Mr Mortgage Loan Mod Survey – I Would Appreciate Your Assistance

Posted on January 3rd, 2009 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

I need a favor from all of my mortgage broker and home owner friends out there.  I learn a lot from all of you in all of your emails and through the comments section of this blog and appreciate it very much.  At present, I am doing deep additional research on mortgage modifications and need your input.  I am working on a solution that may make this process very inexpensive on both the home owner and the bank.

As you know, I am a big proponent of mortgage modifications done the right way.  I have swung completely over to this side of the fence as regulators, law makers and banks have rolled out their harmful, boiler-plate loan modification initiatives that leave many underwater, over-leveraged renters for life.

It is obvious that these loan modification plans have been born as a result of panic and the need to protect the bank’s balance sheets rather than doing what is beneficial for the home owner and broader housing market. Fannie/Freddie and FDIC ‘mod in a box’ examples below.

A mortgage mod done right is a ‘mortgage banking model’ mod where the borrower is fully re-underwritten using present income and debt levels, prudent 28/36 debt-to-income ratios and current market rates — similar to a cram-down.

This immediately de-levers the home owner enabling them to freely sell, refi, save money, shop etc. Typically a principal balance reduction is needed to bring these home owners in line, but it is the only permanent solution. It is also the only solution that can prevent the broader housing market from being a dead asset class with zombie homeowners for two decades.

Given the push by regulators, law makers and banks into ‘modifications in a box’, I now have my doubts that private mortgage modification firms will have the types of successes we saw earlier in the year. Most modifications I am being told about coming out of loan mod firms around the nation are identical to the FDIC and Fannie/Freddie stories above.

These I do not endorse in many cases – specifically if they do nothing more than offer a term teaser-rate, extend the term or defer interest or principal.  These do nothing more than kick the can down the road and in the case of large deferred interest or principal balances make the home owner a trapped, underwater, over-leveraged renter for years, if not life.

If the new style initiatives are widely accepted by lawmakers, banks and regulators, it is conceivable that many home owners will be able to do these on their own — rather than pay a loan mod or legal firm if they chose to go with a mod and not just walk away.

I would like to know what all of you have done or are doing with respect to loan mods. I would appreciate it if you were to write in to or post to the comments section below your past and present experiences.

Specifically I would like to know:

1) Brokers – are you doing loan mods in-house or through a specialized firm?

  • a) if outsourced, is it an attorney based or a mortgage banking model? Which firm?
  • b) Approx volume & pull-through rates?
  • c) are you and the home owners happy with the results?
  • d) what could be done better?
  • e) Friends or family experiences?

2) Home owners – have you done a loan mod in the past or are you currently in the process?

  • a) If yes, with whom?
  • b) Please share your experience, good or bad.
  • c) Do you feel that if equipped with the a detailed break down of your personal situation and a variety of possible mortgage mod alternatives, that you could do this on your own?
  • d) Friends or family experiences?

Remember, if you feel the information is sensitive, please email me directly at

In addition to sharing my research results with you as always, I hope to provide a list in your state of legitimate mortgage modification firms that have a proven track record of positive results when doing loan mods the right way.

Thank You Very Much

384 Responses to “Mr Mortgage Loan Mod Survey – I Would Appreciate Your Assistance”

  1. Stu –

    Respectfully, from your last paragraph:

    “I just think if we are going to protect all consumers including renters, new buyers, old buyers and anyone in between this needs to be done.”

    It is not and should not be the government’s job (for anyone who doesn’t know who the ‘government’ is, it is You & Me by way of our obligation to Myriad forms of Taxation – much of it without Representation…) to ‘protect’ us from anything, save for what the Constitution prescribes – and that doesn’t include backstopping of internal economic choices.

    “The wave of foreclosures is only going to increase in my opinion and that is placing further strain on our entire economy overall in job losses, home equity losses and area comps.”

    100% correct Stu. And there is not a G-damned thing you or I or the ‘Government’ can do to stop it. This is the end of the consumer-credit based phony economy in which we have lived in large part, for the past 30 years. The paradigm shift has now begun. Wallets are tightening and Saving is rapidly replacing ‘spending’ of every kind, save for what is necessary.

    And just in case those whose memory only reflects back to when this housing bubble really got going in 2002/03 – with all of the attendant ‘industry-making’ in tow, remember what the President said shortly after 09-11. To paraphrase, he said to go out and SPEND to keep our economy going, because to do otherwise would aid the ‘terrorists’. Remember that…??? In other words, our Keynesian leaders knew if the American public got sense and started SAVING instead of frivolous spending, it would tank the economy, which it should have.

    Instead, rather than follow the self-preservation instincts of saving and the strength that national savings brings, what did they do? Dropped interest rates to 1% and in the process, inflated the housing bubble.

    “As a result of massive dumping of homes on the cheap we are pulling down prices to below what real market conditions warrant. We need to slow this down and it is the only thing I see that we can do as a country right now to accomplish this.”

    You can’t slow it down Stu. Even in a stiff recession, the pendulum swings well past the mean before it finds the water mark. And this ain’t our Daddy’s ‘recession’.

    “The only thing we have left to do that will have the desired affect of slowing foreclosures and keeping people in their homes. This is a very important thing that needs to be addressed. Huge social implications will result by the way this all plays out.”

    The societal implications are going to play out Stu – whether we want them or not. Massive unemployment will take care on that score. Putting a floor underneath ain’t gonna mean squat when there’s no paycheck coming in. You might as well have the government step in and nationalize the entire mess – including All the banks & lenders. Which, they’re likely to do anyway as the pain mounts.

    The perversion of the free market by our government has reached its apex with actions by the Treasury and Fed to decide who is ‘Too big to fail’ and who is not – right down to the house-owner. No all-encompassing relief is going to come to underwater mortgage holders without government involvement in large degree. If you believe that this problem is going to be (allowed) to remain a in the realm of private jurisdiction between lender and borrower, you’re living in a parallel universe –

    Peace –


  2. Susan Day Minerly,

    Average Jane’s example is what’s happening out there and it probably gives us a good idea of where we are in all this decline of house values.

    Take her house @ $125,000. Under normal circumstances, a rising tide (inflation) lifts all boats, that house, at 3%/year for 8 years would mean that the house is now worth $158,346. Let’s just round off to $155,000. If the house has dropped from the high by 30% it is now valued at $165,000 (rounding off your figure). That is still 3.1 times income, not 2.2, but let’s see if it works.

    That means that we are $10,000 away from the house being valued at 2001 prices taking into account inflation.

    One of the unfortunate things that has happened here, and is very prevalent across this country, is that Average Jane’s salary has not kept up with 3% inflation. Her salary should now be $57,000 if it had kept up, but since it didn’t, as is the case with most people, we only have $50,000 to work with.

    If Average Jane waits for the price to come down and if she did manage to save “a spare” 20% (spare = that amount over and above a minimum of 3 months living expenses + whatever she feels she needs for emergencies, + “new house” money) for the downpayment = $31,000. Leaves her a mortgage of $124,000. @ 5% for 30 years that’s $666/month. Presuming $4,000/year for insurance and taxes, add another $333/month. That’s $999/month or $12,000/year.

    $12K/$50K = 24% – below the 28% for living expenses (PITI).

    I’m making a presumption that taxes are $2,000/year and that interest is about $510/month or about $6100/year for a total deductible figure of $8100/year. If she is in the 28% tax bracket, this deduction is worth about $2300/year in tax savings: making her real rent $12,000 – $2300 = $9700 ($803/month).

    So, when the market reaches 2001 inflation adjusted price, Average Jane would be better off buying, with a couple of very big caveats: 1. that her current rent is over $800/month and 2. (and this is a big unknown) that the value of houses doesn’t drop below the 2001 inflation adjusted price.

    If there is going to be an “overshoot”, which there almost always is, then the 2001 inflation adjusted price may be the basis and prices below that may be considered “overshoot”. This seems reasonable, given the example above. When people can sit at the kitchen table and show that owning is cheaper than renting, then owning will increase.

    Trying to guess the bottom is a fool’s game. Rational people will figure out what is best for them, and as they act to make life good for themselves, the market will find the bottom. Unfortunately, there’s never anyone there to ring a bell and let us know that we hit bottom.

    One of the offsets is that Average Jane’s $31,000 down payment was generating income. Unfortunately, if she wants to keep it safe, the best she’s going to do is probably 3% or $930. This would bring her actual rent to: $878 when loss of interest is figured into the cost of “investing” the down payment. On the other hand. $150/month is being paid off of the principle. If that is considered “wealth building” then the actual rent would be $730.

  3. CC,

    “It is not and should not be the government’s job (for anyone who doesn’t know who the ‘government’ is, it is You & Me by way of our obligation to Myriad forms of Taxation – much of it without Representation…) to ‘protect’ us from anything, save for what the Constitution prescribes – and that doesn’t include backstopping of internal economic choices”

    I totally agree with you and by lenders rewriting loans to stabalize the economic condition we are in makes sure that we keep that wonderful outlook in view. This is about change the will effectively help everyone at nobodys expense except the lenders who made billions through the year. Make them go back and get some of that bonus money back or whatever, but they are taking the hits.

    “100% correct Stu. And there is not a G-damned thing you or I or the ‘Government’ can do to stop it. This is the end of the consumer-credit based phony economy in which we have lived in large part, for the past 30 years. The paradigm shift has now begun. Wallets are tightening and Saving is rapidly replacing ’spending’ of every kind, save for what is necessary”

    Well actually there is something and I just told you how. I also do not want the Government anywhere near this or any bailout of anyone and for anything.

  4. The modification programs are flawed from the get go. The banks and the gov must recognize a large percentage of those at risk of losing their homes will never have the means to repay their debts and these programs are a losing proposition for the homeowner entrapped in debt and only delay the banks recognizing these loans as non-performing assets. Instead, these programs should focus on those homeowners that have the ability to pay AND the willingness to stay long term. I have already seen my 20% cash downpayment vaporized. I will not agree to a mortgage modification unless giving up my non-recourse contractual rights and my optionality is in exchange for a permanent reduction in principal. The bank must accept a similar loss otherwise there will be no negotiation and eventually greater risk of loss to the bank. This will become the norm as households make an economic decision and rent across the street.

    Here is my suggestion. Banks and companies regularly recognize non-cash gains when they repurchase their debt below par. Why not create an exchange for indivdual notes if they are not securitized and let the homeowners or a community buy back their notes at a discount? For example: Original $1 million note might be worth $850K in the market. Let the market decide its value and the homeowner(s) could compete against investors to repurchase the note with either cash or new financing. Simliar to a refis but there the discount or reduction in principal would be decided by the market.

  5. Scott,

    We have lots of opinions from renters, homeowners in various states of above water and underwater but what we are missing is anyone from the banking industry to comment on various proposals and ideas. Therefore we are seeing only one side of the coin.

    We have no idea what the state of mind of the bankers are and if they grasp the entire picture. I am guessing they are in “how are we going to survive until tomorrow” mentality. Unfortunately, we can only speculate on different ideas and comment from one side of the coin. It would be nice to have both sides.

  6. To Susan Minerly:

    I hear that the average home price has dropped to around $185,000 here. Median HH income approximately $50,000-$55,000. Property taxes on a $200,000 home are between $2,000 and $2,500 depending on where you live (‘burbs versus City). I think the bubble burst here a little bit later than the rest of the country, and the notoriously stubborn home-selling populace here still thinks they can get a quarter million dollars for a 1,400 square foor townhome.

    To Steve:

    One of the points that I seem to have failed to make clear is that on a $50,000/year salary it takes for-flipping-ever to save even $10,000, let alone an additional $30,000-plus to afford a prudent down payment on even the most basic 30-year-old townhome that’s for sale for the low, low price of $200,000. This is precisely why people got into the “funny mortgages,” as they call them in North Dakota. No one could afford the inflated down payments on the inflated home prices.

    The bankers took our money, leveraged it 40, 50 or 60 times and now they want every single penny of it back from the prudent borrowers and savers. And first-time home buyers like me are out of luck unless we want to leverage ourselves into the stratosphere, which I am frankly unwilling to do. I’ve got enough monkeys on my back without having to pony up half my hard-earned paycheck to thieves and liars, people who’ve “redistributed” my wealth to themselves. For shame.

  7. Susan, and your plan.. you said

    .. they may become insolvent..

    Were there wins on the banks side before? (I think yes)
    Will there be wins again? (I think yes)

    So the government invested 700 billion in banks to assure they won’t fail (systemic failure) and will get our money back later when they win again.. get it?

    They need/have to take a loss (in my opionion), as it’s going to happen, it is hapening. (it’s that time in the cycle.. u know?)

    If you do loan mods (principal reduction) EVERYONE WILL WANT ONE! PERIOD! so it will get to be a lot bigger LOSS than going through forclosures for BANKS.. that’s my take.. I could be wrong.

    Banks want to take a the least loss, in a streched time, not all at once – as your plan, and hope for tomorow..

  8. “Let the market decide its value and the homeowner(s) could compete against investors to repurchase the note with either cash or new financing. Simliar to a refis but there the discount or reduction in principal would be decided by the market.”

    Scott – if only the market could decide. But it won’t be allowed to…

    Instead, what we’re going to get – much the same as we got between 1931 and 1940, is a crap-load of government intervention to muck up what would have been a relatively severe albeit short, market clearing. Worse yet, with the entrenched entitlement mindset as we have today, there is no way the populace itself is going to allow the market to clear. It will be a myriad of programs from A – Z with a station of bureaucrats in every town to administer them to the ‘needy’.

    Average Jane – worry not. You won’t have to leverage yourself into infinity and beyond. Affordability for many – at least the ones who have some savings and a job, is not far off. You will be in a very good position to afford a home.

    Tell you what I’m nearly 100% sure of for at least the next 5 years: It won’t matter what plan is hatched – either by government, private entities or some unholy alliance of both, they’re not going to be able to re-inflate the housing prices of the past. Not even close. Debt-reduction, drastically reduced spending habits and personal savings rates on steroids will see to that. Not for want mind you, but for Survival. Unemployment reaching and surpassing Depression (#1) era levels will also prove an airtight lid on speculative housing prices – for a long time to come. Deflation is here.

    Hope & Change Baby! You’re gonna hope you got some change long ’bout a year from now.

    Life’s Great!!!


  9. Average Jane,

    “on a $50,000/year salary it takes for-flipping-ever to save even $10,000, let alone an additional $30,000-plus to afford a prudent down payment”

    Saving for the downpayment has always been a major problem. Very few people have the circumstance to allow that to happen. I’d be willing to bet that a lot of downpayments come from parents or grandparents either as a gift or inheritance.

    Back in the days, when the norm was one wage earner, downpayments were difficult but not impossible to save for. Houses were a lot less a percentage of income. Then came the DINKs (Double Income/No Kids) and they bid up value of property. At the same time they could rent and put aside one income to build up a downpayment. Single income households were doomed because, as you know, on $50,000 it takes years to build up that downpayment.

    It gets even worse with some ethnic families who live as extended families. There may be two parents, two kids and an aunt living in the same apartment pooling their money. They can save a ton of money in a year. These buyers bid properties higher than even the DINKs can pay.

  10. C.C. and Steve, thanks for the support.

    My family was one rung above welfare when I was growing up, even with both parents working full-time, so they couldn’t afford to send kids to college, and they sure as heck couldn’t (and can’t) afford to help kids with down payments. We kids were all on our own, and we didn’t and don’t mind that. No one in my family is above Middle Class and no one, particularly in the past 25 years or so, has any extra money to throw around or to loan. Even less so in these dim days.

    And I’ve never wanted some huge McMansion. Just a tidy little townhome for myself and pet(s). The builders built 5,000 SF homes and 2,500 SF townhomes and basically single people, single moms or those with smaller families were all priced out of the market. I sure as heck don’t want or need to vacuum 2,500 square feet of carpeting, for crying out loud.

    If the builders spent less on square footage and more on quality, I daresay quite a few of us prudent single people (what are we now, 40% of the population?) would just love to own a condo or townhome or small single family house. Alas, not to be. Guess the profits are higher on a bigger home, kinda like the auto companies–profits are bigger on a Hummer than on a Honda CRX.


    Better days are ahead, we all hope.

  11. Looks like we are coming to a mortgage mod that congress is looking at:

    Sounds like those of who said the government (we, the people) would pay for this were right.

    There’s a loan modification for everyone – 30 to 50% – but I still can’t believe that anyone who is current will see any changes.

    Obama suggested a 90 day foreclosure moritorium when he was running. Barney Frank and Obama what help for homeowners. Barney Frank lets John Taylor gives his plan in front of his committee.

    Seems like anyone who walked away because they were under water, may have made a BIG mistake.

    The signature should be on a plan shortly after next Tuesday. Then it’ll be interesting to see how the implementation works out.

  12. Average Jane,

    I hear you.

    Renting is no where near as “bad” as the American dream makes it seem. Life is short and home ownership can take a big chunk out of life. Listen to someone who owns a house and you’ll hear statements like: “I enjoy painting the house. I like mowing the lawn. I like snow shovelling. I love working in the garden.” Bull! The reason people get paid to do those things is that they are not fun.

    Another lie: You get a big tax deduction. Great. I’ll give anyone twice the equivalent of what they get for a tax deduction. For every $100 you send to property taxes and interest, you get $30 back at the end of the year. Paying $100 to get $30? Does that make sense? (I make the proposal to anyone who wants: You send me $100 and next April I’ll send you back $60. That’ll double your “deduction”.)

    Because of the burdens that you don’t have to deal with when you rent, you get to enjoy the lawn (after the landlord mows it), live in a painted house without owning a paint brush, etc. It’s a quality of life thing. More time spent enjoying life, spending it with the pets, going fishing, etc. For a small amount of money, someone else does all the jobs that people don’t want to do (even though they lie and say they do so they don’t look like total fools).

    Renting also is more “liquid”. Need to change jobs? No need to find a buyer. Go on Craigslist, find a subletter for the rest of the lease and move to where the new job is. Landlord a total jerk? leaving is easy. Move down the street. Want to go on vacation? lock the door and go. The freedom of renting is greater than ownership.

    The one thing that home ownership had over renting was appreciation in value – wealth creation – allegedly. But when you look at other “investments”, you can do better in AAA corporate bonds than you can if you put the same amount of money into it. 3% vs 6%. And you have the time to actually use those golf clubs that you bought with the profit from your investments.

    Keep warm. Cold blast coming. Don’t worry about the heat. If the boiler breaks, it’s the landlord’s problem.

  13. Steve, precisely why I’ve been a renter my entire adult life. I don’t think of a home as an asset; never have, never will. I’m paying a bank to have a roof over my head, for crying out loud.

    Keeping warm but worried about those who can’t, frankly.

    And just one comment about those worried about redistributing wealth: my “wealth” (hahahahaha) has been “redistributed” straight into the pockets of the Masters of the Universe on Wall Street, Halliburton, Pfizer, Exxon/Mobil and United Healthcare for the past twenty-five years.

  14. Explaining the bailout.

    Once upon a time a man appeared in a village and announced to the villagers that he would buy monkeys for $10 each.

    The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and, as supply started to diminish, the villagers stopped their effort.

    He next announced that he would now buy monkeys at $20 each. This renewed the efforts of the villagers and they started catching monkeys again.

    Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so scarce it was an effort to even find a monkey, let alone catch it!

    The man now announced that he would buy monkeys at $50 each! However, since he had to go to the city on some business, his assistant would buy on his behalf.

    In the absence of the man, the assistant told the villagers: “Look at all these monkeys in the big cage that the man has already collected. I will sell them to you at $35 … and when the man returns from the city, you can sell them to him for $50 each.”

    The villagers rounded up all their savings and bought all the monkeys for 700 billion dollars.

    They never saw the man or his assistant again, only lots and lots of monkeys!

    Now you have a better understanding of how the WALL STREET BAILOUT PLAN WILL WORK!

    It doesn’t get much clearer than this.

  15. Steve:

    Excellent description.

    I will say it again, for or against principal reductions, would you rather Wall Street benefit or Main Street.

    Choose one, your government is leaning toward Wall Street, is that what you want?


  16. Apart from Principal reductions… Has anyone experienced other attractive mods like 30yr fixed @ 3% interest ?

  17. Having worked for one of the largest lenders from 1996-2006 let me just say that insustry wide, mortgage companies and mortgage BROKERS approved clients for the most ridiculous loans in the history of this country. Clients that had NO BUSINESS buying a home not to mention the ones buying investment property. The joke in the office was “If you’re breathing we can get you a loan!” No income? No Assets? No problem! what? and you need 100% financing also? We’ve got a great Option Arm payment where you can pick your own payment! Just be sure to pick the right one to avoid the negative am. People were taking the equity out of their homes to invest in the stock market, take vacations, buy children in China, oops, sorry I meant “adopt” buy huge luxury vehicles, second,third and fourth homes. And of course the non-resident alien loans, where if you were an illegal alien working under someone else’s social security number you could qualify for a loan. And now everyone is shocked – waa ! boo hoo! the economy! BS- economy my butt- It was everyone’s GREED It was the clients, because they if their debt to income ratios were too high to get the property they just walked out of our doors – straight to a greedy broker who would get them the house on a NINA or a stated, basically lying about their income, and typically these loans were at a higher rate with the borrower paying points. The investors, greediest of all, because they knew that we Americans were just stupid enough to sign up for these loans, made money by the truck load. And guess what – this goes out to all the meatheads that cry, “when I got to the closing table it wasn’t what they told me what it was going to be…” AND “I didn’t really understand the loan but I just wanted the house” -then you should have ran, not walked away -you are just as much to blame for being a financially stupid submissive sheep.
    Sorry for the neverending story, but now I work for a Loan Modification company and our GM doesn’t care if a client’s the numbers don’t work, or if their income is sketchy, because he wants “deals, money in the door” So the greed continues. Watch out for these companies…..they are run by the same people, the people that sold you into slavery in the first place. If I get to the point (and it could happen with one illness, or job loss) where I am forced with choosing loan modification or walking away – I will walk away. Period. Let these loan modification sharks drown in their own blood.

  18. Rocko,

    I just heard Sen. Ensign in an interview on CNBC. He wants mortgage modifications to “end” the financial crisis. His plan will end the crisis for the banks but not for the people.

    I think they heard you:

    “where I am forced with choosing loan modification or walking away – I will walk away. Period. Let these loan modification sharks drown in their own blood.”

    But unfortunately, anyone who goes for one of the new mods that Sen Ensign proposed, the blood will be theirs.

    Here’s the proposal in brief: Banks/Lenders do modifications on loans with whatever they have to do: rate reduction or time limits or principle reductions. Now the loan is good (and probably guaranteed by Uncle Sam as the cosigner). Homeowner has an “affordable” mortgage. (And the world is now fine.)

    What’s the cost here? New mortgages are all recourse loans. (Brought to you by “the people that sold you into slavery in the first place” as you said.) “You want to walk. Go ahead. We have your number. We can find you. You will never get away with not paying your loan. We can follow you to the grave and beyond.”

    I guess that makes the forthcoming mortgage mods the new albatross.

    Banks will no longer own just real estate, they will own whatever you own or earn till you pay the last dime. (And watch for bankruptcy laws to change to put these amounts into the same category as taxes: non-dischargable.

  19. To Steve or anyone else:

    I am trying to get WAMU to modify my existing mortgage. Where did your read about mods becoming recourse? I would be deeply appreciative for an answer to this question. Thank you!

  20. Why would you do a mod without a principal write down recourse or not? You need to answer these questions about the loan mod first.

    1. Is their a balloon payment? If yes proceed to #5
    2. Is it a 30 year fixed rate mortgage period? If no proceed to #5
    3. Is the new mod recourse? If yes proceed to #5
    4. Did it reduce my Principal? If no proceed to #5
    5. Walk Away!!!

  21. Arizona Jim,

    Below is the link to an interview that was on CNBC today. The interview is over 10 minutes long and the part about doing a mortgage modification in exchange for recourse starts about the 6th minute of the video.

    A mortgage modification with principle writeoff and recourse may be good for you if:

    1. you will be able to pay this loan (ie: your job is secure)
    2. you are willing to stay there until the market turns around
    3. you really love your house

    I have dealt with WAMU in the past. They impressed me as being challenged in many ways. Before I signed any mortgage modification with them I would read the fine print. Ask for copies before you go to the closing. Read them. Ask questions. Make sure you know the deal you are entering. Make sure you can live with the conditions.

    Especially ask if there is any sort of “profit sharing” in the future (ie: what would happen if you sell the house). If you have a 200K loan and they rewrite it to 100K and a year later you sell the house for 150K, do you get to keep the 50K?

    Good luck

  22. I’d rather offer some profit sharing (which seems fair if you’re getting a reduction), in exchange for removing the recourse (which, fair or not, is downright scary).

  23. Thanks Stu, Steve and Andy_S!

  24. Thanks Stu, Steve and Andy_S

  25. I found an excellent link of this recourse issue:

  26. “Banks will no longer own just real estate, they will own whatever you own or earn till you pay the last dime. (And watch for bankruptcy laws to change to put these amounts into the same category as taxes: non-dischargable.”

    Like every other type of loan that exists. Makes perfect sense. Their modification is more than enough reward to actually be liable for their newly reduced debt. Better than hitting the lottery.

  27. Like every other type of loan that exists. Makes perfect sense. Their modification is more than enough reward to actually be liable for their newly reduced debt. Better than hitting the lottery.

    Why even appraise the home? Non-recourse is the only incentive lenders have to make responsible loans. Down payment is the only incentive borrowers have.

    We’ve seen the result of one of those being eliminated. Why not go for a FULL free for all. Another grand idea, Kevin!

  28. Recourse loans will never fly after what just happened. Benzy is correct that this is the incentive for the lenders to make prudent loans. That is exactly why what is going on right now was allowed to happen. This only showed the system works and you see how fast it got tightened as soon as they figured out what was happening. Off course the Government then stepped in and took the lead unfortunately. Lenders would operate as the Government does if loans were recourse because it’s not their money any longer. Hey… wait just a minute. That’s why their nationalizing the biggest banks!!! ALL loans moving forward from those banks are recourse via the tax payer. Brilliant!!

  29. Stu and Kevin,

    “There is already empirical evidence that some of the lenders will utilize legal verbiage that will protect their interests—as contemplations for a loan mod—to limit the recourse a borrower can have regarding the original loan. With mortgage loan document audits fast becoming the favorite tool of loan modification companies and attorney throughout the nation, the lenders are attempting to pare their losses.”

    “These audits are showing a common violation in adjustable rate mortgages, where the amount financed is understated. If it is as little as $100—-it can be a statutory defense against foreclosure. We expect these audits to spawn attempts at class certification against some of the larger servicers and lenders, if accepted by the courts….””

    Those two quotes were taken from:

    If this is true, this makes a lot of sense.

    Bankers talking to each other: Boy did we mess up. Looks like our mortgage documents are junk. We need to do a CYA. Let’s create an excuse.

    (Bankers exit right and proceed to create a credit crisis.)

    Homeowner: This credit crisis caused my job to go away and my house value to drop. What can I do?

    (Bankers enter right.)

    Bankers: We can save you. We will give you a mortgage mod. We’ll lower your rate and even reduce your principle (with this TARP money). You can live in your house for as long as you live as long as you keep up with these new lower payments. All you have to do is just sign new mortgage documents.

    You won’t have to be bothered with all that fine print. It’s the same legalese mumbo jumbo that you signed before. We just took out half a word. (Banker points to docs with “non-recourse” changed to “recourse”.)

    Homeowner: I’m desparate. I’ll sign anything that will let me keep my house.

    (Bankers tear up old (junk) mortgage docs. Homeowner signs new loan. Bankers grin.)

    Scene fades to black.

  30. Stupid is as stupid does…

  31. Stu,

    Some of those loans were nothing short of a sin. They were deceptive.

    The broker/bank gave people the impression that everything would be alright. A friend of mine was approached by one of those predatory lenders – they gave her a story that was so twisted she couldn’t explain it to me but kept saying “I can get money out of my house.” I convinced her to keep the fixed loan that she had. She’s ok now. If she had bitten, she would now be among the homeless.

    It was bad enough that people were allowed to get into products they couldn’t afford and they lost their homes. Now it looks like the second deception is going to be worse. Those who should walk away are being tricked into rewriting their notes so that they will be “owned by the company store” for the rest of their lives.

    I am convinced that these mortgage mods are designed to benefit the banks. If a homeowner makes out ok, then that’s just a collateral benefit to the program to help out the bank.

    Here we go trading one deception for another one.

  32. Bankers talking to each other: Boy did we mess up…

    Steve, you have an inspired way of getting your point across. I do agree with many of the freedoms of renting you tout. But, I’d much rather mow a lawn or paint an occasional room then “just move down the street” every time a landlord rubs me the wrong way.

    I don’t move often, but I must say, I’d rather go mall shopping with C.C. then move.

    And, there is no lie about the tax deduction. If a typical PITI pmt is $3000 and one gets back 30% on their I&T then the effective house payment is about $2300. Not too bad if a similar house rents for $2100 in today’s dollars. Rents go up. 30-year mortgage payments don’t.

    Now, I’ll send you $100 this April if you’ll send me back $60. But you better come mow my lawn.

  33. Sell all of them for just the cost of the land stated by the county……FORGET THE APPRAISERS!. That will rid this glutted market of the trash.

  34. Very interesting article from AP regarding a fight to fix mortgages:

    “A bill to give judges authority to alter loan terms for primary residences may be the quickest way to arrest the housing market’s collapse. Most Democrats in the House and Senate support that plan. President Barack Obama told Democratic leaders Friday he also backs it, according to a Senate aide who was not authorized to be quoted by name.”

    What does the MBA think?

    “The chief lobbyist for the Mortgage Bankers Association, Steve O’Connor, said new homebuyers would end up paying higher interest and bigger down payments if lenders are saddled with the risk that a judge could change mortgage terms.”

    “The bankruptcy solution would not cost taxpayers money, as would mortgage modification programs that could become part of the government’s huge economic bailout package. But it certainly would harm the bottom line for lenders and investors holding mortgages.”

    Very interesting.

    Above quotes from AP article (link above) by LARRY MARGASAK

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