First of all, Happy Independence Day. Despite the horrible, bloody, puss-oozing blemish the Investment Banks have left on our nation’s pride, I am still more proud of being an American and my family than of anything else.
My mortgage modification YouTube video and post really ‘touched’ some people. This is a good thing. This is what I strive for in this work. By and large, the largest amount of emails I get are for ‘help’ with their mortgage and ‘when will the bottom come’. I get hundreds of emails per week. This is why I decided to finally get behind mortgage modifications in the first place.
I see the type of borrower first hand who are upside down and feel helpless and hopeless. Believe me, these are not scumbags who ripped off a bank to get a loan. The majority of the help emails I get are from everyone other than the scumbags. The majority are responsible people who simply bought at the wrong time using a loan that a large bank or financial institution said was ‘safe’.
Many replies to my video and post were right in line with my thinking and support people being able to stay in their home without sharing upside with the Gov’t and not at the expense of the tax payer.
Some replies were negative, which is also great. Again, my goal is for everyone to think, discuss and come up with solutions together. However, I feel these people do not fully understand the gravity of the situation and who really is being effected.
Being forward thinking is key in understanding this mess. Talking about all of this is key because the only way we are going to navigate the murky waters ahead is for everyone to discuss and debate all options, share experiences and help each other out. For that I appreciate all of the responses.
Just remember when condemning mortgage modifications by banks, that those who stand to lose the most are not the people who lied on their loan app or ‘gamed’ the system. It is the good borrowers who did nothing wrong and due to the greedy nature of the investment banks/banks changing the mortgage and housing game for their personal gain, have been left in the lurch.
YOU MUST BE FORWARD THINKING
Remember, I was one of the original ‘doomsayers’ writing about and advising clients to ‘beware the great mortgage and housing meltdown’ and get short New Century and the other subprimes in Dec 2006, American Home Mortgage in Mar 2007, E-Trade in May, Thornburg in June, the monolines in Aug, the investment banks in Sept and Fannie/Freddie in Oct. I sent an email to everyone I knew last year saying ‘be prepared for banks to cut of the use of your home equity line of credit and if they needed the money for any reason pull out what you need right now depsite the interest hit’. This was before anybody even knew they could cut it off. It is all out there in cyberspace for the viewing. Much of my public research and analysis can be found at Karl Denninger’s Ticker Forum dating back at least a year.
My friend Herb Greenberg published one of his most widely read and responded-to stories in Dec 2007 saying…”even before this mortgage mess started, one person kept saying that this is going to get realbad. He kept saying this was beyond sub-prime, beyond low FICO scores, beyond Alt-A and beyond the imagination of most pundits, politicians and the press. When I asked him why somebody from inside the industry would be so emphatically sounding the siren, he said, “Someobody’s got to warn people.”
I am not posting my previous calls to blow my own horn, rather to add some credibility to my prediction of conditions continuing the worsen and the tax payer and home owner will ultimately be left in the lurch.
Now, you must be forward thinking about housing prices, the negative equity effect, banks collapsing the determination of the Fed, Washington and Wall St to keep it all together at all expense. At your expense. Look what they did for Bear Stearns and they were a small player compares to many who are in trouble now.
There are millions of people who are perfect A-credit borrowers, have never missed a payment, are in a negative equity position and who will default or walk away in the future due to it. Due to the banks offering loan products to people who should have never had them in the first place or giving bad loans to people who should have had good loans, these borrowers will lose their homes to the bank or future appreciation to the Gov’t and tax payers will accept much of the burden.
Remember folks, I have the data. The Prime and Alt-A borrower default rate is now spiking as subprime defualt rate is leveling off. I have told you this for three months. This means the ‘subprime implosion’ is now ‘the mortgage implosion’.
Factoid: In CA in May, banks took back 26k homes and 74k nationally. Trust me, they do not want your home too. They are eager to work something out if your present mortgage or equity position is presenting a ‘hardship’ and there is a chance you may default or walk
This is not necessarily because these borrowers lied on their loan app or got into a loan they could not afford. Many of these defaults are because their home has lost 50% of its value on the last 18-months and their American Dream has been dashed. To protect their family and save money they are walking away, perhaps choosing to rent for half of what they pay for their mortgage. These are not bad borrowers. That isn’t right.
Good borrowers who put 20% down, went full doc and make their payments every month are being destroyed by crashing values. This is primarily who I am trying to help and who the banks are being very generous with when it comes to mortgage modifications. The borrower who could never afford the loan in the first place and can’t afford it now will not be eligible for a mortgage modification. Remember, banks have a responsibility to only give modifications to those who are willing and who can afford to pay back the debt. The banks want to keep these borrowers around paying a mortgage for years to come. Right now they are on their own.
BAILOUTS ARE COMING
Make no mistake about it, massive bailoutS are coming. It is the only way out of this mess. Why do you think BofA was so eager to take on Countrywide despite having nearly $80 billion in near worthless subprime, Pay Option and HELOC’s on their books? For their servicing and friendly loan officers at a branch in your city?!? Polease.
This $300 billion bailout being proposed is only the beginning. The bailout limits the banks losses and puts on the rest of FHA (the tax payer). What if in the future a law is passed making the banks exempt from all liability for the bad loans they wrote in the past? Then, you will have no choice but to either leave your home, keep paying absurdly high payments on a depreciating asset when you can rent for half the price or accept a nationalized bailout where you split any upside appreciation in the future with the Gov’t.
Everything they have tried in order to ‘fix’ the housing market thus far has failed. Now the ‘tools’ they are using are getting larger and more elaborate. $300 freaking billion for a subprime problem that by and large is over!?! Are you kidding me!! Remember, subprime defaults platued a few months back and are now flatlined albeit at very elevated levels.
It is now clearer than ever that unless you reduce principal balances or bring back the exotic loan programs home prices will fall much further. Defaults are surging and values are dropping faster then ever, even going into the summer selling season when values should be stabilizing or rising.
Should the banks compensate good borrowers, especially if they are experiencing hardship due to a borrower, who never should have been there in the first place, losing their home next door? In many cases it was the exact same bank who gave the bad borrower the defaulting subprime loan next door to the prime borrower.
Most everyone with a mortgage may need a bail-out in the future.The further home values drop, the more that will need assistance. But it will come at a great expense of all tax payers and home owners.
Right now is a special moment in time when the banks have too much inventory, they are being very generous, you do not have to split your future upside and the tax payer does NOT subsidize mortgage modifications. The banks and/or bond holders take the hit exclusively and more and more we are seeing the bond holders and mortgage insurers go back after the bank for losses. The liars and thieves can go to FHA or deal with the new Govt bailout and split their upside for all I care, but again this comes at the tax payers expense.
FHA SECURE IS NO SOLUTION
Oh sure, many will say ‘they should go get an FHA Secure loan’. Ok, sure. You tell a guy with a nice 10/1 interest only at 4.75% with 6-years left who is $300k underwater to go get an FHA Secure refi and have his payments double. I would love to hear that sales call. The following is from the FHA site– this sounds really good, ey? “With FHASecure, the lender will not automatically disqualify you because you are delinquent on your loan, and the lender may offer you a second mortgage to make up the difference between the value of your property and what you owe. ”
This makes no sense when banks will reduce your principal balance, your interest rate or both right now. FHA is telling you to go get re-leveraged with a first and second mortgage. It is cheaper to walk away and rent in most cases.
‘THE DOG ATE MY NOTE’ BAIL-OUT
The ‘dog ate my note’ defence is gaining popularity but only a few cases have ever been brought to trial and wiating for that could spell trouble. Believe me, if courts across the nation start telling trustees that they cannot foreclose because they are not the real owner of the loan, there is no real owner due to securitisation and the borrower gets a free home, there will be laws put in place overnight to protect the banks. This sort of thing would take down our nations banks overnight.
If this defence turns out in the end to be valid and accepted and you opt to do a loan modification now, you may not be eligible for your ‘dog ate my note’ bail-out down the road. But if it doesn’t pan out and you wait laws will be passed and other bail-outs put in place that surely protects the banks and you may have to split all of your upside after the bail-out you eventually opt for with the Gov’t. Essentially you are gambling with your home and net worth. A mortgage modification done right now has never been easier and carries no strings once complete.
I am under the belief, however, that in the end banks will have to take back everything that defaults for: early payment default (first 6-12 months depending on investor); fraud (self-explanatory); white-lie fraud (fudging income, assets etc on limited doc loans); and lender negligence (sloppiness, unauthorized exceptions etc). Defaults for these reasons alone could amount to 50% of all defaults…who knows. One thing is for sure, servicers are assisting bond holders and mortgage insurers in audits of defaulted loans in order to place blame off of themselves.
Hope Now said they have ‘helped’ 1.5 million people. Perhaps, who really knows. What I do know is a close friend called them as a test a month ago. I wrote about it. Below is the ‘help’ he was given. He also said the clerk was ‘obviously munching on hard fruit or vegetables while talking to him’.
-make a budget
-cut down on spending money for things that are not essential for living
-take shorter showers
-keep the AC/heater off unless it is unsafe to do so
-take public transportation
Other than this, most of what they’re issuing are repayment plans. In other words, temporarily forgiving the delinquency, then piling the fees and original debt into a bigger loan. In my opinion, a perminent mortgage modification is a much better solution.
So, guys there is your Gov’t help. I hope it helps and feel my advice is better.
For all these reasons, I remain a huge mortgage modification advocate. I know by the response rate of the YouTube video and post many need help but do not know where to turn. I am happy I was able to be of assistance. -Best Mr Mortgage