Countrywide/BofA – A Direct Threat to Borrowers & Shareholders
Posted on September 3rd, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
I am infuriated. You will not believe this story. This sure looks as though Countrywide/BofA has conspired to decieve a homeowner and shareholders. They are getting these borrowers at their weakest moment with a plan that is portrayed as ‘help’ but will ultimately lead to disaster. This is much worse than stated income, no doc and no appraisal loans were in the first place. WHERE ARE THE REGULATORS! If you can’t see this train coming down the line in 5-years you are blind.
For those of you who do not believe the housing and mortgage implosion will be around for years, here ya go. I can talk about subprime being the proverbial ‘canary in the coal mine’, default rates, loan loss reserves, max-neg caps, Pay Option ARMs, cure rates, capital ratios, write-downs, Alt-A, Jumbo Prime and the GSE’s faulty underwriting systems until I am blue in the face, but none of these things seem as overwhelming as this story. I understand and can quantify the prior list of threats. Countrywide has taken this to an entirely different level.
Meet The New Game in Loss Mitigation – Put it off for 5-years with 2% rates and 200% LTV workouts; make the borrower sign away their life waiving all future claims; then tell the shareholders it is ‘performing’. In 5-years this will bury the borrower beyond all recognition and force them into bankruptcy, but until then ‘problem solved’. WHERE ARE THE REGULATORS!
This is a true story that happened last week.
This borrower has an $800k Pay Option ARM obtained in 2005. They bought a $1.1 million home with 25% down. Last month they hit their max negative cap of 115% and their payment went from roughly $3k per month to $5k per month. The total outstanding balance with the accrued negative amortization stood just above $900k. The home is now a rental and the gross rents are roughly $3k per month. The borrower moved out a few months back and are now renting closer to their jobs. The home is currently worth $515k according to Zillow.
They called Countrywide for help. Boy, did Countrywide help…helped themselves.
Countrywide immediately sent them documents making the new monthly payment less than $1600 per month by giving them 2% interest only for the next 5-years. Plus taxes and insurance the new payment is magically around $3k per month. At the end of 5-years it returns to its original terms, which will be a fully-amortizing loan that must pay off within the remaining 23-years. At this point undoubtedly the borrower will default. This 5-year ‘deal’ is far worse than an original 100% 2/28 or Pay Option ARM ever was.
The borrower received the documentation on a Friday and had to have them back by the following Tuesday or the ‘deal’ would be rescinded. The borrower also had to agree to waive their rights against any claims against Countrywide in the future for any purpose. The borrower accepted immediately. Countrywide saved themselves by throwing the borrower under the bus. WHERE ARE THE REGULATORS! They are too busy blaming everyone else and not doing their jobs.
Essentially Countrwide:
- Refinanced a $515k home with a loan balance of $900k
- Put the borrower underwater by $385k in a pen stroke without recourse
- Stuck the borrower in a home that they can’t sell or refinance
- lured the borrower by using lo w monthly payments
- Hid an ultimate default and subsequent foreclosure
- Averted a 50% write-down and pushed out the loss indefinitely into the future
- WHERE ARE THE REGULATORS!
This is why homeowners should never manage their own mortgage modification. Investors should never listen to the banks with respect to their exposure either. Banks are in such self-preservation mode, you do not stand a chance. Typical home owners have such little understanding of the market, interest rates, qualifying ratios, banks thresholds, the consequences of their actions or even of their own household balance sheet that a self-negotiated mortgage modification will end up looking like the one described here. The consumer stands no chance. I am all for banks ’working out’ loans but this out of control. WHERE ARE THE REGULATORS!
For those of who who did not read my mortgage modification posts a couple of months ago or watch the Youtube versions, please review. It could save your financial future. -Best, Mr Mortgage
Mr Mortgage on Mortgage Modifications
Posted on July 4, 2008 11:17 AM
Posted on July 2, 2008 9:22 PM
September 3rd, 2008 1:53 pm
Oh My God!!!!!!!
September 3rd, 2008 2:10 pm
not sure i get what’s so bad about this?
caveat emptor, the borrower doesn’t have to agree to this if they don’t want to…sounds though like they got a decent deal from Countrywide. I assume you must mean that Countrywide is using this technique to hide bad loans in its balance sheet, not that they are screwing the borrower in any way? Or am I missing something?
September 3rd, 2008 2:36 pm
Jeeezus! That’s what I call “creative financing”. The bank just avoided taking the loss, the loan is now “performing”. And at 3%, the owner may actually cash flow positive on the house after PITI. The guys shoud collect the money for five years and move all his assets off shore. By the time it blows up, all they can do is demolish his credit.
But what a scam on the share holders!!!!They cant help but lose on this one.
September 3rd, 2008 2:43 pm
Caveat Emptor. I don’t feel sorry for anyone unless there’s an outright written misrepresentation. If you make a bad deal, suck it up.
September 3rd, 2008 2:47 pm
Ok, call me naive but if you gamble on a Pay Option ARM and make minimum payments and lose is it the banks fault?
And in this case it’s a 800k home! Ok, so I guess you’ll have to sell the H2 to cover the higher loan cost. Boohoo.
You should go bankrupt if you make bad financial decisions like this. They knew what they were getting into when they signed on the dotted line.
(I love your blogs MrM)
September 3rd, 2008 3:14 pm
Downward mobility.
Key concept.
Downwardly mobile.
Tony Buzan
September 3rd, 2008 3:18 pm
Wow…I’m speachless.
Recently I had a client who though he could get a better deal on a loan modification by doing it himself and he wound up with his interest rate going from 7.99 up to 10%. “But at least it’s interest only”. This guy screwed himself because he though he was smarter. You just can’t fix stupid.
Countrywide is pulling the wool over the client’s eyes. Placing them in a position where they are no longer eligible for the protection given them by the Mortgage Forgiveness Debt Relief Act of 2007 and giving them an ILLUSION of hope when there is NO WAY their home value will rebound in the next five years. What MANY of these homeowners SHOULD do in walk…plain and simple.
OR CWBC could give them a 100 year mortgage like the do in Japan and then attach a mortgage acceleration program onto it so it will pay off sooner. (Very LOUD Sarcastic sounds coming from my throat)
Instead they defraud the people and shareholders at the same time once again creating a bubble market and delaying the inevitable.
I say put Angello Mozillo in a Pair of Handcuffs, give him some astro-glide and put him in a cell with the biggest, meanest homosexual who landed in Prison because he killed his loan officer that gave him a Countrywide Pay Option Arm and let him have some fun for himself.
September 3rd, 2008 3:20 pm
What the banks are doing is converting purchase money loans into refinances.
Purchase money loans are non recourse: if the owner walks, the banks can’t sue the owner for the difference. If the owner has assets, he walks and keeps the assets.
But refinance loans are recourse loans. If the owner has sufficient assets, you refinance on attractive terms, and then if the buyer walks in 5 years, you can go after those assets, which had been untouchable previously.
So the owner thinks he just screwed the bank for 5 more years. The bank realizes they just screwed the owner, big time. They’ll only do this if the owner has sufficient assets. It’s not really worth trying to hide assets less than $10M. Anything you can do to hide them would be undone by the bank.
September 3rd, 2008 3:21 pm
It sounds to me that CW/ BOA helped this guy out. If they didn’t do what they did they would be forclosing now. At least this buys them some time and who knows…..mabe the value will go back up in 5 years…Sounds a little Drama Queenish to me.
September 3rd, 2008 3:22 pm
Sounds like the reason Mr. Mort doesn’t want borrowers to negotiate themselves on these mortgages is to drive the business to his own mort restructuring business partnerships..
Ya think.
September 3rd, 2008 3:24 pm
OK, please explain why this is a bad deal for the borrowers or shareholders.
1) ZILLOW is not ever an accurate meter for home values
2) The borrower and CW are gambling that in 5 years the property will be worth the mortgage balance – could happen
3) The borrower keeps the house – doesn’t let it go into foreclosure (which is better for the entire neighborhood as well)
Yes, this COULD be a bad deal BUT you nor anyone else will know until the 5 yrs is completed. This could end up being the best deal for the bororwer – he may end up selling the home in 4 years and accually make some money.
Think before you type and some blaming the lenders for trying to help clean up this mess!
September 3rd, 2008 3:32 pm
The realtors, sellers, mortgage brokers, loan agents are
ALL A BUNCH OF CROOKS
And the borrowers who undoubtably received their $800K MTA Interest only SIFA/SISA 80/20/100% loan with a banged up appraisal.
You can all go to hell.
Love,
A former mortgage loan fraud investigator who would love to refer you to the fbi.
September 3rd, 2008 3:36 pm
Nothing surprises me when it comes to USA banks. Illusion ? It’s not the first time and it won’t be the last. Will Koreans be buying in the company. It would be good stuff. Crooks are and banking no difference today. You can lump in governments too.
September 3rd, 2008 3:45 pm
Not buying this! There is still a huge cost to rewriting the loan. The loan is still garbage and has no more value than if they took a hair-cut and refinanced it. The lender/investor is still paying $$ for the funding of that loan. They would still be required to fund huge reserves for the eventual write-downs. The only alternative is accounting fraud, and that will be unlikely at BofA.
September 3rd, 2008 3:59 pm
I see the shareholder fraud. I don’t see how the homeowner is hurt. $3000 rent against $1600 mortgage for the next five years and credit not ruined before then? In the meantime the homeowner can go out and speculate away in real estate buying and flipping foreclosed properties expecting that five years from now the bank will offer him yet another deal. The economy and real estate will be screwed up for at least the next ten years.
September 3rd, 2008 4:05 pm
I agree with James, Put Mozillo in jail make him get raped up the *** just like he has raped many of us homeowners. Die Mozillo Die !!!!!!!!!!!!!!!
September 3rd, 2008 4:11 pm
all loans dont get that low of a rate… that is the lowest rate that i have seen most get 5% to 6% and they charge to do this flat $500.00
September 3rd, 2008 4:12 pm
Shame on you Mr. Mortgage. These people have a rental property so they probably own their owner occupied home too. How many homes have they owned? How many mortgages have they had and refinanced? You failed to mention any of this. It sounds to me like they knew exactly what they were getting into and are now looking to blame their poor financial decision (gamble) on the big bad lender. Boo who for them. They are lucky to get this 5 year bailout. If you go to Vegas and throw down all your money on black and it hits red guess what… you lose. You can’t go to the casino owners and say “that’s not fair, I really thought it was going to land on black, you need to help me out”.
There’s also a good chance they purchased and/or refinanced this as an owner occupied transaction when they did not intend to live in the property (popular type of homeowner fraud on these option arm programs). Also, Just because Zillo says it’s only worth $515 now (which is just an estimate at value) doesn’t mean that in 5 years from now it won’t have equity. A lot can happen in 5 years.
September 3rd, 2008 4:28 pm
Brant…exactly!!
September 3rd, 2008 4:36 pm
The banks are putting off the problem using these tactics now instead of addressing it, which will carry the crisis out even longer. The only reason CFC would do this is if they knew there was no hope whatsoever so lets deal with it 5-years from now. Perhaps by then, .gov will have injected $5tt.
Mamamortgage – the borrower moved out and is renting now. The home is a rental on which they receive $3k per month. You are making baseless assumptions. Shame on you. And even if you were right, who cares. The fact is they are pushing out the problem, lying to shareholders and not addressing the issue.
September 3rd, 2008 4:45 pm
Are you reading your responses? Great Deal for the borrowers! What’s the problem? Suck up the bucks for 5 years then walk away! So what about Countrywide/BOA hiding 0.5 billion dollar loss for 5 years?
Mr Mortgage you ask, where are the regulators? I ask, where are the honest hard working Americans I use to know? You all sound like a bunch of me first, take the money and screw the next guy. You all should be ashamed of yourselves and know that you deserve everything you are getting. Those of you that don’t see a problem with this work out, (ARE PART OF THE PROBLEM AND THE PART OF THE REASON THE US IS IN THIS MESS) not part of the solution of getting out of it.
September 3rd, 2008 4:47 pm
I wonder why do you worry about someone elses money?
September 3rd, 2008 5:00 pm
It’d be nice to see some proof of any of this…
Also, are there any mortgage lawyers in the house? Can we get their view on the legitimacy of this deal? It sounds borderline criminal…
Also, can’t Consumer Protection Agency possibly be useful to the borrower in a situation like this?
September 3rd, 2008 5:00 pm
This doesn’t sound like such an awful solution for anybody except BA’s shareholders, and maybe not even for them. If the people don’t have any assets at the end of five years and the home is still massively under B of A can theoretically go after their assets if they’re loaded, but is more likely going to take a write-down. During that time B/A doesn’t have to take the write-down and the owner gets a cash-positive house. After that period the house may be somewhere close to the mortgage amount, especially if inflation pumps prices up which seems a possibility, making the eventual charge-off less than it is now. It’s also extremely likely during that time BK rules will be rewritten by a Democratic President (they’d have to blow two elections for this not to happen) and the homeowner will be in a pretty good position to cram the negative equity down BA’s throat. This does seem questionable for the shareholders given BA, who now have a “performing” asset that’s secured by a property everybody knowns is worth a fraction of the note’s value, but BA shareholders know about the CW acquisition; they must assume this type of stuff is going on. Only problem I can see is if BA fails during this time and the FDIC or some other government agency has to bail-out either the bank or the homeowner.
September 3rd, 2008 5:01 pm
the recidivism rate following bank originated or non-profit mortgage modification is 50% just for this reason.
Jusy when people think that the problem is over all of these ‘screw the consumer’ loan mods will blow up keeping the housing implosion in the headlines for years longer than it should have been.
Due to the banks lack of transparency and inability to accept responsibility, the crisis of confidence has turned into a full blown credit market collapse that will screw everyone on this board right now no doubt.
By the way Jim T, the borrower cant walk away now. They signed away their rights and their loan is now a recourse loan despite being in a non-recourse state.
September 3rd, 2008 5:04 pm
Mr. Mortgage, how can a large group of us including yourself contact the regulators and demand a response? This should be published in the public eye.
September 3rd, 2008 5:04 pm
I was dumbfounded by your overall response. There are several parties to every transaction and in review of this you are nothing more than a politician crying foul when it doesn’t go your way. Granted as a company I do not like CW or BofA but this deal seems very fair. IF the customer is so perfect and they want to make good on a debt that they borrowed then if they pay the mortgage as if amortized for the next 5 years they will owe appox 785K which in 5 years could be very doable if the RE market rebounds at all and make money. Just think about this, if the going rate for an “A” jumbo loan now is 7% and they are only being charged 2% then they are paying approx 225K less in interest as opposed to a good customer in todays market. So skew it the way you politically want to skew it, BUT THEY GOT A DEAL!!!! otherwise foreclose on them today and we the tax payers and good customers pay for consumer greed and bank stupidity in doing pay option arms.
September 3rd, 2008 5:12 pm
i think they gave them a more than fair deal…2% is less than inflation…what else were they suppose to do loose 500k…they can either file now or later…
September 3rd, 2008 6:17 pm
Frome a UK/European point of view you would have to be pretty backward to see this as ‘helping out’. One must see the bigger picture in this…recourse loan…and…even worse future economy. It sounds more poisonous than the neg-AM loans.
What does happen if one defaults on this type of loan?
September 3rd, 2008 6:21 pm
Mr. M. I find this very disturbing. If I understand this correctly this is my take…
The homeowner is totally screwed beyond belief. They were on the hook for ZERO $ if they chose to just walk away. Too bad for them that they didn’t realize what they were doing when they signed that paperwork. Now they OWN OUTRIGHT the responsibility of the loan in full. 800K owed on a 500K home and they will have their pay checks attached to be sure. They now have one option left when the 5 years is up and only one… MOVE out of the country and start over. Canada would be the quick choice so you can visit friends and relativs easily. Seriously there will be NO OTHER OPTION for these folks. They will never have a dime to their name after the 5 years are up. Shameful, sinful and downright unthinkable that the banks will get away with this sort of thing. You know all of them will jump on this bandwagon in a hurry. It is a NO WIN for the homeowner and a HOMERUN FOR THE LENDERS!!!
I must agree 100%… WHERE ARE THE REGULATORS!!! More importantly WHERE ARE THE CITIZEN GROUPS!!!
September 3rd, 2008 6:24 pm
In this case the borrower got a great deal, these loss mitigation deals are being introduced by Fannie/Freddie and FHA and other private servicer’s in order to curtail foreclosures which they deem more costly and prevents reclassification of a loan out of an MBS pool. Had they introduced programs earlier they would have prevented allot more foreclosures and depreciation of property values. Mr Mortgage I don’t think your story has any merit for alarm, this is a win situation for the homeowners who have suffered circumstantial hardship, it’s the lack of loss mitigation creativity that should alarm regulators not the other way around.
September 3rd, 2008 7:12 pm
It’s indentured servitude.
Right when they could have walked away to start over, they signed up for slavery. LOL.
BTW, I just found this: http://www.bankingtimes.co.uk/09062008-central-bank-body-warns-of-great-depression/
How likely is this?
September 3rd, 2008 7:14 pm
…first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.
September 3rd, 2008 7:15 pm
Stu, ever hear of bankruptcy? Also, it’s very easy to avoid attachments for judgments, esp. if you have a few years to move assets around and by starting your own business your paycheck won’t be bitten into for you won’t have one.
September 3rd, 2008 7:17 pm
I’m not a fan of Option ARMS so I certainly will not defend them. But we are where we are and there isn’t an ideal solution when the borrower is underwater (he would have been underwater no matter what the program by the way – assuming the same LTV and normal payments). Nobody guarantees your home values are going to increase. I know mine certainly hasn’t and nobody has come knocking on my door to offer me a deal.
The way I see it, the borrower could lose the home now or gamble and maybe / probably lose it in 5 years. I’d take the gamble, but in that 5 years I would be collecting $3,000 month rent on my $1,600 payment. Over 5 years that is $84,000.00 … doesn’t seem so bad. I just fail to see how the borrower is getting screwed here. While not soley responsible, the borrower did play a BIG role in getting into this situation.
Now as far as hiding losses … I’m with you all the way, but isn’t that what they have been doing with Option ARMS all along – deferred interest claimed as income?
September 3rd, 2008 7:20 pm
No wonder the borrower took the deal. He can either walk away and ruin his credit now, or walk away and ruin his credit after 5 years of making $1,400 per month (before expenses) on his rental. He won’t be able to sell or refi then, but he wouldn’t be able to sell or refi now, either. Which would you pick?
And as for no-recourse, isn’t it true that it must be a judicial foreclosure to have any recourse for all those purchase-money mortgages that everyone says are no-recourse? That is what I’m told; an industry expert told me most people are misinformed that first mortgages are always no-recourse. (assuming California)
As for signing away any claims to sue CW, I doubt that would stand up. First, given the circumstances, the short deadline to sign borders on coercion. There are other reasons. But the borrower probably wouldn’t sue, anyway. He’d probably just walk away and declare bankruptcy if he needs to. I suppose you could say they forced him into all that, but personally I’d be more outraged if they wrote off his principal by half.
September 3rd, 2008 7:27 pm
OK wait I think I wrote it backwards. The refi loans that everyone thinks are recourse loans are actually NON-recourse UNLESS there is a judicial foreclosure. I wrote it totally wrong before.
September 3rd, 2008 7:30 pm
The main thing here is to avoid a write off and having to raise capital by turning a non-performing asset into a performing asset to buy time. Who wants to see bank of america go out and raise money when they take a write down on these option arms?
BOFA and Countrywide should be following the example by the FDIC taking the partial balance as Sheila Bair is doing for some indymac loans and forebearing it for 5 years.
The borrower should seek professional help such as an attorney backed modification service law firm that specializes in loan modification negotiations, such as my law firm and attorney at Mike.Naz@ModificationServices.com.
The clauses that are not good for the borrower can be requested to be removed and counter-offered, but if you want to stay in the home for a period of time – usually in california you buy and sell every 3 to 7 years, you can ask to revisit the situation in 4 years as a counter offer!
Who ever said that the first offer from the bank was a good offer? they are trying to mitigage their loss for the current quarter and fiscal year accounting and shareholders.
This stops the negative amortization and fixes the payments for 5 years and hopefully enough inventory will be removed by then and homebuilders in saturated areas will have become landlords collecting rent so that prices will have stabilized.
What I don’t see is any counter-suggestions as to what the borrower should do or what a good loan mod service or attorney could counter offer. Any suggestions from the modifiers out there?
September 3rd, 2008 7:38 pm
What we have here is the birth of the *Predatory Loan Modification Industry*…..to be prosecuted by the Eliot Spitzers of 2012-2013.
September 3rd, 2008 7:48 pm
I used to work for countrywide and have a buddy who switched from FSL which was the division that handled Subprime. He told me the pay outs on loan modifications was like payouts on subprime. I agree with NFITHR who said they signed the dotted line. Being a loan officer i understand there is a lot of paperwork but i personally wouldnt sign anything i didnt understand or read!
September 3rd, 2008 8:49 pm
Mr. Mtg and all,
Great reponses. Couple of points.
1) Recourse vs. Non Recourse state specific, don’t be so cheap go see an attorney. You are talking about several hundred thousand at stake.
2) Regulators to protect shareholders? Its a business decision by bank (owner of the debt) to take a business loss now or push it off. Happens all the time. Does the bank care about shareholders? Sure they do. Today’s shareholders not shareholders 5 years from now. Why don’t you scream about off balance sheet assets if you care about them so much?
3) Regulators to protect homeowners? Except for possible recourse issue, how are they in a worse position? Payments go down. They were going to walk anyway.
4) Isn’t the neighborhood, property values, gov’t tax receipts better off?
5) Lastly, did you come up with 1600 month at 2% i/o?
September 3rd, 2008 9:38 pm
WHERE ARE THE REGULATORS?
Please guys. We’ve been hearing the jihadi line that Government is the ENEMY, ad nauseam ever since Saint Reagan, and now that our governments have been COMPLETELY DISMEMBERED by hordes and mobs of illiterate anti-government zealots, you ask “where are the regulators?
Geez Louise.
Tony
September 3rd, 2008 9:50 pm
How can they rent the property at a profit? you said the payment went to 1600.00 and the rental is 3K? So they are making an extra 1400.00 monthly on this deal?
Where do I sign up for one of these?
September 3rd, 2008 10:01 pm
[...] Housing values continue to plummet, and the mortgage lenders are now starting to pull all sorts of shenanigans like this. After a quiet summer, it will be interesting to see how things shake out in the [...]
September 3rd, 2008 10:02 pm
you guys are wrong on the consumer side of this. People trust their banks. Just like they did when the bank gave them the 100% neg-am piggy back. ‘Hey, if the bank says I can afford it and they are going to lend me 100% on this home, they must think we can afford it and it won’t lose value. They are smarter than me’.
The average mortgagee has little clue about anything mortgage/housing related. I talk to John and Jane Homeowner every day. I get 20 ‘help me’ emails per day through the website from all walks of life. But mostly from great borrowers who did everything right who bought at the wrong time, bought using the wrong loan or bought near the wrong neighbor.
September 3rd, 2008 10:06 pm
RT:
1) you are right, which is why I always refer people to http://www.GetGreenCredit.com . The real stories coming out of there are incredible.
2) this is another example of what turned a ‘crisis of confidence’ into a global credit crisis that is putting the entire financial system at jeopardy. These banks need open the kimono in order to begin to rebuild faith in the system.
3)Yes, but they could have walked on a non-recouse loan and been done with it. Now, they will be foreced into bankruptcy 5 years from now.
4)No, its better off for this market to find a bottom as quickly as possible. You are seeing in living color what putting it off does.
5)$900k at 2% IO is a little less than $1600 per month.
September 3rd, 2008 10:08 pm
True that – most had no clue what they were doing- and obviously still don’t. Are these people planning on keeping the house? and again how do they get to use the property as a rental and get 1400.00 more monthly. its like an investment now.
September 3rd, 2008 10:12 pm
You ask the question “Where are the regulators?”
My answer would be that they are in the banks pocket. Everything in the finacial system seems to be run by criminals that the law protects. Include the Fed in all of this. Bank CEO’s collect big bonuses with the help and protection from their political allies. Stuff like this goes on and people who are supposed to be the watch dogs are looking the other way. Case in point…Chris Cox. Time to wake up people.
September 3rd, 2008 10:16 pm
DING DING DING – WE HAVE A WINNER!
September 3rd, 2008 10:19 pm
What “completely dismembered” government are you referring to? The one that has grown over 50% in federal spending since W took over, or the one that is 3 to 4 times larger than when Reagan started? Republicans (and Democrats) haven’t “dismembered” anything, except the taxpayer (and his children and grandchildren.)
September 3rd, 2008 10:27 pm
I agree, but again WHERE are the citizen groups, the special interest, the support for the REAL middle class???
September 3rd, 2008 10:36 pm
I’m with you there Stu. I cannot understand why there has not been a total public outrage..protest etc. It seems people have become complaisent or maybe just have plain given up. You think in light of what has transpired over the last several months that the anger level would have driven the public to the streets in groves. Maybe I’m stuck in the 60′s?
September 3rd, 2008 11:07 pm
Many who are on the side of the lender are saying ” a lot can happen in 5 years and HOPE the value of the house will start to appreciate within these years. The owner may even get to sell his house at a profit”. NEWS!! NEWS!!! IT ISN’T GOING TO HAPPEN!
Isn’t there an oversupply of houses already? Mr. M says we will soon see a massive DUMP of more houses into the market (check his Youtube “the Quickening” ). The $515K house that was just re-financed might turn into an upside down loan (AGAIN!). The depletion of house supply won’t disappear any time soon and from what I remember of my economics 101: Supply up, price down and…. you know the rest of the story.
Hypothietical (VERY VERY CONSERVATIVE (lol):
2 years for prices to stop spiralling down .
1 year for market to breathe and prices starts to stabilize. NOT price increasing but STABILIZE.
That leaves 2 years for the 515K refinanced house to rebound back to 900K. Hmmm… wouldn’t that house be worth less during this first 2 years of unstable downward spiral of prices? That could realistically mean the house has to double in value within 2 years!!!
Any one see that happen lately!!!?..HAHHAA..oh yeah, I forgot. It was during the real estate bubble we were just in.
Can we see that real estate bubble reappear, for the house to double within 2 years? It COULD happen! LOL
In 5 years time, we are right back at the beginning where we started from with this housing crisis. The only thing different this time is, the owner is stuck with the debt which he can’t get out of.
September 3rd, 2008 11:29 pm
Isnt this kind of the same way the Japanese handled their collapse after 1990? Keep pushing out the real problem with creative techniques to avoid judgement day. Look where it got them.It seems like we’re headed down that path with tricks like this. But in our case, we dont have a lot of stuff people want.
September 3rd, 2008 11:31 pm
I take that back. I think the Chinese would love to get their hands on many of our natural resource companies. Last time I heard, they were keen to get supplies locked-up over the long term.
September 3rd, 2008 11:37 pm
Mr Mtg,
5) $1500 mo., whats a hundred between friends
4) Is it better? be careful what you wish for using law of unintended consequences.
3)you may be right,
2) Is that a samuri sword under your kimono or you just happy to see me? Kiding, if investors really knew alot of companies might have to commit hari kari with it.
1) as much as people typically have distain for atty’s where do they and should they turn when they are really in a pickle?
September 3rd, 2008 11:39 pm
I really disagree with the “poor widdle homeowner getting taken advantage of” theory. Again and again we see the downright treachery of borrowers, whether it’s lying to get the loan in the first place, walking away from that loan even though they can afford it, doing a buy-and-bail, or a phony short sale to a family member, they continually find every way they can to seek their own self-interest.
I agree there are some people who are naive and too trusting, but they really seem to lack basic brains. If they can’t understand the loan or if they smell a rat in the transaction, to go through with it anyway is pretty dumb.
September 3rd, 2008 11:39 pm
where is the intelligence of those who comment regarding the possibilty that the home value in 5 years may appreciate dramatically from current levels? don’t you realize the securitized mortgaged backed products that produced the bubble inflated home prices have been dismantled,destroyed,done away with,etc..underwriting standards for new loans have returned to the 50′s…it takes money to push up home prices and the money is gone, period!! Mr. Mortgage is totally correct in expressing his outrage “where are the regulators”!!..if you can’t connect all the dots without someone spoon feeding you don’t bore us with your ignorance..
September 3rd, 2008 11:51 pm
What’s wrong with this? This borrower opted for the neg am and made the minimum payment, they should consider this a gift from CW. I do not feel sorry for them one bit, they knew they were making the min payment. Instead they should thank CW for the negotiation.
September 4th, 2008 12:26 am
The other hidden cost is foreclosure. If the original loan was non-recourse purchase money, the owner could walk away if necessary without a significant future burden. The new “worked out” loan is all recourse, and the borrower is on the hook for the entire amount.
September 4th, 2008 12:55 am
I am so tired of borrowers not taking any responsibility for their choices and the lenders get blamed for everything. This borrower made a decision for this price of home and type of mortgage and chose to make the lower payment. Paying only $3k a month for a $800k loan? They certainly werent complaining then. I wish my payment was that low and I dont even owe that much. If they didnt have this type of mortgage they would have had to pay the full payments but instead they deferred it by choice so their balance went up. Now they are crying because the home is not worth what they thought it was. Countrywide is obviously trying to work with them and give them an option for 5 years to give the borrower and the market more time. So, someone please tell me WHY this is unfair to the borrower? Do we all think that the lenders are so rich and flooding with money that they can take it in the shorts by hundreds of thousands of dollars on every borrower? Does anyone realize that the more borrowers bail and do not take responsibility for THEIR decisions lending will tighten up more and banks will fail? Is that what we all want? Should every borrower be so selfish to go back on their commitment at the expense of banks and every other borrower? This is a viscious cycle which will only turn around when borrowers MAKE the payments they commited to make. If the market does not change and they cannot sell the home, they need to keep the house they purchased and make the payments long term. If they cannot and this home ends in a foreclosure it is not the fault of the lender. Maybe it is the borrower who should be regulated and take a Budget 101 class.
September 4th, 2008 12:57 am
I think another thing that everyone is forgetting is that the current offer from BofA/CW will state that if the home should appreciate anything above and beyond what the new loan was written at will go directly to them and not to the borrower when and if that time should come. Yet another attempt to pad their pockets for their generous offering…hahahaha BofA/CW also know from their regulator and gov’t. golfing buddies that an imminent bailout is coming and the Fed Reserve money machines will be pumping so much money their way that this will all be irrelevant except to the tax payers like you and me. The quicker that everyone learns and understands that the banks, regulators and politicians are all in bed together, the better off you will be!! Stash your cash in your mattresses because your bank could be closing soon.
September 4th, 2008 3:07 am
so we have a pay option arm that every broker and banker was able to originate. Did you do your home work and find out who actually put them in this loan? Did Countrywide originate it or are they just servicing it? My guess is it came from a broker. I would say just becuase you have the program doesn’t mean you use it. I still can’t believe people still don’t go after the person who did the loan. Why did you put them into a loan that could potentially go upside down. Not to mention the broker that did this probably made a huge amount of money.
Your infuriated……
September 4th, 2008 3:18 am
Mr. Mortgage,
Congress passed a law that says “original purchase money loans are non-recourse for income tax purposes”.
In California, original purchase loans, both 1st and 2nd, are non-recourse.
Once you re-finance, you are in a ‘recourse’ situation. That is, the bank can go after your other assets.
The ‘Hope Now’ alliance, Countrywide’s modifications, and all the public programs are designed to create debt slaves.
If your mortgage does not work, take your loss and WALK!
If you modify and your financial position worsens, you are TOAST!
September 4th, 2008 5:27 am
I thought Countrywide was bought out by Bank of America. Does this mean that Countrywide is still in business or that Bank of America is condoning this practice?
I would guess that Countrywide also rolled a few thousand dollars into the restructure deal in points, appraisal fees, closing costs, etc. Pretty good scam if you ask me!
September 4th, 2008 7:46 am
The borrowers payment is dropped by 50% and they have a 2% rate – hmmm- why wouldn’t the borrower still make their payment of $3000 (original) and pay down balance? In 5 years, refinance or sell. Let’s look at big picture and ALL options.
September 4th, 2008 7:51 am
Very Good Blog. Indeed. I think its a must visit for all concerned people. The fact is most people don’t WANT to read facts and they believe “other” guys who have been presenting a greener picture always. Efforts like this are necessary to educate people about the real picture (which may not be that much green)
September 4th, 2008 8:12 am
Well, I dont think we’ll have to wait 5 years to figure out how this will play out.
As RE prices decline further (another 30% to bottom?) and possibly millions of homes becomes vacant,
there will be _incredible_ downward pressure on renting prices.
Unless the owner are locking in a 5 year deal here, the renter will most likely move within 2 years,
choosing another cheaper house at better value.
I predict that this house will be vacant in less that 2 years, unless they lower their rate…
So a $1400/m income today, could quickly be a $1600/m expense.
BTW: How much would you guys estimate maintenance, tax etc on a house this size? (must be factored in IMO)
September 4th, 2008 8:39 am
Screw the homeowner since they probably had every intention of only making the minimium payment. Nasty little secret about the PAO is that many people were qualified at fully amortized payment. My feeling is that the schmuck of a homeowner lied about his income to begin with.
September 4th, 2008 9:14 am
Who cares John – it was a Countrywide Pay Option whether it was retail, wholesale, bought on flow or in bulk. Fact is this is a Countrywide proprietary POA and other than bought in bulk, Countrywide underwrote the loan.
Everyone is forgetting that borrowers are dummies when it comes to mortgage finance. The vast majority do not know there are two t’s in the word. (I love that joke).
Most consumers think “Hey, if the bank says I can afford it and they are going to lend me 100% on this home, they must think we can afford it and it won’t lose value. They are smarter than me’.
The average mortgagee has little clue about anything mortgage/housing related. I talk to John and Jane Homeowner every day. I get 20 ‘help me’ emails per day through the website from all walks of life. But mostly from great borrowers who did everything right who bought at the wrong time, bought using the wrong loan or bought near the wrong neighbor.
This borrower put 25% down guys. That is as ‘a’ paper as you get. They never should have bought such as expensive home is all but they were told by CFC they could afford it. Which they could on a POA with 25% down. This borrower told me for a year they had a 5-year fixed. That is how ignorant most borrowers are.
By the way, their $515k home is likely going to $350k before all is said and done over the next few years. I know this area. From there unless prices rise 150% per year they are hosed.
September 4th, 2008 9:55 am
I believe you are making wayy too much of “recourse” in California. Except in very, very unusual circumstances, lenders will never obtain recourse to a borrower despite what their loan docs say (recourse, guaranty, whatever).
CA has a one-form-of-action rule that limits RE secured lenders to one path of collecting on a loan. That means a lender can pursue either a judicial or non-judicial foreclosure. Over 99.9% of all foreclosures in CA are non-judicial (file NOD, file NTS, Trustee Sale). The non-judicial process is relatively short and certain – it takes about 6 months from start to finish, and the lender get a clean title to the property that they can sell.
To pursue recourse against a borrower (or a guarantor), the lender needs to pursue a judicial foreclosure, and then seek a deficiency judgement. Judicial foreclosures are like pursuing any other litigation. Expensive, time-consuming, and usually fruitless. The lawsuit will take a couple of years, cost the lender at least several tens of thousands in litigation costs, and assuming they win, here is their booby prize – they get to do a battle of experts for their deficiency judgement. Bank says its worth X, borrower expert says its worth 2X, court splits the baby at 1.5X. Meanwhile, the house is sitting in receivership for a couple of years. Neat.
In CA and other one-action states, I wouldn’t sweat recourse. Consult an experienced lawyer.
September 4th, 2008 10:09 am
There is a bigger picture that a lot of people who are commenting on this board are failing to realize… Screw the loser who speculated, it is their financial issue to deal with in a few years for being ingnorant. Well … their issue is going to affect YOU and become YOUR issue, too. You say that this borrower got a fair deal? It just carried out the issue 5 more years – 5 MORE YEARS. These “DEALS” are taking place right next door to you in your neighborhood, your community. This is going to IMPACT you! It is going to impact YOUR property values in 5 years and all programs in your community that rely on real estate taxes for funding. Why? Because this will turn into a foreclosure and the bank WILL NOT recoup any money from the borrower due to bankruptcy, which passes the cost on to you through interest rates. Prices continue to spiral out of control based on flawed lending practices. You don’t think that deals like this will continue to move this market down? I am so tired of heariing people bash borrowers – they lied, they are speculators that get all that they deserve, etc, etc, etc. Every loan product that was ever sold was approved by the bank. The system was rigged so that the banks could produce as many loans as they could because of the $ to be had at the top regardless of the so called qualification guidelines that were really never used. These banks knew, KNEW these people would never be able to afford these stucco boxes based on simple mathmatics. Look at what this has done to our broader economy – we’re toast right now.
September 4th, 2008 10:59 am
Great post Carrie- you are exactly correct.
Oldtimer – you are very correct. CA in a non-judicial state. To chose the judicial route, it could take two years. Banks won’t do it.
September 4th, 2008 11:02 am
This mod was done by a family that works for a business associate of mine. I have seen the docs. I will get the docs for any regulators who may want to investigate this.
If you want to get something similar go to Green Credit Solutions. http://getgreencredit.ml-implode.com/landing-mm.html
September 4th, 2008 11:08 am
The problem is that the person couldn’t afford this house to begin with, why extend the misery? What ever happened to telling someone they don’t qualify?
How can someone with 50K in paystubs (probably not so in this case just making a point)get a 800K home? Because someone allowed him to lie, instead of proving it-he knew he was lying and so did the lender, thats the fault of the mortgage business.
The lenders and all else involved allowed the lying because of greed. One big circle of greed, all eyes were watching it happen and did nothing about it.
These people are just delaying the inevitable, they will be the next sob story on Dr. Phil.
September 4th, 2008 11:22 am
Useful info regarding recourse and non-recourse loans. The lenders are just getting started with recovering their money and many people will learn the hard way that they are slaves to the debt…
http://activerain.com/blogsview/618973/Recourse-vs-Non-Recourse
September 4th, 2008 11:55 am
So if these kind of lending/remortgaging practices are going to delay any chance of recovery, what is the point in owning?
What will be able to stop this giant snow-ball? How many years back will prices drop to? It is clear that the banks know something we (borrowers) don’t.
Why would the lenders keep this crap up?
What is the agenda here?
I was kind of joking with the whole indentured servitude / debtor’s prisons comments. But maybe it’s not?
September 4th, 2008 12:14 pm
Wait one minute! The borrower knew what the original terms of the loan were when they signed up for it, and they knew they couldn’t afford the payment when it adjusted! So, don’t they accept some responsibility? Don’t forget the banks are in business, and employing people as well. Do you or anyone else work for free? The way I see it, we have two choices; stop all work-outs, modifications, and short-pays completely, foreclose them all fast, and get on with it, or, do what CW/BofA did and allow the borrower to stay and pay, and hope the next 5 years will allow them to earn more money or see enough market improvement to allow them to refi or sell. Which is better? One more point; if you want to stop the tide of deadbeats walking away from the loans “they can afford” (because that is happening too), let’s make California a recourse state. Either they are totally financially ruined, in which case they can file Bankrupcy, or they should be responsible for the loan they signed up for. Maybe this “shake-up” (unfortunately at the expense of those of us who pay our debt and always have vs. those of you that file BK every 7 years… you losers), is what society needed. I’m really sick of all you over-spenders blaming the banks (and everyone else), for your poor judgment and financial woes. Stop living beyond your means, and go to work for a change.
September 4th, 2008 12:17 pm
It’s a mixed bag, you cannot just make claims that borrowers got into homes they couldn’t afford. There are plenty of folks who bought homes they could afford then watched them drop in value by more than 50%. It’s at that point when it becomes everyone’s problem when homeowners make financial decisions that will affect their lives for the next decade. EVERYONE drank the koolaid, and some still are, thinking that the home appreciation that occured was real. It wasn’t, welcome back to reality, it’s a mess. This CW deal stinks, banks are running scared. But one thing is for sure, EVRYONE will do what is in their best interest – banks, borrowers, everyone.
September 4th, 2008 12:27 pm
The banks are trying to smooth out the volatility of their earnings (sharpe ratio) and are pushing for the govt to backstop the losses. Buying time this way artificially smooths out the earnings and allows them time to pressure the govt to step in. The banks are also effectively turning a cost center (the legal department) into a revenue center (figure out a way to use the law to make money by twisting the rules and finding loopholes). The basic principles of finance are in play here, NPV and IRR along with cost center vs. revenue center. If I am an executive I want to minimize cash out and increase cash in while managing the time line as well. Smart executives at banks use the rules like a big chess board.
September 4th, 2008 12:36 pm
I’m afraid it’s going to take 10 years for all this crap to work through the system. Then we’ll be right in the middle of retiring, downsizing baby-boomers. What a shame.
September 4th, 2008 12:37 pm
Mark C. The problem is that the banks wanted all the upside and are trying to push the downside onto the individuals and taxpayers (beyond the original terms).
I am all for people taking responsibility and that includes the banks. Why is it ok for the banks to claim “free market, no regulation” when it works for them but as soon as things go south they want the govt to step in and bail them out. Aren’t these wall street types the ones always advocating smaller govt and no regulation? Then why are they trying to get the taxpayer to bail out all this nonsense. I am a true free market advocate in that I think the banks should be on the hook for their mistakes. No govt bailout, no modification. No more increased taxes to pay for the executives parachutes. Free market is free market.
September 4th, 2008 12:57 pm
His payment went from $3000 to $5000. This means he was able to pay $3000 every month but cannot afford the higher $5000.
His rental income is $3000. So his loan was modified
to be 2% and monthly payment of $1600.
If he is smart, he can continue to either pay down the principal by making his regular $3000 a month.
That is $1400 extra towards principal for the next 60 months and that means $84,000.
Or he could invest the $1400 difference in gold and silver if he knows for sure the return on that is much better than stocks which may even earn enough for him to pay off the whole mortgage in 5 years.
Yes, the loan modification can have it pros and cons and how one would fare depends how how well one manages their investment and how disciplined they are in regards a sound plan towards paying off the mortgage.
September 4th, 2008 12:59 pm
How is this bad? The alternative is the borrower can be foreclosed upon now, and it doesn’t appear a gun was put to their head. The real transgression is the original loan which has culpability on both the lender and borrower’s part. This new deal CW is offering is actually pretty good and the borrower is far better off with this then foreclosing now. Plus in 5 years the home should build up significantly more equity, albeit most likely not above water but more manageable then their current situation.
September 4th, 2008 1:03 pm
After that period the house may be somewhere close to the mortgage amount, especially if inflation pumps prices up which seems a possibility, making the eventual charge-off less than it is now.
Let’s break this down. This is a rental house with a market rate of $3K/month. Valuing it at 150X monthly rent (top end of the rental value scale) it is worth $450K.
In order to get back up to the principal value of $900K, the rent needs to be about double what it is now.
If you figure that a spendthrift renter is willing to put 30% of gross income towards their rental budget, the typical renter for a property like this earns a minimum of $120K/yr.
If “inflation” is going to right this situation, you’d need to expect that the income of the renter will double in this time as well, to $240K/yr – within 5 years.
Does that seem at all realistic? Do you expect incomes to double in 5 years?
September 4th, 2008 1:22 pm
C/W tried to pull the about same thing with me and my wife
We got behind and asked for a mod
The paper work we got was a joke
the SAME payment but in the fine print it said we CANNOT claim the home in a BK once we sign..WHAT
Of course i laughed at it
September 4th, 2008 1:23 pm
If this guy pays $1,600 per month and collects $3,000 per month in rents, doesn’t he save $84,000 over the course of 5 years?
What will his payment be after 5 years at the original terms, and how much will he owe then?
I know it is variable and you probably need a boat load of lawyers to decipher the terms but a ball park guess would help me decide how badly the borrower got screwed.
September 4th, 2008 1:33 pm
IT IS NOT A GOOD DEAL FOR THE OWNER and this is why…
If the owner walks away NOW the bank can ding the credit but the person will not have to file bankruptcy.
This person WILL default in 5 years because the home will likely be underwater and they will not be able to refi or pay the mortgage. No one will rent it anywhere close to the amount necessary to cover the payment when it resets in 5 and the owner will try to walk away.
If the owner takes the deal the loan becomes recourse and the bank can come after the person even after the home is liquidated. And I believe that it is harder for an individual to erase debts even after bankruptcy due to the law changes during the last few years. They might still owe significant amounts of money even AFTER filing for bankruptcy protection.
We are all paying for this bullsh*t because the fed it keeping rates lower than they should rather than managing inflation. Why are they doing this? It allows banks to earn a big spread on the money they borrow at the short end of the curve and loan out at the long end (this is how banks really make money; all the other “prop” trading and prime broker crap is just a side job compared to this). This allows the banks to make money at the expense of everyone having higher inflation and losing the purchasing power of their dollars. Right now inflation is likely somewhere around 5% but your savings account is earning 3%. YOU (yes you!) are LOSING money right now as we speak to pay for this crap.
Bernanke is holding rates down to help the banks at your expense (the not so invisible hand of Adam smith taking money from your bank account right now).
Get used to that feeling in your backside because its not going away anytime soon.
September 4th, 2008 1:35 pm
This country is bankrupt. The lenders and the borrowers.
I think we are running out of creativity.
It’s time to get back down to reality. It’s time for deflation.
September 4th, 2008 1:36 pm
$1600 plus taxes and insurance on a $1.2 mil purchase = $3k per month. Like magic.
Good post JoeMama.
September 4th, 2008 2:02 pm
Great loan, mod, first lets look at the possible win for the borrower, this borrower is a speculator in the first place, took at neg am on a super jumbo loan, 3K payment on a 5K home, then moved out and rented it at $3K, payment kicked up to 5K , borrower was ready to walk, CW/BA knows the rental is a scam, the borrower didn’t move out to be closer to work, “ok: next the borrower’s get the loan mod at $3K per month, bingo , almost breakeven cash flow on the , rental, tax write off on the interest, prop taxes, depreciation, the loan mod gave the slime ball borrower another 5 year “option” to play monopoly, if he gets lucky as hell, the real estate market takes off like its 1999 and the home goes to 2 million, and now the borrower is the “investment hero, if the market goes down, the borrower, simply is another foreclosure statistic and CW/BA eat the loss, the bank kept the loss off the books for 5 years, the borrower, had five years of tax write off, and was able to purchase another home, since his credit was not wrecked by by a defaul on his credit, frankly this is the sharpest borrower I have ever met, 10 or more years owning a rental at 3K per month , really never was a buyer , but an investor who is betting on the future, if this guy gets lucky , the home goes to 3 million and he is a winner. The bank is in the corner and wiling to play ball…Boo Yahh
September 4th, 2008 2:14 pm
You are speculating. They put 25% down on a $1.2 mil purchase.
September 4th, 2008 2:46 pm
Ouch! So they are already down 300k,
and have now signed away their entire belongings as well.
They _will_ default, and within 2 years IMHO.
Some house shark will pick up the same house next door for 400k,
and offer it on the market for 1800/month making a small profit.
September 4th, 2008 2:48 pm
Exactly Anders. They put $300k down, were told this was a great loan program (5-year fixed) and now values are down 60%. This is an A paper borrower.
September 4th, 2008 4:01 pm
They put 400K down.
They are likely paying in excess of 1000/month in prop taxes on this albatross. So all the financial folks claiming a $1400/month positive cash flow are missing a few inputs. Don’t forget insurance and possible HOA’s. If that thing cash flows positive at all, even with the payment, I’d be stunned.
September 4th, 2008 4:04 pm
My mistake, I read the initial wrong… 25% of 1.2 = 300K
They actually paid down 100K in principal???
September 4th, 2008 5:07 pm
If the borrower walks now, I think there’s also a good chance they’d qualify for the “Debt Relief Act of 2008″ and not get tagged by the IRS. This deal may not be around in 5 years.
Bottom line, they are getting away with low payments, but the house value is dropping and they owe way more than it’s worth at this time. 5 years is a delaying tactic, nothing more. The bank needs this way more than the borrower. He should call them up and request a modification for .5%, why not, they sound hungry enough to do anything to keep from taking back that house.
September 5th, 2008 1:58 am
Mr.M, is this an isolated case or are you seeing multiple of these? an increase of this on a broad scale would be very scary indeed.
September 5th, 2008 2:46 pm
Many borrowers are stupid. My girlfriend’s dad’s girlfriend refinanced two years ago (to lower her monthly payment) and fully believes that her loan will be fully paid off in one more year.
Who refinances a house into a three year loan and has their payments go down on a 10 year old house? No one. I am certain she got a 3/1 ARM with a fixed rate for three years. She thinks she is done after that and the house is paid off.
She is a nice person and she doesn’t come off dumb in other aspects. I don’t have the heart to tell her that she will be paying more for another 27 years.
My dad requested a $100K line of credit on his house. The bank decided to give him a $250K line of credit instead. He just took it without hesitation. Luckily, he does not abuse this line of credit (never beyond $50K balance) and pays it immediately after he’s transfered money from elsewhere.
When I refinanced, I was lucky to not get stuck with a prepayment penalty clause. I didn’t know to look out for that back then. At least I was fortunate enough to forecast the peak of the market and get out.
September 5th, 2008 4:48 pm
This is clearly a gimmick. I hope for countrywide’s sake they are putting full and open disclosure to the borrower that they are obtaining (what sounds like) a full-recourse loan. Any idiot falling for this deserves to sink to the bottom. They won’t see their overpriced house reach its peak price again til 2020. They’ll be crying themselves to sleep in about five years. That is what stupidity and greed will bring you.
September 5th, 2008 4:53 pm
Can there be some sort of public service that warns these people? I mean, anybody who is stupid enough to fall for this (and I have no doubt at all there will be MANY) is not reading Mr. Mortgage blogs. Their sophistication of the market is no more than that of a child, and are unlikely to be exposed to any information that warns them of this crap.
September 6th, 2008 1:29 am
“Can there be some sort of public service that warns these people? I mean, anybody who is stupid enough to fall for this (and I have no doubt at all there will be MANY) is not reading Mr. Mortgage blogs. Their sophistication of the market is no more than that of a child, and are unlikely to be exposed to any information that warns them of this crap.”
Right on the money^^^. That is why I can’t stand all the crying about upholding your commitments. These mortgage holders are crooks trying to get what they can, while they can. Beware.
September 7th, 2008 1:58 pm
What is the difference between a whiny home loan borrower and Countrywide, Bear Stearn’s, Fannie Mae and Freddie Mac?
When the banks or investors whine, the government cares and hands them billions of our tax paying dollars. This after years of unbelievable profits. They could give a s*!t about the people, so we should give a S**t about ourselves. If one more person on this site say’s its the borrowers fault and why should we care, I will vomit. We are the only ones who are going to look out for ourselves in these times regardless of who’s fault it is. This site is informational and will help so that maybe we don’t become ignorant to the next set of corporate great opportunities available to us.
I heard a funny but true joke the oher day “if a borrower forecloses on his home loan, he becomes a dead beat, But if Countrywide or Bear Stearn’s forecloses on billions of loans , the government hands them billions of dollars.
Thank you for the information Mr. Mortgage and posters.
September 9th, 2008 12:54 pm
Google “Countrywide Sucks” – the entire planet should be educated on how horrible this company is
September 10th, 2008 12:29 am
Lets look at this. He has a rental, if he walked away now he would not be covered by the Mortgage Relief Act because it is not his principal residence. His only protection is insolvency or bankruptcy. It appears he is probably insolvent (more liabilities than assets). The refi would most likely be recourse not non-recourse like the article states. That means he would probably be underwater by over $400K by the time the 5 years are up. Now the bank can go after him. Although it states his new payment is only $1,600 with the property taxes and insurance he is not making anything. He would be forced into bankruptcy because the loan would be recourse. That will cost him. But everything relies on whether he is insolvent now or not.
September 17th, 2008 7:17 pm
Essentially Countrwide:
“Refinanced a $515k home with a loan balance of $900k” His origininal loan was $920,000 already 115% of his cap
“Put the borrower underwater by $385k in a pen stroke without recourse” Borrower already under water $400k + downpaymt & close cost $320k
“Stuck the borrower in a home that they can’t sell or refinance” ** Borrower was already stuck with home can’t sell can’t refi
“lured the borrower by using lo w monthly payments” * Borrower had no where to go there were already lured
“Hid an ultimate default and subsequent foreclosure” ** This was 100% fate already & potentially could be Speculation
“Averted a 50% write-down and pushed out the loss indefinitely into the future” — Averted 30%-40% – This is good thing Buyer not psycologically devasted – Buyer has ability to try and bail themselves out in 5 years. No option but to lose now, Yes maybe at no consequence but Credit Ding & Mental Anquish. (I just don’t see this as harmful) The House Market Tanked big time it keeps getting worse because Banks didn’t try Loan Mod’s in the beginning. Banks can’t loan on properties that have no appraisal value — Why is it to anyones benefit to have the bank fail ? The fewer banks that are out there the more chance for the solitary TAKE ADVANTAGE of the Monopoly there is.
“WHERE ARE THE REGULATORS!” — The Regulators have no clue their fix has done little to help the homeless and the more companies that go under the more job losses, the more foreclosures the more the housing declines, the more writeoffs the more liquiditity the banks needs and no more loans, which again means no more home sales, lower prices, this entire event has more ability to self perpetuate the problem. Like the Rumor that causes everyone to go close their bank accounts.
“This is why homeowners should never manage their own mortgage modification.” What would you have done differently ? Is Your Solution – foreclose ? — no loan modification. Is that that your solution? You speak to John and Jane Doe everyday .. you already know how naive they are, So why would they take your advice to walk a way ? How would you guarantee them that it is in their best interest to walk away. These people don’t sound like the irresponsible buyer, they put a lot of money down, they tried to make payments they tried to keep up by moving out and renting their residence and did keep them current for 3 years. Now they have 5 more years on this loan at the same monthy payment and it is not getting any bigger, which it was before. They have a 2% interest rate. Would it have been better to have the loan amount modified to $800k (original) and have a 6% interest rate fully amortized ?
What deal do you think you could have got them ? “Typical home owners have such little understanding of the market, interest rates, qualifying ratios, banks thresholds, the consequences of their actions or even of their own household balance sheet that a self-negotiated mortgage modification will end up looking like the one described here. The consumer stands no chance. I am all for banks ’working out’ loans but this out of control.” — What would have been fair? And what about the guy next door who has a fully amortized loan, and is mananging to keep paying on his upside down loan? And the many other neighbors who for now have a job, and are still able to pay.
I’m totally against the “teaser Rate loans” and even advertising the low rate that only 1 in million ready to close that day can get. Where were the regulators then? The regulators are not fixing the problem. To me this step may help, just like Jimmy Stewart in It’s a good Life. The people and the bank were saved because people didn’t Panic & BAIL. We don’t need people BAILING just because they have a non-recourse loan.
October 8th, 2008 7:22 pm
[...] the borrowers will get from BofA will be of the kind I mentioned in a recent post, ‘Countrywide/BofA – A Direct Threat to Borrowers’, where Countrywide gave a borrower a $900k five year 2% interest only loan on a $500k home [...]
October 12th, 2008 5:23 am
[...] ‘relief’ the borrowers will get from BofA will be of the kind I mentioned in a recent post, ‘Countrywide/BofA – A Direct Threat to Borrowers’, where Countrywide gave a borrower a $900k five year 2% interest only loan on a $500k home [...]
November 3rd, 2008 12:26 am
[...] BofA/Countrywide – A Direct Threat to Borrowers & Shareholders [...]
January 7th, 2009 8:43 pm
This new loan mod is 100% done by design so thank your international bankers (AKA: The Federal Reserve). It’s design is meant to keep you and our country enslaved in debt for as long as possible. The people that operate the banking system don’t give 2 squirts of piss about you or your family as long as it turns a profit. Get clear on this, Profit is the ultimate goal under any circumstance.
This mod, just like the boom, is done by design. The worm-hole and how deep it goes is so foreign to 99% of the population that we buy into this crap decade after decade and the corps are getting ready to pull our underware down to our ankles and spank our ignorant butts again.
Don’t think this is the way things work? Stop watching the tv and start reading or watching things that will open your mind. Our entire country and large percentages of our world are systematically controlled by the corporations that run our government, select our Presidents, feed us news and media, and LOAN us money.
3 movies you can watch right now for free are “Loose Change Final Cut” This movie is about 9-1-1 (We haven’t forgot about that already have we). Although it’s not directly related to the subject at hand, it is intertwined because it demonstrates what our government is capable of with respect to its citizens. Remember, nothing stands in the way of PROFIT…..nothing. The other 2 movies are Zeitgeist and Zeitgeist Addendum. Watch them in this order. All of the movies are FREE and available at Google Video. By the time you get to the mid way point of the third film you will see how the world operates and who controls it. There are tons of other films out there about these types of subject but people usually just want to be entertained and not educated.
Before you sttart ranting about how I’m just some wacko that fell down with last week’s rain dig deeper and follow the money back to its origin. I am a former mortgage officer (14 yrs), Police officer (20 yrs), and former Military Officer (7 yrs). No one was more shocked than me.
I hope you all have a safe & happy New Year.
P.S. It’s no wonder JP Morgan Chase (and Wamu now) and BofA are doing these loans. They are a couple of the corps at the very top of the food chain. Before they prey was greed. Now the prey is the desperate.
January 8th, 2009 12:19 am
i think you are twisting the fact. the guy get the good deal by putting off the problem for next 5 years. what other solution would you have rather wining?