Time to Get Your Bailout…The ‘Gimme Mine Coalition’

Posted on October 7th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

2% Interest Only 5-year loans available again?!? Yes, but beware.

-Home Owners and Mortgage professionals, this one is for you.

I am a big advocate of mortgage modifications that include a fully documented re-underwrite and re-qualification of every borrower in America allowing a maximum of 28/36 debt to income ratios with market-rate 30-year fixed mortgages.

Yesterday, the video camera was calling my name so I decided to go into more color on mortgage modifications.  Pass this video around to friends and family. Take matters into your own hands because it is obvious nobody will be riding to the rescue anytime soon.

That being said, I do believe a large scale home owner bailout will come, but it will likely involve giving up present and future equity in your home.  Right now you do not need to do that.  You can even negotiate into the modification a better reporting of this event to the credit reporting agencies with some banks.

In recent weeks I have seen banks get very aggressive including reducing principal balances to lower than the present home values and giving borrowers 2% interest only loans for five years.  Wachovia offered to buy down a friends mortgage to 2% on a 30-year fixed, however, they had to refi through FHA and carry a silent second for the principal balance reduction needed to get them to the FHA limit for the area.  This sounds great but I do not advocate a super low interest only rate without a principal balance reduction. Getting 2% today with no principal reduction just kicks the can down the road and will cause major troubles then.  Without a principal reduction you are still stuck unable to move or refi.

I truly believe that there is a small window in time that exists right now where banks can’t handle any more foreclosures and you hold all the cards. The last thing the bank wants is another foreclosure and 65% write down.  If you play your cards right you can win and the bank can have a long-term customer paying her mortgage payment each and every month who will some day own the home. That is what it is all about.

Direct YouTube Link: http://www.youtube.com/watch?v=fyzS68RYeE8

I also went into great detail on mortgage modifications on July 4th and I urge you re-read the posts. There is information in here you must know BEFORE taking on this task. You have to know what to ask for because banks are a ‘for profit’ business, which means decisions are not going to be in your best interest. – Best, Mr Mortgage

Mr Mortgage on Mortgage Modifications – Must Read!

Mortgage Professionals: You have done hundreds or thousands of loans for folks who are now underwater or in a loan that may adjust soon.  Instead of working on the one new loan that may come around every other month, help those past customers who are out there flapping in the wind with no ability to sell or refinance.  A few mortgage modification companies, Green Credit Solutions for one, also work with mortgage brokers on a wholesale basis. You may want to check it out. And don’t worry about the old ‘I will lose my client’ talk I always hear.  You have already lost your client…they can’t buy a new home and can’t refi.  An independent firm or their bank will call them offering a mortgage modification and you will lose that customer for life anyway.  By offering your past clients a mortgage modification, you can help them now and have a client for life.

Other Recent Mr Mortgage Posts

21 Responses to “Time to Get Your Bailout…The ‘Gimme Mine Coalition’”

  1. I am a big advocate of mortgage modifications that include a fully documented re-underwrite and re-qualification of every borrower in America allowing a maximum of 28/36 debt to income ratios with market-rate 30-year fixed mortgages.

    This sounds good in theory, problem is, in California, this is a non-starter at current values and mortgage balances. The only way to fit borrowers into these parameters is at least a 50% principal reduction on average with a below market I/O loan. There haven’t been “real” 28/36 DTI’s in California for 15 years. By “real”, I mean without any falsification of the mortgage applications.

    That is why the mods you are seeing now, one’s that kick the can down the road. Because to truly re-qualify the California folks you would have to dramatically reduce principal and there isn’t enough money in the world to recapitalize the financial institutions that would have to take that haircut.

  2. Will people that handled their loan responsibly be offered the same chances at modification at any point? I know quite a few people in CA who struggle to pay their mortgage, but do pay it on time. I’m sure they would love a modification, especially if it decreased their principle. Is it open to everyone?

  3. John is on the money. In our state even if the reduction was 80% of current appraised value, I wouldnt take it. They would still overinflate appraisals above what they are truly worth. Plus they are still way overvalued IMO.

  4. I can’t understand how a principal reduction policy can work. I have stated this many times but no responses. Once a business, or government for that matter, agrees to principal reduction they will have a flood of everyone else asking for their handout. Sure, if there was someway to completely hide the fact people were getting them, it might mitigate the rush, but in today’s Internet connected world, forget it.

    Clearly it creates perverse incentives. Those people who stop paying and cry poor get the reduction whereas the saps who keep paying by scraping together every penny they have do not? This makes no sense whatsoever and will basically force everyone on the fence or near it to stop paying.

    And while fairness doesn’t play into the business decision (those are mostly profit driven), the government’s idea of fair is a whole other matter. I can’t believe the masses don’t rise up and kick out the politicians who advocate giving principal reductions to homeowners. Why should the responsible majority finance handouts to those were in large part irresponsible?

    To me, these points are so obvious and beyond refute that Barney Frank and those holding similar views should be hammered by the media with these types of questions/arguments. I just don’t see it happen and it makes me very cynical.

  5. phil,

    I couldn’t agree more. When “fairness” becomes an issue or political war cry, it always leads to fraud.

    There is no such thing as fairness in Life, business or nature.

    I agree, we need to let the market reset and crash back down to reality. No one ever said facing the truth would be easy.


    Regardless of what Kovacevich meant to say or our interpretation specifically on option ARMs with Stated income guidelines; he clearly indicated that Wells was an exception. ALL here AGREE that the general state of Wells being an exception was a complete lie.

    Do you work at Wells?

  7. Wow, the markets are a sea of red across asia and europe today. This will further lower real estate prices I reckon as investors are much poorer.

  8. CEO –Chief Embezzlement Officer.

    CFO– Corporate Fraud Officer.

    BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.

    BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

    VALUE INVESTING — The art of buying low and selling lower.

    P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.

    BROKER — What my broker has made me.

    STANDARD & POOR — Your life in a nutshell.

    STOCK ANALYST — Idiot who just downgraded your stock.

    STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves.

    FINANCIAL PLANNER — A guy whose phone has been disconnected.

    MARKET CORRECTION — The day after you buy stocks.

    CASH FLOW — The movement your money makes as it disappears down the toilet.

    YAHOO — What you yell after selling it to some poor sucker for $240 per share.

    WINDOWS — What you jump out of when you’re the sucker who bought Yahoo @ $240 per share.

    INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a nuthouse.

    PROFIT — An archaic word no longer in use.

  9. Is this data for real?? :s Any connect with reality?

    “The Pending Home Sales Index,1 a forward-looking indicator based on contracts signed in August, jumped 7.4 percent to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4.

  10. […] Comments Viv on Time to Get Your Bailout…The ‘Gimme Mine Coalition’Viv on Time to Get Your Bailout…The ‘Gimme Mine Coalition’Admin on Wells Fargo […]

  11. I cannot believe you are supporting this idea, Mark. It literally saddens me. Why cut all these people a huge break when they’ve obviously bitten off way more than they can chew? So they can “stay in their homes” and “remain homeowners” — as if it were a right, not a priveledge. Man up, people. If you are in over your head, start selling your possessions, like your SUVs, your overpriced homes, etc. Live within your means for a change. If the banks continue to work deals with people in default, perhaps I’d be better off going into default? This is so effed up. Long term, I hope the U.S. sees a decade long recession — not just a lost decade, but a lost generation. It’d be good for our country. Home prices in places like L.A., Orange County, and the Bay Area still have 25-45% to fall before this is over…..and I’m enjoying watching every minute of it. Btw, same with the stock market. So much for the jokers like, “My First Million by 33″…..uhm, yeah. You might want to rethink that one. The stock market doesn’t always go up, joker. And, if you try to time it without an edge (hint: you don’t have an edge), you’ll underperform it over time…..think: Jim Cramer’s track record, and how it underperforms the overall market’s performance. Pathetic. I’m glad to see newbies and amateurs getting pounded. Risk is beginning to get priced back into the markets.

  12. I dare to get philosophical here. Many, many of the homeowners in foreclosure would have never been able to buy a house in the first place. They would have continued to be renters during the time.

    So,even though I realize that it’s very traumatic to go through foreclosure, isn’t the perspective similar to the old question of ‘Is it better to have loved and lost or never to have loved at all?’.

    It’s easy to just look at the negatives, but I dare say that having owned a house for 2 or 3 years puts those people ahead of where they would have been without that. The person with the right mindset will see that they were able to accomplish something that they never would have thought possible. And once you accomplish something your personal impression of your self worth goes us and that means you will try to accomplish other things you hadn’t thought possible. It’s a chain-reaction.

    So, in my opinion – the person with the right attitude will have won, even with foreclosure, whereas those just whining the ‘victim game’ will never get anywhere.

  13. Tom and Michaela – I totally agree where you are coming from. But at this point nothing can be undone. Instead of a long and painful asset revaluation like the banks are going through due to their own choices I am for a quick revaluation so people are right side up, can sell or refinance their home. Doing this the natural way as the problem exits subprime over the next year, goes into the Pay Option ARM/Alt-A implosion for the next 3-years, Jumbo Prime for the next 3-5 years, Prime and HELOC will literally wipe out the nation and the consumer for a decade. We need all mortgages dropped across the board and debt forgiven somehow.

    Those who get screwed because they did everything right is a moot point. I know plenty of people who put 25% down on a 30-year fixed 2 years ago who are now underwater by 25%, cant sell, cant refi and are considering walking. Be careful what you wish for.

  14. Mark,
    not disagreeing that the bailout is the better thing, in the big picture. My post was just from a philosophical view point of those people that got 100% financing, even if they had been unknowing pawns in someone else’s fraud. That there is a way of looking at it, that many people don’t want to see, because they’re so busy calling themselves ‘victims’. That is more geared towards a lot of the subprime borrowers. The foreclosures we’re seeing now comes from a different part of population.

    I do feel for those people that put down hard earned cash and have honestly done all they could to keep the mortgage up and tried to do the right thing.

    I just wanted to bring up a point, that is never mentioned that fits on a lot of initial foreclosed.

  15. you are right, they screwed everything up. But by and large the subprime implosion is 65% over and the impacts ruined it for everyone else. Prime loans are now subprime in nature. Borrowers who thought they were doing everything right by getting a 5/1 interest only loan putting 25% down 2 years ago are walking away. This requires immediate and drastic action because the upcoming implosions will make the subprime implosion look like a hiccup.

    The entire system of credit and leverage is to blame. It became acceptable to do 50% debt to income ratios, interest only and stated income on 750 credit score, salaried, Prime borrowers. What you are talking about with respect to fraud etc is a very small slice and I would argue a very small percent of the real problem.

  16. Mark, it seems like the impact of reducing _everyone’s_ mortgage to market value is way worse than simply letting those who can’t afford their mortgage go to foreclosure.

    I don’t think advocates of principal reduction can have their cake and eat it too. Either it’s everyone or no one (see my last post as to why I believe this). If you say “everyone” the financial impact is essentially the same as everyone foreclosing. How can that be better than a subset of them going to foreclosure?

  17. There’s really no good way out of this, is there?

    Option One: let it crash and burn. Good for people like me who haven’t bought a home yet, because it will quickly bring prices back down to where they SHOULD be, and would probably teach people once and for all that a home is not an ATM. However, the financial fallout would impact more than home affordability, and it would take a lot of the economy down with it.

    Option Two: help only the people who need it. Would keep people in their homes. However, the responsible people who don’t need help, who got fixed-rate mortgages they could afford are ALREADY going to stay in their homes, and they’re not going to be happy to see their tax dollars go to bail out the idiot next door who maxed out their HELOC. Keeps home prices artificially inflated, but results in a slower fall.

    Option Three: help everyone who has a mortgage. It’s still a bailout, responsible people will get a proportionately small handout compared to irresponsible people, and it will keep home prices artificially high because there will be fewer empty homes than there should be.

    I mean, there’s no good way out. We’re all screwed, we’re all going to pay for this mess, and the economy is in the toilet because of this housing bubble. If nothing else, I’m rooting for Option One because it will probably ensure sure this NEVER HAPPENS AGAIN.

  18. Option One has the additional benefit of placing the brunt of the cost onto those who made the wrong decisions. If there is a proper definition of fair, that would be it.

    From what I understand, the MBS/CDO’s are only the trigger for the real problem which are the CDS’s. If the CDS monster can be tamed Option one becomes especially more desirable.

    I agree with some of the experts who have weighed in on the CDS issue that one way to solve it is to create an exchange for them and require registration within a short time period (or else the swap is null & void). Once everyone lays their cards out on the table we can see who can cover the losses and who can’t. Immediately it would clear the air and allow everyone to see who’s at risk and who isn’t. Once the losers are identified and go down, the winners can pick up the pieces and the market can function. Absent this type of action there is no way to know who will survive and who won’t; no wonder the credit markets have frozen, nobody can be trusted.

    No matter what, propping up housing is such a lame way of attempting to resolve this issue.

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  21. Best idea I have heard of to stem the real estate decline is to give a green card to any immigrant who buys a house. That and expand the H1B program. I know it hurts a bit, but it brings in new money and buyers.

    For 50 Billion, we could pay 1/2 of the monthly payment of all currently in default mortgages. That would buy us a year.

    Key is to get land prices back up, that means higher wages. Then we can fight inflation….

    No easy solution here, but there ARE solutions.

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