Mr Mortgage: Mortgage Modifications Part 2 – Being Forward Thinking

Posted on July 4th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

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.

NON-PROFIT HELP

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

Mr Mortgage on Mortgage Modifications: You May Qualify!

66 Responses to “Mr Mortgage: Mortgage Modifications Part 2 – Being Forward Thinking”

  1. […] Mr Mortgage: Mortgage Modifications Part 2 – Being Forward Thinking […]

  2. I am looking at trying to get a loan modification and am trying to find the best way to approach, maybe we can come up with a “best practices” gameplan here that will allow us borrowers to approach their bank with confidence and the right information and approach.

    I am the typical situation here – FICO of 800, never any lates. Income has dropped since I bought 3 years ago in Orange County CA and I have just lost six figures worth of investment, from which I used the income for making house payments (80/20 loan) – now upside down on both home value and income vs. expenses. Have explored bankruptcy – and it would be a good option (chapter 11) for me except I hold a Note for $100K on an investment property, so that wipes any chance of a BK (which would also have helped with my credit card debt in addition to the upside down second). Other troubles include that my wife and 2 young kids love their “home”. It is not a “house” that can be easily walked away from for them.

    My steps so far, with many questions:
    Timing – should you approach before the trouble starts, while still current? I have my second holder saying they will not even talk to me unless I am late, wish I didn’t send in that last payment…
    Prepare hardship letter – describe situation and why/how it came to this for you. Include documentation for income and expenses and other pertinent facts/events. Should you use an attorney to sign off on the letter and put it on their letterhead? Will that give it more clout? Do the banks prefer to work with the borrower directly or a legal rep for the borrower?
    Know your property value – I would think you should get an actual independent appraisal in addition to researching comps and local listings yourself.
    Know the Bank’s value – Here is the art I am guessing. What will be the bank’s actual costs for default and foreclosure, including property liquidation – and how do you come up with a monetary proposal that will be mutually beneficial? Remember to account for depreciation and other financial changes in the future.

    It seems to me that this will be hit or miss – who is the lender, who are you talking to at that lender, what is the lenders position overall on modifications, are you approaching them at the right time, do you have your info well organized and thorough, etc.

    Let’s see if we can get a best practices here and maybe some feedback from people who have successfully negotiated a modification.

    Another Question: If you simply stop paying on your second, and they don’t file NOD – are you not still responsible for the debt and the lein on the property, and can’t the lender use the Note/Deed for recovery in the future? Maybe there is some time limit for the debt to become dissolved?

    Thanks all, this website is helping me prepare for this stressful situation.

  3. […] Other Related Mr Mortgage Stories Mr Mortgage on the Fannie/Freddie Crisis Mr Mortgage on Mortgage Modifications – Being Forward Thinking […]

  4. I agree with you Spike. There has to be a game plan when go after the mortgage companies. I have a similar situation since I have a 775 middle credit score, never been late on anything ever, and am $100k negative equity on a townhouse in Miami.

    Unlike most people out there…I CAN afford my payments even though I had to move to a different state and am paying on 2 properties. However, as more and more units go to foreclosure…and the banks scramble to sell them at huge discounts…they further the decline in the value of my own property. I hold no sympathy for the banks since they are the ones driving down property values with “fire sale” pricing. So I ask…what is the point in paying on a mortgage in a bubble state in a bubble area in a bubble type property (condo). Bubble bubble bubble…blah blah blah.

    So I am trying to figure out if I should make my payments and negotiate a modification or NOT make my payments and negotiate a modification. I am not sure how the banks will look at either on and it seems that they may take me more serious if I am defaulting on my payments.

    Any thoughts from anyone who has used Green Credit Solutions?

  5. always make your payments. Get hold of green credit for a free consult on what to do.

    http://getgreencredit.ml-implode.com/landing-mm.html

  6. […] Mr Mortgage onMortgage Modifications Part 2 – BEING FORWARD THINKING!  […]

  7. […] Mr Mortgage onMortgage Modifications Part 2 – BEING FORWARD THINKING […]

  8. […] Mr Mortgage onMortgage Modifications Part 2 – BEING FORWARD THINKING […]

  9. […] Mr Mortgage: Mortgage Modifications Part 2 – Being Forward Thinking ( […]

  10. […] Mr Mortgage: Mortgage Modifications Part 2 – Being Forward Thinking […]

  11. […] Mr Mortgage onMortgage Modifications Part 2 – BEING FORWARD THINKING!  […]

  12. I still cant’ figure out why, to the banks it is a business/financial deal, but to everyone else it is a “moral obligation”. BS. I am upside down, and I am looking at it exactly how the bank does. Do they keep a loser? No. Why should I. The days of “knowing your banker” and them working with you on a personal level are long gone. They are out for one thing. Their bottom line. To save it, the best way possible. That’s exactly where I stand. Why modify a mortgage that in the future would need further modifications. If you love your house, sure. But a house is a Liability, not an asset. Goes in the negative column. I don’t know of anyone who would hold on to assets that fall month after month, why is housing different.
    I took an 80/20 heloc. At what I thought was close to the bottom. Appraised 160k above purchase price. I am now over 100k upside down, plus the “160k”, which didnt exist. Stay?? I don’t think so.

  13. […] Mr Mortgage: Mortgage Modifications Part 2 – Being Forward Thinking […]

  14. […] Mr Mortgage: Mortgage Modifications Part 2 – Being Forward Thinking (63) Posted on July 4, 2008 11:17 AM […]

  15. Bravo stopthemadness. It’s so hilarious how the average j6p sees walking away from a bad investment (his home) as a ‘moral obligation’. Puhleeze. The Heb bankers who conjured that money out of thin air to loan to you have no qualms about wiping that losing investment off of their books AND getting a tax write-off from it to boot. We can’t even write off our losses on our upside-down homes if we let them get foreclosed on. How is that fair? I too am upside down and I bought in 2002. Thanks to the government not enforcing immigration laws and my town being ransacked by illegal aliens and all of the mess that comes along with that, values here are down an additional 20% over other localities near me where illegal aliens did not invade. I am biding my time like many others and will make my move when the time is right. All of you sheeple who see this as a moral obligation need to wake the F up and join the game that the bankers have been playing on us for centuries. The banks’ biggest fear is that one day j6p would figure that out and with any luck he soon will.

  16. How do I get a copy of the loan modification part I?

    Peter Dimond
    303.300.3414

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