Here’s thoughts on Danish-style mortgages that expand on what I wrote in note [7] to Saturday’s AEI Subprime Danish: (nearly) Complete Annotated Transcript. I originally drafted a version of the following for some private correspondence, but on reflection thought I’d stretch a point on my "retirement" from active comment to share it with Doomers generally.
In the March 26th seminar, George Soros associate Alan Boyce described (from appoximately minute :06 to :36 in the transcript) his ongoing efforts to introduce Danish mortgage practice into Mexico, and outlined how it might be applied to the United States. Discussants describe with relish (e.g. around 1:36) how under the Danish system defaulting homeowners can have a deficiency judgment on their failed mortgage pursue them for the rest of their lives. One Danish bank president is described (around 1:31) as presently pursuing borrowers who defaulted in the Danish housing bust of 1991.
Strategies for implementing this in the US are also discussed (e.g. around :43, 1:36). The panelists think State level mortgage oversight would never allow for recourse mortgages, but that in the current crisis, federal standards could be forced through. Obviously a revolution in how the US Constitution works as profound as the currents that preceded the events of 1860-4.
The World Bank’s Olivier Hassler speaks (about 1:05 - 1:16) on his experience introducing Danish mortgage practice into Chile, and Boyce describes how his Danish / Soros joint venture is working to penetrate a variety of emerging-economy nations with the idea (around 1:49).
To sum up, it would seem that a lot of banks are looking at intensified control and exploitation of their middle-class customers in the US and beyond as a way to recover some of their recent losses. I find this very disturbing.
A big Doomish thank-you to Patrick, whose link to the Saturday post (with, again, a much better title) did a lot to popularize our new AEI Danish transcript.
Uh…. I think they can already pursue you for deficiencies post-foreclosure. I’m under the impression that the FHA & VA doesn’t, as a rule, pursue deficiencies, but other lenders do.
Now they’ll often take a big discount on the deficiency just to recover some money.
So I’m confused? How is this ‘danish’ system different from what we do now?
You borrow money. The sale of the collateral doesn’t cover it all. You still owe the rest of the money you borrowed.
Pretty straightforward.
You are right, deficiency judgements are allowed in most states. Those that do not, would be on “Purchase loans” only. When you refinance you lose that protection. Most banks do not pursue the deficiency but could. Deficiency is not sought for the simple logic of spending money to squeeze the turnip. Spending money to seek money from the loser seems perverse in US society.
The Banks could always go after the deficiency in case of fraud. It would be nice to see them go after the multi millionaire Preacher from the previous post that gave up the 21 homes
Yep, I’ve been waiting for a while now for banks to start pursuing the defaulting borrowers, esp. those that cashed out their equity and then stopped paying.
Seems like they’ve tried to avoid this so far to avoid getting cast any more as the “predatory lenders” than they already have been, but the call of the ca$h may eventually be too strong to ignore, and I for one have no sympathy for the people who cashed out their so-called equity for plasma TVs and Lexuses and are now failing to make the payments on those luxuries.