps it is you who is confused. The capitalism you seem to be defending is what exists as capitalism in its purest form. We dont have that here…(really not sure it exists anywhere…but I could be mistaken).
The fact that there are those that cant see two inches past a their Matthew Benders or Court Reporters only furthers their distortion of what is actually going on here….
What he is doing may be legal, but here it is again. Just because you can do something doesnt mean you should! If I was in a position to take his case, I wouldnt, based on principal…but then again, thats why we have lawyers out there like Dakine….just to keep twisting the laws to benefit the undeserved and allowing them the side step personal responsibility.
Rhetorical Question of the Day: If you have money and a unscrupulous attorney…did you really do anything wrong???
The country has found a new “victim bandwagon” and lots of people are jumping aboard. What a way to rationalize poor behavior and decision-making. We just moved into a townhouse yesterday. Yes, I can afford it, and no, I don’t own it. When one can’t come up with the money to pay for the property, that person goes to someone who has the money. He agrees to give the person the money, but wants to make sure he is paid back the thousands of dollars. He isn’t a charity. If one doesn’t want to pay the money back, don’t buy the property. It’s the same thing with credit cards and car loans. One wants the “latest and greatest” but doesn’t want to pay back the borrowed money. It’s easier to plead “victimhood”. Then run off to Church on Sunday and claim to be a good Christian.
In the end, the government loves it; that is, a nation of victims. Total control and power.
Missing in this thread, of course, is the reason for the Mortgage meltdown, in the first place.
A.R.M.s
And, who was reponsible for pushing the banking industry into this practice?
You guessed it.
Mr. Slithers Clinton
I bought my first home in 94. I got a fixed rate mortgage. I refinanced when the rates dropped. Again, fixed rate. I’m holding onto my home just fine! Now you watch, the MSM will come out with some whiny, smarmy story about how Jose lost track of the payments BECAUSE of the ‘roids! B.S., homey, pay your bills or just get an apartment. My heart pumps pi$$ for you!
And yes, lgm FINALLY had a lucid moment.
Where?! When?!
You have to provide specific references by citing comment number, spocon. These things happen so infrequently.
If anyone had gone up to Mr. Canseco right after he moved into the house and asked him who was letting him live in their big, beautiful house, my guess is he would have been quick to state that no one was letting him live there — it was his house, he bought it.
Now that he doesn’t want to pay the mortgage, he’s decided that technically it’s someone else’s house anyway. How convenient.
This may look like walking away from one’s personal responsibility, but the mortgage market meltdown is a bit more complex than that.
To date, we are seeing losses in the value of the real estate markets in the trillions of dollars. One of the reasons the government wanted to intervene, aside from political motivation, was to try to isolate the economic damage to the sub prime markets. When any group of loans turns South, they have the potential to drag the entire market down with them.
And unfortunately, that is what is happening now. Record foreclosures (measured against the new records set last year) balloons housing inventory and causes price decreases (more supply against lower demand). That value decrease is now finding its way into the erstwhile prime real estate markets.
One of the tings the Fed was trying to get banks to do was to write down principal on all loans. People who saved to put 20% down on their homes havem more incentive to keep paying on their loans if they continue to have an equity stake. And such a move would have been fair across the board, benefitting good and bad borrowers alike. Unfortunately, the banks are still in denial as to the scope of the problem, and balked at such an idea.
To date, there have been about $300 billion in writeoffs and reserves by financial institutions on real estate loans. From what I have seen, the real number should be over $1 trillion. As of today. The longer the problems persist, the worse property values become and the greater the write downs in the future.
When a borrower has just seen their equity evaporate overnight, they reach a point where they must ask themselves whether continuing to make payments on something worth 20% less than it was yesterday is really a smart thing to do. There is a limited opportunity for a real tax benefit to do it now - not having any deficiency counted as income to you is a strong incentive to take the deal.
Canseco is not alone in what he did. we are seeing more and more people decide to cut their losses and move on. People, I might add, with excellent credit up until now.
The financial industry is not being smart here. They are waiting for the inevitable to happen rather than trying to get out in front of the problem. And the problem is one that will spiral downward, taking all levels of real estate down with it. If that happens (and it looks like it has already started), entire real estate portfilios will have to be “marked to market” to reflect the present value of the portfolio. With a 20% drop in values already a fact in some areas, a similar decrease throughout the country means 20% of the value of entire portfolios may have to be taken as a loss by the financial institutions holding them. And that will make the present mess look like a loose change.
#22 CHECK IT OUT!
I appreciate your good intentions in providing this explanation, however, I have a few comments.
Um, we know he’s not alone. This is why many of us are concerned.
Also, did these people have excellent credit because they felt that it was in their best interest to have excellent credit? Or did these people have excellent credit because they felt compelled to repay their creditors as they’ve promised?
I remember when people had too much pride NOT to repay a debt. They didn’t need a legal or credit rating reason to do it.
Who’s waiting? Can you provide a specific example? All the big banks I know are “marking to market” the mortgage bonds they are holding. In other words, as these bonds are traded at 40% of their stated value (for example), the banks are declaring the appropriate loss.
There are many that think this approach is too conservative. Such critics claim that the bonds are worth more than 40% which means that the banks should be forced to declare such a large loss.
However, the critics can’t back-up these claims because nobody knows what these bonds are worth. In order to estimate their value, one would need to look at 1,000 different mortgages (for example), gather the information about each mortgage, analyze each mortgage, assign a value to each mortgage, and tally up the values. This process would need to be repeated for each bond held. If the bank holds 1,000 different bonds, then this implies the need to collect the data and analyze 1 million different mortgages. This would be difficult to do even if the information on mortgages could be trusted (which it can’t).
This is simply not true. These aren’t portfolios of equity interests - it’s debt.
If someone owes me $100,000 on a $200,000 house, I won’t write down the value of that mortgage just because the house loses 20% of its value (even if the borrow stopped making payments). I should still be able to sell the home for $160,000 (or liquidate it for $140,000) and have plenty left over to cover the costs. I may even be able to return some of the proceeds of the sale to the borrower.
Foreclosure listings are only a minor reason for the real estate price declines.
Thanks Soap, I had to run an errand.
Wish I could shed a tear for him, but it ain’t happening. Nor will it for the rest of the beautiful people, their wannabe’s, and the dead beats who thought they were cashing in on a great deal when they knew they couldn’t afford the houses regardless of the conditions.
Bail them out? Screw that…
yeah I have one of those as well. Too bad Beckett’s says its worth exactly….squat!
My Michael Jordan rookie card is doing good though
Hmmm… forgot this was California, and he had been through a divorce there.
Pretty standard (happened to my brother) was when the family home is given to ONE spouse to live in, but when it sells, they split the money… bet thats the “judgement” against the house he’s talking about…
He was paying for the house… and was living there, but only really had half ownership even AFTER the mortgage… add in a value drop? (average Calif home has decreases 29% in the past year)… he would have paid almost THREE TIMES what he could realize from selling the home…
Got your back spo!
I live in California. I’m saving mine to pay the tax hike we’re going to get to pay off the $20 billion the Democrats ran up with no money to pay for it.
It is that kind of “conventional” thinking that contributed to this mess in the first place.
Yes, they are debt portfolios. But that debt represents a portion of the equity in the value of the property secured by the debt. These are sevured, not unsecured loans. The underlying value of the security has a direct impact on the value of teh debt.
Youe example of a $100,000 loan securing a $200,000 debt is really a red herring here. There are few 50% LTV loans out there, and in my example a 20% decline in real estate values would still leave a borrower with 30% in equity; ample reason to protect their interests.
Most of the loans on the market today are 80% LTV and above.
You are also seriously understaimating what is costs for a bank to foreclose, maintain and resell a piece of property. An analysis we did several years ago showed the average all in costs were over 30% of the property value on a conventional loan. Any otehr figure thrown out there does not include ALL costs and expenses. Plus, you’re in a declining market, where values keep dropping. Inventory is at al all time high, and the holding periods for foreclosures are now well beyond the traditional norms.
Finally, while I have seen subprime bonds written over 20%, I have not yet seen anything close to those figures on conventional loans. A 40% write down would surprise me because (1) the SEC rules don’t allow you to be “conservative” and (2) any independent public accountant will force you to base your work on data from prior quarters and not will allow you to take a write down that cannot be justified by historical figures. Unless of course, you are dealing with a financial institution that has a 40% loss experience, which I would expect to not be long for this world and likely have a “going concern” disclaimer in its public financial statements.
Even a stopped clock is right twice a day.
Too bad, the bank should be able to make a profit since they put up the money. Though in reality the borrower would have sold, not let the bank foreclose.
The whole argument between dakine and corkie show the difference between the moral and immoral. Just becuase it’s legal doesn’t mean it’s moral.
Scientology rejects the moral so that if you can twist the law your way, you’ve done nothing wrong. I can see why that would appeal to the Hollywood set.
Moral people were brought up to believe that how you fulfill a promise reflects on your character. Failure despite your best efforts is no disgrace. Walking away because it’s hard shows low character.
In the past there were dire consequences to breaking a deal. Liberal policy takes away consequences so the only thing keeping people honest is their own conscience. Conscience comes from morality; Morality comes from God.
KaosKlerik, you articulated this perfectly. Thanks for picking up my slack.
I’m with KaosKlerik. Well stated.
Funny… I learned morality from my Parents… and the society which raised me.
/looks around quickly…
Nope… no bushes on fire at my house… (of course, we still have global warming on the ground from yesterday…).
On May 2nd, 2008 at 4:44 pm, KaosKlerik said: #108
Bravo!
Give lgm a break. It took alot out of him to get one thing right!
No it’s not. It was the layering of leverage applied on top of the mortgages.
That might be the current average loan profile at the time of origination, but it’s certainly not the average mortgage being held.
I’m not underestimating anything. I’m very up to date on foreclosure costs.
Did you mean, written DOWN over 20%?
First, I didn’t limit my example to conventional loans. Secondly, yes, I have first hand knowledge of mortgage backed bonds trading at 40% of face value. This is due to the layering of leverage that I commented on above.
1. I didn’t state 40% write down, I stated 40% of value (a 60% write down).
2. Um, most auditors force you to base your bond valuations on market prices (you know, like publicly traded stock prices).
In other words, if I hold 100 shares of GE stock, which happens to trade down to $4 at the close on June 30th, I can’t convince my auditor that my book should be worth more than $400 even if the shares are undervalued. However, I have seen auditors sign off on special valuation methods for nuanced situations.
3. The critics are arguing for a rule change to this. The federal government has already forged new ground with respect to this crisis. While I disagree with the proposal, it wouldn’t be unreasonable for someone to lobby in favor of a few additional changes or allowances (with respect to GAAP in this case).
1. Um, a financial institution might lose 60% of its value in one assets class without losing 40% overall. Most have diversified holdings. A blended loss might only result in a few percentage points.
2. Would you like to know the number of publicly traded companies received a “going concern” this year????
3. Why wouldn’t they be long for this world? Just because they took a one-time write down? That doesn’t make any sense - especially if they still have a healthy balance sheet and cash-flowing business. Think about it.
4. You do realize that most of us don’t care what auditors think, right? Sure their opinion matters - so does the video store guy that assesses a late fee on your returned video. Sure, the unsophisticated supplier or investor might worry about an auditor’s statement.
corkie
It would be helpful if you stuck to what I wrote rather than what you are reading into what I wrote.
No sense arguing with you about it, though, since anything else I write will be twisted around to suit whatever point you are tyring to make here.
I’m sorry if I missed any of your points. It certainly wasn’t intentional. And I didn’t mean to twist anything. My regrets if I did.
“As California goes, so goes the nation.”
What!?
The law should allow the bank to go after every cent owed in a blatant case like this - a few of those and folks would start to accept responsibility for their actions.
Two words: debtor’s prison. That’d solve it.
Just thought I’d add that it is these deadbeats who are losing their homes and moving into the rental market who drove my rent up $50 a month the last time I renewed my lease.
I’m saving up and when I build my house it’s going to be a bungalow with two bedrooms, a bathroom, and a kitchen/living room/dining room. Small. Convenient. Affordable.
But you know…I’m single.
…and I’m going to pay cash.
What a jerk.
#48 Here are the details of the judgments against him:
The house already had at least one lien placed on it, from the Internal Revenue Service, and a judgment stemming from a 2005 court ruling in which Mr. Canseco and his brother Ozzie were found liable for a 2001 brawl in a Miami Beach nightclub. Together, the liens and judgment totaled some $1.3 million, according to Mr. Emerson and Tina Cameron, Mr. Canseco’s real-estate agent.
Source: http://online.wsj.com/article/SB120969849943061691.html?mod=googlenews_wsj
Does not justify the move just puts it in context with his quote.
So now, not only is the bank screwed, because of the liens and judgement against the value of the house, but the IRS, the plaintiff from the brawl lawsuit, and possibly even his ex-Hooters ex-wife are all out in the cold on this. Jose is essentially saying “Everyone, go screw yourself because I ain’t payin’!”
There isn’t a hole deep enough he could be dropped in which would mask the odor he gives off.
On a bright note, my hometown Cincinnati Reds stomped the Oakland A($$holes) into the ground in the World Series back when Canseco was actually a threat to hit something other than a drunk in a Miami Beach bar.
Poetic justice? Karma? Who really knows.
“Inside Edition” treats this guy like a celebrity? Ha! My nearly 4-yo daughter has more celebrity potential than this cad! He’s a has-been trainwreck of personal and professional poor judgement, capped off with an ego the sized of a Peterbuilt!
Not someone worthy of TV-time… I knew there was a reason it’s called “the boob tube”!